Here's how Saudis turn oil into milk

By Mike Rankin

The Saudi Arabian government has recently decided that it is okay for their women to drive cars. It’s part of an effort to boost the economy and overcome a widening budget deficit.

Budget deficits brought on by cheap oil are not all that country has to overcome. Being a desert country, water is a valuable resource and supplies are dwindling.

According to Alan Hallman, the Saudis were for many years using eight times more water per year than what was being replenished. Most of that shortfall was being pumped from deep within the ground.

Hallman grew up as a farm boy in southeast Missouri where his parents had a cow-calf beef operation. During the past year, he has served as a regional attaché for USDA’s Foreign Agricultural Service in Riyadh, Saudi Arabia. He spoke at the recent Western Alfalfa & Forage Symposium in Reno, Nev., via a videoconference connection.

The Saudis have taken drastic measures to curb water use in agriculture. Between 2008 and 2015, they virtually eliminated wheat production in the country.

“With the elimination of wheat, farmers started to grow alfalfa to meet the demands of their dairy industry, but alfalfa is a crop that uses more water than wheat does,” Hallman said. “Their next move was to eliminate alfalfa production, which is where we are today.”

As the policy stands now, any single alfalfa producer will be limited to growing a meager 50 hectares (124 acres); this is nowhere close to being enough for the Saudis’ expanding dairy industry.

“Saudi Arabia is a country with a lot of oil and not much else,” Hallman said. “The country is currently taking oil money and subsidizing animal feed product imports. For alfalfa hay, the subsidy currently amounts to $59 per metric ton ([MT] 2,205 pounds),” he added.

Dairy drives alfalfa demand

Saudi Arabia has several large dairies and many smaller ones that produce most of the milk needed in the country. Al Marai, the world’s largest integrated dairy, has 95,000 milking head and 170,000 total animals. Hallman estimates there are about 425,000 total dairy cattle in Saudi Arabia. That number doesn’t include dairy steers that must also be fed.

“Fiber is a valuable component of Saudi dairy rations,” Hallman said. “There are no fiber substitutes available in the country such as soy and almond hulls. Hence, they currently must feed hay to meet their 3 percent milk butterfat requirement.”

Hallman reported that the amount of alfalfa hay needed for the dairy industry in Saudi Arabia is somewhere between 700,000 and 800,000 MT. This implies a ration inclusion rate of near 9.6 pounds per head per day.

“In 2017, global hay exports to Saudi Arabia are up about 40 percent through September,” Hallman reported. Through October, U.S. alfalfa hay exports to the desert country this year are up over 50 percent. Hallman estimates total current year global exports to Saudi Arabia will be at 590,000 MT.

“Assuming that the country needs 800,000 MT of alfalfa, over the course of the next few years the world is going to have to find an additional 210,000 MT of alfalfa hay to ship to Saudi Arabia,” Hallman said. Not all of that additional hay will come from the United States, but certainly opportunity exists for greater export demand of Western hay.

Hallman expects the price of alfalfa hay to rise in Saudi Arabia, easily exceeding $300 per MT after freight and import subsidies are accounted for.

With the higher price for alfalfa hay, Hallman suggested it will likely drive changes in the Saudi dairy industry. According to the USDA foreign attaché, these changes might include adjustments to feed rations, dairy company consolidation within the country, and more intense culling of older cows.

“Already we have seen the Saudis start to purchase land and produce their hay in other countries such as in the U.S. and Argentina,” Hallman said. Saudi companies currently own nearly 12,000 acres of land in California and Arizona that is used for export alfalfa production.

Both water deficiencies and also current direct actions invoked by the country and its dairy industry point to Saudi Arabia being a growing alfalfa trade partner.