Wheat, water, and Saudi Arabia (Optional)

This is a short tale about individuals who
reject the ideas of comparative advantage

and benefits from international trade.

In the 1970s, Saudi Arabia ended up
as a much wealthier country

in large part because the price
of oil had gone up so much.

The Saudis then set out and decided
that they were going to grow more food.

Now, upon reflection,
Saudi Arabia is not naturally

a low-cost country for
growing most foodstuffs.

The kingdom of Saudi Arabia essentially
has no lakes or rivers to speak of,

and only a small part of the country gets
enough natural rainfall to grow food.

So, for the most part, a decision
to grow more food in Saudi Arabia

meant a decision to
subsidize water irrigation.

In particular, the Saudi set out
to grow more wheat.

Over the years 1980 to 1992,

they expanded their wheat
production by a factor of 29.

Saudi Arabia became the sixth largest
wheat exporter in the world

they were even exporting
wheat to the Soviet Union.

How did such a dry country manage this?

Well they did it by massive
subsidies to wheat growing

and massive subsidies to
water irrigation for wheat.

So, in Saudi Arabia, wheat production
would cost around $500 a ton

when the market price was,
at the same time,

about $120 a ton.

By growing their own wheat,

the Saudis were making it almost
five times more expensive.

The Saudis also wasted a lot of water.

To grow all this wheat it required
300 billion cubic meters of water,

most of it non-renewable.

To put that in perspective, that's about
equal to 6 years flow of water

of the Nile river into Egypt.

Over time however, the Saudis decided

they simply couldn't afford
all of these expenses

and in the year 2008 they decided
to essentially give up

on their wheat growing program

with the goal that wheat
production in Saudi Arabia

would essentially be gone by 2016.

It's already the case that there are
plenty of wheat farms out there

in Saudi Arabia where the equipment
is sitting there unused,

simply gathering rust.

In this case, it would have been
much cheaper for the Saudis

to have relied on international
trade from the very beginning.

The Saudis made this mistake of
starting to grow weed in the first place

in part because they thought they
could achieve national self-sufficiency,

in part because they could
show the population

that they were somehow
modernizing as a nation,

in part because they've simply got carried
away from having so much surplus cash,

and also because subsidizing wheat
was a way of handing out goodies

to a growing farm lobby.

To read more on this episode,
you can google "Saudi Arabia wheat"

or see the discussion in my own book
"An Economist Gets Lunch."