The National | May 6, 2008
by Sarmad Khan and Vivian Salama
ABU DHABI // Inflation and the spectre of long-term food shortages have prompted the Government to consider a new strategic investment – the purchase of large-scale farms in Pakistan and other countries.
The aim is to protect the country from the turmoil of soaring wheat and rice prices and export bans by producing countries that could lead to food shortages.
The Government is holding exploratory talks with Pakistan on the proposal, according to a senior Pakistan government official and the Emirates Society of Consumer Protection, a division of the Economy Ministry.
The Government was looking to acquire large land holdings and import food at 20 to 25 per cent less cost, a senior Pakistani government official said.
There are six parties in the chain between the farmer and the time the product reaches retailers including the farmer, broker, exporter, importer here, wholesaler and retailer.
According to a Pakistani official each party retains a 5 per cent margin on each transaction, and by eliminating several steps the government can bring the cost of food down by 20 to 25 cent, according to a senior Pakistani government official.
“The talks have been going on between Pakistan’s government and the UAE’s Ministry of Economy for some four months, however no concrete decision is made yet,” he said. The ministry was seeking support and guarantees from Pakistani counterparts before getting into large-scale corporate farming, he added.
Rising inflation is one of the driving forces behind the Economy Ministry’s decision to consider alternative food sources that would secure supplies for the country while cutting costs.
“We believe that, if we get products directly from the farms, it will encourage market competition,” an official at the Emirates Society of Consumer Protection said, adding that the government was studying similar options in other countries.
Pakistani officials say their government will facilitate negotiations between farmers and UAE representatives but it is not involved in growing food and cannot help the UAE set up government-supported farms.
Last week Pakistan announced the introduction of tax exemptions, duty free import of equipment and 100 per cent land ownership in specialised free zones in its agriculture, livestock and dairy sectors to lure potential investors.
It is expected to announce more concessions to entice investments.
“Agricultural free zones will be set up within the next four to five months, which will open up doors for the nations to own sources of food supply,” the Pakistani official said. “It is a good opportunity, especially for GCC countries which are dependent on food imports.”
GCC countries rely heavily on imported food and the UAE imports nearly 85 per cent of its supplies for an estimated Dh11 billion (US$3bn) annually.
The GCC is the largest importer of food from Pakistan, according to Pakistani officials. A number of GCC-based companies have already turned to Pakistan for alternative resources. Qatar Livestock Company is to invest $1bn in corporate farms in Pakistan, according to Huma Fakhar, an adviser to the Bahraini government. Some Saudi Arabian groups, particularly Al Rabie Group, a dairy company, have expressed interest in buying land in Pakistan.
“There is a global crisis right now,” said Miss Fakhar. “If you do not prepare these reserves now, then three to four years down the line it will turn extremely critical.”
Several UAE-based retailers including Baniyas Co-operative Society, Carrefour, Union Co-operative Society and Lulu hypermarkets have agreed to help the government to curtail inflation by putting price caps on basic commodities.
Last week the Economy Ministry urged retailers to start stockpiling basic food items to prevent shortages resulting from export bans by countries like India, Egypt and Brazil.
The UAE government has also urged retailers to consider eliminating middlemen when importing commodities to cut costs. While executives like José Luis Durán, the chief executive of Carrefour, encourages supermarkets to work directly with farms, others are concerned that this carries a hidden catch.
“If you want to make money as a farmer, go to a place where the farmers are making money, not a place where the land is cheap,” said Jannie Holtzhausen, chief executive of Spinneys in Dubai. “What has now suddenly changed in the world that the economic model drives governments to become farmers?”
Concerned about what the initiative means to their businesses, local importers are speaking out against it.
“Eliminating traders from this process would be a mistake,” said Burhan Turkmani, the general manager of Dubai-based Al Rabiah Trading Company.
“Farmers are not exporters and governments are not importers,” added Riaz Hussein Bhojani, the general manager of Rashwell Company, another trading company.