Why Gulf money did not flow into agriculture?
Dawn | 20 October 2014
Why Gulf money did not flow into agriculture?
By Ashfak Bokhari
DURING the 2007-08 global rush for farmland acquisitions, Saudi Arabia and the UAE were widely reported to have acquired thousands of acres of cultivable area in Pakistan to produce food for their needs. Today, there is no mention in the media of any such project having come to fruition.
Several theories have since been floated to explain why Gulf FDI did not flow into the country’s agricultural sector. A report published by Middle East Institute on October 2, makes an extensive probe into why the ambitious plans turned into a mirage. It comes to the conclusion that food security cannot be achieved by Arab states by investing in farmlands in foreign countries, particularly the ones suffering from food insecurity themselves.
What happened in Sudan is a case in point where despite extraordinary publicity given to Gulf investments in Sudanese agriculture, hardly any production has taken place. Even exporting back food from that country, when it is produced, looks uncertain as it suffers from food shortage itself.
The author of the report, Robert Looney, says he found official records regarding agricultural investments in Pakistan quite ‘sketchy and the facts elusive’. It is not clear ‘how much land was available to investors, the number of hectares sold or leased so far, and who is in fact doing the investing in Pakistan’
Some factors discouraging land acquisitions by foreigners in the changed circumstances included stabilisation of world food prices after the 2008 spike. World food prices fell to their lowest since August 2010 in September 2014
A World Bank report in 2011 on growing global interest in buying lands also found no evidence of a single Arab-financed agricultural project in Pakistan having materialised, even though it ranked second to Sudan in terms of announced Gulf investments in agriculture. Nor, evidence of any investment was found on GRAIN website which records media reports about such projects.The authorities did not allow data collection because of political sensitivities surrounding land ownership in the country.
In the wake of global recession in 2007-08, riots erupted in many developing countries following a steep rise in prices of food grains. This led to a ban on exports of staple food commodities by exporting countries, causing great consternation among the Arab Gulf states that largely depended on food imports to meet their needs. The reports of land deals, which the Pakistani authorities neither denied nor confirmed, appeared logical under the circumstances because there was little likelihood of expansion in agricultural land in Saudi Arabia and the Gulf states and the only option seen for them, when even imports were uncertain, was to grow food crops such as rice, wheat, sugar, and fodder on lands in other countries. Saudis even phased out local production of wheat and other crops to save the country’s scarce water resources. Now Saudi Arabia may become dependent on imported wheat by 2016.
Seeing a win-win situation for both sides. Pakistan, seeking to make its vast cultivable wasteland productive, was waiting for such an opportunity. All of these crops with foreign demand were suited to Pakistani soil and climate. The government began staging ‘farmland road shows’ across the Gulf region and offering tax exemptions, duty-free equipment imports, exemption from labour laws and 100pc land ownership in special free zones. The government reportedly even offered to provide a 100,000-strong security force to protect investors. The major land deals that Pakistani media reported were:
In 2008, Abraaj Capital and other UAE companies acquired 800,000 acres of farmland in Pakistan with the support of the UAE government. Other UAE firms interested in investing in land included the Emirates Investment Group and the Abu Dhabi Group.
In 2009, a UAE group acquired about 16,187 hectares of land in Balochistan province for an estimated $40m. They wanted to begin mechanized farming on the land.
The Qatar Meat and Livestock Company (Mawashi) was reported in 2011 to have spent $1bn in corporate farming in Pakistan. It negotiated with the Sindh government to lease around 12,140 hectares in Shikarpur, Larkana, and Sukkur.
Saudi Arabia wanted to lease 500,000 or more acres of land to grow grain and vegetables for the Saudi market.
Some factors discouraging land acquisitions in the changed circumstances included stabilisation of world food prices after the 2008 spike. World food prices fell to their lowest since August 2010 in September 2014.
Another factor is the potential political and social instability that large exports of food from foreign-owned Pakistani farms to the Gulf might precipitate. A case in point is Madagascar, where a land deal contributed to widespread political instability and eventually in a change of government.
Pakistan’s food insecurity is quite evident from the Economist Intelligence Unit’s (EIU) Index of Food Security. Pakistan ranked 76 (2012), 76 (2013) and 77 (2014). The country scored particularly low in affordability ranking and consistently low in food availability ranking.
However, Pakistan is now turning to agribusiness rather than land sales as a means of luring Gulf investment. The Securities and Exchange Commission of Pakistan enrolled 19 companies in corporate farming in January this year. Most of them are in seed, poultry and feed businesses. It is, however, not clear if any of them plans to invest in the crop sector.
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