Mideast supplies: Slowdown in Gulf states’ dash for farmland

Financial Times | January 26 2010

By Andrew England

Eighteen months ago, food was the hot topic in the Arab Gulf and the cause of much angst. Soaring prices of staples such as rice and wheat were helping drive inflation to record highs, a phenomenon that threatened to tarnish the benefit of the region’s oil boom. Then, as the global food crisis took hold, exporting countries such as India restricted exports.

These trends sparked a wave of concern in the import-dependent states of the Gulf – just how could the desert nations secure food resources for their growing populations? Their reaction was to look abroad with a rush of announcements about planned farming projects overseas.

Details of such schemes started emerging from Saudi Arabia, the United Arab Emirates, Kuwait and Qatar, with the Gulf states planning to deploy their petrodollar wealth to acquire or lease land overseas, harvest rice, wheat, soya beans and corn, and then export the produce back to their home markets.

The most active was Saudi Arabia, by far the Gulf’s most populous state and the region’s main agricultural producer. But shortly before the food crisis struck, Riyadh had decided to phase out domestic wheat production by 2016 after realising that its wheat-growing programme – set up in the late 1970s – was no longer sustainable given the country’s finite water resources.

Saudi Arabia had been producing 2.5m tons of wheat a year before it began phasing out the crop, and is now set to become a big wheat importer.

In a bid to seek out suitable lands for the kingdom’s overseas projects, Saudi officials have visited a number of countries, in Africa, Asia and eastern Europe, with a goal that the minimum size of a plantation would be about 50,000 hectares.

Riyadh hopes the private sector will lead the overseas projects, with the government playing a supportive, facilitating role. Last year it announced it was setting up an $800m company to back the projects.

The UAE has also talked about possible projects in Kazakhstan and Sudan, while Qatar established Hassad Food, which is an arm of its sovereign wealth fund, to look at acquiring stakes in agricultural companies.

In November, Doha also announced it was setting up a national food security programme to research technologies that could bolster the prospects of domestic agricultural production.

Yet there is a general sense that the urgency among Gulf states to pursue their programmes has diminished as food prices have dropped, with few projects actually beginning on the ground. Another reason for the decreased attention is likely to be a result of the controversy the plans sparked, with concerns about the image of oil-wealthy Arab nations shipping crops away from impoverished countries such as Ethiopia and Sudan that suffer from perennial food shortages.

There are also questions about the ability of the Gulf states to move forward with their projects.

“If they are serious, there is still a lack of capacity and experience that needs to be overcome,” says Eckart Woertz at the Gulf Research Centre. He says Gulf states would be better off adding investments in existing agricultural businesses in established markets than focusing on setting up new projects in countries that have poor infrastructure.

Still, Saudi Arabia is pushing ahead with its plans, officials say, albeit at a slow pace. “There is some progress. There’s no doubt it [the initiative] will go ahead,” says Abdullah al-Obaid, the deputy agriculture minister. “Now we are finalising the holding company and doing a study of our strategic reserves for stable goods.”

He says the government is also working on bilateral agreements with potential host countries, and an important issue is to avoid the stigma of being seen as a land-grabber.

“We are looking for the benefit of the whole world and would like to increase international production,” Mr Obaid says. “We are willing to leave some of the produce for the local market – we want to ensure benefits for all stakeholders.”

Countries the kingdom is considering include Ethiopia, Sudan, Ukraine, Cambodia, Vietnam, the Philippines, Turkey and Egypt. A number of Saudi agricultural companies have also expressed interest in the overseas projects, with some beginning pilot schemes in Egypt, Sudan and Ethiopia. However, analysts say the extent of the private sector participation is likely to be dependent on the level of government support they receive.

Experts say if properly managed and carried out in full co-ordination with host countries, the schemes could bring benefits, such as jobs and much-needed investment, in poorer countries. But like other Gulf states, the kingdom will face big difficulties if its plans are to be implemented.

“They are not going as fast as maybe there were portraying, or at least as they were expecting, and the reaction from some of the private sector has been sceptical ... but they do not have a lot of options,” says John Sfakianakis, chief economist at Banque Saudi Fransi. “One thing is identifying the location, another thing is actually exporting ... They are at the embryonic stage and it will take some years to get results from this.”
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