High food prices make oil sheikhs turn to farming

Economic Times | 2 Jun, 2008

ISTANBUL: You cannot eat petrodollars, which is an inconvenient truth for people in the oil-rich Gulf Arab monarchies these days.

Though state coffers bulge in Saudi Arabia, Abu Dhabi, Qatar, and other countries in the region after months of sky-high oil prices, soaring food prices have made many people there poorer than a year ago.

These desert nations have been hit especially hard because they have to import more than 80 percent of the food needed for their rapidly growing populations.

To break the runaway inflation that is fuelled by high food costs, gulf rulers have a new strategy: They are buying unused agricultural land in poor countries like Pakistan, Thailand, and Sudan, and becoming large-scale farmers.

In mid-May, Bahrain's minister of industry and commerce, Hassan Fakhro, travelled to Thailand for talks on setting up a plantation there to grow Jasmine rice as an alternative to Basmati rice, which is very popular in Bahrain.

The Dubai-based private equity firm Abraaj Capital aims to work with the government of the United Arab Emirates (UAE) in buying up large tracts of land in Pakistan for the creation of major agribusinesses.

With the state acting as both food producer and trader, the UAE hopes to help lower food prices by eliminating profits by middlemen.

In a way, this development is an instance of globalisation coming full circle. Foreigners make up some 80 percent of the UAE's population, and Pakistanis are the second-biggest group after Indians. If food prices in the UAE continue to rise, these people will become less keen on holding their jobs as managers or workers there.

Saudi Arabia and the rich Gulf emirate of Qatar are the countries most interested in Sudan's fertile soil, much of which is unused or used unproductively.

Egypt, with less capital to invest but traditionally having close ties to Khartoum, has already staked a claim in northern Sudan. Cairo has struck a deal with the Sudanese government under President Omar al-Bashir to grow two million tons of wheat annually near Wadi Halfa, not far from the Egyptian border.

The agreement will save Egypt the expense of having to buy wheat overseas, for which it spends a large amount of its foreign exchange earnings every year.

Meanwhile, King Abdullah of Saudi Arabia, the world's biggest oil producer, has decided to ease the impact of high food prices not only for Saudis but also for the international community at large.

Last week, the Islamic kingdom announced a generous donation of $500 million (322 million euros) to the UN World Food Programme this year.

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