Kuwait Times | June 18, 2008
The Arabian Peninsula is currently flooded with petrodollars, giving the Gulf Arabs a wide array of investment options abroad. But while these countries are winners in the oil market, they are losers in the food market. As a result, the Gulf Arabs - with Saudi Arabia at the fore - are pursuing a strategy to buy their food security through overseas agribusiness investment. These investments are not foolproof, however, leaving the internal stability of these countries in question as food prices keep climbing.
Saudi Arabia is the biggest food buyer in the Gulf. The kingdom is ranked as the world's largest importer of barley and one of the five largest importers of rice, most of which comes from Asia. The kingdom launched a subsidized program in the 1970s to become self sufficient in wheat and a net wheat exporter by 1991, but the parched desert state quickly realized it did not have enough water to support production for such water-intensive harvesting. Cereal and dairy farms alone account for 85 percent of Saudi Arabia's water consumption, and even with advances in water desalinization, wheat production still was not cost effective for Saudi Arabia. Without enough water to spare, Saudi Arabia decided recently to phase out its wheat program, with plans to start importing wheat in the spring of 2009 and become completely reliant on foreign wheat by 2015 - simply allowing its hard-fought wheat farms to revert to their natural (desert) state.
This puts Saudi Arabia in a precarious position. The kingdom maintains its internal stability through its oil wealth. With oil subsidies, the royal family can afford to buy allies and quiet domestic opposition. But even if Saudis are happy getting cheap fuel, it does nothing to address the issue of starving families if and when food shortages become a reality. As a result, a big priority for Saudi Arabia, as well as its Gulf Arab neighbors, is to use the massive inflow of oil money to buy their food security abroad. To this end, the Saudis, the Emiratis, and the Bahrainis have been in talks with Egypt, Pakistan, Ukraine, Sudan, Turkey, Yemen, South Africa, the Philippines and Thailand to buy up or rent arable land and expand agricultural production in these countries.
The terms of the deals vary. Some of the agreements involve Saudi private companies getting a certain percentage of the amount of foodstuffs produced in exports back to the kingdom in return for their investments. A bilateral agreement between the two countries would be signed to legally protect the investments. In other cases, the Saudi government can barter with these countries and exchange crude oil supplies - of which most of the grain-producing countries are in dire need of - in exchange for food. In Pakistan's case, Saudi Arabia has reportedly offered a $6 billion relief package in exchange for thousands of acres of farmland.
But this strategy is not foolproof. When push comes to shove, countries will look out for themselves before honoring their bilateral agreements. If countries like Pakistan, Egypt and the Philippines cannot maintain their food supplies and have countrywide riots on their hands - a distinct possibility - the natural move for these governments to make is to impose severe export restrictions on food and/or nationalize their food industries. In a food emergency, Saudi Arabia simply lacks the military muscle to
send in forces to protect its property, making food shortages in the Gulf all the more likely. The only real tool that the Saudis have would be to restrict crude supplies or charge full market prices for their crude - a desperate measure that is unlikely to earn the kingdom any friends.
Already, local political forces are watching in fear as Saudi businessmen scout their farmland. Activists in the Philippines and Pakistan have been spreading the word to condemn their home governments for selling off their food supplies while their countrymen are suffering from food shortages and high prices. In countries as politically volatile as Pakistan, Egypt and the Philippines, this is an issue that can flare up in an instant and bring about government turnovers, leaving the governments of grain-exporting countries with little choice but to backtrack on their business deals in the interest of hanging onto power. Though Saudi Arabia and its Gulf Arab neighbors' current focus is on land grabs, the next logical step is for these states to invest in massive grain storage facilities in the event of a food emergency.
The oil exporters in the Gulf also have a bit more room to maneuver in managing dwindling food supplies. Demographically, the Gulf Arab states have large populations of low-skilled foreign workers from South and Southeast Asia. In Saudi Arabia, for example, foreigners make up about 12 percent of the total population. Saudi Arabia could manage a food crisis by redistributing food and restricting food supplies that are higher in demand from its immigrant labor force in order to keep the Saudi citizenry pacified. But such a policy also runs the risk of inciting internal instability among the foreign labor force that is operating the kingdom's oil industry, particularly at a time when foreign labor discontent is rising throughout the Gulf. Record-high oil prices are allowing the Gulf Arabs to live large these days, but without sufficient food security, the geopolitical reach of a country like Saudi Arabia can be severely circumscribed.
Saudi Arabia: Buying food security with petrodollars
URL to Article: https://farmlandgrab.org/post/view/2388
Source: Kuwait Times