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Local food production not viable

Gulf News | 9 May 2010

Sharp rise of the food import bill until 2008 partly reflected inflationary pressures

Dr Jasim Ali, Special to Gulf News

Home-grown food solutions are not necessarily viable for Gulf Cooperation Council (GCC) countries due to some hard facts, namely the scarcity of fertile land and water shortages. It is believed that only 10 per cent of land in the region is arable. A significant portion of such arable land is located in Saudi Arabia.

Yet, in a far cry from the policies of the 1970s and 1980s, Saudi Arabia is no longer insisting on producing agricultural crops on its farmlands and for valid reasons.

To be sure, water scarcity serves as a key argument for not pressing for home production at any cost. According to the Dubai-based Gulf Research Centre, the production of a tonne of barley requires some 1,212 cubic metres (42,801 cubic feet) of ground water reserves in Saudi Arabia.

This is believed to be considerably higher than the average rate worldwide. Certainly, there is no point of pursuing this alternative in the presence of more affordable imports.

Not surprisingly, statistics point to the declining contribution of the agriculture sector to gross domestic product (GDP) of several GCC countries. As a share of the GDP of GCC countries, the sector accounted for 12 per cent in 2001. The figure fell to 10.4 per cent in 2003 and further to just below 8 per cent in 2008.

These facts partly explain the phenomenon of rising bill of food imports.

By one account, the prices of foodstuffs have increased by some 68 per cent between 2001 and 2008. The food import bill for GCC states collectively stood at almost $9 billion (Dh33 billion) in 2001, before rising to $9.2 billion in 2003, $11.9 billion in 2005, and topping $15.1 billion in 2008.

Still, the sharp rise of the food import bill until 2008 partly reflected inflationary pressures.

GCC economies experienced exceptionally high inflation rates in 2007 and 2008 as a consequence of combination of factors, notably rising oil prices and the falling value of the US dollar.

The price of oil reached a record $147 per barrel in July 2008, but then dropped sharply following the global financial downturn. Among other factors, the crisis has caused a decline in confidence levels in the global economy.

It is believed that food-exporting countries felt obliged to increase their export bills to make up for rising oil prices. Firmer oil prices are a mixed blessing for GCC economies.

At the same time, the declining value of the dollar resulted in an increase in the cost of imports from euro zone countries and Japan. Except for Kuwait, GCC countries link their currencies to the US dollar as an economic choice.

Costly differences

Differences amongst major players within the context of the Doha Round have affected the availability of food items at reasonable rates and conditions.

Major players in the farm business, notably the United States, the 27-member European Union as well as Brazil, China and India, are yet to sort out their differences regarding the level of subsidies granted to farmers.

This is a primary reason behind the lack of progress in the Doha Round talks, which kicked off in late 2009 in the Qatari capital.

Yet GCC countries are doing the right thing by increasingly exploring investments in farmlands abroad. The UAE and Saudi Arabia are particularly active in this respect.

For instance, the UAE has reportedly purchased thousands of acres of arable land in Sudan to develop products for its home market. Still, Pakistan has reportedly offered Saudi Arabia a large area of agricultural land in return for oil.

One thing remains certain: there is no shortage of food in the world. And for the region, what matters most is ensuring food availability rather than food production at home.

The writer is a Member of Parliament in Bahrain.

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