Arabian Business | 13 January 2011
By Gavin Davids
Food, glorious food, is it worth waiting for? That was the metaphorical question posed by the famous West End musical Oliver! and that’s a question that’s becoming increasingly more relevant today, as the world is faced with a looming food crisis in the making, the second in less than two years.
In December 2010, the United Nations’ Food and Agricultural Organisation announced that food prices had reached a higher level than the 2008 prices that sparked food riots from Bangladesh to Mexico, via Egypt and China, as basic staples like rice and cereal grains became unaffordable to all but the most developed of nations.
The Gulf in particular suffered, held hostage by its inability to source food supplies from anywhere other than imports. An IMF report at the time put inflation levels at 15.9 percent, powered by rising food prices.
Showing that the harsh lessons were learnt, the Arab states, led by Saudi Arabia and UAE, decided to take matters into their own hands, using their vast oil wealth to buy up tracts of land the size of small countries in Africa and Southeast Asia, intending to turn them into agricultural hotbeds to feed their multitudes.
“What we saw was an increased interest in these kinds of investments in other countries following the 2007-2008 food price rises and food crisis. Of course, for countries that were heavily dependent on food imports for a big share of their food needs, this was a bit alarming,” David Hallam, an analyst with the FAO tells Arabian Business.
“But it wasn’t only the prices going high that worried some of the Gulf countries, it was also the fact that, at the same time, a number of major food exporters, decided to impose export bans in an attempt to keep prices down. So what they feared was that not only were they facing high prices, but it might not be possible to secure supplies at any price,” he adds.
However, this strategy is not without its critics, as accusations of ‘land grabbing’ were hurled by human rights groups and NGO’s concerned about the impact such investment would have on the traditional small farming industries in the host countries.
Greg Barrow, of the World Food Programme disagrees with that school of thought, claiming it was nothing more than a form of foreign investment in countries that desperately need it.
“From our perspective in the WFP, as long as any action is taken that can lead to the creation of jobs, can lead to the improvement of agricultural economies in the region and can lead to cheaper food coming on to the market in the countries themselves, then it’s a positive for those communities,” he says.
Hallam agreed, saying that there were many examples of where the Gulf states were heavily invested in Africa, with Ethiopia, Kenya, Sudan and Mozambique being the major beneficiaries.
According to Eckart Woertz, visiting fellow at Princeton University, Sudan and Ethiopia have been the biggest beneficiaries of the Gulf’s push to buy agricultural farmland, with millions of dollars being paid to the governments for the use of hundreds of thousands of acres.
In November, Jenaan, an Abu Dhabi-based private firm said that it had more than $500m invested in its farmland in Africa, with a 50,000 acre farm in Egypt and a 100,000 acres in Sudan. The company also has properties in Ethiopia and Tanzania. Speaking to Reuters at the time, a company spokesman said that around 50 percent of the Egyptian produce is sold on the domestic market, with the rest exported to the Gulf region.
Despite these figures, concerns still linger over the impact these huge agricultural farms have on the fragile economies they inhabit.
Renée Vellvé, co-founder and researcher with GRAIN, an international non-governmental organisation, said that she felt these investments were unjust, as they denied small land farmers their livelihood and land rights.
“When we looked at the first 100 land acquisition contracts (in 2008-2009) that were being discussed between Gulf states and foreign countries, on average, the prevalence of hunger and malnutrition in the countries being approached was eighteen percent,”she says. “There’s a huge, huge imbalance in terms of ‘food security’, and the investment brought by the Gulf states into these countries does not necessarily go to small farmers or poor people.”
She adds that she expects to see more social unrest in countries, following the recent riots in Algeria and Tunisia which left eight and five people dead, respectively, as more local people became aware of the implications of the farmland deals.
“I think right now, we’re actually lucky, because we’re not having huge price rises in rice for the moment, in Asia or even Africa, and that’s good but there’s no guarantee that it’s going to remain the case, and I think unfortunately, we’re going to see more social problems,” Vellvé says.
The lack of major upheaval in the basic staples is what is keeping the cost of food from spiralling upwards, the analysts say. While prices have hit record highs, the prices of cereal and grains have not been as badly affected as those of individual commodities like sugar, meat and oil-based products.
“Although cereal and rice prices have gone up as well, they haven’t faced the steep price rises, so that, in some respects, is good news for people in countries we’re working in,” WFP’s Barrow says, adding that the UN body had to remain vigilant to ensure that the 90 million people that it expected to reach over the next twelve months did not struggle to access the food they needed to feed their families.
Hallam says that the cause of the high food prices could be traced back to a bizarre 2010 in terms of weather patterns, as floods followed droughts and unseasonable snowfall followed forest fires, throwing crop production schedules into chaos, all against the backdrop of the aftershocks of the financial crisis, which exaggerated the extent of movements.
Barrow added that higher oil prices were also pushing food prices up, with significant proportions of food crop being diverted towards producing bio fuels as oil becomes too expensive to use.
Analysts predict that oil prices are set to reach the $100 a barrel mark in 2011, at present, prices are hovering around $90 a barrel.
Despite the prices issues facing the global food market, Eckart Woertz says that he didn’t expect Gulf Arab countries to struggle to obtain food.
“As long as global food markets stay open, there is no problem at all, because oil prices are high as well and GCC countries have a surplus. The problems start if there are export restrictions by food exporters out of fear for their own food security. Such fears could be ameliorated by an internationally coordinated food reserve,” he explains, adding that the GCC countries should participate in initiatives towards such a reserve, rather than focusing on land investments.
GRAIN’s Vellvé agrees, calling for the GCC to shift its consumer patterns if it was serious about improving the region’s food security.
With the GCC’s population reeling from major health issues such as obesity, she said that the region must move away from industrialised food production and shift its focus towards more sustainable alternatives.
“The question is, what kind of investment for what kind of agriculture, the problem with these foreign farmland acquisitions is that they’re very orientated towards industrial agriculture, which is the kind of agriculture that actually brought us into the food crisis,” she says.
Terming Saudi Arabia’s move to develop more facilities to store food as a ‘good one’, she called for more to be done, warning that stockpiling would not be enough as it was dependent on being able to access the food at the right prices.
“A third strategy, which we would actually encourage more of, is that Gulf states, particularly UAE and Qatar, are trying to support domestic food production, that should be very strongly supported,” she concludes.