Gulf states seeking food security

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Dawn | June 23, 2008

By Syed Rashid Husain

FACED with a deepening food insecurity, the governments and private investors in the Gulf are seeking investments in farmland overseas.

The Dubai-based think-tank Gulf Research Centre, in its food inflation report released last month, noted that agriculture production in the six-member Gulf Cooperation Council’s (GCC) countries is on the decline, and its exposure to unstable global food supplies would increase in the future. It called on the GCC to develop links with countries rich in arable land.

“Self-sufficiency is not an option for the arid and increasingly populous GCC countries. Therefore, close dialogue with exporter countries and investments in agricultural projects in Africa, Southeast Asia and Eastern Europe could add to the GCC’s food security. Buffer stocks of basic food items could be contemplated as well, in order to reduce exposure to market volatility,” the report noted.

Saudi Arabia, the largest of the Gulf economy, has unveiled plans to develop large-scale overseas agricultural projects to secure food supplies, revealing that Riyadh is in discussions with Pakistan, Ukraine, Sudan, Turkey and Egypt.

Saudi Arabia is the world’s largest importer of barley and one of the five largest importers of rice. It will also be set to become one of the world’s top wheat importers when it phases out domestic production of the grain.

A report in the Financial Times citing the Saudi Deputy Agriculture Minister Abdullah al-Obaid says projects of at least 100,000 hectares may be set up to grow wheat, corn, rice, soybeans and alfalfa, with a fixed portion of the harvests to be shipped to Saudi Arabia.

While Prime Minister Gilani and PPP co-chairperson Asif Ali Zardari were in Saudi Arabia last week, Saudi investments in the agricultural sector remained a major subject of discussion. The Saudi commerce and agriculture ministers are expected to visit Pakistan within weeks to hold further talks on the issue.

Some analysts believe a way is being sought to some how bail out Pakistan of its current balance of payment crisis and, if possible, link the deal with investments in the agricultural sector – somewhat on the lines of oil for land deal.

The Saudi drive to set up farms overseas was spurred by soaring food prices and Saudi government’s decision to halt wheat-producing project from 2016, curtailing production of about 2.5 million metric tons, the report said.

For the time being,Saudi government is propelling the private sector to move ahead in the direction. “They (the private sector) have the technology, experience and the money,” Deputy Agriculture Minister Obaid said. “We would like to secure our strategic food grains, especially wheat, rice, corn, soybean and alfalfa,” he added. “The plan to set up new agricultural projects is driven by the rise in food prices, the need to secure future food sources and the desire to offer opportunities to the Saudi private sector.”

Mr. Obaid said officials had contacted many countries, which had reacted positively, “so we are going to select”.

Currently the Kingdom produces around 2.5m tons of wheat per year – the result of a heavily subsided project started in 1970s, which has cost the government billions of dollars. However, the kingdom decided earlier this year to phase out wheat production by 2016 to protect its finite water resources, realising the project was unsustainable. Saudi Arabia is thus set to become one of the world’s top wheat importers after it phases out domestic production of the grain. It is therefore, now looking overseas to ensure food security.

Although no deals had been finalised, government officials were discussing plans with various countries on the basis of some key “principles”, Mr. Obaid said. These included agreements that a certain percentage of whatever was produced would be exported back to Saudi Arabia; that the governments would negotiate a bilateral agreement to protect any investments; and that the Saudi private sector would be the main investor, either alone or as part of a joint venture.

The government’s role would be to facilitate and “cover” the investment, as well as help with infrastructure. Saudi Arabia is likely to start investing in rice farms in Thailand by end-2008, press reports here said.

Bahrain is also inviting private companies to set up joint ventures to invest in farmland in Thailand, traders and industry sources said. The country imports around 45,000 tons of rice a year, mainly from India and Pakistan, traders said. ‘It is part of a plan by the Bahraini government to reduce its dependence on Indian and Pakistani rice and introduce to the local market other types of rice that are easy to secure,’ he said, declining to reveal volumes or prices in the agreement.

In the changing environment, agricultural countries like Pakistan are presenting themselves as a favourable investment conditions to cash rich Gulf investors. Many present it here as a win-win scenario for the cash-rich Gulf Arab states and the agricultural though underdeveloped farm sector of such countries.

Pakistan’s minister for privatisation and investments told a forum in Dubai recently that his country would offer “100 per cent ownership rights” in dedicated agriculture zones, and investors would be able to export the produce to their countries.

UAE and Gulf-based investors have already indicated $3 billion for Pakistan’s agricultural sector.

Although not officially confirmed, the Dubai-based private equity group Abraaj Capital is believed to be working with the UAE government on agriculture projects in Pakistan to secure cheap and long-term supplies of grains.


Original source: Dawn
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