World Politics Review | 02 Sep 2008
Seen from space Saudi Arabia looks like a chunk of reddish clay chiseled from a vast slab linking the Arabian Gulf in the east to the Atlantic coast of Mauritania in the west. This desert-like landscape, stretching almost 5,000 miles across the Middle East, stands in stark relief to the green, fertile lands of Turkey and Europe to the north and the central African jungles of Uganda and the Democratic Republic of Congo to the south.
However, looking closer, from the perspective of an airplane flying over the kingdom, one would notice that the great sand sea of Saudi Arabia is pockmarked by a series of small dark circles, like clusters of mould staining the virgin land. These incongruous black, green and brown circles no more than half a mile in diameter are in fact wheat farms. The large fields, perfectly circular, as if drawn on the land with a protractor, are part of the kingdom's substantial agricultural sector.
Like its imports of Scottish sand, it comes as something of a surprise that the desert kingdom has been a significant producer of grains. In 1992, Saudi Arabia produced 4.1 million tons of durum wheat, much of which was exported to former eastern bloc countries or donated as aid to Arab regimes likes Syria. The countries of the Gulf Cooperation Council (GCC) have long used the oil profits to defy the forces of nature so that the desert offers up not only oil but also food, trees and flowers.
However, times are changing. Despite their determination, Arab Sheikhs are finding it harder and harder to make the desert bloom in the face of the laws of nature and of economics. By the end of last year, annual production of wheat in Saudi Arabia had fallen to 2.7 million tons, and as 2008 has progressed the inevitable decline has continued. It now seems clear that the Kingdom's self-sufficiency in wheat will evaporate sooner rather than later. The government has acknowledged this irreversible process, asserting that the country will rely completely upon imports by 2016.
The catalyst for this decline has been the steady withdrawal of government subsidies, a process expedited by Saudi Arabia's accession to the World Trade Organization (WTO) in December 2005. At their height in the 1970s, these subsidies reached almost $1,000 per ton. They have been declining ever since, however, and the government is now considering alternative subsidies to encourage farmers to give up farming altogether.
Saudi Arabia has paid a heavy price to build up its grain reserves, with 85 percent of the kingdom's current water use being directed towards agricultural production. This water comes from non-replenishable fossil aquifers, which are being sucked dry by the use of 1,000 tons of water to produce every single ton of grain. "Agriculture in the GCC is in terminal decline and it needs to reorient itself away from water-intensive crops like wheat to more value-added crops like fruits and vegetables, and leave cereal production to foreign countries and import it," said Eckart Woertz, economics program manager at the Gulf Research Center in Dubai.
Yet the move from self-sufficiency to food dependency could hardly have come at a worse time for the House of Saud. The global food industry is in turmoil, as a combination of factors has sent prices soaring over the past year. Wheat prices alone have risen by 130 percent in the year to March 2008, according to Bloomberg. Analysts offer a variety of reasons for this spike. William Cline, senior fellow at the Peterson Institute for International Economics, suggests that a flood of money into physical commodities such as wheat has distorted their prices. "The financial turmoil beginning in mid-2007 deflected a lot of hedge-fund and other investments into oil and commodities, causing a bubble in both as investors fled traditional markets for commodities," he concludes. Biofuels have also been blamed. While analysts argue over exact figures, it is clear that a significant percentage of crop land has been diverted from food production to fuel production.
Yet beyond these potentially short-term factors, most analysts agree that the fundamentals of supply and demand are shifting. "Reserves are the lowest they've been in 50 years, depending on the grain," argues Paul Roberts, author of "The End of Food." "Many of the factors that are driving food prices aren't easily switched on and off. It really is demand for meat in Asia which is the longer term driver. That is going to be much harder to fix."
In addition, the global agricultural industry has become highly energy-dependent. Julia Bucknall, a leading specialist on natural resources in the Middle East for the World Bank, argues that "Agricultural machinery, fertilizer and fuel needs for irrigation in the Middle East" all drive up the cost of production. "It is an increasingly mechanized process, which has its advantages because you can produce more food per acre or per man-hour, but it has disadvantages because you then become dependent on changing energy prices," Bucknall said.
GCC states whose coffers have been bloated by the sustained rise in oil prices are increasingly recognizing that every silver lining has a cloud. The price of oil has been their savior but it is now having some unwanted side effects. The region, which is soaked in liquidity, has been hit particularly hard by inflation, with rates topping 10 percent in both the United Arab Emirates and Qatar. Although much of this inflation is fueled by property rent increases, food inflation is also a serious concern. "[The Saudis] understand best of all that oil markets will be tight and oil prices will stay high for the foreseeable future," Roberts said. They "are asking what are the implications of high oil prices for national security and political stability, and of course one factor is the price of food."
Food riots in Egypt in April, which left one person dead and many more injured, have presented a terrible vision of future food scarcity. A recent report on food inflation in the GCC by the Gulf Research Center warns of the consequences of food shortages, including violent demonstrations by low-skilled laborers, tensions between foreigners and locals, and greater calls for democratic representation from nationals. The co-author of the report, Eckart Woertz, does not doubt that such scenarios are a real possibility. "Food is very important. If people don't have enough to eat, riots are on the way. Arguably [food] is more crucial than a shortage in affordable housing," he said.
The UAE has put in place a number of subsidies in an attempt to lessen the impact of soaring food prices. However, subsidies cannot paper over systemic cracks forever. Real shortages exist, as local press reports about a thriving black market for rice in the emirates indicate. It seems that the basic dynamics of the market are faltering, leaving food dependent nations particularly vulnerable. "In a perfect world, where you have a classic economic model with a large number of buyers and sellers, you would have countries that produce surplus and make it available on the international market and people buying it on that international market," Bucknall said. "But we are not in that perfect world," she continued. "You don't have a large number of buyers and sellers, you don't have perfect information and you don't have a perfect trading regime."
Paul Roberts believes new models for food production and distribution need to be established. "We have had this sort of notion for the last 20 years that the best way to ensure global food security was really to promote global trade. . . . Self sufficiency was regarded as really antiquated. But what we are seeing is a breakdown in the confidence in that idea at many levels," he asserted.
The rulers in the Persian Gulf are recognizing this and looking at other ways of ensuring food security. Rather than rely on the vagaries of the market and unstable import sources, countries across the GCC, through sovereign wealth funds and development agencies, are seeking to buy up the means of production itself. From the Abu Dhabi Fund for Development buying 70,000 acres of farmland in Sudan to Saudi Arabia negotiating for farmland in Pakistan, Ukraine, Sudan, Egypt and Turkey, the governments of the Arabian Peninsula are substituting barren desert for fertile foreign soil in a bid to feed their growing populations.
While most analysts agree that oil production is nearing its peak, with no giant fields left to be discovered, gulf states work on the assumption that increasing food production is a much simpler matter. There are plenty of fields lying barren in the developing world and, like the oil prospectors of old, gulf companies and funds supported by their governments are searching for new sources of production. The strategy is not only seen as a way of increasing security of supply but also, like oil, of controlling a lucrative commodity. "Farmland already is a significant commodity, and it is limited in quantity," said Neil Sorensen, communications coordinator for the International Federation of Agricultural Producers. "Land prices have risen for most of the last 35 years. Farmland will continue to become an increasingly important commodity throughout the world."
Abu Dhabi will grow alfalfa, an animal feed, on its new land in Sudan. The price of the grain rose by 60 percent in the UAE in 2007. Mohammed al-Suwaidi, acting director general of the Abu Dhabi Fund for Development (ADFD), told Reuters that all the Sudan produce will be exported to the UAE and that, beyond security of supply, the project will be looking to make a profit.
Abu Dhabi funding Sudan infrastructure
In May, ADFD agreed to fund $75 million of further construction on the Russaries and Merowe dams in Sudan, increasing the irrigated agricultural land in the area of Russaries Dam to 1.4 million hectares. ADFD denies that there is any connection between these infrastructure projects and its purchase of farmland in Sudan, stressing that the fund "concentrates on practical measures to help in the reduction poverty in all developing countries."
Many analysts and development organizations remain concerned about the impact of such projects on local communities. Sorensen says the effect of such projects depends on the involvement of the host government and local farming communities. "If the foreign entities are contracting with the local farmers, it will increase much-needed investment in agricultural infrastructure and improve the profitability of farming," he said. However, he warns that, "If farmers are not consulted and land tenure is not respected, the result will be that farmers will be pushed off the land, the food security of local people will be diminished and the presence of foreign entities will not benefit local communities, which will create economic instability and resentment by locals, and ultimately will doom any such project."
It seems clear that incentives for technology transfer and the funding of large-scale infrastructure projects will be required if the oil producing countries of the gulf are to prize away precious farmland from developing nations. However, many analysts remain skeptical that such a model can be sustained. The sheer cost of such projects is unlikely to be offset by the gains of securing farmable land. Roberts argues that turning barren land fertile is not a long term solution to the increasing cost of food. "It is scary to imagine that that is the thinking we would be moving to in the near future," he said.
Beyond new farmland, existing fields in the developing world seem to be producing less food. According to the United States Department of Agriculture, the total global area of wheat-growing land has declined little in the last 10 years, but stocks of the grain have almost halved, from 207.9 million metric tons in 1998-99 to 110.1 million metric tons in 2007-08. This trend is mirrored in all grains. While this is partly a result of the abandonment of stockpiling, in developing countries it is also indicative of land becoming less productive.
Gulf companies may be wrong about the differences between oil and food. Like mature oil fields, soil which has been intensively farmed in developing countries has tended to offer up less and less. Saudi Arabia may be pinning its hopes on countries such as Turkey, but not everybody is convinced. "We are close to the limits of fertile lands in Turkish agriculture," said Ozgur.