MEED | 14 November 2008
Adal Rafiq Mirza
As the Gulf's agricultural production rates slow and food prices around the world continue to rise, GCC members are investing heavily in the fertile lands of Africa and Asia.
For all the GCC's plans to build a regional infrastructure, the politics of food is such that the bloc's states have, to date, acted alone to shore up their food supplies. The concept of a GCC unified response has been replaced by unilateral initiatives to supply growing populations with sufficient food at a reasonable price.
The GCC population is predicted to double to almost 60 million by 2030, from 30 million in 2000. But GCC food programmes are being planned, as member states see the benefit in co-operating on food security.
The GCC's dependence on food imports has, in the past, left the region vulnerable, a situation that can be exacerbated in times of political crisis. During the 1973 Arab oil boycott, the US indicated the possibility of a retaliating by cutting off the region's food supplies. The threat prompted plans to invest in Sudan's agriculture, in effect turning an Arab neighbour into its bread basket.
At the time, the plans were not pursued, but they are now being revisited as domestic food production rates drop and basic food prices rise. In an effort to secure their food supplies, GCC countries have announced a raft of new investments in Africa and Asia.
Long-term investment
Pakistan and Sudan are two countries that the GCC has pursued with a great interest, and where long-standing political and cultural ties already exist. Initial investments have been in Pakistani and Sudanese infrastructure, to prepare the land for production and to create a transport route for the food to reach the Gulf. Significant amounts have been invested.
The construction of the Merowe Dam Project on the Nile in Sudan began in 2000, receiving $200m from the Saudi Fund for Development, $150m from the Kuwait Fund for Economic Development, $150m from the Abu Dhabi Fund for Development, $106m from Oman, and $15m from Qatar.
"In the long run, these are strategic investments," says Kayan Jaff, UN Food & Agriculture Organisation (FAO) representative to the UAE. "Saudi Arabia and the rest of the GCC certainly have a long-term vision for the area. This is not something they have done on a whim. Investing in the infrastructure of a country like Sudan will naturally, in the long run, have a positive effect on their food security issues."
Careful reassessment
This long-term vision is undoubtedly motivated by the current economics of supply and demand. Food constitutes a considerable part of imported inflation because of the Gulf's falling rates of domestic food production. Indeed, import dependency will reach 60 per cent in the arid GCC countries by 2010, according to the FAO.
"In Saudi Arabia, for example, 15 per cent of all imports are food items, and the amount spent on food in the GCC is 10-20 per cent of disposable household income," says Eckart Woertz, programme manager for economics at the Gulf Research Centre. "Food price rises in the GCC thus contribute significantly to overall inflation."
After two decades of self-sufficiency in wheat production, at the cost of massive subsidies and depleted aquifers, Saudi Arabia declared at the beginning of 2008 that it will begin imports again at the beginning of next year. By 2016, the kingdom will be entirely dependent on imports, having opted to phase out its domestic production by then.
Without subsidies and considerable tech-nological investment, the Gulf is unsuited to large-scale food production. Only 2 per cent of land in Saudi Arabia is suitable for agriculture, according to the World Bank. The UAE is worse off, with barely 1 per cent of land suitable, compared with 13 per cent in Iraq.
The entire region has to reassess its agri-cultural stance in line with its severe water restrictions and World Trade Organisation (WTO) requirements.
After 12 years of negotiations, Saudi Arabia has finally joined the WTO – the last GCC member to do so. Under WTO conditions designed to create a level playing field in terms of trade, Saudi Arabia will have to reduce support for domestic agriculture by 13.3 per cent over the next 10 years. The trend away from domestic production is clear, but the GCC's population must be fed.
Beyond infrastructure investments, there have been few concrete deals concluded between GCC states and other countries.
"So far, it is just interest," says Jaff. "They are in negotiations and have asked us for advice. The ministries of agriculture and water are the main technical partners with whom we have dialogue. It started with high-level visits to the countries, followed up by a meeting in Rome, in June this year."
Co-ordinated efforts
The FAO will play a key role in fostering collaboration between member states, as well as bringing the GCC together with potential partners. "We are here to encourage bringing both parties together to explain the rules for land ownership, to clarify what the end expectations are, whether the land is leased or bought," says Jaff. "Most importantly, we will advise on what can be grown, and what should be grown.
To date, there has been little in the way of co-ordinated efforts from GCC member states to address the issue, but things are beginning to move. The FAO has participated as a technical adviser in a closed GCC meeting, held in Riyadh in October, which focused on the challenges to the countries' food security.
"I can safely tell you they are heading in the right direction," says Jaff. "More and more, there is a move towards co-ordinated efforts from the GCC. But to initiate a united effort takes time. First you need dialogue, to decide what is needed and what the priorities are. Obviously, each country has its own priorities."
Nevertheless, the countries are pushing ahead with their plans. The Abu Dhabi Fund for Development (ADFD) says it will develop 30,000 hectares of farmland in Sudan. The country has a large irrigated area suitable for farming, second only to Egypt in Africa.
By offering ADFD free use of the land, Sudan hopes to gain from the emirate's business links and technical knowledge to match its obvious agricultural potential, which has stalled because of conflict and misrule.
With food security now a priority for the UAE, this is unlikely to be the last project in Sudan, says Mohammed al-Suwaidi, director general of the ADFD, which will run the farms.
Private sector firms in the GCC have also begun making investments, encouraged by their respective governments, which are acting as facilitators and regulators. Pakistan is set to be a major recipient.
Abraaj Capital, a UAE private equity firm, has been buying land in Pakistan over the past 12 months. UAE state and private entities are reported to have acquired 80,000 acres of land in Pakistan to date. The first Middle East-Pakistan Agriculture & Dairy Investment Forum was held in Dubai in May this year, show-casing Pakistan's agriculture and dairy sectors, and raising more than $3bn in pledges for new investments.
Speaking at the forum, Belal Pasha, commercial attache at the Pakistan embassy in the UAE, announced that up to 10 unnamed major UAE groups would make significant investments in corporate farming, livestock and dairy sectors in Pakistan. Qatar Meat & Livestock Company is investing $1bn in corporate farms in Pakistan.
With interest in overseas agricultural investments growing, Abu Dhabi-based Map Services Group has set up the Middle East Food Fund in partnership with other Gulf firms, which will invest in Pakistan, Egypt and Georgia to produce food and related products for the Gulf region.
Local needs
The details of the deals remain unclear. "We have seen the deals in the media and we have a number of questions about them," says Jaff. "I suspect it was done bilaterally, brokered through a local partner or agent. They certainly did not come to us."
Sources report that Islamabad is offering legal and tax concessions as an incentive to foreign agricultural investors. There has also been talk of introducing legislation to exempt investors from export bans.
The potential benefits of the trade deals for Pakistan are huge. Pasha says Pakistan stands to receive a significant share of GCC farm imports worth $200bn if sizeable investment is made in its agriculture sector.
"Pakistan has adequate land for cultivation and its per acre yields of major crops are still below the world's average," he says.
"We need massive investment in agriculture to boost productivity that would help reduce food insecurity in the Gulf, by increasing exports to the region."
Nonetheless, in a year that has witnessed the increasing spectre of food riots across the globe, concerns have been raised over the fate of host countries. They are equally vulnerable to the rising cost of food and, with their relatively low per capita income, are far less capable of coping than their GCC counterparts.
"This is where the expertise of an inter-national body, such as the FAO, comes in," says Jaff. "When the initial deal-brokering takes place, we can try to ensure that these issues are looked at from the very beginning. If it is done in such a way, addressing all these concerns, then there is room for prosperity for all parties. But it has to be on the table from the start, which is what we have seen."
Any investment programme that aims to import food from Africa, Central Asia and Pakistan must consider the local needs for food consumption. These countries are net food importers themselves.
"Investments would need to be on a scale where they could improve local food security, and thereby social and political stability, and produce an exportable surplus on top of it," says Woertz.
Therefore, he says, the GCC must carefully assess how large the food export potential in African and Central Asian countries really is, as they face considerable structural weaknesses in their agriculture sectors.
