DUBAI - Recent attempts by Persian Gulf countries to invest in farmlands abroad
to counter soaring inflation and guarantee long-term food security could prove
to be a win-win situation in the short term for both the oil-rich region and
its investment-hungry neighbors, but continued high oil prices may neutralize
the gains in the long-run, say experts.
With Gulf countries importing 60% of their food on average, Saudi Arabia and
the United Arab Emirates (UAE) are taking the lead in investing in Asia and
Africa to secure supplies of cereals, meat and vegetables.
The move reverses a recent Gulf trend of acquiring plush assets in the West in
favor of acquiring agriculture lands in developing
countries, who themselves face a crisis amid high oil price-induced inflation
and even food shortage.
Calling for transforming the buyer-seller relationship in the energy sector
between India and the Gulf countries into a more substantial and enduring
relationship, Indian External Affairs Minister Pranab Mukherjee told the
Emirates Center for Strategic Studies and Research last month, "I see India's
requirement for energy security and that of the Gulf countries for food
security as opportunities that can be leveraged to mutual advantage."
Similarly, during Prime Minister Yousaf Gillani's visit to Saudi Arabia in
early June, Pakistan sought US$6 billion in financial and oil aid in return for
"hundreds of thousands of acres [hectares] of agricultural land, which could be
tilled by the Saudis."
Such arrangements are likely to become increasingly common since inflation and
food shortage are likely to worsen worldwide in future, said Shoaib Ismail, a
halophyte agronomist who studies utilizing plants for food, fuel, feed and
Worried about inflation fueling social unrest, major food exporters to the Gulf
countries resorted to export curbs. For example, India - the world's
second-largest rice exporter in 2007 - banned all non-basmati rice shipments in
March. Simultaneous moves elsewhere triggered a wave of panic buying, causing
benchmark Thai prices to triple.
"The Gulf region is not conducive for sustainable agriculture and has been
dependant on imported food, which it has been able to buy at the prevailing
international price without difficulty. However, when oil and other natural
resources diminish in future, the region cannot maintain the same level of
dependence on external food supplies," Ismail told Inter Press Service.
Just 1% of land in the UAE is arable, while in Saudi Arabia it is marginally
better at 3%. In comparison, 24% of land in Britain and 40% in Poland is
As a result, Saudi Arabia plans to stop purchases of wheat from local farmers
by 2016, abandoning a three-decade programme aimed at self-sufficiency that has
depleted the country's scarce water supplies. Reeling under shortages of rice,
Saudi Arabia has approached India, which annually exports 500,000 to 600,000
tonnes of rice to the kingdom.
"Given that global political scenarios vary constantly, the Gulf countries
could come under pressure in future food negotiations," added Ismail of the
International Center for Biosaline Agriculture in Dubai.
Explaining the willingness to invest over the long term, Ismail said the Gulf
countries are cooperating with developing countries that have similar cultural,
religious and political backgrounds, and with whom they have had longstanding
ties. "They could get basic commodities at relatively low prices, thereby
reducing their dependency on Western countries; and food-exporting counterparts
get investments that could offset hardships related to increasing cost of land,
water and fertilizers."
The Gulf countries unsuccessfully attempted to convert Sudan into their
breadbasket in the 1970s after the US threatened to cut food supplies following
the oil boycott.
This time, however, media reports indicate that the UAE government and private
entities like Abraaj Capital have already acquired about 324,000 hectares of
farmland in Pakistan. As incentive, Islamabad is offering legal and tax
concessions to foreign investors in specialized agriculture and livestock "free
zones" and may also introduce legislation to exempt such investors from
government-imposed export bans.
The Gulf countries are increasingly receptive to such arrangements because they
view this as an opportunity to import food at 20% to 25% less cost, thereby
addressing domestic inflationary pressure, which was officially about 12% in
the UAE last year and perhaps double unofficially.
Since self-sufficiency is not an option, apart from dialogue with exporter
countries and investments in agricultural projects abroad, "buffer stocks of
basic food items should be contemplated to reduce exposure to market
volatility," the Dubai-based Gulf Research Center's Food Inflation Report
recommended in May.
With oil prices likely to remain well over $100 a barrel, the Gulf countries
are estimated to reap a cumulative windfall of about $9 trillion by 2020,
allowing them to intervene in the market through various measures ranging from
price caps to subsidies.
But one of the chief reasons grain prices have increased is due to a rise in
production costs, particularly from higher energy expenditure, estimated at
about 40%. Thus, "what makes the UAE's export earnings increase is also what
causes its imported food to increase apace," Dalton Garis, of The Petroleum
Institute in Abu Dhabi, explained in the UAE's Gulf News last week.
Commenting on the viability factor of the new initiative, Ismail explained,
"India, Pakistan and Sudan have closer ties with the Gulf compared to [major
rice grower and exporter] Thailand. While political stability would be a factor
in Sudan and Thailand, India and Pakistan are likely to be attractive
destinations because of their relations with the Gulf countries, which
Encouraging the new public-private partnerships, Ismail said he preferred a
proactive private sector role because "it can bring about significant results"
quickly. The government, he said, should "serve as facilitator and oversee
policies and regulations."
But questions remain about how such direct arrangements would work or how
domestic shortages, inflationary pressures and politics in the food exporting
countries would pan out in the long run.
Anticipating a second wave of trouble as the Gulf region's population booms in
the years ahead, Ismail stressed that "with all limitations to make agriculture
sustainable in this region, efforts should also be made to produce vegetables
[in greenhouses], fruits and other crops. There should be clear prioritization
for primary agricultural products [grains and pulses] and secondary products
[fruits and fodder]. It is possible to make the latter sustainable with
relatively marginal land and water resources."