CHIANG MAI - Once committed largely to perceived safe-haven investments in the
United States, Gulf nations are now looking to send their petrodollar surpluses
towards a more exotic global destination: Southeast Asian farmland.
Last month, two high-level Kuwaiti delegations toured Southeast Asia's
food-producing countryside, looking to invest in agricultural lands and
agro-business partnerships on a contract farming basis. Those visits came amid
similar regional overtures from other Gulf states, including Saudi Arabia,
Qatar and the United Arab Emirates (UAE).
Most of the deals are still in the negotiation stages and provisionally appear
to involve leasing rather than outright purchasing of agricultural lands, where
Gulf state companies pay
to rent the land, provide inputs and contractually agree to buy the produce.
Such an arrangement would be similar to the contract farming deals China has
recently cut across the region, including in Myanmar and Laos. It's unclear if
the Gulf state-invested produce would be purchased at a fixed future rate or
prevailing market prices, and what percentage would be paid to local farmers
who actually work the lands.
What is clear is a pressing Middle Eastern need to shore up the region's shaky
food security. The Gulf Research Center (GRC), a Dubai-based think-tank, in May
highlighted the declining agricultural production by the Gulf Cooperation
Council's (GCC) six member states and the wider region's increasing financial
exposure to spiraling food prices.
A GRC report that month specifically called on the GCC nations - Bahrain,
Kuwait, Oman, Qatar, Saudi Arabia and the UAE - to develop links with foreign
countries with abundant arable land. Higher global food prices are a key
contributor to escalating inflation in the Middle East, which suffers from a
lack of fertile land and consistent water supplies.
The region's surging oil wealth is meanwhile attracting ever-larger influxes of
immigrants, who are putting further strain on already import-intensive food
supplies. The region's population could rise to 39 million in 2010, from 35
million in 2006, and surge to 58 million by 2030 if current demographic trends
continue, the GRC forecast. The population of the six member countries was 30
million in 2000.
Gulf states already import between 60% and 90% of their food requirements,
amounting to a total bill of US$10 billion per year. Saudi Arabia is the
largest importer, followed closely by Kuwait and the UAE, according to the GRC.
Meanwhile, world food prices surged to record highs earlier this year. Costs
for cereals such as rice, the Gulf's main staple, have recently declined, but
remain three times higher than the past decade's moving average. For example,
the price of rice imported from India and Pakistan has risen by 70% on average.
The average price of food in Qatar rose 19% during the first three months of
this year, more than three times the same period last year. Bahrain, Oman,
Saudi Arabia and the UAE have all recorded similar increases.
Prices in Kuwait have not risen as high, mainly due to its lower reliance on
the US dollar as a trading currency, but the oil-rich nation is firmly in
search of greener pastures for its petrodollar investments.
The increasing expense of food imports along with rising housing costs have
helped to drive inflation rates as high as 11% in April and May. Kuwaiti
Commerce and Industry Minister Ahmad Baqer told parliament in June that the
country should work with other Gulf states to invest in food production and
agriculture to secure future food supplies.
In that direction, Kuwaiti Prime Minister Sheik Nasser al-Mohammed al-Ahmed
al-Jaber al-Sabah made an eight-nation Asian tour in August with the chief aim
of securing agriculture-related investments. The trip took in Brunei, Cambodia,
Japan, Laos, Myanmar, the Philippines, South Korea and Thailand.
"The value of the accords and economic and commercial protocols are more then
US$27 billion, with $3 to $4 billion of investments and possible commercial
partnerships with each country," Kuwaiti Finance Minister Mustafa al-Shamali
said in statements published on August 17.
A delegation led by Kuwati premier advisor, Ismael al-Shatti, returned in late
August to visit Cambodia, Laos and Myanmar to activate agreements made during
the premier's earlier visit. The delegation included representatives from the
Kuwait Investment Agency (KIA), a sovereign wealth fund, as well as the Kuwait
Fund for Economic Development, the Kuwait Petroleum Corporation and the Kuwait
Flour Mills and Baker Co.
Cambodia seems to have been the biggest immediate benefactor from Kuwait's
investment tour. Discussions during the Kuwaiti premier's visit included
possibilities for technical assistance for oil exploration and a proposal to
exchange agricultural technology for leasing an undisclosed large plot of land
set aside to grow food specifically for export to Kuwait.
During the visit of the al-Shatti delegation on August 21, Kuwait announced it
would provide Cambodia with more than $546 million in soft loans for a variety
of infrastructure projects, largely in the agricultural sector.
Kuwait's move represents the second-largest loan by a single country to
Cambodia, after China's contribution of $601 million last year, earmarked
mainly for hydropower dams, bridges and new government offices.
Cambodian spokesman Sin Bunthoeun said US$486 million of the first Kuwaiti
tranche will be used to build irrigation systems and a hydropower project on
the Steung Ser River in central Kompong Thom province. The remaining $60
million will be used on road building projects in western Battambang province,
he said.
In return, Kuwait received authorization to build an embassy in Phnom Penh,
beginning next year, and Cambodian Prime Minister Hun Sen said he will travel
to Kuwait, Qatar and the UAE in January to further discuss rice exports.
The Kuwaiti investments come conveniently while Cambodia seeks to establish
itself as a major regional rice exporter. The foreign funds represent a large
cash infusion for the country's otherwise stretched national coffers and
through investments in irrigation infrastructure and modern rice mills will be
crucial to continuing improvements in its backward and inefficient rice
industry.
Total Cambodian rice production has grown to 6.7 million tonnes in 2007-08,
with a surplus of 2.5 million tonnes. The government has said it aims to export
10 million tons per year by 2015. Whether it can reach that goal and still feed
its impoverished local population at locally affordable prices is an open
question. The deals with Kuwait raised eyebrows when a month later the
Cambodian government requested a $38 million emergency food aid package from
the Asia Development Bank (ADB).
Some question why this is necessary when the government has said it expects a
slight harvest increase this year and is keeping to is rice-export plan. The
ADB's country manager has recently called the food security situation in
Cambodia "an unprecedented emergency". Cambodia's agriculture minister told the
Phnom Penh Post earlier this month that the request to the ADB was only to
safeguard against "sudden and unexpected shocks, such as those brought about by
natural disaster".
Details of the Kuwaiti agreements signed with Laos, Myanmar and Thailand are
apparently still at the discussion and fact-finding stage. During an August 5-6
visit, the Kuwaiti and Lao prime ministers agreed to pursue means to improve
cooperation in energy and agriculture. Kuwait appears to be particularly
interested in Laos' rice and palm oil sectors. Plans for the opening of a
Kuwaiti embassy in Vientiane were also discussed.
Kuwait and Myanmar signed two agreements related to investment and economic and
technical cooperation during the Kuwaiti premier's visit. The al-Shatti
delegation also discussed a contract farming arrangement with Myanmar officials
led by Prime Minister General Thein Sein during their follow-up late August
visit.
U Tun Aung, president of the Myanmar Beans and Pulses Trader's Association,
told Myanmar Times magazine that Kuwait "will provide the fertilizer and
financial support, hiring Myanmar's land and human resources, and then in turn
they will purchase the crops at world market prices. Paddy plantation and palm
oil are the agriculture sectors they are most interested in."
Organic oil
The Kuwaiti government is not alone in looking towards Southeast Asia. The
UAE-based al-Qudra Holding is reportedly exploring possibilities for rice
production in Thailand, Vietnam and the Philippines. If accomplished, it would
be part of the company's grand plan to acquire by the first quarter of 2009
400,000 hectares of land or cultivating wheat, maize, rice and vegetables in
the Middle East, Asia, North Africa and East Africa.
Qatar apparently has even more ambitious designs for Southeast Asian farmlands.
Prime Minister Sheik Hamad bin Jassem bin Jabor al-Thani visited Cambodia this
year to explore deals to exchange agricultural technology for access to arable
land. The Qatari prime minister announced during his April visit plans to
invest $200 million in Cambodian agriculture, strikingly similar to Kuwait's
later bilateral overture.
Even bigger Qatari investments are in store for Vietnam. Qatar and Vietnam have
established a $1 billion investment fund of which a portion would be dedicated
to agriculture, the Qatar-based Gulf Times reported on September 2. An
estimated 90% of the fund's equity will be provided by the Qatar Investment
Authority, a national sovereign wealth fund.
There is, of course, a political risk attached to investments that in certain
instances could act to create a new class of global landlords. The Gulf state
overtures also come against the backdrop of rampant official land-grabbing in
countries like Cambodia and Vietnam, where private ownership rights are not
firmly established as their economies transition from communist to capitalist
systems.
Saudi Arabia, the Gulf's largest food importer, looking to regions closer to
the Middle East, is in discussions with Egypt, Pakistan, Sudan, Turkey and
Ukraine to grow crops for export. Riyadh envisions large-scale agriculture
projects for selected countries in excess of 100,000 hectares and those plans
appear in some form also to include Thailand.
A group of potential Saudi investors were taken to survey rice farming areas in
Thailand's central Suphanburi province in May, led by deposed Thai premier
Thaksin Shinawatra. The proposal involved renting, not selling, the land, which
foreigners are barred from owning in Thailand, and the creation of a joint
rice-exporting venture.
The surveyed land was apparently owned by a ruling coalition politician with
the Chat Thai party. Nonetheless Agriculture Minister Somsak Prissnanantakul
and the Thai Farmers Association came out strongly against the idea, accusing
the plan's proponents of selling off the country to foreigners and jeopardizing
Thai farmers' unique way of life.
Brian McCartan is a Chiang Mai-based freelance journalist. He may be
reached at brianpm@comcast.net.
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