Middle Eastern countries are highly dependent on food imports. They have reacted to the global food crisis of 2008 with various measures to guarantee food security. The main concern of the oil rich Gulf countries is not so much high food prices, but a repetition of export restrictions that food exporters like Argentina, India and Vietnam enacted in 2008. To address this risk, they have increased subsidies and strategic storage, tried to make domestic agriculture more water-efficient and have announced ago-investments abroad. The article takes a look at these measures as the challenges and pitfalls of chosen strategies have become more discernible. The Gulf countries’ ability to adapt to food security challenges will play a major role in the social and economic stability of their states and in the direction of their investment policies both at home and abroad.
It is well known that the Middle East is pivotal for global oil production; that it also imports a third of globally traded cereals, less so. Middle Eastern states consider food imports a strategic liability, similar to the West’s perception of its dependence on oil imports. The global food crisis sent shock waves through the region. Rising food prices were a drag on scarce foreign exchange in the poorer countries like Egypt or Yemen, and even the rich Gulf states were concerned. They faced the possibility of not being able to purchase food at any price even with pockets full of petrodollars when agro-exporters like Russia, Argentina and Vietnam announced temporary export restrictions out of concern for their own food security. As a reaction, Gulf countries tried to curb food inflation with subsidies and price controls, increased strategic storage and announced agro-investments abroad. They also started to phase out water-intensive crops, trying to make domestic agriculture more water-efficient. Food security issues will be part of strategic equations, hydropolitics and international relations in the Middle East for decades to come. It will also be big business. This article takes a look at the import requirements of Gulf countries, how they perceive food security policies, and discusses some of the steps taken to guarantee it.
What food is needed and from where does it come?
The high level of food-import dependency is set to increase in the Gulf. While birth rates have come down, population growth will only peter out after 2050. For lack of water, domestic agricultural production will be downsized. There is an ongoing shift from water-intensive production of cereals and green fodder to more value-added crops like fruits and vegetables, as well as water saving technologies like green houses, drip irrigation and hydroponics. As late as the early 1990s, Saudi Arabia was the world’s sixth largest wheat exporter because of a program of subsidized wheat production with non-renewable fossil groundwater. Now the aquifers are running dry and Saudi Arabia has decided to phase out all its wheat production by 2016. Moreover, diets have been shifting towards meat and dairy products since the 1970s, with further growth expected in these sectors.
Dependence on food imports is set to increase right at a time when world markets have become less reliable. Food prices have witnessed a structural upward shift. Because of population growth, dietary change, biofuel production and the increased financialization of food markets, there has been an increase in demand. At the same time, productivity growth in developed agro-markets has petered out. Climate change is taking its toll and agricultural production faces an ecological backlash that is partly of its own making.
Saudi Arabia imports 40 percent of globally traded barley for its livestock industry. Very water-intensive green fodder, like alfalfa, is also increasingly imported. Rice is an important staple crop, not only for locals but also for the large foreign labor force. Expatriates are about 30 percent of the population in Saudi Arabia and more than 80 percent in the UAE. A majority of them comes from South Asia.
While wheat imports of the Gulf come from the half dozen countries that dominate global grain trade, i.e. the US, Canada, Australia, Argentina, Russia and the EU, rice imports show a peculiarity. Gulf countries have a strong preference for basmati rice, which is mostly grown in the Punjab. Three quarters of the Indian basmati rice harvest goes to the Gulf, with Pakistan being the other major supplier. Rice varieties that are grown in Vietnam, Thailand, the US or Southern India are less popular. Brazil is a major supplier of poultry and sugar. The US Department of Agriculture (USDA) expects that the Middle East and Africa will absorb half of the global poultry trade by 2021, with Saudi Arabia as one of the largest importers.
This cursory look at food suppliers to the Gulf countries shows a striking disconnect with the countries where they have announced agro-investments since 2008. These have been mostly food-insecure countries nearby that offer logistical advantages and established political and cultural ties that can facilitate business dealings. Yet they do not contribute meaningful quantities to Gulf food imports at this stage.
Among the most popular target countries have been Sudan, Pakistan and Ethiopia. It is an irony that they are the top three countries worldwide dependent on food aid from the World Food Program. Other popular countries have been the Philippines, Egypt and Turkey. Established food exporters like Australia, Brazil, the Ukraine, and Argentina have ranked less prominently. Yet it has been in such countries where project implementation has been more frequent and successful. Contrary to a widespread media-hype, there has been a huge implementation gap. A lack infrastructure, corruption and political instability in developing countries rank on top of concerns and are important reasons for why project realization has lagged behind. Some countries like Egypt or Pakistan have serious water issues of their own and will be exposed to climate change. It is estimated that agricultural production in the Indus valley will fall dramatically with the melting of Himalayan glaciers. Other problems include limited supplies of skilled labour and political resistance.
Mahendra Shah, who was then a director at the Qatar National Food Security Programme (QNFSP) suggested in 2010 that already cultivated areas with high yield gaps would offer the best potential for Gulf agro-investments. He argued that infusion of capital could close the yield gaps and would lead to a win-win situation. Countries like the Philippines or Cambodia that have a limited land reserve but large yield gaps would theoretically offer potential for such improved productivity with investments. However, without formulas for mutual benefits, social conflict around land use is likely. This risk is even higher in countries with small land reserves and low yield gaps like Egypt or Vietnam where the need for foreign agro-investments is less obvious.
While governments in developing countries have usually welcomed Gulf investments, there has been grassroot resistance by alienated holders of customary land rights. In most African countries the state formally owns the land, but much of the land that is advertised by governments as idle in order to attract foreign investments is already used by people who might take objections to modernization drives that leave them empty handed. The Saudi Star project in Ethiopia of Saudi billionaire Al-Amoudi for example was attacked in April 2012 and several workers were killed. On the other hand, in more developed markets resistance can come from governments that regard agricultural resources as strategic. Thailand and Brazil have been anxious to keep cash-earning agricultural assets national and have put limits on foreign land acquisitions. Agro-investments in such countries would rather take the form of joint ventures than outright land acquisitions.
Foreign agro-investments on any large scale could also affect sensitive hydropolitics in the wider region. The Indus Water Treaty of 1960 between India and Pakistan has been a successful example of water cooperation, but recently Pakistan has been irritated by dam developments on tributary rivers on the Indian side. Turkey has a history of squabbling with the downstream riparians, Syria and Iraq, over water resources along the Euphrates and Tigris. In the Nile Valley, Ethiopia and other sub-Saharan riparians have openly challenged the Nile water sharing agreement of 1959, which grants three quarters of the Nile flows to Egypt, one quarter to Sudan and nothing to them. No doubt, Egypt would be concerned if Gulf countries realized agro-investments to its south on any large scale because of associated water needs.
Another reason for the implementation gap has been finance. As a result of the oil boom of the 2000s, the Gulf countries have been capital net exporters because of the investments of their sovereign wealth funds. Yet at the same time, they have relied on international banks for project finance, especially their private sectors. Thus, even the cash-rich Gulf countries faced a temporary dearth of financing in the wake of the global financial crisis. The sense of urgency for agro-investments also faded with the correction in commodities markets in the second half of 2008, only to return with renewed price spikes from 2010.
It remains to be seen whether the pronounced implementation gap will be closed. If history is a guide, there is reason to be skeptical. In the 1970s, the Gulf countries tried to develop Sudan as an Arab breadbasket to alleviate concerns about the reliability of supplies in the highly politicized food markets at that time. The US threatened a food embargo in retaliation to the Arab oil boycott and discarded such plans only for reasons of impracticability. With their limited population size at that time, Gulf countries could have substituted US supplies easily. The West’s dependence on Arab oil was asymmetrically higher. On other occasions, like the soybean embargo of 1973, the US implemented export restrictions to cool food prices at home. Finally, it enacted a political grain embargo against the Soviet Union in the wake of the Afghanistan invasion in 1980. The embargoes hurt US producers more than consumers in embargoed countries as they only led to trade diversion to alternative suppliers. Yet the psychological damage on the part of Arab countries was considerable, as it has been with the export restrictions of 2008.
Humungous plans for Sudan were hatched, in which it would have supplied the whole Arab world with food. However, projects did not get off the ground. Problems ranged from the notorious corruption of the Nimeiri regime to ecologically harmful soil mining during the expansion wave of mechanized dryland farming at that time. The huge landmass of Sudan was not easily bridged in the absence of adequate infrastructure. By the 1980s, the Gulf countries had lost interest and rather turned to the development of their own agriculture. The threat of food embargoes had subsided alongside commodity prices. US farmers suffered massively and more farms went into foreclosure than during the Great Depression. Like in the 1950s and 1960s, the US was in need of agricultural surplus disposal. Export initiatives like the Food for Peace/P.L. 480 program had a second spring and commercial considerations trumped the geopolitical instrumentalization of food trade of the 1970s. Meanwhile, Sudan faced an epic famine in 1984-85, instead of becoming an Arab breadbasket.
The breadbasket plans have resurfaced with the global food crisis of 2008. This time Gulf countries have been scouting the globe, even though Sudan has again been the most popular investment destination, at least as far as announcements are concerned. Food security policies have been institutionalized and new investment vehicles with a private equity approach like Qatar’s Hassad Food have been established alongside the traditional Gulf development funds. Saudi Arabia has launched the King Abdullah Initiative for Saudi Agricultural Investment Abroad (KAISAIA) and Qatar, the Qatar National Food Security Programme (QNFSP). The UAE also shows some institutionalization with the Abu Dhabi Food Control Authority. Oman has the most advanced system of strategic storage, while institutionalization in Kuwait and Bahrain trails behind.
Saudi Arabia follows a strategy of public/private partnerships. The private sector is supposed to invest after the government has paved the way with framework agreements and preferential financing. The Saudi Company for Agricultural Investment and Animal Production (SCAIAP) that was launched in 2009 with a capital of $800 million has not released funds so far, to the dismay of the Saudi agro-business community. However, it finally got the green light in 2012 and the Minister of Agriculture said there were plans to centralize policies of KAISAIA under its umbrella to overcome cumbersome coordination issues between various ministries.
Qatar is seeking the international limelight: it hosted the 18th session of the United Nations Framework Convention on Climate Change (UNFCCC) in November 2012 and has launched the Global Dry Land Alliance (GDLA) under the UN umbrella. GDLA tries to spur agricultural production in arid countries via investments and knowledge transfer. As a small and affluent state, Qatar can also afford an ambitious if controversial program for an expansion of domestic agricultural production with futuristic means like hydroponics and green houses that run with water from solar-based desalination. The program runs counter to the downsizing trends elsewhere and wants to produce about 70 percent of Qatar’s food needs by 2023, up from currently 10 percent.
Strategic storage is a corner stone for the food security calculations of the Gulf states. In crisis times, they can provide a buffer and urgently needed lead-time to look for alternative supplies. Often termed “above-ground mines” for their disposition to develop heat and explode, storage facilities require refined management and constant rollover. Coordination with producers and marketing operations is needed at a time when storage on a global level has undergone great changes.
Fuelled by the big productivity gains of mechanization and mineral fertilizer applications, the global food regime after World War II was characterized by the need of producer countries for surplus disposal. They undertook most of the grain storage in order to support prices; it was not consumer countries out of fear of supply disruptions. Only China and India have traditionally shown a strong interest in food reserves out of strategic concerns. With the liberalization of agricultural markets since the 1970s and the separation of farm subsidies from price support schemes in the US in 1996 and in the European Union in 2003, this storage by producer countries has diminished. As a result, markets have become more vulnerable to price shocks like those of 2008.
Nowadays about a third of global wheat stocks are held by China and another 8 percent by India. The role of producer countries has declined. The Middle East as a large importing region only holds about 10 percent of global stocks, but its share is set to rise. Plans for strategic storage are pursued on a national level, without international or even regional coordination. This can lead to expensive storage. A large country like Saudi Arabia for example can import and store grain in much larger bulks and is therefore cheaper than a small state like Qatar. Gulf countries would gain by pooling their interests, yet national sensitivities loom large. The inclination towards national solutions can also lead to hoarding and unnecessary storage. Thus, it can cause the very problem it wants to address: illiquid international markets.
To prevent such knock-on effects the International Food Policy Research Institute (IFPRI) in Washington D. C. has proposed an international food reserve not unlike the International Energy Agency (IEA) in the case of oil. It would entail a multilateral storage and information system to improve transparency. Another feature could be a fund that would act as a “virtual storage” by intervening in futures markets to prevent speculative overshooting of prices. Thus, IFPRI hopes to avoid export restrictions like in 2008 by making food markets more predictable and less volatile.
The idea of an international food reserve has been an evergreen of development debates and is not without critics. Yet the market failure in food markets since 2008 makes the quest for alternatives a crucial issue. Some Asian countries like Japan have shown a strong interest in pushing for multilateral solutions to the global food crisis and it is conceivable that Gulf countries will show a more pronounced profile in this regard on the level of international organizations in the future.
The global food crisis of 2008 has raised concerns in food-import dependent countries in the Middle East. Food security issues will rank high on their strategic agenda as food imports will grow, particularly of cereals, poultry and green fodder. The process of institutionalization and policy formulation is in a state of flux, but some important changes are discernible. There is a great implementation gap of announced agro-projects. Instead of outright land acquisitions Gulf agro-investments might focus more on joint ventures. In the field of domestic farming, business opportunities will open up in agricultural technologies like hydroponics, water treatment and renewable energies. Gulf countries will also be more inclined to participate in international initiatives to ameliorate global food security concerns. To this end they will need to beef up their bureaucratic capacities in order to communicate effectively with other international organizations on an institutional level. Issues of interest include climate change negotiations, codes of conducts for agricultural investments and WTO regulations that allow food export restrictions in case of a crisis. Going ahead, food security policies in the Middle East will have a similar strategic importance like energy security policies in the West.
About the Author
Eckart Woertz is a senior researcher at the Barcelona Centre for International Affairs (CIDOB) and author of Oil for Food: The Global Food Crisis and the Middle East, which will be published in April by Oxford University Press. Formerly he was a visiting fellow at Princeton University, director of economic studies at the Gulf Research Center (GRC) in Dubai and worked for banks in Germany and the United Arab Emirates. He holds a PhD in Economics from Friedrich-Alexander University in Erlangen-Nuremberg. Further information can be found on his blog: www.oilforfood.info.