GCC Food Security – Roadblocks and the Road Ahead

Food Security – Origin and Concept

Food and Agriculture Organization (FAO) of the United Nations states that “food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life”.

 4 Pillars of Food Security

Countries around the world are striving hard to ensure food security for their people through methods affordable and suitable to their food availability and ability to produce food. The GCC countries realized the importance of food security after the World Food summit in 1974. These countries having realized the twin problems of increasing population and their inability to produce food on their own, have taken several steps. The GCC countries have invested in agricultural lands in countries like Sudan, Ethiopia, India and China. They have signed bilateral agreements with a few countries, mainly India, China and the US for supply of food grains. They provide food at subsidized prices to their people. 

The population of GCC countries was 46.8 million in 2013 and is estimated to reach 50.3 million in 2025. GCC currently imports 80%-90% of its food requirements. The increasing population will add to the pressure on food imports. Hence, the GCC governments are keen to ensure that food prices are stable and affordable to all people. The key aspect of food security in GCC countries will be to find viable options to ensure consistent food supply through investments abroad, assured imports and developing their storage facilities to handle supply shocks apart from focusing on domestic agriculture. 

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Dr. Rashid Ahamed Bin Fahad, the UAE Minister of Water and Environment said “The region is entering a new period of economic growth underpinned by a burgeoning population with a high dependence on imported food from around the world – food security is an immediate priority.”  

Why GCC countries need to focus on food security?

Apart from the increasing population in the GCC countries, these countries face supply side risks that make it very important for them to secure their position against food shortage.

The recent Arab spring in the region and the trade sanctions against Syria, Iran and Libya shows that the food security of the people depends on the smooth political situation and relations in the MENA region.

Geopolitics in the MENA region and the location of GCC ports is a major cause for concern.

Choke points in sea trade:

Suez Canal: Around 7.5 tons of wheat and coarse grains are shipped through this canal annually from Europe and America. This accounts for 81% of total wheat imports by GCC in 2012. The problems in Egypt and the political turmoil in 2010 had completely blocked this route for a period of around 3 months, which may happen in the future too.

Strait of Hormuz: This route accounts for 81% of rice imports by GCC, mainly from two countries India and China, and 35% of the wheat imports by the GCC countries in 2012. Political problems with Iran block this route often.

Bab Al Mandab: This route accounts for 39% of the total imports of wheat and coarse grains by GCC countries in 2012. Navigation through these waters is vulnerable to piracy in Yemen. Pirates from food starving Somalia and Ethiopia also block the ships which make this route riskier. 

The “worst-case” scenario can happen when all the three sea routes to the GCC nations are blocked together. If they fail to fix these geopolitical problems in a short span of time when these routes are blocked, it may happen that these countries may run short of food supply to feed their people.

Price Risks: Price risks are another major factor to be considered in agricultural commodities. Countries across the world, especially India and China have restricted the export of rice from their countries due to domestic demand and supply constraints. North American countries have imposed similar bans on the export of wheat. Restrictions of essential commodities can lead to shortage of supply and increase their prices.

Import – Export Parity: GCC countries are currently dependent on their oil exports to meet their import bills. They import almost every food commodity required. Reduction in oil prices, reduction in demand for oil in future due to shale gas discovery can strain the economy of these countries due to import of food commodities.  

The GCC countries currently face more supply side constraints in food sector. Supply shock can cause people in these countries to starve, especially those in the lower strata of the society. Increasing food prices can also affect the diet and nutritional balance of the people in GCC and create health problems in the long run.
   
Food Security Strategies Deployed in the GCC

Price control and Subsidies

The GCC population benefits from a wide range of subsidies that ensures food remains affordable. The government provides subsidy through implicit as well as explicit fund transfers. Few governments in GCC compensate the private business houses for some or all of the cost incurred in the food industry as part of the implicit transfer. Explicit subsidies such as conditional transfer to the poor people for the purchase of food and import subsidy – when international food prices are high – are prevalent in GCC.  These measures were used by GCC countries, especially during the 2007 and 2008 when food prices increased globally. In the year 2011, food inflation in Saudi Arabia and UAE was 15%, the highest during the period 2006-2012. This was mainly due to the restrictions imposed by the Government of India on rice exports. At that time the Saudi Arabian and the UAE governments increased the subsidy to help people meet their food requirements at affordable price.  

Investments in Other Countries

Following the 2007-2008 food crisis, GCC countries started investing in overseas land for agriculture production. This took a variety of forms, mostly state led and a few investments done by the agro-businessmen in GCC countries. Land Matrix indicates that since 2000, GCC countries account for 19% of the global overseas investments in agriculture. Among the GCC countries, Saudi Arabia and the UAE were the important sources of investments. Together, Saudi Arabia and the UAE own and manage close to 3 million hectares of farmland primarily in Pakistan, Indonesia, Sudan, Ethiopia and Turkey as of 2013.

Country Specific Measures to Ensure Food Security

Saudi Arabia
The Saudi Arabian Government established Saudi Company for Agriculture Investment and Animal Production (SCAIAP) in 2011 with an initial outlay of USD 850 million. This is aimed at promoting both domestic and international agricultural projects. During 2011-2012, Saudi Arabia invested close to USD 23.1 billion in food security initiatives, which included financial and oil aid to target countries in lieu of agricultural lands. Planet Food World (PFWC), a private Saudi firm, plans to develop 20,000 farms in Turkey with a total investment of USD 3 billion.

United Arab Emirates
In 2012, the UAE President ordered to subsidize prices of key food items across the country for an indefinite period. This move is expected to help the residents save approximately AED 13,000 per annum compared to AED 1,500 per annum previously. Organizations such as Arab Authority for Agricultural Investment and Development (AAAID) and Al Dahra Agriculture were formed for improving food security in the Emirates. AAAID, for instance, has established a Revolving Credit Fund, with a capital of USD 100 million, to finance small farm holders. The organization’s investments are primarily directed toward agricultural processing, plant production and animal production.

Bahrain
Bahrain allocated USD 174 million of food subsidies (for red meat, poultry and flour industries) in 2013, up from USD 145.8 million allocated in the previous year. The government has mentioned that the amount of subsidy on these basic staples will continue in 2014. Bahrain has invested in overseas projects in Sudan, Pakistan, Turkey, Thailand, Philippines, Ethiopia, India and Turkey by purchasing and privatizing large strips of agricultural land that are registered in Bahrain's name.

Qatar
Qatar’s strategy was different from the other GCC countries. Instead of investing in agricultural projects abroad, it envisioned a plan to make all investments in the home land. Qatar National Food Security Programme (QNFSP) was established in the year 2008 by Sheikh Tamim bin Hamad Al-Thani, now His Highness, the Emir of Qatar. The aim of QNFSP is to make Qatar self-sufficient in food production by 2030. It is a comprehensive plan addressing land issues, water scarcity and production of agricultural crops. Qatar imported tons of fertilizers to make the land arable and has also started plans to desalinate water to irrigate the agricultural land. To make the land and water desalinated is a very costly issue, financially and environmentally. The desalination process would emit greenhouse gases which will add to the problem of climate change. Qatar has envisioned desalinating all the water requirements for agriculture by using Solar panels. This process would require 4000 acres of land for setting up solar panels, which would be the most expensive investment Qatar would make. QNFSP is currently waiting for the approval from Government Authorities to conduct a pilot project to desalinate land and water for agriculture.  The nation being blessed with cash and being the richest in the world, can afford for such measures which are otherwise near to impossible. 
Qatar has become a major market for Genetically Modified (GM) crops and hence the government has plans to conduct research about cultivation of GM crops in Qatar.

Oman
Oman invested USD 361 million over 2010 and 2011 on fisheries, modern irrigation systems, agricultural production and livestock breeding technologies. The government of Oman introduced a subsidy plan with retrospective effect (for food stuffs ‐ from February 2011 and for fodder ‐ from January 2011) in 2012.

Kuwait
The government of Kuwait allocated USD 80 million in 2011 to Public Authority for Agriculture Affairs & Fish Resources. In addition, in October 2012, the Kuwaiti ruler announced plans to launch a USD 7.11 billion Asian Food Security Fund along with Asian countries, which would help Kuwait, achieve food security.

Conclusion
Food security is threatened in the GCC countries mainly by the supply side constraints it faces. Addressing them through policy initiatives and sustained efforts can help these countries mitigate the risks. Strategic stock holding will be the key to mitigate the supply risks, especially the risk of blockade of sea routes. Development of storage facilities for food grains and other essential food materials can hedge the risk of shortages during periods of political instability. The costs of infrastructure development and storage in this region will be lesser than the cost of domestic production considering the region’s land and water problems. 

Agricultural investments abroad will be the other option which can help GCC countries in the long run. GCC countries will have direct access to the production centers and can obtain food from their own land which they own abroad. Clear policy framework and long standing agreements between the GCC and countries where they own agricultural land is required in order to avoid instability that may arise due to policy changes. Most of the investments from GCC are focused towards countries like Sudan, Egypt, Ethiopia, Morocco and Pakistan. They need to rethink on their strategy as these are risky destinations considering the political instability and high rates of poverty. Agro-investments in developed countries are not only less risky, but will allow GCC countries to deepen strategic trade relationships through investment in key export partners.

Domestic production can be done in horticulture which may consume less water than food grains. Domestic production of food grains is a less viable option for GCC countries considering the high cost factor associated with it due to unavailability of land and water.

Food security is given importance by the GCC countries as they realize that the increasing population needs to be fed without any hindrances in the future. Strategic storage facilities and overseas investments in agriculture, mainly in the developed countries, will be the key in achieving food security in GCC.  

 References

    Food Security in the Gulf: Chatham House
    Food security in GCC: Ai Ghurair
    GCC Food Sector: Alpen Capital