GCC explores novel solutions to food crisis
As the import food bill of GCC nations climbs rapidly a number of countries in the region have started exploring a variety of options to ensure food safety of their populations in future

By Dr Jasim Husain Ali

It is suggested that rising food prices is responsible for about 30 per cent of inflationary pressures encircling Gulf Cooperation Council (GCC) economies. Needless to say, all GCC countries are suffering from inflation, though Qatar and the UAE stand out. The average rate of inflation stood at 14 per cent and 11 per cent in Qatar and the UAE respectively in 2007.

By one account, prices of foodstuffs had increased by some 75 per cent since the year 2000. Rise in oil prices is partly responsible for the debacle as it increases the cost of production for food and pushes up insurance and freight rates. Clearly firmer oil prices are a mixed blessing for GCC economies. Yet, differences amongst major stakeholders of the farm industry only add to the uncertainties related to food supply (more on this below).

Owning farmlands abroad
The GCC’s food import bill amounts to around $12bn annually. However, the figure is expected to increase substantially with rising food prices. Another area of concern is to ensure availability of supply due to a series of complications. Some food producing countries are limiting the export of certain agricultural products in order to influence prices. Still, another matter relates to the use of agriculture produce in regions like South America to make bio-fuels. Bio-fuels are blamed for damaging the global economy, causing starvation in the Third World and endangering food supply.

GCC countries are increasingly exploring investments abroad as they seek a solution to the food crisis. For instance, UAE has been reportedly exploring the option of investing in farmlands in Kazakhstan. UAE has purchased 70,000 acres of arable land in the Sudan to develop products for its home market. In addition, the Emirate has plans to buy more than 100,000 acres of farmland in Pakistan worth $500mn. Pakistan has reportedly offered Saudi Arabia a large amount of agricultural land in return for oil. Egypt is another country which has reportedly offered Saudi Arabia and UAE the opportunity to purchase farmland.

Even Bahrain, the smallest economy in the GCC, has started exploring the option of buying farmland in Southeast Asian countries like Thailand and the Philippines. Bahrain is considering the option of promoting (Jasmine) rice from Thailand as a substitute to the traditional type of Basmati coming from Pakistan and India. Turkey has reportedly promised Bahrain its readiness to expand its export of agricultural produce to Bahrain. The offer was made during a state visit to Turkey by Bahrain’s King Hamad bin Isa Al-Khalifa in August.

Home-grown option
Undoubtedly, home-grown solutions are not viable due to facts like the scarcity of fertile land and water shortages. By one account, only 10 per cent of land in GCC countries is arable, and most of these are in Saudi Arabia. Nevertheless, according to Dubai-based Gulf Research Centre, production of a tonne of barley requires around 1,212 cubic metres (42,801 cubic feet) of ground water reserves in Saudi Arabia. Certainly, this is not a wise use of a scare resource. In a far cry from the policies of 1970s and 1980s it seems that Saudi Arabia has little interest in developing the local agriculture industry. The experience has shown that producing at home could end up being considerably more expensive than importing from countries enjoying competitive advantages in agriculture.

Doha Round
Lack of progress on the Doha Round is not helping nations in overcoming the food crisis. The World Trade Organisation (WTO) launched the Doha round in 2001 in the Qatari capital with the aim of addressing problems related to the agricultural sector and opening up trade in services. Hopes were running high last July when trade ministers from some 35 member countries met at WTO’s headquarters in Geneva to sort out outstanding issues. One the one hand, India and Brazil pressed the US and EU to limit subsidies granted to their farmers. On the other hand, the US and EU applied pressures on emerging heavyweights to open up the agriculture sector and limit import duties.

By one account, Federal authorities extended a hefty $150 bn to American farmers in the period 1995 to 2005. Likewise, the 27-EU countries are noted for providing generous subsidies to their farmers. Pressed by France, the EU is showing no sign of compromise. Japan is accused of protecting its rice industry with extensive subsidies. Support for the farm industry is largely a political matter. It is argued that politicians in the West fear being depicted as anti-farmers. Farm advocates and pressure groups tend to lobby behind politicians noted for supporting farm issues like subsidies.

On the other hand, countries such as India and Brazil feel that they have no choice but to apply import duties on subsidised farm products in order to protect their farm businesses. Their duties amount to some 65 per cent on certain agricultural products. The policy is partly meant to generate revenue for the treasury.

Disappointments abound
The WTO comprises of some 150 members including the six-nation GCC. Saudi Arabia acceded to the WTO in 2005, making it the last GCC state to join the world body. The admission process required Saudi authorities to agree upon opening up numerous sectors to foreign competition, notably the financial services sector.

Saudi Arabia officials on their part were looking at getting unrestricted access to some 150 WTO member countries. However, economic integration of WTO member countries has not been on the table over the last years, or ever since the Saudi accession. In fact, WTO members could not find a solution to a basic necessity like the food crisis let alone liberalising service sectors.

In short, GCC authorities are doing the right thing by investing in farm lands abroad, as they seek to ensure availability of stable supplies in a turbulent global economy. Countries such as Kazakhstan, Pakistan, Egypt, Thailand and the Sudan are in need of foreign direct investments from the GCC. Such investments ensure jobs and help in the trade account through exporting. Thus, there are mutual benefits to be derived by such a policy.
 

The author is an eminent economist and Member of Parliament, Bahrain

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