Rising populations and dwindling water resources are causing the GCC to make some drastic moves to increase food availability. But not everyone is happy with the region’s controversial steps
Gulf investors are causinga storm of fear in the US, where scarce water reserves are allegedly being zapped to grow feed for cattle back in the desert.
Farmers in the small county of La Paz, in Western Arizona, are becoming increasingly concerned over the issue. Tourism and agriculture are the principal industries in the county, which has just over 20,000 residents, many of whom have been vocal about what they claim is an unrestricted use of the little water they have available.
According to local media, GCC investors that have snapped up land to grow alfalfa for export are the culprits.
“They’re coming over here, buying land over here and using our natural resources, and we get nothing. We don’t get oil for free, how come we’re allowing water to just be depleted for nothing?” La Paz County Board of Supervisors chairperson Holly Irwin told local Fox 10 TV news channel.
“There is no restriction, they can just keep pumping and pumping and pumping until it’s all gone,” Irwin added.
Fondomonte Arizona, a subsidiary of Saudi Arabia’s Almarai, the largest dairy company in the Gulf, bought the 10,000 acres in question in 2014 for $47.5m in order to grow alfalfa, a water-intensive crop. All of the produce is being shipped back to the Gulf to feed the company’s cattle. In response, a law firm representing the farm, says the company has managed to reduce the amount of water being used compared to previous land owners by using technology developed for their local desert conditions.
“They’re used to growing alfalfa in arid climates — they grow alfalfa in Saudi Arabia… [but] they want to be here forever, so to make sure it’s sustainable they have to use and adopt the latest and greatest technology to conserve as much water as possible,” says Rose Law Group founder Jordan Rose.
Almarai is one of a number of companies from Saudi Arabia and the UAE that have bought thousands of acres of land in the Arizona desert for large-scale farm operations.
In a statement last December, the Saudi cabinet announced that it is phasing out the growing of crops and fodder because of the strain such cultivation places on scarce water resources in the kingdom. The cultivation of green fodder is due to end in the next three years, causing Almarai’s costs to rise. The increase is expected to be $53m this year, increasing annually until the company imports all of its green fodder by 2019.
Limited food production operations in GCC has meant imports to the region are growing at an alarming rate. Already as high as 90 percent of food requirements in some countries, such as the UAE, the Economist Intelligence Unit forecasts the GCC food import demand will hit $53.1bn by 2020, up from $25.8bn just a decade ago.
Dr Ashraf Ali Mahate, head of export market intelligence with Dubai Exports, says the high import ratio places greater emphasis on the need for a solid food security policy.
“Within the GCC, Saudi Arabia has by far the largest share of food imports, amounting to 65 percent [of the GCC total] and this trend is expected to remain for the foreseeable future,” Mahate says.
“A key challenge for the GCC is the limited availability of land and water. For instance, in the UK 24 percent of the land is available for agriculture, while in the UAE it is only 1 percent. Even where land is available the GCC countries face severe water shortages.”
He says estimates show that water inflow to agriculture from underground sources “will last for 30 years at best”.
“Moreover, the industrialisation and increase in population in the GCC countries implies that non-agricultural use of water is increasing rapidly. It is predicted that by 2025 domestic use of water will double while industrial demand will increase threefold,” Mahate says.
While desalination will provide some water supply, it is expensive and can have a detrimental impact on the environment.
“A number of GCC countries, such as Saudi Arabia, have reconsidered their agricultural policies that sought to create domestic production. The import replacement strategy has proved to be extremely expensive as well as damaging the water levels in the country. As a result, Saudi Arabia has announced that it will phase out domestic wheat production by 2016 in order to save,” he says.
When the 2007-08 world food price crisis led to a cereal price index, for example, reaching a peak of 2.8 times higher than the average, several GCC countries announced plans to acquire and develop farmland in countries that had more sustainable climates — in places such as Africa, Central Asia, Southeast Asia and Eastern Europe — so as to ensure future food supplies.
“This policy was positively received in the early period as the recipient countries welcomed the investment into their agricultural sector,” Mahate says.
“However, the purchase of land banks is now viewed with suspicion by some of the recipient countries and the strategy is limited at best. Moreover, the purchase of land banks itself does not guarantee a supply of future food. The simple reason for this is that a country at any point in time can impose an export ban.”
Mahate says the more prudent method being used in the region is to store and build strategic reserves of food, which he says can be important when it comes to stabilising food prices as well as ensuring that adequate food supplies are available — both on a short- and long-term basis.
“In the case of long-term shortages and price fluctuations, strategic food stockpiles are of limited use. Moreover, food stockpiles require effective management as well as appropriate storage facilities. In the case of the GCC this is of particular importance due to its harsh climate.”
Nicholas Lodge, executive director and co-chief investment officer at Mizuho Gulf Capital Partners Ltd, which is the investment manager of Gulf Japan Food Fund, has been working to address the issue of food security and improve the situation in the GCC through investment.
He says the Japanese and the GCC can mutually benefit each other when it comes to developing and expanding the agriculture business sectors.
“You’ve got Japan, where they have highly sophisticated food and agriculture operations, technologies, and techniques, but is facing a market that is shrinking due to population decline,” Lodge says. “These countries have expertise and technology and are now very interested to see where they could access growth markets such as GCC and surrounding countries, come here and bring their know-how, do a technology transfer and a co-investment with local partners.”
Lodge says Japan has technology that is able to produce vegetables in a way that uses very little water, which could also be used in the GCC.
“Japan has a problem with availability of land and a significant population to feed. We have an issue here [in the GCC] with a lack of availability of water, which effectively translates into ‘no land’ so we face the same issue but for different reasons. Therefore, intensive and efficient production of things like vegetables using technology makes sense in both cases,” Lodge says.
Using alternative methods has been the way forward in the GCC. Used for centuries, and dating back to the time of the Aztecs, hydroponics — the cultivation of plants by placing the roots in liquid nutrient solutions rather than in soil — has been another successful method of food production for the region.
“Hydroponics is a highly efficient and effective method of growing fruit and vegetables,” Mahate says. “What started as a simple low-tech glasshouse with little environmental control has evolved into a very high-tech modern greenhouse with complex computer-controlled climate monitoring and control systems with short production cycles as well as year-round production of high quality produce.”
A fully developed hydroponic farming operation can be 25 times more productive than open field cultivation. The UAE has used the method for several decades. However, Mahate says, it does not sold the problem of supplying commodities such as rice and wheat.
Lodge says while hydroponics has a lot of merit for certain produce, it cannot supply all of the GCC’s fresh produce requirements.
“It’s very much about understanding what is sensibly produced using hydroponics and can that be done here. I think the answer is ‘yes’ in some cases, but the reality is there’s still a huge volume of produce — protein or vegetables — which is going to have to come from other parts of the world and the trick is to have trade links from multiple suppliers and areas that can produce these types of food produced at a good price, and good quality, and then you’re not reliant on any one area in case there’s an interruption in supply. And that’s really how you have to think about food security. It needs to be holistic,” he says.
Abu Dhabi’s Masdar Institute also has been proactive in sourcing new methods of food production. Last month it launched the world’s first research facility that harmoniously grows food and biomass for fuel production — without using arable land or fresh water.
Supported by the Sustainable Bioenergy Research Consortium (SBRC), the potentially game-changing research puts the facility at the centre of a global movement to advance technologies
that create sustainable, commercially viable bioenergy.
Eckart Woertz, senior researcher at the Barcelona Centre for International Affairs (CIDOB) and author of ‘Oil for Food: The Global Food Crisis and the Middle East’, says investing in storage facilities has become much more important.
“There are five or six trading houses that trade most of the grain globally,” he says. “Interesting enough, Gulf countries are investing quite heavily in them. They have participated in the IPO of Glencore, they have shown an interest in buying the agricultural department of Glencore, which it wants to divest because right now Glencore is in dire straits financially as a result of a commodities slump and Salic — the government-owned company in Saudi Arabia — has recently bought a majority 50.1 percent stake together with Bunge — one of the grain traders — in the former Canadian wheat board.”
Mahate agrees, and says the most effective strategy of ensuring adequate and consistent supply of food is through an effective trade policy.
“Trade is an effective mechanism which allows food surplus countries to sell to food shortage countries. This transmission mechanism is effective and has few, if any, impediments. Trade is seen as a long term solution to meeting the growing demand for food,” he says.
“Currently 25 percent of global production of food enters the international chain of commerce. However, if trade is to be further liberalised then this figure will greatly increase, leading to a more efficient food security strategy as producers will be more willing to invest with the comfort that their output can reach a wider market.”
Countries around the world have long been developing food imports with the GCC, as evidenced by the hoards of country stands at the recent Gulfood event in Dubai.
The competition to import products to the region is fierce, as shown by some of the figures released by countries and regions. New Zealand, for example, has developed a food and beverage trade worth $2.7bn per annum with the GCC, while the Australian state of Victoria exports $1.2bn worth of food and beverage to the Middle East each year.
Sometimes it can be about standing out from the crowd.
Aidan Cotter, CEO of the Irish government food authority Bord Bia, was one of the keynote speakers at the Gulfood conference, outlining his country’s ‘Origin Green’ programme, which operates on a national basis and focuses on sustainability targets, reducing environmental impact and protecting natural resources.
“What’s driving this is the world need to expand food production by 60 percent over the next three and a half decades in order to meet the needs of a growing population,” says Cotter. “At the same time we have to reduce greenhouse gases by about a similar order. Agriculture is a significant contributor to those greenhouse gases.”
Irish exports to the GCC amounted to $300m last year — up 14 percent compared to 2014 — boosted by the EU removal of quotas on the dairy industry.
Cotter says Ireland has ambitious plans to grow food and agriculture exports worldwide over the next ten years by 85 percent.
“They are around €11bn ($12bn) at the moment and this will take it to between €19bn and €20bn. The regions of the world that are targeted for that expansion, where the population is growing and the middle class is expanding most rapidly, are Asia and the Middle East, and over time Africa,” he says.
The Origin Green programme, operated on a national basis, has measures and manages farms across the country. Ireland is the largest net exporter of beef in the Northern Hemisphere, 90 percent of the beef producers in the country are part of the programme, with 100 percent of the dairy farms now included.
“Every farm is audited and carbon-foot printed every 18 months,” he says.
“If you’re sourcing food and drink from Ireland as opposed to somewhere else, this may be that little bit of extra differentiation that you will get out of Ireland,” he adds.
He says there was significant interest in the Origin Green programme at Gulfood, looking to learn from the Irish example.
“This region would be a particular target for that [sustainability]. We have had a number of meetings with government agencies here talking about how we could help,” he says. “We’re very conscious that others are interested in doing similar things to what we’re doing. All of the knowledge and practises we’re doing are open and transparent and we’re happy to share [information] with them. We would like to make partnerships if we can help others to do what we’re doing,” he says.