The oil-rich Persian Gulf states are making a headlong rush for farmland.
Most of these countries heavily rely on food imports at a time when global food prices surged 57% between Aprils 2007 to 2008, according to the United Nations.
With food riots breaking out in impoverished countries, as well as rationing in industrialized nations such as the U.S., the Persian Gulf states have made food availability a high priority.
A report by the Gulf Research Center [GRC] revealed that Saudi Arabia is the largest Arab food importer in the Gulf Cooperation Council [GCC], followed by the United Arab Emirates and Kuwait. In 2007, total GCC food imports hit US$10 billion, US$3 billion of which accrued to the UAE. Other GCC members include Bahrain, Kuwait, Oman, Qatar and the UAE.
The GCC states are especially susceptible to food shortages. Arid landscapes and of course water shortages make it difficult for them to grow their own crops. The GCC imports approximately 60% of its food.
Worse, the total population of GCC members rose from around 30 million in 2000 to more than 35 million in 2006. This numbers is expected to hit nearly 39 million by 2010 and 58 million by 2030, according to a Dubai-based Gulf Research Centre [GRC] report.
A regional food crisis is more fact than fiction.
Only 1% of land in the UAE is arable, while in Saudi Arabia portion of arable land stands at about 3%. By comparison, 18% of the land in the U.S. is arable while the U.K. stands at 24%.
For investors, this international land grab by the GCC could provide secondary investment opportunities in industries such as fertilizer, farm equipment and shipping.
However, the clock is ticking….
It won’t be long before it becomes harder to secure farmlands in Africa, India, the Middle East and even Eastern Europe. The GCC is already engaged in bidding wars with China and private hedge funds.
To leverage its natural resources, the GCC states could find themselves trading oil for food.
For example, Indian External Affairs Minister Pranab Mukherjee told the Emirates Center for Strategic Studies and Research last month, “I see India’s requirement for energy security and that of the Gulf countries for food security as opportunities that can be leveraged to mutual advantage.”
As part of this trend, Pakinstan’s Prime Minister Yousaf Gillani’s visit to Saudi Arabia in sought $6 billion in financial and oil aid in return for hundreds of thousands of acres of agricultural land, which could be used by the Saudis.
Such arrangements are likely to become commonplace in mutually beneficial deals to close the gap between rising energy and food prices between the richest and poorest nations.
The GCC countries are increasingly receptive to such arrangements. It gives them a chance to import food at 20% to 25% less than the open market, addressing their own domestic inflationary pressures.
Investors now face a new horizon of agricultural opportunities. Countries that were once too poor to bring state-of-the-art farming into their countries suddenly receive a cash infusion to buy new equipment and supplies.
It’s also very possible that the timing could be ideal.
If you believe that the corn-based ethanol bubble will puncture a big hole in agricultural spending, the GCC may pick up the slack.
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