GCC countries are seeking outward-looking solutions to guarantee their food security. Supported by government initiatives, private agribusiness companies are buying land across the world to secure agricultural goods from cereals to meat, particularly in destinations closer to home in South Asia and East Africa. However, the new phase of investments is laden with risks that must be delimited through strong bilateral ties.
Gulf Monitor | Daniel Moshashai | Agriculture
By 2025 the GCC’s population is set to reach 57m, some 15m more than in the late 2000s, when some governments in the region, such as Saudi Arabia, announced their first overseas agricultural investment initiatives after concluding that the Arabian Peninsula’s scarce water supplies could not sustain local agriculture without endangering the environment.
Developing countries were designated from the start as targeted destinations, although investments flowed more easily towards destinations which are safer but further afield, such as Australia, the US and Canada. Nonetheless, economic incentives, including affordable and long-term land leases, and low water and tax rates, are driving private agribusiness firms to new destinations whose closer proximity to the Gulf makes economic sense.
These endeavours are high risk and require a high degree of attention be paid to governance, regulatory and environment parameters if the GCC is to continue importing 60-90% of its agricultural products from abroad.
Developing strong bilateral ties in high-risk destinations is key
The incentives for investing in developing countries are fast overcome by hidden costs, environmental degradation being the most inevitable. Investing closer to home means operating in food insecure and water scarce countries, which are at risk of farmers’ unrest or export bans, this latter issue being the driving force behind GCC plans to diversify the countries it imports agricultural products from.
The key to investing in risky environments is politics. Since nothing can be done at the micro-level with private agribusiness, GCC states need to place agriculture at the heart of bilateral ties. In other words, before investing private companies must ensure that their country has some sort of agreement with local governments which prioritises agricultural exports.
At the same time, investors must pay close attention to the local agricultural policies of the countries they select. While agribusinesses can operate even within environments with hallmarks of bad governance – including lack of infrastructure, political instability or corruption – if local policies are inconsistent and do not insure against local opposition, operations are unlikely to be sustainable.
Inclusiveness in agricultural policy is also an important consideration. Large-scale farming, with the ability to guarantee management, supply chains and ownership, has operated efficiently in developing countries, but the flip side has consistently been disruption to businesses of traditionally small-scale and mixed-crop farmers, who feel marginalised, leading to widespread discontent.
Finding destinations with agriculture export policies which align with GCC demand can gradually decrease regulatory risk. There is still a lot of catch up to be done in health standards, trademark protection, land ownership rights and tariffs, but the more bilateral ties push strategic agricultural partnerships forward, the more harmonisation is possible through lobbying, joint ventures and cooperation between regulatory bodies.
India becoming increasingly attractive as import partner
For the GCC, there is a great deal of potential for a strategic agricultural partnership with India. Bilateral ties are already strong, with the region being India’s largest trade partner and supplier of energy. India, a country self-sufficient in food production, accounts for just 2.5% of global agricultural exports currently, but plans to double its share by 2022. It has set a target of achieving $60bn in food exports, up 70% from current levels, over the next three years.
These objectives, enshrined in the Indian government’s new agricultural export policy announced in December 2018, dovetail with GCC interests because their achievement will require the establishment of institutional mechanisms to secure market access and tackle trade barriers, including sanitary issues. One example of a concrete action which supports the new policy is a scheme called PM-KISAN, which aims to double the income of small and medium-scale farmers by assisting in the procurement of inputs to ensure crop health and good yields.
The good news for India’s export ambitions is that there is a great deal of potential for it to expand food shipments to the GCC. At present, the majority of imports – 90% – go to three countries – Saudi Arabia, the UAE and Kuwait. Overall India provides the GCC with almost one-fifth of its agricultural imports.
There is also plenty of scope for the country to expand into higher value processed food products. The majority of India’s GCC food shipments are low value; vegetable products make up the majority, with cereals – the largest category in this group – accounting for 37% of India’s export revenues last year.
Efforts by New Delhi to build some 40 large-scale or “mega” food parks across the country could significantly bolster the India-GCC strategic agricultural partnership. The scheme aims to bring farmers, processors and retailers together to control quality, minimise waste, upgrade the value chain and improve farmers’ livelihoods. Of the $7bn the UAE is investing in Indian agriculture up to 2023, some $5bn will go towards this initiative. If successfully implemented, the parks could become an example in creating a win-win situation for most stakeholders.
What comes next? Diversifying partners, strengthening key relationships
In order to achieve food security it is imperative that GCC countries strike a balance between fostering highly diversified pool of food providers while maintaining a strong but more limited pool of strategic agricultural partnerships.
Diversification will require agribusinesses to invest in riskier destinations, including Africa, which holds 60% of global arable land.
In terms of strategic partnerships outside of India, Russia and Eastern Europe – especially Ukraine – present good opportunities. In addition to being the world’s first grain producer with an ambitious agricultural export policy, Ukraine is strongly incentivised to adopt best-in-class standards and regulation compliance due to its EU Association Agreement, which came into force in 2017.
Daniel Moshashai is the Regional Analyst at Castlereagh Associates. He specialises in Iran, the GCC, economic diversification in national agendas and geopolitics in the Middle East.