CHAPTER 1
The Gulf and Asia: Cooperation or Competition for Food Security?
Eckart Woertz
After decades of declining food prices in real terms, the years 2007 and 2008 saw food inflation that sent shock waves around the world. Rising food prices were a strain on scarce foreign exchange reserves of the poorer among food importing nations, and compromised the accessibility to healthy and nutritious food for vulnerable segments of the population. Even rich food importers like Singapore, Japan, South Korea, and the Gulf states were affected as food exporters like Argentina, Vietnam, India, and Russia implemented export restrictions out of concern for their own food security.
Causes of the food crisis vary. On the demand side, dietary change in emerging markets like China to more meat and dairy-based diets, biofuel demand in the developed world, and slowing but continuous population growth in many developing countries weighed in the balance. On the supply side, productivity growth in developed agro-markets has petered out since the 1990s and waste along the logistic chain continues to be high. The switch of farm policies in the US and the EU from price support to direct handouts to farmers since the 1990s also played a role as stocks declined. The discovery of commodities as an asset class by yield starved financial investors contributed to increased volatility and overshooting of prices. As far as pension funds chose to take long only positions this led even to additional demand and increased prices.
The debate about causes and possible remedies is heated and cannot be solved or even outlined in extensive detail here. Instead, I want to compare some of the reactions by Asian and Gulf countries to the global food crisis and explore where they might cooperate or compete in their efforts to achieve food security. Four strategies are of particular importance: a) Planned agro-investments overseas, often in developing countries that are food insecure like Sudan, Pakistan, the Philippines or Ethiopia; b) increased strategic storage of staple foods on a national level without international coordination; c) cooperation with international organizations and the launching of initiatives on an inter-state level; and d) inclusive growth policies that ensure entitlements and access of poor people to food.
The Gulf's Strategic Interest
The Gulf countries import most of their food, especially cereals and oilseeds. Saudi Arabia was self-sufficient in wheat until 2007, but then it decided to phase out subsidized production by 2016, as its reliance on exploitation of non-renewable fossil groundwater resources is unsustainable. In other food items like fruits, vegetables, fish, or poultry, self-sufficiency ratios are higher and can reach 70 percent and more in some cases. Yet food import dependence is substantial and is set to rise as the population will continue to grow until 2050 at least, while agricultural production will stay flat at best given limited water resources and likely exposure to climate change in an already arid region.
In contrast to wheat, Saudi Arabia continues to expand its dairy and poultry production. It also imports large quantities of sheep for fattening ahead of the Aid al-Adha and the pilgrimage season. As in other emerging markets, there is a trend towards protein rich diets. For its livestock sector, Saudi Arabia has large feedstock needs. It imports over 40 percent of globally traded barley. Green fodder like alfalfa is also increasingly imported either in hay or pellet form.
The relative import dependence of smaller Gulf countries is still greater than in Saudi Arabia. Their arable land and water resources are more limited and their agricultural sectors are comparably small. Contrary to the trend of agricultural downsizing, Qatar has propagated a renewed version of the self-sufficiency vision via its Qatar National Food Security Programme (QNFSP). With futuristic means like greenhouses that run on solar based desalination, the country hopes to produce 70 percent of its food by 2023, up from currently only 10 percent. The Gulf countries already use desalinated water extensively for residential supplies with potable water. However, for agriculture mainly non-renewable fossil water is used because desalination is too expensive and uneconomical. A small city-state like Qatar might achieve its self-sufficiency vision at great costs with such technical inputs, but for more populous countries this is not an option.
The problem of food import dependency is not confined to the Gulf countries but also shared by neighboring countries in the Middle East. They face even greater challenges as they do not have the ample oil revenues to foot the growing food import bill. Egypt is the world's largest wheat importer and the Middle East as a whole imports almost a third of globally traded grain.
Naturally, the food export restrictions in 2008 rang alarm bells in the Middle East and triggered memories of fragile food supplies in the past. During World War II, only supplies from the Allied Middle East Supply Center in Cairo averted famines and in the 1970s, the US threatened a food embargo in retaliation to the Arab oil boycott. Gulf countries have reacted by raising subsidies and public sector salaries or giving direct handouts to the local population in order to ensure food affordability. All of them have increased strategic storage of food items like cereals, sugar and dry milk. Oman has the most advanced system of strategic storage; all GCC countries now envisage storage of at least 6 months and up to 12 months and more. A highly publicized reaction has been planned agro-investments abroad. The focus has been on countries that are nearby and where some political and cultural ties exist like Sudan or Pakistan. Yet these countries and other developing countries like Ethiopia, Tanzania, the Philippines or Cambodia are food insecure. Hence, these investments are controversial.
On the other hand, there is a huge implementation gap. Contrary to widespread media hype, only a few of these projects have seen some degree of realization. Apart from political resistance, impediments have ranged from corruption to lacking infrastructure and financing problems in the wake of the global financial crisis. For reasons of practicability, there has been an increasing focus in recent years on developed agro markets with the necessary infrastructure and proven institutional frameworks like Australia, Argentina, or Brazil. It has been in such countries that actual implementation of Gulf agro-investments has mostly taken place so far.
A few large companies like ADM, Bunge, Cargill and Dreyfus dominate the global grain trading and the "virtual water" that is embedded in such transactions. As such, it comes as no surprise that Abu Dhabi has announced the establishment of a food-trading house. Gulf countries have also invested in international commodity trader Glencore, which subsequently acquired Canadian grain trader Viterra, which is the largest wheat handler in Canada and South Australia. While they mistrust the reliability of international markets as they seek privileged bilateral access to food production, they are also ready to position themselves by investing in major players of such markets.
Another angle of Gulf food security policies is international diplomacy and cooperation. Gulf countries have traditionally preferred bilateral approaches to foreign policy making. At the level of multilateral institutions, they have taken a rather low profile. Their top-heavy bureaucracies sometimes have limited capacities to engage with such institutions efficiently. Yet Qatar has proposed the Global Dry Land Alliance at the United Nations, which it hopes to make an effective intergovernmental organization to improve agricultural production and food security in arid countries by knowledge transfer, cooperation and investments. Further initiatives by Gulf countries are conceivable. Saudi Arabia could also raise them as a member of the G20 group.
Strategic Interests of Different Asian Countries
The Gulf countries have little water, lots of oil, and some cultural commonalities. Beside similar factor endowments and food security challenges, they also have a rudimentary platform for political coordination with the Gulf Cooperation Council (GCC). In comparison, Asia is more heterogeneous, which does not come as a surprise given its huge land mass and varying population profiles. Regional organizations like ASEAN exist, but they only include parts of Asia and are even more limited in scope than the GCC. Furthermore, considerable ruptures within the ASEAN have emerged over territorial disputes in the South China Sea.
To speak of Asia as one monolithic bloc with a common strategic interest would be therefore misleading. Yet it is possible to distillate some country types within Asia that face similar challenges when it comes to food security:
a) Rich food importers (Japan, South Korea, Singapore): more than half of their calorie requirements are covered by food net-imports. In terms of per capita income, they play in the OECD league. As long as markets stay open, they do not have a problem in financing food imports; food accessibility is largely assured by the high development standard. There is an interest to avoid export restrictions and keep world markets open like in the Gulf countries. At the same time, Japan and South Korea entertain barriers to protect domestic agricultural production, most notably in rice. Beside a domestic agro-lobby this is motivated by a concern to keep at least some level of self-sufficiency for any crisis that might occur.
b) Poorer food importers (Philippines, Indonesia): they are rich in population, but less so in export capacities and foreign exchange. Their GDP per capita is lower. Indonesia appears as a food net-exporter in calorie terms, as it is a large exporter of palm oil, but it is heavily dependent on imports of staple foods, particularly rice. Together with the Philippines, it belongs to the largest importers worldwide. The export restrictions of 2008 led to panic buying of rice and caught both countries off balance. The Philippines have announced a self-sufficiency drive in rice. Yet the United States Department of Agriculture (USDA) expects it to be the largest rice importer worldwide by 2012 alongside Indonesia and Saudi Arabia.
c) Food exporters (Thailand, Vietnam): the two countries are the largest rice exporters worldwide ahead of India, Pakistan, and the US, even though they do not produce the basmati variety that is predominantly consumed in the Gulf region. Thai politicians regard agriculture as an export cash cow that they want to keep national. Land ownership by foreigners is restricted and agricultural projects can only be undertaken with a Thai majority partner. This arrangement bears some similarity with the Gulf region where investors are required to have a domestic sponsorship partner. Vietnam has managed to become a major rice exporter by land reform and enabling small-scale farmers to raise production by extension services. Yet it is unclear whether it will be able to maintain rice exports on current levels, as its population is projected to increase from 86 million to 100 million and beyond. This would be a considerable challenge in an already illiquid global rice market, where only about six percent of global production is traded across borders.
e) Self-sufficiency giants (China, India): Both countries make headlines for rapid urbanization, yet they are still home to half of the world's rural population. They need to take the interests of their large class of smallholders into consideration. A trade-based approach to food security is not an option for them because of the sheer size of their populations. Feeding their people with food imports alone might be an option for smaller countries like Singapore and the UAE, or even for Saudi Arabia and South Korea, but not for China and India. Self-sufficiency is a matter of state interest for them and they are reluctant to engage with full-fledged liberalization of global food markets.
Depending on the diverging interests, each Asian country has reacted differently to the global food crisis. South Korea has sought privileged bilateral access to food production via agro-investments similar to the Gulf countries. It failed badly in Madagascar when a planned land transaction by Daewoo led to protests and the downfall of an entire government. Japan in contrast has chosen a multilateral approach whose goal is to increase global production capacity and safeguard open markets. China has reiterated the self-sufficiency goal for staple crops, but plans for increased imports of animal feed like soybeans and industrial agricultural inputs like cotton or rubber. Contrary to widespread media perception, only a few of its agro-investments in Africa have seen implementation and, as far as they are operating, they target local markets. In this respect, there is a striking similarity with Gulf agro-investments. Food exports from Africa back to China would be too expensive from a logistic point of view anyway. Food exporters in Asia like Vietnam have announced export restrictions in 2008 and have thus compromised their reputation as a reliable supplier of food not only to Gulf countries but also to Asian cereal importers like Philippines and Indonesia, which announced self-sufficiency drives in rice as a result. India and Pakistan are the largest producer of basmati rice worldwide and the Gulf is their most important export market for this item. Both chose a gradual approach to export restrictions in 2008 and restricted it to their respective staple crops, wheat in Pakistan and South Indian coarse rice varieties in India. Exports of basmati rice to the Gulf in contrast continued, albeit with additional export duties.
Cooperation and Conflict Potential
Even though the interests of Gulf and Asian countries show considerable divergence, there are several areas of conceivable cooperation: international agro-investments and related research and development on the one hand; and international coordination of strategic storage and other initiatives on a multilateral level on the other.
Land Investment: Types and Social Conflict
The World Bank has established a typology of the globally available land reserve for rain fed agriculture based not only on biophysical characteristics, but also on other factors such as proximity of transport infrastructure, ecological impact, and population density. One of the contributors of the report, Mahendra Shah, who was a director at the Qatar National Food Security Programme in 2010, argued that Gulf investments should focus on already cultivated areas with high yield gaps. Infusion of capital could close the yield gaps and would lead to win-win situations, he anticipated. Countries like the Philippines or Cambodia that have a limited land reserve but large yield gaps would theoretically offer potential for such improved productivity with investments. Yet, without formulas for mutual benefits, social conflict around land use is likely. This risk is even higher in countries with small land reserves and low yield gaps like Egypt or Vietnam where the need for foreign agro-investments is less obvious. The very idea of a "land reserve" can be problematic as in many developing countries customary land rights prevail and formal titling is not widespread. Pastoralists and traditional small-scale farmers might already occupy the "empty" lands that government planners identify in the hope of attracting foreign investors. This is a particular problem in Africa where most of the land is formally owned by the state. Such displacements can already happen in anticipation of investments that may or may not materialize as the examples of Ethiopia and Cambodia show. They also played a role during the failed attempts to develop Sudan into an Arab breadbasket in the 1970s. The Gulf countries had an interest in this plan of the Nimeiri regime after the West had threatened a food embargo in retaliation to the Arab oil boycott. A controversial expansion of mechanized rain fed farming was at its core that had detrimental effects on shifting cultivators, pastoralists and the environment.
Socio-economic intricacies of land-investments have also shown when Gulf countries have announced agro-investments in Asian countries. The Philippines have been the most popular investment target followed by Indonesia and Cambodia. Gulf countries are particularly interested in the cultivation of basmati rice, which they mainly import from the Punjab region of India and Pakistan thus far. An astonishing three quarters of India's basmati harvest goes to the Gulf. The rice varieties that are grown in south India, East Asia and America are not so interesting for the Gulf countries as they do not match their dietary preferences. Hence, there is an interest to introduce basmati rice cultivation into South-East Asia, but the climatic conditions are not as suitable for this kind of rice, particularly in the Philippines.
