Foreign farms 'put on hold'

Limited water and agricultural land force countries in the GCC to rely heavily on imported food.

GCC countries hoped to set up farms offshore to help them gain food independence but the credit crunch has temporarily interrupted these plans.

DUBAI // Agricultural investment projects geared towards boosting the emergency food reserves of the import-dependent Gulf countries are now falling victim to the global credit crunch. A number of agricultural programmes with countries such as Egypt, Pakistan and Georgia have come to a halt as farmers grapple with plummeting commodity prices. "Because of the global financial crisis, everything is being put on hold now so it is impossible to give figures and dates for any new projects," said Huma Fakhar, an adviser to various Gulf governments on agricultural investment issues and the managing partner of Market Access Promotion, a group involved with the promotion of US agricultural trade. "Countries and businesses are buying land, but because of the credit crunch things are really slowing down as far as cultivation and development of that land." According to Ms Fakhar, development on a number of projects is at a standstill, including two deals between Bahrain and Pakistan worth a combined value of Dh9.1 million (US$2.5m). She added that investments in Egypt and Georgia by several Gulf investors were also on hold. But that has not stopped land investments. Just this week, Saudi Arabia revealed a plan to set up farms in the Philippines for the cultivation of corn, rice and wheat. A deal has been finalised that will allocate 100,000 hectares of land in the Davao Oriental region of the Philippines. The two countries are also exploring joint investment opportunities in fishery and livestock. Saudi Arabia has already pursued a number of agri-investment projects in countries such as Pakistan and Sudan. According to Huda Fath al Aliem sid Ahmed, an economic adviser at the Sudanese embassy in Abu Dhabi, the Saudi Arabian private sector is already involved in farmland investments in Sudan, although none of those projects have been launched yet. In an effort to boost strategic reserves, the Abu Dhabi Government is also exploring a number of agricultural investment projects in countries such as Pakistan, Kazakhstan and Egypt. The Government has already finalised a plan to purchase 29,400 hectares of farmland in northern Sudan, a project due to begin by the end of this year. According to Abah Ofon, an agricultural commodities analyst with Standard Chartered Bank in Dubai, the current climate is one of investment in land but not of development. Current economic conditions have eased the inflation of land prices in many developing countries, while farming costs remain high. "These countries are still buying land because the issue of food security won't go away, but right now, you still have high input costs because those haven't been run out of the system yet," said Mr Ofon. "So fertiliser, machinery and those sort of things are still high in price while commodity prices have dropped." Various factors, including limited water and agricultural land, force countries in the GCC to rely heavily on imported items for some of the most basic staples, including wheat, corn and rice. GCC countries import, on average, more than 80 per cent of their food, worth $12 billion annually. This poses a major challenge for all of the GCC countries as their population is projected to double to nearly 60 million by 2030, from 30 million in 2000. "It is now less attractive for marginal producers to produce because the lower commodity prices do not justify that," said Mr Ofon. "And even among the GCC countries, there is probably less enthusiasm now to forge ahead with the projects because we have seen a boost in global supplies with the drop in commodity prices." Until recently, commodity prices were about 75 per cent higher than in 2000, adding great incentive for farmers in poor countries such as Sudan, Pakistan, Egypt, Kazakhstan and the Philippines to lure investors from the oil-rich Gulf states. However, with commodities crashing in recent weeks on the heels of oil prices, analysts say the outlook is quickly changing. "We are already seeing the credit crunch hit in a number of ways," said Mr Ofon. "One is the sharp drop in freight prices because credit is more difficult to secure and therefore people are not able to import, and also pre-season financing for [independent] farmers is becoming more difficult to get, causing a noticeable reduction in the number of projects that are going ahead." While countries are thus far not pulling out of agriculture deals which, according to Ms Fakhar, range in value from Dh900,000 to Dh8.2m, some of the marginal deals may be losing steam. "Financing conditions are not as good and the need to do such investments may not be as pressing for the GCC countries as food prices have come down from record levels over the last three or four months," said Eckart Woertz, a programme manager for economics at the Gulf Research Centre and author of a recent report on GCC food security. "But this problem will stay with the GCC and there is an increasing demand for food imports so they've got to keep thinking about solutions." [e-mail]