GCC for joint farm fund to cut import bill

The GCC leadership (December 2008)

Emirates Business 24/7 | Wednesday, September 03, 2008

Nadim Kawach

The UAE and other Gulf oil producers are considering creating a giant fund to invest in farm in fertile Arab areas and other nations to slash a soaring import bill and ease reliance on foreign markets for their food.

Trade ministers from the six-nation Gulf Co-operation Council have recommended the establishment of a joint company or a fund that will invest in such fertile Arab nations as Sudan and Egypt as well as other countries to offset a surge in global food prices that have boosted their farm import bill.

The GCC ministries of trade, economy and finance have sent recommendations to all relevant government departments and chambers of commerce and industry in the 27-year-old alliance to debate the proposal.

The proposals, which were made during a pan-Gulf anti-inflation conference in Bahrain in March, also included a long-term GCC food strategy that involves common purchase of farm products and signing agreements with the group's key economic partners and food exporters to ensure sufficient food supplies at reasonable prices, according to Abu Dhabi Chamber sources.

"The recommendations received by the Chamber involved the establishment of a common GCC company or a large fund to invest in joint farm projects in fertile Arab countries such as Sudan and Egypt and other areas such as southeast Asia and Brazil to collectively produce essential food items," one source said.

"Another proposal is to form a joint GCC work team to follow up on these projects, devise common farm policies and strategies, and embark on collective purchase of basic food products such as rice, wheat, sugar, cooking oil and milk."

The UAE and other GCC states have already decided to invest in major agricultural projects Sudan and countries outside the Middle East to reverse a rapid growth in their farm imports because of a surge in global food prices, a sharp rise in their populations and relatively low local farm production.

In June, the Abu Dhabi Fund for Development (ADFD) said it would invest in a large farm project in northern Sudan to produce fodder in its first stages before it is expanded to grow wheat, corn and potatoes.

The project in Nile State, one of the world's most fertile areas, will cover 30,000 hectares (300sqkm) , just less than half Bahrain's area.

Officials said the project, which could also involve the UAE private sector and other investors, was part of the UAE's efforts to face soaring food prices and ensure jobs for nationals in other Arab countries. Sudan, dubbed the Arab food basket, has the largest arable land in the Middle East, exceeding 70 million hectares. But only a portion of the land is exploited due to lack of financial resources and conflicts.

GCC states, the world's richest in oil but poorest in water, have long considered investing in agricultural projects in Sudan, Iraq, Syria and other fertile Arab nations to meet their fast-growing farm demand because of their rapid population growth, estimated at seven per cent in some members.

But they have been dissuaded by conflicts in those countries, inter-Arab disputes, previous fiscal woes due to a sharp fall in oil prices, as well as other financial commitments by the Gulf countries.

"It is the right time for the GCC to embark on big farm projects in other countries," a Gulf economist said. "The circumstances are much better now as they are enjoying large financial surpluses and inter-Arab relations are much better."

The high growth in the GCC countries' population, now estimated at 36 million, has allied with a steady rise in farm prices, poor water sources and relatively small arable land to sharply boost their food import bill, which exceeded $16 billion 2006. It was projected to have topped $20bn in 2007 and to continue its surge this year due to higher food prices.

In a recent study, the Federation of the GCC Chambers of Commerce and Industry urged member states to set up agricultural projects outside the desert region to ensure self-sufficiency and cut soaring imports.

"The issue of food security has become a priority for the GCC states in the current circumstances," the Dammam-based Federation said.

"The steady increase in the farm gap has been due to lack of co-ordination and co-operation among member states in the agricultural sector and in the establishment of joint farm projects…it is time for the GCC countries to take measures to cover that gap by setting up farm projects in such fertile Arab countries as Sudan, Egypt and Yemen."

The study proposed signing of agreements between the GCC and those countries for the allocation of land to Gulf investors to set up farm projects. "These projects could be run as joint ventures under the management of GCC firms, which could also market their products in the region," it said. "Another step is that GCC citizens should be educated about the need to change their eating habits to match the new market and farm conditions. GCC governments should also negotiate with major food producers to obtain some supply and price privileges and to allocate funds to offset price increases."

Although they have enormous arable land, Sudan and Iraq have remained key food importers as persistent conflicts have prevented them from investing in farm projects. Yemen's poor financial resources have also made it a net food importer.

According to official data, GCC members and the other Arab countries have reeled under a massive cumulative farm import bill of more than $200 billion between 1990 and 2006 and the recent surge in food prices could block sufficient supplies to the poor and threaten stability in the region.

The Arab food gap affected most types of farm products, mainly cereal, rice, sugar, wheat, cooking oil, chicken, meat and dairy products.

The figures by the Arab Organisation for Agricultural Development showed the gap has worsened over the past years, with that in grain and flour rising from $8.5bn in 2004 to $9.1bn in 2005 and $9.58bn in 2006.

Wheat gap widened from $4.4bn in 2004 to $4.6bn in 2006 while that in corn surged from around $1.5bn to $2.02bn. The gap in rice also grew from around $1.24bn to $1.32bn and that of barley jumped from nearly $868m to $1.9bn during the same period.

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