Even before the global economic crisis, worldwide food price hikes had brought to the fore the issue of food security in 2007 and 2008. Although the risks may not be as ominous as they seemed in the aftermath of the sudden spike in food prices and prices have come down since summer 2008, they are still 30-50 percent above their average in the 1990s. Import-dependent countries, such as those making up the Gulf Cooperation Council, have taken note and are seeking measures to fortify their position against the threat of food price inflation and long-term food insecurity.
Recently, China signaled that it may not pursue agro-investments in arable land overseas, particularly in Africa, opting instead to consolidate its domestic production and maintain self-sufficiency in grain. The World Bank is expected to soon release a code of conduct governing overseas investments for both the home country and prospective agribusiness investors. Broadly speaking, there are clear signs that outsourcing food production abroad is not likely to be a fleeting investment trend and that the global food crisis cannot be dismissed.
Dr. Eckart Woertz, economic program manager at Dubai's Gulf Research Centre, has written extensively on financial markets in the Gulf and responded to our questions on the GCC's prospects for food security, the role of overseas agro-investments and the challenges that may lie ahead. Dr. Woertz is the Program Manager Economics at the Gulf Research Center (GRC) in Dubai/ UAE, the leading think tank of the Gulf region. He has extensive experience in banking and finance and has held senior positions in financial services companies in Germany and the UAE, amongst them Delbrück & Co one of the oldest German private banks. His research interests include the political economy of the Middle East, financial markets and energy issues. Dr. Woertz is a regular commentator to major regional and international newspapers and TV channels like the Financial Times, The National, Der Spiegel, Al Arabiya, Bloomberg and BBC. In February 2005, he published "The Role of Gold in the Unified GCC Currency", where he predicted a long-term bull market in the precious metal. In his GRC publication "GCC Stock Markets at Risk", he warned at the beginning of 2006 about the following stock market crash in the GCC. He has also dealt extensively with petrodollar recycling, strategic foreign investments and the impact of the global financial crisis on the GCC countries. A special interest of his in 2008 has been food inflation in the Gulf and GCC agro-investments abroad. He holds an MA in Middle Eastern Studies and a PhD in Economics from Friedrich-Alexander University, Erlangen-Nuremberg, where he conducted research about structural adjustment politics in Egypt.
How is the global economic crisis and rising food inflation affecting the economies of the GCC countries?
They are hit as well, be it via losses of their sovereign wealth funds that were invested abroad, via a domestic credit crunch or reduced export earnings as oil prices have declined. Currently food prices have come down as well, so the problem is not as pressing as it was after the food price surge until summer 2008, but it may well resurface and the Gulf countries are particularly vulnerable because about 60 % of their food is imported.
How have the GCC countries responded to dependency on food imports and vulnerability to global price volatility?
Saudi Arabia and other GCC countries are a price taker for agricultural imports and heavily exposed to the global price hikes in food items. Food inflation can also be the source of significant social unrest, as it hits lower income groups especially hard because they have to spend a relatively high share of their disposable income.
Food security poses a major challenge for the GCC countries as their population will double from 30 million in 2000 to nearly 60 million by 2030. Growing populations will come face to face with declining agricultural output. Arable land is very limited and conventional water sources in the GCC - currently the feedstock of irrigated agriculture - are predicted to last for 30 years at most. The agricultural sector currently demands around 80 % of the total water supply in the GCC.
As a result, GCC states have announced a number of agricultural investment projects abroad, in order to achieve more food security, however most of these projects are still at a stage of feasibility studies, so it remains to be seen how many will be realized. Saudi Arabia and the UAE plan a system of strategic storage for basic staples such as wheat and rice similar like what Oman is doing, which already stores 3-4 months of consumption needs.
How as Sudan and Pakistan come to be seen as the bread basket for the Gulf?
There were plans in the 1970s to develop Sudan as a bread basket for the Gulf after the Western threat that food supplies would be cut off in retaliation to the Arab oil boycott, but they got nowhere. These plans were not pursued in the 1980s and 1990s though they may have partly motivated the implementation of some projects like the Rahad scheme, which receives its water from the Rahad River and the Blue Nile. The interest in Pakistan is new.
What are some of the reasons why GCC countries turned to Central Asia and Africa and not major international food-export leaders such as the EU, Canada or Russia?
To attain import security GCC countries have started to envisage agricultural investments in Africa and Asia for a number of reasons, chief among them are the advantages of logistical proximity, established political and cultural ties to countries like Sudan and Pakistan, and considerable development potential in the case of Africa.
Logistical considerations are certainly rational, especially given that the rise in fuel costs contributed about a fifth to grain price inflation between 2004 and 2008 and a considerable part of fuel expenditure came from transportation. The extent of the food export potential in Africa and Central Asia has to be assessed realistically, and with due consideration paid to the fact that many potential host countries face considerable structural weaknesses in their domestic agricultural sectors, often have to feed rapidly growing populations, and currently are mostly net food importers themselves.
But efforts are underway to mitigate these issues for the time being and find a way forward. Saudi Arabia is in talks with Sudan for agricultural investments and has approached the World Bank to connect it with countries in Africa and Central Asia in order to facilitate investments in food production. Qatar and Sudan have established a joint holding company, with the aim of serving Arab food markets.
How do the GCC-targeted Central Asian and African countries compare with other regions in terms of food export potential?
With the exception of Turkey all the countries are food net-importers themselves, some of them like Sudan and Ethiopia are even receiving food aid. Central Asian countries and Pakistan are facing a physical water shortage and the potential of irrigation has been largely achieved. It is hardly conceivable that they will develop a large export potential. There domestic food security needs will have priority. Some African countries have a lot of unused water resources, however this would require a lot of investment and development and the needs of local stakeholders would need to be taken into consideration.
The food export potential of the targeted countries in Africa and Central Asia may therefore be described as very limited at this stage. Considerable potential may exist, however, in some countries after large-scale investments have taken place. In other countries even very intense investment activity might not be able to overcome constraints of climatic endowments and the availability of water and arable land. The GCC countries will need to carefully assess the potential of production capacity improvements via irrigation and mechanization in the targeted countries and must be aware of the magnitude of the task involved.
Clearly, water shortage limits agriculture. In Uzbekistan, for example, for lack of water only 20 % of the cultivable land area is actually cultivated. Water shortage also necessitates coordination between the Central Asian states about water rights as this is a constant source of conflict between them.
Here, a distinction should be made between Africa, Central Asia and Pakistan. In Central Asia and Pakistan, there is a water shortage, meaning use of renewable water is much higher than replenishment rates and the full potential of irrigation has largely been achieved. In contrast, many countries in east Africa have only a so-called economic water shortage, meaning that their vast untapped water resources can be used for agriculture provided there is significant infrastructure investment.
So essentially, while African countries mainly suffer from an economic water shortage that could be overcome by investments, Central Asian countries and Pakistan suffer from a physical water shortage, which makes the potential for enhanced irrigation and agricultural productivity more limited. They already withdraw more than 75% of river water for human purposes, while tropical African countries like Mozambique and Tanzania draw less than 25%.

What are some of the risks that GCC countries will face in terms of becoming entangled with local political unrest in conflict prone- African countries in or Pakistan?
Mainly, political risk. China and the scrutiny it received for its investments in the Sudanese oil sector in the wake of the Darfur conflict is a recent example. Apart from geo-strategic complications, the major challenge for any Gulf investment program that aims at food exports from Africa, Central Asia and Pakistan is the consideration for local needs of food consumption. Investments would need to be on such a scale that they could improve local food security and thereby social and political stability, while at the same time producing an exportable surplus. The magnitude of this challenge and the required investments in infrastructure and logistics are significant. The task will be achievable only in close cooperation with local stakeholders, such as African and Central Asian farmers, governments and communities, particularly with a view towards ameliorating social tensions associated with food price inflation.
The economic and social challenges in the Central Asian context include the predominance of state-owned enterprises, decline of traditional markets in the former Soviet Union, deterioration in infrastructure and social services and a rise in poverty. Agriculture and food trading is still dominated by large state farms; in Kazakhstan, sovkhoz (state farms) and kolkhoz (collective farms) accounted for more than 90 % of the cultivated land at the beginning of the 1990s and large-scale privatization has been limited since then. In Turkmenistan, most of the cotton and wheat crops are grown under the state order system and the state procures them at or below-market prices.
Transport security is another factor that has to be taken into account. The safety of supply routes for food imports are of great concern, much like energy routes. Food needs to reach the Gulf once it is harvested in Africa or Asia. The security of the Strait of Hormuz is not only crucial for oil exports, but also for imports of food, machinery and raw materials. Only a minority of ships that pass through the Strait are oil tankers and the GCC will find itself having to pay greater attention to the issue of maritime security in the Red Sea and around the Horn of Africa should its food imports sourced from Africa rise. While Africa and Pakistan present great advantages for the GCC countries in terms of more accessible transport security because of open sea routes, the landlocked Central Asian position is less suitable. Food exports from Central Asia would need to pass Iran, Afghanistan or Russia and the Caucasus if not freighted by air. This could make GCC importers increasingly vulnerable to geopolitical conflicts like the war in Afghanistan, any future flare-up of tensions between Russia and Georgia or the Iranian nuclear standoff.
How do GCC strategic interests converge and where do they diverge when it comes to Russian interests in Central Asia and China in Africa?
The risk is rather theoretical at this stage, but competition is possible in the longer term, especially with China in Africa. An expansive agricultural strategy of the GCC countries in Africa and Central Asia could, however, develop into a bone of contention in the future.

What are some policy recommendations that could stand as viable alternatives to direct foreign investment in agro-industry in Africa and Central Asia?
GCC countries should take established food exporters maybe a bit more into consideration than they already do. Cases in point would be Eastern Europe, Australia or Thailand. They could also contemplate purchase of food trading houses in order to lower procurement costs instead of managing the plantations themselves, as this involves considerable risk and the GCC countries have only limited experience in managing agro-projects abroad.
An immediate downturn of FDI in the agricultural sector is that it could be perceived as an infringement on already-stretched food security in the respective African and Asian countries, already struggling to meet internal demand. Only with a joint effort and a strong growth in agricultural production, can the diverging interests of African and Asian food security and GCC export interests be balanced.
Any projections on the likely impact of GCC FDI in terms of Africa's achievement of its development targets in the long-run? Could GCC agro-investment and infrastructure development help pull Africa out of the poverty trap and replace international food aid?
Gulf capital in exchange for agricultural land in Africa may not be the ultimate solution to the Gulf's food insecurity and Africa's underdevelopment. The land being targeted for investment in many cases is occupied. The onset of mega agro-industrial projects will uproot small-scale farmers and existing settlements. Only if such projects are designed and implemented in line with needs assessments of local communities and with job-creation, income-generation and help to provide essential services can conflicts of interest be avoided. Essentially, local food security needs must be considered. It is hardly feasible to export large quantities of food from countries facing growing populations and food shortages. Sudan, where more than 5 million people are dependent on food aid, is a case in point. Agro-investments aiming to boost production for GCC purposes need to also meet local demand. In most cases, the GCC states have to be prepared for infrastructure rehabilitation requirements considerably larger than in the case of developed markets and investment programmes in Africa would need to be accompanied by a comprehensive development strategy incorporating local capacity gaps and needs.