The UAE is considering boosting investment in Australian wheat as dwindling global stocks risk pushing prices higher.
Wheat prices have doubled in the past year as crops were hit by severe droughts in key producing nations including China and the US.
Building strategic food reserves of the grain from Australia is being explored as a possibility to help support regional food security, said Sultan al Mansouri, the Minister of Economy.
The development follows a visit to the UAE by officials from Western Australia, which supplied US$127 million (Dh466.4m) of food exports to the country last year.
"Being Australia's largest grain-growing state, with 80 per cent of its agricultural produce exported, we are urging a substantial scale-up in governmental and private equity investment in food securities to meet the future demands of UAE's growing population," said Colin Barnett, Western Australia's premier.
Wheat export bans in Russia and bad harvests elsewhere including Australia have hampered production this year.
Inventory is down 8.8 per cent - the steepest drop in five years - according to Rabobank International, a financial services provider.
Grain prices are forecast to rise 20 per cent to as high as US$9.25 a bushel by the end of the year, according to a Bloomberg News survey of analysts and traders. Western Australia, which is responsible for 70 per cent of Australia's wheat exports, was hit by its worst drought in a century last year. As a result, the state produced about half its normal output of 11 million to 12 million tonnes of grain.
Mr Barnett would like to see UAE investors enter into fixed contracts with farmers in Western Australia to ensure consistency of supplies and prices.
"It will help to stabilise food security here and help to stabilise agricultural businesses in Western Australia," he said during a speech in Abu Dhabi on Thursday.
"There's an issue of food security in the UAE and we have a very productive, very sophisticated farm industry but one that can be fragile because of variations in market prices, seasonal factors."
The UAE is already Western Australia's 10th-largest market for food products.
"Australia and the UAE share considerable common ground on a variety of important economic issues and we can expect even closer co-operation and more mutual investment opportunities," said Mr al Mansouri.
As a net importer of food, the UAE is particularly vulnerable to volatility in global prices of wheat and other goods.
As a result, the Government and private investors are buying tracts of land abroad to secure sufficient supplies to feed the UAE's growing population.
"More investors around the world are trying to manage the risk because of increased market volatility and as inflation becomes more of a concern," said a wheat analyst based in London, who wished to remain anonymous.
Prices of benchmark Chicago Board of Trade wheat for delivery next month rose 0.16 per cent to $7.75 a bushel yesterday after a 0.5 per cent gain on Friday.
Russia will next month resume exports after a severe drought last summer prompted the government to suspend shipments. But forecasts of further poor harvests elsewhere may disrupt the market once again.
