x Abu Dhabi, UAEFriday 28 July 2017

Food security issue for GCC is linked to supply, not prices

The era of cheap food is over. Should this worry GCC governments? The answer is yes, though not for the reasons you might expect.

The era of cheap food is over. This is bad news for food-importing countries, and few are as dependent on imports as those of the Gulf Cooperation Council (GCC). Imports typically account for 80 to 90 per cent of food needs. Should GCC governments be worried? The short answer is yes, though not for the reasons you might expect.

The 2008 global food crisis saw prices for key agricultural commodities more than double and protests break out in over 60 countries. The World Bank estimates that more than 100 million people fell into poverty. Though international food prices receded, they remained higher than the long-term average and were soon on the rise again. Prices spiked once more in 2011 following a heatwave in the major cereal-producing Black Sea region, and again last year as the worst drought to hit the US Midwest in half a century laid waste to maize and soybean crops.

The outlook is for more of the same. Prices are expected to remain high and volatile as global demand increasingly outstrips supply and food stocks struggle to recover.

Biofuel policies make a bad situation worse. And as climate change gathers pace, bad harvests will become more likely.

Despite the GCC’s import dependence, high and volatile food prices do not pose an immediate threat to food security. Wealthy populations can afford the price rises. The problem for governments is not that people cannot pay more for their food, but the risk that they will refuse to.

Gulf populations are extremely reluctant to accept higher prices. On top of this is the risk that the spike in food prices may trigger instability in neighbouring countries with consequences on the GCC. For example, the 2011 price spike – and its economic impact on the major wheat-importing countries of North Africa such as Egypt, Tunisia and Morocco – has been identified as a precursor to the wider social, political and economic grievances that became the Arab Spring.

For GCC countries, higher food prices are therefore a problem of political security rather than food security, and governments have responded with a range of ad hoc measures to placate potentially restive populations. These include food subsidies, price controls and wage increases; these have worked, but have not been cheap.

Social spending among GCC countries rose sharply after the 2008 price crisis and again after the 2011 price rise and the Arab Spring. In consequence, governments need higher oil revenues to cover their spending. The government of Saudi Arabia now requires an international oil price above $85 per barrel (Dh312) to break even, compared to $37 in 2008. Bahrain needs over $100 per barrel.

GCC states are, for the most part, still in the black, but they are vulnerable to a fall in oil prices. They cannot pursue higher oil prices indefinitely without choking off demand. The long-term food security of the GCC requires governments to contain ballooning social expenditures, diversify their economies and broaden their revenue base.

In the short-term, the most significant threat to GCC food security relates not to food prices, but to food supply. The Gulf countries are surrounded by a series of maritime “choke points” – busy, narrow passages vulnerable to disruption or closure. Nearly all food imports must pass through at least one.

Most vital is the Suez Canal in Egypt, which militants recently tried to block by firing rocket propelled grenades at a container ship. More than 80 per cent of wheat and coarse-grain imports pass through the canal en route from North America, South America, Europe or the Black Sea. Nearly half of this must then pass through the Strait of Hormuz on its way to ports within the Arabian Gulf. This critical waterway also receives 80 per cent of rice imports from India and Pakistan. It is periodically threatened with closure by Iran, most recently last year in response to sanctions from the international community.

The worst case scenario for the GCC is some form of regional conflict that closes multiple choke points for a sustained period. Preparedness for such a contingency probably explains government decisions to build strategic cereal reserves approaching or exceeding a year’s supply. Maintaining stocks of this size is expensive, but is far cheaper and more sustainable than growing cereals in the desert. And while the risk of instability in the Middle East remains, it looks like money well spent.

Rob Bailey is an expert on food security at the London think tank, Chatham House