Mena faces food security risk

Food security will remain a significant issue for the Middle East and North Africa due to supply uncertainty on one hand and a growing population and looming water shortage on the other, a report from Standard Chartered (StanChart) Bank said.

Although food prices have dropped by a third from the peak of mid-2008 food crisis, prices are now rising again and are 80 per cent higher than the recent low in mid-2002.

"This marks the resumption of a longer-term trend of rising prices, driven by the increasing cost of agricultural production to meet the inexorable rise in demand for food commodities," it said.

While Mena, particularly GCC, has the financial resources to purchase food commodities, it is nevertheless facing the issue of how to feed its rapidly growing population while also maintaining living standards.

The report, The end of cheap food, says the region is inclined to import more food to address this problem.

But the whole region still faces a further long-term food security risk, as it relies on the proceeds of hydrocarbon sales to buy food, it said.

Mena is a highly import-oriented economy as it faces a shortage of water resources, which makes it difficult to grow water-intensive crops such grains. Besides, there is a large demand from a young, growing population.

Population growth

The UN projected earlier this year the global population will grow by about 35 per cent from the current estimated level of 6.8 billion to 9.1 billion by 2050. In that case, the world will require a 70 per cent increase in food production from 2005-07 levels, including a 900mt (mt) (43 per cent) increase in cereal production and a 200mt(74 per cent) increase in meat production.

This, according to United Nation's Food and Agriculture Organisation (FAO), translates to $9.7 trillion (Dh35.59trn) investment requirement by 2050.

The fastest growth rates are anticipated in Africa, where the population is expected to rise by almost one billion people (98 per cent). Asia's projected growth rate is slower, but its large absolute numbers result in a significant increment. The population of Asia and the Middle East is set to rise by 1.1 billion (27 per cent) by 2050.

Water scarcity

Securing food, however, is very crucial in the region, which lacks water resources. Population in Yemen for example has risen six-fold from about four million in 1950 to about 24 million today and is forecast by the UN to grow to as much as 60 million in 2050.

At the same time, Yemen's total renewable water resources are already less than 100 cubic metres per person per annum – water stress is defined as water resources of less than 1,000 cubic metres – which makes for a very uncomfortable equation.

Today, most countries in the Middle East already suffer from, or are approaching, water scarcity. According to Aquastat, only Algeria, Iran and Oman can meet their water needs with their current resources.

In extreme cases such as the UAE and Saudi Arabia, annual water use is up to 10 times higher than available resources. Almost every country in the Middle East is expected to experience water scarcity by the year 2025.

Water scarcity translates into strains on food supply. As in other parts of the world, the vast majority of water resources in the Middle East is used in the agricultural sector.

Despite this, the Middle East countries also import large quantities of water-intensive agricultural products. Most of them import more than 50 per cent of their grain consumption.

This share will only given the shortage of water and increasing demand from household and industrial users.

Saudi Arabia has been trying to achieve food independence since the 1980s. The government has pushed wheat production aggressively, and in 1992 Saudi Arabia became the world's sixth-largest wheat exporter.

However, the government is winding down the initiative in an effort to save water. The water needed to irrigate one hectare of land to grow agricultural produce in Saudi Arabia is two to three times higher than the volume needed to grow the same commodity in temperate conditions.

"It is becoming increasingly evident to Middle Eastern countries that using water for agriculture is not economically efficient. The thorny issue, however, is food security or, more accurately, insecurity," the report said.

Saudi Arabia faces the same dilemma as China – whether to trust world markets and import food or try to continue feeding a rapidly growing population from secure domestic sources. The supply of food commodities this year has improved due to a strong supply response from developed regions as a result of high prices in 2008 and due to generally more favourable weather conditions.

Soybeans and sugar are the possible exceptions, with poor weather conditions affecting crops in Latin America and India, respectively. Supply of grains, which dominate food consumption, has either stabilised or risen.

The report said this season's wheat balances look "adequate" in the Middle East.

Output is expected to rise to 36mt from 32mt last season, mainly on account of favourable output in North Africa (Morocco in particular) and in spite of a drop in Saudi Arabia's output as it winds down on a 30-year-old programme aimed at wheat self-sufficiency. "Moderately higher rice output, combined with a larger wheat harvest means the Mena region is likely to import 5mt less wheat this season than last season," it said.

Ending stocks are forecast at 23.7mt, the highest on record and an increase of more than 1mt from last year and 4mt from 2007, when poor harvests pushed grain prices to record highs.

Reliance on imports

On a longer-term view, however, it will continue to have an increasing reliance on imports to meet food requirements.

This season alone, the United States Department of Agriculture estimates Mena will import 71 per cent, 58 per cent and 39 per cent of its rice, corn and wheat for domestic consumption requirements, respectively.

Wheat is the dominant grain in the region, with 50mt consumed per annum – well ahead of rice, with consumption of only 8mt per year. The region is the world's largest per-capita consumer of wheat.

Mena has seen a 10 per cent growth in per-capita consumption of palm oil and soybeans since 2001. The Middle East does not produce any palm oil and will have to rely entirely on imports to meet demand.

Current soybean output is already barely sufficient to cover consumption, and our model suggests that the region's soybean deficit will widen to 16mt by 2020 from 5mt this season. This import dependence makes the region vulnerable to global price fluctuations and to changes in trade policies in exporting countries.

The report said it is theoretically possible for the region to become self-sufficient in wheat by 2030, assuming that per-capita consumption remains flat and output continues to grow at three per cent per year – the average annual growth rate since 2001.

However, meeting this target would require slower population growth, much more efficient water use, significant yield enhancement (crop per drop) and a higher share of the region's precious water resources dedicated to food production.

Allocating all the water required for sufficient grain production would be detrimental to total GDP if water was diverted from other more economically productive uses.

To meet agriculture's needs and to maintain living standards and industrial growth would require a huge commitment to desalination to provide enough water.

"Until concentrated solar thermal desalination is made commercially viable, such desalination will also rely on the use of fossil fuels, with the ensuing cost and increase in greenhouse gas emissions," it said.

Shrinking arable land

Another major impediment to increasing food supply in the region is the tight availability of land. Standard Chartered calculates that total harvested area for corn, soybeans, rice and wheat has remained largely flat since the 1990-1991 season.

Arable land in the region grew by less than six per cent between 1961 and 2007, less than the global average of 10 per cent during the period and well below the 45 per cent increase recorded in Africa.


UAE sees increase in non-Arabic traditional food imports

The UAE's diet and food imports now reflect Western and South Asian preferences rather than traditional Arab preferences.

The growing income of residents and the increasing urbanisation in the country have caused a change in the eating habits, which consequently affect the demand on the agricultural sector.

Data from the US Department of Agriculture show consumption of non-traditional foodstuffs has gone up. Thus demand for wheat, rice and palm oil – non-traditional/Arab items – have increased.

For instance, rice consumption in the UAE has risen from 14,000 tonnes in 1970 to 300,000 tonnes in 2009, largely reflecting South Asian and Western eating habits.

Palm oil use has also increased, with consumption rising from 8,000 tonnes in 1980 to 375,000 tonnes in 2009.

Palm oil is a key component of Asian diets – Indonesia and Malaysia are the largest producers, and China and India the top two consumers and importers. "The presence of a large expatriate population from South Asia has encouraged imports of edible oils in the UAE," said Gerard Lyons, Chief Economist and Group Head of Global Research at Standard Chartered Bank.

"Overall, the composition and growth of the UAE population have led to an increasing reliance on food imports." This scenario reflects the changing demographic make-up of the seven-emirate state. The UAE is almost entirely made up of urban areas, with the majority of the population living in the cities.

According to Emirates Centre for Strategic Studies and Research, the UAE's population growth rate rose to 15 per cent between 1975 and 1985 from one per cent in the prior decade, mainly as a result of a strong inflow of economic migrants.

It is estimated that indigenous residents, who accounted for over 60 per cent of the total population in 1968, comprised less than 20 per cent by 1985. Their share is estimated at 15 per cent, based on the latest census. This is also the case in two largest emerging countries – India and China.

Given the changes in global per-capita income and the rise of an affluent middle class in their large lower-income economies, there has been a noticeable shift towards higher-value food items such as edible oils and meat protein. The growth in oilseeds and meat consumption is a reflection of rising incomes.

Since diets rich in meats require feed grains and meals, they demand more cereal than diets based on direct cereal consumption.

In 2000, China's household surveys showed per-capita red meat consumption in urban areas was 40 per cent higher than in rural areas. Per-capita fish consumption in urban areas was three times higher, and egg and poultry consumption was more than 2.5 times higher than in rural areas.

The per-capita grain consumption in urban areas was only one-third of the rural average.

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