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Unsustainable consumption, soaring food imports
October 28, 2017, 4:01 pm

Food consumption in the six-nation Gulf Cooperation Council (GCC) states is growing by a compound annual growth rate (CAGR) of 3.5 percent and is projected to touch 55 million metric tonnes by 2020, from around 47MMT in 2016, says a revised study on food imports to the GCC.

Consumer spending on food, which stood at US$83 billion in 2012 is also set to soar and is expected to cross $106 billion by end of 2017, says the study by regional investment bank Aspen Capital. Food purchases, which constituted 28 percent of overall consumer spending of $300 billion in the region, is also projected to increase significantly in the years ahead.

Saudi Arabia, the UAE and Kuwait together accounted for over 75 percent of the regional food retail market and the three countries also topped in per capita food consumption. According to the study, the region’s per capita food consumption averaged 852kg per person, which was way above the global average, with significant regional variation. Kuwait recorded the highest per capita consumption levels of 868kg per person, followed by Saudi Arabia and the UAE. Bahrain with a per capita of only 491kg had the lowest food consumption among GCC states.

Despite this huge food imports and spending on food, GCC governments have been understandably reluctant to invest in agriculture. Given the region's hot climatic conditions, poor annual rainfall, limited source of replenishing groundwater, and increasing desertification, farming remains an unrealistic option.

For instance, in 2008, following unsustainable groundwater usage by farms, Saudi Arabia decided to close down its giant wheat farms that had once made the country self-sufficient in wheat production. Wheat farming using natural rains requires an annual rainfall of 650mm; the average yearly rainfall in the region ranges from 50mm to 250mm. In addition, with little or no easily accessible groundwater, the renewable freshwater per capita in the GCC is around 90 cubic meters – the World Bank defines absolute water scarcity as less than 500 cubic meters per person.

Since the Saudi farming experiment, other GCC states have shown little appetite to venture into agriculture or in increasing their arable land. Today, only 1.8 percent of land in GCC is used for farming and nearly 80 percent of the annual food requirements of GCC states are imported from outside the region.

A number of factors have contributed to the increase in food imports. The growing population of citizens and expatriates, as well as a rising number of tourist arrivals, remains the main driver of rising food imports. According to a recent study by the International Monetary Fund (IMF), the GCC population, growing at a CAGR of 2.4 percent, will touch 60 million by 2020, from the 52.4 million in 2016. Meanwhile, tourist arrivals to the GCC have been steadily increasing at around 7 percent annually.

Another factor fueling rapid rise in food imports is the increasing disposable income among people in the region. The region’s GDP growth, which is estimated to reach US$1.9 trillion by 2021, from US$1.35 trillion in 2016, has led to higher personal income levels that support the shift in consumption towards more packaged and processed foods. Other major factors behind the increase in GCC food imports include rapid urbanization, changing consumption patterns and diet preferences, and a rising health consciousness that has led to higher consumption of nutritional foods.

A related study on changing consumption trends in GCC by the global Produce Marketing Association (PMA) found that Saudi Arabia and the UAE, which together account for over 75 percent of the GCC population remained the region’s top food consumers in 2016. These two countries along with Kuwait accounted for 60 percent of Middle East fresh produce imports, as well as nearly 3 percent of global fresh produce imports in 2016.

The growing market for fresh produce in the region has fuelled an increase in supply from various countries around the world, including South Africa, Europe, Latin America, and the Asia Pacific region, including Australia and India. Nevertheless, nearly 40 percent of all fresh produce to the GCC still comes from neighboring Middle Eastern countries, primarily Egypt and Turkey.

But, relying on food imports also means the GCC nations are vulnerable to global food price shocks, especially with ongoing geo-political upheavals in the surrounding region. Since the 2008 global surge in food prices, governments in the region have been drafting and implementing a number of long-term strategies designed to secure future food supplies. These measures have included acquiring or investing in farmland overseas, enhancing domestic livestock, poultry, dairy and aquaculture farming, as well as building up stockpiles in large silos and warehouses, while enhancing logistics through dedicated ports for food imports and trans-GCC transport networks.

Despite best attempts by GCC states to shield their population from major food price hikes, through directly or indirectly subsidizing foods and fixing prices of essential items, analysts believe that the imminent region-wide introduction of VAT, and the recent removal or reduction of subsidies on utilities, will likely lead to food inflation in the near-term.

Though the authorities have pointed out that over a hundred food items will be exempt from VAT, they have so far not been specific about which items would be outside VAT purview. Moreover, recent increase in price of fuels and hike in electricity rates are beginning to impact the cost of local food processing, cold storage and transport, all of which could lead to an increase in food prices over the coming years.

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