Interpreting Middle East Economic News and Analyzing Market Trends

What’s at stake for the Middle East in Ukraine

Ukraine Farmalnd

Photo Source: Modern Diplomacy

With the crisis in Ukraine going from bad to worse, all attention has been on the increasing tensions in the region and its effects on the Ukrainian and Russian economies.  There is a lot more at stake than these economies alone.  Take for example the Middle East; it has a lot at stake in the Ukraine than most realize.  Not much has been said about this, which needs some attention.

Over the past decade, Middle Eastern countries have embarked on a massive food security program, with countries such as Saudi Arabia, Kuwait and the United Arab Emirates buying up thousands of hectares of land in fertile countries.   These countries initially set their sights on regional farmland buying up land in Pakistan, Sudan and Egypt.  However, their appetites did not stop there.  They have since gone on to buy land around the world from Brazil to Cambodia.  The Ukraine was one of the major targets of Middle East farmland investment.

  

According to the 2011/2012 marketing year results Arab countries are apparent leaders in grain import in total share of Ukrainian export. Thus, their share in export of Ukrainian barley is 87% with fair share of 69% belonging to Saudi Arabia. Ukraine also exports 44% of wheat in these countries, and Egypt is its largest importing country with a 22% share. There is also 41% of maize export falling on Arab countries. The largest export share also falls on Egypt and comprises 26%.

Naturally, under such import performance entry of foreign companies to the production market is only a matter of time as Ukraine fits excellently the national foreign investment strategies to ensure food security. However, Arab investors are now only beginning their entering the market. Thus, businessmen from UAE expressed their interest in entering the Ukrainian market already during Yushchenko’s presidency; however, these were just talks. At the same time, investors from Saudi Arabia are more decisive. This year consortium of Arab investors including such largest companies as Almarai and Al Rajhi, purchased Continental Farmers Group Company having small land bank in Ukraine and Poland (23.7 thousand hectares and 2.5 thousand hectares of farmland, respectively). It should be noted that, having production capacities in Egypt, Jordan and UAE, Almarai with its specializing in dairy, baking, juice and other types of production markets 65% of its products in Saudi Arabia. In its turn, Al Rajhi has been operating in Ukraine since 2006 through International Investment Co LLC., and is engaged in grain trade.

Ukrainian experience of these companies may become a litmus paper for activation of Arab investors on the market. Such investments have quite many potential stakeholders. Among Saudi Arabic companies one may mention Foras International Investment Co. This company has experience of work in Tatarstan (Russia) and Bosnia and Herzegovina and meanwhile develops AIC direction in African countries such as Mali, Senegal and Sudan. Among UAE companies we may mention Al dahra Agricultural Company as potential investor. This company has subdivisions in Egypt and Pakistan. In addition, governmental Abu Dhabi Fund for Development (ADFD) also is potentially interested in investments in Ukraine. This company has agricultural assets in Morocco, Mauritania, Senegal and Egypt. Among other Qatari companies with potential interest in entering the Ukrainian market we may mention national structure, the Hassad Food Company. This company is an active participant of land and AIC company sale and purchase markets in Pakistan, India, Australia, Turkey, Brazil, Nigeria, Ghana, Sudan, and, what is important for future work in Ukraine – in Russia. Among potential Kuwaiti investors to the Ukrainian AIC one may call Kharafi Group. Food industry is not primary business for this company; however, it has experience of successful work in this direction.

Read the Full Story from Modern Diplomacy.

   

Farm Race - Ukraine

Source: The Economist

   

“Food security is not just an issue for Abu Dhabi or the United Arab Emirates,” says Eissa Mohamed Al Suwaidi of the Abu Dhabi Fund for Development. “Recently, it has become a hot issue everywhere.” He is confirming what everyone knows: the land deals are responses to food-market turmoil.

Between the start of 2007 and the middle of 2008, The Economist index of food prices rose 78%; soyabeans and rice both soared more than 130%. Meanwhile, food stocks slumped. In the five largest grain exporters, the ratio of stocks to consumption-plus-exports fell to 11% in 2009, below its ten-year average of over 15%.

It was not just the price rises that rattled food importers. Some of them, especially Arab ones, are oil exporters and their revenues were booming. They could afford higher prices. What they could not afford, though, was the spate of trade bans that grain exporters large and small imposed to keep food prices from rising at home. Ukraine and India banned wheat exports for a while; Argentina increased export taxes sharply. Actions like these raised fears in the Gulf that one day importers might not be able to secure enough supplies at any price. They persuaded many food-importing countries that they could no longer rely on world food markets for basic supplies.

Read the full story from The Economist.

   

OPEC countries have been fortunate enough to be able to acquire such vast amounts of land all over the world, but does it guarantee food security?  What if countries, such as Russia or the Ukraine impose bans on exports to these countries?  It’s happened before.  What if there are issues with exporting the crops as we are seeing now in the Ukraine?  What happens if ports are shut down due to a war?  Investing in land overseas does not guarantee security; it merely provides some piece of mind.  What about countries that are not able to buy farmland due to financial constraints?  Let’s take Egypt for example, a country highly dependent on foreign food supplies to feed it’s population and maintain low prices to avoid political chaos…

Egypt imports more wheat than any other country in the world. Though the conflict between Russia and Ukraine hasn’t caused any problems yet, future price fluctuations could create further tension for an already-tense market.

The benchmark Paris milling wheat for May was up 0.9 percent to hit a three-month high on Wednesday, Reuters said.

Though economists don’t expect a supply shock any time soon, potential problems at Ukrainian ports or a delay in the spring planting season could cause trouble down the line.

Ukraine sends six hundred metric tons through its ports every week, so even one or two disruptions could have wide implications. Two major ports are Sevastopol, in the Crimea, and Odessa, where pro-Russian rallies have occurred.

Meanwhile, the country’s army reserves would include most men under 40-years old. If they were called into service, it could seriously disrupt the spring planting season. Again, this is only a possibility.

“For now we think that disruption to grain supplies is unlikely,” Pugh wrote, adding that the price of wheat should fall to $500 per bushel by the end of the year.

Though Egypt imports about 10 million metric tons of wheat every year, officials have stated there’s no need to worry. But experts are keeping a close eye on the situation.

“They’re a huge importer of wheat and that’s what I’m worried about,” Matthew Spivack, practice leader for Middle East and North Africa at Frontier Strategy Group, an advisory firm for multinationals that operate in emerging markets, said. “It’s just something else that adds to volatility.”

Egyptian officials, however, have emphasized that the country is prepared.  

“Egypt’s imports of wheat will not be affected by political events that Ukraine is witnessing,” Mamdouh Abdel Fattah, vice chairman of the main government wheat buying agency GASC said on Saturday, according to Reuters. 

On Monday, the Egyptian supplies minister said the country had enough stocks to last until June.

Like other countries in the region, many Egyptian food products are highly subsidized. Citizens purchase loaves of bread for about $0.01 each, a program that costs the government about $3 billion annually. 

Read the full story from International Business Times.

   

With this is mind, Egypt is embarking on a new strategy to gain access to stable food supplies…

   

Russian Foreign Minister Sergei Lavrov has revealed that his country is seeking to establish a naval base in Egypt. He stressed how important this is to Russia but denied that it would be incompatible with the existing American presence in the country.

Lavrov’s remarks came in a lengthy interview with Rossiyskaya Gazeta newspaper. He was asked not only about the naval base but also the possibility of Egypt buying weapons from Russia. “The naval base is certain, and I say it loudly,” he replied. “We want to have a presence in the Mediterranean because it is important for Russia to understand what is happening there and to enhance our position.” He said that the Syrian port of Tartus will be the fuel base for Russia’s Mediterranean Fleet.

The foreign minister denied that the Russians are moving towards Egypt in order to reduce American influence in the region. “The Americans have a huge fleet out there,” he pointed out. “Everybody knows that the US has not lost any influence in Cairo, including the Egyptians.”

He explained the recent position taken by the coup leaders in Egypt: “They are looking at other options following the US decision to block some military aid, as any other country would.”

Read the full story from Middle East Monitor.

   

 So with Russia’s naval base closed (or closing) in Syria, it needs to find another based in the Mediterranean.  Egypt is ideal.  Having control over both Russian and Ukrainian food exports gives Russia a big edge in negotiating the terms the deal.

  

The Middle East has a lot at stake in the Ukraine.  It’s in the region’s best interest to not take sides in the conflict or risk their food security.