GCC not at risk of food insecurity but inflation as Ukraine crisis disrupts supply

Analysis GCC not at risk of food insecurity but inflation as Ukraine crisis disrupts supply
As food protectionism is spreading, many countries have begun to halt the export of essential food items to secure domestic supply amid rising global supply chain concerns. (Shutterstock)
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Updated 03 April 2022

GCC not at risk of food insecurity but inflation as Ukraine crisis disrupts supply

GCC not at risk of food insecurity but inflation as Ukraine crisis disrupts supply
  • While Gulf region imports nearly 85% of its food supplies, it is among most food-secure regions

RIYADH: The ongoing war between Russia and Ukraine is creating major disruptions in global food supplies, creating fear of food insecurity and inflation in some countries heavily reliant on imports amidst rising energy costs. 

The two countries ranked among the top three global exporters of wheat, maize and sunflower oil, among others, according to a new paper by the Food and Agriculture Organization of the United Nations, or FAO. 

In addition, Russia is also one of the leading exporters of fertilizer, an essential material used in the farming business.

These disruptions, combined with rising transportation costs due to energy prices hikes, could lead to food insecurity for many countries in the Arab region.

“With the Ukraine crisis, we are getting challenged by constant changes in the availability of raw material used in finished (food) products,” said Sasha Marashlian, managing director of Imagine FMCG, an international distributor covering the GCC markets.

He said that countries exporting food commodities are now blocking or capping raw material exports. “This is translating into a lack of availability of certain products and a massive hike in food pricing due to supply and demand dynamics.” 

“In my opinion, every food product will be impacted,” he added, underscoring that food prices could rise by 17 to 20 percent over the next 18 months in the GCC.

Food protectionism 

As food protectionism is spreading, many countries have begun to halt the export of essential food items to secure domestic supply amid rising global supply chain concerns.  

On March 14, for instance, Russia temporarily banned grain exports to ex-Soviet countries and most of its sugar exports. This came on the back of Hungary deciding to ban grain exports on March 5. Egypt followed suit by banning exports of strategic commodities for three months, namely lentils and beans, wheat, and all kinds of flour and pasta. 

Food-producing countries are using export bans to preserve stocks of essential commodities amid what is turning into a severe global crisis.

Rising fuel prices are worsening the situation, leading to higher transportation and freight costs. “Shipment costs are now four to five times compared to two years ago, and the freight cost is at its highest ever,” pointed out Marashlian.

The international distributor believes that the impact will be fully priced in, after Ramadan, once local safety stocks start depleting.

“Countries that are most at risk in the MENA region include Lebanon, Egypt, Yemen, Iran, Libya, and Sudan,” warned Devlin Kuyek, a researcher at GRAIN, which focuses on monitoring and analyzing global agribusiness trends. 

The expert who exclusively spoke with Arab News believes that Saudi Arabia and Oman will be impacted to a lesser extent, as they have the means to source elsewhere.

The impact of food supply chain disruptions will depend on each country’s access to imports. “Price is less of an issue for the GCC than supply,” said Kuyek. 

However, he underlined that during the food price spike of 2007, the GCC countries struggled to get access to the food they needed, at any given price, as food-producing countries started to block exports in order to control domestic prices.

“Another question worth asking is, will these countries continue to source from Russia?” he pondered. 

Russia is still exporting, even if at a lower capacity. Due to their relatively good relations with Moscow, some MENA countries may be able to continue getting grains from Russia.

GCC preserves food security  

History shows that when food prices soared in 2007, GCC countries responded to global disruptions by taking certain measures to maintain and protect their food supplies. 

“Sovereign wealth funds (in these countries) countered (food price rise) by buying up farmland in Africa and securing more supplies,” said Aliya El-Husseini, senior associate — Equity Research at Arqaam Capital, in an interview with Arab News. 

Since then, she said, they started building strategic reserves and local production capacity, which is reflected in the more muted inflation figures this year.

The researcher added that while the GCC still imports nearly 85 percent of its food supplies, it continues to be considered among the most food-secure regions globally.

Food supplies had already started to be disrupted by the COVID pandemic, highlighted El-Husseini. 

This prompted at the time regional governments to launch immediate measures to preserve food security, including financial exemptions and credits to farmers and agribusinesses, movement exceptions for agricultural workers during strict lockdowns, and packaging and distribution support, she explained.

“Subsidy regimes in the region have helped maintain inflation for several years, but a lot of subsidies have been phased out since 2016, while some subsidies still remain and are being expanded to help mitigate price hikes,” added El-Husseini.

Saudi Arabia capped local fuel prices last June, she said. This has helped keep the transport inflation in check, but, El-Husseini pointed out that it is not enough to offset the rising prices in the other major categories of the food baskets.

“The partial reversal of the VAT, which was increased from 5 percent to 15 percent on 1 July 2020, in Saudi Arabia, could be one key measure to help further contain prices, as the GCC is running fiscal surpluses, thanks to high oil prices and relatively tight fiscal spending plans,” she emphasized.

Other factors that could help GCC countries weather the food crisis are that they have been outsourcing farming to other countries for years. This ensured that they had more direct control over grain trading companies. 

In order to meet their local population demand, the GCC countries have acquired agricultural land in foreign states in Africa and Asia, as well as Arab countries in the Nile Basin, according to a paper titled “Land grabs reexamined: Gulf Arab agro-commodity chains and spaces of extraction” by researcher Christian Henderson.

Yet Kuyek does not seem to view this particular strategy as full proof. “I don’t think the purchase of land in other countries has done much to buffer the GCC demand for imports. Many of the overseas projects collapsed or never got off the ground,” he observed.

Projects that are up and running could also face significant challenges in the form of export bans imposed by foreign countries. Sudan, which is home to a number of GCC mega-farms, is one example where such a scenario could happen.

The GCC countries have nonetheless taken a step further by buying stakes in major food companies. 

“Abu Dhabi took a 45-percent stake in Louis Dreyfus last year, and part of the purchase was predicated on prioritizing trade to the UAE,” said Kuyek.

In 2016, Fondomonte California bought 1,790 acres of farmland in California for nearly $32 million. Fondomont’s parent company is none other than Saudi food giant Almarai.

“While we are seeing an upward pressure on price across the region, inflation is unlikely to reach the levels seen in other emerging or developed markets,” concluded El-Husseini of Arqaam Capital.


Saudi Maharah’s unit acquires 41% of Care Shield for $90m

Saudi Maharah’s unit acquires 41% of Care Shield for $90m
Updated 13 sec ago

Saudi Maharah’s unit acquires 41% of Care Shield for $90m

Saudi Maharah’s unit acquires 41% of Care Shield for $90m

RIYADH: Growth Avenue Investment Co., a unit of Maharah Human Resources Co., closed the acquisition of a 41 percent stake in Care Shield Holding Co. in a deal valued at SR307 million ($90 million).

The title to the shares was transferred to the buyer, Maharah said in a bourse filing.

The deal was financed in part by the company’s own resources and in part by a loan from Al Rajhi Bank.

Growth Avenue Investment qualifies for a profit share from the acquired stake as of Jan. 1, 2022.

In August, Maharah announced that Growth Avenue had received the General Authority of Competition’s nod to proceed with acquiring Care Shield Holding.


LinkedIn reveals Saudi Arabia’s top 10 startups for 2022

LinkedIn reveals Saudi Arabia’s top 10 startups for 2022
Updated 15 min 22 sec ago

LinkedIn reveals Saudi Arabia’s top 10 startups for 2022

LinkedIn reveals Saudi Arabia’s top 10 startups for 2022

RIYADH: Professional networking solution provider LinkedIn has revealed the annual ranking of the top 10 startups based in Saudi Arabia that have demonstrated growth in 2022.

The annual ranking has been analyzed on the basis of the companies’ interactions with LinkedIn members. They are measured through employment growth, company and employee engagement, job interests, and talent attraction.

The top startups in Saudi Arabia for 2022: 

  1. Tamara
  2. Sary
  3. Nana
  4. Zid
  5. Tweeq
  6. Gathern
  7. Lendo
  8. Qawafel
  9. Resal
  10. Shgardi

“KSA’s Top Startups List 2022 reflects the current state of the startups and VC space in the country while also offering insights into the prevailing market trends influencing the community,” said Salma Altantawy, senior news editor at LinkedIn.

The announcement also indicated that fintech witnessed huge traction in the Kingdom with three startups — Tamara, Tweeq, and Lendo — in the sector making to the list.

Delivery services have also grown in popularity with platforms like Nana and Shgardi recording good traction. This is in addition to a rise in B2B solutions as companies like Sary and Qawafel found second and eighth positions, respectively.

“This year’s list sees the emergence of many startups from financial backgrounds. This signifies the increased popularity and growing need for simplified and innovative fintech solutions by consumers in Saudi Arabia,” she added.

To be eligible, LinkedIn said, companies must be independent and privately held, have 50 or more country-based employees, be seven years old or younger, and be headquartered in the country on whose list they appear.


TASI sees gains as global economic fears ease: Opening bell

TASI sees gains as global economic fears ease: Opening bell
Updated 52 min 24 sec ago

TASI sees gains as global economic fears ease: Opening bell

TASI sees gains as global economic fears ease: Opening bell

RIYADH: Saudi Arabia’s main index has continued to recover from a sharp drop that was caused by concerns about economic growth.

The Tadawul All Share Index gained 0.94 percent to reach 11,120 Wednesday morning, while the parallel market Nomu started 0.34 percent higher at 19,786, as of 10:08 a.m. Saudi time.

Saudi oil giant Aramco started with a 1.02 percent gain, while Rabigh Refining and Petrochemical Co. added 0.3 percent.

The Saudi National Bank, the Kingdom’s largest lender, increased by 0.98 percent, while Saudi British Bank increased by 0.95 percent.

The Kingdom’s highest valued bank, Al Rajhi, rose 0.5 percent, while Alinma Bank gained 0.86 percent.

Anaam International Holding Group continued to lead the gainers for a third session with a 5.42 percent gain, after it turned into profits of SR1.6 million ($425,599) in the first half of 2022.

The Saudi Public Transport Co. gained 1.77 percent, after winning an SR88 million public bus transport project with Taif Municipality.

Maharah Human Resources Co. added 0.83 percent, after securing a long-term Murabaha loan worth SR200 million from Al Rajhi Bank.

 


Arabian Drilling opens IPO at up to $24 per share

Arabian Drilling opens IPO at up to $24 per share
Updated 53 min 59 sec ago

Arabian Drilling opens IPO at up to $24 per share

Arabian Drilling opens IPO at up to $24 per share

RIYADH: Arabian Drilling Co. has set its price range for its initial public offering at SR90-100 ($24-$27) per share, as it kicks off the book-building period on Wednesday.

The process for institutional investors, which will end on Oct. 5, will be led by HSBC Saudi Arabia, Goldman Sachs Saudi Arabia, and SNB Capital, according to a bourse filing.

ADC is offering 30 percent of its capital, representing 26.7 million, in an attempt to join Nomu’s parallel market.

The retail subscription to 2.76 million shares, or 10 percent of the shares offered, will run from Oct. 18 to Oct. 19.


Saudi food chain Raydan seeks stockholders’ approval to slash capital to $42m

Saudi food chain Raydan seeks stockholders’ approval to slash capital to $42m
Updated 28 September 2022

Saudi food chain Raydan seeks stockholders’ approval to slash capital to $42m

Saudi food chain Raydan seeks stockholders’ approval to slash capital to $42m

RIYADH: Raydan Food Co. has invited its shareholders to vote on reducing the company’s capital from SR338 million ($90 million) to SR158 million.

This reduction plan was made in order to restructure the company’s capital structure to recover losses, according to a bourse filing.

Raydan Food reported earlier that its accumulated losses reached SR179 million in the first half of the year, representing 53 percent of its share capital.

Earlier this month, Raydan received the Capital Market Authority's approval for capital reductions.