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 Arabian Mining Co. emerges as TASI’s 5th-best performer

Saudi Arabian Mining Co. emerges as TASI’s 5th-best performer
Updated 10 August 2022

Saudi Arabian Mining Co. emerges as TASI’s 5th-best performer

Saudi Arabian Mining Co. emerges as TASI’s 5th-best performer
  • Analysts expect Ma’aden to maintain its solid performance throughout 2022, owing to its expansion plans

RIYADH: Saudi Arabian Mining Co., known as Ma’aden, ranked fifth among the top share price gainers this year on the Saudi stock index TASI buoyed by strong results and a thriving mineral sector.

Ma’aden’s share price in 2022 opened at SR39.25 ($10.5) and climbed to SR59 on Aug. 4, surging 53 percent.

A booming mineral industry fueled this rise in Saudi Arabia as, in recent years, the Kingdom has shifted its focus toward discovering and extracting minerals and metals to support its mining industry.

“There is over $3-trillion worth of minerals to be exploited in the Kingdom, which opens huge opportunities for minerals companies,” said Peter Leon, a partner in Johannesburg-based law firm Herbert Smith Freehills.

Leon advised the Kingdom’s Ministry of Industry and Mineral Resources on drafting its new mining law.

Khalid Almudaifer, vice minister of MIMR, told Arab News that the ministry had established the mining sector’s infrastructure, allowing the Kingdom to leapfrog in both mining and sustainable mining.

FASTFACTS

• The company’s share price in 2022 opened at SR39.25 ($10.5) and climbed to SR59 on Aug. 4, surging 53 percent.

• Ma’aden reported a 185 percent surge in profit during the first quarter of 2022, hitting SR2.17 billion.

• The mining company has a market capitalization of over SR100 billion.

As the Kingdom revealed that it could be sitting on untapped mineral deposits worth $1.3 trillion, Almudaifer added that the $1.3 trillion estimate of untapped minerals is only a starting point and that underground minerals are likely worth even more.

In March, the state-owned firm announced its plans to increase production capacity and invest in exploration to tap into $1.3 trillion mineral reserves, a reason economist Ali Alhazmi believes that made Ma’aden shares lucrative, further leading to high performance.

Speaking to Arab News, Alhazmi explained that one of the reasons could be attributed to Ma’aden turning into probability last year, reaching SR5.2 billion, compared to SR280 million in losses in 2020.

The other reason could relate to its plan to double its capital by distributing three shares to shareholders, which has attracted investors to buy Ma’aden shares.

According to Abdullah AlRebdi, CEO of Rassanah Capital, the beginning of the third line of its ammonia production also helped the company’s fortune, especially when there was a considerable shortage of raw material for fertilizer. It is worth mentioning that the ammonia plant expansion is set to add over 1 million tons of ammonia production to reach 3.3 million tons, making Ma’aden one of the largest ammonia producers east of the Suez Canal.

Ma’aden reported a 185 percent surge in profit during the first quarter of 2022, hitting SR2.17 billion, amid a jump in commodity prices.

Analysts expect Ma’aden to maintain its solid performance throughout 2022, owing to its expansion plans and gold mining projects in Mansoura and Masarrah.

“By the end of 2022, Ma’aden will achieve SR9 billion in profit, a growth of 50 percent from 2021,” Alhazmi predicted.

As one of the fastest-growing mining companies worldwide, Ma’aden has a market capitalization of over SR100 billion and is one of the Kingdom’s 10 most prominent players.


Oil up, rebounds on renewed gasoline demand, weak dollar

Oil up, rebounds on renewed gasoline demand, weak dollar
Updated 10 August 2022

Oil up, rebounds on renewed gasoline demand, weak dollar

Oil up, rebounds on renewed gasoline demand, weak dollar
  • US crude inventories up more than 5 million barrels
  • Transneft restarts oil flows via Druzhba

NEW YORK: Oil prices rose on Wednesday, rebounding from losses early in the session on lift from encouraging figures on US gasoline demand and as a lower-than-expected US inflation figure drove investors into riskier assets.

Brent crude futures rose 68 cents, or 0.7 percent, to $96.99 a barrel as of 12:46 p.m. EST (1746 GMT). US West Texas Intermediate crude futures gained 83 cents, or 0.9 percent, to $91.33.

US stocks

US crude oil stocks rose by 5.5 million barrels in the most recent week, the US Energy Information Administration said, more than the expected increase of 73,000 barrels. However, US gasoline stocks fell sharply as implied demand rose after weeks of lackluster activity during what is supposed to be peak summer driving season.

“Everyone has been very much focused on potential demand destruction, so seeing implied demand showing an outsized rebound for last week has probably given some comfort to those really concerned about that,” said Matt Smith, lead oil analyst, Americas, for Kpler.

Gasoline product supplied rose in the most recent week to 9.1 million bpd, though that figure still shows demand down 6 percent over the past four weeks compared with the year-ago period.

US oil refiners and pipeline operators expect strong energy consumption for the second half of 2022, a Reuters review of company earnings calls showed.

US consumer prices were unchanged in July due to a sharp drop in the cost of gasoline, delivering the first notable sign of relief for Americans who have watched inflation climb over the past two years.

That contributed to a rise in risk assets including equities, while the US dollar fell more than 1 percent against a basket of currencies. With most worldwide oil sales transacted in dollars, a weakening greenback is supportive for oil. However, crude's gains were modest.

Druzhba pipeline

The market earlier slipped as flows on the Russia-to-Europe Druzhba pipeline resumed, alleviating fears of another squeeze on world energy supply by Moscow.

Russian state oil pipeline monopoly Transneft restarted oil flows via the southern leg of the Druzhba oil pipeline, RIA news agency said.

Ukraine had suspended Russian oil pipeline flows to parts of central Europe since early this month because Western sanctions prevented it from receiving transit fees from Moscow, Transneft said on Tuesday.


Insilico raises $35m in Series-D round led by Aramco-backed Prosperity7 Ventures

Insilico raises $35m in Series-D round led by Aramco-backed Prosperity7 Ventures
Updated 10 August 2022

Insilico raises $35m in Series-D round led by Aramco-backed Prosperity7 Ventures

Insilico raises $35m in Series-D round led by Aramco-backed Prosperity7 Ventures

RIYADH: US-based Insilico Medicine has raised an additional $35 million in a Series D funding round led by Aramco-backed Prosperity7 Ventures.

According to FierceBiotech, with this new round the total Series D financing has reached $95 million.

The funds will allow the company to expand its artificial intelligence platform into other areas such as sustainable chemistry, green energy and agriculture.

The financing brought in Prosperity7 Ventures as a new investor.


Emirates airline invests over $2bn to boost customer experience 

Emirates airline invests over $2bn to boost customer experience 
Updated 10 August 2022

Emirates airline invests over $2bn to boost customer experience 

Emirates airline invests over $2bn to boost customer experience 

RIYADH: Dubai-based Emirates airline is investing over $2 billion to boost its inflight customer experience, according to a statement. 

The investment includes a program to retrofit over 120 aircraft with the latest interiors, in addition to an array of other service improvements across all cabins starting in 2022.

“While others respond to industry pressures with cost cuts, Emirates is flying against the grain and investing to deliver ever better experiences to our customers,” President Tim Clark said.

“Through the pandemic we’ve continued to launch new services and initiatives to ensure our customers travel with the assurance and ease, including digital initiatives to improve customer experiences on the ground,” he added. 

The airline’s latest initiatives include upgraded meal choices, new vegan menu, a “cinema in the sky” experience, cabin interior upgrades and sustainable choices. 


EU ban on Russian coal enters into force

EU ban on Russian coal enters into force
Updated 10 August 2022

EU ban on Russian coal enters into force

EU ban on Russian coal enters into force

BRUSSELS: The EU’s total ban on coal imports from Russia comes into force from midnight Wednesday, at a time the bloc is grappling with soaring energy costs following Moscow’s invasion of Ukraine.

Leaders of the EU’s 27 countries agreed the embargo in April in their first move targeting Russia’s key energy exports over its war on its pro-Western neighbor.

The measure was subject to a 120-day grace period before full implementation, to allow pre-existing contracts to be fulfilled.

The EU up to last year imported some 45 percent of its coal — worth an estimated €4 billion ($4.1 billion) — from Russia.

Overall, the bloc slashed its consumption of the polluting fossil fuel from 1.2 billion tons to 427 million tonnes between 1990 and 2020 as it pushed to hit climate goals.

But the closure of many mines across the continent led to an increase in Europe’s dependence on imports.

Some countries including Germany and Poland that used it to produce electricity were particularly reliant on Moscow.

In the face of cuts to Russian gas deliveries in recent months, EU members such as Germany, Austria, the Netherlands and Italy have stepped up their use of coal-fired power plants.

Adding to the energy crunch, an EU plan to cut natural gas use by 15 percent in the face of rocketing prices came into force earlier this week.

During the first five months of 2022, the amount of electricity Germany produces from coal rose by 20 percent, according to energy analyst Rystad.

The embargo on Russia has pushed the EU to step up imports from other sources, including the US, Australia, South Africa and Indonesia.

But ending imports of Russian coal has already proved complicated for traditional mining nation Poland, which imported roughly 10 million tons from Moscow each year.

Its government imposed a total ban on Russian coal imports in mid-April, causing severe shortages and a surge in prices.

The cost of a ton of coal in Poland rose around fourfold from a year ago, leading to protests from the three million Poles still using it to heat their homes.