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How Gulf investors are buying up agricultural firms across six continents
By Michael Bird and Razvan Zamfira | 08.11.2022
State-backed companies from the UAE and Saudi Arabia are securing more control of the global food supply chain
Cash-rich state-backed firms from the Middle East are accelerating food and agriculture investments across the world, especially in Europe, according to our research of ten of the largest companies from the Gulf.
Following the financial crisis of 2008, businesses from wealthy petrostates targeted farmland abroad to secure food supplies for their people and livestock. In the early 2010s, this investment focused on east Africa, but diversified to the Americas, Ukraine and Australia.
Recently, sovereign-fund backed companies have expanded to the EU and Asia, where investments are worth billions of dollars.
While the 60 million people of the well-off Gulf states—Oman, the United Arab Emirates (UAE), Kuwait, Bahrain, Saudi Arabia, and Qatar—consolidate food security, their poorer neighbors—such as Syria, Lebanon and Yemen—are struggling without vital nutrients.
At the Threshold of Hunger
At the start of this year, Lebanon was suffering from spiralling fuel costs, rampant inflation, political instability and the highest refugee population in the world per capita.
In terms of food sovereignty, the Middle East is becoming increasingly polarized.
“On one hand, you have a country like Yemen, which is in a state of famine, half the population is estimated to be severely food insecure, but in the UAE, there’s very high levels of food imports,” says Christian Henderson, Gulf agriculture investment expert and assistant professor at Leiden University, The Netherlands.
The policy of investing billions in farms and food has been led by Saudi Arabia and the UAE. “It’s about access to food, and also profit,” adds Henderson. “It’s about diversifying their economies away from a reliance on oil and establishing other sectors such as food processing.”
“It’s about access to food, and also profit. It’s about the UAE and Saudi Arabia diversifying their economies away from a reliance on oil and establishing other sectors such as food processing,”
Christian Henderson, Leiden University
From Black Gold to Black Earth
Co-owned by Emirati royalty and a UAE-based sovereign wealth fund, Al Dahra is the most active Gulf company investing in European agriculture. The company calls itself “the official partner of the Abu Dhabi government in achieving the government’s long-term food security vision”.
In a 2013 interview with Oxford Business Group, managing director of Al Dahra, Khadim Abdulla Al Darei, said, due to the scarcity of water in the UAE, “outsourcing agriculture is the most cost-efficient way of creating a sustainable agriculture industry.”
The company has invested in Spain and Serbia, and in 2019 bought Agricost, one of the biggest agricultural companies in Romania, in a deal worth half a billion dollars. Farmland in the EU has the advantages of proximity to a rich market, good ports and taxpayer-funded subsidies. Agricost is the largest recipient of EU funds through the Common Agricultural Policy in Romania, cashing in around 12 million Euro a year. In an interview in 2019, Khadim Abdulla Al Darei stated that his company chose Romania due to the fertile land and the large-scale farm operations. He added that around 40 to 50% of the crops would be for the local market, and the rest for export.
Loans from European financial institutions are also available to Gulf companies investing in Europe and Africa. In 2021, Al Dahra Serbia won a 34 million USD loan from the European Bank for Reconstruction and Development (EBRD) to fund investments in crop farming, an alfalfa factory, an animal feed factory and dairy farms. The EBRD has also financed Al Dahra’s expansion in olive oil production in Morocco with five million Euro.
“Al Dahra is one of the best cases of the strategy of profit and food security entwined,” says Henderson.
Meanwhile, Saudi Agricultural and Livestock Investment Company (Salic) owns Ukraine’s Continental Group, which operates in the west of the country, and is specialized in crop, seed and potato production, and grain storage. The Continental Group has access to around 200,000 hectares, making it around the sixth largest estate in Ukraine. Salic is owned by a Saudi sovereign wealth fund with a mandate to ensure food security for the Gulf state.
Therefore, two strategic state-backed Gulf companies have control over some of the largest stretches of arable land in Europe’s region of black earth, the fertile, humus-rich soil that runs from south Romania through Moldova and Ukraine to Russia.
Seizing the Supply Chain
The UAE and Saudi Arabia are now transforming into countries which have full control of the food supply chain, from the crops, to the processing, export of the final product, and its sale.
Al Dahra is 50% owned by UAE-based sovereign wealth fund ADQ, a holding company which recently bought 45% of Louis Dreyfus, a Holland-registered trading giant. Louis Dreyfus, owned by its namesake French family, is one of the ABCDs, four of the most powerful agricultural traders, alongside American companies Cargill, Bunge and Archer Daniels Midland. However, the ABCDs’ dominance has recently been challenged by Asian companies such as China’s Cofco.
This year Salic bought one third of Singapore-based Olam Agri for over one billion dollars. Originally from Nigeria, Olam Agri is now one of the top ten global agricultural traders, specializing in grains, oilseeds, rice, and animal feed.
ADQ also made its first steps into buying a European food producer. In March 2022, the holding company announced it would buy a majority stake in Italy-based fruit producer Unifrutti, again with the twin targets of food security and profit.
“We are developing our food and agriculture portfolio with the aim of generating strong financial returns while bolstering food resilience in the UAE,” said Gil Adotevi, executive director of food and agriculture at ADQ.
But the UAE and Saudi Arabia are not importing food only for consumption. They are using these as materials to develop food processing in their home countries.
“The UAE exports about 7 billion Euro worth of food a year,” says Henderson, “It imports raw commodities such as sugar beet, processes and exports this. So it’s taking an intermediary position within the food system. Saudi Arabia is similar, although it’s not yet as strong.”
Cashing In On Food Security
The Gulf states’ policy of owning businesses across the supply chain means they are protected from three external threats: climate change, war and price volatility.
“Let’s say there’s a severe drought or heatwave in Romania and the UAE’s crops are destroyed on its farm, then it can fall back on another location, which may not have been subject to the same weather conditions to import its requirements,” says Henderson.
In 2013, Al Dahra’s Khadim Abdulla Al Darei stated: “There are numerous aspects to creating an effective system of agricultural sustainability, and it starts with the process of diversification. Al Dahra has invested in farmlands in both the northern and southern hemispheres. This is to make sure we can cultivate crops all year round and avoid any shortages that are caused by year-to-year climatic changes.”
When Gulf states own large stakes in trading firms, such as ADQ’s Louis Dreyfus and Salic’s Olam Agri, this insulates the companies from market volatility, such as the spike in wheat prices in March 2022, following Russia’s invasion of Ukraine. Al Dahra’s Khadim Abdulla Al Darei has added: “It is not just a matter of having the reserves available. It is also a matter of planning ahead and saving money for whenever inflation drives up food prices. It is also important to note that food commodity prices are based on speculation, not on supply and demand. Therefore, the political climate will often lead to price fluctuations, meaning that long-term planning for sustainable farming and pricing is a necessary tool for ensuring continued food security.”
Henderson says that ADQ buying a brokerage means they “have some control over where food might be directed in the event of a crisis. But they also get profit from it.”
Gulf companies are taking over strategic agricultural resources worldwide, and could move from a position of ensuring their own food supply, to controlling the food supply of other countries.
Middle East and North African Neighbors: Left Behind
While the UAE and Saudi Arabia are expanding their agricultural power base, many countries in the Middle East and Africa have no buffer against climate change, face food shortages, and are fast running out of cash.
At the Threshold of Hunger
At the start of this year, Lebanon was suffering from spiralling fuel costs, rampant inflation, political instability and the highest refugee population in the world per capita.
In the 1980s, many of these countries had a debt crisis, and needed bailout loans from global financial institutions, such as the International Monetary Fund (IMF) and World Bank. To secure this finance, they made structural adjustments to their economies. Under advice, countries such as Egypt, Tunisia and Morocco reorganized their country’s agriculture, and focused on products for export they could grow easily, to earn hard currency. “The idea is that Egypt produces strawberries and exports strawberries, because that’s where its advantage lies,” says Henderson.
With this hard currency, Egypt could purchase grain on the open markets. In Egypt’s case, this has been from Ukraine. Therefore, each country was playing to its strengths. This system functions in peacetime, when cordial relations exist between countries that are happy to trade freely.
But once a crisis like Russia’s invasion of Ukraine hits, suddenly Egypt is without grain, its people have no bread, and the system collapses, or needs an expensive readjustment.
“In terms of food security, this scheme has been a failure,” says Henderson. “Food prices have risen, and in most of these North African countries since the 1990s, food insecurity has risen. If they had tried to place an emphasis on food sovereignty and provide some buffer from the international markets, they would be in a better position to deal with this kind of crisis.”
Since the 1990s, Gulf agricultural companies have been expanding in Africa, often through deals with Governments in Sudan, Egypt and Ethiopia for use of their land. In most cases, this is to ensure animal feed for the livestock housed in Saudi Arabia and the UAE. Because Gulf companies had capital, they took advantage of the financial restructuring in many of these countries to take hold of assets. The firms often used the discourse of food security to “sweeten the arrangement and sweeten the deal” says Henderson, so they could invest in Egypt or Sudan.
“They will use food security in a vague manner to justify that investment, even though the evidence for there being some mutual benefit in terms of food security is quite questionable,” the expert adds.
Meanwhile, countries such as Lebanon, Syria and Yemen have become losers in the region, because they neither have oil, cash nor land. “They’re also not on good terms with the West and the Gulf, so they’re kind of frozen out of loans and aid,” adds Henderson.
Food Sovereignty for Everyone
The solution is the development of domestic food production in countries such as Lebanon and Yemen, where Gulf companies have avoided making large investments.
“What a country like Yemen needs is a stop to the war,” says Henderson. “It needs the infrastructure to be rebuilt, and it needs its domestic farmers to have the opportunity to farm their land, and not be caught in a cycle of debt and other problems that go along with the life of the small farmer.”
This applies to many countries in the region. “Lebanon is the same,” he adds. “Food sovereignty and small farming works when it’s left alone, or it works when it’s supported by state agencies, who haven’t got an interest in profit. It doesn’t necessarily work when big investors come along and throw money at it because food sovereignty and the food industry are not necessarily compatible, and they have entirely different aims. This is probably why the Gulf has not really shown any interest in these countries.”
Credits:
Writer: Michael Bird
Infographics: Razvan Zamfira
Illustrations: Andrei Cotrut
Photography: Diego Ravier, Philippe Pernot
Additional Reporting: Ana Maria Luca, Paolo Riva, Vlad Odobescu
