From oil to soil

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Gulf states are snapping up vast swathes of farmland across Asia and Africa to secure their long-term supplies and protect against soaring food costs.

But the strategy could leave the region vulnerable to protectionism and political fallout. Claire Ferris-Lay and Andrew White report.

Samir Makky is worried about his sheep and what they will eat this summer. The board secretary of Qatar Livestock Company hopes the answer is to be found in Sudan where the company has just bought 50,000 acres of arable land to produce feed for his flock.

Qatar Livestock Company is awaiting the first harvest from a series of farmland plots the firm has acquired across Africa's largest country by land area. It entered Sudan eight months ago and is now planning to buy even more land in the country as well as in Pakistan.

"Everyone is looking for land for agricultural business now, says Makky, whose company is just one of a growing number of Gulf players investing in agricultural land as the price of corn, wheat and soybeans approach record highs.

Soaring prices are forcing the Gulf nations, which import the majority of their foodstuffs, to find new ways of safeguarding future supplies. Flush with record oil revenues the Gulf states, which together produce about 40% of the world's crude oil, are competing for a share of the world's next hot commodity - agricultural land.

Keen to reduce short-term measures private companies and governments are now turning to high exporting countries for long-term solutions.

Saudi Arabia's Savola Group plans to spend at least US$100m to buy minority shares in agribusiness firms in Sudan, Ukraine and Egypt while its deputy agriculture minister has confirmed the government is in talks with officials from Sudan, Egypt, Ukraine, Pakistan and Turkey.

At the same time, Dubai-based private equity firm Abraaj Capital is also understood to be looking at investing in agricultural land in Pakistan, while the UAE has already sealed a scheme to buy farmland in Northern Sudan.

But land deals such as those currently being pursued by SWFs as well as private investment groups in the region, could end up being as damaging to the Gulf, as they are to the nations that sell up.

Economists warn that the region could become dangerously dependent on supplies from abroad - and increasingly vulnerable to future supply crunches, protectionism, and political fallouts.

"In order to participate in the marketplace obviously one way to do it is through futures contracts or commodity indices, another way is to hold physical commodities, and yet another way is to hold the means of production," says Eric Kolts, vice president of Commodity Indices at Standard & Poor's.

"I think that we already are seeing agricultural land as a new key commodity."

According to the World Bank, the cost of food worldwide has risen by 80% in the last three years. In 2007 dairy products were up 80%, cooking oils by 50% and wheat by 120%.

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