The Dubai Chamber of Commerce and Industry called on UAE importers to seek innovative and long-term solutions to secure sources of food supply and to meet the challenges of food price rise caused by increase in commodities speculation, the perishable nature of food items and their impact on the UAE’s food security.
In its recent analysis on food security, Dubai Chamber presented a number of innovative solutions through which UAE investors could build lasting relationships in key food producing countries. The solutions listed are the provision of jobs in the farming communities in investments in Asia and Africa. Secondly, contribution to health and education facilities in the areas around the farmland investment and thirdly, by helping in improving crop yield and productivity through the use of latest agricultural technology and efficient ways of managing crops in developing countries.
Elaborating further, the analysis points at the use of drip technology to improve efficiency of water usage as well as the use of better yielding varieties and mixing of crops to increase productivity of the land.
The report also states that investment in farm-to-port road infrastructure for larger land investments could reduce wastage in transport and the time it takes to transport perishable goods to ports in developing countries as logistics and time are important factors that contribute to securing the UAE’s food supply, it says.
Figure 1 (below) shows the historical price trends of some important food commodities. As shown in the figure, global food commodities witnessed a secular bull market (an era of generally rising prices) starting around the year 2000. According to an OECD policy brief (August 2008): Rising Agricultural Prices: Causes and Consequences, the increase in the food prices can be attributed to increase in speculation in commodities as investors look for real alternatives to volatile financial markets.
Another cause of the rise could be the long-term decrease in the value of the US dollar. Other possible causes could include lower crop yield in developing countries and the growth of developing economies with large populations fueling demand for more and better quality food. These long-term causes of food price increase could be expected to remain in place for the foreseeable future, with possibility of short and medium term corrections.
The growth in world food demand and supply overtime is shown in table 1 (below). The table shows gradual but consistent increase in global demand for key commodities. The increase in global demand together with the secular increase in the prices of important commodities has key implications for UAE importers of food. This implies that they must continue to look to secure sources of food supply to meet the UAE’s own increasing demand.
The Dubai Chamber analysis further states that while it is not known how much and for how long food commodity prices will continue to rise, under one scenario it is possible that the current secular bull market in soft commodities could continue for some years. Therefore, from a pricing perspective UAE investors in overseas farms should be aware of the price rise in agricultural land, fertilizer and water.
According to the analysis improved efficiency can mitigate some of the impact of these price increases on cost. Furthermore, UAE companies using imported food could mitigate the risk of an era of high and possibly rising prices by entering into long-term fixed-price supply contracts with their suppliers.
As figure 1 shows the upward cycle in commodity prices has been marked by large corrections, which could also create opportunities to lock into lower prices. This analysis therefore shows that current and future developments in the international food commodity market bring with it both risks and opportunities, which could be exploited by astute businesspeople.
The analysis explores the causes and possible future outlook regarding global food prices which have witnessed significant increases over the last decade as these rising price trends are relevant for the UAE to note since it imports much of its food requirements, therefore it’s important for the importers to seek secure sources of food supplies to meet the growing demand in the country.
It is worth noting that according to Trademap.org, the UAE imported about USD 462.14 million worth of meat and edible offal of poultry meat and about USD 1.25 billion edible fruits, nuts, peel of citrus fruits and melons in 2010.