The Water-Energy-Food Nexus in the Arab World and Financial Challenges

Martin Keulertz and I have published a new article in the International Journal of Water Resources Development: “Financial Challenges of the Nexus: Pathways for investment in water, energy and agriculture in the Arab world.”

Abstract:

The Water–Energy–Food (WEF) nexus is a development challenge in the Arab world,
particularly in the ‘core nexus countries’ with low to mid-incomes in which limited
water endowments permit agricultural production, such as Egypt, Morocco, Tunisia,
Lebanon, Algeria, Sudan and Jordan. The WEF nexus is often conceptualized in mere
technocratic terms, yet politics matter in the implementation of projects that address it.
Internalizing hydrological externalities or leaving them as they are and financing them
as a public good requires states whose capacities have been reduced as a result of
neoliberal reform. The article explores five different pathways of how Arab countries
could finance green growth projects ranging from regional financial markets to
concessionary loans by funds from oil rich Gulf countries.

The Water Energy Food Nexus in Drylands

I have just returned from the conference about the Water Food Energy Nexus in Drylands that CIDOB has organized together with the OCP Policy Center in Rabat, King’s College London and Texas A&M University.

Approximately two billion people live in arid countries. One third of the global population will be most affected by water scarcity and climate change. Efficient management of water resources for food and energy production is a developmental challenge that requires holistic approaches. The water-food-energy nexus highlights that food, water and energy security are inextricably linked and that any decision in one of the three sectors has consequences for the other.

Nowhere else this nexus is as evident as in dry lands and in the MENA region in particular. Energy will be required to pump, treat and desalinate water for domestic and agricultural purposes. Water will be required to produce energy. About 1-2 percent of global energy consumption can be attributed to the production of nitrogen fertilizer alone. Such development challenges call for a nexus approach to broaden the analysis from a mere ‘blue water’ focus to the more efficient use of soil moisture (‘green water’) and sustainable policy options.

Tony Allan of King’s College pointed out that the nexus between water, energy, and food was first conceptualized at World Economic Forum 2011, which was then followed by a high profile conference organized by the German Ministry of Economic Cooperation (BMZ).

Since the 1980s there have been growing sustainability concerns about the various hydraulic missions that have been undertaken since the 1850s. The constant rise in irrigation since the 1960s coincided with declining food prices – until 2008. Further irrigation growth is unsustainable. There has been a peak of World Bank dam financing in 1980.

As a result the focus has shifted from blue water to green water since the 1990s and the latter’s major role in food and virtual water trade. About 70 percent of global crops are rainfed and rely on green water.

Sustainable intensification, protection of farm livelihoods, supply chain management, waste and consumption issues are crucial in Allan’s view. This was echoed by Brian Chatterton, a farmer and a former Minister of Agriculture of South Australia and Lynn Chatterton, an independent consultant. They complained that farmers have not been at the center of attention of the international agro research establishment, which has focused on higher yields instead of lower costs and ecological factors, which are crucial for farmers. They also deplored a relative neglect of pastoralists in extension services, symbolized in the FAO’s closure of its pasture department.

The Chattertons described the green revolution as an abject failure in dry lands because its application of nitrogen fertilizer relies on reliable rainfalls, yet they were optimistic that yields can be improved without more water and irrigation and pointed out that productivity in Australian drylands is 2-4 times higher than in the MENA region without more water and in similar climatic conditions. In the same vein Kris Dodge of ICARDA demonstrated how adapted seeds and plowing techniques, rain harvesting and supplemental irrigation can improve yields in the MENA.

Existing reporting and accounting rules do not account sufficiently for natural resources like water as inputs as Tony Allan, Martin Keulertz of Purdue University and myself pointed out. Rainfall frequency is often reflected in land prices, at least in developed markets, there are also varying pricing schemes for irrigation water in some countries, yet often water remains external to the economy. In case of damage there are only limited sanctions in place to internalize costs, while its provision as a public good is compromised by limited state capacities that have been weakened after decades of neo-liberal reform.

Thus there is a danger that the nexus is conceptualized in apolitical and technocratic terms, as Harry Verhoeven of Oxford University deplored. Often there is a focus on technical fixes, presumably neutral scientific policy choices and “governance”. Yet politics rather than governance matter in water, energy and food allocation and imply control over people. Such politics entail winners and losers as Verhoeven outlined in a depiction of the political economy of the nexus in the Nile Valley.

Other country examples included Jordan, Lebanon, Syria, Egypt, Yemen, Qatar, Darfur, USA, Ethiopia, Senegal, Tunisia and Morocco. Bassel Daher of Qatar Foundation demonstrated his nexus tool that shows trade offs between water, food and energy allocation in the case of Qatar and could be applied to other countries. Samer Talozi of the Jordan technology University in Irbid showed that 14 percent of Jordan’s electricity production is used for water treatment and pumping. Holger Hoff of the Stockholm Environment Institute and Potsdam Institute for Climate Research and Rabi Mohtar of Texas A&M outlined latest trends in nexus research and forthcoming conferences and research initiatives. Musa Mckee of SOAS, London showed interlinkages between culture and water, food and energy allocation.

Caroline King of the Ecosystems and Human Development Association (EHDA) made a case for improved green water management, particularly in Yemen and Talal Darwish of the National Center for Remote Sensing (CNRS) in Beirut  showed that the effects of climate change in Lebanon have been mainly in the form of irregular rainfall patterns. Decline of overall rainfalls was relatively benign in comparison.

Gabriele Cassetti of Milan Politecnic introduced the TriNex cooperation platform for nexus related projects between European and Egyptian universities that is funded by a Tempus grant of the European Union. Ansoumana Bodian of the Université Gaston Berger (UGB) showed a model how to investigate the effects of rainfall run-off on water resources in Senegal. Rachid Doukkali of Institut Agronomique et Vétérinaire Hassan II and Omar Aloui of Agroconcept demonstrated changes in water and land use in Morocco and related food security issues. Francis Ghilès of CIDOB discussed recent developments in the natural gas industry in North Africa.

Saqib Mukhtar of Texas A&M described problems of the Texan Ogallala aquifer that are similar to challenges in the MENA: Agriculture in Texas uses 80 percent of groundwater and 35 percent of surface water. 66 percent of all groundwater comes from the Ogallala aquifer that stretches all the ay up to South Dakota. Its current recharge rate only covers about 15 percent of withdrawals. Given the accumulated over-extraction it would require 300-1000 years of recharge to go back to the level of the 1940s when large scale irrigation took off.

Brendan Bromwich who worked for many years for UNEP in Darfur showed unintended consequences of water provision in refugee camps against the backdrop of a society that still relies on wood as primary fuel. The water supplies prompted a brick stone industry that required wood and considerably contributed to deforestation. Hence alternative building materials are needed to safeguard energy and soil resources.

Guy Jobbins of the Overseas Development Institute pointed out that Moroccan subsidies for drip irrigation rather benefit wealthier and literate farmers as ‘urfi land of the poor cannot be mortgaged. He also showed the limits of technical fixes: Drip irrigation improves efficiency, but it has not reduced water consumption in Morocco as it prompted farmers to increase the irrigated area and switch to more commercial but water intensive crops. Rural electrification in Morocco went up from 18 percent to 97 percent between 1995 and 2011 and caused a massive growth in installed pumps and irrigation.

As for climate change Mark Mulligan of KCL departed from the current consensus and argued that African dry lands will possibly receive more rather than less rainfall in the future, which could compensate for the negative effects of higher temperatures on agricultural productivity. Rabi Mohtar of Texas A&M pointed out another often forgotten nexus between energy and water: About 70 percent of the water that is used for unconventional oil and gas production via fracking remains underground and is withdrawn permanently from the hydrological cycle. This could diminish water availability in the long run.

Daniel Yeo of the Global Green Growth Institute in Addis Ababa outlined Ethiopia’s strategy of agricultural led development and the role of its dam program while pointing out cleavages between academic and political mindsets. The latter was also highlighted in the concluding key-note address by H.E. Miguel Moratinos, the former Spanish Minister of Foreign Affairs.

In sum water, food and energy are inextricably linked via various nexi and should not be regarded separately. However, a purely technocratic approach should be avoided given the importance of political economy issues in allocation procedures.

Qatar Presents Food Security Master Plan

After several postponements over the last years, The Qatar National Food Security Programme (QNFSP) has finally presented its Master Plan.

Its original plans to achieve 70 percent self-sufficiency by 2023 with the help of solar based desalination and high-tech agriculture (e.g. hydroponics) has met with skepticism in international circles because of the high costs, huge energy needs and ecological damage resulting from disposal of the brine of desalinated water.

Two things with the now presented Master Plan are striking:

a) Envisaged self-sufficiency ratios are lower and time horizons farther out into the future. The goal now is only to reach 40-60 percent “in short term to mid-term”, up from 8 percent currently.

The challenges are daunting: Domestic agricultural production since the global food crisis in 2008 has declined by 30 percent. This points not only to the lack of water, but also to the lack of capacities. Many “farms” are rather used as weekend getaways than for commercial agriculture.

b) The guarded comments about Hassad Food, the agricultural investment vehicle of the Qatar Investment Authority (QIA), points to considerable differences between the two institutions.

This might only relate to different philosophies: Hassad claims to have enough food production abroad to cover 60 percent of Qatar’s needs. QNFSP replies to this that such commercial investment should not be equated with food security, which could only be maintained by strategic investments in domestic agriculture.

Some of the irritation may also be caused by the fact that QNFSP is part of the office of the new Emir, while QIA and its subsidiary Hassad are officially still led by the former Prime Minister Hamad bin Jassim al-Thani.

Yet QNFSP’s claim that only self-sufficiency could achieve true food security is debatable. Export restrictions and temporary illiquidity in world markets may be better addressed by strategic storage.

In the hypothetical situation of  comprehensive interstate warfare in the region import dependency would have only shifted from food to supply parts, expatriate experts and blue collar workers.  Disruptions of domestic production might be a more likely threat in such a case than disruption of supply routes.

Gulf Food Inflation and Statistics

The GCC food retail sector is to hit $106 billion over the next five years according to a report by consultancy company AT Kearny.  Three quarters of this market are Saudi Arabia and the UAE alone.

The interesting snippet of information is that they see the food share of total consumer spending of $300 billion at 28 percent.

This would be pretty high. Not as high as in developing countries where this share is mostly between 40 and 60 percent, but higher than in OECD countries where its ranges mostly between 10 and 20 percent.

This was also the range that was mostly given in a survey by YouGov Siraj in 2007 (see on page 34). However, the survey revealed also that about ten percent spent between 30-50 percent and more on food. Additionally it might have had a sample bias as it was conducted over the internet with incentivized participants. As poor migrant workers often do not have internet access or are illiterate they might have been underrepresented due to sample bias.

The really deplorable thing is that we do not really know. Gulf statistics are not reliable and lack detail. The share of food in the general Consumer Price Index (CPI) is 26 percent in Saudi Arabia, 14.3 percent in the UAE, and 18 percent in Qatar and Kuwait.

Increasing Gulf LATAM Ties

Interesting article in the FT about the increasing ties between the Gulf and Latin America. Agriculture ranks high beside investments in mining and other companies.

Al Gharrafa, a subsidiary of state owned Qatar Holding now holds about 10 percent of the shares of Adecoagra. The company has investments in Brazil, Argentina and Uruguay and Pampas Humedas, an affiliated company of US billionaire George Soros is a major shareholder.

Such investments are part of a larger trend. If Gulf countries actually put money on the table and not just announce investments it is rather in developed agro-markets and in partnership with experienced local partners. In contrast investments in risky developing countries like Sudan have not materialized in many cases.

As Brazil and other developed agro-exporters like Thailand or Ukraine have put limits on foreign land ownership to keep cash producing assets national, partnerships are also the vehicle of choice to participate in their farming operations.

Qatar Now Largest Urea Exporter

With the launch of the  Qafco-6 project Qatar is now the world’s largest exporter of urea, with a 15 percent market share. In terms of production it ranks number 4 globally. Saudi Arabia contributes another 10 percent to global urea exports, underlining the Gulf’s importance in global fertilizer markets.

Qatar’s annual capacity for urea is  5.6 million MT. Last year it produced 3.6 million tonnes of ammonia and 4.3 million tonnes of urea.

With ample natural gas supplies globally in the wake of new production techniques like hydraulic fracking there is no shortage of nitrogen fertilizers for the foreseeable future. Yet countries in the Middle East may think how they can leverage competitive fertilizer production for agricultural investments as I have argued elsewhere.

This is particularly true for phosphorus, which is mainly produced from phosphate rocks without alternative production possibilities as in the case of nitrogen and natural gas. Morocco has over three quarters of global phosphate reserves after the recent upgrade of USGS estimates and Saudi Arabia will be also an important producer once the Al-Jalamid project in the North of the country is up and running in 2014.

Qatar’s Self-Sufficiency Vision

An interesting article in Time Magazine about the self-sufficiency vision of the Qatar National Food Security Programme (QNFSP) based on an interview with its chairman Fahad al-Attiya.

It contains a number of interesting stats about the involved costs for desalination, the environmental problems of brine release into the Gulf waters and the magnitude of necessary soil imports.

Chinese Pulling Out of Sudanese Agro-Project, Qatar to the Rescue….

After the oil in South Sudan has been lost, Chinese funding for a large agri-project in Nile state has been withdrawn and Sudan now hopes for Qatar money:

March 10, 2012 (KHARTOUM) – An agricultural project in Sudan’s Nile River state has been put on hold because China cancelled a loan that was needed to extend electricity in the area, president Omer Hassan al-Bashir revealed.

…..

“And so China stopped the financing [the project]” he added.

Bashir said the Qataris decided to step in and provide the loan after Beijing backtracked.

“The ball is now in the court of our Qatari brothers”.

The comment section to the article reveals a lot about the prejudices and bitterness between the North and the South. It also contains some inflated hopes about the Gulf countries as white knights with deep pockets. My personal favorite is this one:

1 March 06:10, by Jalaby

“Not a problem at all, Chinese are making billions of dollars as profit from investing in Sudan, China will loss,our Arabs brothers will take over as all the infrastructures projects in Sudan are financed by Arabs and implemented by China,our Arabs brothers are making excellent profit from their successufull investments in Sudan,Kenana Sugar Factory will always stay solid example”

Well the Kuwaitis are the largest shareholder of Kenana and would beg to differ. According to a WikiLeaks cable a Kuwaiti official opined that Kuwait did not get its money out of Kenana for 30 years…

Save our Water

The UAE has decided to ban groundwater exports to foreign countries. It was not divulged in which form and to which countries such exports occur. It is likely that any such exports are not high in comparison to the substantial domestic consumption.

Agriculture is the main consumer of predominantly fossil water. Date cultivation and green fodder production for the two million animals or so are major culprits. Desalinated water provides the majority of drinking water in the cities. It is used lavishly because of extensive subsidies for extended car washing sessions and landscaping.

The Abu Dhabi Water Resources Master Plan estimates that about 11 percent of the expensive desalinated water ends up for agricultural purposes and argues that the real number is likely to be “far higher.”

Against this background the export ban for groundwater exports looks like activism in order to shun the tough the tough decisions that have to be made, i.e. reduction of water subsidies.

Just awareness campaigns and recitation of ‘Our Water, Our Life’  poems by children will not be enough.

On the supply side Saudi Arabia, like Qatar, is pushing forward solar based desalination. But demand reduction and management remains a politically sensitive topic as cheap or free water is regarded as an entitlement by citizens.

Qatar’s Food City

Qatar is planning a food city and wants to expand its domestic agricultural sector with the help of solar based desalination. To this end 1,400 new farms are planned. This goes hand in hand with its intention to produce 70 percent of its food by 2023.

The story of barley subsides in the kingdom is a crazy one. It encourages a large industry of sheep fattening in the country. Saudi Arabia is the largest barley importer world wide and represents about 40 percent of the global barley trade. Th livestock industry is a powerful lobby group. When barley subsidies where not enough to guarantee a profit while remaining  below a government set ceiling price the Saudi king ordered a 50 percent increase in the barley subsidy after much political wrangling.

Organic farming in greenhouses is on the rise. In the UAE it reached 2,196 acres in 2010 compared to 110 acres in 2007.Abu Dhabi also aims to reduce the input of chemicals and pesticides in agriculture by a quarter by 2013.

Gulf countries are food secure. If at all they have a problem with too many calories: Their per capita ratio of obesity and diabetes is belong to the highest in the world.