INDUSTRY INSIGHTThought Leadership

Impact of the Russia-Ukraine conflict on food security and implications for the GCC agri-nutrient industry

Authored by Amit Dutta, Associate Director – Agri, Food & Nutrition Practice, Frost & Sullivan

Food security in the GCC region

Food security is one of the top priorities of the Gulf Cooperation Council (GCC) and globally to minimize any significant food supply disruptions.This is imperative considering the GCC region imports about 80%-90% of its food requirement.

The GCC region relies on imports to have a major role in the food security mix due to its location, agro-climatic conditions and demography. Policy interventions by GCC governments, such as diversifying import sources, enhancing efficiencies in logistics and distribution, building adequate food reserves, and offering incentives to food investors to scale up production and supplies, had a positive impact prior to the COVID-19 pandemic. GCC countries are considered among the most food-secure as per the Global Food Security Index 2021. However, the region lacks direct control over the majority of its food supply and remains dependent on imports. The over-reliance on imports leaves the GCC region vulnerable to supply shortages.

Table 1: Global Food Security Index 2021 – GCC

CountryGlobal ranking (out of 113)
Qatar24
Kuwait30
UAE35
Oman40
Saudi Arabia43
Bahrain44

Food production in GCC countries was on the rise before the onset of the pandemic as part of the efforts to boost food security in the region. Between 2014 and 2019, domestic food production across the GCC expanded at a compound annual growth rate (CAGR) of 4.3% to reach 13.4 million tons.[1] Saudi Arabia was responsible for about 65% of the region’s total production during that period. The increase in domestic production was one of the major reasons certain GCC countries showed significant improvements in food security in the years leading up to the pandemic. Due to the initiatives, the GCC region has been, until now, able to limit the impact of the Russia-Ukraine conflict on food security within the region

GCC agri-nutrient industry and food security

Industrial-scale agri-nutrient production is important to maintain and increase food production to the levels required to ensure global population growth. The distribution of global reserves required for the production of agri-nutrients is rather uneven.

The GCC region holds a significant portion of global proven natural gas reserves and will likely continue playing a major role in the provision of nitrogen agri-nutrients; the GCC region has the required resources to derive hydrogen in ample quantities through steam reforming and, hence, one of the essential ingredients for ammonia production. With the exception of some phosphates production in Saudi Arabia, the GCC produces mainly nitrogen (ammonia/urea)-based agri-nutrients. As of 2021, GCC countries contributed to about 12% of global exports of agri-nutrients, up from 7% in 2020.

The Russian invasion of Ukraine and the subsequent sanctions have instantly cut off global markets from Russian and Ukrainian nitrogen and potash agri-nutrients. This is likely to result in an imbalance in supply and demand, tightening the global supplies of nitrogen and potassium and increasing price volatility. Russia is the world’s largest exporter of agri-nutrients, accounting for 23% of ammonia exports, 14% of urea exports, 10% of processed phosphate exports, and 21% of potash exports. Combined potassium exports of Russia and Belarus amount to approximately 40% of global exports. The primary destinations of agri-nutrients from Russia are Brazil (21%), China (10%), the US (9%), and India (4%).

The GCC region is one of the largest producers of agri-nutrients and exports a majority of its production to India, Brazil, the US, Australia, Turkey, Thailand, etc., contributing about 80% of overall exports from the region.

An increase in domestic production in the GCC region is one of the key drivers of increased demand for agri-nutrients within the GCC. The uncertainty of the Ukraine-Russia conflict has added new impetus to the already growing agri-nutrient  industry in the GCC. In 2021, due to supply chain disruptions and increased exports of NPK agri-nutrients from the Middle East and GCC, prices were almost double, thus providing profits for agri-nutrient  companies in the GCC region. The region has the opportunity to improve its reliability as a supplier to key markets, including the US, Europe, Brazil and India. In addition, with new capacities coming up in Oman, Saudi Arabia and other nations (particularly N agri-nutrients), the Gulf countries are likely the best positioned to fill supply gaps left by Russia.

Way forward

By 2050, global demand for food will be 56% higher than in 2010, and the world will need to feed an estimated 2 billion more people. In contrast, the GCC is predicted to have a total population of 80 million by 2040. Food consumption in the GCC is predicted to rise from 46.8 million tons in 2020 to 52.4 million tons in 2025, at an annual growth rate of 2.3%. The disruption to global supply chains precipitated by the pandemic and the more recent invasion of Ukraine by Russia has underlined the dire need to invest in domestic production capacity and supportive technological solutions. In addition to enhancing self-sufficiency in staple food items over the medium to long term, the GCC countries must invest in supportive technology solutions (including agri-tech), diversify import streams and invest in existing and new food processing enterprises.

The agri-nutrient  industry has a crucial role to play in addressing global food security challenges as the world’s population continues to expand rapidly, driving demand for nutrition and resource availability. The primary role of the Middle East (including GCC) in the provision of food security is the export of nitrogenous agri-nutrients to agricultural regions. There is an opportunity for GCC producers to diversify their offerings by developing and marketing innovative value-added products (specialty agri-nutrients), commanding higher margins. With the exception of some phosphates production in Saudi Arabia, the GCC produces mainly nitrogen (ammonia/urea)-based agri-nutrients. The African continent, however, offers access to vast amounts of phosphate and potash reserves. There is an opportunity for GCC producers to diversify offerings by developing P and K projects in Africa. The GCC agri-nutrient  industry could establish public-private partnership models in those countries by developing the agri-nutrient  industry, which will help improve the productivity of the agriculture sector.