Gulf Arab governments tackle higher food prices

JEDDAH/DUBAI Thu Feb 3, 2011 4:10am EST

JEDDAH/DUBAI (Reuters) - Countries in north Africa and the Middle East are urgently seeking ways to soften the blow of surging food prices for their citizens, alarmed by protests against authoritarian rulers from Algeria to Yemen.

Unprecedented demonstrations have erupted around the region, triggered by events last month in Tunisia where President Zine al-Abidine Ben Ali was forced into exile in Saudi Arabia by a population provoked by high unemployment and unaffordable food.

On Tuesday more than 200,000 Egyptians crammed into the main square in Cairo, answering the call for a million people to make their voices heard against the 30-year rule of Hosni Mubarak, as discontent over years of authoritarian rule exploded into demands for regime change.

Food costs are among the grievances of demonstrators around the region as global food prices hit record highs in December, above levels that prompted riots in 2008, according to the U.N.'s Food and Agriculture Organisation, which warned prices of cereals, oilseeds, dairy, meat and sugar are set to climb.

Arab attention is keenly focused on Egypt, as wheat prices, already up on supply shortages caused by drought in Russia and floods in Australia, continue to climb to multiyear highs on futures markets closely watching unrest in the region.

"The government has to take care, monitor prices and improve salaries so that they avoid what happened in Tunisia and spread to Algeria and Cairo," said Raeda al-Farooki, a mother of four, at a large supermarket in Saudi Arabia's port city of Jeddah.

"Onions were about 5 riyals per kilo two years ago and now are around 10. Imported food is even more expensive, but the worst part is that there is no increase in salaries," said Farooki, who lives on six thousand riyals per month.

Algeria, Libya and Jordan have either relaxed food taxes or duties on food imports or cut prices of staple food, and Kuwait recently introduced a generous stipend and free food for its citizens until March 2012 to ease the pain of higher costs.

There is also simmering unrest in Yemen, the poorest Arab country, where 40 percent of the population lives on less than $2 per day.

WORLD LEAD

At last week's World Economic Forum in Davos, world leaders warned that soaring food prices could trigger more unrest and even war.

"Imagine the pressure on food, energy, water and resources," Indonesian President Susilo Bambang Yudhoyono said in a speech at Davos. "The next economic war or conflict can be over the race for scarce resources, if we don't manage it together."

A fast-rising young population and rising unemployment may raise social pressures in Saudi Arabia as the world's top oil exporter has more trouble distributing its oil wealth among 18.5 million locals unlike other Gulf governments, though street protests are unlikely.

To provide work and diversify its economy from oil, Saudi Arabia is in the third year of a $400 billion five-year programme, but spending has to be managed carefully to avoid adding to inflation.

"In 2011, we expect in average (global) food and beverage prices to go up substantially by almost 20 percent," Ayesha Sabavala, economist at the Economist Intelligence Unit, said.

"I see some risk of this food price inflation in terms of some anger against the government in Bahrain and Saudi Arabia. But nothing to the extent of Tunisia," she said.

Inflation has been on the rise across the Gulf in the past year, hitting multi-month highs, but consumer price growth remains far below record highs above 10 percent seen in most Gulf nations in 2008, during the peak of the construction and investment boom.

Gulf inflation is projected to be between 2.8 and 5.0 percent this year.

Saudi Arabia's central bank governor has already expressed concern over inflation in the desert kingdom, which much like its neighbours imports around 70 percent of its food needs.

Growing oil receipts allow rulers of oil-exporting countries to pay hundreds millions of dollars in subsidies from fuel to housing for the local population, although some such as the United Arab Emirates have started to cut back.

"They are too flabby to go to the streets. There are no shortages of food, there is abundance of food, it is abundance of almost everything else," said Sami al-Faraj, head of the Kuwait Center for Strategic Studies.

"A citizen in Gulf states is not just given a fantastic welfare state system but somehow he is or she is pampered to not know limitations," he said.

In Kuwait, which saw the steepest annual food price rise in the Gulf last year at 8.5 percent, its emir ordered the distribution of $4 billion in cash and free essential food.

Morocco's government, which heavily subsidises food and gas, has vowed to keep food prices at affordable levels "at any price" for its population of 32 million.

BUYING UP FARMS

Growing more food locally is not a viable option for countries in the world's top oil exporting region, with extreme summer temperatures that can top 50 degrees Celsius (122 degrees Fahrenheit) and limited access to water.

Investing for the longer term, they are leasing and buying farmland in developing nations to cut the swelling food import bill.

"Subsidies is one way over the short term but they all have to think how they can be effective in investing abroad in various agricultural producing countries," said John Sfakianakis, chief economist at Banque Saudi Fransi.

Hassad Food, owned by Qatar's sovereign wealth fund -- a top global investor -- has been in talks with governments in Argentina and Ukraine to buy farmland for cereals production.

But investing in farmland abroad is not without its critics who accuse buyers of perpetrating a "land grab" that could raise reduce access to food for some of the world's poorest people.

In Saudi Arabia, where food accounts for a quarter of household costs -- more than anywhere else in the region, the government is boosting wheat reserves to cover its needs for a year instead of six months.

"The inflation is burning a bigger hole in my pocket as my salary has not increased for the last two years," said Kassim al-Falahi, an Omani government employee. "With three kids and parents to look after, it is tough to keep up with rising prices of food."

(Additional reporting by Cynthia Johnston, Erika Solomon and Martina Fuchs in Dubai; Eman Goma in Kuwait and Saleh Al Shaibany in Muscat; Writing by Martin Dokoupil; editing by Keiron Henderson)