Amal A. Kandeel
Ms. Kandeel is an economist who runs Pioneers International, an international business-development, geoeconomic-analysis and advisory company specializing in the Middle East and North Africa.
Since the 1980s, after two decades of low and stable international food prices, the world's agricultural commodities markets began to experience the effects of a number of structural factors that had been silently increasing the prices of basic food commodities. By the second half of 2008, when the world's economy was hit by an unanticipated financial meltdown, the global food-price crisis had already set in. The latter's impacts and long-term effects were much more universal and pervasive than those of the former. Despite how interconnected many parts of the world's financial markets were, many countries were neither directly nor deeply, if at all, involved in the highly complex financial practices and products adopted by the giant U.S. and European institutions whose collapse triggered the markets' crash. This was not the case for agricultural and food-commodity markets. All over the world people depended in one form or another on these markets, whether as consumers, producers, or both.
About three years later, one Arab country after another started to boil over into street protests. In Tunisia and Egypt, they quickly turned into mass uprisings; in Syria, Libya and Yemen, into protracted upheavals. Average per capita income in these countries (except Libya) was about 10 percent (Yemen), 20 percent (Egypt and Syria), and 50 percent (Tunisia) of the world's average throughout 2008-12 (no meaningful data is available for Syria past 2010).1 That a global food crisis of the magnitude experienced in 2007-08 would culminate in significant wide-spread socioeconomic stress in those Arab countries would have been predictable — had the dynamics of developments in the commodities and financial markets and the interconnected pressures they placed on these Arab economies been watched closely. This is not about hindsight. Riots and protests on a much smaller scale have broken out in various countries when liberalization policies affected food or energy markets, energy prices affecting all other economic activities and people's purchasing power, including the affordability of food. And there are examples of much worse food-insecurity situations where similar protests did not break out, but famine set in and people died. It was inevitable that the global food-price crisis would have serious material consequences on the ground in low-middle-income Arab countries.
The Arab countries that have remained engulfed in turmoil since 2011 or that are still in transition from economic and political fragility continue to be vulnerable to external pressures arising from the agricultural commodities market. On one hand, many of the factors that had driven prices steeply upward in agricultural commodities and food markets until they aligned with other global economic conditions to create intolerable inflation and a food security crisis did not go away. On the other hand, the Arab populations whose food security the food-price inflation was bound to undermine in 2007-08 are economically worse off today than they were at the dawn of the first uprising in 2011. Many are much worse off.
GLOBAL AGRICULTURAL PRICES
In early 2009, a few months after the global financial meltdown, slumping international demand, including for agricultural and food commodities, caused global prices for these products to recede from the highs reached 12 months earlier.2 The decrease in demand for agricultural commodities was partly due to a drop in speculative trading. Many large financial institutions had become involved in this practice during the years leading up to the 2007-08 crises, as they saw lucrative gains in a tightening agricultural market and sought to diversify their portfolios or realize quick windfalls. The market's cooling-off was short-lived, however, despite the fact that many population groups worldwide suffered from the recession for much longer than its official lifespan, through mass unemployment, loss of livelihoods, and the evaporation of pension funds and other savings.
Around May 2009, global prices for agricultural and food commodities started to pick up once again.3 By 2011 and 2012, the Food and Agricultural Organization's (FAO) Food Price Index had already reached average values that exceeded what had been recorded in 2008. Although the monthly index dropped slightly during 2013, it resumed its rise in 2014. In fact, according to the latest data published, through July of this year, it had already risen above the annual average for 2008.4
Until that month, the prices of the five commodity groups that comprise this index (cereals, sugar, vegetable oils, meat and dairy products) had not increased at equal rates. The prices of cereals — some used for food and others as animal fodder — can have the most significant total bearing on overall food prices, since cereal consumption affects the demand for and prices of meat and dairy products as well. At present, the Cereal Price Index for January-July 2014 is still lower than its 2008 level. The gap had narrowed considerably but briefly during the spring months. However, these movements in this index remain relevant because Arab countries as a group are the world's leading importers of cereals in particular, not just of food in general. For a majority of people in low-income and low-middle-income countries, cereals constitute a staple that makes up a large portion of their overall nutrition. Furthermore, today the access to food of a significant percentage of the Arab populations affected by war and internal turmoil — in Iraq, Syria, Libya, Yemen and the Occupied Palestinian Territories — is deeply compromised due to these upheavals and their severe ramifications for production, incomes, savings, and foreign currency reserves, as well as logistics, transportation and importation.
While it is impossible for the precise conditions that contributed heavily to the 2007-08 food-price crisis to recur in full and with equal magnitude, there is a need for vigilance concerning the interplay of endogenous and exogenous factors affecting the global agricultural-commodities market to which Arab countries are exposed.
These factors include population and economic growth in China, the ongoing Ukrainian-Russian conflict and its impact on wheat exports from both countries, and rising turbulence in the Middle East and its effect on shipping operations and their costs, as well as the localized consequences of regional upheavals and military confrontations on trade and vulnerable populations' access to food.
The FAO announced in June improved forecasts for global cereal supply, and prices have eased in subsequent months after reaching peak levels in March and April, suggesting a gathering storm may be passing. Notwithstanding the international market conditions of this year, there continue to be additional geopolitical, socioeconomic and market-specific structural reasons that require careful monitoring over the next few years as far as vulnerable Arab countries are concerned. During the last three decades, the global agricultural and food market has become characterized not only by the presence of cyclical factors (extreme weather conditions and speculative trading) that cause short-term price volatility. The market has also been reshaped, gradually and over an extended time period, under pressures from persistent conditions that have altered its supply and demand structures. Broadly speaking, a slowdown in global agricultural productivity in the face of an exponentially growing world population and rising disposable income levels has created a widening imbalance between global supply and demand. So have other factors: the thinness of agricultural commodities markets (due to low reserve buffers), a few producer and exporter countries claiming the major share of the global supply, and highly inelastic supply and demand for agricultural and food products. These and other structural conditions have shifted agricultural and food commodity prices to higher levels that have now become the new norm, compared to the lows of the 1970s.
The cyclical and structural factors that now characterize the global agricultural and food commodities markets have produced an international trading system in which countries are faced with two main types of risk to food security. Countries' financial strength and the degree of sufficiency of the agricultural and food supply they have achieved — in other words, the degree of their reliance on imports — determine their vulnerability to either or both types of risk. Low-income and low-middle-income Arab countries (e.g., Yemen or Tunisia) are most vulnerable to price risk. Countries that have a low degree of domestic agricultural and food sufficiency (e.g., Kuwait) are most susceptible to quantity-risk. Some may face both types of risks (e.g., Yemen now, as opposed to Yemen 30 years ago; Syria now as opposed to Syria 20 ago). All of the Arab countries that are fully or partially in a post-uprising, real or superficial, stage of transition (Egypt, Tunisia and, to a certain extent, Yemen), and of course those that have yet to emerge from severe internal turmoil (Syria and Libya), are currently vulnerable to both types of risk.
The Middle East comprises the world's most water-scarce geopolitical region, where 5 percent of the global population geographically shares only 1 percent of the world's freshwater. This supply is also unevenly distributed geographically as well as economically. Average annual rainfall ranges between about 50 mm/year in Egypt to some 800 mm/year in Lebanon.5 In 2011, the Arab countries' average per capita share of internally generated freshwater resources was 374 cubic meters (with some countries having even lower levels), compared to a world average of 6,510 cubic meters.6 Outside the GCC subregion, the most water-deprived Arab countries are Jordan and Yemen. The latter, once a hydrocarbon exporter, is currently one of the poorest Arab countries and could be on the verge of civil war.
More than one half of the freshwater resources available to the Arab countries as a group comes from transboundary basins that originate in other countries. Demand for water in the group of Arab countries exceeds the internally generated supply.7 The Arab countries' risk to their water security and, consequently, to their food supply, is not predicated exclusively or mainly on natural water-resource endowments. Risk has become much more significantly, and for more countries than was the case half a century ago, a function of geopolitics and even extraregional political relations and alliances.
Under "peaceful" conditions — whether peaceful means free from war or simply a context in which international law, including water law, is appropriately upheld in interstate relations — a supply that includes transboundary resources is what would usually be considered available for use inside a country. Extended military conflicts, geopolitical power contests, and struggles for economic and intraregional dominance, however, have exacerbated the vulnerability of Arab countries' water security due to their geographically imposed dependence on extraterritorial sources of transboundary water. Throughout the last century, more Arab countries became increasingly exposed to unilateral measures from an upstream riparian state where a shared freshwater source originates. For periods ranging from seven to 10 decades, Arab countries have experienced serious reductions in their water supply or real threats of its diminishment as a consequence of such measures.
Distinguishing between the two types of water supply — internally generated versus aggregate (internally and externally generated) — has become more crucial now, particularly in discussing Arab countries in turmoil, or those in political and/or economic transition. A number of these countries have been caught up in intraregional power struggles that have made it much more difficult to bilaterally or multilaterally resolve, or even partially address, water stress that has resulted from aggressive competition over a transboundary freshwater resource. Insofar as Arab food security is being assessed, the effects of conflicts (military or non-military, overt or covert) on transboundary freshwater resources must not be excluded or underestimated. Current turmoil in Arab countries complicates dealing with the water scarcity resulting from transboundary freshwater competition. Furthermore, given that water is a definitive variable in human and material capital productivity and economic development, the implications of water scarcity have been one of the precursors to internal social and political strife in a country such as Syria. In Syria as well as in Iraq, both types of stressors — conflict and water/economic security — have become tightly intertwined in a vicious cycle.
The following case illustrates these issues. Until roughly the mid-1990s, about 70 percent of the Arab countries' total freshwater supply was generated in just three countries, and Iraq was one of them.8 However, Iraq's aggregate water supply in turn depended substantially on water resources rising outside its boundaries, specifically in Turkey. So did Syria's. Historically, agriculture has been a major cornerstone of these two Arab countries' economies in terms of contribution to GDP and to employment. The situation changed dramatically with the completion of Turkey's massive Southwest Anatolia project on the Euphrates River, and with similar Turkish water-resource developments on the Tigris River.9 The Turkish government overlooked the fact that these projects were predicted to cause significant harm to the two downstream Arab countries. While Turkey certainly had need for water development for agricultural and economic expansion in its southern regions, its pursuit of this goal should have been balanced with the international legal requirement to not cause intolerable harm to downstream riparian countries that share transboundary freshwater resources.10 Unfortunately, Turkey's government disregarded international law to the detriment of the downstream countries. Iraq and Syria have consequently been experiencing severe droughts, crop failure, and loss of livelihood on a wide scale due to excessive reductions in the regular freshwater supply that is vital to their agriculture and economies. Furthermore, Turkey now is also one of the regional and extraregional parties that are heavily involved in the military conflict raging in Syria since its uprising began in 2011, and that have spilled over into Iraq in an equally disturbing way. Although no one has much control over the direction in which these conjoined conflicts are heading, Turkey, of course, has a stake in the way they unfold and lends its support to certain groups for specific goals. This means that water-related tensions between Turkey and these two Arab countries have become more politicized than ever before, such that the line between irresponsibility in interstate riparian relations and using control over common water resources as a weapon can be expected to become increasingly blurred.
Not much was heard about the emerging water crisis in Iraq while this country was under the United Nations' siege for 12 years in the 1990s, nor in the last 10 years as the country experienced a debilitating breakdown in national security due to foreign occupation. Reports of Syria's mounting water stress had, on the other hand, trickled out in the few years preceding 2011. The sharply rising water scarcity in Syria during 2000-10 and its economic implications at a time when food and financial security were being compromised had deepened the socioeconomic stressors that eventually triggered a popular uprising. Water stress will remain a challenge to restoring normal life and stability in Syria, if and when military operations and infighting among extremist groups come to an end.
The Turkish model of dealing with legitimate competing needs for a shared transboundary freshwater resource has, unfortunately, set a bad twenty-first century precedent for dealing with regional water disputes. In no developed region of the world has de-development in downstream riparian countries as a result of upstream measures been considered, even by the upstream riparian, an acceptable outcome. Nonconstructive precedents affecting Arab countries such as the Turkish case have over the last two decades encouraged a similarly non-militarily aggressive mishandling of multilateral riparian concerns in another major transboundary freshwater basin — the Nile River. Tensions have escalated since the 1990s between Sudan and Egypt, on one hand, and Ethiopia, on the other, over a 74 billion-cubic-meter-storage-capacity dam that the Ethiopian government wants to build within its territory on the Blue Nile, a principal headwater of the Nile River. This storage capacity is equivalent to the river's mean annual flow minus the annual average evaporation losses of 10 bcm. One of the most water-scarce Arab countries in terms of internal resources, Egypt has depended almost exclusively on the Nile River's water since the beginning of civilization. This is not to suggest that historical water rights supersede all other considerations in attempting to meet competing needs for a transboundary freshwater resource. Rather it is to clarify that, while riparian countries sharing this river have conditional legitimate claims on its water — as upheld in the 1997 UN convention on the use of transboundary freshwater11 — international law also stipulates that harm befalling a downstream country from the uses of an upstream riparian state must be minimized or mitigated. This principle applied to Syria and Iraq, and it applies to Egypt and North Sudan.
The UN convention that encapsulates international water-law customs and practices that have developed over the course of centuries is a balanced product of an extensive 25-year study of legal instruments by the UN's International Law Commission. It consists of seven parts, with a total of 37 articles. The basis on which water sharing would be determined and the legal obligation not to cause significant harm are assigned the second and third parts of the document, respectively. Other equally central provisions include project notification and technical data-sharing requirements. Contrary to common assumptions, where a freshwater resource originates is not among the factors listed as determinants of interstate water allocations. Nor are historical uses (termed "existing uses" in the convention) the only determinant. Fair interstate water use necessitates that seven equally important factors be assessed on a case-by-case basis. This level of detail underscores the complexity of the realities that the law reflects and attempts to address, and the extent to which interstate cooperation is essential to achieving fair outcomes in the resolution of a water-sharing dispute.
A breakthrough in the Egyptian-Sudanese-Ethiopian dispute occurred when the parties agreed to subject the proposed Grand Ethiopian Renaissance Dam (GERD) project to a rigorous multidimensional scientific study. In 2012, they formed a committee of national and international experts that they tasked with examining various engineering, environmental, social and economic aspects of the GERD. The panel concluded its one-year study in May 2013 with a compilation of significant findings that included red flags deemed to require urgent attention with additional examination. Among the highest priorities, the panel raised concerns about inaccurate, incomplete, irrelevant, and outdated technical data, and unrealistic structural safety calculations used in the project's construction and provided to it in the course of its work; the lack of an assessment of the project's effects on the reduction of water flow on the downstream countries; and the absence of a climate-change-impact assessment. The recommended additional analyses are planned to be completed in the spring of 2015.
Like Turkey, Ethiopia is in need of economic development. However, a significant reduction in Egypt's water supply, without the prior existence of an alternative economically affordable supply source, will cause an equally significant level of de-development in that country.
Significantly increasing water scarcity in Egypt would further compromise food security in this most populous Arab nation, already heavily dependent on food imports.12 More than one-quarter of the population is below the poverty line, and at least one-half is classified as low-income. Agriculture is a major contributor to the economy and a large percentage of Egypt's poor live in rural areas.13 The implications of significant water shortages in that sector would be intolerable on a wide scale. For its part, Egypt needs to raise water efficiency to reduce the percentages used in agriculture. This requires adjustment time and financial resources, which in turn require internal stability. Unilateral upstream shock-measures are unhelpful and could undermine internal and regional stability. Similarly, North Sudan will face a water crisis if its external supply is significantly reduced. The separation of Sudan in 2011 into two countries occurred, among other things, along freshwater resource lines. These issues highlight some of the complexities involved in this water dispute that cannot be simply overlooked or wished away.
ECONOMIC AND FINANCIAL CONTEXTS
Most of the Arab countries that have experienced mass uprisings, protracted internal upheavals or extended militarized conflict on their territories have been severely battered economically since 2011. As a nation, Syria is all but finished for the time being. In Yemen, armed confrontations between the ruling regime and militant groups have been chronic even after the political transition of sorts that took place in 2012. Libya is in a post-NATO-intervention internal war that former Libyan generals have launched this year against al-Qaeda affiliates or competitor groups similar to those involved in tearing Syria apart. These militants have moved into Libya during 2011-14, initially to bring down the Qadhafi regime and subsequently to reposition themselves for wider regional conflicts, including one against Egypt. The latter has been facing harsh internal and external economic and political pressures as well as southern, eastern and western border-security threats since 2011. The economic and financial toll has been immense.
The most recent deepening and escalation of conflicts in Iraq and Syria mark a new phase of heightened uncertainty and insecurity in the region. Expanded military operations will continue to cast a grim shadow over the region's economies that are, directly and indirectly, most affected by and vulnerable in this stage. Until the current compounded intraterritorial and extraterritorial threats to the security, stability and sovereignty of Arab countries, particularly in West Asia, are de-escalated, the risk of inflation in the prices of fossil fuels and their derivatives will remain present. To the extent that it can step in to stabilize the global energy market as necessary, OPEC will most likely deliver. However, the global food market will not be spared from a rise in speculative trading in reaction to real or perceived disturbances in the world's energy market — not unless global economic growth slows down to at least partially offset potential projections of inflation in international energy and food prices due to acute Middle East turmoil.
Given all of the above, the current conditions in the global agricultural and food commodities markets do not rule out that the Arab countries gripped by instability since 2011 and those that have managed to take steps beyond that stage remain exposed to high risks to their food security. Although the global agricultural market does not appear to be on the cusp of a new crisis, it remains prone to one. Many of the elements that are conducive to creating crisis-level inflationary pressures in that market continue to exist. A structural tightness that has become characteristic of the market has rendered it more susceptible to pressures from external, indirect and non-market-related forces.
Meanwhile, the Arab countries that have suffered deeply from the 2008 food-price crisis have subsequently also been reeling from internal instability of different degrees that has shattered some economies or left them teetering. Individual and state financial coping mechanisms have been strained or depleted. Economic and social stress-bearing thresholds have been lowered. In some areas across the Arab region, volatility has become as probable as a reaction to the pain of an exposed nerve. It is hard to imagine where additional stress from more economic and food insecurity could take some of these societies. However, the spiraling turmoil in the region does not permit complacency about the potential triggers of additional unwelcome ramifications.
1 World Bank, World Development Indicators, http://www.worldbank.org/.
2 Food and Agricultural Organization (FAO), Food Outlook: Global Market Analysis, June 2009, http://www.fao.org/docrep/011/ai482e/ai482e15.htm.
4 FAO, World Food Situation, http://www.fao.org/worldfoodsituation/foodpricesindex/en/.
5 FAO, AQUASTAT, http://www.fao.org/nr/aquastat.
6 Freshwater availability in a country is classified in two ways in international water statistics. One is based on the freshwater stock generated within a country. The other is an aggregate calculated by also incorporating transboundary freshwater supplies whose sources lie outside a country's borders. Data from World Bank, World Development Indicators, http://www.worldbank.org.
7 World Water Council, 4th World Water Forum 2006: Middle East and North Africa Regional Document, http://www.worldwatercouncil.org/fileadmin/wwc/World_Water_Forum/WWF4/Regional_process/MIDDLE_EAST_AND_NORTH_AFRICA.pdf, pp. 20-21.
9 Harald D. Frederiksen, "The World Water Crisis," Middle East Policy 16, no.4 (Winter 2009): 80-81.
10 A discussion of the legal obligation not to cause significant harm to a riparian sharing a common watercourse can be found, for example, in Stephen C. McCaffrey, "Convention of the Law of the Non-Navigational Uses of International Watercourses," United Nations Audiovisual Library of International Law, http://legal.un.org/avl/ha/clnuiw/clnuiw.html.
11 United Nations, Convention of the Non-Navigational Uses of International Watercourses, 1997, http://legal.un.org/ilc/texts/instruments/english/conventions/8_3_1997.pdf.
12 UN, Comtrade Database, http://comtrade.un.org.
13 World Bank, World Development Indicators, http://www.worldbank.org.