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UAE’s Produce Import Ban Shines Light on Food Security Dilemma and Indoor Ag Opportunity

August 3, 2017

It’s perhaps not news that the Middle East is in a precarious position when it comes to food security. One of the hottest, driest, and most inhospitable climates on Earth, the region’s agriculture industries are unable to feed their populations so the countries import the vast majority of their food, leaving them at the mercy of foreign governments.

In the United Arab Emirates (UAE) food safety concerns are now exacerbating the issue after the government felt compelled to ban the import of produce from Jordan, Egypt, Oman, Lebanon and Yemen because it contains unacceptable levels of pesticide residues.

The rule, introduced on May 15, 2017, affects the imports of peppers, cabbages, cauliflowers, lettuces, squash, green beans, eggplants, apples, carrots, melons, and watercress among other fruits and vegetables.

The UAE imports 80% of its food, including a large portion from these countries which Shokrollah Ali, managing director of Shokri Hassan Trading at Dubai’s Fruit and Vegetable Market told The National in April, could push consumer prices up 50% to 70%.

Government authorities downplayed the issue in the media, saying that there would be no shortages or price hikes as food companies would import the affected items from other regions of the world. They also touted the domestic production of zucchini, eggplant, cauliflower, cabbage, pepper, and leafy greens as able to cover some of the shortfall.

However, the quality of locally-grown produce is also in question, according to local experts who told AgFunderNews that local farmers are likely to follow similar pesticide application practices as their regional peers.

With challenges come opportunities and in this instance, the most obvious opportunity comes in the form of indoor farming, or controlled environment agriculture (CEA), where produce is grown inside a greenhouse or building, regardless of the weather or soil conditions outside.

Realizing the dynamics and opportunity, several players in the indoor farming industry are starting to make serious moves on the region, albeit at the slow pace set by a surprisingly hesitant investment community.

Existing Supply

In an effort to increase local agricultural production and promote the industry as a career, the UAE government has been allocating farmland to newly-married couples through an application process for years. Like many other governments in the Middle East, the UAE government purchases all agricultural off-take regardless of the crop or the quality. Ironically, we don’t know whether the pesticide residue on UAE-grown produce would meet the country’s own standards because the authorities buy the produce whether it’s fit for consumption or not.

UAE produce is very likely to contain similar levels of pesticide as in the banned countries, according to local experts who also said they’ve known local produce to be dumped in the desert when it’s not fit for human consumption.

To shore up limited domestic production, various Middle Eastern governments have purchased farmland in more agriculturally hospitable geographies globally such as Australia and Africa. But since that puts the food grown there at the mercy of other governments, they’ve had to shift their focus, according to David Scott, a former US National Security Council Director for North Africa and the Arabian Peninsula, and now consultant for Middle East governments. “In the event of a global food crisis, those kinds of locations would be just as likely to stop the export of food as any other,” Scott told AgFunderNews.

So the UAE, along with other regional governments, turned to subsidizing farmers, which brought its own troubles. “Unfortunately it has become a system of providing subsidies and other forms of support to domestic agriculture, which in this environment has been fed for the most part by groundwater aquifers, which are depleting at an alarming rate,” said Scott. He believes that if the status quo continues, the aquifers will be completely drained in the not-too-distant future.

For Scott, technology is a major part of the food security solution in the UAE— in particular controlled environment agriculture (CEA) — which could have the knock on effects of increasing produce quality and lowering prices.

You Say You Want a Revolution?

According to Scott, technology should, and most likely will, play a major part in changing the dynamics of the GCC countries’ respective food supplies and possibly speed up the conversion of a subsidy-based system to a market-based one.

To this end, both local and regional CEA initiatives are now circling the region, including several new players breaking ground this year.

High-tech hydroponic growing systems — that plunge vegetable roots into water instead of soil — require a fraction of the water of outdoor field farming, especially field farming in hot and arid conditions such as the UAE where the “informal” nature of the agricultural sector has led to what some view as nonsensical water use.

Scott says that the UAE government’s universal support of the industry, “allows people farm to where they have no business farming.” He said that this has led some farmers to turn to desalinated water from utilities to farm: “The economics of that are completely upside down.”

Environmental imperative aside, the economic conditions for indoor growers are likely to be more favorable in the Middle East than other parts of the world because premium imported food is marked up to a much higher degree than organic food in the US or China.

Said Scott, “You go to the supermarket here and it’s not uncommon to see your average vine variety of tomatoes for $11-13 per kilo, which anywhere else would seem crazy.”

Public awareness of the potential for indoor agriculture is low, however, according to Stuart Oda, cofounder and CEO of Alesca Life, a Beijing-based controlled-environment hydroponic grower that’s opening a multi-level hydroponic farm in UAE’s capital of Dubai in August.

“The challenge with indoor farming is actually relatively common globally. The same challenges that exist in the UAE exist in China. People don’t know about it. They might be fearful about it because it sounds unnatural, but the downside of that is the alternative, which is the exact reason why this ban is here in it first place; unacceptable levels of pesticide residue,” said Oda.

Oda has recently been setting setting up and operating small farms for two members of the Dubai ruling family and Mercedes Benz. In order to increase his footprint, he is embracing the expat population in Dubai, targeting hotels and luxury food service operations where customers are willing to pay a premium and there is more appetite for his crop, leafy greens.

“The number one spend for tourists in Dubai last year was food and beverage. If you think about catering toward that one niche, it’s a lot of marketshare.”

Oda says the the Middle East is a good fit for indoor farming because water is scarce and power is cheap. Alesca Life has raised undisclosed seed and angel rounds from individuals and family offices so far.

Oda puts his success so far down to his business model where he charges hotels, high-end catering outfits or hospitality groups for the installation and operation of an indoor farm and then sells the produce in a subscription model. This means that his facilities can break even in around two years. “If we have a servicing contract in place for even a year and a half, we will have made back our money.”

He further said that picking the right crops and markets is what makes his financials make sense, “Let’s find a produce, or a niche, or a market, or a city, or a customer that can generate the profit we need.” In contrast to the normal practice of American indoor mega-farms, to build the farm and then find the customer, Oda is bringing the farm directly to a specific customer.

Despite the clear potential and need for CEA in the region, raising funding is not easy, according to Sky Kurtz, CEO and founder of Pure Harvest, where David Scott is a member of the board of advisors.

Pure Harvest wants to own and operate large scale, high-tech greenhouses and in June the company announced it had raised 60% of a $4.5 million seed round. The company is planning to grow vine crops such as tomatoes, peppers, cucumbers, and strawberries and sell to grocery stores at a price somewhere in between the costly imports and the cheap local produce.

“The challenge is the perceived risk. The region has a lack of confidence in agribusiness as a sector, and doesn’t think it can provide high returns. We have scorched the earth with understanding every cost element and I don’t know what more to do,” said Kurtz.

It’s not all bad news, however. A government initiative called the Khalifa Fund for Enterprise Development, launched a grant program in 2014 offering funding to traditional field farmers who wish to convert to basic hydroponics. The fund gave grants to 130 farmers in 2015 although the results have been mixed.

Kurtz says that reception to his high-tech hydroponics plans is also warming, also from government-led sources.

“We are beginning to see support and advocacy from government-sponsored institutions,” said Kurtz who in the final phases of receiving a financing commitment from one.

AbdulAziz AlMulla, CEO of Madar Farms, which sells shipping container hydroponic farms licensed by US startup Freight Farms, agrees that government-backed support is needed; he is working on a form of public sector endorsement for hydroponics in the form of a “National Sustainable Agriculture Association” with stakeholders from both the private and public sector. The aim of the association will be to work on public perception and confusion around local produce.

AlMulla acknowledged that with the prevailing opinion that all things Europeans are better, the association will have its work cut out if it’s to become an authority on produce quality, but he said that’s exactly why such an organization is needed.

Madar Farms, with backing from the private family money of one of the cofounders, is dedicated to increasing the footprint and awareness of CEA in the UAE, with plans to  deploy several container farms in urban centers in Dubai decorated by street artists, as well as a container farm at a high school later this year to get the public on board. Next year, he is also embarking on building a 40,000 sq. ft “techno farm” based on Japanese technology from high-tech indoor grower Spread.

Said AlMulla, “The issue is large scale enough and imminent enough that we wanted to raise the conversation as fast as possible. Container farms don’t get us to national scale output but they get us visibility in front of people.”

Other players in the hydroponic space in the UAE include Tribe Infrastructure Group,  which will finish with the first stage of construction on a 100,000 sq. ft. hydroponic farm by the end of the year; and Elite Agro, which operates hydroponic and traditional greenhouses in the GCC, Serbia, and Morocco.

There are a growing number of regional CEA players too, such as Pegasus Agriculture, which has had a hydroponic greenhouse in Oman in partnership with Gardinia Hydroponic Farming since 2013, and Indoor Farms of America, which sold an indoor vertical aeroponic growing system for deployment in Dubai earlier this year. But the amount of investment taking place in CEA in the Middle East is dwarfed by recent deals in the US. Recently San Francisco’s Plenty raised a $200 million Series B in the largest ever deal for an agtech startup.

US CEA startups have also raised funding from UAE-based investors, such as AeroFarms, the New Jersey-based vertical farm operator, which recently raised $34 million in Series D funding from Meraas, the investment arm of Dubai’s leader Sheikh Mohammed bin Rashid.

Still, with water crises baring down and a new reminder, in the form of the removal of Qatar from the GCC, that regional food supply is not the same as food production within your own borders, tech-enabled indoor farming systems are looking more and more like an inevitability in the UAE and Middle East more broadly. And as the entrepreneurs trying to make it told us, a little runway from the government could go along way.

Scott says that he even believes the UAE could one day become a food exporter if they get serious about adopting technology.

*CORRECTION: An earlier version of this story stated that Elite Agro and Tribe Infrastructure Group do not operate year-round. This is incorrect and the above has been changed to reflect that. 

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