Gulf countries 'prime location for central bank of foodgrains'

A grain storage bank in the Gulf can offset any volatility on the market anywhere in the Muslim world by supplying to markets that require stability: official

Image used for illustrative purpose. Human Hand In Wheat Grains Photo Taken In Casablanca, Morocco.

Image used for illustrative purpose. Human Hand In Wheat Grains Photo Taken In Casablanca, Morocco.

Getty Images/Abdessamad Bellamakaddem / EyeEm

MANAMA: The grandson of the late King Farouk of Egypt has said the Gulf countries offer a prime location for a central bank of foodgrains because of their exemplary security, and Bahrain is ideal because of its modern port facilities.

In an exclusive interview with the GDN, Mikhail-Shamil Orlov, an influential Russian food investor and expert, said there was a need to build food reserves considering the growing imbalance between food demand and supply because of a burgeoning world population, and added food shortage could pose a real political threat to governments.

Mr Orlov was in Bahrain earlier this month to attend the 14th international AAOIFI-World Bank Conference on Islamic Banking. He was a keynote speaker at a special session on food security held by Russia-based HSE-Skolkovo Institute for Law and Development.

Mr Orlov is president of the Russian-Egyptian Business Council. He was born to Princess Fadia – youngest daughter of late King Farouk of Egypt – and Pierre Alexievitch Orloff – a descendant of the Russian royal family.

A dedicated project called Agrofinmost was set up last year by the HSE-Skolkovo Institute. Its board is chaired by Mufti Muhammad Usmani, a leading scholar of Islamic finance and chairman of the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

Agrofinmost will use Islamic finance instruments to attract investments from Muslim countries into the Russian agricultural sector and in return establish sustainable channels for food supply to Muslim countries.

Mr Orlov suggested two storage models. One, he said was for countries incapable of producing their own food. He said these countries should, at least, have two years of food supply to counter market volatility, such as the global rice crisis of 2007-08.

“Two years allow enough lead time for replenishing reserves at the next harvest, when prices are much lower than market prices,” he said.

Another storage model, he said, could be used to establish a stabilisation or intervention fund, and warned that food shortage he said could easily lead to social unrest and conflict. Such a fund would allow flow of food to affected areas or countries.

Mr Orlov said the storage facilities could be built anywhere, but the Middle East had a strong potential because of its importance in the Muslim world. There was also an impressive solidarity among Muslim countries where the richer ones wanted to help the poor ones, he added.

“A grain storage bank in the Gulf can offset any volatility on the market anywhere in the Muslim world by supplying to markets that require stability.”

Mr Orlov said Russia was currently the world’s largest wheat exporter and a country with the largest arable land. Its food production was over and above domestic consumption and, therefore, could serve as the main asset.

Also, by building storage facilities in different locations, importing countries could also minimise what some term as the ‘Russian risk’. But even then, there were other suppliers like Kazakhstan, Ukraine, etc.

Mr Orlov said one of the concepts of the Agrofinmost project was to connect the buyer directly with the crop producers thereby insulating the former from speculative prices, which could fluctuate as much as 40 per cent.

According to Mr Orlov, the state-of-the-art facilities could be part of wider food clusters, which would not only include food storage facilities and terminals but processing units as well.

“Having such massive food processing clusters close to a grain storage facility would not only address the needs for processed quality food, but could also allow a country like Bahrain to become an exporter of food,” he said.

Having adjacent processing units can also offer solutions to challenges, which create an inflationary pressure inside the food value chain, such as traders, transport issues, customs, dealers, waste, theft, etc.

He said: “These clusters not only offer a way to localise the food value chain and add value to the economy, but they also add to the country’s food security.”

They also create centres of competence, where education becomes important and there is focus on managerial and technical know-how, therefore, positively impacting the targeted countries by increasing the professional abilities of its workforce.

Mr Orlov said it was his personal struggle to see that people had their essential basic needs such as food covered. He said we produced much more food than our needs and believed it was abnormal, unethical and unfair to see steep volatility in food prices such that it deprived people.

That is why Islamic finance was the natural ally here as one of the cornerstones of Islamic finance was ethics and fairness, he said.

Mr Orlov said Agrofinmost had received the blessings of the spiritual, political and financial authorities in the Muslim world.

Without disclosing names and locations, Mr Orlov said his team was already in negotiations with four governments in the region for the projects.

About the size of investment, he gave a ballpark figure between 270-350 euros per tonne of capacity. But said this figure could go up in destination countries where infrastructure was weak or absent and where investment in ports, docks, roads, railway lines and electricity was an imperative to house such a project.

He gave glad tidings to investors putting their money in the food processing cluster model.

He said: “These clusters are highly efficient. And the payback period compared to an investment in another industry was, at least, 20pc shorter.”

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