Middle East agritech investors are sowing the seeds of global food security
Food security is one of the region’s greatest challenges. In response, agritech investment is booming, attracting local and foreign capital and entrepreneurs and contributing to economic diversification. It could also help develop vital solutions for a global food system threatened by climate change.
The Middle East is rich in valuable mineral resources but starved of fertile land and freshwater supplies. Just 4.7% of land in the Middle East and North Africa (MENA) is arable, compared to 10.7% worldwide. Saudi Arabia (1.6%), the United Arab Emirates (0.7%) and Oman (0.3%) fall far short of even the MENA average. And the region as a whole is the most water-scarce on earth.
Although the UAE and Saudi Arabia are deemed to be relatively food-secure, owing to their wealth and strategic food import agreements, that could change as the world’s population — having breezed past the eight billion mark in 2022 — keeps growing to an estimated 9.7 billion by 2050. That’s a lot of extra mouths to feed as climate change takes a toll on food security by increasing the frequency of extreme weather events, exacerbating water scarcity and turning huge swathes of fertile land into desert.
There are also more man-made concerns, including inflation, which raises the cost of agricultural inputs, and fallout from geopolitical and economic upheaval.
Given that the Gulf countries rely on imports for an estimated 85% of their food consumption, this leaves them highly vulnerable to possible supply chain shocks. But as with every threat, the looming food crisis also creates an opportunity to develop solutions to not only deploy at home, but also export abroad.
The Gulf countries are “investing heavily into food,” said Ekaterina Chernova, Managing Partner and Founder at family office advisory Octagon. “They’re developing aquaculture, vertical farming and all types of artificial protein.”
In addition to sovereign wealth funds, “the biggest private equity firms, family offices and conglomerates are very focused on food security and have separate divisions devoted to it,” she added.
Moreover, the region’s governments are offering generous incentives and easing regulations to attract startups developing a broad array of technologies, including agricultural technology (agritech).
Technology to make the deserts bloom
This interest is fueling the establishment of startups like Saudi Arabia-based Red Sea Farms, which is developing and scaling methods of growing crops sustainably in the desert using climate-controlled greenhouses, which drastically reduce water consumption. The solution includes solar panels installed within heat-blocking glass, salt-water cooling, smart monitoring systems, and crops bred to tolerate harsher environments.
Globally, around 70% of freshwater resources are used for agriculture. Even though all sectors are becoming more efficient in their use of water, agriculture needs to become a lot more efficient in order to keep up with rapidly increasing demand for food driven by economic and population growth.
The cutting-edge technologies currently being developed in the Middle East to make agriculture less water-intensive could play an important role in solving this problem. They are currently not cost-competitive, but as demonstrated by the evolution of other climate technologies, that is likely to change quickly as they become more mature and achieve economies of scale.
Another way to reduce water consumption in agriculture is vertical hydroponic farming, which generally takes place in indoor, controlled, soilless environments. Apart from requiring only a tiny fraction of the water used in traditional farming, it also uses much less land.
The UAE’s Pure Harvest Smart Farms, one of the region’s biggest vertical farming startups, is looking to expand into Singapore, Morocco and Kuwait, and to spin off its Saudi operation into an independent entity.
Meanwhile, Saudi Arabia is luring leading vertical farming startups to relocate to the Kingdom, such as Estonia’s Natufia Labs.
And Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), has signed a joint venture with a US-based agritech firm to build and operate indoor vertical farms across the MENA region.
The emerging shift to plant-based protein could also significantly lower the water intensity of food production, Abu Dhabi’s recently launched AgriFood Growth and Water Abundance (AGWA) cluster, has partnered with several startups working on alternative proteins, including Switzerland’s NUOS. Saudi Arabia, too, is making large investments in alternative protein startups.
Doing more with less
The less prosperous countries in MENA are tackling the issue in different ways, according to Ashraf El Khatib, Vice Chair at CFA Society® Egypt. In Egypt, where water scarcity is becoming more severe, there is a big focus on finding ways to improve irrigation techniques for wheat and rice, as well as developing more resilient crop varieties.
“We have to be creative and innovative about using water-efficient agriculture,” said El Khatib. “For example, Egypt used to depend on sugarcane to produce sugar, but because it’s a water-intensive crop, the country has switched to sugar beet cultivation to conserve water.”
Technologies that make farms more efficient and productive are also crucial to boosting yield and reducing water intensity, added El Khatib. This includes precision farming, which uses sensors, satellite data, automation and advanced analytics to improve yields and effectively manage fertilizer use and irrigation processes.
The trouble with such technologies is that even though they have potential to reduce costs and improve revenue in the long-run, they involve high up-front costs that can be out of reach for many small farmers: 80% of farms in the region are under five hectares.
This is where public-private partnerships can move the needle, said El Khatib, because they can provide financial solutions to build and deliver projects that would benefit their respective nations. Several startups have also cropped up with a mission to help make it easier for small farmers to access financing for productivity enhancing technologies, such as Egypt's Mozare3.
Hard decisions
For lower-middle income countries like Egypt, a balance needs to be struck between pursuing food security and generating export revenue. El Khatib explained that it can be tough to decide “whether we cultivate more wheat for security reasons, or put more resources into high-value crops like fruit and export them.” He added that the different circumstances of the region’s countries can also impact how they decide to balance food affordability with the cost of innovation and developing sustainable solutions.
One more thing standing in the way of scaling startups across the region, according to Tamer Azer, Partner at investment firm Shorooq, is the “need to bring together currently segregated pools of capital.”
There is big contrast with the US, according to Azer. “In the US, funds have the luxury of a broad and diversified base of limited partners, but in our region, because venture capital is novel, our choices are much more limited,” he said. It generally boils down to two options: sovereign wealth funds of Gulf Cooperation Council (GCC) states and development finance institutions (DFIs).
The trouble is, these funders can have different mandates, and can also have contrasting requirements about where money is expected to go within MENA. “A DFI might want its investment dollars to go only to North Africa, for instance, while a sovereign might want its investments to go to GCC countries,” Azer explained.
Instead, he suggested the issue could be overcome with a new approach. “It’s important to come up with frameworks that allow the different pools of capital to collaborate and invest in regional funds. It shouldn’t matter whose money is going where, as long as we meet each limited partner’s target.”
This approach could be a powerful way to kickstart investments traversing MENA and Sub-Saharan Africa. Africa has abundant arable land, but lacks investment in technology to farm it productively, making the continent paradoxically heavily dependent on food imports.
Currently, only a tiny sliver of global agritech investment goes to Africa (see Figure 2). If investors in the Middle East could find a way to help ramp that up, they could bolster not only their own food security, but also that of hundreds of millions of Africans.
Source: AgFunderNews
Full circle
Beyond Africa, agriculture everywhere is in urgent need of an efficiency revolution. The Middle East could be poised to help lead the way.
The first agricultural revolution took place in the Middle East over 10,000 years ago, when hunter-gatherers settled down to cultivate crops — putting down roots literally and figuratively. It was a turning point in human evolution, allowing explosive population growth and the development of complex civilizations.
By fueling climate change, population growth now threatens the world’s food production systems, calling for a new revolution in sustainable nutrition. It would be fitting if the seeds of that revolution sprouted in the Middle East.
Discover more on Middle East investment trends:
The evolution of the Middle East VC ecosystem
How family offices are spreading their wings in the Middle East
Will the Middle East’s transformation bolster its burgeoning stock markets?
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