Hydroponics: Pathway to food sustainability in GCC offers growth opportunities for American and European technology suppliers

Published on 01 Aug, 2019

Food sustainability has become a top priority for GCC countries as rising food imports, coupled with unfavorable climatic conditions, are forcing governments to adopt unconventional farming techniques. Hydroponics is one such technique which can solve food security problems in GCC countries. In recent years, government and private investments in vertical farming in the region have increased. In this article, we provide insights on current and planned hydroponics projects in the region and possible investment opportunities in vertical farming.

High dependence on food imports and food security risks are pushing GCC governments to adopt diverse farming techniques as they look to achieve self-sufficiency in food production.

GCC countries rely heavily on food imports (more than 80%) due to the lack of arable land, paucity of water for irrigation and adverse climatic conditions, factors not conducive for local farming to flourish. In fact, overdependence on imported food makes these countries vulnerable to several issues, particularly fluctuation in food prices globally that directly impacts their import bills, besides food security risk.

To address the situation, GCC countries have prepared a comprehensive food security plan, including investments in agriculture abroad, diversification of crops and, most importantly, implementation of modern farming techniques such as hydroponics.

Hydroponics, a soil-less method of growing plants, uses 90% less water than traditional farming.

Hydroponics refers to a system employed in vertical farming. It entails growing plants in a water-based, nutrient-rich solution without soil. The root system is supported using an inert medium such as perlite, rockwool, clay pellets, peat moss, or vermiculite instead of soil. In hydroponics, plants generally mature up to 25% faster, produce up to 30% more and, most importantly, consume 90% less water than those cultivated under the traditional soil-based method.

However, implementation of hydroponics is not without challenges. Typically, the hydroponic farming setup requires huge initial investment (for example, 27,000-square-feet facility set up in Berlin cost approximately $225 million). Although operating costs are low, electricity consumption of hydroponic systems is very high. Moreover, these farms should not be set up in areas where there are frequent power shortages, as power failures can lead to drying out of plants and cause imbalances of nutrients and pH levels.

Amid sufficient availability of land and capital, and reliable source of power supply, the advantages of hydroponic farming clearly outweigh the challenges associated with it, especially in the GCC region.

While the UAE is one of the firsts in GCC to adopt hydroponics, it is picking up in other GCC countries, primarily led by government initiatives, including the drive to achieve self-sufficiency in food.

The United Arab Emirates (UAE), an early adopter of hydroponic farming in the GCC region, boasts of more than 200 hydroponic farms. Over a 100 varieties of vegetables, including tomatoes, cucumbers, zucchini and capsicum, are grown in local farms and sold at shops and supermarkets across the country. The Ministry of Climate Change and Environment (MoCCAE) estimates locally-grown produce worth over $10 million was sold in Lulu, Carrefour and Union Co-op in 2018. In fact, locally-grown produce is beginning to gain traction among local consumers, accounting for 20% of total fruit and vegetable sales in the UAE in 2018. This implies consumer confidence in the quality and freshness of local produce is building up.

Under Vision 2021, the UAE aims to be among the top 10 countries on the Global Food Security Index by 2021, improving its ranking from 31st in 2018. To achieve this, the government is looking to increase domestic food production by launching several initiatives, including widespread adoption of hydroponics. According to Mr. Mariam Al Muhairi, the Minister of State of the UAE, “We need to look into other innovative systems on how we can start producing food more locally and change the way we consume food as well.”

In line with this, the government is taking steps such as providing special incentives to farmers that include offering quality seeds, research & development and laboratory testing services, taking care of transportation costs, and providing water at subsidized prices.

In partnership with private players, the government is aggressively pursuing investments in new vertical farms. For instance, Shalimar Industries and MoCCAE recently entered into an agreement in this regard.

The region’s attractive dynamics have also piqued the interest of international investors. Crop One Holdings, a leading vertical farm operator globally, partnered with Emirates Flight Catering, which provides catering and support services for Emirates Airline and all other airlines based at Dubai International Airport, to build the world’s largest vertical farming facility in Dubai, the UAE, by the end of 2019.

Companies Involved

Type of Agreement

Investment Amount

Project Details

Location

Land Area (square foot)

Timeline

Minister of State for Food Security

Public

-

Food Valley Platform, a center devoted to the development of food and farming solutions

-

Not disclosed

Saudi Arabia Public Investment Fund (and foreign investors)

Public

$500 billion

A mega city, Neom, in KSA housing vertical farms to feed its population

Neom, Tabuk

285,000 million

Ongoing

Shalimar Industries and MoCCAE

Public-Private

-

To establish 12 vertical farms during 2018–23

Dubai

80,000

2023

Crop One Holdings and Emirates Flight Catering

Private

$40 million

New farm to produce 2,700 kg leafy greens per day

Dubai

130,000

2019

Plenty and Soft Bank

Private

-

New farm to grow kale and other leafy vegetables

Abu Dhabi

200,000

Commenced

Table: List of Recent Investments Announced in the GCC’s Hydroponics Market


At the other end of the value chain, Lulu Group, the leading supermarket chain in the UAE, signed an agreement with MoCCAE in 2018. The supermarket chain targets increasing local produce sales by 5%, 10% and 15%, respectively, over the next three years. With assurance of local offtakes, this is expected to boost local production of vegetables and fruits through vertical farming techniques, including hydroponics. Moreover, direct agreements with supermarket chains will eliminate middlemen and ensure higher share in profits for local farmers.

Qatar, facing blockades from Saudi Arabia, the UAE and Bahrain, is aggressively pushing for the adoption of hydroponics. In 2018, Qatar Development Bank introduced the home-farming program at a large scale, as part of the country’s bid to achieve self-sufficiency. Under it, the bank provides the support and training required to citizens for producing vegetables and fruits in the backyards of their houses and villas. In addition, Agrico, a private Qatari agricultural development company producing over 10,000 tonnes of various vegetables (such as cucumber, tomatoes, and mushrooms) per day, is planning to expand operations to 100 hectares of organic farms by 2021 from 12 hectares currently.

On the other hand, Saudi Arabia, the most populous country (over 33 million people in 2018) in the GCC region, is beginning to follow the same track as the UAE. The government’s continuous efforts to spread awareness about achieving self-sufficiency have led to the mushrooming of several hydroponic farms in Saudi Arabia in the last couple of years. For example, Saudi Greenhouses Management and Agri Marketing Co. operate seven greenhouse farms across Saudi Arabia, of which two run on hydroponics. New plants are also being added. For instance, Badia Farms, owner and operator of the region's first vertical farm in Dubai, plans to set up its next facility in Jeddah by 2020.

Aranca View

Favorable measures taken by the government in the past, coupled with initiatives that are underway, are boosting growth in the UAE’s hydroponics industry, a phenomenon likely to take the wider GCC region in its fold.

The UAE government’s inclusive approach and interventions across stages of the supply chain have laid the foundation for solid growth. These initiatives have also paved the way for investments in its hydroponics sector. This growth and success story will likely create the roadmap for other GCC countries, prompting them to adopt hydroponics and eventually achieve food sustainability.

Considering the outlook for growth, we believe there is ample opportunities for Dutch, American and Canadian specialized indoor farming equipment, services, consulting, and technology companies that could leverage this phase of growth in the industry to their advantage.




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