Food security is an immediate strategic priority for the entire GCC region. Along with energy supply and access to potable water, it is a pillar of national resilience. Shortages of food and agricultural products would cause immeasurable harm to the health of the GCC population and lead to massive social instability; only drinking-water shortages would affect the population more quickly.

Total imports of food and agricultural commodities into the GCC are approximately USD $35 billion per year.

For the GCC, the challenge is two-fold. First, prompt supply through product imports and wholesale food storage (grain in silos, food in warehouses, dairy in refrigeration units, etc.) provides the population with the food it needs. Effective logistics and storage can provide a buffer that absorbs delivery disruptions (or price shocks) until new supplies arrive or prices fall. The second part, price risk management, is necessary to ensure price stability over longer periods. Nearly all major global commodity markets are built around managing price risk through swaps or listed futures. While agricultural markets were the first to trade on a forward basis, and while the GCC has regional risk management tools for hydrocarbons (mainly Crude Oil), it is severely lacking in risk management for every other commodity.

Hedging agricultural product prices has existed since the mid-1850s and provides producers with the cash-flow certainty needed to produce food. Similarly, it benefits processors and consumers, enabling them to budget and afford foodstuffs over longer periods. For physically delivered contracts, it can also contribute to and be part of the solution to the first part of the challenge, as vast warehousing is built to manage delivered inventory before it is needed.

Today, the region relies on generic global benchmarks, such as the CME’s softs, grains, livestock, and oilseeds. These indices expose buyers to costly basis risk because the underlying commodity is not referenced locally and therefore incurs shipping and storage costs. They also do not translate into the local physical contracts the region needs to provide food security. Furthermore, Halal food markets are not represented on foreign stock exchanges, despite their importance to the region and to the global halal food market.

The GCC has made significant investments in arable land in Africa and South America. While financially and strategically prudent, these investments still place the farmed products a long distance from the point of need and, in times of regional and global upheaval, they might not be accessible for export to the GCC. In times of civil unrest, famine, and disease, it is unclear whether any of the countries where the GCC farms are located would allow the export of foodstuffs while their own populations suffer.

The lead times for farming, processing, and transportation do not resolve short-term emergencies, nor do they fully address price stability, given that farming and transportation are subject to logistics prices (shipping rates and bunker fuel), fertilizer, feedstocks, feedlots, and diesel costs.

Future markets are a mechanism for buyers and sellers of a given product to meet and agree on prices, subject to the terms of an underlying contract. For physically settled commodities, this adds an extra layer of complexity at settlement and requires the seller to deliver the product to the location specified in the futures contract. The GCC needs to become a preferred delivery region.

An established Futures market generates pricing signals that attract interest and participation and, when paired with an efficient and effective delivery mechanism, also attracts commodity delivery. The LME and the CME currently hold the largest-ever inventories of copper (and, for the LME, lead) stored in their warehouses, awaiting future use. Such a situation could arise within the GCC, offering a capital-efficient way to hold larger inventories of necessary foodstuffs in the region as well.

Regional governments could backstop any contract and serve as a de facto buyer of last resort, thereby adding to national stockpiles. Furthermore, as with Saudi Aramco's successful trading arm, the government entity could use an exchange to buy more when prices are low and sell when prices are high (and when stock levels exceed its predetermined thresholds for national resilience).

While warehousing and delivery are primarily handled by private businesses on other continents, given the financial might of the GCC and the importance of creating and attracting food and agricultural markets to the GCC, sponsoring a commodity exchange and investing in the associated logistics (such as repurposing NEOM) should be the responsibility of the regional governments. A successful commodity exchange will go a long way toward addressing some of the GCC region's food security challenges and creating a regionally relevant price signal that appeals to all global agricultural traders. This will encourage them to send their food products to the GCC as soon as it is economically sensible.

Every GCC country faces similar food security challenges. Given its longstanding role as the region's primary Futures Exchange for energy commodities, the GME is ideally positioned to establish a major regional food exchange. This initiative would benefit importers across the region, national food-security entities, food manufacturers, consumers, and the merchant and banking ecosystem that supports them, much like our impact on the regional and global energy markets.