Chicago Tribune | December 14, 2008
Wealthy countries try to fend off food shortages
By Laurie Goering and Alex Rodriguez | Tribune correspondents
MOSCOW — Wearing flowing red robes and pitching his own trademark desert tent, Libyan leader Moammar Gadhafi paid a visit to Ukraine last month in search of a remarkable deal to help feed his oil-rich but soil-poor people.
Under a proposed agreement with Kiev, Libya would lease 247,000 acres of Ukraine's rich black land to grow wheat. The harvest would then be shipped back to Libya, giving the desert nation a more secure supply of food in the face of predictions about higher food prices and potential shortages in decades to come. Ukraine, in turn, would get access to Libyan oil fields, helping free it from dependence on Russia for its energy needs.
Around the world, food-poor but cash-rich countries, spooked by last season's high food prices, are racing to snap up rights to farmland in developing countries and breadbasket nations. They're aiming to boost their own food security and cash in on what might prove one of the few sound investments left in a world in financial crisis.
South Korea's Daewoo Logistics announced last month that it has signed a 99-year lease on 3.2 million acres of land in Madagascar, which it will use to produce corn and palm oil for shipment home. China, which already farms more than 100,000 acres of land in Australia, is buying or leasing huge swaths of farmland in the Philippines, Laos, Kazakhstan, Myanmar, Cameroon and Uganda, according to Grain, a sustainable-agriculture group based in Spain.
Gulf states—Saudi Arabia, the United Arab Emirates, Bahrain and others—also have locked up millions of acres in Indonesia, Pakistan, Sudan and Egypt.
In the U.S., a similar buy-up of land occurred in the late 1980s when Japan purchased more than half a million acres of farmland in California, Montana, Colorado and Florida. In contrast to the latest rush, however, the main purpose was to raise cattle for Japan's beef appetite, rather than grain.
"It's literally all over" that rich countries and corporations have been looking for land in recent months, said Carl Atkin, head of research for Bidwells Agribusiness, a British company that has helped broker some of the land deals and advises farming investment funds.
The rush to buy or enter long-term leases on land has been fueled in part by the low levels of world grain stocks, despite record harvests this year, and by a growing sense that world markets cannot be trusted to supply adequate grain. Important grain producers like India, Vietnam and Indonesia within the last year cut off exports of key crops such as rice and wheat to ensure supplies at home, boosting prices worldwide and raising concerns about potential shortages.
Now countries like Saudi Arabia say they would prefer to be in charge of their own grain production rather than relying on their vast cash reserves to buy what they need, particularly when cutting out the middleman can reduce costs by 20 percent or more, experts say. Fast-developing countries like China, in turn, see demand for food at home outstripping their ability to produce it in years to come and want to line up supplemental supplies with some of their huge foreign currency reserves built up through trade surpluses.
"The food and financial crises combined have turned agricultural land into a new strategic asset," said a report from Grain. In particular, with President-elect Barack Obama promising to press ahead with biofuels, "the medium-term drivers are very strong" for investment in agricultural land, Atkin said.
It might seem incongruous that a country like Sudan, which receives millions of dollars in food aid each year, would be interested in selling or leasing fertile soils to other hungry nations. But "there are good reasons for it," said David Hallam, head of trade policy with the UN Food and Agriculture Organization.
First, governments of cash-strapped developing nations — some of them racked by corruption — rarely turn away offers of foreign investment, even in as politically sensitive a sector as land. Many of the same governments have failed to make the road and port improvements that their countries desperately need to get crops to market effectively, and farmers there lack access to credit, fertilizer and expertise that could boost yields. New investment, everyone hopes, will create long-lasting gains in production.
For decades, food security experts have been decrying the lack of investment in agriculture in developing countries, particularly those in sub-Saharan Africa, as a major impediment to eradicating hunger and boosting grain production worldwide. Now, with rich nations suddenly stepping up with billions of dollars, analysts are hopeful that some of the investment could finally bring the production boosts the world has been waiting for.
"When wealthy countries, whatever their motives, say, 'We're interested in investing in ag projects in a poor country,' then it's not a bad thing," Hallam said. The only question, he said, is whether they operate the projects as "cooperative joint ventures" that keep local farmers on their land but producing more, or colonial-style extractive industries.
Some of the early projects show signs of an extractive focus. Daewoo, for instance, has said it will hire South African workers to run its farms in Madagascar, rather than local residents, which suggests job creation and transfer of technology from the project may be minimal in Madagascar and that thousands of people with tenuous rights to the land they now farm may be pushed off it.
Crop experts also warn that past efforts to create huge-scale corporate grain farming have regularly failed, one reason family-owned farms continue to predominate in the United States, one of the world's biggest grain producers. They point to Soviet Union's disastrous collective farms and the collapse of a variety of large-scale colonial farming efforts in Africa as indications of what could go wrong.
"That's the nightmare scenario, that [investors] jump in, lose their money, the operation shuts down, and five years later you have recriminations and rusting machinery" as well as more landless peasants, said Steve Wiggins, an African agriculture expert with the Overseas Development Institute, a British think tank.
Just how much security the new land investments may provide countries and corporations also remains uncertain, experts say. Future governments in countries now renting or selling land may well fail to abide by deals their predecessors cut, particularly if they face food or land shortages at home.
"If you're a risk analyst you'd say these bits of paper are not going to be worth very much in the medium term and certainly not in the long term," Wiggins said.
Still, the farmland buy-up shows few signs of slowing, particularly as cash-rich countries, businesses and investment firms struggle to find good buys in a bad market.
"I can see why these projects are still of huge interest," Atkin said. "The case for ag land is pretty good when so many other things aren't doing so well at the moment."
Goering reported from London and Rodriguez from Moscow.
Wealthy countries try to fend off food shortages
By Laurie Goering and Alex Rodriguez | Tribune correspondents
MOSCOW — Wearing flowing red robes and pitching his own trademark desert tent, Libyan leader Moammar Gadhafi paid a visit to Ukraine last month in search of a remarkable deal to help feed his oil-rich but soil-poor people.
Under a proposed agreement with Kiev, Libya would lease 247,000 acres of Ukraine's rich black land to grow wheat. The harvest would then be shipped back to Libya, giving the desert nation a more secure supply of food in the face of predictions about higher food prices and potential shortages in decades to come. Ukraine, in turn, would get access to Libyan oil fields, helping free it from dependence on Russia for its energy needs.
Around the world, food-poor but cash-rich countries, spooked by last season's high food prices, are racing to snap up rights to farmland in developing countries and breadbasket nations. They're aiming to boost their own food security and cash in on what might prove one of the few sound investments left in a world in financial crisis.
South Korea's Daewoo Logistics announced last month that it has signed a 99-year lease on 3.2 million acres of land in Madagascar, which it will use to produce corn and palm oil for shipment home. China, which already farms more than 100,000 acres of land in Australia, is buying or leasing huge swaths of farmland in the Philippines, Laos, Kazakhstan, Myanmar, Cameroon and Uganda, according to Grain, a sustainable-agriculture group based in Spain.
Gulf states—Saudi Arabia, the United Arab Emirates, Bahrain and others—also have locked up millions of acres in Indonesia, Pakistan, Sudan and Egypt.
In the U.S., a similar buy-up of land occurred in the late 1980s when Japan purchased more than half a million acres of farmland in California, Montana, Colorado and Florida. In contrast to the latest rush, however, the main purpose was to raise cattle for Japan's beef appetite, rather than grain.
"It's literally all over" that rich countries and corporations have been looking for land in recent months, said Carl Atkin, head of research for Bidwells Agribusiness, a British company that has helped broker some of the land deals and advises farming investment funds.
The rush to buy or enter long-term leases on land has been fueled in part by the low levels of world grain stocks, despite record harvests this year, and by a growing sense that world markets cannot be trusted to supply adequate grain. Important grain producers like India, Vietnam and Indonesia within the last year cut off exports of key crops such as rice and wheat to ensure supplies at home, boosting prices worldwide and raising concerns about potential shortages.
Now countries like Saudi Arabia say they would prefer to be in charge of their own grain production rather than relying on their vast cash reserves to buy what they need, particularly when cutting out the middleman can reduce costs by 20 percent or more, experts say. Fast-developing countries like China, in turn, see demand for food at home outstripping their ability to produce it in years to come and want to line up supplemental supplies with some of their huge foreign currency reserves built up through trade surpluses.
"The food and financial crises combined have turned agricultural land into a new strategic asset," said a report from Grain. In particular, with President-elect Barack Obama promising to press ahead with biofuels, "the medium-term drivers are very strong" for investment in agricultural land, Atkin said.
It might seem incongruous that a country like Sudan, which receives millions of dollars in food aid each year, would be interested in selling or leasing fertile soils to other hungry nations. But "there are good reasons for it," said David Hallam, head of trade policy with the UN Food and Agriculture Organization.
First, governments of cash-strapped developing nations — some of them racked by corruption — rarely turn away offers of foreign investment, even in as politically sensitive a sector as land. Many of the same governments have failed to make the road and port improvements that their countries desperately need to get crops to market effectively, and farmers there lack access to credit, fertilizer and expertise that could boost yields. New investment, everyone hopes, will create long-lasting gains in production.
For decades, food security experts have been decrying the lack of investment in agriculture in developing countries, particularly those in sub-Saharan Africa, as a major impediment to eradicating hunger and boosting grain production worldwide. Now, with rich nations suddenly stepping up with billions of dollars, analysts are hopeful that some of the investment could finally bring the production boosts the world has been waiting for.
"When wealthy countries, whatever their motives, say, 'We're interested in investing in ag projects in a poor country,' then it's not a bad thing," Hallam said. The only question, he said, is whether they operate the projects as "cooperative joint ventures" that keep local farmers on their land but producing more, or colonial-style extractive industries.
Some of the early projects show signs of an extractive focus. Daewoo, for instance, has said it will hire South African workers to run its farms in Madagascar, rather than local residents, which suggests job creation and transfer of technology from the project may be minimal in Madagascar and that thousands of people with tenuous rights to the land they now farm may be pushed off it.
Crop experts also warn that past efforts to create huge-scale corporate grain farming have regularly failed, one reason family-owned farms continue to predominate in the United States, one of the world's biggest grain producers. They point to Soviet Union's disastrous collective farms and the collapse of a variety of large-scale colonial farming efforts in Africa as indications of what could go wrong.
"That's the nightmare scenario, that [investors] jump in, lose their money, the operation shuts down, and five years later you have recriminations and rusting machinery" as well as more landless peasants, said Steve Wiggins, an African agriculture expert with the Overseas Development Institute, a British think tank.
Just how much security the new land investments may provide countries and corporations also remains uncertain, experts say. Future governments in countries now renting or selling land may well fail to abide by deals their predecessors cut, particularly if they face food or land shortages at home.
"If you're a risk analyst you'd say these bits of paper are not going to be worth very much in the medium term and certainly not in the long term," Wiggins said.
Still, the farmland buy-up shows few signs of slowing, particularly as cash-rich countries, businesses and investment firms struggle to find good buys in a bad market.
"I can see why these projects are still of huge interest," Atkin said. "The case for ag land is pretty good when so many other things aren't doing so well at the moment."
Goering reported from London and Rodriguez from Moscow.
