The land investment story - fear of unchecked land grabs

CSR Asia | 3 February 2010

by Helen Roeth

Early this year in Indonesia, a regulation was drafted which, if signed by the President, will make way for the development of so-called food estates in Merauke, Papua. At the centre of the pilot project are 1.6 million hectares of land which are planned to be transformed into an integrated farming, plantation and livestock zone, where companies will grow, process and package their products in one place. The government plans to attract domestic and international investors with a series of tax breaks and reductions in customs and excise duty in order to stimulate large-scale investment in the agriculture sector and beef up food security. If successful, the government hopes to establish similar zones elsewhere in eastern Indonesia.

International land deals are emerging as a global phenomenon and the United Nations Food and Agriculture Organization (FAO) suggests that deals reported in the international press constitute only the tip of the iceberg. Oxfam suggests that some 120 hedge funds, retirement funds, agribusiness companies, and private equity funds have recently invested in agricultural land in developing countries. The International Food Policy Research Institute (IFPRI) estimates that globally 15 to 20 million hectares (an area the size of Uruguay) have been under negotiation since 2006. Players in the game also include state-owned investors of crop-starved countries eager to secure food supplies for their rapidly growing populations.

China, which holds 20 percent of the world’s population, but only 7 percent of arable land and 7 percent of freshwater resources worldwide, in 2008 announced a $5 billion plan to develop agricultural assets in Africa. Its appetite for crops is large as indicated by its record import of 13.9 million tons of soybeans in the first four months of 2009.

South Korea’s Daewoo Logistics announced a $6 billion deal in November 2008 to lease 1.3 million hectares farmland in Madagascar to produce corn and palm oil. This is roughly half of Madagascar’s arable land, a country where about 70 percent of the population live below the poverty line. Widespread protests and anger did not only prevent the deal but also helped spur a coup d'etat.

While in 2008 a number of short-term factors including high global food prices and subsequent export bans or restrictions on staple crops in countries such as India and Vietnam fuelled a flurry of interest in acquiring developing-country land these factors have by now disappeared – at least temporarily. FAO argues that the latest investment strategy is strongly driven by food, water, and energy security concerns and the volatility of global commodity prices. And for food companies the key long-term concern is securing production capacity.

FAO suggests that water is one of the most significant drivers of this new surge of investment: Close to 70 percent of all freshwater appropriated for human use goes to agriculture. Irrigation, crucial to the world’s food supplies, is on the rise; between 1962 and 1998, irrigated land expanded by about 1.6 percent a year (a total increase of 100 million hectares). In addition, climate change will have serious implications for the agricultural sector as collectively, the impacts of warming, severe weather events and stressed water resources will most likely lead to reduced yields.

According to FAO this is propelling state-based foreign investment, including joint venture investments with national private sector companies. There is a run to secure access to water for agriculture with investments in water-abundant states.

Another factor that seems to be underpinning global land acquisition is inflation. According to Lord Jacob Rothschild “owning a hard asset like land is a good hedge”.

The renewed interest by states and investors to purchase or lease agricultural land rightly deserves large and serious attention because of the value of land not only for food security and water access but also its bearing on the livelihoods and identity of local communities. Such land issues are highly emotive and have an impact on the human right to an adequate standard of living. Concerns are growing over a new form of feudalism where indigenous farmers only serve as a source of labour for large capital owners. Non-governmental organisations fear the risk of ‘land grabs’ as most land acquisitions happen in developing countries with a lack of institutional support and insecure or informal, indigenous land rights that will extradite farmers to distress sales.

Other concerns are around the environmental impact accompanied by such large scale investments. To make lucrative gains investments are most likely to focus on industrial agro-production with intensive use of chemical fertilizer, pesticides, and large-scale irrigation schemes which will lead to a long-term overuse of resources and land degradation.

A report issued by FAO - "Land grab or development opportunity? Agricultural investment and international land deals in Africa” – provides a detailed study of the recent trend of foreign land purchases, leases and other transactions. Though the study focuses on the acquisition of arable land in Africa, some key conclusions can be transferred to the Asian region.

Weighing both the risks and the economic opportunities that such acquisitions can represent to recipient countries, the report suggests that foreign investments in farmland “may bring macro-level benefits (such as GDP growth and improved government revenues), and may create opportunities for economic development and livelihood improvement in rural areas” only if measures are taken in order to regulate the land acquisitions and guarantee a minimum benefit for the affected communities.

While there is plenty of information circulating in the media about international land deals, very few contracts have been made available to the public. There remains a lack of transparency and checks in contract negotiations and in some cases it is unclear whether contracts exist even for those deals that have been confirmed by government officials. FAO admits that this in turn creates a breeding ground for corruption and leads to deals which do not have the public interest at heart.

The United Nations and the World Bank are drawing up a non-binding code of conduct to regulate overseas investment in farmland in order to transform “malpractices” into “win-win” scenarios for investors and hosts. Based on the timetable for similar negotiations we will most likely not see any results before the end of the year – throw in another few years for implementing the guidelines and making them operational and enforceable. As for the farmers in Indonesia this might be too late as large foreign investors such as the Binladin Group, a Saudi Arabian conglomerate, are already examining the project’s potential. Agriculture Minister Suswono’s promise to put Indonesian investors in the first priority before inviting foreign investors to invest as part of a joint venture with local partners was so far not successful in convincing local indigenous people to give up their land. The Indonesian government is wise to learn from the South Korea Daewoo-Madagascar deal, which demonstrated the enormous economic, social and political risks associated with foreign ownership of land and water rights.
  • Who's involved?

    Whos Involved?


    Special content


    Latest posts