Oman Economic Review | July 2009
The so-called “land grab” began last year as the food price crisis continued to spiral out of control. Rich nations heading to poor, but fertile, countries to secure food for their populations was a concept that has never been seen on this scale
At the OER Top 20 Debate and Awards event held on May 31, 2009, HE Maqbool bin Ali Sultan, Minister of Commerce and Industry, cited the two greatest “new challenges” currently racking the minds of government officials: inflation and food security. The two are in fact intertwined. Between the start of 2007 and mid-2008 the food price index rose by 78 per cent, according to research by the Economist. In an effort to avoid a shortage Oman stockpiled flour and grain, causing, in part, inflation to swell to a peak of 14 per cent in mid-2008. This figure has now eased to 4.9 per cent as of April and food prices have fallen off their peak. But food insecurity will continue to plague Oman, along with many other countries, thanks to expanding global population and declining farmland productivity.
The impetus to secure reliable food supplies has led Saudi Arabia, Qatar and the UAE among others to look outside of their arid borders towards Asian and, more frequently, African farmland as a means to feed their populations. In these offshore farming deals long-term leases (usually 50-99 years) on arable land are exchanged for investments or the promise of investment in the host country’s infrastructure.
UNCTAD studyWhile Oman has yet to indicate it will follow this course, HE Maqbool recently announced he was enlisting the help of UNCTAD to conduct a study on feasible solutions to the country’s food problem. Iraq has also been soliciting agricultural investment within the Gulf, with a recent invitation to develop its agricultural lands on a long-term lease. It will be months before the results of the UNCTAD study are released but many expect offshore farming – in the style of neighbours like Saudi Arabia and Qatar – to be a likely prescription. Should these observers be proven right, the Sultanate would have the benefit of learning from its predecessors’ experience. According to research released in April by the International Food Policy Research Institute (IFPRI), GCC governments or their investment authorities have signed, requested or implemented deals that amount to over 950,000 hectares (ha) on the African continent, excluding deals for which no details were released. In Asia the same figure is about 430,000 ha. Host countries are rewarded with loans or financial support for infrastructure development, along with a nominal land fee. The Gulf obviously has the funds to back up such promises: the Qatar Investment Authority (QIA) has a $60bn investment vehicle dedicated to food and energy investments around the globe, along with a $1bn fund specifically for agriculture investments in Vietnam. Saudi Arabia has a dedicated state investment group worth $800mn to target agricultural projects abroad. The potential is certainly there for a symbiotic exchange between countries rich in capital and those blessed with fertile soil. In the case of the deals between the Gulf and Africa, the latter needs infrastructure development while the former cannot meet domestic food demand without a massive import bill. At a June World Economic Forum meeting in Cape Town, the World Bank Vice President of the Africa region, Obiageli Katryn Ezekwesili, said the continent would require $80bn in annual investment to be competitive in the global economy. Agriculture is one of the few sectors that have remained attractive during the credit downturn and now that investment appetite and oil prices have both started to pick up again, the Gulf’s farmland investments could give Africa a hearty push towards Ezekwesili’s ambitious prescription. An UN official has been quoted in the international press as saying offshore farming deals could be “part of the solution” to Africa’s troubles. However a successful give-and-take relationship will occur only if both host and investor country are aware of the sensitivity required in brokering land deals in chronically impoverished countries where hunger remains a stubborn issue. The first-ever extensive report on this new wave of farm deals – characterised by massive scale and government, rather than private, involvement – is aptly subtitled “Risks and Opportunities.” It studies five sub-Saharan African countries and was released in May by the IFPRI in cooperation with the FAO. It draws attention to problematic leases, in which land of dubious ownership (small farmers, who make up 70 per cent of Africa’s population, often do not have access to formal land deeds) is swapped for abstract, often vague promises of investment. Endemic corruption in many African and Asian host countries and a lack of contractual transparency leaves much room for doubt amongst local shareholders that they will see tangible benefits. Potential backlash
The report also notes what some may consider the blatantly obvious: using the farmland of countries with either perennial food shortages or famine to export food engenders political opposition, both within domestic and international circles. Indeed, residents of the land in question have been known to stage fierce protests when their land is put up for sale, leaving some investor countries wondering if there isn’t a better way. In Madagascar, for example, South Korea’s failed attempt to lease an area the size of Qatar on the island nation led to the overthrow of a government. More recently, Kenyan conservationists have threatened to “fight to the death” against a deal that cedes 40,000 hectares in the Tana River Delta – along with its rich array of biodiversity – to Qatar in exchange for a $2.5bn loan to build a deep-water port.
However the various promised investments, if implemented properly, would likely benefit the very shareholders protesting. Better roads, for example, would allow farmers to get their produce to market more quickly. The solution to extracting the greatest benefit out of these deals while minimising risk could lie in international monitoring, says the report.
Momentum is gathering amongst developed countries calling for stricter regulation and greater oversight to ensure contractual promises are met. Japan is leading the calls from G8 countries to bring in tighter regulations and an international body to oversee the implementation of every aspect of lease contracts. The African Union too is pushing for an international overseer.
Moreover the rise in overseas farming comes at a time that could be most broadly defined as a “stress test” for the global capitalist system. The financial crisis fallout has no doubt weakened the trust many held in the merits of the international free market system. Slow signs of recovery have allayed some of these fears and the world’s clock will no doubt keep ticking to the tune of globalised capitalism. But it is in this make-or-break moment for a new, more stable capitalist system that the Gulf – and perhaps Oman in the future – are forging a rather novel form of global venture, that is, government-funded offshore farming.
While they have certainly garnered their fair share of controversy in the media, farming deals have the potential, with the proper oversight and implementation, to illustrate the constructive value of capitalism as well as its ability to adapt to a world of increasingly limited resources and narrow the gap between the rich and poor.
Should Oman, a net-importer of food, choose to follow the path of its GCC neighbours and tend fields outside its borders, it would be well-placed to model a form of truly mutually-beneficial offshore farming arrangements. Besides increased food security, the Sultanate would also gain good marks for its international reputation for a clean farm deal in developing countries – a factor that should not be underestimated.
- Saudi Arabia, Qatar and the UAE are looking towards Asian and African farmland
- According to International Food Policy Research Institute (IFPRI) GCC governments have implemented deals of over 950,000 hectares on the African continent
- In Asia GCC governments have about 430,000 hectares
- The Qatar Investment Authority has a $60bn fund dedicated to food and energy investments
- Saudi Arabia has a dedicated state investment group worth $800mn to target agricultural projects abroad