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Indians go in search of El Dorado

Times of India | 29 September 2009

Subodh Varma

The Solvent Extractors Association , the Indian oilseeds industry body, has formed a consortium of 18 companies to acquire 10,000 hectares of prime farmland in a $40-million deal in Uruguay and Paraguay to cultivate oilseeds and pulses. The association CEO B V Mehta said they are hamstrung only by access to finance, otherwise they have it all sewn up.

Simmarpal Singh of Olam International (based in Singapore and controlled by Sunny Varghese) went to Argentina in 2005 to buy peanuts for Olam, but ended up growing them on 12,000 hectares of land, earning him the sobriquet of Peanut Prince of Argentina . Thanks to his colourful turbans , and maybe the fact that he acquired 5,000 hectares to grow soya and corn, he’s now known on the night club circuit simply as the ‘Prince’ . His IIT-Delhi wife Harpreet Kaur smilingly dismisses stories that Simmarpal enjoys preferred client status at night clubs, saying he works too hard to find time to party hard (though he does have time for golf).

There are a whole lot of other Indians in Argentina (one of the world’s largest producers/exporters of peanuts, sunflower oil, soyabeans, biofuels) and other parts of Latin America who may not be as flamboyant as Simmarpal, but are no less driven. The Chennaibased Sterling Group has an olive farm over 1,700 hectares. Arumugam, a Tamil-Malaysian entrepreneur, owns 600,000 hectares of land in Argentina for production of oilseeds.

India’s growing presence abroad hasn’t gone unnoticed. The Guardian, in a recent article, wrote, “India has lent money to 80 companies to buy 350,000 hectares in Africa.” And there are reports that Indian companies are eyeing not just Africa and LatAm, but countries nearer home, such as Myanmar , as well as those further afield, like Australia and Canada.

Does India really need land other than its own for farming? After all, it has the second-largest area of arable land (160 million hectares) after the US (174 mha). But the picture turns bleak when you consider arable land per capita: we rank 104th with 146 hectares of arable land per 1000 people compared to Australia’s 2,430 ha). Also, remember that only about half our cultivable land has access to irrigation ; for the rest, farmers have no option but to put their faith in the rain gods, and that can make a difference of hundred per cent in terms of yield. Finally, there’s the problem of small and fragmented land holdings that deprives farming of economies of scale and makes it unproductive.

But China is in a tighter spot than India. It ranks No. 4 in terms of total arable land, but as a share of total land, it’s just 11% compared to India’s 56%. As for arable land per capita, it figures even further down the chart at No. 144.

Small wonder that China is among the frontrunners in the land race along with other food-importing countries like Saudi Arabia, the oil-rich Gulf states (Qatar, Abu Dhabi, Bahrain), South Korea and Japan. According to IFPRI, the food crisis of 2008, along with “increased pressures on natural resources, water scarcity and export restrictions imposed by major producers when food prices were high, and growing distrust in the functioning of regional and global markets” is driving these nations to seek arable land wherever available, preferably near ports.

Saudi Arabia, after the huge spike in food prices in 2007-08 , decided that it couldn’t possibly eat oil, and is venturing into Pakistan, among other obliging nations. Pakistan has offered thousands of hectares of farmland in all its four provinces to Saudi Arabia to grow wheat, fruits and vegetables. The Saudi deal was announced by Pakistan PM Yousuf Raza Gilani after a June visit to the desert kingdom, and the deal is expected to be sealed in the next few months. Not just that, there are reports that the land given to the Saudis will be protected by the Pakistan army. Pakistan is also in talks with Qatar to offer land in Punjab, its most fertile province. Some reports say that 25,000 villages will be displaced if the deal goes through. And just as we were going to press, South Korea announced a deal to develop 1,000 sq km of land for cultivation in Tanzania.

What has provided a tailwind to this global shopping trip is the entry of private investment funds. After the ruinous downturn in stock and derivative-based wealth last year, several fund managers began to think of agricultural land as the promised land. According to a Rabobank report, over 90 funds are currently active in investing in agriculture. These funds have snapped up land in Africa, South America, and the steppes of Russia and Ukraine. Leading investment firms like Morgan Stanley and Goldman Sachs have even moved to livestock and invested in Chinese poultry and pig farms. But as farmland becomes a strategic resource along with oil, water and minerals, it’s opening the door to political and social unrest. There is already opposition from Cambodia, Thailand , Ethiopia and Mozambique; in Pakistan, the Balochis have forced their government to tear up a farm deal with the UAE.

Since most of the land-fertile countries are poor and politically fragile — and often not able to feed their own people — the parcelling out of land to the highest foreign bidder gives a new meaning to the term ‘banana republic’ , the derogatory sobriquet originally used for servile dictatorships who abetted the exploitation of plantation agriculture by MNCs like United Fruit Co in Honduras. Africa, squatting always at the bottom of the food chain, is rapidly being turned into a giant land mall. The irony of a famine-prone continent being used to bail out the world's food crisis is lost on no one. David Hillam, deputy director of the Food and Agricultural Organisation (FAO), brought these fears up front when he told a conference in Washington , “Imagine empty trucks being driven into, say Ethiopia, at the time of food shortages caused by war or drought, and being drive out again, full of grain to feed people overseas ... Can you imagine the political consequences?”

Those who see the trend as a positive argue that hitherto under-utilized land is coming under modern agriculture, thus making it far more productive and increasing the food-production base. Counters Devinder Sharma, an analyst with the Forum for Biotechnology and Food Security: “Outsourcing food production will ensure food security for investing countries but will leave behind a trail of hunger for local populations ... The environmental tab of highly intensive farming — devastated soils, dry aquifer, and ruined ecology from chemical infestation — will be left for the host country to pick up.” That’s quite apart from the fact that locals do not gain from the increased productivity since the output doesn’t accrue to them.

Proponents of this new land rush also say foreign investments in land will create jobs for locals, improve living conditions and increase GDP. The facts don’t support such claims. For instance, in Ethiopia, one of the world’s poorest countries, over 600,000 hectares have been leased out to investors at about $3 to $10 per hectare per year. The average landholding size is about 2 hectares. Thus over 300,000 families are displaced . But only about 20,000 people are expected to get jobs in the highly mechanised farms. The Chinese have tried to contain opposition to their surge overseas with the same strategy they have used for acquiring mineral rights. They throw in a lot of sweeteners like building roads, hospitals , bridges, dams and ports.

Clearly, there’s a growing and insatiable appetite for land. The trajectory is exciting and could change the contours of global commodity markets, land economics and geopolitical equations. For the one billion under-nourished people, the implications will be profound: those in countries with arable land may well wish they had oil instead of water under their feet.

As for India, a time may soon come when it will need to take a call on whether it should join the race in real earnest or continue to provide quiet support to its growing band of peanut princes. Funding of overseas land acquisitions remains an obstacle. “We are trying to persuade the Exim Bank to lend us Rs 250 crore for this,” said Mehta, who’s heading the consortium that plans to acquire land in South America. But the Indian banking system has not yet figured out a way to facilitate the acquisition of such land. Top officials at Exim Bank said that while there was no bar on Indians acquiring land overseas, domestic banks had no way of financing such deals. But given the growing interest in this sector, bankers are even willing to look at innovative solutions to the financing crunch. As one official explained, on condition of anonymity, “You won’t be able to get your bank branch in Connaught Place to finance such ventures, but the branch in Mayfair, London, might be able to.”

As this high-stakes game evolves, so will the rules.
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