BusinessWeek | In Depth | November 25, 2009
Agribusiness and global investors are scooping up farmland. Are corporate farmers the new colonialists?
By Jessica Silver-Greenberg
Farmland in developing countries has become an unlikely object of investor fascination. Goldman Sachs, and Morgan Stanley are each raising hundreds of millions of dollars for agriculture funds aimed at Africa and Latin America. Agribusinesses in the U.S. are leasing vast tracts of African land from which they expect to export crops and glean healthy returns. Arab oil countries, meanwhile, are vying for fertile acreage for fear their homelands are running out of water.
The executives leading this hunt for farmland say they are boosting poor economies. Dominion Farms, based in Guthrie, Okla., leases 17,000 acres in Kenya near the village where President Barack Obama's grandmother lives. Dominion President Calvin Burgess boasts that his company provides employment for hundreds of local residents. "This area was a malaria-infested swamp before we got here," he says. Once Dominion is fully in gear, it plans to sell rice to African governments and export farm-raised fish to Europe.
But in Kenya, foreign land investors are beginning to stir resentment. Subsistence farmers and cattle herders complain that they are being displaced without compensation. In the Siaya District of southwest Kenya, families say Dominion hasn't offered as many jobs as it claims in the six years since it arrived. Villagers accuse it of polluting water and sickening farm animals—allegations the company denies.
Tensions are rising. Charles Onyango Apiyo, 39, raises cattle in Siaya. A year ago, he says, 10 of his cows wandered onto Dominion property. The entire herd of 150 was confiscated by company employees and taken to a police station. The cattle were held for almost two weeks, during which time 20 died, Apiyo says. More perished from dehydration on the trek back to his land. In an interview on the side of a dusty road, he says he has received nothing for his losses.
Dominion's Burgess expresses little sympathy. Stray cattle, he says, can spread disease. "Can you imagine a rice farmer in Mississippi allowing stray cattle onto his field?"
Several factors explain the rush to invest in farmland in Africa. In 2007 high oil prices drove up the cost of crop production and shipping. The resulting spike in food prices was exacerbated by severe droughts in Eastern Europe and Australia. Sensing opportunity, investors and corporate farmers went shopping in Kenya, Sudan, Tanzania, and Ethiopia. Governments in those countries, which annually accept billions of dollars in food aid, leased land to outsiders in exchange for promises of cash, roads, and schools. Local residents, however, often weren't consulted when land they considered theirs was turned over to newcomers. Centuries-old themes of exploitation inevitably surfaced.
AN UNUSUAL CONFERENCE
In the first half of 2009 private equity funds lined up more than $2 billion to invest in farmland, according to Agcapita, a Calgary-based fund. BlackRock has raised $500 million to invest in agriculture. Philippe Heilberg, a former commodities trader for American International Group, has leased 1 million acres in Sudan. Heilberg's New York-based Jarch Capital announced in April that it had acquired the land for an undisclosed amount through a Sudanese firm. Jarch plans to grow rice, wheat, and other crops for export. The owner of the land is Gabriel Matip, a son of General Paulino Matip, the leader of the armed wing of the Sudan People's Liberation Movement, which fought a long war against the government in Khartoum that ended in 2005. In a statement issued to the Sudan Tribune in April, Jarch said it planned to lease another million acres by the end of 2009. The completion of that deal hasn't been announced.
In June scores of institutional investors gathered in New York for Global AgInvesting 2009, a first-of-its-kind conference. Among the attendees were employees of the endowment funds of Harvard and New York Universities and the pension plan for San Diego County, Calif. The potential investors were told that in Africa, a little Western technology can fertilize crops and generate profits. "It's a mad scramble for African farmland right now," says Carl Atkin, head of research for Bidwells Agribusiness, a large British company that recruited investors at the conference.
Japan, China, and other Asian countries have operated farms in Africa for more than 20 years. A million Chinese do agricultural work on the continent, according to the U.N. Now a throng of additional outsiders is arriving.
Saudi Arabia held a lavish ceremony in March in Riyadh to celebrate the first harvest from a $100 million rice and wheat project in Ethiopia. In December 2008, Kenyan President Mwai Kibaki flew to Qatar to meet with officials there about a potential deal under which the tiny Middle Eastern emirate would build a port in the coastal city of Lamu in exchange for a long-term lease on almost 100,000 acres to grow rice.
Dominion Farms' Burgess began negotiations in 2002 with the governments of Kenya's Siaya and Bondo districts near giant Lake Victoria. The 58-year-old executive says his interest in Africa was sparked by a member of his church in Guthrie who makes charitable trips to Kenya. Burgess decided to bring American-style agribusiness to Africa. "God has plans for people's lives," he says, "and I thought that maybe this was part of His plan for me."
PLEADING FOR THEIR PEOPLE
Dominion isn't an obvious candidate for farming in Kenya. Part of Dominion Group, a privately held conglomerate involved in real estate development and manufacturing, Dominion once ran prisons for Colorado and other states. Corrections Corp. of Americahas acquired that business.
When he arrived in Siaya, Burgess rode by Jeep over pock-marked roads to examine land in an area near where the Yala River empties into Lake Victoria. Local officials told him that past irrigation plans had failed, he says. Burgess recounts how he was greeted by two members of the Luo tribe dressed in tattered Western-style suits. The old men pleaded for help for their people, he says. "I made the decision that night."
Soon thereafter, Dominion secured a 25-year lease on 17,000 acres, with an option to renew for an additional 20 years. Burgess says that to obtain the lease he made a series of agreements in confidential documents signed by members of local councils and tribal chiefs. These agreements were approved by the Kenyan Lands Ministry in Nairobi, says Dorothy N. Angote, the ministry's permanent secretary.
Dominion is obligated to pay a total of $140,000 in rent annually. On top of that, Burgess says he paid the Siaya County Council $100,000 two years ago. A county official conceded that the $100,000 vanished, according to local newspaper reports. Separately, Burgess says he paid $120,000 to the local Lake Basin Development Authority in 2003. That money also disappeared, he says. Neither the authority nor the county council responded to several requests for comment.
Dominion also agreed to clear 300 acres of its land for residents to use communally. In addition, it said it would rehabilitate at least one school and one health facility in each of the Siaya and Bondo districts.
More than six years later, these arrangements haven't all gone according to plan. Before the company's arrival, tens of thousands of farming and herding families used parts of the Yala wetlands now occupied by Dominion. Many of these residents have lost access to land they considered theirs. As a legal matter, land rights were held by the various government bodies that leased tracts to Dominion, according to the Lands Ministry. Scores of homes where Dominion now operates were relocated to make way for a dam and reservoir the company built. Burgess says about 50 families were compensated as a result. Chris Owalla, a local community organizer, estimates that 300 families were displaced.
Burgess says owners were paid amounts roughly double the worth of their properties. Residents say the compensation—typically 4,600 Kenyan shillings, or about $60 per home—was inadequate. Erasto Odindo, who grows beans, maize, and tomatoes on eight acres in Bondo, says he rejected Dominion's offer because the money was too little.
Dominion has renovated one of the two promised health centers, installing electricity, X-ray machines, and dental equipment. But residents say they have trouble reaching the small facility because the road to it runs through Dominion's farm and company security officers sometimes deny them access. No schools have been renovated, although Dominion has donated building materials for those projects.
By all accounts, the 300 acres Dominion has set aside for communal farming hasn't been used for that purpose. The reasons are in dispute. Burgess blames local officials for keeping people off the land. The officials want to supervise the farming and collect the profits, he alleges. Local farmers, in contrast, say that when they tried to plant crops, they were blocked by the company or saw their maize and rice uprooted by Dominion bulldozers, according to Owalla, the community organizer. Burgess denies these accusations. It is difficult for an outsider to get to the bottom of the matter.
Burgess says that overall, Dominion has improved life for Kenyans. "I disagree when people say, 'Oh, you have to preserve the local culture,'" he says. "If you preserve it, people will starve, and you won't have a culture to preserve." He plays down the idea that land formerly used for subsistence agriculture has now been monopolized by Dominion. Farms that surround his company's property are little more than "unproductive gardens," he says. Most of the area his company now cultivates simply wasn't being used before, he says. "No one was there."
Burgess says Dominion employs 700 local people in various capacities. But villagers dispute this. In 2003 the company hired some 200 people to pull weeds and chase away birds, according to Owalla. As the Dominion farm became more mechanized, jobs dwindled, the activist and local residents say.
During a reporter's visit to the area over three days, some 40 women were observed working at any one time in the Dominion rice paddies. Three men operated tractor equipment along the road. Several of the women said in interviews that they earn less than 200 shillings a day, the equivalent of $3. They declined to give their names for fear of losing their jobs.
Even some local farmers who have kept their land complain about Dominion's presence. Odindo, the farmer in Bondo, reigns as the informal mayor of his neighborhood. While chickens and goats roam the mud-walled front yard of his neatly painted white house, he explains that local farmers fear Dominion eventually will force many of them to seek work in Nairobi—a fate they all dread. "How can you suddenly ask them to change their whole life?"
During severe rains in 2007, Odindo says most of his crops were destroyed by flooding he blames on a nearby dam that Dominion built. He holds up worn photos showing his farm almost totally submerged. "We have never seen that kind of flooding before," he says. More than 1,000 homes were damaged, and some were swept completely away, he adds.
Jackson Oware, who lives nearby, has placed small markers where five of his mud huts stood before the flooding destroyed them. "We are not sure when to replant because it could all be washed away again," Oware says.
Burgess says the ferocity of the storm caused the damage. "We were in no way responsible for this flooding," he adds. "These people just want someone to blame."
Residents report other fears as well. Since Dominion's arrival, they say, drinking water from the Yala River has a metallic taste they attribute to the company's use of fertilizer. Odindo says Dominion's spraying of pesticides has sickened some animals. "Every home has a dead cow or dead goat," he says.
A soil and water analysis in August, paid for by the antipoverty group ActionAid International, concluded that people shouldn't drink from the Yala River. Among the concerns mentioned in the analysis are the presence of dieldrin, a chemical ingredient in some pesticides that has been linked to breast cancer and Parkinson's disease. The Environmental Protection Agency banned dieldrin in the U.S. in 1987.
Burgess says Dominion uses no pesticides in Kenya. Crop-dusting planes that circle the company's property spray only nitrogen-based fertilizers and herbicides—neither of which is harmful, he adds.
Grahame Vetch, Dominion's manager in Kenya from 2004 to 2007, contradicts his former employer on the pesticide question. Vetch, who according to Burgess was fired for poor management, now runs his own land development company in the area. He says Dominion did use pesticides to battle crop-eating pests, such as the quelea bird.
Environmental oversight is weak in Kenya. Selalah Okoth, the district officer in Bondo for Kenya's National Environment Management Authority, says she hasn't assessed water or soil there since she took the job in 2004. Okoth cites a lack of resources, saying she fears there could be harmful pollution caused by Dominion.
Burgess responds with dismay. "When you try to help these people," he says, "all they do is complain." He says his company is trying to foster farming that will attract jobs and investment. He speaks often of his spiritual motivation. A large white Christian cross stands behind Dominion's main facility. Burgess says he erected it after community leaders told him his farm included sites associated with witchcraft.
The American executive has also preached in local churches to promote good relations. But that hasn't gone over well with everyone. "Burgess came into my church and claimed that we didn't know Christ well enough, and we should do it right to prosper," says Odindo. "Well, we are poorer now."
Grain Spotting in Africa
As the race for African farmland picks up, Grain is keeping score. The Rome-based nongovernmental organization aggregates local and international news reports and press releases to assemble a running tally of land deals. The site aims to raise awareness about the vast tracts of land being leased by foreigners in Africa, Latin America, and other parts of the developing world.
To check out Grain, go to http://bx.businessweek.com/industrial-agriculture/reference/
This article was done in collaboration with the International Reporting Project (internationalreportingproject.org), a nonprofit that provides grants to U.S. journalists.
Silver-Greenberg is a reporter for BusinessWeek.com.