By Euan Sadden
8 March 2010
Many are saying food is becoming the new oil. In the past two years there has been a remarkable increase in purchases of large-scale farmland by foreigners throughout Africa, Latin America, Central Asia, and Southeast Asia.
And this, in part, fuels the more immediate problem. Food importing nations are growing increasingly concerned about the volatile price of food.
The 2008 bubble in food prices – driven by financial speculators, biofuels, and restrictions on food exports – marked a turning point for countries dependent on imported foods.
So with many governments alerted to what might lie ahead, some net food importers are now foregoing imports altogether and instead investing in foreign farmland and exporting the food to themselves.
In 2008 the head of the UN Food and Agriculture Organisation, Jacques Diouf, warned that the controversial rise in land deals could create a new form of colonialism, with poor countries producing food for wealthy countries at the expense of their own people.
But contrary to past trends, developing countries are initiating much of this investment.
China is considered a leader, particularly in Africa. The Persian Gulf states (who severely lack fertile land of their own), including Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates, are also investing in Africa, as well as Asia, and Eastern and Central Europe.
Recent purchases include land in Sudan where the government has leased 1.5 million hectares of prime farmland to the Gulf States, Egypt, and South Korea for 99 years.
Ironically, Sudan also happens to be one of the world’s largest recipients of foreign aid, with 5.6 million of its citizens critically dependent on foreign food deliveries.
Other examples include Kuwait who has leased 130,000 hectares of rice fields from Cambodia, while Egypt is planning to grow wheat and corn on 840,000 hectares in Uganda.
While concerns over food security represent the predominant driving force, land deals are also being driven by investment opportunities. And although governments are encouraging the trend, acquisitions are generally being made by companies.
In addition to agribusiness corporations and food traders, investment banks and private equity funds have jumped at the opportunity.
Globally, the unsustainable combination of more people and less land makes food a safe investment with annual returns of up to 20-30 percent, rare numbers in the current economic climate.
However, with arable land scarce and expensive in Europe and the United States, the only option is to develop new land in Africa, Asia, and South America.
In Zambia, for example, foreign land funds pay $US350-500 per hectare ($US140-200 per acre) – around a tenth of the price of land in the United States. And investors suggest that with a little fertiliser and additional irrigation, harvests and profits could quadruple.
As a result, investment firms and other wealthy private enterprises are quietly making significant land purchases across the developing world.
US investment management company Blackrock has established a $200 million agricultural fund, and has allocated $30 million for the acquisition of farmland. Renaissance Capital, a Russian investment company, has acquired more than 100,000 hectares in Ukraine.
Deutsch Bank and Goldman Sachs have invested money in pig breeding operations and chicken farms in China – putting China at both ends of the deals.
What is unique about this new manner of colonialism is that countries such as Pakistan, Sudan, Mongolia, Indonesia, Laos and the Philippines are readily allowing themselves to be ‘conquered’.
Most of these countries are heavily dependent on food aid and are desperate for agricultural investment.
For countries lacking investment and with little except mining resources to offer the world market, these land deals represent an extremely attractive proposition.
The Ethiopian Prime Minister said that his government is “eager” to provide access to hundreds of thousands of hectares of farmland. The Turkish Agriculture Minister simply said, “Choose and take what you want.”
Even in the midst of war with the Taliban, the Pakistani Government staged a road show in Dubai, seeking to entice sheikhs with tax breaks and exemptions from labour laws. The Pakistani Government has even offered a 100,000 strong security force dedicated to protecting such investments.
Should these investments prove profitable, it is hoped that they can achieve what development agencies have been unable to do over the past few decades. Namely, to reduce the global hunger that now affects more than one billion people worldwide.
But they also have significant dangers. In part two tomorrow, we look at the hidden costs of the foreign land grab.
