Financial Times | November 19 2008By Song Jung-a and Christian Oliver in Seoul, and Tom Burgis in Johannesburg
Daewoo Logistics of South Korea said it expected to pay nothing to farm maize and palm oil in an area of Madagascar half the size of Belgium, increasing concerns about the largest farmland investment of this kind.
The Indian Ocean island will simply gain employment opportunities from Daewoo’s 99-year lease of 1.3m hectares, officials at the company said. They emphasised that the aim of the investment was to boost Seoul’s food security.
“We want to plant corn there to ensure our food security. Food can be a weapon in this world,” said Hong Jong-wan, a manager at Daewoo. “We can either export the harvests to other countries or ship them back to Korea in case of a food crisis.”
Daewoo said it had agreed with Madagascar’s government that it could cultivate 1.3m hectares of farmland for free when it signed a memorandum of understanding in May. When the company signed the contract in July, it agreed to discuss costs with Madagascar. But Daewoo now believes it will have to pay nothing.
“It is totally undeveloped land which has been left untouched. And we will provide jobs for them by farming it, which is good for Madagascar,” said Mr Hong. The 1.3m hectares of leased land is almost half the African country’s current arable land of 2.5m hectares.
But Madagascar could also benefit from Daewoo’s investment in roads, irrigation and grain storage facilities.
However, a European diplomat in southern Africa said: “We suspect there will be very limited direct benefits [for Madagascar]. Extractive projects have very little spill-over to a broader industrialisation.”
Asian nations have increasingly looked to Africa to meet their resource needs in the past five years or so. China has been particularly aggressive in building up stakes in oilfields and mines on the continent, sometimes facing accusations of neo-colonialism.
But now the countries are moving from minerals and oil into food. Roelof Horne, who manages Investec Asset Management’s Africa fund, said he expected to see more farmland investments on the continent. “Africa has most of the underutilised fertile land in the world,” he said, though he cautioned that “land is always an emotive thing”.
Apart from Daewoo, an increasing number of South Korean companies are venturing into Madagascar, investing in projects from nickel mines to power plants. State-run Korea Resources recently signed a preliminary agreement with Madagascar to expand collaboration on resources development including mining projects for other metals.
Daewoo plans to start maize production on 2,000 hectares from next year and gradually expand it to other parts of the leased land. The company plans to plant maize on 1m hectares in the western part of Madagascar and oil palm trees on 300,000 hectares in the east.
The company plans to ship the bulk of the harvests back to South Korea and export some supplies to other countries. It is unclear if any of the production will remain in Madagascar, an impoverished nation where the World Food Programme provides food relief to about 600,000 people – about 3.5 per cent of the population.
The WFP, the UN agency in charge of emergency food relief, said more than 70 per cent of Madagascar’s population lives below the poverty line. “Some 50 per cent of children under three years of age suffer retarded growth due to a chronically inadequate diet,” it said.
The pursuit of foreign farm investments follows this year’s food crisis, which saw record prices for commodities such as wheat and rice, and food riots in countries from Egypt to Haiti. Prices for agricultural commodities have tumbled by about half from such levels but nations are concerned about long-term supplies.
Daewoo said it chose to invest in Madagascar because it remains relatively untouched by western companies. “The country could provide bigger opportunities for us as not many western companies are there,” said Mr Hong.
Daewoo plans to develop the arable land in Madagascar for farming over the next 15 years, and intends to provide about half South Korea’s maize imports. South Korea, a heavily populated but resource-poor nation, is the fourth-largest importer of maize.
Additional reporting by Javier Blas in London
