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Fri 4 Sep 2009 04:00 AM

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Bitter harvest

Gulf nations are buying foreign farmlands from developing nations. Is this much-needed investment, or a thinly-disguised land-grab?

Bitter harvest
Bitter harvest
Traditionally, foreign farmland deals were between private investors and private owners. Now, sales are commonly between government and government, or state-backed buyers.
Bitter harvest
China annexed 2.8 million hectares of Congo to grow palm oil, while South Korea has bought 690,000 hectares in Sudan.
Bitter harvest
Plans to sell a third of Madagascar’s arable land to South Korea’s Daewoo lit a public backlash.


Gulf nations are gobbling up vast tracts of foreign farmland from developing nations that can ill afford to sell them. Is this much-needed investment, or a thinly-disguised land-grab?

Flanking the banks of Kenya’s largest river, the Tana River delta is a vast patchwork of wetlands, savannahs and mangrove swamps, dotted by grasslands and beaches. Home to hippos, lions and prolific bird life, the fertile soil has for centuries provided fishing and farming grounds for the local Pokomo, Orma and Wardey people. Now, Qatar is turning it into a farm.

In Africa, it is called the new colonialism, or the great land grab. Countries frantic to secure their food supplies are aggressively snapping up huge swathes of farmland in fertile regions such as Africa, Pakistan, Brazil and Thailand. Leading the land dash is Saudi Arabia, the UAE, Qatar, Bahrain, Kuwait and Libya — countries which, between them, control more than 45 percent of the world’s oil. All are wealthy states that are unable to grow their own food, so are choosing to swap oil for soil with countries that need capital, but have farmland to spare.

In exchange for 40,000 hectares of agricultural land, almost half of which lies in the Tana River delta, Qatar handed over a $2.5bn loan last December to Kenya to build a second deep-water port. In March this year Saudi Arabian investors paid $100m for an Ethiopian farm, in addition to the 500,000 hectares of land in Tanzania and the 11,000 hectares of Sudanese soil already on the state portfolio. Last week it was revealed the Kingdom is in talks with Pakistan to lease an area twice the size of Hong Kong.

Sudan already plays host to 400,000 hectares of UAE-leased wheat fields, while the privately-held Emirates Investment Group (EIG) has staked out a number of tracts in Pakistan. Egypt is next on the company’s wish list.

This is just a handful of the tens of deals cut by Gulf states over the last two years. Ask the International Food Policy Research Institute (IFPRI), a Washington-based think-tank, and it will tell you that up to 20 million hectares of cultivable farmland has been signed over or offered for foreign investment since 2006, at a value of up to $30bn. To put it in context, that’s twenty times the size of Qatar and a fifth of all the agricultural land in the European Union.

So who’s selling? Globally, Brazil has dispensed the most land, but Africa has become a particular hotspot of late, says David Hallam, deputy director of trade and markets at the Food and Agricultural Organisation (FAO), part of the UN.

Sudan and Ethiopia seem particularly keen to deal, while Egypt said this year it planned to sell 1.3 million acres of farmland by 2020.

Further east, Thailand and Pakistan are also open for business. In April the federal minister of investment of Pakistan, Waqar Ahmed Khan, said the country was poised to offload 404,700 hectares this year, largely to Gulf investors.

Land in these countries remains “incredibly cheap” Hallam notes. “In places like Ethiopia the leasing can be $3 per year per hectare”.

By contrast, IFPRI figures show farmland prices jumped by 16 percent in Brazil and by 31 percent in East Europe in 2007 alone.

Land deals are nothing new. But, says Hallam, the buying pattern behind the latest trend is. Traditionally, foreign farmland deals were between private investors and private owners. Now, sales are commonly between government and government, or state-backed buyers.

“What’s different this time is that these [deals] are part of government-led policies. This is very much investing to produce food to ship home, rather than as a general investment policy,” he says.
Devlin Kuyek of GRAIN, an international non-profit group that supports small farmers, is less diplomatic.

“It’s very serious. It’s moved from being a few select land deals to being, in the case of many countries and Saudi is one, a coordinated effort to buy farmland overseas,” he says bluntly. “It’s absolutely a land grab. If the term has any application at all, it’s here.”

So what is the cause of this buying frenzy? According to Hallam, it has its roots in the food crisis of 2007/8, which saw the price of rice, wheat and other staple foodstuffs rocket to record heights. Panicked by the sky-high costs, food-growing countries slammed a halt on exports to maximize their domestic stock, pushing prices higher still and bringing the world food chain to its knees. From Egypt to Mexico, riots were fuelled by workers whose food costs were outstripping their earnings. A year on, prices remain 40 percent higher than they were in 2006, pre-crisis.

The market turmoil smashed the region’s faith in the global food chain. Now, the oil-rich Gulf states — whose lack of water means self-sufficiency is a pipe-dream — have been left with the creeping fear that they may actually run out of food.

“What really frightened them is the idea that, at whatever prices, they might not be able to get supplies,” says Hallam. “Now the rationale is; ‘We don’t have land and water, so let’s buy it.’”

As proof of its new-found interest, Saudi Arabia is forking out for the cost of the FAO’s World Food Summit in Rome later this year.

Gulf countries aren’t the only ones splashing the cash. China is Africa’s biggest landlord, after annexing 2.8 million hectares of Congo to grow palm oil, while South Korea has bought 690,000 hectares in Sudan. With so many willing buyers, it’s easy to see the appeal for private investment firms who are now jostling with governments for room on the trading floor.

“Farming is definitely a lucrative investment opportunity; people need good quality food at reasonable prices,” says Raza Jafer, managing director of the Sharjah-based EIG. “Investment in agriculture… is largely driven by the need for food security. Food will never go out of fashion.”

The firm grows rice, maize and sugar on its fertile Pakistan farms, and exports around 70 percent of the annual produce to GCC countries.

But in their push for food security, Gulf states could be trading one major headache for another. Not all parties welcome their arrival with open arms. A slew of investors have faced a backlash from local workers who claim they are being turfed off land they have farmed for decades.

And these are no small-scale rebellions. In Madagascar, public fury over a plan to sell more than a third of the country’s arable land to South Korea’s Daewoo Logistics played a role in the overthrow of the president.

Meanwhile, the Saudi Binladin Group has been forced to scrap a $4.3bn project to grow rice in Indonesia after violent protests, while in the Tana River delta, Qatar has an uprising on its hands from local farmers who claim the land is theirs. The Gulf state must be quietly musing the fact that Kenya — as the 2007 elections proved — is a country where people will kill for land.

“A lot of smallholders don’t even know their government is negotiating these contracts for land,” Kuyek says, “so the anger is understandable. I don’t know of a single deal where there has been any consultation with the local people.”
Little surprise then, that in a deal between Saudi and other Gulf investors to lease another million acres in Pakistan, the country is throwing in a 100,000-man army as part of the contract.

The politics provide another headache. The economic logic behind countries such as Sudan, which is barely able to feed itself, blithely sending its domestic produce out to export is eye-bogglingly skewed and has activists up in arms.

By the World Food Programme’s count, Sub-Sahara Africa alone received $2.1bn in food aid last year.

The finger of blame has been pointed squarely at foreign investors.

“They [Gulf states] are using their wealth to look after their own needs when there are much bigger issues out there,” points out Kuyek.

The spotlight on investment has meant that Gulf nations are now far more secretive about their land deals.

But this is no clear cut case of rapacious colonialism. Supporters argue that Gulf nations are injecting much-needed capital into agriculture, providing jobs, infrastructure, tools and a steady income to the dirt-poor in stricken countries.

According to the World Bank, foreign aid for farming halved between 1980 and 2004, and Africa has suffered the brunt of the cut. Agricultural output per farm worker was the lowest in the world during the same period, growing by just one percent each year. Time and again, capital investment has been pinpointed as a key means to revive agribusiness in third-world nations.

“The argument offered is that a lot of African agricultural land could be extremely productive, but it’s not,” admits Hallam. “What is lacking is the commercial infrastructure and that needs capital. These countries don’t have it.”

That’s certainly the kind of spin favoured by head of the strategy unit at Saudi’s Ministry of Agriculture, Abdulla El Obied.

“We are encouraging the private sector to invest in farmland abroad and I think it’s a fair deal,” he told Reuters last month. “We have the funds that will help developing nations increase their output and we are willing to share the produce with them.”

Certainly, investors make big promises. Unfortunately, few of them materialise. Thanks to sloppy contracts signed by lapse governments — according to Hallam, few are longer than three lines long — and flimsy local laws, talk of new roads and joint farming ventures tends to be just that.
“Developing countries are not in a strong position compared to the investors,” Hallam says ruefully. “Those broader benefits only appear if you have a good, strong contract with the investor and the laws to support it. And both of those elements are usually missing.”

On the flipside, that muddy legal system also poses a risk to investors — particularly as many of the host countries are domestically unstable. (Sudan, for example, is still a designated conflict zone.)

Come another food crisis, or a change in government, and Gulf states might find their contracts aren’t worth the paper they are written on.

“In a domestic food crisis, a piece of paper saying you have a right to grow and export won’t make you immune from sovereign risk,” GRAIN’s Kuyek warns. “No government would allow 100 percent export in a crisis. It would be political suicide.”

Even the argument that the new capital gained from land deals could reshape the fortunes of developing nations doesn’t really hold water. As Hallam drily notes, at $3 per hectare per year; “the financial gains to the country from leasing land look to be pretty trivial.”

So is there a way forward? The FAO believes so. The agency is pitching for a move towards joint venture deals, rather than outright foreign land ownership or leasing. Taking its lead from the fair trade ventures now favoured by some European supermarkets, the FAO is hoping investors will instead take stakes in outgrower schemes for smallholders — where farmers remain in control of their land, but sell their produce on to shareholders at guaranteed prices.

“It’s working at arm’s length with smallholder groups, stil putting in infrastructure and so on, and it’s just as reliable with less of the political problems. You get the same results for your food supplies,” says Hallam.

And, he adds, in case there was any doubt, it’s still “cut-throat business”.

Qatar is one country taking a second look at the value of such programmes. Hassad Food, an agricultural firm owned by the Arab state’s sovereign wealth fund, last week said it would buck the land buying trend in favour of taking stakes in overseas farming firms.

“We are not deleting the option of buying farmland but we don’t feel like it is the right strategy,” chairman Nasser Mohamed Al Hajri said. “In many cases these deals are not win-win situations and we don’t want to be in a situation where the rich are taking away food and land of the poor.”

FAO is also plugging for the introduction of a voluntary international code of conduct for investors. The aim is to give smallholders a better bargaining position when foreign funds come calling, to ensure better transparency and to push local governments to review the impact of land deals on regional food security.

For his part, Hallam is confident there is a change in the air. “There was a panicked reaction to the food crisis, but now people are stepping back a bit,” he confides. “If there were stronger export controls, people would have more faith in the market. But I think we will see a shift towards these more equitable joint ventures now.”

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SR 11 years ago

Its not so much about land as it is about water. Thes ecountries are selling away their water supplies which are getting scarcer by the day. What right has any govement have to sell publically owned land to a foreign goverment? The next goverment wont have to honour those deals, and I hoep they wont. If they want food, give them food in exchange for investment in local farming activities.