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Buying foreign land for food security

December 15, 2008

Until the mid-20th century, many European countries grew rich on the resources of their colonies. Now, the emerging economies rich in cash but facing food insecurity are acquiring vast tracts of agricultural land in developing and poorer nations, to produce food for their populations.

The countries include China, South Korea, Japan, Saudi Arabia, UAE and some western investment entities. Pakistan is among the countries where land is being acquired for the purpose. But Africa is a major target of cheap land deals which has prompted The Guardian, London, to describe the new trend as ‘a modern-day version of the 19th-century scramble for Africa.’

Most of the land acquisitions took place during the last nine months. Chinese firms have been engaged in acquiring lease or purchasing land in Africa, Central Asia, South America, South-East Asia and Burma for farming purposes, especially to assure China’s long-term food supplies. Even in Russia, China has bought and developed 80,400 hectares of farmland at a cost of $21.4m. A part of the produce is exported back to China.

In March this year, the Gulf Cooperation Council issued a joint recommendation that the GCC members consider setting up a joint corporation or a common fund to produce food abroad in South-east Asia, Brazil and other Islamic nations to supply the GCC market. And according to the Economic Times, India initialled a land deal with Burma in September for producing pulses exclusively for export to India.

Saudi Arabia is also exploring possibilities for land acquisition abroad to produce food for Saudi population. A Saudi firm, Al-Qudra Holding, plans to acquire 400,000 hectares of land by early 2009 to produce wheat, maize, rice, vegetables and livestock in Australia, Croatia, Egypt, Eritrea, India, Morocco, Pakistan, Philippines, Sudan, Syria, Thailand, Ukraine and Vietnam. The land is to be acquired through a mixture of 20–30 year leases, concessions and outright purchases.

Early this year, the Libyan government struck a land deal with Ukraine under which Ukraine got an oil and gas contract and Libya was given access to 247,000 hectares of Ukrainian land to produce its own food.

This new trend has come under severe criticism from several quarters. The head of the UN Food and Agriculture Organisation, Jacques Diouf, has warned that the controversial rise in land deals could create a form of “neo-colonialism”, with poor states producing food for the rich at the expense of their own hungry people.

The rush for land was triggered by this year’s food crisis which created an alarming situation for the countries which rely on imports. Some countries imposed ban or curbs on export of agricultural commodities in an effort to ensure smooth availability at home. Many developing countries had been pushed by the IMF-World Bank duo to produce food crops mainly for external markets. They would have been far less vulnerable had they concentrated first on feeding their populations through local production.

Producing food elsewhere is becoming a popular trend. So far, details of about 100 cases of land deals have been posted on the website of GRAIN, a pro-farmer organisation, which calls this phenomenon ‘an international land grab.’ It says it is difficult to understand why land-seeking countries are reluctant to produce more food locally by offering incentives to their farmers under land reforms. And an interesting feature of the buying spree is that some countries such as China and Brazil are acquiring foreign land as well as offering their land to foreigners.

Some deals are amazing. For instance, South Korea’s Daewoo Lgistics is negotiating a deal with Madgascar government which will make the country lose half of its arable land and the Financial Times has described the deal as ‘a neo-colonial case.’ The company plans to buy a 99-year lease, the largest so far, on a million hectares to grow five million tonnes of corn a year by 2023. Madagascar’s government has welcomed the investment but before approving it would like to carry out an environmental impact assessment.

Sudan is an interesting case. Given the continuing Darfur crisis, where the World Food Programme is finding it too difficult to provide food to 5.6 million refugees, it is incredible to see foreign countries buying large tracts of farmland amidst civil war. Sudan is trying to attract investors for almost 900,000 hectares of its land. A similar case is that of Cambodia where half a million people are facing starvation. Instead of arranging food for them, its government is in talks with several Asian and Middle Eastern governments to raise at least three billion dollars by offering millions of hectares of land concessions.

According to an Abu Dhabi newspaper, some UAE firms have acquired about 16,187 hectares of land in Pakistan’s Balochistan province for an estimated $40 million to produce food for their population back home. A delegation of their officials was in Pakistan in October for talks on the deal and had a meeting with Chief Minister Aslam Raisani . The delegation also met Sindh Chief Minister M Syed Qaim Ali Shah to explore possible purchase of about 12,140 hectares in Shikarpur, Larkana and Sukker. The UAE imports about 85 per cent of its food from abroad at an estimated cost of $2.9 billion.

A Bahrain company, Market Access Promotion (MAP) Services Group, says it will develop ten model dairy and livestock farms in Pakistan during in 2008–10. A Qatari firm is reportedly eyeing the acquisition of Kollurkar farm in Punjab but Pakistan Farmers Forum says that the deal if inked may dislocate 25,000 villages.

The Saudi Fund for Development is creating a $566m special investment vehicle for buying land abroad for producing rice and wheat for the country. The first investment will be made in Sudan, to be followed in Turkey and Pakistan. The Al Rabie Group is interested in buying land in Pakistan to develop dairy industry there and also to develop exports of tomato paste, citrus pulp and packed beans for the Saudi market.

In June, the UAE government was in bilateral talks with Islamabad for purchase of $400-500m worth of farmland of 100,000–200,000 acres in large holdings in Punjab and Sindh provinces. Details are being finalised. But UAE investors want to purchase land directly in Pakistan and also want to get the lands exempted from any export restriction on the food produced there. Abraaj Capital acquired some 800,000 acres of “barren” farmland last year to produce rice and wheat for export to UAE.

Critics say that by seeking to solve their food shortage problem in this way, the rich emerging economies may succeed in producing enough quantity for their populations but may in the long-term be exporting their food insecurity to other nations. For, many local communities will be evicted to make way for the foreign takeover.

But Gulf’s land acquisition strategy includes measures to address concerns of the local communities. It pledges to “uphold Islamic traditions of helping the poor and sharing with those who have less” while using foreign lands. This translates into a commitment to have some of the food go to communities in the producing country. “I have no problem in Arabs doing the investment”, says Jacques Diouf, the FAO chief, but the land, he adds, has become “a political hot potato”.

West’s investment firms and hedge funds are equally eager to profit from this “hot potato.” Throughout 2008, they have been purchasing farmland in countries like Ukraine, China, Russia, Nigeria, Argentina, Brazil and Kazakhstan. These firms include familiar names such as Goldman Sachs, Morgan Stanley, BlackRock and Louis Dreyfus. And they are getting help from agencies like the World Bank, International Finance Corporation and the European Bank for Reconstruction and Development, who are pressing target countries to change their laws and make land ownership by foreigners possible.