An Update on Buying the Farm

Stephen DeAngelis

December 9, 2009

In a post entitled Buying the Farm, I discussed how countries blessed with money but little arable land are trying to improve their food security by buying farmland in poorer countries with better growing conditions. The practice has received a lot of attention and been greeted with a healthy dose of skepticism. Two recent articles demonstrate that the practice isn’t about to disappear. The first article indicates that the United Nations would like establish guidelines for the practice [“UN set to regulate ‘farmland grabs’,” by Javier Blas, Financial Times, 18 November 2009]. Blas reports that “the United Nations has started drawing up a code of conduct to regulate overseas investment in farmland, but the voluntary rules will not be ready for at least a year.”

 

Blas indicates that “the code is the first attempt to control the growing trend of so-called ‘farmland grab’ deals, which involve rich countries such as Saudi Arabia and South Korea investing in overseas farming to boost their own food security.” He notes that South Korea’s Daewoo Logistics attempts to secure significant land assets in Madagascar “contributed to the collapse of the African country’s government.” Another country that interests those looking for good farmland is Ukraine. The UAE, for example, is very interested in leasing farmland there in a quest for food security. The Ukraine is famous for its rich black earth.

 

Blas reports that UN “diplomats are concerned that African countries, many of which face chronic hunger, are giving away vast tracts of farmland almost for free in return for vague promises of job creation and spending on infrastructure.” At the same time, as I noted in my earlier post, UN officials are also unwilling to condemn the practice out of hand. As Blas notes:

 

The UN and the World Bank are walking a tightrope in drawing up a code of conduct, however, as they do not want to undermine all foreign direct investment in agriculture. The difficulty was reflected in a declaration from the World Food Summit in Rome that aims to ‘facilitate and sustain private investment in agriculture’ while seeking a study of ‘good practices to promote responsible international agricultural investment‘.”

 

The United Nations and World Bank don’t want the food security of the country selling or leasing land to be jeopardized by countries buying or leasing the land. As I noted in my earlier post, I think that countries that count on getting food out of a foreign country during times of famine are taking a big risk. The two organizations also want all land deals to be transparent. Finally they want to make sure that such deals are economically viable, have a positive social impact, and acceptable environmental consequences. Blas continues:

 

David Hallam, deputy director of trade and markets at the UN’s Food and Agriculture Organisation in Rome, who is leading the work, said the aim was to transform ‘malpractices into ‘win-win’ scenarios for investors and hosts. … Campaigners protesting against the farmland deals complain that the code of conduct will not resolve the problem, arrive too late and lack teeth. Devlin Kuyek of Grain, a non-governmental organisation that monitors farmland deals, said: ‘Win-win on land grabbing is a nonsense.'”

 

Despite the controversy surrounding agricultural land deals, one country that welcomes them is Ethiopia [“The ultimate crop rotation,” by Stephanie McCrummen, Washington Post, 23 November 2009]. McCrummen reports:

 

In recent months, the Ethiopian government began marketing abroad one of the hottest commodities in an increasingly crowded and hungry world: farmland. ‘Why Attractive?’ reads one glossy poster with photos of green fields and a map outlining swaths of the country available at bargain-basement prices. ‘Vast, fertile, irrigable land at low rent. Abundant water resources. Cheap labor. Warmest hospitality.’ This impoverished and chronically food-insecure Horn of Africa nation is rapidly becoming one of the world’s leading destinations for the booming business of land leasing, by which relatively rich countries and investment firms are securing 40-to-99-year contracts to farm vast tracts of land.”

 

With much of East Africa currently suffering from a drought, it surprised me to read that Ethiopia was attracting investors. McCrummen continues:

 

Governments across Southeast Asia, Latin America and especially Africa are seizing the chance to attract this new breed of investors, wining and dining executives and creating land-leasing agencies and land catalogues to showcase their offerings of earth. In Africa alone, experts estimate that about 50 million acres — roughly the size of Nebraska — have been leased in the past two years. The trend is driven in part by last year’s global food crisis. Relatively wealthy countries are shoring up their food supplies by growing staple crops abroad. The desert kingdom of Saudi Arabia, for instance, is shifting wheat production to Africa. The government of India, where land is crowded and overfarmed, is offering incentives to companies to carve out mega farms across the continent. Increasingly, though, purely profit-seeking companies are snatching up land, making a simple, if somewhat grim, calculation. As one Saudi-backed businessman here put it, ‘The population of the world is increasing dramatically, so land and food supplies will be short, demand will be higher and prices will rise.’ The scale and pace of the land scramble have alarmed policymakers and others concerned about the implications for food security in countries such as Ethiopia, where officials recently appealed for food aid for about 6 million people as drought devastates parts of East Africa.”

 

McCrummen also talks about the critics of these so-called land grabs.

 

The harshest critics of the practice conjure images of poor Africans starving as food is hauled off to rich countries. Some express concern that decades of industrial farming will leave good land spoiled even as local populations surge. And skeptics also say the political contexts cannot be ignored. … But many experts are cautiously hopeful, saying that big agribusiness could feed millions by industrializing agriculture in countries such as Ethiopia, where about 80 percent of its 75 million people are farmers who plow their fields with oxen. ‘If these deals are negotiated well, I tell you, it will change the dynamics of the food economy in this country,’ said Mafa Chipeta, the FAO’s representative in Ethiopia, dismissing the worst-case scenarios. ‘I can’t believe Ethiopia or any other government would allow their country to be used like an empty womb. The human spirit would not allow it.’ Few countries have embraced the trend as zealously as Ethiopia, where hard-baked eastern deserts fade into spectacularly lush and green western valleys fed by the Blue Nile. Only a quarter of the country’s estimated 175 million fertile acres is being farmed.”

 

McCrummen reports that Indian companies have been especially keen on investing and have “committed $4.2 billion so far.” Although an executive from one Indian firm claimed that its employees are happy working for about 70 cents/day, McCrummen asserts that all employees are not content. She says that one worker interviewed for the article complained “that the company had refused to sign a wage contract and had failed to deliver promised water and power to nearby villages. Supervisors treat them cruelly, he said, and most workers were just biding time until they could go work for a Chinese construction company rumored to pay $2 to $4 a day.” On the positive side, large agricultural firms are introducing modern farming methods into developing countries and training local farmers how to adopt them. Until a middle class agricultural community emerges, however, local farmers won’t be able to afford to mechanized equipment for their small farms. In Ethiopia, raising capital is exacerbated because “Ethiopians cannot own land, instead holding ‘use certificates’ for their tiny plots, making it difficult to get loans, or to sell or increase holdings.” Hopefully, the new guidelines will help countries work out win-win strategies that help foster food security for both them and for investor countries.

 

Ethiopia, of course, is not the only African country being courted by investors. BusinessWeek claims that “agribusiness and global investors are scooping up farmland” [“Land Rush in Africa,” by Jessica Silver-Greenberg, 7 December 2009 print issue. She reports:

 

Farmland in developing countries has become an unlikely object of investor fascination. Morgan Stanley and other Wall Street firms are 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. … 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.”

 

Silver-Greenberg continues to tell the story as perceived by both sides; both her sympathies clearly lie with local farmers who claim they are not receiving a fair shake. A link to Burgess’ response to the BusinessWeek article is located on same page as the link included above. Silver-Greenberg continues:

 

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.”

 

The arguments for and against large agribusinesses operating in developing countries are likely to continue — as are the accusations of exploitation and neo-colonialism. Although there are significant benefits to introducing modern farming techniques into developing countries, it should be done with great sensitivity to local cultures and sincere efforts should be made to improve the lives of those living near the farms. Unless these schemes are seen as win-win-win efforts for the companies, their investors, and the local population, tension and violence are more likely to be reaped than either harvests or profits.