Wealthy states look globally for fertile soil - China Dialogue
Food

Wealthy states look globally for fertile soil

Capital-rich but food-insecure countries are exploring the idea of leasing farmland beyond their own borders. Is this a “win-win” idea or a recipe for exploitation? Javier Blas and Andrew England report.

Saudi Arabia has no permanent rivers or lakes. Rainfall is low and unreliable. Cereals can be cultivated only through expensive projects that deplete underground reservoirs. Dairy cattle must be cooled with fans and machines that spray them with water mists. This is not, in short, a nation that would normally be associated with large-scale agriculture.

But that could be about to change. Boosted by revenues from the oil boom and concerned about food security, the kingdom is scouring the globe for fertile lands in a search that has taken Saudi officials to Sudan, Ukraine, Pakistan and Thailand.

Their plan is to set up large-scale projects overseas that will later involve the private sector in growing crops such as corn, wheat and rice. Once a country has been selected, each project could be in excess of 100,000 hectares – about 10 times the size of New York City’s Manhattan island – and the majority of the crop would be exported back, officials say.

While Saudi Arabia’s plans are among the grandest, they reflect growing interest in such projects among capital-rich countries that import most of their food. The United Arab Emirates is looking into Kazakhstan and Sudan, Libya is hoping to lease farms in Ukraine and South Korea has hinted at plans in Mongolia. Even China – with plenty of cultivable land but not a lot of water – is exploring investments in south-east Asia.

“This is a new trend within the global food crisis,” says Joachim von Braun, director of the Washington-based International Food Policy Research Institute (IFPRI). “The dominant force today is security of food supplies.”

Alarmed by exporting countries’ trade restrictions – such as India’s curbs on exports of rice, Ukraine’s halt to wheat shipments and Argentina’s imposition of heavy taxes on overseas sales of soya – importing countries have realised that their dependence on the international food market makes them vulnerable not only to an abrupt surge in prices but, more crucially, to an interruption in supplies.

As a result, food security is at the top of the political agenda for the first time since the 1970s. “The food crisis gave alarms for all countries to look for places to secure supplies of agricultural goods,” says Abdullah al-Obaid, the deputy minister of agriculture in Saudi Arabia.

Von Braun, echoing the opinion of dozens of other officials interviewed by the Financial Times, says that faith in the international food market is waning. For the first time since the early 1990s, when trade in farm products rose sharply, many are starting to doubt the wisdom of depending on agricultural imports. “The importers are nervous and they have realised that they [had] better have a stake in countries with potential for agriculture exports,” he says.

With global food consumption rising, largely due to demand for a meat-rich diet in emerging economies, the challenge of feeding booming populations in countries such as Saudi Arabia is growing by the year. Cereal prices have come off their highs of earlier this year but are still more than three times their average over the past decade.

Food security is firmly behind every plan to invest in agriculture overseas. During a recent tour of central Asia, Khalifa bin Zayed, the United Arab Emirates (UAE) president, pointed to the need to lock in supplies. “The UAE is looking at implementing some projects in Kazakhstan as part of its efforts to develop stable food sources for its needs,” he said.

For countries rich in cultivable land and water but short of capital, such plans could also make a lot of sense. Wheat fields in Ukraine, for example, yield less than 3,000 kilogrammes a hectare in spite of some of the world’s most fertile soils and abundant rain. That is well below the United States’s yield of about 6,500 kilogrammes a hectare, achieved in less optimal conditions. But more tractors, a lot more fertiliser, better techniques and higher-yielding seeds could change the situation.

Lennart Båge, president of the United Nations’ International Fund for Agriculture Development (IFAD) in Rome, says that land was long thought less important than oil or mineral deposits. “But now fertile land with access to water has become a strategic asset,” he says.

Some countries have grasped the potential of this resource. Sudan, for example, is seeking to attract at least US$1 billion of capital for its agricultural sector from Arab and Asian investment groups. The investment ministry is marketing 17 large-scale projects that would cover an area of 880,000 hectares.

Meles Zenawi, the prime minister of Ethiopia, is also enthusiastic. After welcoming a Saudi agriculture delegation recently, he said: “We told them [the Saudis] that we would be very eager to provide hundreds of thousands of hectares of agricultural land for investment.”

Yet such deals are likely to come at a heavy price for food-producing countries. Through secretive bilateral agreements, the investors hope to be able to bypass any potential trade restriction that the host country might impose during a crisis.

For some policymakers, this evokes the nightmare scenario of crops being transported out of fortified farms as hungry locals look on – although whether vast tracts could be defended in the manner of, say, oil installations, is open to question. Others point out that the scramble for land is taking place in countries with weak legal environments, where most farmers lack formal tenure rights or access to compensation mechanisms.

Supporters of free trade in agriculture are also worried by what they consider to be attempts to build ownership of food production rather than increase supply to the international market. Ed Schafer, the US agriculture secretary, says he would be concerned if the investments were simply a means to “bypass the international market and global trade agreements”.

European agriculture officials add that the poorest food-deficit countries, such as those in west Africa, would suffer most: unable to invest overseas, they would also be most vulnerable to rising prices in a diminished international market.

Multilateral institutions such as the World Bank and the United Nations Food and Agriculture Organisation (FAO), which initially encouraged foreign investment in agriculture as a way to boost global output, are moderating their previous support.

The change is clearly seen in the posture of Robert Zoellick, president of the World Bank, who initially described state-led foreign investment as a “win-win venture” ’. Now a spokesperson for the bank says: “This is a situation that could bring real benefits to people in some developing countries, but to be sustainable, land purchase or lease arrangements must benefit, and be seen to benefit, all parties including citizens of the host country, local communities and investors.”

A similar shift can be observed in Jacques Diouf, director-general at the FAO. He initially called for “joint-venture agreements between, on the one hand, those countries that have the financial resources and, on the other, those that possess land, water and human resources”.

But now he is warning of the risk of a “neo-colonial” agricultural system. “Some negotiations [between host countries and the investors] have led to unequal international relations and short-term mercantilist agriculture,” says Diouf.

Båge also agrees there could be problems. “We are talking about some host countries where there is widespread poverty and hunger, and we must ensure that the local populations share fully in the benefits of these initiatives.”

For example, in Sudan – one country targeted by almost all Gulf investors – the World Food Programme (WFP), the UN agency that deals with food emergencies, is feeding 5.6 million people. If the investment plans go ahead, Sudan, perversely, could be exporting to rich nations while its own population suffers.

Chinese officials, who supported Beijing’s expansive policy to secure commodities such as oil and metals in Africa, seem aware of the potential dangers. Although Beijing has explored deals in the Philippines and Laos, and has also developed some small projects in Africa – mostly “demonstration” farms that educate locals in farming techniques – it appears to have little appetite for large-scale investment in agriculture overseas.

“There are so many people starving in Africa,” says Xie Guoli, a trade official at the Chinese ministry of agriculture. “Can you ship the grain back to China? The cost will be very high, as well as the risk.”

Nevertheless, some Chinese private-sector companies are looking at investing in farmland, although officials say that they are focusing on central Asia rather than Africa. Beijing seems more relaxed about the potential for conflict in countries such as Kazakhstan, where the transportation costs would also be lower.

United Nations agriculture and food aid officials are also worried about the potential for corruption, given the weakness of governance in many African and central Asian countries.

They suggest the investments should be governed by a framework similar in scope to the Extractive Industries Transparency Initiative (EITI), a scheme that obliges resource-rich countries to publish company payments and government revenues from oil, gas and mining.

The EITI has helped to tackle corruption in the oil and minerals sector, officials say. But a similar scheme for agriculture could take months of negotiations – and food-deficit countries are in a hurry. As western officials discuss risks and safeguards, Saudi Arabia and others appear to want to lease land ahead of the next planting season.

Additional reporting by Barney Jopson in Addis Ababa
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Copyright The Financial Times Limited 2008

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