An Emerging Market Farmland Bubble?

Via Bad Idea magazine, a balanced look at what they call the farmland “bubble” that is developing in emerging economies around the world.  As the report notes:

“…According to the Food and Agriculture Organisation, an arm of the UN, the global food crisis is worsening. In 2009, over 1 billion people were undernourished globally, up from 873 million in 2004-2006; the accelerating growth and urbanisation of the world’s population, which is predominantly taking place in the developing world, is increasing the pressure on food resources and provoking food security fears. Where many see a potential crisis though, companies from the world’s wealthier nations are seeing an attractive opportunity to take advantage of cheap agricultural assets in the developing world, whose value is increasing with global demand for foodstuffs. Over the past 12 months the US, Japan, Saudi Arabia and others have invested in millions of hectares of farmland in struggling nations like Indonesia and Sudan.

The growth of this trend has been sudden and unprecedented. Since 2004, nearly 10,000 square miles of land across Ethiopia, Ghana, Madagascar, Mali and Sudan has been leased to overseas investors; in the first half of 2009, an area equivalent in size to all the arable land in Europe was leased across the world to investors from developed world economies. New deals are occuring every week: in the last few days there have been agreements between Nigeria and Thailand over rice production, and talks between Saudi Arabia and African nations to develop farmland, to add to Saudi’s multimillion investments in the Philippines.

Companies at the forefront of this property land-grab include the US asset management company BlackRock, who have earmarked US $30 million for the acquisition of farmland in areas from Sub-Saharan Africa to the UK, and banking giants Deutsche Bank and Goldman Sachs, who have invested in both pig breeding operations and chicken farms in China. And it’s not just individual companies fronting up capital: the Indian government is giving financial incentives to empower 80 companies such as Karuturi Agro Products Plc to buy land in Ethiopia and other African countries. So far these companies have invested £1.5bn – and this trend looks set to continue as Africa is said to have 807m hectares of cultivable land, of which just 197m is currently being cultivated.

In the July 2008 newsletter of the Canadian private equity firm Ag Capital, Reza Vishkai of Insight Investment claimed ‘the single best recession hedge of the next 10 or 15 years is an investment in farmland’, echoing wider financial opinion, and petro-dollar rich nations like Qatar have been quick to wade into the field on the basis of such advice. Developing nations have been only too happy to oblige them: Ethiopia’s prime minister Meles Zenawi has expressed his government’s eagerness to give access to hundreds of thousands of hectares of farmland in the lowlands to Saudi Arabian investors, whilst Turkish Agriculture and Rural Affairs Minister Mehdi Eker said: “Choose and take what you want.”

Perhaps the most widely reported example is the now-bankrupt Korean conglomerate Daewoo Logistics, who agreed to lease arable land from the government of Madagascar in November 2008. Daewoo intended to use the land to farm corn and palm oil for export to the Republic of Korea, where 95% of non-rice foodstuffs are imported, and concerns about food security and sudden price rises are high.

However, the Daewoo deal, worth multiple billions of dollars for a 99 year lease on an enormous 1.3m hectares of land, is now regarded as a case study in the volatility of such investments. Predictably, the proposed deal provoked widespread anger in Madagascar, where citizens see their land as the sacred property of their ancestors. The deal came to a sticky end when the government of Madagascan president Marc Ravolomana was ousted in March 2009 in a coup led by the military-backed Andry Rajolina. Upon claiming leadership of the country, Rajolina stated, “In the [Madagascan] constitution, it is stipulated that Madagascar’s land is neither for sale or for rent, so the agreement with Daewoo is cancelled.”

“Many Malagasy felt that the land deal was another instance of the government thinking of Madagascar as a private business,” Madagascan citizen journalist Lova Rokotomalala tells me. “More than anything, it was the perception that the government tried to sneak in the land deal without posting any basic information and objectives before hand that really got the population outraged.”

So what is happening here? Why are developing nations like Madagascar so willing to sell the treasured arable land of their ancestors to foreigners, leaving themselves open to destabilising accusations that they are inviting ‘neo-colonialism’? Moreover, why are foreign companies so willing to risk big money on these exotic, politically sensitive ventures?

In short, the answer is that many developing economies desperately need an influx of capital to ease crippling public debts, and are betting foreign ownership of their land will bring with it jobs, technological and infrastructural development (in the form of fertilisers, agricultural tools and an investment in transport) and a transfer of labour skills to modernise their agricultural industry. For investing companies, the potential rewards are simply enormous: large ownership stakes in economies that will likely to see real growth in the coming decades, as the over-leveraged developed world falters and food demand increases.

On the face of it, this trend appears to be a ‘win-win’: large-scale capital investment in poor African and Asian nations could massively improve agricultural productivity, and help to feed selling countries’ famine-hit populations, while easing the food security fears of developed nations. In the process, it is argued, large multinational corporations will be able bring food to poverty stricken populations in a manner that development agencies can only dream of. The World Bank, for one, has endorsed this vision, stating that investment in agriculture is the best way for wealthier nations to contribute to developing world economies.

However, uplifting as the sales pitch may sound, the experience of Daewoo Logistics in Madagascar suggests this positive theory does not always play out in reality, and that locals are unimpressed with the proposed benefits.

In Sudan, the Darfur crisis has left the World Food Programme struggling to feed 5.6 million refugees – suggesting the country might not be the ideal place to grow food for foreigners. Yet this week the Sudanese minister for investment, Salman Suliman Alsafi, announced that he expected an investment of US $6 to 7 billion in the country in 2010, highlighting agriculture as being the chief area of interest. Even assuming the best of intentions, it seems churlish to expect foreign corporations to serve two masters equally; were they to do so, there would likely be over-fertilisation and deforestation of the farmland that could cause long-term damage, but it seems more likely they would concentrate on more profitable markets in the world’s wealthier nations.

“If there is a real world shortage of food in the future – and there may well be – it is difficult to imagine that a wealthy nation, like Saudi Arabia, that has leased or bought land in a poor country in Africa, such as Sudan, will put the food needs of the local population before the food needs of its own population in the case of an emergency,” explains Sue Branford from ‘Grain’, an organisation supporting small farmers.

In many cases, the legal ownership rights of selling governments are also questionable. During the Communist rule of Ethiopia in the 1980s, farmers lost their land to the Mengistu dictatorship; when the regime was overthrown, their land was privatised and sold to the Ethiopian-born Saudi citizen Al Amoudi, who is the 43rd richest person in the world according to Forbes magazine. The farmers maintain that the land is still theirs though.

Then there is the tension between foreign companies and locals.

Joachim Von Braun, Director General of the International Food Policy Research, tells me: “Investors can make these deals politically acceptable if they inform local communities beforehand, include them into planning and treat them as investment partners… this can be done sustainably, when local communities are trained, supported by extension, and transparent, fair and sound contract arrangements are done.”

However, this is frequently not the case. In Kenya, the US agricultural giant Dominion Farms reportedly flooded the land of one farmer after he refused to sell his land at a rate of US $60 per property, and lent on the local police force to harass him (Dominion deny abuses of power took place). In Laos the market for land sales is chaotic and deregulated: land can be sold by both local and national legislatures, but ownership information is not collated in one place. This has caused utter confusion, with multiple investors claiming rights to each other’s farmland. Amid the madness, Laosian farmers, who have no land ownership rights under their country’s law, are seeing logging companies move in on land they have farmed for many years, and their livelihoods disappearing as foreign contractors are brought in to replace them.

While Von Braun’s sunny view on land leases can become a reality, the tensions caused by the international sale of domestic arable land is prompting local farmers to create their own agricultural initiatives, in order to protect themselves from the vagaries of such policies. Take Madagascan scientist Andriankoto Ratozamanana, whose innovative social agriculture business Megaseeds aims to empower African farmers by helping them to increase the yield on existing farmland by 400% per hectare through careful water use, organic fertilisers and selective mechanisation. Megaseeds then makes money by taking a share of the extra profits accrued.

Workers’ cooperative schemes also appear to be taking off. Author Andrew Rice recently wrote in The New York Times of his discovery of an Ethiopian scheme in which farmers working small plots were able to export their produce of green beans to the Netherlands.

Compared to the massive land concessions to foreign companies, this might seem like small beer – and it is. However, many are hopeful that a mass accumulation of similarly small-scale enterprises could have a powerful impact, swinging the balance of power back towards local agricultural producers. Local entrepreneurs need credit for such ventures though, and ironically, much of this is coming from abroad, via microfinancing networks.

‘Microloans’, small loans offered to poverty-stricken locals to spur entrepreneurship, are growing in popularity. The International Fund for Agricultural Development (IFAD) says that 75% of its funded projects involve providing financial services to poor people via rural banks and savings associations, with Western institutions heavily encouraged to invest in microfinance initiatives. IFAD has established 200 microfinance institutions, offering services that have directly issued microloans to more than 800,000 developing world entrepreneurs.

While critics have argued the microcredit movement has merely succeeded in privatising anti-poverty programmes, it is often a more benevolent form of investment than that made by large profit-driven companies from abroad. The emergence of new web based lending platforms such as and, which connect small-scale investors with micro-entrepreneurs, suggests the true potential of digital microcredit has not been tapped yet. Even more encouraging is United Prosperity, an Internet microcredit organisation that maximises the money received by borrowers by using lenders’ investments as guarantees at local banks. With the guaranteed investment, borrowing entrepreneurs are able to claim higher value loans from their local bank, allowing them to obtain a credit history that might subsequently help them borrow more money for future ventures.

Of course, these innovations are no panacea for the mass redistribution of developing world farmland to foreign commercial interests. But assuming the trend for this type of foreign investment in developing economies continues, it seems likely that similar small-scale agricultural initiatives will grow exponentially along with political unrest, at least until foreign companies are prepared to swallow the less profitable pill of supplying their new hosts’ demand for food.”

This entry was posted on Friday, December 18th, 2009 at 2:26 pm and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

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About This Blog And Its Author
Seeds Of A Revolution is committed to defining the disruptive geopolitics of the global Farms Race.  Due to the convergence of a growing world population, increased water scarcity, and a decrease in arable land & nutrient-rich soil, a spike of international investment interest in agricultural is inevitable and apt to bring a heretofore domestic industry into a truly global realm.  Whether this transition involves global land leases or acquisitions, the fundamental need for food & the protectionist feelings this need can give rise to is highly likely to cause such transactions to move quickly into the geopolitical realm.  It is this disruptive change, and the potential for a global farms race, that Seeds Of A Revolution tracks, analyzes, and forecasts.

Educated at Yale University (Bachelor of Arts - History) and Harvard (Master in Public Policy - International Development), Monty Simus has long held a keen interest in natural resource policy and the geopolitical implications of anticipated stresses in the areas of freshwater scarcity, biodiversity reserves & parks, and farm land.  Monty has lived, worked, and traveled in more than forty countries spanning Africa, China, western Europe, the Middle East, South America, and Southeast & Central Asia, and his personal interests comprise economic development, policy, investment, technology, natural resources, and the environment, with a particular focus on globalization’s impact upon these subject areas.  Monty writes about freshwater scarcity issues at and frontier investment markets at