Global land deals: Countries are buying arable land abroad to ensure food security

When food prices soared in 2008 and late 2010 as a result of poor harvests, growing energy costs, low stocks and climate-related problems, it sparked popular unrest across the Middle East and North Africa (MENA) and prompted governments to look for long-term solutions to food security. The resulting policies ranged from raising subsidies to increasing strategic stocks, but those with significant capital and limited farmland are adopting a more dramatic approach: the purchase or lease of arable land in more verdant countries.

The practice of acquiring land overseas for domestic food production is not new, but it has become a topic of heated discussion, with proponents striving to point out that immense potential in terms of increased production, improved sustainability and knowledge transfer that agricultural investments provide, against accusations of land exploitation.

LAND DEMAND: Thanks to steadily rising land values and commodity prices, agricultural investments have remained an attractive proposition. In response to the volatility of key staples, the rate of increase in annual cropland worldwide has leapt more than 10-fold to 56m ha in announced acquisitions at the end of 2009, according to a World Bank report. More than 70% of the deals were set in sub-Saharan Africa, such as in Mali, Ethiopia, Mozambique and Ghana where millions of hectares were sold to foreign investors. Egypt, for example, acquired land in Sudan and Uganda to grow wheat after riots in 2010 when the government raised bread prices by 25%. In Ghana, local media estimates that companies owned up to 37% of farmland in 2010.

SECURING FOOD: As concerns over food insecurity plague countries around the world, land acquisitions do not look like they will remain in the domain of the world’s richer nations. Among non-oil producing MENA countries, for example, many of which are struggling with a shortage of arable land and water scarcity, farmland purchase is also viewed as a wise investment.

Jordan’s food import bill reached $2.12bn in 2009 with the country producing just 15% of its food. An agricultural agreement signed in 1998 gives Jordan a 70-year lease on 350,000 dunum (equal to 1000 sq metres) of Sudanese land on the Nile. However, the kingdom has yet to capitalise on the arrangement, and in September 2010, Sudan announced that 268,000 dunum would be reclaimed for usage by local communities.

The recent boom in foreign interest in agriculture has been marked by a few features that distinguish it from previous practices. For starters, governments have played an increasing role, often negotiating deals and purchases on a bilateral level – in some cases, bypassing the private sector completely.

The products that are being grown also differ from historical tradition. While older farming projects concentrated largely on cash crops, such as coffee, tea or sugar, investors have shifted their intention to staples, such as wheat and rice.

Apart from food, foreign investors are also using land to grow biofuels, such as jatropha or soy. In Ghana, for example, which is a traditionally smallholder farming society, firms from Italy, Norway, Israel and the UK have bought up to 765,000 ha to grow jatropha, according to Friends of the Earth Ghana, an organisation dedicated to the conservation of natural resources. Although there is a strong market for biofuels, detractors are concerned over the use of land for these crops when the local communities suffer from food insecurity.

INCREASED FOREIGN DIRECT INVESTMENT: While the spate of announcements in recent years that heralded the investment of billions of dollars into agricultural projects has been impressive, the follow-up has been modest. A recent World Bank report showed that more than 50% of the deals had yet to be implemented, some of which were scaled back due to price changes, inadequate technology or poor infrastructure. However, to continue to attract foreign capital into the primary sectors, a number of countries have introduced policy changes attractive to international and local investors, including the introduction of tax incentives and the reform of land legislation, banking and Customs regimes.

For example, Ethiopia, Africa’s largest coffee producer and the fourth-largest exporter of sesame seeds worldwide, has liberalised investment policies and assigned 3m ha of sparsely-populated arable land for long-term lease for about $12 per ha, with tax exemptions on imported farm machinery. “We took the active decision to look for land with very little or no people,” said Sai Ramakrishna Karuturi, head of Bangalore-based Karuturi Global. His company normally grows roses for the international market, and has recently diversified into farming projects in Ethiopia’s Gambella region and its highlands to produce oil palm, sugarcane, wheat and maize on 300,000 ha. “A project of our scale would require land which has less than 200,000 people, and a large amount of space,” he told OBG.

Tanzania, traditionally a food importing country, has allocated 2.5m ha for foreign investment, deregulated markets and prices, and removed restrictions on trade. Its 1999 Land Act and Village Land Act recognises the rights of both registered and customary ownership, thereby removing the risk of any unpleasant surprises for potential investors.

MAKING IT WORK: In spite of the benefits that the influx of foreign capital and expertise provides agrarian markets, agriculture remains a strategic sector for most countries and the arrival of overseas investors has prompted some discussion over the role foreigners can play in local production. Proponents argue that foreign investors are developing land that would otherwise have been unused. Ethiopia, for example, has 74m ha of potential farmland, 60m of which is uncultivated, and is sorely in need of the capital provided by land leasing. Furthermore, investors can provide the technology and funds needed to develop the local agricultural market, which ultimately boosts global food security.

However, controversies over land acquisitions have centred on disputed land claims, deforestation, an overuse of water resources and a loss of jobs to mechanisation, while the often poorly-articulated system of property rights further muddies the issues of ownership. “Social pressures and local resentment can create considerable challenges to investors even where they legally acquired the land from the government,” the Food and Agriculture Organisation (FAO) said in a 2009 report on international land deals in Africa.

EXAMPLES ABOUND: In Madagascar, a $6bn, 25-year project by the South Korean firm Daewoo to grow corn and oil palm on nearly half the country’s arable land triggered violent protests, and eventually collapsed in March 2009 following a coup d’état. A year earlier, the Philippines reportedly put on hold an agreement with a Chinese company to lease hundreds of thousands of hectares over concerns of its effect on local food security. As a result, investors are increasingly looking to ensure a broader range of involvement by local stakeholders, according to Eckart Woertz, former director of economic studies at the Dubai-based Gulf Research Centre. Woertz said the potential success of agricultural investments could be improved through close consultation with “customary land rights holders, not just the central government, which in African countries often formally owns the land.” Ghana, however, is unique among its neighbours in that land is traditionally owned by local tribes and communities, with little or no formal documentation of ownership (see analysis).

Investors themselves, from the Gulf states to India, have echoed similar sentiments. Alawi Swabury, the head of a Berlin-based consulting firm SADC States Bridge, has represented Gulf Cooperation Council (GCC) investors in eastern and southern Africa. “You have to start with the villages and reach an agreement with them,” he said. “The next step is to get small credit for the villagers and agree on the distribution of the crops.”

PROVEN RETURNS: The push to improve technology and knowledge-transfer to local communities, as well as ensure domestic support for foreign-owned projects, has already affected the existing investors’ strategy. For instance, the FORAS International Investment Company, the investment arm of the Organisation for Islamic Conference (OIC), is exploring long-term land leases in its member states on terms favourable to the host country, said CEO Saad bin Ahmed. “If, for example, Senegal imports 1m tonnes of rice a year, our objective is to provide to the local market first, then export to neighbouring countries, and finally to Saudi Arabia on a purely commercial basis,” he explained. “Our aim is to develop the economies of OIC member states.” Among projects under consideration by FORAS is Agroglobe, which aims to invest $200m across Mali, Senegal and Sudan to produce 7m tonnes of rice on 700,000 ha of land over a period of seven years.

Global demand for food is expected to double in the next two decades. An FAO December 2010 report predicted that the world’s total food import bill would increase by 15% to $1.03trn. As a result, addressing foreign agricultural investments is crucial if food importers are to improve their food security and producers are to increase their yields. A long-term view, along with a strategy that seeks to integrate local stakeholders, offers an ideal balance, but investors must be prepared to deal with concerns over domestic distribution.