Tuesday, December 7, 2010

On the Subject of Farmland Acquisitions Across Borders

photo
photo source


What defines a nation, if not the land
upon which it sits?


(November 2010 Farmland Price Report #5 by big picture agriculture)

Some people call it "Land Grabbing". In the old days, it was what wars were made of. Is this some new form of colonialism, or are we entering a new era where our flat earth can peacefully exchange farmland ownership under agreements that lead to mutually beneficial outcomes?

This subject has three main drivers. One, is the issue of food security for any nation unable to feed itself. Two, is the desire of wealthy investors and investment vehicles globally to own farmland globally. Three, corporate farming methods and efficiencies continue to require larger and larger scale farming operations making the movement feasible.

Some of the poorer nations, at present, look forward to development of badly needed infrastructure of roads, railroads, ports, and grain storage within their borders, so leaders are eager to promote working together towards an intended food security beneficial to both nations involved but too often negotiations are nontransparent.

Contrast this movement to the newer term "foodshed" which means that each locality needs to determine its own agricultural strengths and weaknesses to come up with a plan to be food self-sufficient while using sustainable practices. This movement of foreign farmland acquisition in attempt to attain food security by producing crops on another nation's soil is the opposite of that.

What I do not understand about this strong trend in trying to obtain foreign farmland for whatever reason is its tenuousness. A nation can change its rules overnight, and could null all land contracts retroactively if it so decides. We saw a statement like this come from Argentina's leadership this past summer. As for would-be global farmland investors, the issue of farmland ownership, management, and risk is undoubtedly much more complex and dynamic than they would like to believe.

In times of national turbulence caused by stresses, financial or otherwise, one of the first things for a (new or existing) government to do might be to seize that owned by foreigners within its borders whether it be oil drilling equipment, farmland, or manufacturing facilities. History is also rife with land ownership changes and foreign takeovers often based upon a more powerful nation desiring the natural resources of a less powerful one. Militant citizens deprived of their own needs sometimes make the rules.

Many nations have restrictions in place limiting foreign farmland ownership. Some are highly-restrictive, others less so. Because the recent momentum of international farmland acquisition has been so strong recently and is also receiving a lot of attention and concern, I fully expect more national policies to emerge. "Farmland is not a commodity."

~~~~~~~~~~~~~~

To follow is an assortment of articles on foreign farmland acquisition that I've collected over these past several months. There are many interesting points contained in the articles.

This is the fifth of my November farmland report series, the previous ones are linked below.

November 2010 Reports to date:
---Kalpa

~~~~~~~~~~~~~~~

Food security a growing concern for the UAE — Since the crisis of 2008, the acquisition of farmland has increased rapidly. Last year alone deals covering 45 million hectares of farmland were announced. Before 2008, that figure was more like four million. The big players in these deals have been China, South Korea and the Gulf states. From the UAE, land prospectors include private and public investment groups, and food importing and processing companies. Deals have been announced with Africa, Eastern Europe, South America and Asia. The terms, however, are usually kept private, making it hard to gauge whether the land is being sold outright or simply leased....Neither is it without risk for investors - especially if the land deal is seen as being heavily weighted in the outside investor's favour. In such cases, there is the danger that the host countries could re-nationalise farms, unilaterally cancel contracts or block food exports.

Farmland outsourcing — According to a conservative reckoning, over 20 million hectares of land, twice the size of Germany's total cropland, had already been sold globally to overseas investors till last year. The wave of land acquisitions that began over a decade ago got a further boost following the spurt in global food prices from 2007-08 onwards. The countries which needed more food than they could potentially produce at home, such as China, Japan, Saudi Arabia, South Korea and the like, explored and gathered every opportunity that was available for outsourcing food production. Japan, with very little agricultural land of its own, is believed to have created landholdings abroad measuring more than thrice the size of its own farmland.

With a view to making it a win-win deal, the Washington-based International Food Policy Research Institute recently came out with a draft code of conduct for foreign direct investment in agriculture, which addresses most concerns of detractors of this trend. It calls for, among other things, respect for existing land rights, sharing of benefits with local communities, and abiding by the national food security policies of the host countries, which essentially means that in case of food shortages, the local governments will have the first right over the produce.

Shareholder demands to shape modern agriculture
— An estimated 45 million hectares of large-scale farmland deals were announced in 2009 alone, according to a World Bank report released in September. Agriculture financiers say their clients are most keen on industrial-size production of corn, wheat, soybeans, cotton and other traded goods, whose value has shot up alongside concerns about strains on the world’s food chain. The result is a trend toward bigger land parcels and a more shareholder-responsive farming culture, which has put intense profit pressure on smaller producers....Giles Mettetal, director of agri-business at the European Bank for Reconstruction and Development, said there were already a number of “mega farms” being developed in central and eastern Europe, including one 1 million hectare property. “That is about the size of Denmark.”

Bankers, funds try to cope with demand for farms — But Rich Gammill, managing director of the Cargill unit Black River Asset Management, which manages $6 billion including in food and agriculture, said farmland investments can be tricky. “It seems simple, but agriculture is anything but. There is a global supply chain and lots of regulation, a lot of risks and factors that I think the traditional finance people on Wall Street do not have their heads wrapped around,” he said. Many investors also want international holdings, requiring their advisers to navigate different tax and regulatory systems, as well as rules on foreign land ownership.

Investors eyeing Balkan farms as long-term play — Foreign investors are showing renewed interest in agriculture in the emerging Balkans, where land and labour are relatively cheap and crops plentiful, although strewn with many potential pitfalls. To date, foreign firms have invested in dairies, meat processing, crops and others areas in Serbia and other non-European Union members of the Balkans, and more are considering investments as the world economic crisis eases.

Private sector interest grows in African farming — With sub-Saharan Africa estimated to hold up to 60% of the world’s remaining uncultivated land suitable for farming, the region’s agriculture is starting to look an interesting investment.

Kingdom promotes investment in farmlands abroad — According to the latest data, GCC member states are annually forced to import up to 85 percent of their food needs from abroad, mainly from Asia and the Eurozone, making the solution of investing in food growth abroad one of the best alternatives for securing the region’s future food needs. Since 2008, Saudi Arabia has set up farms in Egypt and Ethiopia to grow some grain items with negotiations ongoing with other countries in the region, such as Syria, Turkey and Ukraine.

Foreign farm raiders buy $9bn of Aussie — More than $9 billion of prized agricultural assets have been sold to offshore interests in the past two years alone. And there is more to come - although no one can accurately say how much is for sale. A Chinese delegation, led by a senior provincial governor, will arrive early next month hoping to acquire farms and agricultural assets.

Investors eyeing Balkan farms as long-term play — According to U.S.-based agriculture consultants HighQuest Partners, the total value of investment funds in agriculture worldwide is $15-$20 billion, excluding sovereign wealth funds.

New rush of foreign investors, mainly Argentines, to purchase land in Uruguay — In the first half of this year there have been 950 farmland transaction operations registered, 9.3% more than the same period in 2009, which represents 180.000 hectares (up 25.8%) involving 451 million US dollars (up 37.5%) according to official numbers from Uruguay’s Agriculture Statistics Department.

Investors seeing farmland as safer bet than stocks — The World Bank reported this month that the number of large-scale farmland deals in 2009 amounted to about 45 million hectares, compared with an average of less than 4 million hectares each year from 1998 through 2008. The report found that about half the 406 land acquisitions in Ethiopia and the 405 deals in Mozambique from 2004 to 2009 came from foreign investors. Foreign investment in Sudanese agricultural land was expected to increase fivefold by 2014. Banks, universities and investment firms are closing some of the biggest deals. Optima Fund Management, a New York fund, plans to acquire about 10,000 acres of Arizona farmland and California vineyards by year's end. Macquarie Agricultural Funds Management in Australia — which has invested in dairy, forestry and more than 7 million acres of land — is launching a second fund that may expand into Brazil. Pharos Financial Group, a firm backed by financier George Soros and based in Moscow, created an agriculture-focused private-equity fund in November and is scouting farms in Asia and Africa.

Large farmland sales pose major social risks, says World Bank — China was reported to be in the forefront of foreign investors snapping up large tracts of farmland in Africa and Latin America in outright purchases or long-term lease. Corporate giants from North America were also seen behind the moves. Several key U.S. and European pension funds were seen pouring billions of dollars into farmland investment as a hedge against riskier investments elsewhere.

Policy makers seek bigger agriculture budgets to stop the rise in food prices — In Kenya, the Qatari Government is expected to lease 40,000 hectares in the Tana Delta to grow food crops under a bilateral deal struck in 2008. Biwako Bio Laboratory, a Japanese Company, has also been working on plans to acquire 30,000 hectares of land for jatropha production. In Nyanza, Belgium Company HG consulting is expected to put 42,000 hectares of land under sugarcane production while Dominion Farms Ltd has invested in 17,500 hectares around the Yala Swamp. Canadian Company Bedford Biofuels is also said to have obtained 160,000 hectares of land for jatropha production. The same gathering pace in Tanzania where 40 foreign firms have invested millions of shillings on leased lands. Uganda has also leased out a total of 840,127 hectares to Egypt for rice and wheat cultivation. The current focus was on Latin American farmland, especially in food and commodity exporting countries, market reports said....Saudi investors lobbied Tanzania for leases for up to 500,000 hectares of farmland to be used for the cultivation of rice and wheat for the kingdom's growing population, the Middle East and Africa Monitor reported.

Buffett's 'land tie-up' may avoid Brazil backlash — Brazil's president, Luiz Inacio Lula da Silva, has put the brakes on a wave of foreign investment in the country's farmland, estimated by Brazil's central bank at $2.4bn between 2002 and 2008, by approving a rule that restricts the ownership by foreigners.... AgraFNP, the Sao Paolo-based farm consultancy, has estimated the jump in farmland prices in frontier areas of the north east over the last three years at 54-70%..... However, the scale of investments, by buyers from hedge funds to state-baked Chinese companies, has prompted a local backlash. "Brazilian land must stay in the hands of Brazilians," Guilherme Cassel, Lula's agrarian development minister said.

The backlash begins against the world landgrab — As is by now well-known, sovereign wealth funds from the Mid-East, as well as state-entities from China, the Pacific Rim, and even India are trying to lock up chunks of the world's future food supply. Western agribusiness is trying to beat them to it. Western funds - many listed on London's AIM exchange - are in turn trying to beat them. ....Hedge funds that struck rich 'shorting' US sub-prime have rotated into the next great play of our era: 'long’ soil....Argentina is drawing up its own law, pressed by the country's bishops. More than 7pc of national territory is owned by foreigners. The Benetton brothers have 900,000 hectares of Patagonia, some on disputed Mapuche tribal land. George Soros has holdings, so does CNN's Ted Turner, and currency trader Joe Lewis, who made himself a public enemy by blocking public access to the majestic Hidden Lake....In Madasgascar, a deal with Korea's Daiwoo Logistics to plant corn on territory half the size of Belgium led to the downfall of the government in 2008. The lease was revoked. "Madagascar's land is neither for sale nor for rent," said the new president. Even Australia's senate has called for an audit of foreign-owned land and water projects....Land is not a commodity. It has an atavistic pull in most cultures, and is semi-sacred everywhere. Absentee landlords who amass chunks of the earth – however well-intentioned - will be expropriated. Politics always prevails.

R.O.I.: The Coming Boom in Farmland — Emmanuel Jayet, head of agricultural commodities research at SG Securities, says there are still 450 million additional hectares that the world could farm. Yet most of them are in sub-Saharan Africa and Latin America, where infrastructure—and political stability—have sometimes left something to be desired.

New Zealand puts squeeze on foreign farmland purchasing — China already feeds a fifth of the world's population on less than a tenth of the planet's arable land. The Federated Farmers of New Zealand say planned Chinese purchases of arable land are unfair because foreign firms are forbidden from acquiring similarly large swathes of farmland in China....Earlier this year, the Observer reported that the Earlier this year, the Observer reported that the total area being bought up by rich nations was more than double the size of the UK...."In the last three years, 13 different applications to acquire land have been approved in New Zealand mainly from Europe, Australia, the US and Russia – something like $380m of acquisitions.

The East African: Are they appropriate agricultural investments or 'land grabs'? Depends on who you ask — Since the 2008 food crisis, external governments have increasingly turned to Africa to acquire a total of 2,492,684ha of land in Ethiopia, Sudan, Ghana, Madagascar and Mali....The 2008 economic crisis coupled with the global food crisis triggered the proliferation of farming land acquisition in East Africa in Kenya, Tanzania, Uganda, Ethiopia and Sudan....In Kenya, the Tana River Delta and the Coast in general have been the main target, raising questions where the local communities will get alternative land for agricultural activities to become self-sufficient in food. In the Tana River Delta, 40,000 hectares has been leased to the Qatari government, 16,000ha to Mumias Sugar for sugar plantations and agro-fuels, 50,000ha to a foreign firm for bio-fuels. In Nyanza, over 17,500 hectares around Yala Swamp has been leased to a US firm, Dominion Farm Ltd to produce rice. In Tanzania, 500,500ha has been leased to a foreign firm to produce rice, wheat, coffee, flowers, Aloe Vera and bio-fuels. Uganda has leased 840,127ha to Egypt to grow rice, wheat and produce organic beef. Ethiopia, on the other hand has given out 600,000ha to foreign entities, which FAO estimates to be four per cent of the fertile land.

New foreign takeover controls on farms? — Foreign acquisitions of Australian farms and agricultural companies are the target of a new Bill before Parliament....In broad terms, the acquisition of agricultural land by a foreign person currently only requires notification to the Treasurer if the purchase price exceeds $A231 million. The Bill proposes to change that monetary threshold with a spatial one. An acquisition of an interest in agricultural land of more than 5 hectares would have to be notified.

Chinese investment in Brazil has ballooned to more than $25 billion this year — They’ve snapped up iron mines in the south, bought into oil fields off the coast, and they may be trolling for 850,000 acres of farmland, too. While Chinese investors spent the last decade buying up natural resources across Africa, this year they’ve begun an unprecedented shopping spree in Brazil. In less than 12 months, Chinese investment has jumped by orders of magnitude — from a registered $82 million in 2009 to more than $25 billion in planned projects reported so far this year.

Australia to Study Overseas Investment in Farms Amid Food Security Concern — Australia’s Foreign Investment Review Board this month approved Singapore-based Wilmar International Ltd.’s A$1.75 billion ($1.73 billion) purchase of CSR Ltd.’s sugar business, the nation’s largest producer of the sweetener. The board last month cleared the A$1.2 billion takeover of AWB Ltd., the nation’s largest wheat exporter, by Calgary-based Agrium Inc. ABB, Viterra. This year’s takeovers followed the A$1.6 billion purchase in 2009 of ABB Grain Ltd., the country’s largest barley exporter, by Viterra Inc. based in Regina, Saskatchewan. Real estate agents in April said Chinese investment in the nation’s farms increased 10-fold in the previous six months. Geoff Hickson, real estate manager at Landmark Operations Ltd., also said at the time his company had started to use Mandarin translators.

Buy-out sparks farm register to protect food supply — "We shouldn't be allowing foreign governments to buy up Australian land to feed their population, when our own government hasn't stopped to ask whether we are going to have enough production in the future to feed all Australians," Senator Xenophon told The Courier-Mail....The foreign investment overhaul comes as offshore investors from the Middle East, Japan, Europe, Brazil and the US are taking footholds in some of Australia's best-known farming companies....Senator Xenophon's private member's Bill will mirror New Zealand legislation that gives the FIRB the power to block foreign investment on small-scale farms if it is deemed to be contrary to the national interest...."Surely we should be selling the milk, not the cow – and the food, not the farms," he said. Liberal Senator Bill Heffernan, himself a farmer in western NSW, has been urging tighter guidelines on foreign investment for years. National Farmers Federation vice president Charles Burke says "it could be" detrimental to Australia's national interest if there is a buyout of rural assets by overseas governments masquerading as sovereign wealth funds. "If they want to secure their food supply they can buy it like everybody else," Mr Burke said.

Fight Food Inflation, Feast On Famine — (T)he farmland rush is on. High-net-worth individuals like George Soros and Ted Turner are buying farmland in Argentina, for example. But the biggest buyers are the sovereign wealth funds of governments in countries where farmland is at a premium – think China, India and the sandy Middle Eastern countries. They’re finding willing sellers in developing countries. Figures are hard to come by, but the World Bank estimates foreign investors of all stripes bought 111 million acres in the developing world in 2009 – a 10-fold increase in 10 years. Two-thirds of those deals have been struck in Africa. The iconic example is a deal that fell through. In 2008, South Korea’s Daewoo Logistics signed a lease on farmland in Madagascar, the large island nation off Africa’s southeast coast. The company planned to plant corn on territory larger than the state of Connecticut.

UN expert: 500 million small farmers hungry partly because right to land under attack — De Schutter, a law professor at the University of Louvain and at the College of Europe in Belgium, said 5 million hectares (12.3 million acres) to 10 million hectares (25 million acres) of agricultural land are being lost annually as a result of severe degradation and another 19.5 million hectares (48 million acres) to industrial uses and urbanization.

Qatar - in talks to buy Argentina, Ukraine farmland — Qatar imports 95 percent of its food and has only two days' worth of water reserves. So it relies heavily on imports and is constantly looking at options to gain additional food and water resources through Hassad Food, the agricultural arm of its sovereign wealth fund. Shah, director of Qatar National Food Security Programme said: "We have done deals in Brazil and Australia and now we are in negotiations with Argentina and Ukraine."....Shah said Qatar was also studying a project to raise sheep for meat production in Sudan, where last year it created a joint venture to cultivate up to 250,000 acres of land for wheat, corn and possibly soya.

2nd Global Large Scale Farm Forum Explores Options to Maximize Investments, Regional Opportunities & Outlooks — The 2nd Global Large Scale Farm Forum is set to of­fer participants a comprehensive confer­ence with invaluable insights from a speaker panel of leading international companies. The key highlights of the forum will focus on the rising pros­pects in the global agricultural busi­ness, land utilisation and acquisition policies.

Leery investors look to the original asset: farmland — Wealthy Americans and private funds alike are gobbling up Washington apple orchards, Illinois cornfields and Louisiana sugar plantations. So are foreigners. In California, investors from countries including Spain, Switzerland, China, Egypt and Iran collectively boosted their holdings 2.5 percent from February 2007 to February 2009 to 1.08 million acres about 5 percent of the state’s total farmland. Overseas, U.S. and other investors are snapping up tens of millions of hectares of farmland in Africa, Central America and Eastern Europe. Such investments generally involve a group of people who come together in a company or group of firms, pool their money and purchase parcels of land through a corporate structure. (Minimum investments can start around $25,000 and often require a commitment of at least six years.) After purchasing the land whose value historically appreciates it is usually then turned over to a farmer or a management firm, which handles day-to-day operations. If all goes well, investors can receive rent, proceeds from crop or livestock sales, or some combination of both.

Foreign investors buying Australian land — It has been revealed that foreign investors have bought up tens of billions of dollars worth of Australia's prime agricultural land and rural enterprises. A Daily Telegraph investigation has revealed that a swag of government-backed entrepreneurs - mainly from China, the Middle East and Singapore - are sizing up potential investments as global powers move to secure food supplies.

Zambia urges Gulf investment in farm sector — (I)nvestors and governments in developing countries say that such deals usher in a "win-win" situation by boosting food security for all parties involved. "This is not colonialism," Zambian Finance Minister Situmbeko Musokotwane told reporters on the sidelines of an industry conference in the Saudi capital Riyadh. "Colonialism is like when you come with a gun, then you say you are under my control. But this is investment, there is nothing wrong with that," he added. Zambia allocated two major farm tracts last year, each over 100,000 hectares in size, to be divided between foreign and local farmers to grow cash crops.....So far, Zambia had only signed a few small farmland deals, and is looking to attract more foreign investment into the sector, said Musokotwane.

Senegal in talks to lease farmland to Saudi — Senegal is in talks with Saudi Arabia to lease farmland to grow food of an area nearly four times the size of Manhattan, an official in Senegal involved in the deal told Reuters. Like other wealthy Gulf states Saudi Arabia has been buying farmland in Asia and Africa to secure food supplies after inflation had nearly doubled the price of food in 2008. "We are in talks with Saudi Arabia now and we are offering them 400,000 hectares of farmland to lease on long term basis in Senegal," said the official, who declined to be named....Last year, Foras International Investment Company, a group of Saudi-based investors, including the Islamic Development Bank (IDB) launched a seven-year plan worth $1 billion in Africa to reduce dependency on rice imports and supply the Middle East region. The so-called 7X7 project aims at developing and planting 700,000 hectares of farm land to produce within 7 years 7 million tonnes of rice. "We are in talks to acquire 150,000 to 200,000 hectares of farmland in Senegal, but the deal has not been finalized yet," said a spokesman from Foras. "We are also looking at land in Mauritania and Benin," the spokesman added, giving no further details. Foreign investors have acquired some 15-20 million hectares of farmland in poorer countries since 2006, according to the International Food Policy Research Institute.

The Vultures of Land Grabbing — (Lists 17 Large Investor/Investment Vehicles): What is land grabbing? Land grabbing is defined as land loss by rural populations due to large-scale land acquisition by foreign business (be it by purchase, lease of other forms of control over land such as long-term contract farming) for industrial agricultural production (be it for food, agrofuels or other agricultural commodities). Many acquisitions involve more than 10,000 hectares and several more than 500,000 hectares. ...Most financial vehicles are based in offshore jurisdictions, mainly The Cayman and The Channel Islands; however most European entities having set up a financial vehicle in order to acquire or lease land/cultivate crops are registered in the United Kingdom, which remains a key jurisdiction highly benefiting opaque investors and speculators.

No comments:

Post a Comment