02 THE NEXT... BLACK GOLD
FOREIGN FIELDS

PHOTO: CORBIS

In the next 24 hours another quarter of million people will become net additions to the global population — and every one of those new mouths will want feeding. Which is why the world’s most fertile patches of cultivated earth, together with the water required for irrigation, have become the most prized commodities on the planet.

So prized in fact that rich countries have felt compelled to look well beyond the labours of their own farmlands and grab those of their poorer neighbours. But rather than trade for this food supply on the open market and leave themselves vulnerable to protectionist measures and further spikes in grain and corn prices, these modern-day plantationists are going straight to the source. They are buying up, or leasing foreign land as long-term investment and security hedges. Agricultural tracts in Ukraine, Cambodia, Brazil and Sudan are the new oil-fields of the global economy.

Foreign entities have snapped some $30bn worth of farmland since 2006, says Washington DC think tank The International Food Policy Research Institute. In the process, between 15 millon ha and 20 million ha have been subject to transactions — equivalent to roughly a fifth of all the farmland in the EU. More acreage will change hands in the coming years as crop-starved governments and their sovereign wealth pools now compete against banks, fund managers and opportunistic individuals from the private sector.

The reasons for this furious farms race are not hard to divine. Right now some 6.8 billion humans jostle with one another for space and resources, a total that most United Nations demographers accept will climb to around  
9.1 billion by 2050. But even those raw numbers don’t tell the full story. Consumption habits are changing too, with disastrous implications.

As emerging countries grow wealthier, so their diets are also shifting to mimic the meatier tastes of the West. It takes 15 times as much water to produce 1kg of beef as it does to grow the same weight in wheat. In China, the amount of additional water that has been used just to satisfy the increase in national meat consumption since 1985 is estimated at 390km3 — not far off the 418km3 that represents Europe’s entire annual water usage.

Add to such grim statistics the spectre of climate-induced droughts and floods and you have what environmentalists fear is a coming perfect storm. But for those speculators gathered this year at New York’s Marriott Hotel in June for the first Global AgInvesting conference, such impending cataclysm only spells opportunity. With worldwide demand for food expected to soar at least 50% in the next 20 years, and biofuels emerging as a lucrative byproduct of agriculture, farmland was hailed as one of the rare bright spots in the current financial climate. Indeed, its value as a tangible hard asset will only increase should inflation become the dangerous side-effect of all those borrowed trillions spent propping up the world’s ailing economies.

Everyone from George Soros to BlackRock, Deutsche Bank and Goldman Sachs are now in the hunger game. According to Canadian private equity firm AgCapita, in the first quarter of 2009 more than €1.35bn of private equity money had been raised for farmland investments globally, and a further €340m was in the offing. London’s Emergent Asset Management, which already manages the largest land fund in southern Africa, is raising another €500m from investors with the lure of projected five-year returns of 25%. China, home to 20% of the world’s population but only 9% of its arable land, has earmarked €3.4bn to developing land in Africa alone.

The accusation of “neo-colonialism” has been levelled at national governments and their corporate giants who have embarked on such mass-scale plunder. But the fact is local governments and landowners have often been complicit in this land-hoarding in the hope that the resulting infusion of capital investment, technological know-how, better seeds and fertilisers will end up increasing crop yields and improving infrastructure to every-one’s mutual benefit. As Turkish agriculture minister Mehdi Eker told potential Gulf State investors in June: “We have made maps of all our lands. Take and cultivate which you want.”

If anything, this new wave of exploitation comes closest to outsourcing, although with some ironic twists. Some of the same Asian economies that enjoyed sudden wealth on the backs of sweatshop manufacturing for the West are the ones now outsourcing their nourishment needs to the cheap bread baskets of eastern Europe, Australia and Latin America.

Nor is Africa always the subjugated party in this global game of Monopoly. Libya signed a draft agreement in May to grow wheat on 100,000ha of Ukrainian land in order to help feed its 5.3 million people. “Libya is a bridge to African countries,” explained Prime Minister Yulia Tymoshenko to her cabinet. “Africa can be a great consumer of Ukrainian grain and food.”

With its huge oil wealth, Libya could have devoted considerable resources to growing its own wheat, but such a policy proved disastrous for Saudi Arabia, which recently ditched a 30-year self-sufficiency programme after watching its expensive wheat fields deplete the Kingdom’s scare water supplies. Far better to deplete someone else’s rivers and aquifers.

In targeting Ukraine, the former grain basket for the USSR, Libya has joined several other foreign farmers there, including the Russian investment outfit Renaissance Capital, US bank Morgan Stanley and the UK’s Landkom, run by former RAF man Richard Spinks. All recognise that Ukrainian land boasts a significant proportion of the world’s chernozems (highly fertile black top-soil), but all also face the challenge of converting a picturesque patchwork of family plots into fields capable of 50% higher productivity.

Investment concerns aside, such moves are not without their political risks. Long-term land grants that, in effect, lock control of soil in foreign hands can be seized upon by government opponents as asset-stripping. Such was the local outcry when South Korea’s Daewoo Logistics secured a 99-year lease on roughly half the arable land in Madagascar — a plot half the size of Belgium — that it spurred a coup d’etat in March. The country’s new leader promptly annulled both the parliament and the Daewoo deal.

For a glimpse of how this contentious new world might play out look at Pakistan. Saudi Arabia revealed in September that it was talks with Pakistani officials to lease an area of farmland twice the size of Hong Kong. A further 200ha are still available to other outsiders for lease or sale. Given the volatility of that region, Pakistan has promised to deploy 100,000 members of its security forces to protect such foreign-owned fields. With famine an ever-attendant risk now, how long before we see electric fences and armed guards escorting crops out of the country and beyond the reach of the local starving classes? Chew on that.