For a better supervision of farmland purchases in developing countries
by momagri Editorial Board
An increasing number of industrialized nations or fast-growing countries are grabbing agricultural land in poor countries to secure their food self-sufficiency. But these land purchases are raising several issues, among which the lack of transparency and the reinforcement of political instability in these countries. momagri is reviewing the feasible political and economic solutions to the situation.
In early June 2010, a group of Saudi businessmen announced the creation of a new company “specializing in the attribution of agricultural land outside the Kingdom borders”. Their goal: Feeding the Saudi population with rice grown by local producers, on land located in Asia but purchased by and belonging to the Wahhabi Kingdom. This approach is a recent one for Saudi Arabia. Only a few years ago, the country decided to implement an ambitious policy to produce, on its own soil, almost all the foodstuffs needed for its consumers, to avoid relying on the rest of the world. Consequently, usable farmland rose to 1.6 million hectares (3.95 million acres) from 0.4 million (1 million acres) between 1971 and 2000, thanks to an irrigation policy financed by public funds. It was successful. In 1995, the United Nations Food and Agriculture Organization (FAO) indicated that wheat production was clearly greater than Saudi consumption levels. As a result, the Kingdom became self-sufficient and even exported wheat, but with production costs that were fourfold that of global costs. The financial hole resulting from this policy and the damages generated by pumping the water tables nevertheless led Saudi Arabia to question the method, but not overlook the validity of the food self-sufficiency concept. Today, in order to stop relying on other Middle-East nations for their rice purchases, Saudi Arabia resolved to launch, in addition to its investments in Asia, a seven-year agricultural development program in Africa with the support of the Islamic Development Bank.
Saudi Arabia is not the only country to seize farmland from third-world nations to meet its food needs. Other industrialized nations or fast-growing countries are also pursuing such policy, a course of action that is not innovative but strengthened by the 2008 food crisis. At that time, the strategic reserves––built up by Iran in particular––as well as speculative purchases brought about soaring prices that affected Saudi Arabia’s food staple––rice. From that time on, the Kingdom initiated an evaluation of the other means to ensure its food security, just as China, South Korea, Libya, India and Sweden did. These countries are making purchases to feed their populations, produce biofuels or benefit from investments more reliable than those available in financial markets. Investors then acquire water rights of use for agricultural production.
An unregulated and unrestricted practice that breeds corruption and politico-social instability.
Massive purchases of agricultural land are not a harmless practice and raise many issues.
First of all, these transactions lack transparency and are conducted outside of any international regulatory framework. Since 2006, 15 to 20 million hectares (37 to 49.5 million acres) have been the subject of transactions by foreign investors, whether governments of private entities. Yet up to now, land purchase contracts were often signed behind the scenes and far from the eyes of the international community. In addition, the lack of international regulation on land purchases and related real-estate issues significantly increase the risks of corruption––in particular concerning water––as well as speculation.
The unchecked development of these practices represents a factor of politico-social destabilization in the affected developing countries. First, because when hunger becomes rife, a share of crops produced by better farmland is earmarked for other countries, instead of feeding the local population. Secondly, local farmers––often driven away from the land they farmed for generations––are ending up swelling the urban shantytowns, thus breeding poverty cycles and political instability.
In 2009, a land agreement with the South Korean company Daewoo Logistics caused the downfall of Marc Ravalomanana, the President of Madagascar. At that time, Daewoo was discreetly entering into a 99-year lease for 1.3 million hectares (3.2 million acres) for the production of corn and oil palm. Accused of making money on land without consulting the Malagasy population, he was overthrown following an unprecedented wave of protest. More recently in Asia, 60,000 Cambodian farmers signed and sent Prime Minister Hun Sen a petition calling for a halt to land purchases and highlighting their helplessness and their distress. Lastly, Africa’s Mozambique, mindful of the risks generated by farmland seizures, recently declared a moratorium on agreements with foreign investors.
The urgent need to set up common regulations
Attitudes seem to be shifting as collective conscience is stimulated. Jacques Diouf, the FAO Director-General, did not hesitate to recently qualify these farmland purchases of “neo-colonialist” policies. The term was also used by various experts in a May 2010 conference held in Zurich and sponsored by the North-South Center of the Federal Institute of Technology (ETH) and by the Center of Excellence for North-South Research of the University of Bern. The World Bank, for its part, is scheduled to publish at the end of June a report that will quantify the phenomenon of farmland purchases and their economic and strategic consequences.
Recent events showed, to our detriment, the risks generated by insufficiently regulated markets in terms of food security––unregulated and exponential speculative trends in 2008 and now, massive farmland purchases. If one accepts that free trade is the best possible method to manage markets, a question remains: How must we organize agricultural markets to make them sustainable and ethical?
It is not a matter of advocating the suspension or the interdiction of investment in foreign farmland. When it is transparent, supervised and regulated, foreign direct investment and futures markets represent crucial engines for the advancement of agriculture in developing countries. But like any economic practice, the one concerning investment in farmland cannot be conducted with complete impunity and without global supervision. Olivier De Schutter, the United Nations Special Rapporteur on the Right to Food, also presented 11 recommendations that include: transparency of transactions (access to contracts and verification of clauses…), prior agreement by concerned rural communities, using investment revenues to finance sustainable development and profit sharing with the local population. In addition to this political supervision, the implementation of economic tools to assess the risks inherent to farmland purchases is essential. Consequently, it is crucial to have an indicator that allows finding the right balance between these two concepts in order to assess, at the regional and international levels, the optimum level of openness and independence in relation to the outside world, while preserving some level of food security. It is the objective of the OSE (Optimal Food Security and Economic Effectiveness) indicator that is currently being designed by momagri and that will provide its first results in early 2011.