By Horand Knaup and Juliane von Mittelstaedt
Every crisis has its winners. A group of them is sitting in the Stuyvesant Room at the Marriott Hotel in New York. The conference room, where the shades are drawn and the lights are dimmed, is filled with men from Iowa, Sao Paulo and Sydney -- corn farmers, big landowners and fund managers. Each of them has paid $1,995 (1,395) to attend Global AgInvesting 2009, the first investors' conference on the emerging worldwide market in farmland.
Farmers working a field in Malawi.
But for the audience in the Stuyvesant Room, mostly men and a handful of women, all of this is good news and the mood is buoyant. How could it be any different? After all, hunger is their business. The combination of more people and less land makes food a safe investment, with annual returns of 20 to 30 percent, rare in the current economic climate.
These are not Wall Street experts, nor are they people who shoot money across the continents like billiard balls. On the contrary, these are extremely conservative investors who buy or lease land to grow wheat or raise cattle. But land is scarce and expensive in Europe and the United States. Solving the problem means developing new land, which is only available in Africa, Asia and South America. This combination of factors has triggered a high-stakes game of real-life Monopoly, in which investment funds, banks and governments are engaged in a race for access to the world's arable land.
'The Final Frontier for Finding Alpha'
Susan Payne, a red-haired British woman, is the CEO of the largest land fund in southern Africa, which currently includes 150,000 hectares (370,000 acres), mainly in South Africa, Zambia and Mozambique. Payne hopes to raise half a billion euros from investors. She talks about fighting hunger, but the headings on her PowerPoint slides, embellished with photos of soybean fields at sunset, tell a different story. One such heading refers to "Africa -- the last frontier for finding alpha." The word alpha signifies an investment for which the return is greater than the risk. Africa is alpha country.
That's because land, which is extremely fertile in some regions, is inexpensive on the impoverished continent. Payne's land fund pays $350-500 per hectare ($140-200 per acre) in Zambia, about a tenth the price of land in Argentina or the United States. For a small farmer in Africa, the average yield per hectare has remained unchanged in 40 years. With a little fertilizer and additional irrigation, yields could quadruple -- and so could profits.
These are perfect conditions for investors. Susan Payne sees it that way, and so do her investors. In fact, there has been so much demand for this type of investment that Payne recently had to establish a new sub-fund.
A great deal of capital is currently available. It is the second year of the global economic crisis, and investors are seeking sound and safe investments, which is why the audience in New York includes not only hedge fund managers and agriculture industry executives, but also the representatives of large pension funds and the chief financial officers of five universities, including Harvard.
Thousands of investment funds, from small to large, have recently begun applying the most basic formula in the world: Man must eat.
US investment management company BlackRock, for example, has established a $200 million agriculture fund, and has earmarked $30 million for the acquisition of farmland. Renaissance Capital, a Russian investment company, has acquired more than 100,000 hectares in Ukraine. Deutsche Bank and Goldman Sachs have invested their money in pig breeding operations and chicken farms in China, investments that include the legal rights to farmland.
Food is becoming the new oil. Worldwide grain reserves dropped to a historic low at the beginning of 2008, and the ensuing price explosion marked a turning point, just as the oil crisis did in the 1970s. There were bread riots around the world, and 25 countries, including some of the biggest grain exporters, imposed restrictions on food exports.
Then came the second crisis of 2008, the economic crisis. Two fears -- the fear of hunger and the fear of uncertainty -- converged, triggering what some are already calling a second generation of colonialism.
A Win-Win Situation?
What is different about this colonialism is that countries are readily allowing themselves to be conquered. The Ethiopian prime minister said that his government is "eager" to provide access to hundreds of thousands of hectares of farmland. The Turkish agriculture minister announced: "Choose and take what you want." In the midst of a war against the Taliban, the Pakistani government staged a road show in Dubai, seeking to entice sheikhs with tax breaks and exemptions from labor laws.
All these efforts have two hopes in common. One is the hope of poor nations to achieve the development and modernization of their ailing agricultural sectors. The other is the world's hope that foreign investors in Africa and Asia will be able to produce enough food for a planet soon to be populated by 9.1 billion people; that they will bring along all the things that poor countries have lacked until now, including technology, capital and knowledge, modern seed and fertilizer; and that these investors will be able to not only double crop yields but, in many parts of Africa, increase them tenfold. Previous estimates had in fact forecast a decline in production capacity by 3 to 4 percent in 2080, as compared with the year 2000.
If the investors are successful, they could achieve what development agencies have been unable to do in the past few decades: reduce the hunger that now afflicts more people than ever, namely one billion worldwide. In the best case scenario this could be a win-win situation with profit for the investors and development for the poor.
It is not just bankers and speculators, but also governments that are acquiring land in other countries, seeking to reduce their dependence on the world market and imports. China is home to 20 percent of the world's population, but it has only 9 percent of the world's arable land. Japan is the world's largest corn importer, and South Korea is the second-largest. The Persian Gulf States import 60 percent of their food, while their natural water reserves are sufficient to support only another 30 years of agriculture.
Modern-Day Land Grab
But what happens in a globalized world when colonies arise once again? What if, for example, Saudi Arabia acquires parts of Pakistan's Punjab region or Russian investors buy up half of Ukraine? And what happens when famine strikes these countries? Will the wealthy foreigners install electric fences around their fields and will armed guards escort crop shipments out of the country? Pakistan has already announced plans to deploy 100,000 members of its security forces to protect foreign-owned fields.
No one is sure exactly how much land is at stake. The number cited by the International Food Policy Research Institute (IFPRI) is 30 million hectares, but this estimate is impossible to verify. Even United Nations organizations has to resort to citing newspaper reports, while the World Bank is trying to convince countries to pay closer attention to the fine print on agreements.
Klaus Deininger, an economist specializing in land policy at the World Bank, estimates that 10 to 30 percent of available arable land could be up for grabs, although only a fraction of the potential number of lease and sale agreements have been signed. "There was a huge jump in 2008, when plans and applications in many countries more than doubled, in some cases tripled." In Mozambique, says Deininger, foreign demand is more than double the existing cultivated farmland, and the government has already allocated four million hectares to investors, half of them from abroad.
The most spectacular deals are not being made by private investors, however, but by governments and the funds and conglomerates they promote:
Saudi Arabia is one of the biggest and most aggressive buyers of land. This spring, the king attended a ceremony where he took delivery of the first export rice harvest, produced exclusively for the kingdom in hunger-stricken Ethiopia. Saudi Arabia spends $800 million a year promoting foreign companies that cultivate "strategic field crops" like rice, wheat, barley and corn, which it then imports. Ironically, the country was the world's sixth-largest wheat exporter in the 1990s. But water is scarce and the desert nation aims to preserve its reserves. Exporting food also means exporting water.
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