AUS DEM SPIEGEL
Ausgabe 4/2008

Our Hungry Planet The Choice between Food and Fuel

Part 3: Snapping Up Land Across the Globe


When grain ends up in our fuel tanks instead of on our plates, food prices increase, as does the cost of feed such as corn silage and soybeans. Higher feed costs make it more expensive to raise livestock, which translates directly into higher prices for beef and pork. The price of oil -- OPEC in other words -- ultimately determines how much a pork chop costs at the supermarket.

The Americans, in particular, have high hopes for biofuel making them less dependent on oil-producing countries in the Persian Gulf region. US farmers produced more corn last year than they have since the end of World War II. Tim Recker, a 43-year-old Iowa farmer, says that he and his fellow farmers get as much as they can out of the ground. "We're farmers. Our goal is to produce, produce, produce."

At a recent lunch on Recker's farm -- the meal was steak and beans -- his mobile phone gave a quick buzz: a text message with grain prices. Recker receives similar text messages about three times a day, and the news is almost always good. He and his neighbors are experiencing their own, personal economic miracle. Brand-new grain silos are popping up in the fields around Recker's farm, shining, rocket-like symbols of their builders' faith in the future. Many Iowans already refer to their state as "the new Texas," as if biofuel could serve as a complete substitute for oil.

During harvest season, Recker drives his truck down a road along the Mississippi several times a day, carrying 27 tons of corn with each load. A major exporter has set up underground storage facilities next to the river. From there, the bulk corn is loaded onto freighters, which carry it down to New Orleans, where it is transferred to larger ships. From there the corn travels through the Panama Canal and to destinations around the world.

A Handful of Corporations

In places like New Orleans, it becomes clear that even in the America of high-tech companies like Google, Apple and Microsoft, the traditional agricultural industry still plays a powerful role -- and it's an industry in which a handful of corporations dominate the world market.

The largest is Cargill, a family-owned company from Minnesota founded in 1865. With its 158,000 employees and $88 billion (€60 billion) in sales, Cargill is in the same league with major international corporations like BASF, Samsung and Hewlett-Packard. In company literature, Cargill aptly describes itself as "the flour in your noodles, the salt on your French fries and the corn in your tortillas, the chocolate in your dessert and the sweetener in your soft drink."

Cargill, Archer Daniels Midland (ADM) and Bunge form the legendary ABC complex. No one who hopes to be a player in the global business of renewable commodities can get around dealing with at least one of these companies. The agricultural multinationals buy grain and oilseed from farmers and cooperatives, store it in their own silos and dry and process it. They ship their products through their own transfer terminals and charter fleets of freighters to dispatch them to every corner of the world. They grind wheat into flour, process soybeans into animal feed and -- currently an especially lucrative activity -- convert rapeseed into biodiesel. ADM operates Europe's largest biodiesel plant at the Hamburg harbor, where anyone driving past the facility is immediately engulfed by the penetrating odor of French fries. By controlling the entire process, from harvest to finished product, these conglomerates manage to secure the most profitable part of the value-added chain for themselves.

The focus of their business is shifting more and more to the southern hemisphere. Vietnam and Thailand, for instance, have become important rice exporters, Indonesia and Malaysia have developed significant plant oil production industries, and both India and China export large volumes of sugar.

No Enthusiasm for a Grain OPEC

The biofuel boom has also resulted in a renaissance for southeastern Europe, traditionally Eurasia's breadbasket. "The region around the Black Sea has enormous potential," Rabobank analyst Delodder says enthusiastically. Russia, for example, is fast becoming an agrarian superpower. At last year's Green Week, Russian Agriculture Minister Alexei Gordeyev pointed out that about 20 million hectares (49 million acres) of arable land are still fallow. Should Europe need anything, the minister assured his audience, Russia would deliver. But his idea of forming a "grain OPEC" with Ukraine didn't exactly meet with enthusiasm.

Agricultural conditions in Ukraine are at least as promising as they are in neighboring Russia. During World War II, the Nazis shipped Ukraine's "black earth" back to the German Reich by the ton. The soil is so fertile that Ukrainian farmers are often able to produce two harvests a year. It comes as no surprise that Ukraine and other former Soviet bloc countries are seeing a rush to buy agricultural land. In Russia, it has become fashionable among wealthy oligarchs to snap up large agricultural estates.

Most of these countries restrict land purchases to their citizens. Poland, on the other hand, is one of the few countries that allow foreigners to buy agricultural property. Jan Peters, a former grain dealer from the northern German town of Brunsbüttel, entered the Polish market in 1995. Since then, he and six partners have been farming a plot of more than 1,000 hectares (2,470 acres) in northern Poland. They own a third of the land and lease the rest.

In the beginning, Peters regretted the risky move. The soil on the former state-owned farm was depleted, and it took years to recondition it. "We have tough times behind us," says Peters, adding that the business is now doing quite well. Peters and his fellow investors bought the property for €300 a hectare. Nowadays, investors are willing to pay upwards of €4,000 a hectare. "People are constantly asking us if we're willing to sell." The Scandinavians, he says, have been especially persistent.

Bitter Struggle for Arable Land

A bitter struggle over the distribution of the best agricultural land has erupted worldwide, from Eastern Europe to halfway around the world in Brazil. Because of its mild climate, the large country straddling the Amazon is on its way to becoming the world's leading agricultural country. In the state of Goiás, which is one of Brazil's most important farming regions and roughly the size of Germany, agriculture has grown by about 7 percent a year since 1990. The country, already one of the world's top exporters of beef, soybeans, sugar, coffee and orange juice, still has enormous potential. "We can easily double our agricultural production," says Brazilian Agriculture Minister Reinhold Stephanes.

The biofuel industry has taken the minister by his word, replacing former soybean fields, grazing land for cattle and cotton plantations with sugarcane fields. In the region surrounding Rio Verde, Goiás breadbasket, sugar barons known as usineiros have bought up vast estates -- paying high prices for the privilege. "Only fools aren't selling," says Gomes de Moraes, a 47-year-old cattle rancher.

For five generations, Moraes's family has run the Campo Alegre farm, a jewel among Rio Verde's fazendas. Ancient mango trees provide shade in the courtyard of a house where the running water comes from a nearby stream. A few months ago, Moraes decided to give up his idyllic family home. After moving to the city with his wife, Moraes now spends his time managing his properties. He has leased the farm to a Brazilian and French consortium that plans to convert it into a giant sugarcane plantation. Campo Alegre will produce ethanol beginning in 2009. "They made me an offer that I couldn't refuse," he says.

Like the Poles, the Brazilians have welcomed foreign capital with open arms. Much of that capital flows into the country in the form of US dollars, and the lists of financial backers include many famous names. Billionaire investor George Soros and former World Bank President James Wolfensohn have acquired holdings in ethanol plants, as has AOL founder Steve Case. All of them are in Brazil hoping to turn a handsome profit, as well as to bask in the role of environmental activist. But the professional world has long harbored doubts over whether biofuel is as environmentally friendly as some believe.

Limited Economic Possibilities

In fact, there are now many critics of the industry, including the Organization of Economic Cooperation and Development (OECD), consumer organizations like Foodwatch, the German government's environmental expert council and even major food corporations like Nestlé. Their verdict on biofuel is devastating.

According to the OECD, expanded biofuel production will lead to "untenable strains" on the commodities markets "without yielding significant benefits for the environment." Foodwatch is convinced that the strategy, while benefiting farmers, will do nothing to protect the climate. Germany's environmental expert council says that the industry raises expectations that "fly in the face of accepted science." Nestlé CEO Peter Brabeck-Lemathe bluntly characterizes biofuel production as "environmental lunacy."

The environmental upshot is indeed disappointing. Much of the energy the farmers produce is offset by the amount of energy that goes into producing the plants in the first place. They consume fossil fuels to harvest plants, for shipping, for storage and drying, not to mention the energy required to produce pesticides and fertilizers. The economical possibilities are also limited. Even if the US's entire corn crop were converted into fuel, it would satisfy only about 12 percent of the demand for gasoline.

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