This week’s Economist has an excellent overview of the issues surrounding what it calls ‘outsourcing’s third wave’ (the first two were manufacturing and services) – deals in which foreign investors are buying up huge tracts of land in poor countries to produce food to ship back home (see map). Some highlights:
Saudi investors are spending $100m to lease land from the Ethiopian government to produce wheat, barley and rice. From 2007-11, the World Food Programme is spending $116m on food aid for 4.6m Ethiopians threatened by hunger and malnutrition. (Shades of Ireland exporting food to England during the great famine of the 19th century).
Compared with previous styles of foreign investment in agriculture (think banana companies in Central America), the current deals are different because of:
1. Scale: Sudan is setting aside about a fifth of its agricultural land for Arab governments. In total, between 15m and 20m hectares of farmland in poor countries have been subject to transactions or talks involving foreigners since 2006. That is equal to France’s total agricultural land. These deals are worth an estimated $20 billion-30 billion—at least ten times as much as an emergency package for agriculture recently announced by the World Bank and 15 times more than the American administration’s new fund for food security. The food produced could account for almost a fifth of world cereal trade.
2. Most of the deals focus on food and biofuels, whereas foreign investors previously focussed on cash crops (coffee, tea, sugar, bananas).
3. In the past, most foreign investment was private. Although some of today’s big deals involve multinationals (Morgan Stanley bought 40,000 hectares of the Ukraine in March), many more of the current crop involve government-government deals or parastatals like Sovereign Wealth Funds.
The obvious motives for the deals are the spike in food prices and the subsequent decision of governments in several key producer countries to restrict their exports, threatening the food security of food importing countries such as the Gulf states, China and South Korea (the main participants in the deals). However, water shortages are another, hidden driver. Peter Brabeck-Letmathe, the chairman of Nestlé, claims: “The purchases weren’t about land, but water. For with the land comes the right to withdraw the water linked to it, in most countries essentially a freebie that increasingly could be the most valuable part of the deal.” He calls it “the great water grab”.
Governments are promising would-be investors that the land is ‘empty’, but it often supports herders who graze animals on it. Land may be formally owned by the state but contain people who have farmed it for generations. Their customary rights are recognised locally, but often not accepted in law, or in the terms of a foreign-investment deal.
Various bodies, including the FAO, IFPRI and the African Union are developing codes of conduct to improve the terms of the deals, covering issues such as respecting customary rights; sharing benefits among locals (ie, not just bringing in your own workers), increasing transparency (current deals are shrouded in secrecy) and abiding by national trade policies (which means not exporting if the host country is suffering a famine). According to the Financial Times, Japan also intends to raise the issue at the forthcoming G8 summit in Italy.
Fine, but it’s going to be extremely hard to enforce such promises between players of such disparate power.
Update 11 June: The UN Special Rapporteur on Food issued a set of 11 principles that should govern land grabs.