Is Daewoo the new East India Company?

Last week the South Korean multinational Daewoo announced it had secured a 99-year lease (i.e. more or less bought) for 2.5 million acres (1 million hectares) of Madagascar’s land, mostly in the Indian Ocean island’s arid west. Daewoo aims to grow 5m tonnes of corn (maize) a year by 2023, and produce palm oil from a further lease of 120,000 hectares (296,000 acres). Most of it will go to South Korea. (for full details see here). This is the latest in a series of such deals, in which wealthy Middle East oil producers and others buy up land in poor countries to guarantee their food supplies. It sounds neo-colonial – a throwback to the days of privatized colonialism epitomised by Britain’s East India Company – but who really wins and loses?

On the face of it, the deal could provide more security and predictability for Madagascar than just growing crops and selling them on an open market subject to wild price swings. Moreover, Daewoo officials estimate it could invest $6bn in the project over the next 25 years. But the details of the deal have not been published – we don’t know whether prices are guaranteed in any way, or how easy it is for Daewoo to walk away if prices fall. And the Financial Times has established that Daewoo is getting the lease for free – just a promise to invest and create jobs (and not many of those – Daewoo plans to bring in workers from South Africa).

Signing a deal like this could mean that Madagascar gives up many of the usual tools a government can use to regulate trade – e.g. imposing quotas or export taxes in emergencies – and can no longer shop around for the best prices. More generally, if rich oil producers and emerging powers scoop up prime land in this way, it seems likely they will opt for a large, agro-industrial production model that will squeeze out small farmers and do little to reduce poverty in the countryside. Poor food importing developing countries (a growing number) will be left dependent on the dregs of thinner markets with even more volatile prices. Surrendering sovereignty on this scale for a century in return for so few benefits looks like a very worrying response to the food price crisis, at least until we know more about the details.

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Comments

7 Responses to “Is Daewoo the new East India Company?”
  1. gawain kripke

    Very worrying indeed. I wonder if anyone has done any mapping or listing of these deals. I know they’re secretive, but I’ve seen news reports of at least a dozen of these:

    * libya in ukraine (?)(wheat)
    * China in Angola and sudan (commodity?)
    * Saudi in sudan and ethiopia and thailand (rice, wheat?)
    * gulf states in cambodia (rice)

    would be useful.

    g

  2. Dan J

    I don’t know anything about this area of the law, but I’d like to give a stab. . .

    How would Daewoo enforce the promise to lease the land? If Madagascar breaches contract, it’s not like Daewoo can just go to court the way a tenant could if his landlord decides to throw him out.

    Maybe through arbitration? So, just ignore the arbitration award. Maybe through reprisal by Daewoo? So, there are plenty of other buyers other than Daewoo. (Maybe there’s just some international body of contract law I don’t know about and some sort of international jurisdiction for it???) Plus, I think most potential buyers would be pretty forgiving if Madagascar broke some bizarre quasi-colonial lease deal. The buyers would think, “our deal won’t be anything like that, so chances our they’d be hardly as likely to break it.”

    As you note in the post, the deal potentially infringes on the sovereignty of Madagascar by maybe removing trade regulation tools. You’d think that it’s a fundamental, though implicit, policy of the laws of Madagascar that sovereignty would be maintained. (There might be a constitutional provision that could be used to this effect.) So maybe that would be a basis for Madagascar invalidating the deal?

    Presumably, all these constitutional/policy/practical uncertainties are “priced in” to the deal, so that the price tag for Daewoo was lower as a result. In that sense, all these uncertainties would be like implicit exit clauses, no? So maybe it’s not the end of the world for Madagascar if there’s no explicit exit clause?

  3. carlos odora

    Well, may be in the absence of Madagascar using the land, some one had better put it to use. My only worry is that they mine all the minerals out using the crop and leave the land unproductive in the future. Otherwise, what ever use they put the land to, therewill be some form of technology transfer.

  4. Steve Venton

    There is great cause to be concerned about this trend. I visited Madagascar and the region Daewoo plan to use in 2008.

    It is a beautiful unique, dry deciduous forest – with very slow growing trees. There are many weird and wonderful plants and animals, cute lemurs, cool geckos and amazing birds that are not only endangered but are found nowhere else on the planet.

    So much of Madagascar has already been destroyed – some 85% of their forests have been burned and at present rates, it will all be gone by 2025, including the “protected” forests in the national parks.

    Forget the fact that a vast amount of this forest will be cleared to grow the maize. Moving 70,000 people to an area with no infrastructure, they will clear the land to grow their own food and cut trees to burn as firewood.

    It’s taken Madagascar 175,000,000 years to become a unique place on earth. And it, like so many other places will be destroyed completely in our generation because, although the reasons are complex, simply there are vastly too many people on Earth.

  5. Duncan

    Update: As of mid January 2009, it looks like the Daewoo deal is off. According to the Telegraph,
    ‘Now the Daewoo plan, the largest in Africa covering an area of roughly half of Madagascar’s current arable land, has been put on hold after the Malagasy people protested that it would make them a “South Korean colony”.’
    See http://www.telegraph.co.uk/news/worldnews/africaandindianocean/madagascar/4240955/Land-rental-deal-collapses-after-backlash-against-colonialism.html for full story