Is Daewoo the new East India Company?

December 24, 2008 Off By admin

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.