Kuwait recently purchased 130,000 hectares of rice fields in Cambodia, who pockets the money?

Hun Xen during his visit to Kuwait in 2008

The 21st-Century Land Rush

Wednesday, September 22, 2010
By Blake Hurst
The American

The move toward securing farmland in faraway places can be seen not only as a bet on increasing food prices, but also as a hedge against a breakdown in world trade.

Farmers often joke that they don't want any more land... except their neighbors'. These days, the old joke is playing itself out on the world stage. Countries are looking outside their borders for more land in a bid to protect their food supplies. Large investors are betting on higher grain prices. It’s a twenty-first century land rush.

A recent study by the Food and Agriculture Organization (FAO) of the United Nations documented the purchase of 2.5 million hectares by foreign investors in five African countries. China purchased 100,000 hectares in Zimbabwe, part of a series of investments that led to more than a million Chinese farmers in Africa. Indian companies purchased hundreds of thousands of hectares in Africa. The Hindustan Times reports that the government of India is urging Indian firms to buy land in South America. South Korea secured 690,000 hectares in Sudan. Saudi Arabia purchased half a million acres in Tanzania. Kuwait recently purchased 130,000 hectares of rice fields in Cambodia. Qatar leased 20,000 hectares in Kenya.

China purchased 100,000 hectares in Zimbabwe, part of a series of investments that have led to more than a million Chinese farmers in Africa.Private groups are also making large investments in land. Steve Fairchild, editor of Today's Farmer, reports that George Soros raised $350 million to buy farmland in Eastern Europe, Central Asia, and Africa. The grain company Bunge is exploring the possibility of raising $100 million to purchase land in Brazil. John Lamb, an agricultural expert with the World Bank, notes that anecdotal reports place recent worldwide purchases of farmland by foreign countries and large investors at more than 125 million acres. If true, and the data is sketchy, that would amount to an area one third larger than Germany.

The cause of all this activity is the 2007 and 2008 run-up in food prices and the widely accepted estimate that food demand will double by 2050. The last decade saw record low grain stocks worldwide, and 2007 and 2008 brought food riots in 15 countries.

In the period shortly after World War II, the world had food stocks in storage equal to 365 days of use. Now, we have about 35 days’ worth of food stocks, a level that the United Nations estimates is only half of that needed to protect against bad harvests. The FAO estimated that an additional 50 million people worldwide suffered from hunger during the 2007 and 2008 increase in food prices.

Anecdotal reports place recent worldwide purchases of farmland by foreign countries and large investors at more than 125 million acres.During the 2007–2008 commodity boom, at least half the countries that export rice either increased export taxes or banned the sale of rice. Some 25 countries implemented export controls. Even in the United States, where food supplies were never in danger, Costco limited its customers' purchases of rice to prevent hoarding. For the first time since the early 1970s, food security was front-page news.

Even though grain prices have retreated from their 2008 highs, worries about the reliability of grain supplies have reappeared. Russia is suffering from recent wildfires and drought. The wheat crop has been devastated by the highest temperatures in 130 years. On August 5, Russia banned wheat exports until the end of the year, and the wheat market in Chicago surged 8.3 percent in one day. Over the past several years, Russia exported over 15 million metric tons of wheat per year. Russia urged Kazakhstan to embargo exports, and some observers worry that Russia will pressure Ukraine to curtail her exports as well. Demand for grain remains strong worldwide, as China has entered the U.S. corn market for the first time in a decade. Corn prices have been strong in response to hot U.S. weather, the unexpected demand from China, and the difficulties in the wheat market.

Increasing food prices are not the only reason for sovereign interest in foreign land purchases. The threat of export embargoes and a worldwide flirtation with protectionism, especially in the United States, have frightened food importers. The move toward securing farm land in faraway places can be seen not only as a bet on increasing food prices, but also as a hedge against a breakdown in world trade. Nations are showing a marked lack of faith in their ability to import food when supplies are in short supply.

Fifteen countries had food riots in 2007 and 2008.It is worth noting the backlash against foreign involvement in land purchases. A coup in Madagascar was at least partially caused by concern over a proposed deal with a South Korean company for a 1.3 million hectare lease. Hungary promised to allow foreign investment in farmland upon its accession to the EU. The accession agreement would allow foreign investment beginning in 2011, but most of the leading political parties in Hungary favor reneging on the deal. The Philippines nixed a land contract with China because of concerns about local food security. Farm workers in Mozambique resisted the settlement of thousands of Chinese workers on their leased property there. Brazil is promising to end foreign investment in land. Development groups worry about the displacement of local farmers, the advent of a "new form of colonialism," and the specter of natives going hungry while food is exported to the country that owns the farmland.

Resistance to the "globalization" and "industrialization" of agriculture in developing countries is not surprising. Land is perceived as different than shares of stock or a factory or store. Not only that, but the inhabitants of the land changing hands usually suffer from weak land tenure and extreme poverty. The best way to protect existing farmers is to work toward increasing their efficiency, profitability, and property rights. Allegiance to local seeds and traditional methods of farming will not solve the problems of hunger, nor will it help the local farmers defend themselves against displacement by foreign investors. Productive and profitable farmers are likely to stay on the land, and will not be vulnerable to competitors from elsewhere. Neither China, India, nor the Gulf states have shown much interest in the American Midwest.

The threat of export embargoes and a worldwide flirtation with protectionism, especially in the United States, have frightened food importers.Today, there are 0.25 hectares of arable land for person, but by 2050, the available land per person will have decreased to 0.16 hectares. In order to feed more people with less land per person, we will need more investment in agricultural infrastructure, agricultural technologies, fertilizer, seeds, machinery, roads, and storage and processing facilities. It would be better if the beneficiaries of that investment were local farmers, but it is certain that foreign investment will have to provide much of the capital needed to double food production in the next 40 years. The United States and the European Union can increase production, but much of the extra food will have to come from places outside the developed world, and developing countries don't have the capital resources to do what needs to be done. Investment will have to flow from places with hungry mouths and little available farmland to places where agriculture productivity has lagged and food production can be increased.

The disconnect between America's discussion of food and the way food supply is seen in the rest of the world is almost complete. The experiences of 2007 and 2008 have faded from our collective memory, and we Americans continue to focus on the way food is produced rather than the terrifying prospect of scarcity. With all the focus in the United States on the drawbacks of plenty, what's happening in the rest of the world is not just a reminder of our good fortune, but also a cautionary tale.

Blake Hurst is a Missouri farmer.