I've mentioned in the past that my top slow money investment in a quickly overcrowding planet [Jun 20, 2008: World Population to Hit 7 Billion by 2012] would be arable farmland. [Jun 18, 2008: The Ultimate Shortage --> Water] I've noted that in all these pieces...
- [Jan 21, 2008: Food... Food... Food]
- [Feb 1, 2008: Starting Position in Powershares DB Agriculture Fund]
- [Jun 5, 2008: NYTimes: Food is Gold, So Billions Invested in Farming]
- [Jun 14, 2008: Bloomberg: Farmland Reaps Bonanza for TIAA]
... and I've heard Jim Rogers over the past year and a half tout a similar theme - i.e. in a few decades it will be the farmers driving Ferraris, rather than financial engineers. Although I suspect the exception will be the financial oligarchy of the US which will somehow create instruments of financial destruction to drive the prices up.
So let's be blunt... the smart money is already accumulating land, in many far flung places well ahead of the curve. Already forgotten, was parallel to the hedge fund mania in oil prices - so was massive speculation by the investment banks and hedgies in foodstuffs - helping to accelerate food prices ever upward in 2008 right along with crude. While asleep at the wheel regulators in the oil market is one thing, allowing these massive price bubbles to occur in food has far wider global implications. But as the speculators tell us - they are just creating liquidity of course.
- [Jun 29, 2008: NYTimes - Hording Nations Drive Food Prices Ever Higher]
- [Apr 14, 2008: WSJ - Food Inflation, Riots Spark Worries for World Leaders]
- [Mar 31, 2008: Reuters - Tensions Rise as World Faces Short Rations]
- [Feb 13, 2008: As Asia Food Prices Bite, Analysts Warn of Worse to Come]
I will expect these same groups to be 'creating liquidity' in similar patterns many times in the year to come - as actual shortages in foodstuffs combined with easy money from central banks, and captured regulators - allow for a free for all. I will expect to be returning to this subject many time in the coming decade.
As for the farmland situation itself, in the summer we highlighted a fascinating piece in The Economist [Jun 2, 2009: The Economist - Outsourcing's 3rd Wave - Buying Farmland Abroad]
Rich food importers are acquiring vast tracts of poor countries' farmland. Is this beneficial foreign investment or neocolonialism?
Supporters of such deals argue they provide new seeds, techniques and money for agriculture, the basis of poor countries’ economies, which has suffered from disastrous underinvestment for decades.
Opponents call the projects “land grabs”, claim the farms will be insulated from host countries and argue that poor farmers will be pushed off land they have farmed for generations.
In total, says the International Food Policy Research Institute (IFPRI), a think-tank in Washington, DC, between 15m and 20m hectares of farmland in poor countries have been subject to transactions or talks involving foreigners since 2006. That is the size of France’s agricultural land and a fifth of all the farmland of the European Union.
What is happening, argues Richard Ferguson, an analyst for Nomura Securities, is outsourcing’s third great wave, following that of manufacturing in the 1980s and information technology in the 1990s.
It will be interesting to see, if in the long run, those who worked their own land for generations but suddently have become employees truly benefit in the long run. Common sense would say in this world of exploitation - the answer will be no. Hopefully I am wrong.
- Until last year, people in the Ethiopian settlement of Elliah earned a living by farming their land and fishing. Now, they are employees. Dozens of women and children pack dirt into bags for palm seedlings along the banks of the Baro River, seedlings whose oil will be exported to India and China. They work for Bangalore- based Karuturi Global Ltd., which is leasing 300,000 hectares (741,000 acres) of local land, an area larger than Luxembourg.
- The jobs pay less than the World Bank’s $1.25-per-day poverty threshold, even as the project has the potential to enrich international investors with annual earnings that the company expects to exceed $100 million by 2013. (bingo)
- “My business is the third wave of outsourcing,” Sai Ramakrishna Karuturi, the 44-year-old managing director of Karuturi Global, said at the company’s dusty office in the western town of Gambella. “Everyone is investing in China for manufacturing; everyone is investing in India for services. Everybody needs to invest in Africa for food.”
And here comes yet another wave of global institutional investments...
- Emergent Asset Management Ltd.’s African Agricultural Land Fund opened last year. On Nov. 23, Moscow-based Pharos Financial Advisors Ltd. and Dubai-based Miro Asset Management Ltd. announced the creation of a $350 million private equity fund to invest in agriculture in developing countries.
- “African agricultural land is cheap relative to similar land elsewhere; it is probably the last frontier,” said Paul Christie, marketing director at Emergent Asset Management in London. The hedge fund manager has farm holdings in South Africa, Mozambique and Zimbabwe. “I am amazed it has taken this long for people to realize the opportunities of investing in African agriculture,” Christie said.
- Monsoon Capital of Bethesda, Maryland, and Boston-based Sandstone Capital are among the shareholders of Karuturi Global, Karuturi said. The company is also the world’s largest producer of roses, with flower farms in India, Kenya and Ethiopia.
As long as you avoid war, the economics are compelling - especially when you don't have to pay people even to the global poverty line.
- One advantage to starting a plantation 50 kilometers (31 miles) from the border with war-torn Southern Sudan and a four- day drive to the nearest port: The land is free. Under the agreement with Ethiopia’s government, Karuturi pays no rent for the land for the first six years. After that, it will pay 15 birr (U.S. $1.18) per hectare per year for the next 84 years. (100 year lease? Nice - accounting for inflation $1.18 in 2084 should be akin to a few pennies)
- Land of similar quality in Malaysia and Indonesia would cost about $350 per hectare per year, and tracts of that size aren’t available in Karuturi Global’s native India, Karuturi said. Labor costs of less than $50 a month per worker and duty- free treaties with China and India also attracted Karuturi Global, he said.
- “This strategy will build up capitalism,” he said in an interview in Gambella. “The message I want to convey is there is room for any investor. We have very fertile land, there is good labor here, we can support them.”
Be careful what you wish for....capitalism as practiced of late seems to have a funny way of creating a global race to the bottom for labor, while of course working out great for the capital.
- Workers in Elliah say they weren’t consulted on the deal to lease land around the village, and that not much of the money is trickling down.
- At a Karuturi site 20 kilometers from Elliah, more than a dozen tractors clear newly burned savannah for a corn crop to be planted in June. Omeud Obank, 50, guards the site 24 hours a day, six days a week. Obank said it isn’t enough to adequately feed and clothe his family. “These Indians do not have any humanity,” he said, speaking of his employers. “Just because we are poor it doesn’t make us less human.”
- Obang Moe, a 13-year-old who earns 10 birr per day working part-time in a nursery with 105,000 palm seedlings, calls her work “a tough job.” While the cash income supplements her family’s income from their corn plot, she said that many days they still only have enough food for one meal.
- The fact that the project is based on a wage level below the World Bank’s poverty limit is “quite remarkable,” said Lorenzo Cotula, a researcher with the London-based IIED. (indeed, capitalism at work; to make us feel better about it let us engage in the dogma that these people had no future without outside investors... certainly farming their own land for their own benefit was a curse. Gladly they have been relieved and can now prosper. Mmmm... I feel better already)
- Large-scale export-oriented plantations may keep farmers from accessing productive resources in countries such as Ethiopia, where 13.7 million people depend on foreign food aid.
- “We keep saying the big problem is, you need investment in African agriculture; well here are a load of guys who for whatever reason want to invest,” David Hallam, deputy director of the FAO’s trade and markets division, said in an interview in Rome. “So the question is, is it possible to sort of steer it toward forms of investment that are going to be beneficial?” (in a dog eat dog world, I think the answer is already very obvious)
- Buntin Buli, a 21-year-old supervisor at the nursery who earns 600 birr a month, said he hopes Karuturi will use some of its earnings to improve working conditions and provide housing and food. “Otherwise we would have been better off working on our own lands,” (let us only hope, Mr or Ms Buli is not holding his or her breath)