Growing Africa’s land

Published on Food Crisis and the global Land Grab, by Adam Robert Green, July 2, 2012. (Source: This is Africa).

A global land rush is afoot and Africa is top of investors’ lists. Optimists predict agricultural transformation. Critics fear food insecurity, degradation and displacement.

Africa’s land is attracting unprecedented commercial interest from governments, sovereign funds, private companies and asset managers, from neighbouring Qatar all the way to South Korea. Around 53m ha – roughly the size of France – has been sold, leased or licensed globally since 2001, and that only covers deals with reliable sources.  

The true figure could be over 200m ha. Just under half of aquired land is in Africa, with greater demand for large-scale land in 2009 than in two decades of previous expansion. Sudan, Ethiopia, Madagascar, Angola, the Democratic Republic of Congo and Mozambique are among the main destinations.

Two processes are driving the land rush – structural change in the global economy, and rising commodity price volatility. In 2007, food prices mushroomed following export bans from major producers, crop failures, and increased diversion of food crops for biofuels. Governments in arid regions, notably the Middle East, found themselves at the mercy of volatile markets with major fiscal implications due to their widespread subsidies on food. Those spikes were no freak event. Last February, the food price index published by the Food and Agriculture Organisation stood at 236 index points, a 34 percent increase on the previous year, surpassing its previous peak in the summer of 2008, which set off bread riots in Egypt and elsewhere.

Gulf states began looking abroad for new pastures. The Saudi Arabian government identified around 30 countries worldwide in which to help its private sector to invest, offering guarantees, loans and technical assistance, as well as exercising diplomatic muscle, with Sudan and Ethiopia especially attractive. The governments of Egypt, Qatar, the United Arab Emirates, Libya and Syria all sought land in sub-Saharan Africa, as have companies from South Korea, notably Daewoo, while India’s crumbling infrastructure and supply-side inefficiencies, resulting in high food price inflation, led some of its groups to look to African production. Western funds such as BlackRock and Emergent Asset Management Ltd. have launched special investment vehicles, as have Gulf funds including the Abu-Dhabi-based Al-Qudra Holding. Western food retailers are increasingly viewing Africa as a source market … //

… The price of soil:

Most land deals in Africa involve no or very low land fees. They are also, distinctively, often negotiated direct with governments and thus concern state-owned or public land where individuals dwell, often without formal property rights. According to Human Rights Watch, people in Ethiopia’s Gambella region claim a direct link between land leasing and “villagization” programmes, where individuals are moved by state officials into collected settlements elsewhere, sometimes violently. “The main concern is that villagization is essentially the appropriation of the ancestral lands of pastoralists without compensation and without adequate provision in the new villages. Any firm that leases contested land is contributing to the dispossession of these people and to likely insecurity,” says Ben Rawlence, senior researcher for Africa at HRW. As the rush for land quickens, some fear the price of land will rise, which could further incentivise powerful elites to displace land-dwellers.

Dr Badiane, an optimist about land investment in Africa, agrees this is the chief risk. “You see a secondary market where the elite positions itself and acquires land at the expense of smallholders and then waits for foreign investors. They know there is money coming from outside. The biggest risk [therefore] may not be at the international investor level, but in how investment is intermediated.”

Local political elites can position themselves as intermediaries largely because customary laws often allow local administrations to sell land. “The investor does not deal directly with the local community. They come through central and local government or influential private sector folks. All those people can push poor people off the land.”

When it comes to promoting land FDI, Ethiopia’s is one of the most ardent regimes in Africa, identifying around 60m ha of available land (the country currently cultivates only around 15 to 16m ha) – and offering tax breaks and fast-track administration to suitable investors. “We have put in place a fast-track mechanism once a potential investor comes. Once they establish the company, develop a business plan and establish that they have the capacity, then within a very short period of time land is made available,” says Ato Wondirad Mandefro, Ethiopia’s minister for agriculture. He denies this investment drive is leading to dispossession. Land identification involves consultation “at all hierarchies. There should not be, and there will not be, any conflict. In case there are misidentifications, in case there are issues that we did not – or the region could not – identify at the time of handing over or making this assessment, then all the time we will correct it,” he says.

The minister notes that investment could drive a broader transformation. “For a country like Ethiopia, where agriculture plays a major and significant role, and produces 95 percent of output from smallholder farms, value addition is very important. We need investment in terms of agro-processing to add value into the produce from smallholder farmers that will have a backward influence in terms of productivity, market linkage and for the general economy in employment generation. One of the areas that we need is investment to add value into our basic commodities that we export raw.”

Investors, meanwhile, are encouraging critics to look at the broader challenges of land investment in Africa, rather than focusing simply on the lease price. While it might be low in comparative perspective, the operational costs of running a land investment in Africa are extremely high.

“Very few people look at the total cost involved in bringing a piece of virgin farmland online,” says Stephen Murphy, managing director of Citadel Capital Institutional Fundraising, which has a 250,000 acre lease in South Sudan. “In many instances there is little or no infrastructure around the projects you have. I can buy a piece of farmland and I would have no roads, no electricity, and I will probably be 300 or more miles from any population centre. That infrastructure challenge is enormous.”

For half the year, most roads serving the Citadel land investment disappear due to rains. It costs $25,000 to move a 40 foot container from Mombasa to their site. Information deficits also hamper the work. Non-existent or scant weather records mean agricultural investments in South Sudan are made with little information about climatic suitability. Then take into account political instability, security-related staff evacuations, and the need to bring their own healthcare professionals for staff. Pooled together, these difficulties result in a direct cost of production of around $550 an acre, compared to around $300 an acre in developed countries.

“That’s an enormous upfront cost. To compensate for uncertainty, you need to get a good land deal. If you are paying $500 an acre you just wouldn’t do it,” says Mr Murphy. Capital costs of the acreage, meanwhile, are also higher; around $400 an acre compared to $220-225 in developed countries. One reason is that operators need to bring more spare equipment because if machines break down, there are often no local engineers to fix them.

Mr Murphy argues that, instead of focusing only on the price of land, stakeholders should look at the regional benefits that a land investment can deliver. “If we are successful we will probably lessen the cost of food regionally by about 30 percent. When you are spending most of your money on food, a 30 percent drop is substantial.”

Much heat, little light: … (full long text).

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