The Rich World's Dash for Food Security

Last July, accompanied by a gaggle of smiling Indonesian officials including Agriculture Minister Anton Apriyanto, the Saudi Binladin Group, a construction conglomerate owned by the family of estranged international fugitive Osama bin Laden, announced it planned to spend $4.3 billion on a massive half-million hectare area most recently covered by primary forest in Merauke, Papua, to grow rice and other crops.

A year later, according to Indonesian and Saudi officials, the Binladin plan has been quietly put on hold, apparently due to a combination of poor infrastructure and the global financial crisis. Nonetheless, the proposal illustrates both the problems and possibilities of a subject that is disturbing environmentalists and NGOs: food security. For all the concern being raised by activists, however, the reality on the ground is far more complex, as the Binladin plan shows.

But while the deals can be difficult to pull off, there is a steady trend of wealthy countries like South Korea and the Gulf states buying up agricultural land abroad as a way of securing food supplies for the future. Agriculture is in for a revolution, not only via trade but in vertical integration and technology. Rich countries that fear they don't have enough land to grow their own food are buying up massive amounts of land in poor countries, particularly in Africa, to cultivate food for their own people. The process is creating anger and concern internationally.

This Wednesday, May 6, Angel Gurria, the secretary general of the Organization for Economic Cooperation and Development, and Jacques Diouf, the director general of the United Nations Food and Agriculture Organization, are to chair a joint meeting on food security. They will "bring together international experts to discuss a range of agricultural, development and trade policy issues," the OECD said in a press release.

Diouf has been particularly concerned, saying that "The race by food-importing countries to secure farmland overseas to improve their food security, risks creating a 'neo-colonial' system."

Although countries have been importing food from one another for thousands of years, at least since the granaries of Rome were supplied from Northern Africa, it took on a new impetus during the so-called food shock induced by skyrocketing commodity prices in 2008. At that time, before the current economic crisis dragged prices lower again, rice, for instance, rose from $250 a ton to more than $1,100. Soy beans, maize and wheat all rose dramatically also. Food riots hit at least 30 countries and even brought down the government in Haiti. And, while prices have descended considerably from those highs, rice remains 49 percent above its 10-year average, maize is up 43 percent, soy beans 36 percent, and wheat 31 percent.

That has sent land-poor but cash-rich countries searching across the globe to seek out cash-poor and land-rich ones, creating new industrial models and changing the very face of agriculture. As the International Food Policy Research Center in Washington, DC put it, the situation "impacts on poor local people, who risk losing access to and control over land on which they depend."

The outsourcing of food has suddenly become a very big business. In a matrix released last week by the IFPRC, Bahrain is said to have taken on a 10,000 hectare tract in the Philippines, China 101,171 hectares in Zimbabwe, Libya 250,000 hectares in Ukraine, Qatar 40,000 hectares in Kenya, the UAE 324,000 hectares in Pakistan, South Korea 690,000 hectares in Sudan and Jordan 25,000 hectares in Sudan. Those are only scattered samples.

Nor are they alone by any means. In April, South Korea's Hyundai Heavy Industry, the country's largest shipbuilder, announced it would pay $6.5 million for 67.6 percent of Khorol Zerno, the owner and operator of 10,000 hectares of land in the Russian Far East, and would invest another $9 million to purchase 40,000 additional hectares to expand the farmland by 2012.

At almost exactly the same time, Saudi Arabia announced it would put $800 million into a new public company to invest in overseas agriculture in an effort to outsource the fast-growing kingdom's food supplies. It's a new direction from the $86 billion Saudi Arabia spent starting in the 1960s on a disastrous project to raise its own wheat. That project was finally abandoned after the country drew down its underground aquifers to the point where few oases now exist within its borders.

Pakistan has sent its investment minister, Waqar Ahmed Khan, across the Gulf offering to sell or lease 404,000 hectares of farmland to any foreign country looking to secure its food supplies, according to agra-net.com, a European Web site serving the global agribusiness industry.

Richard Ferguson, an analyst for the Japanese investment bank Nomura, calls what is going on now the "third great wave" of outsourcing after manufacturing in the 1970s and 1980s and information technology in the 1990s and 2000s. Ferguson, in an exhaustive 319-page report, entitled "A Revolution of Sorts," talks about the future of farming in terms of 1 million-hectare operations.

How much it has to do with sovereign governments buying up land in other countries is questionable, however. Government officials have begun to realize that owning blocks of land in the Argentine pampas would no more insulate their produce in time of crisis than their bankers' funds were insulated from default in the 1990s when Argentina decided to pull the plug on tens of billion dollars in unserviceable debt.

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There is also the problem, across Africa in particular, of land ownership being a cultural imperative and selling it to the Chinese or the Saudis is liable to start riots. The Chinese announced in April that they would not pursue an agricultural acquisition program in Africa, although private Chinese companies have expanded agricultural operations in Burma and Laos and are active in other Asian regions.

But what undeniably is taking place, if Ferguson's report is correct, is that huge changes are coming to the production of food. It is being outsourced across borders as never before and dramatically changing the nature and shape of agriculture. Not only are foodstuffs being hauled thousands of miles across oceans and the skies, but the industry is being integrated vertically, with new multinational corporate entities coming into play and with trade patterns expected to change as well.

"In our view," Ferguson wrote, "some of the structural changes taking place across the agricultural sector mirror the Internet frenzy of the late 1990s. Both center on industries which have been around for generations but which are being transformed into something quite different to what preceded them."

As a result, there is a rush of venture capital into mostly unproven startup enterprises, going up against huge US incumbents like Cargill, Archer Daniels Midland and others that have dominated the agriculture trading market the way previous giants once dominated the telecoms market. New technologies and processes are generating new market participants, and the implications for trade, Ferguson writes, are manifold.

The Doha round of agricultural trade negotiations, dead on arrival for nearly a decade, is starting to look viable. It is no accident that Brazil, which is one of the world's major exporting countries, is leading global attempts to push through trade reform while countries seeking to protect their own farmers, like South Korea and India, are bucking the trend. But, Ferguson writes, it is a trend that probably will be unstoppable.

  • Huge investor-owned farming companies are coming into being, like the British-controlled but Ukraine-based Black Earth Farming, Kernel Group and other CIS-bloc farming companies that have come into being and gone public in the last half-decade.

  • Farms are about to get a lot bigger, and more able to invest in logistics, communications and information systems, with increasing economies of scale that will drive down costs.

  • A two-tier system is developing in which many large-scale farming units will emerge, some with formidable operational and financial firepower.

This is hardly music to the ears of environmentalists and anti-capitalists, already alarmed by the vast industrialization of agriculture that has produced assembly-line veal, beef and poultry and, they say, raised alarming levels of antibiotics in meat, drawn down water tables across many countries, pushed small-holders off the land and resulted in a myriad of other frightening health and environmental problems. The agriculture these new entities will practice will almost certainly be based on American farming techniques, including land levelers as big as football pitches, huge GPS-positioned tractors and harvesting machines. In the US in the latter half of the 20th century:

  • The average amount of milk produced per cow increased from 2,410kgs to 8,250kgs per year.

  • The average yield of corn rose from 39 bushels to 153 bushels per acre

  • Each farmer in 2000 produced on average 12 times as much farm output per hour worked as a farmer did in 1950.

  • Between 1948 and 2004, agricultural commodity prices rose at less than half the rate of prices in the wider economy.

  • Capital, land, labor, chemical and energy inputs to agriculture fell even as agricultural output continued to grow, with increased productivity driving all of the output growth.

That's the good part. The number of people employed in agriculture fell constantly from 1948 to 2004 by a rate of about 4 percent a year. A huge area of the Gulf of Mexico is now a dead zone because of phosphates and other fertilizers washed down the Mississippi River. Many critics believe the United States is risking a major epidemic because of the increasing vulnerability of farm animals to diseases that are — for now — kept under control by antibiotics.

But the fact is that given increasing population, growing wealth and trade pressures, this is the direction agriculture is heading worldwide. Already, according to the International Food Policy Research Center, Japan's overseas corporate agricultural holdings are three times the country's own arable land. World agricultural exports have soared, with total grains expected to hit a record 676.3 million tons in the 2008-2009 year, according to the World Agricultural Outlook Board.

The result, for all of us, will be an agricultural landscape that is as different from the traditional developing world farms of today as the Internet is from the early days of radio.