Sugaronline Friday Editorial - India's African Land-Grab Not Good Move for Sugarcane by Bob Moser
Published: 09/09/2011, 3:25:00 PM
Out of sight does not mean out of mind where India regulators are concerned.
The “land-grab” phenomenon of major food companies and emerging nations leasing farmland in Africa and the Americas is speeding up, with Indian sugarcane the latest to tentatively stake a claim overseas to help supply growing demand at home.
But as more stories surface about shady negotiations between Big Ag firms and uneducated land owners, or straightforward economic reports show how little local populations get in return for giving up their resources, you can't imagine this practice is going to end well. It would seem clear that India's producers and government could create so much more added value for their consumer base and their bottom lines by freeing the restricted sugarcane market at home.
Indian agribusiness companies are planning to invest US$2.5 billion to acquire or lease millions of hectares of cheap farmland in Ethiopia, Tanzania and Uganda, entering the land-race with the Chinese and other markets to establish quasi-nationalized agricultural production abroad.
A delegation of 35 Indian investors, including major firms Karuturi Global and Kaveri Seeds, were in Africa in August to discuss their plans for land-grabs with regional farm cooperatives. Prices are said to be insanely attractive, at times as little as US$1.50 per hectare per annum, and contracted for decades. Indian firms plan to produce a variety of crops, chief among them sugarcane and oil palm, for export back to their booming home market.
This latest buyer's binge on Africa's cheapest soil has renewed concern over the land-grab phenomenon by observant governments and international organizations. A new report from the United Nation's Food and Agriculture Organization estimates that foreigners have bought between 50 million and 80 million hectares of farmland abroad, mainly in Africa but increasingly in Latin America as well.
Governments and several companies from China, Libya, South Korea and the Middle East really kick-started this land acquisition movement in 2007/08, in response to rising commodity prices at the time. South Korea bought 700,000 hectares in Sudan, Saudi Arabia 500,000 in Tanzania.
India has now decided to jump in after watching its neighbors, mainly China, reap the benefits of consistent food supply at reliable prices. India's food price index is at 10.05% this week, its highest in nearly six months, fueled mainly by fruits and vegetables.
But the Indian government spends (or wastes) millions of dollars per year subsidizing dietary staples like sugar for its 500 million-plus poor, and will see this cost increase because of its sugar regulations, even while sugar output grows at home and abroad.
Indian agriculture is dominated by small producers. Big sugar and ethanol firms there think they can be more efficient with larger operations abroad, but I think they're going to find India's recurring problems with sugar regulation no matter where they try and grow new cane.
For the FAO, the problem with this type of land acquisition is that roughly 70% of the agreements announced up until now didn't clearly state the land would be used solely for agricultural production. The organization thinks some of these are speculative purchases at best, sometimes without any follow-through afterward on developing the land for farming.
The negative impact of that on the land itself, as well as local communities that would depend on that land for food, employment and more, is clear and undoubtedly concerning. The stories in Africa of local famine in the face of off-limits food being grown right around the corner are gaining more and more international attention.
This could prove to be, at the very least, horrible marketing for any sugar or ethanol firm shown to be involved in these exploits in the future, and could set the ethanol sector in particular back in its effort to win global approval for sustainability practices.
A notable black mark on this type of practice was made by American company Nile Trading and Development, which came close to leasing 600,000 hectares of land in Equatorial Guinea for 49 years at the bargain price of US$25,000 per year. The company, headed by a former US ambassador, had the rights to any and all natural resources from the land, including oil. The deal has reportedly stalled after local communities pleaded with national leaders to intervene.
The US-based Council on Hemispheric Affairs has said that much of the land in Paraguay, Bolivia and Uruguay in Latin America has been leased by foreigners. In a study of land pricing efforts in 17 Latin American countries, FAO found that Brazil and Argentina had the most foreign buyers searching for opportunities.
Brazilian Jose Graziano da Silva is the new director of the FAO, and has said Brazil needs to establish some firmer regulations on land purchases by foreigners. How much weight the FAO can toss around has yet to be seen, but stopping cane markets like India from going down this path before it gets too far may be for the best.