International Land Grab

On February 5, the New York Times published an op-ed called, “The Global Farmland Rush” (http://nyti.ms/XQqFfG), which discusses the intense land grab in emerging economies.  An example cited in the article:  a Saudi-led group’s recent attempt to acquired 4,600 square miles of land in Indonesia.

The rationale for this land grab?  Well, as Mark Twain said:  “Buy land — they’re not making it anymore”.  With increasing pressure on our global agriculture system to feed the world’s growing population, there’s a rush to find arable land — whether for production today or as an investment for the future.  On that note, we’ve been amazed by the sophistication with which certain investment groups are analyzing this space.  As an example, look no further than the treatise on African agriculture put forth by Renaissance Capital  (http://bit.ly/YWOQ10).

Perhaps because of my background in energy, there’s something familiar about this story.  A few decades ago, it was popular for established US and European oil companies to go into Asia, the Middle East and Africa to secure land for drilling.  Over time, those countries’ governments slowly clawed back on those deals, effectively knocking down the project returns.

We’ve already seen governments do this with land (think Zimbabwe).  As the value of arable land goes up in the coming decades, we believe there will be populist pressure to “re-negotiate” these current land deals.  Of course, I’m sure that investors have “priced” this possibility into their land purchase calculations, and they’ve still concluded that it’s worth it.

And that, to me, says a lot about how valuable land is becoming.

One thought on “International Land Grab

  1. As a follow up, CNN posted the following article: http://bit.ly/ZeDlAk. It’s by Michael Kugelman, editor of the recently published compendium on the topic of global agriculture, The Global Farms Race. In this CNN article, Kugelman highlights the lurking problems with foreign privatization of agriculture land in Africa and Asia. For example, he argues that local populations often do not benefit from these privatizations, and cites that 7 of the most 10 “food insecure” countries according to the Global Hunger Index have each relinquished 10% of the agriculture land area.

    We agree — this is a problem. But Kugelman outlines a solution that seems overly simplistic: — create government / NGO requirements for foreign landownership that benefit local populations. We’re not sure this addresses the underlying problem — why is that countries that are rich in agriculture land still face difficulties in developing that land and/or feeding their own people? Certainly, we don’t condemn foreign entities that rapaciously use agriculture land. But perhaps a more optimal solution lies in mobilizing the private sectors in these countries to work with the foreign entities? This approach has been successful in the energy and industrial industries, and may work for agriculture, too.

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