Sunday, November 23, 2008

Global Food & Agriculture Memo: Will Parts of the Underdeveloped World Become the New Breadbaskets for Companies and Nations in the Developed World?

The practice of tenant farming primarily by family farmers was a common practice in the United States and elsewhere in the western more-developed world until the Dust Bowl years and the Great Depression of the 1930's, which when over ushered in what we see today as modern family-owned farming and corporate agribusiness in the west.

The tenant farming practice (also referred to as sharecropping, which in the U.S. was a common practice during the long period of slavery but also included poor whites), in which farmers rent land from landowners and then share a major portion of the profits from the sale of their crops with the landowners, still goes on in parts of the underdeveloped world. However, in nearly all of these situations the landowners, who reap the majority of the benefits from the arrangement, and the farmers, who are poor and willing to crow crops on land they don't own because they basically have no alternative, are local landlords and poor folks living in the countries where this practice continues today.

This practice, which most people would like to eliminate altogether and replace by giving the tenant farmers in these underdeveloped countries a helping hand to buy the land they work, is making a major comeback though -- but in a corporate way, including the new landowners being corporations and even nation's (Kingdoms mostly) based far away from the underdeveloped countries where the practice is starting to occur.

For example, South Korea's Daewoo Logistics this week announced it had negotiated a 99-year lease on some 3.2 million acres of farmland on the dirt-poor tropical island of Madagascar, off southern Africa's Indian Ocean coast. That's nearly half of Madagascar's arable land, according to the U.N.'s Food and Agricultural Organization, and Daewoo plans to put about three quarters of it under corn. The remainder will be used to produce palm oil - a key commodity for the global biofuels market, according to a story in Time magazine today.

According to the piece in, 'A Daewoo manager, Hong Jong-wan, told the Financial Times newspaper recently that the crops would "ensure our food security," and would use "totally undeveloped land which had been left untouched."' 'Land is scarce and expensive in South Korea, which makes it the world's third-largest importer of corn. Daewoo says the Madagascar land will be leased for a price of around $12 an acre, which is a fraction of the price for farmland in the corporation's home country,' according to Time.

South Korea's Daewoo, a huge conglomerate which might be best known for the automobiles of the same name, isn't the only entity looking to acquire mass-acreage outside its own nation to grow and then export food back to the country where the company is based.

Time magazine reports in today's article that 'Africa's fertile soil certainly appeals to the countries of the oil-rich Persian Gulf, whose vast deserts force them to import most of their food.'

"The Gulf states have an incredible surplus to invest and now that the old economies are facing recession they are looking at Africa," says Marie Bos, an analyst at the Gulf Research Center in Dubai. 'Although such wealthy countries as South Korea and the Gulf states are easily able to pay for food imports, this turmoil on global food markets may have increased the incentive for food-importing countries to secure their own sources of supply,' writes Vivenne Walt in Time.

Read the full article, "The Breadbasket of South Korea: Madagascar," from today's here.

This new development in global agriculture, should it become widespread, could change the way crops are grown and food is marketed over time in the world.

For example, if foreign corporations based in Asia like Daewoo, and Kingdoms like those in the middle east mentioned in the story, acquire tens or hundreds of millions of acres of land in underdeveloped countries like Africa and then grow crops for exportation exclusively back to their respective home nations, such a practice could seriously hamper the underdeveloped nations' ability to produce food for its own peoples as well as to eventually develop an agricultural exportation industry which would create jobs.

On the other hand, if it is true like Daewoo says that in its case the 3.2 million acres of land its acquired is otherwise useless land for farming, then the practice would seem to use to be much more benign. We find it hard to believe though that most corporations and foreign nations would be searching for useless land to create their overseas farming programs on. The logic of doing so goes counter to common sense and would seem to result in vastly higher expenses in initial and ongoing land improvements than any for-profit company would want to make, although in the case of Daewoo it is subsidized by the South Korean government. Time will tell if this is the case or not we suspect.

Most important though for Africa and other similar underdeveloped countries is being able to feed their own peoples through a domestic agricultural industry, something they aren't even able to do at present, despite an abundance of land. The mass ownership of land in these countries by foreign corporations and nations also makes it much less likely tenant farmers in these places will be able to own the land they farm anytime in the future.

This emerging new form of corporate and nationalistic global agriculture also could have implications for changes in food exportation. For example, it's likely a giant company like Daewoo would for example sell any surplus product, either in commodity or value-added form, it produces in Africa beyond what the South Korean market doesn't demand, especially if selling it globally to say European countries brings in a significant financial premium.

Many corporations already produce crops on lands outside the countries those firms are based in. However most operate on a corporate agribusiness model rather than using tenant farming practices. And the practice is nowhere as widespread as it would be if other corporations follow the Daewoo model of grabbing massive acreages in one fell swoop.

It's also qualitatively different because the corporations like Daewoo, and the middle eastern nations looking to do the same thing, aren't producing crops in these lands to then sell in these same countries and globally. Instead the express purpose of this overseas farming practice is to bring most if not all of the crops back to their respective home countries.

If such a practice were to prove successful, we could see numerous other corporations copying it. After all, land and labor is far cheaper and much more available in these underdeveloped countries than it is in Europe and even North America. Crops could be produced in Africa and elsewhere using super-low labor (tenant farmers) and then sold at reduced prices globally. This practice also has the potential, if it became widespread, of undercutting agribusiness company's and family farmers in places like the United States, Canada and Europe -- and even Mexico and Central America -- which in all cases likely have higher costs of labor and certainly higher land and production costs for the crops they produce.

This emerging new global farming practice is one worthy of watching closely in our analysis.

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