A Global Thirst
How water is driving foreign investment in farmland.
The two big global crises that erupted in 2008 – the world food crisis and the broader financial crisis that the food crisis has been part of – spawned a new and disturbing trend towards buying up land for outsourced food production. There is an attempt to make land grabs more responsible by including the local governments. But does this really lead to an overall improvement for the local people? Or do we need to stop land grabs instead of regulating them?
Current estimates are that 60-80 million hectares of land have fallen under the control of foreign investors for the production of food in the last five years alone. This is equal to about half of all the farmland in the EU. At first talk was about acquiring these lands for "food security". Gulf State officials flew around the globe looking for large areas of cultivable land that they could purchase to grow rice to feed their burgeoning populations without relying on international trade. So did their Korean, Libyan, Egyptian, and other counterparts. In most of these talks, high-level government representatives were directly involved, peddling new packages of political, economic, and financial cooperation with agricultural land transactions smack in the centre.
"Investors started buying up farmland in the South: hedge funds, private equity groups, investment banks and the like, many of them based in the US. They were not concerned about food security."
Then, towards July 2008, the financial crisis grew deeper, and alongside the "food security land grabbers" another group of investors started buying up farmland in the South: hedge funds, private equity groups, investment banks and the like, many of them based in the US. They were not concerned about food security. Instead they figured there was money to be made in farming because the world population is growing, so food prices were bound to stay high over time, and farmland could be had cheaply. With a little bit of technology and some management skills thrown into these farm acquisitions, they get portfolio diversification, a hedge against inflation and guaranteed returns -- both from the harvests and the land itself. The pace and extent of the appetite of these land grabbers is remarkable – but unsurprising, given the general scramble to recover from the financial crisis. One industry insider, High Quest Partners, estimates that private investors have already ploughed US0-140 billion into the acquisition of farmland across the globe.
In February 2012, GRAIN released a data set documenting 416 large-scale land grabs by foreign investors for the production of food crops that had occurred since 2006. The cases cover nearly 35 million hectares of land in 66 countries and focus only on those deals that have not been cancelled, were led by foreign investors, were for the production of food crops, and involved large areas of land. Deals for sugar cane and palm oil production were included, but not those for crops like jatropha or cotton. This was the fifth data set on land deals that GRAIN has released. It was preceded by initial table of farmland grabs in 2008, a table on farmland investors from the financial sector in 2009, a table on pension fund investment in farmland in 2011 and a chart showing the extent of foreign ownership of farmland in countries around the world in 2011.
"Africa is the primary target of the land grabs."
These datasets provide a stark snapshot of how agribusiness has been rapidly expanding across the globe since the food and financial crises of 2008 and how this is taking food production out of the hands of farmers and local communities.
The 2012 data set confirms that Africa is the primary target of the land grabs, but it also underlines the importance of Latin America, Asia and Eastern Europe, demonstrating that this is a global phenomenon. It also sheds light on who the land grabbers are. Despite all of the attention that has been placed on the agendas of certain governments in using land grabs overseas to secure their country's food security, those actually grabbing lands and setting up farms are private companies, many from the financial sector.
Most of the 298 land grabbers documented in the GRAIN data set are from the agribusiness sector, but financial companies and sovereign wealth funds are responsible for about a third of the deals. And there is overlap on many occasions. For instance, the data set shows how Cargill, one of the world's largest agribusiness companies, has been acquiring hundreds of thousands of hectares of farmland through its hedge fund Black River Asset Management.
Investors based in Europe and Asia account for about two thirds of the land grabs in the data set. China and India are major sources of land grabbers, as are the UK and Germany. But the UK, much like Singapore and Mauritius, serves as a tax haven for land grabbers, and the true operating bases of the companies often reside elsewhere. Other major centres of land grabbers are the US, which tops the list at 41 cases, and the UAE and Saudi Arabia with a total of 39 overall.
"These land grabs also need to be understood as water grabs."
GRAIN and other organisations and researchers have been insisting that these land grabs also need to be understood as water grabs. A recent study published by the US National Academy of Sciences and based on the GRAIN 2012 data set and the Land Matrix Database estimates that global land grabbing is associated with the grabbing of 308 billion m3 of green water (i.e. rain water) and an additional grabbing of blue water (irrigation water from lakes and rivers) of up to 146 billion m3 per year, if all the grabbed land is to be irrigated. To put this in perspective, the FAO calculated that the current irrigation needs of all the 10 countries in the already stressed Nile basin – which sustains some 250 million people - amount to some 124 billion m3. So, looking just at irrigation, the current global wave of land grabbing would amount to the draining of the entire Nile basin – and more.
All of the land deals in Africa involve large-scale, industrial agricultural operations that will consume massive amounts of water. Nearly all of them are located in major river basins with access to irrigation. They occupy fertile and fragile wetlands, or are located in more arid areas that can draw water from major rivers. In some cases the farms directly access ground water by pumping it to the surface. These water resources are also lifelines for local farmers, pastoralists and other rural communities, and the recent wave of land grabs clearly threatens their continued access to these sources.
"While social movements are trying to stop the land grabs, international agencies and private companies, from the World Bank to pension funds, propose to regulate the land grabs instead by creating codes and standards."
Staying in the Nile basin, the FAO has established 8 million hectares as the total 'maximum value' available for irrigation in all ten countries in the Nile basin. But four of these ten countries already have irrigation infrastructure for 5.4 million hectares and have now leased out a further 8.6 million hectares of land. This would require much more water than is available in the entire Nile basin and would amount to nothing less than hydrological suicide.
While social movements are trying to stop the land grabs, international agencies and private companies, from the World Bank to pension funds, propose to regulate the land grabs instead by creating codes and standards. The idea is to distinguish land deals that meet certain criteria that would allow them to be approvingly characterised as "investments" from those that do not and can continue to be stigmatised as land "grabs".
The current push to regulate these deals boils down to a war of words with the specific intent to separate "investments" from "land grabs" and as such to establish not just the legality of these large-scale land deals, but to lend them a legitimacy as well. "A lot of our signatories don't understand the talk about land grabbing," one representative of the UN's Principles for Responsible Investment told GRAIN. From the investors' viewpoint, if laws are respected and contracts are signed, it is not a land grab. What they may not see is that the term refers to a political problem in which people's interests, rights, positions and views are being bypassed, no matter how legal or consultative the negotiating process or final agreement may seem. For instance, a company may make a point of consulting a village chief or community leader, but that chief or leader may not represent the interests of the women or children in the community.
There is an inherent temporal injustice as well. Many of these land deals are concluded for a very long period of time, changing the fate of up to three generations of community members to come. Any transaction that commits large areas of rural land to serving someone else's agenda for 30, 50 or 99 years is taking that land away from a lot of other possible uses and people.
"The objective is to extract financial rent, not to develop the productive capacities of the land and build wealth in the community, which often implies a lot of additional costs."
Moreover, while the private sector tries to distinguish above-board deals from less respectable ones, many of these land deals are not investments and do not deserve the "investment" label no matter how above board, responsible or bona fide. The deals are quite often speculative. The lands are not developed or put into production; they are simply flipped after a number of years. Other deals are for rent-seeking or rent-capturing purposes. The objective in these cases is to extract financial rent, not to develop the productive capacities of the land and build wealth in the community, which often implies a lot of additional costs. If the business model is to maximise profits, then it follows that costs – including wages, land or water fees, etc. – will be pushed down as far as possible. This is clearly not true investment, at least not in any socially positive sense.
The more fundamental problem with efforts to draw up rules for responsible investment in farmland is that the rules are always about making the project work for the investor. Local communities, soils, watersheds, local labour markets and even the domestic food security situation in the host country are treated as risk factors that need to be mitigated. The objective is to manage costs, including those connected to reputational risks, to ensure an acceptable return. The rules for responsible farmland investment are thus for the investor, for whom taking care of the fallout for local people becomes another cost of doing business -- and one that companies can make profits from to boot.
The credibility of "socially responsible investing" in global farmland is extremely shaky at best. Those involved in it seem to live in their own self-referential world, and can point to no real impact. This is no surprise. Other sectors where this has been tried out – sustainable cotton, sustainable soy, responsible palm oil, timber, banking and whatnot – have a profoundly spotty track record.
"Any serious approach to fighting hunger and poverty requires securing people's own control over their lands and territories, not creating guidelines and rules for how corporations and foreign investors could somehow make a good job of it themselves."
Slavery was not regulated. It was outlawed. In the same manner, any serious approach to fighting hunger and poverty requires securing people's own control over their lands and territories, not creating guidelines and rules for how corporations and foreign investors could somehow make a good job of it themselves. What we need is not responsible farmland investment, but divestment. By this we mean that rather than trying to make this new trend of financialising farmland work, these deals need to be stopped and undone and the lands returned to the communities that lived off them. And instead of promoting the growth of industrial agriculture, we need to strengthen family- and community-based food sovereignty approaches across the world. Initiatives are being taken in these directions, aimed at choking off capital flows into firms with a history of land grabbing or into funds specifically set up to peddle farmland rights, bolstered by advocacy and political pressure to support small-scale family-based farming systems and local markets. While it is a huge and uphill battle, it is clear that we need to stop the financing of land grabs, not attempt to make it responsible.
This chapter is largely based on fully referenced reports produced by GRAIN in the past few years, especially: "The new farm owners: corporate investors lead the rush for control over overseas farmland", GRAIN, 20 November 2010. "Time to recall the land grabbers" GRAIN RLA acceptance speech, 5 December 2011, and "Squeezing Africa dry: behind every land grab is a water grab", GRAIN, 11 June 2012.