Back to Africa

The quest for food security is driving companies and countries to buy large tracts of farmland in poor countries. Indian firms are at it too. 

The quest for food security is driving companies and countries to buy large tracts of farmland in poor countries. Indian firms are at it too. 

Back in 2003, Ramakrishna Karuturi’s floriculture business had a turnover of a little less than Rs 5 crore. At that time, doubling sales by 2005 was a not-so-modest target for the Bangalore-based entrepreneur. Although his family had a background in business, it was more by accident. His father ventured into manufacturing cables for a simple reason that he had a licence to do so, like several other business families in the pre-liberalisation era. The turning point for his firm Karuturi Floritech came in 2004, when again by accident Karuturi discovered Africa. Taking advantage of the agricultural investment friendly policies of the Ethiopian government, he purchased a few hectares of land there to produce the hybrid tee variety of roses. From a total farmland holding of ten hectares near Bangalore in 1999, his rechristened firm Karuturi Global Ltd (KGL) now owns one of the biggest landbanks in the world with a total area of more than 3,000 sq km, or roughly the size of Goa, in Ethiopia and Kenya. KGL’s revenues have also grown almost 100 fold in five years, to Rs 440 crore in 2009.

Karuturi leads India’s charge in what many dub the ‘neo-colonisation’ of Africa, Latin America and parts of Southeast Asia. In Ethiopia, KGL’s operations are concentrated around its northwestern city of Bahir Dar, located on the banks of Lake Tana, the Blue Nile’s source. Besides its bread-and-butter floriculture business, with land in hand, KGL has diversified into sugarcane, staples, coffee and palm oil. “We also plan to set up a modern sugar mill with an initial capacity of 6,000 tonnes of cane crushed per day, in close proximity to the cultivation area at Bahir Dar. In the second phase, the capacity will be doubled to 12,500 tonnes. The plant will produce refined sugar for exports to Europe and white sugar for domestic consumption,” says the company. The acquisition of Kenya-based Sher Agencies in September 2007 brought into its fold a 188-hectare farm in the floriculture hub of Naivasha. Nearly 100 Indian agricultural companies are engaged in contract farming in the continent.

A report from the Japanese investment bank Nomura terms this the third great wave of outsourcing, after manufacturing in the 1980s, and information technology, from which India gained immensely in the 1990s.

Concerns of food security, especially in the wake of massive global shortages in 2007 and 2008, are prodding governments to make significant overseas investments in agriculture. And in India’s case, while the Union Government may not be directly buying vast tracts of farmland to ensure a stable supply of foodgrain, it is encouraging private players like KGL through special lines of credit and favourable bilateral trade agreements. For instance, given the $2 billion worth of agricultural investments India has made in Ethiopia, the Government of India has provided funding of $166 million, via Exim Bank, to the country for sugar development projects. It has also granted a $640 million line of credit for sugar development projects over five years.

Overseas cultivation also presents an excellent opportunity for India’s oilseed processors to ramp up capacity in double quick time and attain the economies of scale required to compete globally. The Solvent Extractors Association (SEA), an industry lobby representing edible-oil companies in India, claims to be in advanced negotiations to buy close to 10,000 hectares of land in the fertile Pampas Plains of Uruguay and Paraguay. “The cost of land in Paraguay is far lower than in any comparably fertile region at $3,000 an acre, and thanks to mechanisation and large holdings, the yield per acre is nearly thrice compared to India,” explains BV Mehta, executive director, SEA. The group conducted a feasibility study for contract farming in Brazil and Argentina as well, but the lower cost of land and labour tilted the scales in favour of Uruguay and Paraguay.

Mehta contends that in one stroke, the move allows Indian agriculture companies to be globally competitive while enabling them to meet the burgeoning edible oil demand in India. The consortium, which also includes the State Trading Corporation, would start off with soyabean, sunflower and maize cultivation initially, but is already looking at growing pulses as well.

Usually, when overseas investors ink land deals with host countries, a bilateral duty-free import clause allows them to easily bring back the produce for domestic consumption. Some host countries in Africa stipulate that only 50 per cent of the foodgrain produce can be exported.

In a recent study, the UN agency Food and Agriculture Organisation (FAO) estimates that since 2004 nearly 2,492,684 hectares of agricultural land in just five African countries have come under the control of overseas investors. ‘The trend is because of food security concerns, particularly in investor countries, which are a key driver of government-backed investment. Food supply problems and uncertainties are created by constraints in agricultural production due to limited availability of water and arable land; by bottlenecks in storage and distribution; and by the expansion of biofuel production, an important [competition to] land and crop use. Increasing urbanisation rates and changing diets are also pushing up global food demand. The food price hikes of 2007 and 2008 shook the assumption that world food prices will stay low. While grain and other food prices have dropped from the highs seen in the summer of 2008, some of the structural factors underpinning rising prices are likely to stay,’ according to the FAO report. At the peak of global food price inflation, the price of soyabean and rice more than doubled, and food stocks dipped to an all time low.

‘International land deals may be perceived as bringing back the ‘bad old days’ of colonialism, particularly in Africa. This is particularly so when rental fees are zero or close to zero. Backlashes are possible, as in the Daewoo case: this was a concern for some investors interviewed for this report. Long-term land leases—for 50 or even 99 years—are unsustainable unless there is some level of local satisfaction,’ warns FAO. In the Indian Ocean island of Madagascar, the South Korean conglomerate Daewoo took over 1.3 million hectares of farmland on a 99-year lease to grow corn, but the deal had to be abandoned after violent protests. In January, Varun Agriculture SARL, an Indian firm, agreed to buy 170,914 hectares from a group of 13 landlords in Madagascar’s Sofia region to cultivate rice, corn, maize, wheat, pulses, fruits, vegetables and spices for both domestic use and imports to India.

The emotional nature of the issue has ensured widespread media coverage, and as a result, governments of developed and emerging countries have been pushed into a natural resource race not unlike the scramble for Africa and Central Asia’s oil and mineral wealth.

Some of the biggest players in the race for arable land include China, South Korea and countries of the Middle East. Indian firms, relative rookies, have managed to make inroads in Ethiopia, Kenya, Sudan, Mozambique and even Paraguay. But there’s still some daylight between India and its big global rival for resources, China.

China’s ZTE International has secured 2.8 million hectares of land from the Central African nation, the Democratic Republic of Congo—more famous for hosting the ‘Rumble in the Jungle’ boxing match—to develop biofuel crops, while making a request for another 2 million hectares from the Zambian government for jatropha.

Some estimates suggest that more than a million Chinese farm labourers could be headed towards Africa. Oil-rich Arab countries, mindful of the need to decrease their reliance on hydrocarbons, are splashing billions of dollars to acquire fertile tracts of land in friendly Asian countries such as Pakistan and many north African countries. The Gulf countries have vast sovereign funds to deploy, which gives them an advantage.

According to the Washington DC-based think-tank International Food Policy Research Institute (IFPRI), Saudi Arabia’s acquisitions include 12,000 hectares of land in Sudan to grow wheat, vegetables and animal feed, and some 10,000 hectares in Egypt’s Nile Delta to grow wheat and barley. IFPRI places these global land deals anywhere between $20–30 billion.

While this is a logical aspect of globalisation to some, critics argue that this form of contract farming is nothing but a landgrab. “Otherwise why would companies invest in extremely high risk, politically volatile regions of Africa?” asks Devinder Sharma, who runs the Forum for Biotechnology and Food Security, “There is growing evidence that companies, in the interest of short-term gains, are over-exploiting land in Africa by using vast quantities of fertilisers and pesticides. And obviously, the cost of labour there is lower than even India. This is exactly what the British East India Company did 350 years ago.” Sharma warns that a decade of agricultural exploitation of underdeveloped countries could lead to food riots and deadly imbalances.

India’s problem, however, is somewhat peculiar. While food security is a major concern, the country’s anti-imperialist history does throw up uncomfortable questions of ethics when it comes to buying cheap land from underdeveloped countries to satiate demand so far away, back home. But then, letting China take an unsurpassable lead in any race might be equally dangerous.

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TR Vivek