Foreign land hot commodity as nations seek to grow food

Hey there, time traveller!
This article was published 13/06/2009 (6030 days ago), so information in it may no longer be current.

Much has been said in recent years about the implications of the world reaching Peak Oil — when demand outstrips supply. However, the growing discussion these days is about Peak Soil.

Countries such as Saudi Arabia, China, Kuwait and Egypt, which import a lot of food, have apparently lost confidence in the international trading system since the ethanol boom in 2007-2008 and the flood of investment money that poured into the commodity markets, sending staple food prices through the roof.

It wasn’t the spike in commodity prices that scared them; it was the decision by several exporting nations to stop selling at any price. So instead of buying commodities, they’re buying or leasing farms, producing their own grain and shipping it home.

The Washington-based International Food Policy Research Institute (IFPRI) has estimated that between 15 million and 20 million hectares of farmland — an area that approximates a third of the Prairie agricultural land base — worth between $20 billion and $30 billion has been traded globally since 2006.

It’s not just the land they’re after. The chairman of Nestlé Corp, Peter Brabeck-Letmathe, recently observed it’s really about water.

A case in point is Saudi Arabia. That country set out in the 1970s to make itself self-sufficient in wheat. Farmers there were paid ridiculous prices to grow fields of irrigated wheat in the desert; it achieved its goal of producing enough wheat and durum to supply its needs.

But it began to phase out the program in 2008. In the end, it wasn’t the financial cost that prompted the program’s abandonment; it was because of something much more precious — water. Every tonne of wheat produced was removing 1,300 to 1,500 cubic metres of water from the underground aquifer, which is that country’s main source of fresh water.

History is rife with tales of foreign entrepreneurs cloaked in a flag moving in to gain control of foreign turf. So in that sense, this is nothing new. In fact, Manitoba farmland has been sheltered from this type of foreign investment since 1984, due to legislation curbing foreign purchases of farmland as a speculative investment. But while the land in this province is protected from the foreign land grab, farmers here aren’t immune to its effects. For one thing, the fact that local bidders don’t have to worry about competing against a cash-rich, land-poor nation on land acquisitions should help keep the lid on farm real estate prices.

News earlier this year that the Saudis expected to start importing as much as 800,000 tonnes of milling wheat would seem to be good news for Canadian farmers. But the country is also aggressively promoting foreign farming with the specific purpose of producing its own imports. This is grain that will never be traded globally.

Whereas in the past, underdeveloped countries became the target of entrepreneurs looking to produce export commodities such coffee, pineapples or flowers, many land acquisitions of late are taking place government-to-government, and involve land that will be used to produce staple foods like rice or wheat.

The Economist recently estimated the land transactions to date could result in between 30 million to 40 million tonnes of increased cereal production in the world, which is a significant proportion of the 220 million tonnes traded globally. This is trade potential that is lost to export-dependent nations like Canada.

This assumes that the land in question is not already developed to its full agricultural capacity. The appeal to these kinds of arrangements for host countries is the influx of badly needed investment and technology to develop their own economies.

But the potential downsides are also high. There’s a movement afoot within the international community to put guidelines in place that ensure traditional residents aren’t dispossessed, that the land is managed sustainably, that the still somewhat intangible value of natural capital is taken into account and that the benefits from these deals don’t fall prey to corruption.

Well-endowed as they are, Canadians aren’t accustomed to thinking water is precious or that dirt is a non-renewable, finite resource. But if the ongoing scramble by countries to lock up the world’s farmland is any indication, we ignore those realities at our peril.

laura@fbcpublishing.com