Daewoo Korea lease half of Madagascar farmland

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Land leased to secure crops for South Korea

By Javier Blas in London

Published: November 18 2008 18:45 | Last updated: November 18 2008 18:45

Daewoo Logistics of South Korea has secured farmland in Madagascar to grow food crops for Seoul, in a deal that diplomats and consultants said was the largest of its kind.

The company said it had leased 1.3m hectares of farmland about half the size of Belgium from Madagascars government for 99 years. It plans to ship the maize and palm oil harvests back to South Korea. Terms of the deal were not disclosed.

The pursuit of foreign farm investments is a clear sign of how countries are seeking food security following this years crisis which saw record prices for commodities such as wheat and rice and food riots in countries from Egypt to Haiti.

Prices for agricultural commodities have tumbled by about half from such levels but countries remain concerned about long-term supplies.

The United Nations Food and Agriculture Organisation warned this year that the race by some countries to secure farmland overseas risked creating a neo-colonial system. Those fears could be increased by the fact that Daewoos farm in Madagascar represents about half the African countrys arable land, according to estimates by the US government.

Shin Dong-hyun, a senior manager at Daewoo Logistics in Seoul, said the company would develop the arable land for farming over the next 15 years, using labour from South Africa, and intended to replace about half South Koreas maize imports.

South Korea, a heavily populated but resource-poor nation, is the fourth-largest importer of maize and among the 10 largest buyers of soyabeans.

Carl Atkins, of consultants Bidwells Agribusiness, said Daewoo Logistics investment in Madagascar was the largest it had seen. The project does not surprise me, as countries are looking to improve food security, but its size it does surprise me.

Concepción Calpe, a senior economist at the FAO in Rome, said the investment came after this years food crisis. Countries are looking to buy or lease farmland to improve their food security, she said.

Al-Qudra Holding, an investment company based in Abu Dhabi, said in August it planned to buy 400,000 hectares of arable land in countries in Africa and Asia by the end of the first quarter of 2009.

Meles Zenawi, prime minister of Ethiopia, said this year its government was very eager to provide hundreds of thousands of hectares of agricultural land to Middle Eastern countries for investment.

Copyright The Financial Times Limited 2008

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Daewoo to cultivate Madagascar land for free

By Song Jung-a and Christian Oliver in Seoul, and Tom Burgis in Johannesburg

Published: November 19 2008 17:18 | Last updated: November 19 2008 17:18

Daewoo Logistics of South Korea said it expected to pay nothing to farm maize and palm oil in an area of Madagascar half the size of Belgium, increasing concerns about the largest farmland investment of this kind.

The Indian Ocean island will simply gain employment opportunities from Daewoos 99-year lease of 1.3m hectares, officials at the company said. They emphasised that the aim of the investment was to boost Seouls food security.

We want to plant corn there to ensure our food security. Food can be a weapon in this world, said Hong Jong-wan, a manager at Daewoo. We can either export the harvests to other countries or ship them back to Korea in case of a food crisis.

Daewoo said it had agreed with Madagascars government that it could cultivate 1.3m hectares of farmland for free when it signed a memorandum of understanding in May. When the company signed the contract in July, it agreed to discuss costs with Madagascar. But Daewoo now believes it will have to pay nothing.

It is totally undeveloped land which has been left untouched. And we will provide jobs for them by farming it, which is good for Madagascar, said Mr Hong. The 1.3m hectares of leased land is almost half the African countrys current arable land of 2.5m hectares.

But Madagascar could also benefit from Daewoos in­vest­ment in roads, irrigation and grain storage facilities.

However, a European diplomat in southern Africa said: We suspect there will be very limited direct benefits [for Madagascar]. Extractive projects have very little spill-over to a broader industrialisation.

Asian nations have increasingly looked to Africa to meet their resource needs in the past five years or so. China has been particularly aggressive in building up stakes in oilfields and mines on the continent, sometimes facing accusations of neo-colonialism.

But now the countries are moving from minerals and oil into food. Roelof Horne, who manages Investec Asset Managements Africa fund, said he expected to see more farmland investments on the continent. Africa has most of the underutilised fertile land in the world, he said, though he cautioned that land is always an emotive thing.

Apart from Daewoo, an increasing number of South Korean companies are venturing into Madagascar, investing in projects from nickel mines to power plants. State-run Korea Resources recently signed a preliminary agreement with Madagascar to expand collaboration on resources development including mining projects for other metals.

Daewoo plans to start maize production on 2,000 hectares from next year and gradually expand it to other parts of the leased land. The company plans to plant maize on 1m hectares in the western part of Madagascar and oil palm trees on 300,000 hectares in the east.

The company plans to ship the bulk of the harvests back to South Korea and export some supplies to other countries. It is unclear if any of the production will remain in Madagascar, an impoverished nation where the World Food Programme provides food relief to about 600,000 people about 3.5 per cent of the population.

The WFP, the UN agency in charge of emergency food relief, said more than 70 per cent of Madagascars population lives below the poverty line. Some 50 per cent of children under three years of age suffer retarded growth due to a chronically inadequate diet, it said.

The pursuit of foreign farm investments follows this years food crisis, which saw record prices for commodities such as wheat and rice, and food riots in countries from Egypt to Haiti. Prices for agricultural commodities have tumbled by about half from such levels but nations are concerned about long-term supplies.

Daewoo said it chose to invest in Madagascar because it remains relatively untouched by western companies. The country could provide bigger opportunities for us as not many western companies are there, said Mr Hong.

Daewoo plans to develop the arable land in Madagascar for farming over the next 15 years, and intends to provide about half South Koreas maize imports. South Korea, a heavily populated but resource-poor nation, is the fourth-largest importer of maize.

Additional reporting by Javier Blas in London

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Food security deal should not stand

Published: November 19 2008 19:46 | Last updated: November 19 2008 19:46

Pirates are not the only source of concern off the African coast. The deal South Koreas Daewoo Logistics is negotiating with the Madagascan government looks rapacious. Alas, it is but the latest brazen example of a wider phenomenon. In the name of food or energy security, cash-rich states are seeking to buy up natural resources in poor countries. While foreign capital and technology should be welcomed by countries with surplus resources, the terms and scale of the present deal raise serious questions.

Any agreement must ultimately be in the interest of the local population. The Madagascan case looks positively neo-colonial. If the deal is sealed with the vague promises by Daewoo Logistics being mooted, the Madagascan people stand to lose half of their arable land.

Instead of a commitment to share the benefits of higher productivity from foreign investment in agricultural technology and infrastructure in return for a fair lease value for the land, the South Korean firm looks set to get the land for a notional amount and mere talk of creating jobs. The Madagascan state may officially own the land in question, but small-scale farmers who have worked it for generations stand to lose their livelihoods. Much of the land, moreover, is currently forest. This potentially valuable resource in the fight against climate change would be destroyed for good.

Far from being a win-win deal, the benefits are also not clear for South Korea. One day, the Madagascan fields may produce up to half its corn imports. But consider what might happen in times of food scarcity. Madagascans would hardly stand by and watch as food is shipped from their ports. China has learnt this lesson. While happily exploiting mineral resources in Africa, China has backtracked from agricultural endeavours there.

Despite the easing of food prices, the issue of food security continues to haunt grain importers in the Middle East, North Africa and Asia. The price of food is often not the prime concern. Instead, the curb on agricultural exports by countries such as Argentina during the recent food shortage scare raised the spectre of importers not being able to lay their hands on produce at all.

Solutions to these problems exist that would benefit both exporters and importers while not reeking of neo-colonialism. Helping local farmers to raise productivity and sell surplus on world markets through loans from development banks would be one. But competing with them for scarce food is bound to fail unless old-style colonialism is resurrected. That day must not come.

Copyright The Financial Times Limited 2008