Investors Rush to Buy Farmland in Pakistan, Elsewhere

One of the Middle East's largest private equity firms has been quietly buying up farmland in Pakistan as part of plans by the United Arab Emirates to increase food security and to control inflation, according to a gulf website arabbuild.net. Please read prior blog posts on this subject.

Dubai-based Abraaj Capital says it is working with the UAE government on the strategic agribusiness investments in Pakistan. The government in Abu Dhabi has been holding talks with Islamabad about a framework for investment in its agricultural sector as it seeks to secure cheaper long-term supplies of staples such as wheat and rice.

The UAE investments appear to be part of a pattern of international investments in agriculture. Record prices of wheat and various grains have been attracting hundreds of billions of dollars from hedge funds and other speculators to the commodity futures markets (particularly wheat and rice futures) in recent months. A NY Times report now says that the investors are starting to make longer term commitments in food and agriculture sector including farmland, fertilizer, grain elevators and shipping equipment.

"Our aim is not to do away with precious farmland but in fact to raise the productivity of our farms and turn barren land in to fertile farmland," said a senior Pakistani official familiar with negotiations between Pakistan and UAE, according to a report in Financial Times.

Abraaj Capital, with $5bn of assets spread across the Middle East, North Africa and the South Asia, has been buying farmland in Pakistan during the past year, a company official said. UAE state and private entities planning to build agribusinesses in Pakistan have acquired as much as 800,000 acres of land, he said. Other companies participating in farming investments in Pakistan include Emirates Investment Group and the Abu Dhabi Group.

Similar farmland purchase or lease deals are being reported in Brazil, Canada, the United States, and the former Soviet Republics. Farmland prices have spiked up as a result of new money and growing interest in farmland.

At a recent Middle East-Pakistan Agriculture and Dairy Investment Forum in Dubai, Huma Fakhar, an adviser to the Government of Bahrain on Bahrain-US free trade agreement, said Arab nations are suffering from declining farm exports and rapid growth in population, leading to an increase in their imports of food products. Regarding investment commitments from the GCC investors in Pakistan's agriculture, livestock and dairy sectors, she termed the forum a success. "Major groups from GCC in general and the UAE in particular are willing to avail the opportunity and commit significant investment in Pakistan’s agriculture sector for the first time" she said.

Belal Pasha, Commercial Attache at Pakistan Embassy in the UAE, said five to 10 major UAE groups will explore Pakistan’s agriculture sector by making significant investment in corporate farming, livestock and dairy sectors. However, he didn’t name any group. In reply to a question, he said Pakistan could get significant share of GCC farm imports worth $200 billion if sizable investment is made in its agriculture sector.

The NY Times report raises concerns about the commodity speculators jumping into the fray. By owning land and other parts of the agricultural business, the investors, including sovereign funds, are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets. “I just wonder if they need some sheep’s clothing to put on,” said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Illinois in the United States.

Concerns such as Mr. Hainline's make it necessary for countries such as Pakistan to be deliberative in crafting land sales/lease agreements. Any lease or sales of farmland must be carefully regulated to ensure that the country's food security is not jeopardized by the investors interest in making the biggest possible returns on their investments. The interests of the consumers and the investors must be carefully balanced.

The new agriculture investments and modernization of farming in Pakistan can potentially raise farm productivity and help stabilize prices to adequately feed the growing population as well as increase agricultural exports to earn foreign exchange.
At the same time, Pakistan can follow the Brazilian model of growing and using sugarcane for producing ethanol to reduce its dependence on imported oil. However, this must be done with a sound plan to ensure Pakistan's food security and sovereignty remain intact.

Sources: NY Times
Arab Build
Financial Times
Fresh Plaza