Friday, June 6, 2008

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

5 comments:

johnsmith said...

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Riaz Haq said...

Hedge funds are behind "land grabs" in Africa to boost their profits in the food and biofuel sectors, a US think-tank says, and BBC reports:

In a report, the Oakland Institute said hedge funds and other foreign firms had acquired large swathes of African land, often without proper contracts.

It said the acquisitions had displaced millions of small farmers.

Foreign firms farm the land to consolidate their hold over global food markets, the report said.

They also use land to "make room" for export commodities such as biofuels and cut flowers.

"This is creating insecurity in the global food system that could be a much bigger threat than terrorism," the report said.

The Oakland Institute said it released its findings after studying land deals in Ethiopia, Tanzania, South Sudan, Sierra Leone, Mali and Mozambique.

'Risky manoeuvre'

It said hedge funds and other speculators had, in 2009 alone, bought or leased nearly 60m hectares of land in Africa - an area the size of France.

"The same financial firms that drove us into a global recession by inflating the real estate bubble through risky financial manoeuvres are now doing the same with the world's food supply," the report said.

It added that some firms obtained land after deals with gullible traditional leaders or corrupt government officials.

"The research exposed investors who said it is easy to make a deal - that they could usually get what they wanted in exchange for giving a poor tribal chief a bottle of Johnnie Walker [whisky]," said Anuradha Mittal, executive director of the Oakland Institute.

"When these investors promise progress and jobs to local chiefs it sounds great, but they don't deliver."

The report said the contracts also gave investors a range of incentives, from unlimited water rights to tax waivers.

"No-one should believe that these investors are there to feed starving Africans.

"These deals only lead to dollars in the pockets of corrupt leaders and foreign investors," said Obang Metho of Solidarity Movement for New Ethiopia, a US-based campaign group.

However, not all companies named in the report accept that their motives are as suggested and they dismiss claims that their presence in Africa is harmful.

One company, EmVest Asset Management, strongly denied that it was involved in exploitative or illegal practices.

"There are no shady deals. We acquire all land in terms of legal tender," EmVest's Africa director Anthony Poorter told the BBC.

He said that in Mozambique the company's employees earned salaries 40% higher than the minimum wage.

The company was also involved in development projects such as the supply of clean water to rural communities.

"They are extremely happy with us," Mr Poorter said.


http://www.bbc.co.uk/news/world-africa-13688683

Riaz Haq said...

Here's a news story about "Arab Land Grab" in other nations:

Less than 40 years ago the UAE was populated by small local communities who lived satisfactorily off the desert land. Their meals consisted mostly of locally sourced livestock and produce.


Now, only a few generations later, the dinner tables around the UAE are heaving with rice from India, tuna from Japan, mushrooms from France and meat from Brazil. A steadily growing expatriate population with diverse tastes means demand has rapidly overtaken what the market has to offer. This, paired with worldwide shortages and spiralling prices, has made having secure sources of food a matter of strategic importance for the country.

According to the International Fund for Agricultural Development (IFAD), Arab countries account for more than five per cent of the world's population but less than one per cent of global water resources. Because of its arid desert climate, which is not conducive to large scale farming, the UAE imports more than 80 per cent of its food, spending Dh2.5 billion in 2010 alone.

In order to insulate themselves from market fluctuations, the UAE and the other GCC states are following in the footsteps of China and investing heavily in agricultural land abroad. By shipping the produce home and bypassing world markets, they can cut food costs by up to 25 per cent.

Sultan Bin Saeed Al Mansouri, Minister of Economy, recently cited the main areas of investment for the UAE as Vietnam, Cambodia, Egypt, Pakistan and Romania.

"Serious negotiations on agricultural investments are also ongoing with other countries including Australia and Indonesia," the minister said.

While the concept of buying or leasing farmland abroad is not new, the rising food prices have caused a recent flurry of investment activity. Between 2006 and 2008, UAE investments in agriculture abroad increased 45 per cent. According to the International Food Policy Research Institute (IFPRI), the UAE ranked third in the amount of agricultural land obtained by selected investors between 2006 and 2009. In first and second places were China and South Korea.

Source: A Lowe Gulf News



Agrilandsales comment

The UAE imports over 80% of its food. As its population is growing fast, this figure will grow even more. The same situation applies to other Arab states. All have fast rising populations and shortage of water. The need to secure food supplies will become desperate and states will be scrambling to secure supplies. In fact, they are starting to act with speed now.

The cheapest way to ensure regular food imports is to actually own the means of production in the foreign country – namely, the land (see bold text in text above). The UAE is targeting Romania, which is just over the border from the best farmland in Bulgaria – the Dobrudja, where Agrilandsales and their partners Blackseavillas operate. You can imagine how this big investment will push up land prices, and this is a process that will only accelerate in the near future.

Food shortages and rising farmland prices are pushing to the top of the news agenda at the moment. This isn’t going away. In fact, this is a super trend that investors would do well to heed and ride. It will deliver big profits


http://www.agrilandsales.com/bulgarian_farmland_news-72.html

Sami Rehman said...

I hope the recent UAE-Azerbaijan Joint Economic Committee meeting will help strengthen the social and economic welfare of the people in both the countries. UAE has invested millions of dollars in Azarbaijan and the trade turnover between both the countries has rose to a great extent during the past few months.