World Bank seems off on land grab

The World Bank has picked up the land grab issue, but taken a slightly bizarre tack:

Yet little attention has been paid to how these transactions are happening and whether the investors are following the same processes and procedures as normal land lease deals involving foreign individuals or companies.

It seems almost as if they are more worried about Westerners not getting equal access than about the welfare of the citizens of the landed countries. They get back toward this a little bit at the end, but as the World Bank I feel like the effect on country development should be their lead thought on this particular issue.

"Viable business?": Ag logistics in Brazil

AWB Limited (formerly the Australian Wheat Board, which was privatized in 1999 and featured prominently in the Iraq Oil-for-Food scandal) announced last week it would shut down its Brazil operations after sustaining losses:

AWB said the board reached its decision based on continuing credit issues, resulting from deteriorating market conditions in Brazil, which had required increased provisioning. Other factors included reduced trading margins, ongoing interest and overhead costs, and poor commercial decisions made locally. The company replaced local management earlier in the year.

This earned AWB a negative credit watch from S&P.

AWB's Brazilian business was primarily ag logistics:

The main Brazil operations, a $US200 million investment, are buying soybeans from upcountry farmers, transporting them to the port and selling them to global traders. Corn, oilseed and meal were added two years ago.

The most optimistic way to read this would be that the local managers were incompetent. But there are at least two more pessimistic potential takeaways. One is short-term: that Brazilian farmers are still severely credit-constrained from the financial crisis, impairing their ability to buy important inputs like fertilizer up front and thus hurting their eventual output (making the short-term outlook for the transportation and logistics business poor). The other is longer-term: that for whatever reason (poor infrastructure likely being one), agricultural transportation and logistics in Brazil is still structurally a crappy business. This would challenge for the view that the inland Brazilian cerrado can become the world's new breadbasket for the 21st century. And it drives home the importance of infrastructure for agriculture, however it gets built.

Update: A Brazilian colleague of mine suggested another explanation - maybe ag logistics is not a bad business in Brazil, but the ABCD players (ADM, Bunge, Cargill, Dreyfus) are too dominant for a new player to gain a strong foothold.

"Land grab" specifics

FP Passport picks up the IFPRI report on “Land Grabbing” by foreign investors in developing countries and asks the right question:

Is the investment good or bad for the recipient countries?

I think the FAO gets it broadly right in their own recent report ("Land Grab or Development Opportunity", published June 2009):

Increased investment may bring macro-level benefits (such as GDP growth and improved government revenues), and may create opportunities for economic development and livelihood improvement in rural areas.

But as governments or markets make land available to prospecting investors, large-scale land acquisitions may result in local people losing access to the resources on which they depend for their food security – particularly as some key recipient countries are themselves faced with food security challenges.

My only push is, can we make this more specific? (They probably do in their report - it is 130 pages long - but I haven't read it yet.)

Off the top of my head, one huge positive outcome would be major investment in transportation infrastructure like roads and rail to remote areas of Africa - transportation is a huge friction in the value chain and takes a big chunk out of the value many rural farmers can realize for their products. Private sector infrastructure investment would be nice, but most of these regions are not seen as stable enough to attract it in the short term; country governments lack the money, political will, and/or capability; and the new international food aid paradigm appears more focused on agricultural productivity and seems unlikely to devote major dollars to infrastructure. So if Saudi Arabia or China can build and pay for roads and rails, it will benefit many.

On the other hand, the food security concern is well-founded, particularly because it will bite at the exact same time the "land grabbers" are most determined to export the production (i.e., a food price crisis and market breakdown like 2007/8). Saudi Arabia did not buy 500,000 hectares in Tanzania for the 95% of the time when the grain they desire is readily available on the world food market; they bought the land for the 5% of the time when prices have spiked and trade barriers have risen. Unfortunately, this will be exactly when Tanzanians themselves have food security issues; in this sense, food security is a zero-sum game and the "land grab" investments are neo-colonial in the sense that they appropriate local resources for rich-country consumption in the circumstances where it matters most.