by Fred Pearce
These stories of waves and cycles determining history sound flaky. And the company is inclined to oversell its insight. Its website boasts that Murrin and Payne peered into their geopolitical crystal balls to get ahead of the game by spotting “in late 2007 . . . food security as the next energy security.” The phrase has a ring to it, but this wasn’t so much unique insight as fanning the flames of growing panic. In July 2007, the seers at the BBC were already writing headlines about “food prices on the rise and rise” and relaying “doomsday predictions of the price of staple foods.” But a cynic would suggest this is how the masters of the universe operate. No profound insight, just riding the waves and cycles.
Leaving aside the mumbo-jumbo, the thinking of the investors behind today’s epidemic of land grabbing is clear. With world population still soaring, land and water in short supply, and a billion middle-class people in the poor world demanding Western-style meat diets, they see food security as the next big global concern. And growing more food requires more farmland. “I’m convinced farmland is going to be one of the best investments of our time,” says hedge fund guru George Soros. “Farmland is gold with a cash flow,” agrees Jeffrey Conrad, president of the Boston-based Hancock Agricultural Investment Group. Reuters calls it “a bankers’ hay ride.”
Investors admit that, after the abstractions of financial derivatives, there is something reassuring about land. An investment fund manager in London, Edward Ho, told Reuters that part of the attraction of his new $625 million Altima One World Agricultural Development Fund was that “you can go to the farm and touch the soil.”
Whether touching the soil turns you on or not, Africa is the place to go. The management gurus at McKinsey trumpet how African agricultural growth has been more than twice that of its economies in general—around 12 percent per annum in recent years. Governments have gotten their financial houses in order and “energized” markets by privatizing state farms and marketing bodies, lowering taxes, and improving infrastructure. The potential for further growth remains huge, since Africa has a quarter of the world’s arable land, but only 10 percent of its arable output. Africa could, McKinsey declares, “meet the world’s burgeoning demand for food.” Helping it deliver is a potential gold mine.
If Soros is a bit of an arriviste, and McKinsey’s flip charts too clever by half, how about taking the advice of Lord Rothschild? The scion of the great European banking family owns a chunk of the English Chiltern Hills so big the locals call it Rothschildshire. He has fifteen thousand bottles of claret (Château Mouton Rothschild, anyone?) in the cellar of his largest property, Waddesdon Manor. The man is so trusted by the world’s richest men that when Russian oligarch Mikhail Khodorkovsky was arrested by Vladimir Putin’s police in 2003, he handed Rothschild the voting rights to shares worth $13 billion in his Yukos Corporation for safekeeping.
So when Rothschild said in 2009 “right now is an excellent point of entry for taking a long-term position in agriculture,” he was likely to be believed. Especially as he was practicing what he preached. At the age of seventy-two, Rothschild had just added to his portfolio of chairmanships by assuming the top seat at Agrifirma, a Jersey-based company set up by 1970s City whiz kid Jim Slater, with 105,000 acres of prime farmland in Brazil’s western Bahia (see chapter 10).
Nicola Horlick, a prominent City of London investor feted as a “superwoman” by the British media, is following Rothschild on the plane to Brazil. She is spending hundreds of millions on farmland in western Bahia through her Mayfair-based Bramdean Asset Management. Her high-powered investors have included the Hampshire and Merseyside county pension funds and Iranian playboy and “bad boy” property magnate, Vincent Tchenguiz.
London land grabbers are generally an exotic lot. Other bad (and golden) boys tied up in the land rush include Anthony “Chocfinger” Ward, whose Armajaro Holdings spectacularly cornered the world’s cocoa futures, allowing him to pocket $40 million in two months as prices soared; Guy Hands, ex–Goldman Sachs bond trader and chairman of Terra Firma; litigious Dan Gold and his QVT Financial hedge fund; and Zambia-born former England Test cricketer and spin bowler Phil Edmonds, of whom more later. The Wall Street Journal found forty-five private equity groups wanting to spend over $2 billion in African agriculture in 2010, with London their biggest center of operations. Or rather London and the cloud of tax havens that the last vestiges of the British Empire have bequeathed to the world: the Cayman Islands, British Virgin Islands, Isle of Man, and Channel Islands.
I continued my tour of London’s land investors in a mews side street behind the rugby stadium in Twickenham, where I met the “Togo boys.” A group of smart city slickers with nice cars and stubbly chins got lucky with the West African government of tiny Togo. Togo is a generally peaceful country with what looks like elective dynastic rule. When Gnassingbe Eyadema, the victor in a 1960s military coup, died in 2005 after thirty-eight years in the job, his subjects were controversially declared to have elected his son to replace him.
The Eyadema clan subsequently gave Philip Peters and Lawrie Smith a ninety-nine-year lease on 6,700 acres of farmland near the town of Agbélouvé, an hour’s drive north of the capital, Lomé. Peters and Smith are the founders of Greenleaf Global, an ethical investment vehicle. They have an arrangement with a Russian agronomist—Vladimir Matichenkov, from the Russian Academy of Science, no less—who has mapped their Togo farm in detail and is bringing in jatropha seeds. The plan is to turn jatropha fruit into oil to make biodiesel for Europe’s cars. With booming demand and jatropha oil prices high, the profits on their investment could be good.
Or rather your investment. The Togo boys are not trawling for big City investors. They want you to buy a lease. Put down £6,000 (around $9,500) and the local villagers will plant five thousand saplings on your 5-acre plot. In a couple of years they will start harvesting the fruit and put it through a screw press. Greenleaf will sell the resulting oil. If things go well, and the promised yields of 4 tons per acre are achieved, you can watch your money grow. Profits should be 12 percent a year, says Peters. “Investment bankers are coming in personally to buy plots,” he said. But by late 2011 only 3,000 acres had been sold—less than half the available land. So it may be a while before they take up their option on another 30,000 acres nearby.
The guys from Greenleaf insist that it’s all upside for the locals. “They can’t believe their luck that we are there. Nothing was growing there before. The land has never been worked.” Greenleaf is sponsoring six orphaned kids at a local school and promises, if the company is still around, to employ them when they grow up. But there are fewer jobs on offer than promised. The Greenleaf website was still saying six hundred in late 2011, when there were only half as many at work, and Peters said the maximum would be four hundred because of mechanization.
West Africa is popular with other British “boutique” investment firms that allow you to scratch a personal profit from a patch of African soil. In 2011, GreenWorld BVI, which is incorporated in the British Virgin Islands tax haven, was offering online gamblers two and a half acres of “high quality farmland” to grow rice in Sierra Leone for around $3000. The investment was “specifically designed to be both profitable as well as socially responsible . . . allowing you to invest like a major institutional investor, but at a fraction of the initial cost.” Meanwhile Agri Capital, based in Alderley Edge, Cheshire, was offering what appeared to be the same land at the same price, with the promise that “our aim is to harvest your profit.”
Or how about Sierra Leone’s immediate neighbor, Guinea? Mark Fitzpatrick Keegan, who owns a large sheep farm in northern England, has been making money for several years by converting Argentine ranches into soy farms. His unlikely-sounding corporate vehicle was Kryptic Entertainment, a Las Vegas–registered company. Now he is taking on Africa, and Kryptic has morphed into Farm Lands of Guinea, operating through a subsidiary registered in—you guessed it—the British Virgin Islands.
; Farm Lands of Guinea has an initial lease on 22,000 acres of “under-utilized” farmland along one of the main roads through the landlocked nation. The lease was granted on “extremely generous” terms by the government of Guinea, which has a 10 percent stake in the operation. The company also has an option on a further 242,000 acres and is surveying what it says is another 3.7 million acres of underutilized land in order to “prepare it for third party development under 99-year leases.” Much of Guinea is, it seems, up for sale.
Keegan is certainly thinking big, and he has an eclectic band of fellow board members and investors. His chairman is General Sir Redmond Watt, who was until 2008 the commander of British Land Forces. He presided at the funeral of the Queen Mother. The company’s accountant is the chairman of a Guinea gold mining company. Its main investment partner is a secretive, Hong Kong–based investment company, Desmond Holdings, operating through a UK company, AIM Investments, whose acting chairman when the deal was done was Desmond director Mark Pajak. The farm plan has been drawn up by board member and agricultural consultant Nigel Woodhouse, who runs an organic trout farm in Cumbria and is a trustee of the UK Soil Association.
All this may be of interest to people in the villages of N’Dema and Konindou in Guinea, where this constellation of talent was expected to begin planting the first 740 acres of corn and soy in 2012. Woodhouse told me he visited the villages, attending two one-hour meetings at which the chiefs and others consented to hand over the land to government officials. The land was outside the villages and “without any human population.” Agreement among the villagers was “positively universal. Money, in the form of a token, was given to the chief, and amounted to what I thought was the equivalent of three pounds,” he said. It doesn’t sound like a lot.
Hedge funds and anonymous investment houses and asset managers have driven much of the Western-funded land grabbing to date. But even bigger than the hedge funds are the pension funds, with their trillions of dollars of assets. Industry analysts say their move into commodities index funds, which did so much to destabilize food commodity markets, is now being extended to farmland.
The giant pension fund for California’s public employees has put about $50 million into Black Earth Farming, which has some 790,000 acres of Russian grain fields (see chapter 9) and a string of big far-eastern oil-palm plantation owners, including Sime Darby, Olam, and Wilmar. The Teachers Insurance and Annuity Association of America (TIAA-CREF) has $2 billion of farmland in Brazil, central and eastern Europe, and Australia as well as the United States, and is buying more. The Swedish National Pension Fund has half a billion dollars invested in farms in Brazil, Australia, and the United States, and its AP3 pension fund is deep into the rich black earths of Russia.
Oh, and the Danes are giving their pension money to Gary Vaughan-Smith.
After visiting too many money people without a clue about African farming, and very little interest—people who just felt the smallholders should be swept away and replaced by modern “efficient” agribusiness funded by them—it was a relief to meet Vaughan-Smith, who seemed to know about both pension funds and Africa.
We met at his office close to Stanfords, the legendary map store in Covent Garden. I had been in search of maps to some obscure parts of West Africa. He said he had gotten into trouble in the past over his long-running enthusiasm for investing in Africa. He put some of Gartmore Investments’ money there once. “It didn’t do well, and I got the blame.” But he had a touch of schadenfreude that day. Hours before, Gartmore had crashed after some other ill-advised investments.
He was still backing his Africa hunch in his new berth as founding partner of SilverStreet Capital, where he was building a $500 million fund to buy farmland there. “African farmland looks fantastic right now,” he said. “Investors these days want to go into real assets, not derivatives.” Through the credit crunch, SilverStreet struggled to raise cash. But Vaughan-Smith struck gold with $200 million from a Danish investment company named PKA that handles pension funds, and the U.S. government’s development finance body, the Overseas Private Investment Corporation. “I find it really exciting to be able to bring this sort of investment capital to Africa,” he said. He was on a plane to New York that afternoon to harvest some more cash.
Vaughan-Smith, a Zimbabwean actuary by training, is small, dapper, and bearded. But next to him sat Tim Denton, a big, craggy Zimbabwean farmer who had seen a bit more sun on his neck. Denton had spent seven years on a big coffee farm at Mpongwe in Zambia, when it was owned by the British government’s Commonwealth Development Corporation. Then he worked for a George Soros–backed tea and coffee grower, African Plantations, before it merged with tea giant Rift Valley Holdings, which is owned by a Norwegian shipping family. Now he is building a team of Zimbabwean farmers to grow the “big four” farm commodities—wheat, rice, corn, and soy—for SilverStreet. “We plan five 10,000-hectare farms in five countries: Zambia, Malawi, Tanzania, Mozambique, and South Africa.”
I liked these guys. They were serious about Africa and Africans. Denton had no time for land grabbers who wanted to write peasant farmers out of their script for the continent. He had smallholders at the heart of his plans. One of his first farms, in Tete province in Mozambique, will be devoted entirely to buying their produce. And each of the five farms will have a training center for smallholders, he promised. He intends the centers to be run by a Harare-based charity, Foundations for Farming. Formerly called Farming God’s Way, it was set up by a born-again Christian and pioneer of environmentally friendly zero-tillage farming, Brian Oldreive. It sounded odd, but Oldreive, who was once a Zimbabwean test cricketer, is reputedly the best in the business.
Denton was optimistic about the potential to improve the yields of smallholder farmers in Africa. “It’s not rocket science. It’s just about doings things at the right time. About getting farmers to prepare fields, drill holes, have seeds and fertilizer ready when the rains come, rather than trying to do it all in a rush. That way it’s easy to get from one ton a hectare to three tons.” But yields were no good without assured markets. Why produce more if the only result is collapsing prices? So Denton sees central farms as important too, providing secure markets for the produce of surrounding smallholders. “There is so much we can do to have a positive social impact,” said Vaughan-Smith as I left.
We shall see. I believe he meant it. The trouble is that when the promises and ideals of the farm managers fail to match the imperatives of the investors and their bottom lines, it is quite clear who wins. The promises and ideals go out the window. Denton will ultimately take his instructions from the Danes and the Americans now.
The rules for almost every company receiving investment capital require that the interests of the investors come first. Many companies investing in developing countries will subscribe to ethical aspirations, such as the Equator principles on social and environmental issues. Their banks and financiers may sign on to these as well. But the rules are couched in general terms. When push comes to shove, it is the bottom line that counts. That’s capitalism.
Some people believe foreign land grabbers can be tamed by national laws. Don’t believe it. Many domestic laws governing international land transactions are trumped by international investment agreements (IIAs). A report published in 2011 by Johannesburg-based Standard Bank, a major funder of land grabs, made clear to me how important these agreements are. Written by the bank’s director for agricultural banking, Jacques Taylor, and its boss of sustainability, Karin Ireton, the report describes the legal landscape with brutal frankness.
“IIAs are designed to protect investors, with few of the agreements including any investor obligation, or expressing and recognizing the rights of states to regulate in the public interest,” Taylor and Ireton said. But if investors have few obligations, host countries have many. “Foreign investment creates minimum international standards to which host countries must comply . . . host governments generally a
ccept that they will provide the means for these investors to operate—for example, by providing them with the ability to draw water for agricultural purposes.” This right, they said, “may become a legitimate expectation of the foreign investor and therefore a legal entitlement under international law . . . even if it conflicts with existing or future needs in local communities for potable water, small-scale farming, small industries or subsistence use.”
Ouch. I found I was rereading every sentence several times to make sure I had not misunderstood. But no. Even if the locals are starving or parched with thirst, in law the rights of the foreign investor come first. When governments sell or lease land to foreigners, the risks that they run “include cash-strapped local people losing not only their homes but also their source of food and future income as buyers secure the full right to crops and land.” If, say, a drought meant the investor didn’t get all the water stipulated in his contract, an international arbitration would probably conclude that this was “an expropriation of the right to operate the business” by the host country. At the least, heavy compensation would be due.
Oh, and anyone who thinks governments would be justified in banning food exports by foreign investors during a famine could be in for a second think. “It is commonplace in investor agreements to provide investors with the capacity to operate their investment in accordance with their own needs,” the report says. “In the case of agricultural land investments, the right to export all or almost all of the production is presumed to be a part of most contracts.” Export bans “may be in breach of international investment law, if they impact the rights granted to foreign investors.” International law, it seems, is a land grabbers’ charter.