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Neo-mercantilism: Muslim countries are also involved in the global run on arable land

After global energy supplies and transboundary water resources have already given rise to regional conflicts and global changes, we are facing another round of drastic shifts. States, but also commercial interests, are now focusing on the purchase or long-term lease of cultivable land around the world to secure their own food supply or to find new investment projects.

In October 2008, the non-governmental organisation Grain published a report entitled Seized! The 2008 land grab for food and financial security. The report documents disturbing trends that have the potential to drive up food prices and put an end to small farmers.

Countries that lack land or are experiencing population growth are increasingly turning to buying or leasing land abroad. The ultimate goal, it said, is to secure the supply of vital food. Similarly, the organisation pointed to private companies buying up farmland around the world as a way to find new sources of income as an alternative to crumbling paper assets, despite the financial crisis.

Already, parallels have been drawn between the new land ownership and earlier colonialisms. The biggest difference is that the control of land by foreign owners is sanctioned by the respective governments. It is contractual and subject to legal provisions. And yet similarities exist.

This has led some to speak of neo-mercantilism. One example is 15 Saudi investors who run the Middle East Foodstuff Consortium. The group, led by the BinLaden Group, was “mandated„ by the Saudi government to solve long-term supply problems by developing abroad. But the confluence of commercial and political interests is not always the case. Recently, Morgan Stanley, one of the surviving US investment banks, acquired 40,000 hectares in Ukraine. Its Russian counterpart has also secured rights to Ukrainian land. The Grain report mentions that “all these land purchases are for the production of grains, vegetable oils, meat and dairy products for the hungry world market … that is, for those who can pay for it.”

Security and crises

This leads to the core of the question: the failed policies of neo-liberal globalisation. Because of the decline of the welfare state due to the neo-liberal policies of “western” nations, general purchasing power is shrinking. The privatisation of government services and the outsourcing of industrial jobs abroad has resulted in many having to watch inflation rise without seeing their incomes increase. Maintaining living standards has led to extreme borrowing at local and national levels. This drove up the national debt in what is now the US and Western Europe.

The loss of purchasing power in the US and the EU followed a financial crisis that had its starting point in the US but also had a negative impact on Asian economies. These developments serve as a backdrop for the pursuit of “neo-mercantilist” policies by foreign governments. The decline of East Asian exports leads to lower growth, which reduces the circulation of wealth among the masses. This will also result in growing discontent in the affected countries.

The Executive Director of the UN World Food Programme, Joesette Sheeran, told a meeting of the US Senate Foreign Relations Committee: “Reports and images of the deadly riots in Haiti that led to the collapse of the government, and in another 30 countries around the globe, are a powerful reminder that food insecurity threatens not only the poor, but peace and stability itself. Some believe that seven meals lie between civilisation and anarchy. After the seventh [missing] meal, people are left with nothing but to worry about their own survival and that of their children. Ensuring adequate and affordable food is certainly one of the most important tasks of a government and of civilisation as such.”

“Governments see this as an innovative, long-term strategy to feed their people at a good price and with continued security,” the Grain report continues. “Countries using this strategy include Saudi Arabia, Japan, China, India, Korea, Libya and Egypt.” Since March 2008, representatives of these countries have been traveling to countries such as Uganda, Brazil, Cambodia, Sudan and Pakistan on a diplomatic treasure hunt for fertile cropland.

Increasing profits

This is one aspect of this “neo-mercantilism.” The second concerns private investors who expect high and secure profits on their deposits. And what guarantees better earnings than the sale of food? The report mentioned at the beginning notes that since the beginning of the financial crisis, “investment houses that manage pension funds and private deposits have been looking for quick profits. Similarly, hedge funds that have been driven out of the stock markets and grain traders looking for new profits are participating in the purchase of farmland for food and biofuels.”

To secure stable profits on land, it is important to increase the productivity of the land. With high food and energy prices, there is the potential for high profits, especially in bio-fuel production. In a strange twist to the development of the stakeholders mentioned above, the private sector “retains control.” This is because, as is evident in the case of BinLaden Group, private companies are given a mandate to secure profits for state clients. The government of South Korea, which recently acquired the enormous 200,000 hectares in Madagascar, is represented by Daewoo Logistics, a conglomerate based in Korea.

The London Guardian reported that “rising food prices have triggered a second “run on Africa. This week Daewoo Logistics announced plans to sign a 99-year lease on one million hectares in Madagascar. It said its aim was to produce five million tonnes of maize by 2023 and palm oil on a further 120,000 hectares. The group plans to rely mainly on South Korean labour for this. The target area for exports of these agricultural commodities is to be primarily South Korea so that its dependence on foreign imports can be reduced.”

The head of the United Nations Food and Agriculture Agency, Jacques Diouf, has therefore already warned that the controversial increase in these land purchases has created a form of “neo-colonialism” in which poor countries produce food for the rich at the expense of their own starving populations.

Countries and companies

The Gulf states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) also face food insecurity. Here, the problem is a lack of water resources to grow food. The Gulf states concerned have tried to compensate for this in the past by importing food. Another financial effect comes into play here: by pegging local currencies to the US dollar, these states have imported “additional inflation” because of increased food prices. Likewise, their currencies have lost purchasing power due to the permanent devaluation of the US dollar. In the last five years, the food imports of the Gulf states have increased from 8 billion US dollars to 20 billion.

The water situation on the Arabian Peninsula is particularly difficult due to shortages and high prices. Saudi Arabia has therefore decided, because of the “pressing water shortage,” to stop wheat cultivation, the main food crop, by 2016 and to continue it abroad, on cultivated land controlled by Riyadh. Saudi Arabia already controls an estimated 1,600,000 hectares of agricultural land in Indonesia.

The trend towards outsourcing food production was raised at a meeting of the Gulf Cooperation Council (GCC). Here, the idea of a “collective strategy of outsourcing food production” was formulated. Specifically, this should concern neighbouring Muslim countries such as Pakistan or Sudan, where the UAE and Saudi Arabia own around 1,400,000 hectares of land. But countries in Southeast Asia, Turkey, Kazakhstan, Cambodia, the Philippines, Uganda, Ukraine, Georgia and Brazil have also been “targeted” by the Gulf states.

Investment opportunities

“The best way to combat the recession over the next 10 to 15 years is to invest in cultivable land,” says Reza Vishkai of Insight Investment. Investors are interested in two things in their activities: Profit and security. In many cases, safety outweighs the risk of potential losses from speculative investments. Government bonds were previously considered risk-free.

However, there is ample evidence that the world’s largest debtor, the US, will not be able to pay all its debts. Certainly, for many US Treasury bondholders, land ownership would be an attractive alternative. The trend to “harvest money” has gained momentum because of the financial crisis in 2008/9 and its aftermaths. The consequence of this trend is logical: the extensive privatisation of food production leads to the privatisation of the extraction and distribution of water, a commodity whose demand will never diminish…

And so, if this trend continues across the board, local communities will inevitably lose access to land to produce food.

In the end, the question that the authors of the Grain study had to ask themselves is: What happens in the long run when control over a country’s cultivable land is transferred to foreign states or investors?

Orphans of Uganda
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