Derek Byerlee Oslo, Nov 28th, 2012

Land companies

52 %

Plantations 12 %

Ranching 30 %

Railway concessions

6 %

Total holdings 48 M ha

Christopher, 1985

The Original Land Rush at the Closing of the US Frontier, Oklahoma, 1893

Starts from 1st era of globalization from 1850

Rapid growth in Europe, N. America, Japan

Free movement of capital, labor and trade (to 1914)

Dramatic reduction in transport costs—land and sea

―Foreign‖ investments with land acquisitions

Includes imperial investments in colonies

Focus on industry structure and land rights issues

Lens of six commodities

Sugar, tea, rubber, bananas, oil palm, food crops

Particular attention to British and American FDI

Snapshots of the six commodities

Including update to today

Cross-cutting synthesis with respect to:

Major drivers of industry structure

Issues related to land rights

Conclusions

Sugar

cane

Tea Rubber Bananas Oil

palm

Grains/oils

eeds

Investor

takeoff

< 1850 1850-

1900

1900-30 1900-30

1990-

2012

1990-2012

Coordination

harvest &

processing

H H L H H L

Initial K H M L M-H M L-M

Potential to

mechanize

H L L M M H

Pioneering

risks

L M-H H M M-H L-M

Innovation H L L M M-H M-H

H=High, M=Medium, L=Low

Historical bête noire of plantation agric

Slave labor, later indentured migrants

Revolution in processing scale

From 200 ha (1860), 6,000 ha in 1929, up to 100,000

ha today in Brazil

FDI in high population density

Java--converted to leasing arrangement 1870

FDI in low population density

American investors in Cuba, Hawaii (up to 200 K ha)

Cuba: conversion of communal lands

Hawaii (5 US sugar companies legally bought 70% land)

Recent vertical integration to energy:

economies of scale in processing + mechanization

of production

Biofuels + standards

Initial investment $ 1+ billion

Cosan 600+K ha;(Shell 2x)

Addax (Sierra Leone)--$400 m, 2000 jobs

Thailand—competitive smallholders through

contract farming

But Thai companies in Cambodia large scale

From 1850s--large scale for export in India

Highly labor intensive (harvesting) and startup K

Major issues of labor rights even up today

Mostly established in forest areas (except Kenya)

New crop in new area—high failure rates

Early emergence of globally integrated

companies (brands)

Lipton, Tetley, Finlay, Brook Bond…

From 1950s--Institutional innovations for

greater equity

Sri Lanka—nationalized and then smallholder

contract with prices mediated by government

Kenya top exporter with 2/3 smallholders, who

also own factories and KTDA (with donor/gov

support)

India--Growing employee equity ownership in

companies (also Rwanda, Tanzania)

Wild to cultivated crop initially plantations

Labor (as for wild rubber!) and some land issues

Global companies early responding to

strategic industrial input

Also spectacular failures (Mexico thru portfolio

equity, Fordlandia 1 M+ ha)

Despite colonial policies, early emergence

of smallholders

Asia 40% smallholder by 1940, now 90%

Africa/Cambodia—LS but smallholders emerging

0 %

20 %

40 %

60 %

80 %

100 %

Esta

te

Esta

te

Esta

te

Esta

te

Sm

allh

old

er

Sm

allh

old

er

1922 1963 1978 1995 1964 "1995"

Rubber in Malaysia

Capital

Labor and management Land

Source: Barlow, 1997

Bête noire of the 20th century

Export industry by 3 companies

Land issues dominated (disease buildup and large

tracts for shifting plantations)--violence

United Fruit ownership of 1.4 M ha in CA in 1935

Exerted major political power

From 1960s, largely moved to contracted

medium scale family-based farms

New varieties for disease control

Political and shareholder backlash

African crop ‗cultivated‘

early 1900s

• Unilever to Congo (not

Brit. West Africa)

Malaysia/Indonesia

from 1970s

• Very large companies

with 600K+ ha, $1+ B rev,

8 of top world‘s top agric

prod companies

Smallholders role

• 40 % Indonesia, FELDA

-

2

4

6

8

10

12

14

16

1961

1966

1971

1976

1981

1986

1991

1996

2001

2006

Mil

lio

ns

ha

Expansion of Oil Palm

Latin America

SE Asia

Africa

OPPORTUNITY

INDUSTRY STRUCTURE

INDONESIA

Boom commodity for food uses

and now biofuels

Value of SE Asian exports of PO >

All agric exports Africa

• Africa imports $3.5 Billion!

Billions at stake

• Big Asian companies investing

in Africa (> 3 M ha)

• 200-300 jobs/1000 ha

• Much potential for smallholders 0

1 000 000

2 000 000

3 000 000

4 000 000

5 000 000

6 000 000

7 000 000

1980 1985 1990 1995 2000 2005

Area sown by type of producer (ha)

Private

State Owned

Small Holders

Most state-driven for food security

UK post-war Tanzania (G/Nut scheme), Australia

Krushchev‘s Virgin Lands program (50+ M ha)

Universal failures—economic, social, environ!

Some private but short lived

‖Bonanza farms‖ in US—converted to family farms

Tropics of Australia--failed

But large private investment only since 1990

(LA, RUK) (see Deininger&Byerlee. Rise of large farms)

Latin America

Mostly national (El Tejar, Los Grobos, Adecoagro, Cresud, SLC,

Brasilagro, Agricola, Cosar, Maggi)

Argentina: Top 30 companies total 2.4 m ha (mostly rented).

El Tejar (grains)—Argentina/Brazil 600k+ ha Argentina+

Russia, Ukraine, Kazakhstan

―Superfarms‖. Ukraine: Top 40 companies manage 4.5 M ha;

Russia: Top 30 companies 6.7 M ha (mostly home grown companies)

Ivolga (grains)—Russia 650 k+ ha

Africa

Much FDI but very heterogenous (med. size 40,000 ha)

El Shaikh Mustafa El Amin Co (grains)—Sudan 250 K ha

Semi-mechanized farming schemes 1960s+

Investors from Gulf, state credit, and World Bank

(Similar scheme in Ethiopia)

Converted up to 11 M ha to large farms

Average over 1000 ha, some farms >200,000 ha

Problems well documented

Trampled on rights of local pastoralists, land conflicts

Created few jobs

Soil degradation and destruction of natural environment

Technolog

y

Size

(ha)

Yield

(t/ha)

Cost

($/t)

Existing Company 8000 0.5 277

Large farm 400 0.4 495

Smallholder 20 0.5 204

Zero

tillage,

fertilizer

and others

Large farm 400 4.0 125

Smallholder 20 3.0 143

Source: Min of Agriculture, 2009

-1.25% pa

0.76% pa

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Yie

ld (to

ns p

er H

a)

Sorghum Sesame

Mechanized rainfed system, Sudan; Lose-

lose investments

SS AFRICA—18 M HA 2005-

11

Food 25 %

Biofuels 43%

Integrated food/fuel

20%

Wood & fibre 10%

Other 2 %

Source: Schoneveld, 2011

Biofuels

• Jatropha

Integrated

• Sugarcane, oil palm

Food

• Rice (+ maize, soy)

Wood and fibre

• Plantation forestry

• Rubber

• Cotton

MODELS TO TAP

EXTERNAL CAPITAL, TECH,

MARKETS HISTORICALLY

Investors directly manage

large-scale production

Contract farming with

existing smallholders

Smallholders vertically

integrate forward through

cooperative mills s etc

State provides services to

SHs through marketing

boards

Move toward contracts

• Bananas, oil palm + cotton,

oilseeds etc

Move toward cooperatives

• Tea + coffee (Colombia)

Parastatals for markets,

technology

• Cocoa (Ghana), cotton (BF)

Move toward large scale

• Food crops (recently)

Basic economic drivers

Commodity and market characteristics

Pioneering risks

Labor scarcity

Innovations favoring larger scale

Bad economics

Policy biases on land and capital

Beyond economics

Misplaced faith in large scale

Post-production scale and logistics

Timely processing of raw material (plantation crops)

and coordination costs

Processing scale translates to production scale

Spatial concentration to minimize transport costs to mill

Also specialized logistics for fresh products

Bananas and other horticulture, extensive beef cattle

Demanding standards and certification

Fixed cost per firm, traceability for process standards

High value products, but now also bulk commodities

Commodity roundtables, biofuel standards

Why not contracting?

Transactions costs of organizing farmers, enforcing

contracts, guaranteeing standards etc,

versus

Transactions costs of acquiring land, supervising labor

Anomalies today

Large scale--cotton in Ethiopia

Contracts for grains (Olam, Ghana Grains partnership)

First movers—New products in new areas

Technological risks

Highest for domestication—historically rubber and oil palm,

today Jatropha

Costs--specialized infrastructure and services

High rates of failure for ―greenfield‖ projects

Fordlandia, Mexico rubber boom, grains in Africa &

tropical Australia, CDC experience

PPPs for R&D, infrastructure reduce risks

e.g., Brazilian Cerrado, tree crops Malaysia

Risks decline over time—favors small-scale

Very low population density areas

High real cost of finding labor favors large scale

mechanized farms

Few possibilities to contract as locals often lack crop

agriculture experience

Settlement schemes high cost (e.g. Ethiopia)

Again large farms are often passing stage

Investment attracts spontaneous migration

Indonesia, Cerrado of Brazil

Innovations that reduce

diseconomies of managing

very large operations • GMOs, zero tillage

• IT & satellite ‗supervision‘,

• Innovations to audit hired labor Professional management and skills

Some very large farming

companies appear to be

globally competitive (Brazil,

Argentina)

Cheap land

State mediated ‗concessions‘ that encourage risky

investments, speculation, and extensive production

Cheap (subsidized) capital

Subsidized credit and government credit lines

Brazil to the 1980s, Indonesia

Market failures of services to smallholders

Finance, insurance, input markets

State-driven schemes

• Nearly all failed

• 1940s--smallholders

could have supplied UK

oil needs

Private investors faith

in ‗modern‘ technology

and large machinery

(and lack of faith in

smallholders)

•

Russia, Ukraine

Infrastructure and services, land/labor ratios,

favored large scale

Opportunity for FDI to fill large investment gap

Latin America

Farm structure in Cerrado today reflects credit,

labor and land policies, 1950-80

Argentina‘s ‗pools de siembra‘ reflect historical

ownership-tenancy relations on the Pampa from

1900

Labor rights rather than land rights were

the major issue

Land issues increased in 20th century with growing

land scarcity and larger operations

Labor issues decreased with stronger labor laws,

monitoring, and enforcement

Food security

Problem in more densely populated areas—

Caribbean

Humid tropics—tree crops more productive and

food crops sometimes integrated

Often uncultivated ‗frontier areas‘

Often explicit on rights of cultivators but not forest

users or pastoralists (wastelands!)

(and biodiversity and climate mitigation values of

forest not yet recognized)

Low priced land concessions frequently

abused

Rampant speculation in commodity booms

Actual use >> concession area (5% for tea)

Advocates for minimum land price from 1830s

Treatment of local land rights highly

variable

Explicit recognition by some early on

Aborigines Protection Society formed in 1837

Sometimes also strictly implemented (e.g. British

West Africa)

Checks and balances from metropolitan power

French commission of enquiry in 1927 in Indo-China

But often investors applied pressure to relax

rules—tensions within colonial governments

Under market pressures--Poor land governance

and inequality lead to abuses regardless of FDI

Even where not FDI, local investors usurp land rights

Henequen producers Yucatan, contract sugar producers Cuba

Even where smallholder, problems under strong market

pressures

Cocoa in Cote d‘Ivoire

Even where land fully titled, lack of other

resources may lead to under-valued land

transfers

Hawaii, NZ

Often good practices on paper with

requirements for:

Prior surveys to demarcate existing users

Auctioning of land concessions

Transparency

Screening investors to weed out speculators

Show investments on ground to maintain concession

Include out-growers

But often lacked capacity and will to implement

Implications for RAI principles?

Not new– surge in FDI strongly relate to

commodity booms

But big shift from N-S to S-S investments

No easy generalizations

Commodity characteristics x land/labor ratio x

institutions (x political power structures)

High failure rates and significant social and envir

issues in short term but in long term, may seem

successes (also CDC review)

Hard to assess successes/failures in the short term

Take the long view—sometimes more favorable

outcomes

Recognize role of capital, tech, markets for risky new

industries

Role of the state to reduce risks and level/tilt

the playing field for smallholders

Priority to improving land governance, equality

and administration

Needed with commercialization regardless of scale

Build capacity to implement and monitor

Appears to have worked for FDI and labor rights

dbyerlee@gmail.com

Large in land area, capital invested and sales (often ~

$US1billion farm prod)

Sime Darby (oil palm)—Malaysia, Indonesia and with 600 K ha +

(220 k planned in Liberia)

Cosan (sugar-ethanol)—Brazil with 300k+ ha and 300k ha of

contract growers (double with Shell)

Fibria (pulp)—Brazil, 500 k+ ha Eucalyptus

El Tejar (grains)—Argentina/Brazil 1,000k+ ha Argentina+

Ivolga (grains)—Russia+ 1,000 k+ ha

El Shaikh Mustafa El Amin Co (grains)—Sudan 250 K ha

Mostly home grown companies operating regionally

(Also large companies in horticulture and livestock)

HISTORY OF LARGE-SCALE

FARMS IN AFRICA

UPLAND RICE INVESTOR IN

LIBERIA, 2009

1940s—British groundnut

scheme in Tanzania

• Overlooked smallholders

1970s—Sudan mechanized

schemes

1980s--Saskatoon on the

savannah—wheat in Africa

2000s—Investors in food

grains in Africa