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Industry reports, briefs and video-clips issued by Samsung Economic Research Institute

The Battle over Arable Land Is Heating Up

The Battle over Arable Land Is Heating Up

JOO Young-Min

June 9, 2009

Transcript

Welcome to our video program. I'm Young-Min Joo from the Public Policy Research Department.

In March 2009 a coup erupted in Madagascar, Africa. Farmers revolted against Daewoo Logistics' contract to lease 1.3 million hectares of arable land from the Malagasy government for 99 years in exchange for a US$6 billion infrastructure investment in Malagasy. A new government, however, revoked Daewoo's deal. This coup illustrates how fierce the competition for fertile land has become. Today, we are going to look at intensifying wars for securing arable land.

According to the United Nations Food and Agriculture Organization (FAO), there are almost one billion starving people around the world as of 2009. Some specialists have claimed that the world has already entered a third food crisis after the crises in the 1940s and 1970s. The reasons for the food shortage, as in past crises, are a shortage of arable land and increased population. In the past, the world population took 200 years to double from 500 million to 1 billion, and then 100 years to increase its number from 1 billion to 2 billion. Most recently, it only took 35 years to increase the global population from 2 billion to 4 billion. The time for the current world population of 6.5 billion to double will likely be even less. This is the point where grain demand is expected to grow enormously.

A shortage of arable land is one cause for the food shortage. Arable land currently in production accounts for 85% of total arable land around the world excluding forests. Arable land worldwide may have reached its maximum utilization rate. Even land that is marginal for producing crops is now being cultivated in Canada, Central Asia, and South Asia, as well as China. Worries over food shortages are worsening and pushing up grain prices. Currently grain prices, though they have descended from their peak in mid 2008, are still 30% to 50% higher than the average prices of the past decade.

Accordingly, investors are turning to arable land as an attractive venue for investment. Middle-Eastern investment funds, European and US financial institutions, and private companies, which have bet on a sharp rise in grain prices and farmland, have joined in the competition. One investment guru, Jim Rogers repeatedly recommended arable land as a good investment. George Soros has already purchased vast tracts of land in Argentina.

Many countries are in a battle to secure stable food supplies. Countries unable to support themselves with their own land have started to purchase surplus land from countries with relatively large amounts of land. Japan, a country with low food self- sufficiency, and China, a country with rising food demand, are trying to secure more arable land in foreign countries.

As for Japan, large trading companies like Mitsubishi, Itochu, and Marubeni have long been acquiring agricultural storage facilities, strengthening their foothold. Japan already has large amounts of overseas farmland in Brazil, Argentina, Indonesia, and Russia as a shareholder. Overseas land owned by Japan amounts to 12 million hectares, 200 times the size of Seoul.

China also started to buy overseas farmland from May 2008 for the sake of the country's food safety. The Chinese government announced a large-scale support plan to encourage companies to buy land to raise crops in Africa and South America.

China has already bought as much as 2.1 million hectares of land from Southeast Asia, Russia and Australia. Nestle is also the owner of 15 million hectares of arable land.

Thus far, we have looked at various attempts by companies and countries to secure arable land. Korea for its part has a low degree of food self-sufficiency, ranking 26th among 29 OECD countries excluding Luxemburg in terms of food self-sufficiency. Only a few companies like Univera, Samsung C&T, Hyundai Heavy Industries, Daewoo Logistics and Posco have advanced into the overseas agriculture business. Though Korea has no immediate risk of a food shortage, it will need to prepare for a possible crisis in advance.

Thank you for watching. I'm Young-Min Joo.

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