Here is an in-depth look at governments and funds investing in agricultural land in third-world nations. The story originally appeared on Spiegel Online, Europe's largest newsmagazine. The piece was translated into English by Business Week, which you can read by clicking here.
It is intriguing. It highlights the benefits to both investors and local countries from the infusion of capital, technology and management skills as African nations try desperately to upgrade their ability to feed their own people. But it also highlights the potential cultural distruptions that can result with the arrival of these new landowners, a "new colonization" it is suggested. Plus, the story highlights the potential political risks faced by these large investors, whether private individuals or nations.
There are lots of take-aways from the article. Here are two:
1) Large amounts of new money are being or will soon be poured into boosting agricultural production in Africa. This means demand for inputs used everyday by U.S. farmers will go up. Most critical will be demand for fertilizer. That doesn't bode well for the price of fertilizer in the years ahead. And, if "cap and tax" becomes law, the extra penalty tax levied on anhydrous ammonia, etc. will only drive up costs further -- costs non-U.S. farmers will not have to pay. That means tighter margins for U.S. farmers and that's negative for land values.
2) Thank goodness for our mature political and judicial system. Yes, there is plenty of uncertainty right now. So far, though, we can trust our land deeds and titles and know there is a court system available for redress. One of the basic issues facing the governments and investment funds looking at African land is simple -- it's clear title to the land. Who really owns it. And, where do you go when someone has taken your property illegally or failed to honor a contract? Those are uncertainties I cannot imagine operating a farming operation under and I'm thankful I don't have to face.
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