The Land Grabbers: The New Fight over Who Owns the Earth

by Fred Pearce

  If foreign investors have little to fear from national laws, they have a great deal to fear from their own unfamiliarity with Africa, and its land and people. Older British readers may need only three words to remind them of some painful British imperial history on this score: “The groundnut scheme.” Peanuts, to you and me. The hubristic land grabber of half a century ago was a man named Frank Samuel, from the global fats transnational Unilever. In 1946, he proposed to the British government a grand plan to grow groundnuts in Tanzania, then known as the British protectorate of Tanganyika. He wanted the nuts to help supply a booming market in vegetable oils, including for Unilever’s margarine. He hoped the scheme could compete with French plans to grow groundnuts in the Sahel, then mostly known as French West Africa.

  Local colonial officials in Dar es Salaam were enthusiastic. They believed that the bush in much of the center of the country was “empty” because the locals were lousy farmers. They feared food shortages and an exodus to the cities. What was needed, they believed, was Western agricultural know-how. Back in Whitehall, gazing at maps of Africa mostly colored red for British imperial dominion, they at one stage discussed creating a vast groundnut plantation extending from Kenya to Rhodesia.

  But first they earmarked 150,000 acres of central Tanganyika—an area that the Victorian explorer Henry Morton Stanley had summed up as “an interminable jungle of thorn bushes.” They recruited 100,000 local soldiers, most of them recently demobilized following the end of the Second World War, to become farm laborers. They built a settlement for them, Kongwa. The company created for the enterprise, the Overseas Food Corporation, was put in the charge of Leslie Plummer, a part-time English farmer, political activist, and executive of the top newspaper of the day, Lord Beaverbrook’s Daily Express. With the media on their side, what could go wrong? The answer was quite a lot.

  First they had to clear the land. Plummer bought surplus U.S. army tractors from the Philippines. After being shipped across the world to Dar es Salaam, they had to be dragged up a dirt track to Kongwa after heavy rains washed away the railway line. Once on site, even the biggest tractors could not remove the local baobab trees. The drivers wrecked most of the equipment in the attempt. The demoralized workforce was attacked by elephants and killer bees, rhinos and scorpions. Water had to be shipped in. And still there were no groundnuts in the ground.

  The headlines back home that had at first trumpeted the scheme turned nasty. With the project becoming a laughingstock at home, Plummer resigned. The government sent in a major-general to sort things out. Eventually the Overseas Food Corporation planted some nuts. Rains germinated the crop. But then drought baked the soil as hard as concrete, so digging up the nuts proved near impossible. They cut the planned area for cultivation to 50,000 acres. But after two more years, the major-general had gone home on sick leave, only 2,000 tons of nuts had been harvested, and the soils were compacted and ruined.

  Five years after the brainwave, amid rising derision at home, the government abandoned the project. Kongwa declined. The school shut in 1958, but reopened soon after as a training base for South African freedom fighters from the ANC. Back home, the groundnut scheme became a standing joke, a metaphor for boneheaded British management everywhere. Ministers instilled fear in their civil servants by threatening to send them off “to the groundnuts scheme.” They teach the farrago in U.S. universities to this day. It should be a warning to all land grabbers today. And to Africa as well. The fields round Kongwa are still useless except to the thorn trees that gradually returned. The Brits, for the record, have still not apologized for what they did.

  Part 3: Across the Globe

  Chapter 9. Ukraine: Lebensraum

  Richard Spinks was a footloose Englishman who left school at sixteen, joined the Royal Air Force for a while, and then spent a decade bouncing around Europe, selling advertising and buying fish at docksides from Gdansk to Archangel, before marrying a Ukrainian woman. Then, in 2005—on a hunch, and with no knowledge of farming—he sold his fish-processing firm in Poland, moved to Ukraine, and started buying up former state land. He wanted to cash in on the coming biofuels boom by growing rapeseed to turn into biodiesel.

  He began knocking on doors in the villages of western Ukraine, offering to lease fields from poor peasant farmers. Often sleeping in a tent as he crisscrossed the country, he leased land at $15 an acre per year, using cash from a couple of friends. He had ambitions to create his own land empire in the former Soviet republic. He set up a company called Landkom International, with headquarters in the village of Bilyi Kamin, east of the historic city of Lviv. Business was brisk. He brought in outside investors. Within a couple of years, he had more than 250,000 acres of prime fertile land. He floated the company on the London stock exchange, with a prospectus promising to build the land holding to 750,000 acres. He was, for a while, Ukraine’s third-largest farmer.

  But Spinks had overextended himself. He had bought far more land than he could farm. His investors moved in, ousted Spinks, cut the acreage by 40 percent, and speeded up planting. By 2011, the new CEO, a Ukrainian tractor salesman named Vitaliy Skotsyk, was cultivating 120,000 acres, most of it with rapeseed. Spinks’s camping-holiday buying sprees were long gone. That’s how start-up companies often go: the visionary ousted by the money men. But the money men themselves got into trouble too, later in the year, when rain wrecked the rape harvest and the company’s share price collapsed. At the end of the year, management was recommending selling Landkom to Swedish investment company Alpcot Agro.

  Rain or not, Ukraine is potentially the breadbasket of Europe. It is the continent’s biggest producer of barley and among its top wheat growers. Two-thirds of its 230,000 square miles are rich humus soils, known as black earth. But thanks to political turmoil and the dead hand of bureaucracy those soils have never fulfilled their potential. In the 1930s, Ukraine became the victim of the disastrous collectivization policies of Stalin. Then in 1941, Hitler invaded as part of a march east in search of what he called lebensraum, space in which to grow food for his country’s ever-expanding population. Hitler was repulsed in 1945, but sclerotic Soviet hegemony was restored. The socialist prairies of Ukraine failed to deliver Stalin’s dream of a grain bonanza like the capitalist American Midwest.

  After the collapse of the Soviet Union in 1991, the collectives and state farms were gradually broken up and their fields handed over to poor peasants. But the peasants lacked access to capital, and that continues till today. Typical is the fate of the former Dniester Collective Farm. When the farm was broken up in 2001, the few hundred poor and aging inhabitants of the tiny hamlet of Stinka, southeast of Lviv on the banks of the River Dniester, took over their allotted 2,000 acres. They had no money to maintain the land, let alone invest.

  So, like hundreds of other communities, they grew what they needed and let the rest of the land run to seed. The country’s fifty thousand small farms have allowed an estimated 77,000 square miles, a third of the country, to go uncultivated in recent years. Yields on the rest are less than half those on poorer soils in the European Union. With the second-largest land area in Europe, Ukraine’s grain output is still considerable. But the continent’s agricultural giant continues to sleep.

  Enter the land grabbers. A few local corporations with access to capital are buying land from communities like Stinka. Mriya Agro, based in the western provincial town of Ternopil, has expanded from 125 acres in 1992 to 540,000 acres, thanks to loans from the World Bank. Agroton of Lugansk, set up in 1992 by a physician, Iuriy Zhuravlov, to raise bees, now has over 370,000 acres in the east of the country and is Ukraine’s biggest grower of sunflowers.

  But more recently, foreigners have come calling. They spent some $8 billion on land leases from 2008 to 2010. There were entrepreneurs like Spinks. But also hedge funds and investment banks like Morgan Stanley, all eager to harvest profits by bringing Western expertise and capital to the rich black soils. Grain yields could be
doubled to match those in the EU, they say. Exports could triple. And with land prices still not much more than 15 percent of the typical price in the European Union, the potential profits are huge.

  Charles Beigbeder, a controversial French financier and online wheeler-dealer, has 125,000 acres through his latest firm, AgroGeneration. He aims to double that holding by gobbling up failing Ukrainian farms. Serbian sugar tycoon Miodrag Kostic has 100,000 acres around Kiev. The Maharishi organic farm movement runs 125,000 acres on behalf of Viktor Pinchuk, a Ukrainian billionaire steel magnate, media mogul, and organic enthusiast, who boasts of friendships with Bill Clinton and Elton John. Colonel Gaddafi did a deal with the former Ukraine president Yulia Tymoshenko’s government to lease 250,000 acres to grow wheat for Tripoli in return for oil and defense equipment, though that was on hold in mid-2011 because of the fall of the Gaddafi regime. Brokers from the United Arab Emirates, including the president’s brother, had been on a tour of the black soils. In late 2011 China’s Ex-Im Bank talked of investing $10 billion in Ukrainian agriculture, but it was unclear what role land grabs might play.

  The Ukraine government bans outright sale of farmland to foreigners, but rumors have been rife about officials secretly sanctioning black market sales of former state farms. An investigation by journalist Mark Rachkevych in the Kyiv Post in 2010 quoted a leading lawyer for the Ukrainian Agrarian Federation, which promotes foreign investment, saying that leading politicians “are not ready for a transparent system [of land ownership]. Many are big landowners.” And if deals became public, he said, “they’d have to explain how they obtained some land in huge amounts.”

  Ukraine is highly prized for its soils, but it was only one corner of Moscow-controlled Eastern Europe. Other foreign land grabbers are spreading their nets more widely across the old Communist bloc in search of bargains. Trigon Agri, owned by a consortium of rich Danes and Finns, is growing wheat and sunflowers on 420,000 acres of black-earth farms from Kirovograd in central Ukraine to Samara close to the Caspian Sea in Russia, and from Estonia on the Baltic to Stavropol in the Russian Caucasus. It is aiming for 740,000 acres by 2015. The giant American grain trader Cargill is buying land in Bulgaria. Danish bacon entrepreneur Erik Jantzen has tens of thousands of acres in the Czech Republic, Slovakia, and Romania, where about a tenth of farmland is already in foreign hands.

  Some projects have come unstuck. An Irish company, Greenfield Project Management, hatched a scheme to grow sugar beets in Belarus, on abandoned fields in the exclusion zone downwind of Ukraine’s stricken Chernobyl nuclear reactor. The idea was that, while the land was unfit for growing food, it could grow biofuels. The company claimed the distillation process that turned the crop into ethanol would leave the radioactive strontium and cesium behind in the residues in the bottom of the distillery. The fuel would be free of radiation, and the residues could go to a radioactive waste dump. But the claim was unproven and the plan collapsed when the Belarus government withdrew support.

  The biggest three former Soviet states are Ukraine, Russia, and Kazakhstan. Between them, they “could produce half of the world’s grain export needs, including 60 percent of the world’s wheat needs,” says Gilles Mettetal, director of agribusiness at the European Bank for Reconstruction and Development, which is dedicated to promoting Western investment in the former Soviet Union.

  Unlike Ukraine, Kazakhstan has kept many of its large state farms intact, privatized but not broken up. They are run as businesses, usually by their former managers. Kazakhstan has the world’s two largest private arable farming operations on the planet. Nurlan Tleubayev, head of the country’s grain-growers’ union, has 2 million acres, and a Russian, Vasily Rozinov, has 1.5 million acres, split between Kazakhstan and Russia. But others see the potential. China signed a deal with Kazakhstan’s president, Nursultan Nazarbayev, a leader left over from the Soviet era, to take more than 2 million acres for growing soy and rapeseed. Gulf and Saudi organizations have also done deals. Both Switzerland’s GAIA World Agri Fund and the British hedge fund Dexion Capital’s global farming fund, set up by former Goldman Sachs trader Robin Bowie, have been talking to leaders in the world’s ninth-largest country.

  But Russia is still the biggest player in this part of the world. Vladimir Putin’s agriculture minister Aleksey Gordeyev claimed in 2008: “Russia is often perceived around the world as a major military power. But perhaps above and beyond anything else, Russia is a major agrarian power.” Most years it is the third-biggest wheat exporter, behind the United States and Canada. When measured per acre, its yields may be mediocre. But Russia has 7 percent of all the world’s arable land.

  There are two sides to Russian farming. Household plots occupy just 6 percent of the country’s farmland but produce half of its total agricultural products, including half its livestock and milk, 90 percent of its potatoes, and 80 percent of its vegetables. But former state farms that have stayed in business produce the bulk of the grain exports. And by some estimates, there are millions of acres of abandoned former state and collective farms awaiting rehabilitation. Russian oligarchs, gorged on profits from oil and mining, now see these farms as a new source of easy profit. In particular, they are taking over the black-earth zones bordering Ukraine.

  Among the pioneers is Michel Orlov. He comes from the “White Russian” nobility who went into exile after the revolution a century ago. Before then, his grandparents owned a string of huge estates. Born in Switzerland, he returned to Russia after the fall of the Soviet Union in 1991, and became director of the Moscow office of the Carlyle Group, a U.S.-based global investment firm second in wealth only to Goldman Sachs. “I am a modern businessman. The trick here is not to harvest crops but to harvest money,” he told the Financial Times. Under Putin, he started to buy up state collective farms on his own. In 2005, he created Black Earth Farming, with the help of funding from the superrich Lundin Group, a creation of Adolf Lundin.

  Lundin, who died in 2006, was a Swedish legend. He was an oil engineer turned mining maverick, who had a reputation for going where others wouldn’t. In the 1970s, he discovered off Qatar what is still the world’s largest natural gas reserve—singlehandedly making that tiny emirate among the world’s richest nations. In the 1980s, he gained control of some of the world’s largest copper and cobalt mines in Mobutu’s Zaire. In the 1990s, he bought into Russian oil and gas during the wild days of Boris Yeltsin’s presidency, when vast state assets could seemingly be obtained for a song. Then he started buying into Russian black earth. Lundin’s family owns a quarter of Black Earth Farming, which, through its Russian subsidiary Agroinvest, has some 790,000 acres of prime farmland. Black Earth Farming, run by English agriculturalist Richard Warburton, describes its business goal as the acquisition of “cheap, neglected but fertile land in the fertile Black Earth region in southwest Russia.”

  The Swedish connection has grown. Would-be purchaser of Landkom, Alpcot Agro, has control of 420,000 Russian acres, most of them in Voronezh and Kursk in southwest Russia. It is financed by the Swedish AP3 pension fund. Meanwhile in the Russian Far East, South Korea’s desire to improve its food security has seen Hyundai Heavy Industries take 125,000 acres of former state farms near Vladivostok. The United States’s Minnesota-based grain and food producer CHS Inc., the creation of a series of mergers between farmers’ cooperatives, has bought Agromarket Trade, Russian’s second-largest grain exporter, and its 250,000 acres of farmland around Stavropol in the Caucasus. And the fast-growing RAV Agro-Pro, controlled by the secretive Israeli real estate tycoon and grain trader Roni Yitzhaki, had 400,000 acres in the black earth region till its sale to the PPF Group, the Czech Republic’s largest investment company, in July 2011.

  Everyone, it seems, wants a stake in the black earth, their piece of lebensraum. But if there is one place even more desired by the world’s grain merchants, it is the Brazilian cerrado. That’s where I went next.

  Chapter 10. Western Bahia, Brazil: Soylandia
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  It was hard to believe, as I sipped a glass of wine and tucked into a steak in front of the pool, while a light plane landed behind me on the farm airstrip. But a quarter of a century ago, all the land around me had been Brazilian badlands. A wild west, where men on horses staged gun battles on empty grassland they could buy for the price of a packet of cigarettes.

  Times change. I was joined for lunch at Campo Aberto by a dapper British financier in a blazer and Panama hat. He used to be something big in Rolls Royce, and he had just flown in with his wife to consider investing in the farm—part of Agrifirma, a 100,000-acre agricultural empire assembled by Lord Rothschild, the head of the world-famous banking family, and the once-notorious 1970s corporate raider Jim Slater. The incorrigible pair, both past their seventy-fifth birthdays, were betting their profits from a successful speculation in gold and uranium on Brazilian agriculture.

  We were in the heart of the cerrado, the most biologically rich savannah grassland in the world, in what was once the outback of Brazil. But the lawless days are disappearing, and with them biodiversity. For this land is turning into one of the most unremittingly commercialized monocultures on Earth. It is the first place in the tropics to successfully re-create on a large scale the high-tech, high-input, high-investment farming system pioneered in the American prairies. In recent years, the place has out-invested the prairies, with its endless fields of GM corn, soy, cotton, and coffee. Even more than the black earths of Eastern Europe, the financiers say, this is the future of farming.

  The cerrado was an enormous patchwork of high waving grassland dotted with dry woods. It occupied an area approaching a quarter of Brazil—770,000 million square miles of the high plains on the Atlantic side of the Amazon basin. It teemed with unusual mammals, including armadillos, anteaters, tapirs, and maned wolves. There were thousands of endemic plants, uniquely adapted to drought and fire. These ecological riches were harvested, but rarely destroyed, by bands of Indians.