We have moved from a three F’s crisis (Finance, Fuel and Food) that was stoking inflation to a panic that is driving a fall in prices for all three – opening up the threat of deflation. For example, in four months the price of oil has fallen $100 in four months to $50 a barrel. This is bad news for those producing countries with a high percentage of suppliers based in the local informal economy.
And yet, with population growth from 6 to 9 billion by 2050 in store, shortages will not go away. Several countries who are resource-poor are setting up deals with less developed countries to secure their long term fuel and food security. For example, African countries lack capital and technical expertise to harness natural resources and their partners in the developed world have the cash, the skills and, voracious needs. Nothing wrong in generating badly needed cash from something that you have in abundance but, how can those countries ensure that short term gain translates into long term sustainable growth?
Natural resources should trigger fundamental transformations in their economy. Logistics will play a crucial role. And yet, this is not about military logistics to sort out emergency connectivity, humanitarian logistics to enable medicine and food to reach the needy or even the Logistics of a stable economy – just yet. Can Transformational Logistics act as a catalyst for the Logistics agenda where countries trade off natural resources for short term gain?
Reading between the lines of the recession, the radar picks up several mentions of countries looking to secure land, food, commodities or energy supplies. Usually this is a story of resource-poor but capital-rich countries looking to secure business continuity and avoid social unrest. The food riots of 2008 were a wake up call for many governments. Mind you, the Maldives looking to secure land in India (or elsewhere) just in case their homeland actually drowns is a different angle on the same theme.
There are many examples of countries looking for offshore food, energy and raw materials supplies …
- Japan – a classic resource poor country with raw material hungry manufacturing industries has long sourced from Manchuria in China. However, as China’s own needs have exploded, Japanese sourcing for coal and other raw materials has had to move elsewhere – thereby creating other problems. These days Japan owns over 300,000 hectares of land in Brasil [110k h], the USA, New Zealand and elsewhere with several deals on future supplies in place.
- China is busy developing long term food and fuel security. With an oversaes land bank of over 2 million hectares, China has land for agricultural purposes in Russia [80k h] Laos [700k h]; the Phillipines [1.25 m h] and smaller holdings in Cameroon [10k h] and Uganda [4k h].
- Angola, rich in oil and other raw materials has given concessions to the Chinese for a slice of the raw materials cake in return for assistance in infrastructure construction – such as railways and other market access facilities.
- China timber supplies have dwindled as sustainable forest legislation or retailer specifications have forced them to source elsewhere – Liberia for example. Imagine the carbon footprint of a log that ends up as the top of an Ikea Table manufactured in China; sourced in Liberia and sold in Hull.
- Indonesia. In August 2008, the Middle East Foodstuff Consortium, a Saudi Investment Group announced plans for a $4 billion deal to develop 500,000 hectares of land. The objective is to produce basmati rice for export to Saudi Arabia. This announcement was followed by the setting up of a $500 million special investment vehicle by the Saudi Fund for Development for buying land abroad for domestic production.
- Qatar sets up a deal with Vietnam, in September 2008, to invest in food production for export to Qatar.
- Sudan. Has attracted $9 billion in 2008 with projects for the UAE and other Gulf States are looking to set up food security; Jordan and elsewhere… Chickens; Fruit and grains are all being famed for foreign markets. Working on these projects Karthoum is a boom town where Dhafur fails.
- Cambodia, rich in fertile land and water, is in talks with several Asian and Middle Eastern gvernments to receive up to $3 billion in agricultural investment in return for millions of hectares of land.
- This week, Daewoo Logistics of South Korea announced that it had secured a landmark deal with Madagascar to grow food crops to send back to Seoul on a 99 year lease. The land, which is located on Madagascars western coast, is 1 m hectares or, 2.5 m acres – an area the size of Belgium. The price paid will be $12 per acre – a fraction of the cost in South Korea.It is intended to grow palm oil; which is a key commodity for the global bio fuels industry and corn. Currently, S Korea improts 11m tonnes of corn per year and this land could produce up to 5.5 m tonnes. It could take up to 15 years to achieve such yields.Daewoo is hoping to farm its Madagascar lease for free but is promising local jobs and infrastructure investments in road and irrigation. Investments could rise to $6 bn over 25 years in a venture that is regarded as the biggest of its kind in the world. This investment will be focussed on port facilities, roads, power plants and irrigation systems necessary to achieve the objective. Madagascar, with a population of 20 million has 70% of the population living below the poverty line. The project could generate up to 70,000 jobs.
- In 2009, the UAE investment form Al-Qudra plans to acquire 400,000 hectares of land in a dozen countries including Australia, Egypt, Pakistan, the phillipines and the Ukraine.
- There are many more examples. Please send in any that you are aware of…
The point is this. How many of these deals reflect the real value – in global terms – of this land in the price they pay for the land – at local price levels? What is happening to ensure that these developments are working towards a sustainable solution in the longer term for those countries who need the short term cash but may, in the end, be sowing the seeds of a long term disaster? Some of the above deals have this in mind but, do they all?
A Logistics perspective that helps to transform the local economy in the short, medium and long term is needed. We are not talking humanitarian logistics and, we are not talking of a fully fledged market economy capable of modern retail. We are talking of a Logistics package that tackles issues like infrastructure investment, the skills deficit, corruption and often crazy transit tariffs and so on.
And, this perspective may have to be offered from the World Bank or the United Nations as part of the long term security and sustainability agenda.