In Depth November 25, 2009, 5:00PM EST

Land Rush in Africa

Agribusiness and global investors are scooping up farmland. Are corporate farmers the new colonialists?

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Locals like Apiyo complain they've lost land and livestock without fair compensation Nancy Newberry and Tim Freccia

By Jessica Silver-Greenberg

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Farmland in developing countries has become an unlikely object of investor fascination. Morgan Stanley (MS) and other Wall Street firms are raising hundreds of millions of dollars for agriculture funds aimed at Africa and Latin America. Agribusinesses in the U.S. are leasing vast tracts of African land from which they expect to export crops and glean healthy returns. Arab oil countries, meanwhile, are vying for fertile acreage for fear their homelands are running out of water.

The executives leading this hunt for farmland say they are boosting poor economies. Dominion Farms, based in Guthrie, Okla., leases 17,000 acres in Kenya near the village where President Barack Obama's grandmother lives. Dominion President Calvin Burgess boasts that his company provides employment for hundreds of local residents. "This area was a malaria-infested swamp before we got here," he says. Once Dominion is fully in gear, it plans to sell rice to African governments and export farm-raised fish to Europe.

But in Kenya, foreign land investors are beginning to stir resentment. Subsistence farmers and cattle herders complain that they are being displaced without compensation. In the Siaya District of southwest Kenya, families say Dominion hasn't offered as many jobs as it claims in the six years since it arrived. Villagers accuse it of polluting water and sickening farm animals—allegations the company denies.

Tensions are rising. Charles Onyango Apiyo, 39, raises cattle in Siaya. A year ago, he says, 10 of his cows wandered onto Dominion property. The entire herd of 150 was confiscated by company employees and taken to a police station. The cattle were held for almost two weeks, during which time 20 died, Apiyo says. More perished from dehydration on the trek back to his land. In an interview on the side of a dusty road, he says he has received nothing for his losses.

Dominion's Burgess expresses little sympathy. Stray cattle, he says, can spread disease. "Can you imagine a rice farmer in Mississippi allowing stray cattle onto his field?"

Several factors explain the rush to invest in farmland in Africa. In 2007 high oil prices drove up the cost of crop production and shipping. The resulting spike in food prices was exacerbated by severe droughts in Eastern Europe and Australia. Sensing opportunity, investors and corporate farmers went shopping in Kenya, Sudan, Tanzania, and Ethiopia. Governments in those countries, which annually accept billions of dollars in food aid, leased land to outsiders in exchange for promises of cash, roads, and schools. Local residents, however, often weren't consulted when land they considered theirs was turned over to newcomers. Centuries-old themes of exploitation inevitably surfaced.

AN UNUSUAL CONFERENCE

In the first half of 2009 private equity funds lined up more than $2 billion to invest in farmland, according to Agcapita, a Calgary-based fund. BlackRock (BLK) has raised $500 million to invest in agriculture. Philippe Heilberg, a former commodities trader for American International Group (AIG), has leased 1 million acres in Sudan. Heilberg's New York-based Jarch Capital announced in April that it had acquired the land for an undisclosed amount through a Sudanese firm. Jarch plans to grow rice, wheat, and other crops for export. The owner of the land is Gabriel Matip, a son of General Paulino Matip, the leader of the armed wing of the Sudan People's Liberation Movement, which fought a long war against the government in Khartoum that ended in 2005. In a statement issued to the Sudan Tribune in April, Jarch said it planned to lease another million acres by the end of 2009. The completion of that deal hasn't been announced.

In June scores of institutional investors gathered in New York for Global AgInvesting 2009, a first-of-its-kind conference.