This edition of AgriMatters is devoted to a new phenomena – that of Agriculture Outsourcing by which many countries are encouraging their corporations to secure agri commodities by gaining control over agricultural production in foreign countries. This is a shade different from the Sovereign Wealth Fund model which this column had reported a few weeks ago, in which countries acquired, or supported their corporate entities to purchase highly productive lands in Latin America and Africa. In the AO model, the emphasis is on ‘control’ rather than ownership, and almost every factor – from land to farm equipment, technical expertise and logistics – is outsourced. The focus is on agri commodities rather than on land. This has many advantages over the outright purchase model, in which the sensitivity of losing ‘ownership rights ‘over land can be avoided. India is aware of how sensitive these land matters are, especially in the context of the recent controversies on land acquisition. The counter factual is also valid: Latin American countries have abundant lands, and very low population ratios, and governments are interested in attracting investors to utilize these resources. However, as the option of long term leasing is available, the considered view of AgriMatters is that leasing is a better option than outright purchase. It must also be clarified that the option of sourcing pulses, oilseeds and sugar from across our borders has to be mainstreamed in the food policy scenario of the country, because the gap between the demand and supply projections of these three agri commodities is increasing with every passing year, especially as incomes rise, population increases, longevity grows and available land declines. It is the unprecedented rise in the prices of these three commodities that set the food inflation spiral, and if options are available to outsource the production of these commodities to Latin America and Africa, it may well be a win –win situation.
Let us take a look at some of the best models available, especially those which have an Indian connection. The Indian origin pioneer in this field is Simarpal Singh, who has founded Olam – a six billion dollar corporate entity based out of Singapore. Olam cultivates peanuts over 30,000 hectares in Argentina. After processing, it supplies them to companies like Kraft, who had visited Argentina as a manager of this company. Starting with a few hundred hectares, the operation has been scaled up, and his ambitious growth plan includes venturing into rice, soya and beans as well. The target is to extend operations to 60,000 hectares by 2012. However the interesting point to note is that land is leased, equipment is hired, and Simarpal is the only expatriate in the company which employs 155 Argentineans, including 7 agronomists. Another intervention worth documenting is Renuka Sugars Ltd. This company has invested over US D 500 m to acquire a 51% stake in a Brazilian company which gives it access to over 1.15,000 hectares of prime cane growing land. Renuka is among the top five sugar producers of Brazil now.
AgriMatters would also like to mention that based on the feedback from investors , reports received from FICCI, information sent by the embassies and articles written by our Ambassador to Argentina, Uruguay and Paraguay Mr R Vishwanathan it is clear that transactions in land are quite clear and transparent. In fact the biggest land companies have got together to establish a common website www.mercampos.com which has offers, both for freehold and leasehold lands. These agencies also offer farm equipment and technical experts on hire. What they are looking for is forward integration with the markets as their core competence lies in land management and production. This can therefore be leveraged by those who have a good command of the market scenario and outward bound logistics in countries which are trying to address issues of food security, ( and in some cases energy and paper requirements). The absolute price for land turns out to be between Rs 50,000 to 1.75 lakh per acre, depending on the location, water availability and distance from the ports. Leasing rates are lesser, and range from 10-15 % of the above price for a year’s use. Several entrepreneurs are therefore doing an appropriate ‘match and mix option’. There is about 70 million hectares of land which is on offer, and harnessed properly, it can change the way in which the world’s agricultural production is organized.
What should India Do?
AgriMatters believes that the strategy should be to offer Indian corporates and large farmers an assured price for pulses, oilseeds and sugar from their own production which should be at par with the MSP for these commodities. The main advantage in this system is that India will be able to signal the world prices for these commodities. If India does not so, the volatility of prices is quite high as the tradable surpluses are limited, especially in the case of pulses. Therefore India must take a position on; pulses’ and if our procurement agencies assure global producers that the country will be importing pulses at MSP prices