Foreign farm purchases in the West are planting seeds for diplomatic clashes
Middle Eastern investors are growing hungry for land. Last week, it emerged that Al Dahra, an Abu Dhabi-based firm, was close to gobbling up Romania’s Agricost, which runs Europe’s largest farm. The deal will add 56,000 hectares to Al Dahra’s portfolio, near-doubling its size. There could soon be more: in October, the group formed a $1.3bn tie-up with the Saudi Agriculture and Livestock Investment Company (SALIC), a state-owned entity, to develop farmland in 10 countries around the Black Sea.
Such deals would have been trickier just a few years ago. When Romania and seven other ex-soviet states joined the EU in 2004, the bloc agreed to a moratorium on foreign land purchases, for fear that the USSR’s former bread basket would be taken over by richer outsiders. That ban did not prevent overseas investors from getting around the rules by setting up local companies, earning them the label of “land grabbers”. But few of them were sovereign-backed: the potential for European outrage was simply too high.
This restraint has become less warranted. Restrictions were lifted in 2014; under the EU’s single-market rules, borders must be kept open to foreign capital. Booming land prices and local hostility have since led some financial buyers to leave, opening the way to state-backed investors, which are more strategically minded. These do not only include sovereign wealth funds. Saudi Arabia, which halted all domestic wheat production two years ago, has been offering credit to investors buying farmland overseas since 2008.
It’s easy to understand why. Middle Eastern nations are expected to record a food deficit of up to 90 million tons by 2020, owing to surging populations and dwindling resources. But food security has also become a priority for countries facing less dire prospects. China Investment Corporation, the country’s $800bn sovereign fund, made foreign farmland a top target four years ago. Strategic goals regularly trump financial metrics. “Investment performance is seen as a plus,” says Raul Martinez-Oviedo of Infrata, a UK consultancy.
State-backed land acquisitions are not a new phenomenon: China and Saudi Arabia have both faced repeated criticism for their heavy-handed involvement in African agriculture. But such deals have been rare in the West, where they have greater potential for sparking geopolitical tensions. Australia, where China’s purchases have so far been concentrated, reacted angrily when a Shanghai-based company tried to acquire its largest private landholder. Beijing is the main target of recent regulations requiring farms over A$15m ($12m) be marketed to Australians first.
Other countries could follow suit. Emmanuel Macron, France’s president, recently promised tighter vetting of purchases by “foreign powers” after a Chinese billionaire quietly amassed 3,000 hectares of arable land. In March, the Canadian Senate also warned against rural acquisitions by “non-agricultural interests” from abroad. In other times, such concerns may have been communicated in a more discreet manner. But the populist leaning of today’s politics is giving less compromising voices more airtime. It helps that Western farmers are an organised bunch. As trade tensions escalate, their cries for protection are relayed by politicians intent to portray global economics as a geopolitical tug-of-war.
The situation appears particularly volatile in Eastern Europe. Populist parties in Poland and Romania, among others, are pressing for measures that would block most farmland sales to foreigners. That could precipitate a crisis with the EU, which is already fed up with frequent provocations by the duo. Peter Beerents, a Romania-based broker, says this could result in them being “kicked out”. As Russia continues to agitate in the neighbourhood, things would not have to go that far for the EU’s eastern ambitions to turn sour.