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http://www.washingtontimes.com/news/2012/feb/1/china-plants-bitter-seeds-in-south-american-farmla/
China plants bitter seeds in South American farmland
Culture clash seen with wave of investments
BUENOS AIRES — Few were surprised when Venezuela announced a deal with China last week to restore 1.4 million acres of unproductive farmland across the oil-rich but impoverished South American nation.China increasingly is buying farmland and agricultural companies in South America to feed its ever-growing population, currently estimated to be 1.34 billion.
The most important aspect of China’s agricultural investment in Latin America is that “it is a part of the increasing physical footprint of the People’s Republic of China that is just beginning to occur,” said Evan Ellis, an assistant professor at National Defense University in Washington.
Mr. Ellis said that “with the Chinese becoming mine owners, petroleum-field operators, factory managers and dam builders in Latin America,” China’s farming operations there “will immerse the Chinese, with their very different culture, in one of the most politically charged phenomena in the region - the relationship between the Latin American people and their land.”
Central to China’s rising agricultural-industrial complex are soybeans from Brazil and Argentina, millions of tons of which the Chinese are importing to feed cows and pigs to meet a growing demand for meat.
From 2005 to 2011, China’s soybean demand nearly doubled to more than 70 million tons per year, while domestic production declined 10 percent to 14 million tons, according to SinoLatin Capital, a Shanghai-based investment firm focused on transactions between Latin America and China.
China is working to close that deficit by infusing cash into Latin American economies in exchange for allowing Chinese government-owned companies to set up shop and extract basic food goods:
• The Chongqing Grain Group has agreed to build an industrial complex for soybean processing in Brazil’s Bahia state, where it reportedly plans to invest up to $2.4 billion.
• The Hong Kong-based company Noble Group is steering $237 million to a similar project in Brazil’s Mato Grosso region.
• China’s Sanhe Hopeful Grain & Oil announced plans in April to put $7.5 billion into soybean processing facilities in the state of Goias in exchange for an annual supply of 6 million tons of the legumes from Brazil, a deal that reportedly includes building a railroad to move products out of the facility.
Mr. Ellis notes that the Chinese agricultural giant Helionjiang Beidahuang, the China National Agricultural Development Group Corp. and Chongqing Grain Group have made clear their intention to buy Brazilian land in coming years.
In Argentina last year, Beidahuang inked a deal with the provincial government of Rio Negro to help develop more than 800,000 acres of farmland and upgrade a port in exchange for soybean exports over the next 20 years.
Attempts to contact Beidahuang were not successful.
Officials at the Chinese embassies in Brazil or Argentina did not respond to requests for comment.
Neocolonial claims
While Chinese demand for commodities has fueled economies in Brazil and Argentina, it also has prompted unease and a backlash of sorts.
Common are complaints that neocolonial-style trade - raw exports going to China while higher-value Chinese imports flood local markets - is creating the kind of wealth that can dissipate eventually.
Without naming China, the Argentine Congress in December passed legislation that limits foreign owners to 2,470 acres and caps the total land area that can be owned by foreigners at 15 percent.
What’s more, political backlash and a lawsuit have killed Beidahuang’s deal in Rio Negro.
Brazil also is responding in kind. After several Chinese attempts to buy large tracts in 2010, Brazil’s attorney general last year used a 40-year-old law to make it harder for foreigners to buy land.
Lawmakers in March will vote on a bill that would codify those restrictions.
Jorge Rulli of the environmental organization Grupo de Reflexion Rural said the Argentine land law doesn’t stop Chinese companies from buying into local companies that then do their bidding.
He cited a long-reported deal between Beidahuang and Cresud, Argentina’s largest soybean producer. But a Cresud representative told The Washington Times that there is “currently no deal” between the companies.
Still, similar criticisms have been leveled against Brazil’s land law.
Paulo Sotero, a Brazil analyst at the Woodrow Wilson International Center for Scholars in Washington, noted that the country’s constitution does not discriminate between foreign and Brazilian owners.
“So a legislation that does could be challenged in the courts,” he said.
Thilo Hanemann, research director at the Rhodium Group, an investment advisory and strategic planning firm in New York, said political backlash against land deals has driven Chinese companies to shift strategies.
“They’re turning away from their obsession of ownership in these sensitive sectors and finding more flexible solutions to get what they need,” he said. “They’re now seeking small stakes in companies or buying into long-term supply contracts, processing plants and infrastructure.”
Strength or weakness?
Mr. Hanemann dismisses the perception that Chinese investment in natural resources and global commodities is a product of strength and colonial ambition.
“Chinese agricultural investment is sign of weakness rather than strength,” he said. “Their food demand is increasing, but Chinese companies currently have a minor foothold in the global supply chain and inferior productivity at home.”
In the 1960s, agriculture accounted for more than 40 percent of China’s total gross domestic product, but that figure today stands at 10 percent, according to SinoLatin Capital.
SinoLatin analyst Felipe Canales said China’s needs can translate into gains for developing countries. Proper land acquisitions can create jobs, boost salaries and improve infrastructure, he said.
He also noted another reason Chinese companies are seeking local partners.
“There is more risk to agriculture,” Mr. Canales said. “If you’re investing in a mine, you usually have proof of copper. Agriculture is more uncertain.”
Chinese who invest in agriculture see Latin America as a far-away region with a language and culture they don’t understand, he said. “So it’s best to get a minority stake in a local partner, learn from them and later acquire a bigger stake.”
Kory Melby, a U.S. farmer who works in Brazil as an agricultural investment consultant, said he has received calls and emails from Chinese grain buyers wanting to partner with Brazilian grain warehouses.
“The Chinese are forming partnerships with megaproducers so everybody feels nice and calm,” he said. “Instead of trying to buy land directly, they are saying, ‘Here’s $10 million at below-market interest rate. You go buy more land. You go buy equipment. You go do what you do well. But we have the option of setting a price and getting paid back in soybeans if we need them.’ “
Mr. Melby said Brazilian farmers want to sell to China but are cold to the idea of foreigners making speculative fortunes off their crops.
“The only way this will work is if the Chinese have boots on the ground,” he said. “They need base camps with dynamic Chinese individuals in country, learning Portuguese and constantly working the angles.
“It’s about having a presence. It’s about going to church together, playing soccer and drinking beer together. That’s how trust is built here.”
Others hold a different view of Chinese boots on the ground.
Mr. Ellis, of National Defense University, said the greatest challenge to U.S. security posed by China’s activities in South America involves Chinese funds helping to prop up “populist regimes” such as that of Venezuelan President Hugo Chavez.
He said China’s investments could turn South American countries into “economic vassal states setting the stage to create a crisis that the U.S. and their neighbors will have to deal with at a later point in time.”
