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Daewoo to Buy Madagascar

OK, not exactly. Firstly, it isn’t the entire island (just half the country’s arable land), and secondly, they aren’t even buying it — they’re getting it for free!

From the Financial Times:

Daewoo Logistics of South Korea has secured farmland in Madagascar to grow food crops for Seoul, in a deal that diplomats and consultants said was the largest of its kind.

The company said it had leased 1.3m hectares of farmland – about half the size of Belgium – from Madagascar’s government for 99 years. It plans to ship the maize and palm oil harvests back to South Korea. Terms of the deal were not disclosed.
[...]
The United Nations’ Food and Agriculture Organisation warned this year that the race by some countries to secure farmland overseas risked creating a “neo-colonial” system. Those fears could be increased by the fact that Daewoo’s farm in Madagascar represents about half the African country’s arable land, according to estimates by the US government.

Wow.

But more:

Daewoo Logistics of South Korea said it expected to pay nothing to farm maize and palm oil in an area of Madagascar half the size of Belgium, increasing concerns about the largest farmland investment of this kind.

The Indian Ocean island will simply gain employment opportunities from Daewoo’s 99-year lease of 1.3m hectares, officials at the company said. They emphasised that the aim of the investment was to boost Seoul’s food security.

Double wow.

Even the FT is crying neo-colonialism:

Pirates are not the only source of concern off the African coast. The deal South Korea’s Daewoo Logistics is negotiating with the Madagascan government looks rapacious. Alas, it is but the latest brazen example of a wider phenomenon. In the name of food or energy security, cash-rich states are seeking to buy up natural resources in poor countries. While foreign capital and technology should be welcomed by countries with surplus resources, the terms and scale of the present deal raise serious questions.

Any agreement must ultimately be in the interest of the local population. The Madagascan case looks positively neo-colonial. If the deal is sealed with the vague promises by Daewoo Logistics being mooted, the Madagascan people stand to lose half of their arable land.

Somewhere, a Lone Star executive is staring at his computer monitor in disbelief.

On a positive note, I thought I’d never see the day when my African Studies background could actually become marketable in Korea. So what about it, Daewoo — if he can convert it into a house in Seongbuk-dong, Bwana Marmot is ready to plunder some hapless East African country when you are.

(HT to reader)

UPDATE: An observation from mjw:

Definitely smacks of neo-colonialism. But I’d have to say that reading a piece written from London which bitches about the colonial tendencies of a nouveau-riche Asian country is, if you will, a bit rich. Perhaps they’re a mite jealous that the white man’s burden has turned yellow.

About the author: Just the administrator of this humble blog.

  • mjw

    Definitely smacks of neo-colonialism. But I’d have to say that reading a piece written from London which bitches about the colonial tendencies of a nouveau-riche Asian country is, if you will, a bit rich. Perhaps they’re a mite jealous that the white man’s burden has turned yellow.

  • seouldout

    Meanwhile at Daewoo Logistics:

    “Madagascar?! You nitwits, we were supposed to buy Mauritania. Slavery still exists there.”

  • gbnhj

    Yes, the deal is huge, but without knowing the terms, it seems presumptuous to describe it as ‘rapacious’.

  • Jing

    China has been doing the same for some time now in much of Africa. I hope the Chinese will eventually swoop in and drive the Koreans out once they have all the basics established. If the Madagascans are willing to sell half their country, they probably aren’t much sticklers for the niceties of honoring sweetheart deals. China’s got more money and more importantly more power.

  • mjw

    #3 GBNHJ: why?

  • http://www.xanga.com/wangkon936 WangKon936

    Rob, your gravy train has arrived… Ask Daewoo for a six figure income. Seriously, who else on the Korean peninsula has your “unique” skill set?

    Now, my question is, will you trade your hanbok for a lamba?

  • mjw

    And speaking of Lonestar, how cool would it be to see the good people of Madagascar toil the land under the Daewooian yoke for a few years before casting out the rapacious slave drivers in, say, year 6 of 99 by nationalizing the entire agriculture industry and making off with all that shiny new technology that had just been transferred?

  • Keyser Soze

    What’s to worry? Korea’s enlightened attitude towards race relations will overcome all!

  • http://www.xanga.com/wangkon936 WangKon936

    Africa. Taking it up the ass since the 18th century!

  • madar

    And my crystal ball shows me… Daewoo bribed government officials to get this deal. Daewoo will now abuse this position and continue to bribe the officials. The corruption will get to a point were a rebel group in Madagascar will be about to take hold and sweep out the current administration. They will “nationalize” all Daewoo’s assets into their own pockets while Daewoo cries foul. After they have spent all nationalized assets they will strike the same deal with Samsung about 3 years down the road. And we will have another neat repetition of history.

  • http://www.korealawblog.com Brendon Carr (Korea Law Blog)

    On the other hand, Korea does have a food security problem. Its citizens like to eat, but none of the young ones wants to farm anymore. The average age of a Korean farmer is something like 117, and as they die off nobody wants to replace them — unless Korea imports peasants from other countries, who could be a security problem.

  • http://www.xanga.com/wangkon936 WangKon936

    Report on Madagascar’s stability:

    http://www.carleton.ca/cifp/app/serve.php/1082.pdf

  • eujin

    Wow, the FT editorial is pretty full on in condemning it, but I think we may need more details to figure out who is benefitting from this. Madar may well be right about how the deal came about. But is Madagascar going to impose an export tax on the food that is shipped out? Maybe there are other conditions, about how much food is to be shipped out, who is to be employed at what rate, who is to be trained, which local companies are to be awarded contracts for xyz…. I can see how places like Madagascar want to make themselves indespensible to the first world, just like Kuwait or Saudi Arabia.

    The problem of them calling out the courts or calling out the troops to take the land/capital back is the same for all FDI. Just think about foreign energy companies trying to operate in South America.

    Brendon, does Korea need to maintain the same number of farmers per hectare as it has now to produce the same amount of food? I doubt it. The workforce is bound to shift from primary production to secondary and tertiary as development finally reaches out to rural Cheollado, but the farms will just get bigger and, dare I say it, more efficient. Korea is unlikely to ever be able to feed itself however, even though the ROK got the prime cuts of the agricultural land on partition.

  • jazzman

    Korea has tried this before in Brazil (during the PCH years)…twice as much land actually, but it was no good because of NA in the soil.

  • KWillets

    Would they be interested in Detroit?

  • robert neff

    It seems almost like deja-vu. I believe it was in the early part of 1905 that the Japanese tried to do the “Empty Land Management” in Korea – they claimed it was to develop all the undeveloped and unmanaged land throughout the Empire of Korea for the good of the country, and naturally Japan too.

  • Darth Babaganoosh

    How long before we get an exposé on the labor abuses in Madagascar at the Daewoo facilities? Should we start a pool?

  • http://sungnyemun.org/wordpress/ dda

    Remind me how much the US pays for Guantánamo?

  • http://www.xanga.com/wangkon936 WangKon936

    Neff,

    Unfortunately, your analogy falls way short. The Koreans didn’t sponsor the establishment of a rump assembly to rubber stamp legislation and didn’t force Madagascar to secede its ability to have its own foreign policy and representation (although we may find out later that Korea “bought” the approval they needed).

    Nice try though. What the Koreans are doing at this point is more akin to what the British (or Dutch) East India Company did in India and the East Indies rather than what the Japanese did in Korea in 1905. However, I doubt even the East India Company analogy is a very good one either, but it’s a lot better than yours.

  • http://www.jdlink.co.kr Linkd

    It’s just too fishy for words. There has to be a LOT that we don’t know about this deal. 99 years for free? Right. Hell, there’s a lot we don’t know about “Daewoo Logistics”. By all means, visit their site and see whether you can find out who owns/controls them.

    What is known: Daewoo International owns 20% of Daewoo Logistics. Daewoo Int’l is part of a consortium led by Korea Resources Corp, which is government-owned, and therefore government-funded. KRC aims to become a ‘global top 20 mining company’. The KRC consortium owns 27.5% of the Ambotovy nickel mine in Madagascar – but of that total 21% is held by KRC, and just 2.75% by Daewoo International. Daewoo and Hyundai E&C also got the contract to build a power-generating plant in Madagascar to service the mine.

    Daewoo International announced in Sept that it “may” develop a coal field on the island, and build a coal-fired power plant and power transmission infrastructure.

    Back to the fact that Daewoo Int’l owns 20% of Daewoo Logistics: who owns the rest? The latter is not a listed company, so we can’t know. I bet a major chunk of it is KDB or KAMCO (both government-owned), but that’s just paranoid rumor-mongering on my part. But as long as I’m at it:

    The Korean government, in the form of Korea Resources Corp, is envious of all the resource deals China is making in the developing world, and wants to be a big player, too. It takes Korean companies along with it and gives them a pitifully small stake in the consortium to develop whatever third-world resource, and probably provides the necessary financing, too. In the process, the Korean companies get some international exposure and make on-site contacts, which can lead to such contracts as the Madagascar power plant, coal field, and now this utterly confusing announcement about a cornfield half the size of Belgium, which I also suspect has government financing behind it.

    In some corner of my mind, I think Robert’s headline is right: they do want to buy Madagascar. But “they” is the whole nebulous Korean borg, not just Daewoo.

  • gbnhj

    #3 GBNHJ: why?

    mjw, I’m simply saying that, since we don’t know the details, it is wrong to describe the deal as being unfair to the Madagascaran people. Likewise, it would be wrong to say that Korea got the shaft in the deal. As eujin wrote above,

    [T]he FT editorial is pretty full on in condemning it, but I think we may need more details to figure out who is benefitting from this.

    Or – and even coming from a different perspective – consider what Linkd says:

    There has to be a LOT that we don’t know about this deal.

    This deal is big, no question about it, but is it bad? If so, for whom, and how would one know at this point?

  • IamMagical

    For some reason British papers have it out for Korea. We have China pillaging and colonizing the rest of Africa yet here we are with a vague story on Madagascar.

  • SomeguyinKorea

    #22,

    The BBC did a pretty revealing story on China’s role and influence in Darfur.

    I’d love to ask my old Ecology professor (who just happens to be from Madagascar) what he thinks of the deal.

  • R. Elgin

    I agree with “Linkd” here. He is closer to the reality of it, IMHO.

    Also, considering the shortfall in the Korean workforce of the future (low birthrate), will Korean end up importing Chinese to work their fields like the Japanese currently do? Again, as Brendon puts it, it is a security problem.

    Also, “Eujin”, manpower shortage is the big problem for Korean farmers, not “efficiency”. The farmers are already pretty efficient.

  • babarian.

    I also got the impression that the article came across as a bit emotionally charged for an English broadsheet paper.

    “cash-rich states are seeking to buy up natural resources in poor countries.”?

    Didn’t FT argue only a few weeks ago that Korea was in danger of falling victim of financial crisis because of shortage of cash?

    “the farms will just get bigger and, dare I say it, more efficient.”

    Indeed. Not very long ago, maybe until early 80’s, average rice field size in Korea was just a few hundred square meters, enough to feed a family through the year, but now it looks far much bigger than that, and the shape of the field used to be in irregular disconnecting lines, but now rice fields in Korea seem to be in pretty straight lines and in rectangular forms. Many of the farmers didn’t know what a tractor would look like, as they cultivated with cows.

  • Wedge

    I wonder if this will do as well as Park Chung-hee’s 1978 purchase of land in Argentina. “Hey, I’ve got some great pampas to sell you!”

    http://www.banbok.net/board/board.php?act=view&id=topic&no=2776&category=&pg=2

    [I think Marmot covered this at some point as well.] Anyway, the price seems to be better this time.

  • eujin

    It will come as no surprise that I know nothing about the agricultural sector in Korea; but if young people don’t want to be involved in farming (Brendon’s point) and the problem is a lack of manpower (Elgin’s point) then maybe there is something wrong with the wage-price signals that are being sent out. Or maybe the land-labor-capital is more efficiently used for producing something else in Korea.

    I was a bit surprised to find that beef can be more cheaply produced in the US than in Korea, but from the Factbook I learn that agriculture accounts for 1.2% of GDP in the US and employs only 0.6% of the labor force, whereas in Korea it employs 7.5% for 3% of GDP (and the GDP per capita is much less in Korea). Admittedly the landscape may play a part. Japan has 4.6% employed for 1.4% of GDP, but New Zealand, which has a similar GDP per capita to Korea (and is also kinda hilly) gets 4.5% of GDP from only 7% of the labor force in agriculture.

  • eujin

    GDP per farmer, from CIA World Factbook, mainly 2007 estimates.

    USA $91,600
    Canada $40,500
    Australia $31,000
    UK $22,500
    France $17,500
    New Zealand $17,500
    Japan $10,200
    Korea $10,000
    Vietnam $900
    India $800
    Madagascar $500

    I guessed the last one based on 50% of population in agriculture. Korea does a bit better on the PPP GDP per farmer, then it’s even better than Japan!

    USA #1. Don’t you just love it! ;-)

    OK, they may not be counting the US numbers in quite the same way, and a lot of people working in agriculture in the US probably don’t show up in the official labor force figures, cough, cough, but still.

  • eujin

    To be clear, those numbers are total GDP from agriculture per total people working in farming, not just total GDP per farmer.

  • mjw

    21 GBNHJ: quite right, of course.

  • greenman

    #27/ 28: The only stat amongst that collection of dead herrings is surely the one for Japan, which has a lot of the agricultural drawbacks of Korea, but is different in terms of not spending quite so much money growing highly unsuitable agricultural products under plastic. Not sure that agriculture in the relatively open market of New Zealand has much to do with the utterly nonsensical stuff that goes on in Jeolla.

    Anyhow, ain’t this just Madagascar seeking out a competitive advantage? Ok, it smacks of colonialism, but so does oil extraction (kudos to #13) and any number of other things which are, to some degree, just efficient usage of resources. Maybe if Korea were promising to protect the rain forest that remains and all the lemurs within it we wouldn’t be so hard on the deal…

  • CactusMcHarris

    I don’t need to explain to those of you who, like me, have a passionate interest in growing cactus and succulent plants, but for the rest of you non-cacsuccers, Madagascar is a very special place to me, in terms of animals and plants, both of which have been wiped out in great numbers by farming. Some have gone extinct. There is a snowball effect here.

    I hope it isn’t a classic parasitic exploitation (similar to what China’s doing in the Congo) and I hope DaeWoo can teach some of the Malagasy folk sustainable farming. Great swaths of the land has been made non-usuable, due to erosion and overuse.

  • slim

    Smacks of mercantilism to me, when they simply could be buying foodstuffs on the open market and importing them.

  • CactusMcHarris

    Don’t you think the foreign company will set up a plantation-type factory and employ the locals as workers?

    Somehow I don’t think that the words ‘Fair Trade’ will be applied to the foodstuffs, but I hope I’m proven wrong.

  • adeptitus

    IMO if the land or resource is undeveloped, then there’s nothing wrong with inviting a foreign investor to develop it. However I do think the 99-year lease is a bit excessive.

    Many parts of Africa is relatively undeveloped, and offers a lot of opportunities to Asians looking for work abroad. Asian governments should probably encourage its blue-collar workers to look abroad as a way to cut down on its domestic unemployment rate.

  • redneck hickboy

    Ok, it’s official:

    With this blatantly colonialist move, Korea has lost all rights to bitch about how they suffered any colonialist yoke. Anyone who tries to argue that this is anything but pure, dyed-in-the-wool colonialism is full of it.

  • IamMagical

    @33, this isn’t really mercentilism. Mercentilism is about stopping imports, increasing exports; this is more of the opposite. If you want mercentilism check out Japan.

    @36, I’m going to assume your some Asian which pretty much negates your comments. Colonialism is forced, buying land and entering an agreement on the opposite side of the spectrum of things related to trade.

  • aaronm

    #34, good point, and if it breaks down like this, it’s hardly different from what the likes of Del Monte and Dole have been doing in Latin America and the Philippines for the best part of a century.

  • http://www.jdlink.co.kr Linkd

    There is indeed a mercantilist aspect to it: Let’s say that Korea cannot meet its corn needs with domestic production. It has an import duty of 30% on corn, imposed to ensure high prices for domestic corn growers. (‘stopping imports’, as you say).

    I assume the Daewoo venture will pay no import duty to bring in its products*, effectively adding half-a-Belgium of corn capacity to Korea’s domestic production. This domestic production will actually be produced with cheaper African labor, and even considering shipping costs, will probably be cheaper than domestically produced corn. But Daewoo will be able to sell it to Koreans at the local price (gotta support the Korean farmers), and it will be able to produce value-added products like corn oil, popcorn, and corn syrup in industrialized Korea, and export it to countries such as the US, Australia, Canada and the EU that do not allow their companies to go into developing nations and sign exploitative deals – whether by law or by the force of conscientious public opinion. (‘increasing exports’, as you say).

    The ‘open market’ that slim refers to has been proven many times over to be more efficient – that is, to result in overall lower prices for consumers and less waste throughout the system. But for Korea to simply buy corn on such a market, from a non-Korean seller, would be to classify the corn as an import. In that case, the choice is either to reduce the tariff (anathema to Korea) or to continue accepting higher domestic prices as a form of social welfare for 117 year old farmers and their hot young Vietnamese baby mammas.

    *I assume this because I believe the whole venture is part of a government-backed program to secure resources for Korea, and that ‘Daewoo Logistics’ is merely the front for this initiative.

  • http://www.sperwerslog.com Sperwer

    There is indeed a mercantilist aspect to it

    and a colonialist (pure-bred, non of that neo stuff) aspect, too: Manse, the East Africa Co-Propserity Sphere! Manse!

  • MrMao

    “Africa. Taking it up the ass since the 18th century!”

    Wow. That was harsh.

  • http://rjkoehler.com Robert Koehler

    Unfortunately, not far removed from the truth, either.

  • NetizenKim

    China has been doing the same for some time now in much of Africa. I hope the Chinese will eventually swoop in and drive the Koreans out once they have all the basics established.

    Dude, we’re not talking about a Starcraft game death match between the Chinese and Koreans. Get a grip.

  • R. Elgin

    This topic has sparked some debate in other other forums as well that mention our commentary herein.

    It seems that laws regarding foreign investment in Madagascar were changed *just* before this deal was made. What a coincidence.

  • djs0570

    Note comment No. 44 well. Madagascar’s current administration is run by head of a large conglomerate. He is systematically giving away the countries resources for a few pennies on the dollar, which will net him a few hundred million and leave the country destitute. The country has a high degree of food insecurity, why would they literally give away half their arable land? Would you give away half your land if you didn’t have enough food. Wait! Would you give away half your land even if you DID have enough food? Of course you wouldn’t. How about helping Madagascar develop intensive agriculture first, becoming self-sufficient (it is an island, after all), then thinking about developing an export market with mutual benefit for Madagascar and its potential customers? Madgascar’s growing population is hungry and can ill afford aggressive exploitation. If any deal is made, it should include hefty cash payments up front and in perpetuity, as well as a fair market price for surplus production. By the way, the “jobs” some of you have mentioned are not for the locals, they would import South African laborers while millions in Madagascar are without work! Why, you ask? Now you are starting to scratch the surface. Keep digging, you may eventually begin to understand!

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