Cambodia holds land deal talks

FT.com

By Raphael Minder in Hong Kong
November 20 2008

Cambodia is in talks with several Asian and Middle Eastern governments to receive as much as $3bn in agricultural investment in return for millions of hectares in land concessions, according to a senior government official.

Some of the deals would be finalised “in coming months”, said Suos Yara, under-secretary of state responsible for economic co-operation.

The revelation comes as impoverished countries rich in fertile land and water such as Cambodia, but also nations in east Africa, seek agriculture investments from resource-poor but capital-rich countries.

Kuwait and Qatar were “very strongly interested” in securing more farming land, he said, with South Korea and the Philippines, which suffered from rice shortages this year, among potential Asian investors.

“Food prices have recently fallen but that really makes little difference because the food supply issue will be there for the long term,” he said. “With this financial crisis, we need to seize this opportunity to develop our farming and switch [foreign] investment from construction to agriculture.”

Kuwait has already agreed to give Cambodia loans totalling $546m (€436m, £369m) to develop agriculture, the second largest aid pledge ever received by Cambodia, after aid and loans totalling $601m offered by China last year.

This week, Daewoo Logistics of South Korea secured a landmark deal with Madagascar to grow food crops to send back to Seoul on a 99-year lease. Daewoo hopes to farm its Madagascar lease for free but is promising local jobs and infrastructure investments in road and irrigation.

Suos Yara would not detail the terms of the potential deals but said leases would run between 70 and 90 years. He did not say how much investors will pay for the leases, with the $3bn more likely in infrastructure investments than rent.

Phnom Penh calculates that Cambodia has 6m hectares available for farming, of which 2.5m are under cultivation. By comparison, the Korean deal with Madagascar covers 1.3m hectares.

Apart from boosting farming acreage, Suos Yara said the deals would make an equally significant contribution in terms of infrastructure and technology upgrades in a country that has emerged from decades of war and a 1970s genocide.

Last year, Cambodia produced 2.5m tonnes of rice, of which about 1.3m was exported, from a sector that relies on a single annual harvest and family-run farms. “With better technology and irrigation, rice production could double in some areas,” he said.

Cambodia’s farming push comes as the government faces an abrupt economic slowdown after averaging growth of 9 per cent over the past decade, as Korean property developers and other cash-strapped foreign investors start to shelve real estate projects.

Cambodia attracted about $3bn of foreign direct investment in 2007, of which 45 per cent was in real estate projects and 25 per cent in agriculture. Suos Yara said the land deals would help maintain foreign investment at such levels but with about half of the total coming from farming investments.

The country has suffered a food crisis, with the Asian Development Bank providing $35m in emergency food assistance last month. However, Suos Yara said conditions had returned to normal. “It was a distribution problem and not a food shortage problem,” he said.

While most of the potential investors were seeking to bolster their food reserves, Phnom Penh had also been talking to biofuel producers, including Indonesia, about ceding land for crops such as jatropha, a succulent plant becoming increasingly popular in the production of biofuels.