Courtesy of The Guardian, an interesting look at how resource-hungry China has so far passed over investing in high-priced farmlands of South America in favor of Africa, with its less developed commodities markets, greater need for financing and open labor laws. As the article notes:
“…China is spending hundreds of billions of dollars on efforts to secure natural resources and food to fuel economic growth and feed its population. The international financial crisis has made prices for global commodities assets much less expensive than they were a year ago.
Overall Chinese direct investment in Latin America has been small but on the rise, according a report by the Latin America and Caribbean Economic Commission (ECLAC). So far, China’s interest in the region has focused on oil and metals, not agriculture.
Importing nearly 65 percent of seaborne soybean trade, China has not made major investments in arable land in Brazil and Argentina, which produce roughly half the world’s soybeans, along with prolific amounts of other grain crops and livestock.
“It’s not that it’s low-key, it just hasn’t been very much,” David Shambaugh, director of the China Policy Program at The George Washington University, said about Chinese investment in Latin American farmland.
China views securing food as a national security issue. Spending on rural infrastructure and crop yields at home is a top item in China’s 4 trillion yuan economic-stimulus plan.
But soy does not fall under China’s 95 percent food self-sufficiency policy, providing an opportunity for producers across the Americas. Land and water constraints in China will offset efforts to boost domestic yields to meet demand.
China has only taken small stakes in actual oil exploration and production in Latin America but has put up tens of billions of dollars in financing to secure supply contracts.In July, Ecuador joined the list of global oil producers, including Venezuela, Brazil and Russia, with which China has shored up long-term supplies. ID:nSP461927
Companies such as Chinalco, China Metals, Minmetals, Wuhan Iron & Steel and Jiangxi Copper have bought or made bids for mines in Peru, Chile and Brazil and are investing tens of billions of dollars in regional mining.
China has invested widely in African farmland, though some projects there produce biofuels rather than food. In the recent paper “Food Security in Africa: The New Rice Bowl of China” researcher Loro Horta details China’s investments in big land projects in Mozambique, Tanzania and Malawi as well as plans for Zambia, Angola and Guinea-Bissau.
BARGAIN HUNTING
Land prices and mature farming markets in Brazil and Argentina, the engines of Latin America’s commercial farming, make investments in big production projects less of a bargain for China.
“China’s ideas about farm prices are very different from the reality in Argentina’s Pampas. They think they can buy good farmland for $1,000 per hectare.” said Ernesto Fernandez Taboada, executive director of the Argentine Chamber of Commerce for Southeast Asia.
The best Pampas land costs up to 10 times that much.
Despite a global recession, the average price of Brazilian farmland hit a record 4,446 reais ($2,430) a hectare (2.471 acres) in June, according to agricultural consultants AgraFNP. Some tracts of land in Brazil’s fertile center-south are more expensive than prime land in the U.S. farm belt.
“They wanted to enter but couldn’t after they realized what kind of investment it would take to have their own local infrastructure and logistics to control production,” said Carlo Lovatelli, president of Brazil’s grain crushing association Abiove.
The complexity of local farm markets makes it difficult to guarantee that the products of Chinese investments in food here would make it efficiently to China’s ports.
“Today China is offering financing and access to cheap labor, neither of which Brazil especially needs,” said emerging market analysts Trusted Sources in a report.
Local growers are closely integrated with trading companies, which provide credit and inputs like seeds, agrochemicals and fuel. Producers, already carrying heavy debt loads, have little need for additional financing. They also have ample directed government credit.
In Africa, Chinese financing goes a lot farther. The Asian nation also has been allowed to deploy one of its competitive advantages in Africa – low-paid Chinese workers. Entrenched Latin American labor interests would not permit that.
But China is signing information-sharing accords with Latin American farmers, as it has done in Africa, to improve crop productivity. China has promised to invest billions of dollars in infrastructure in the region, which would improve the flow of goods to international markets.
“Brazilian infrastructure projects in railways and ports are a potential entry point for Chinese investment,” said Rodrigo Maciel, executive secretary of the Brazil-China Business Council.”
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