Land speculation bandwagon
The famous quip of Joseph Kennedy — father of former US President JFK — comes to mind when considering the so-called food boom.
In the US, the average price of an acre has doubled since 2004. In the Iowa farming heartland, it is nearing the 1979 high of 22 times annual rent.
In Britain, the price of land jumped by 25% in 2007, and by a staggering 47% year-on-year in the first half of 2008.
Now that everyone is piling into farming, the signs are ominous. China wants to contract land for food production in Tanzania, Laos, Kazakhstan and Brazil. India wants to do the same in Uruguay and Paraguay, and South Korea is trying to forge a deal in Siberia.
Abu Dhabi plans to cultivate 70,000 acres in Sudan. Saudi Arabia says it will invest in Thailand’s rice farms, and wants to set up a series of farms abroad, each of which could exceed 100,000 hectares. Their produce would not be traded: it would be shipped directly to the owners.
Middle Eastern and North African countries, which import most of their food, are leading the race to invest overseas, planning to lease vast tracts of land in Africa and Asia.
Countries such as Sudan, Ethiopia, and Ukraine are opening their doors to them.
Irish farmers could tell the buyers and speculators that they may be jumping on a bandwagon too late. Faced with severe harvest losses, Irish farmers know better than most that the shine has gone off production of grain, the commodity around which farming profitability revolves.
It cost some of them €470 per acre to grow crops that now cannot be harvested, and for which the price may well be falling, even if they could be harvested and if merchants were to make a firm price offer.
It’s the same story in a global context, with figures from the US Department of Agriculture showing farming costs accelerating as the momentum of earnings slows, similar to a pattern that led to that country’s 1980s’ farm crisis, their worst since the Great Depression.
Maize, wheat, and soybean prices have fallen at least 18% below their peaks in the US, and prices have followed a similar trend elsewhere, including the EU. US farmers expect to see their incomes fall significantly this year, because fertiliser costs have doubled from a year ago, while fuel costs increased 62%.
It’s the same story in most farming countries, and worse in Ireland than most, because of this year’s harvest difficulties.
There is little hope of grain prices rising enough to cancel out farm-production cost increases. Price falls are more likely, as new territories are brought into production.
In Russia, for example, investors riding the commodity boom will bring five million extra acres into wheat production this year, helped by the Moscow government’s new-found interest in agriculture.
As a result, the International Grains Council forecasts that Russia could account for 11% of world wheat exports this year.
With modern farming methods, Russia could quadruple its production and provide the world with up to 300m tonnes of cereals a year — making it the third largest producer behind China and America.
That would end hopes of high grain prices here in Ireland, where farmers have to spend up to €140 per acre on fertiliser.
On their fertile black soils, much of which has been left fallow for decades, Russian farmers could even skip the fertiliser, and still get acceptable yields from their vast farmlands.
US farmers were reminded recently, by Agriculture Secretary Ed Schafer, that they could be facing a repeat of 1980, when crop expenses fell 1%, but sales fell 9.2%. Adjusted for inflation, their farm profits fell 46%, beginning a decade in which annual US agricultural net income averaged less than half what it was in the previous 10 years, and thousands of farmers were bankrupted. With fertiliser prices forecast to remain high for at least three years, little relief is expected from farming costs inflation.
