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November 20, 2008

Daewoo says Madagascar land lease deal may cost $6 billion; host govt. enthusiastic

by Sungwoo Park

Daewoo Logistics Corp., a South Korean natural-resource development company, expects a project to lease vast tracts of farmland in Madagascar to grow corn and palm oil may cost about $6 billion over the first 20 years.

The investment will pay for the lease costs as well as building a port, roads, irrigation, and power plants, along with schools and hospitals for locals, Shin Dong Hyun, a manager leading the project, said today by phone.

The North Asian company said this week it agreed to lease 1.3 million hectares (3.2 million acres) in the island nation for 99 years to produce food and biofuel for export. The total project area is about the same size as the U.S. state of Connecticut, according to Bloomberg calculations.

Food-importing nations have stepped up efforts to lock in overseas resources to ensure food security after the prices of rice, corn and palm oil surged to records this year, stoking concerns that there could be worldwide shortages. South Korea has also said it may seek farm leases in Russia's Far East.

``As not only Korean companies but also foreign firms express interest, we're thinking of going on an overseas roadshow to attract partners,'' Shin said, without elaborating.

Leasing the land may cost as much as $5 per hectare per year, according to local law, Shin said. ``But it's negotiable, so we are in talks with Madagascar officials hopefully to cut it down before finalizing the rental fee.''

Daewoo Logistics, set up in 1999 after being spun off from Daewoo Corp., is engaged in logistics, shipping and resource development. The company has also established a branch in Indonesia, Southeast Asia's largest economy and a producer of metals and agricultural commodities.

The leased area in Madagascar, including the regions of Menabe and Melaky, may produce 4 million metric tons of corn and 500,000 tons of palm oil a year, Shin said on Nov. 18. The company was contacting Nonghyup Feed Inc., South Korea's biggest single buyer of feed grains, and some Chinese firms as potential partners in the venture, he said then.

Still, Nonghyup Feed hasn't considered joining the project, Yang Sang No, the leader of Nonghyup Feed's business development team, said today by phone in Seoul.

``We are aware of the project, but we've not started any review,'' Yang said. ``In principle, we are interested in overseas farming projects because, as you know, we have to diversify import sources.''

The Korean grain buyer said in July it made an initial agreement with Daewoo Logistics to jointly farm corn on 20,000 hectares of farmland in Indonesia starting next year.

South Korea's government said the nation needs to ``farm grains overseas in the longer term in order to secure sources for stable food supplies,'' according to a June 2 statement.

The country, the world's third-largest corn importer, has targeted production of half the grain it needs either at home or from overseas farmland that it controls by 2030 compared with about 27 percent at present, the statement said.

President Lee Myung Bak said in April the country may seek to farm rice and other grain overseas, possibly signing 50-year leases for agricultural land in Russia's Far East.

Bloomberg

Madagascar enthusiastic at corn deal with Daewoo

Madagascar officials are enthusiastic about a company's big farming plans for an undeveloped area but say the deal won't go ahead if it threatens the island's unique ecology.

An environmental impact assessment was to begin shortly, the Malagasy Environment Office said November 20, a day after Daewoo Logistics Corp. announced it would grow corn on 2.5 million acres (1 million hectares) of land, mostly in the Indian Ocean island's arid west.

Shin Dong-hyun, the Daewoo official in charge of the project, said Daewoo would likely spend $6 billion over the first 25 years. It has secured a 99-year lease, and was working out final details on rental fees and taxes with officials in Madagascar.

"There's no deal without a favorable conclusion" of the environmental assessment, the Malagasy Environment Office said in a statement. Madagascar is home to a number of animals found nowhere else in the world.

Officials on the island were nonetheless enthusiastic about the prospects of the Daewoo deal. The country off the southeast coast of Africa now produces more than 3 million tons of rice per year, yet remains a net rice importer.

"We are very excited because we're frightened by this food crisis," said Eric Beantanana of the Madagascar Economic Development Board.

Tourism and the mining sector have been the mainstays of Madagascar's economy.

Revenue from the Daewoo project would be pumped into development and infrastructure in a region made inaccessible for four months a year by flooding, Minister of Land Reform Marius Ratolojanahary said.

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