Before the January protests that ended his 30-year-rule, the fiercest unrest to challenge Egypt’s Hosni Mubarak was not inspired by politics, but by a lack of bread. In the summer of 2008, the country experienced a shortage of subsidized bread; being the world’s largest wheat importer, the impact was felt immediately. Dozens of riots touched off across the country, and to contain the violence, Mubarak actually ordered the army to bake loaves of flatbread for the masses.

Though the current unrest in the Arab world focuses on political change, its roots are economic, tied to public anger over wide scale unemployment, and the rising costs of basic necessities, particularly food. The food price index published by the United Nations Food and Agriculture Organization graphs a worrying trend: In February, it stood at 236 index points, a 34% increase from a year ago, and surpassing its previous peak, reached the same summer in 2008 when bread riots began in Egypt.

Driving the rise in costs are a growing world population, and higher demand for meat and other foodstuffs from an increasingly prosperous middle class, especially in Asia. At the same time, world supplies of important staples like wheat have been constrained in the last year by weather-related issues, including a heat wave in Russia — leading the country to ban exports — and floods in Australia. The search for productive farmland is further intensified by increasing demand for biofuels as U.S. and European governments, seeking to cut carbon emissions, require increasing use of fuels such as ethanol.

Constantly being forced to subsidize foodstuff items, wealthy Gulf countries and some Asian countries launched ambitious programs to buy farmland around the world, to secure food production. The Arab unrest has only doubled the efforts of Gulf countries, as they try to buffer themselves from the economic issues that have destabilized the region.

“One of the reasons why there [has been a] rush towards overseas investments is that governments and the private sector lost faith in international markets as a reliable source of food supply,” said David Hallam, with the United Nation’s Food and Agriculture Organization, in a recent news report.

Harris Selod, a World Bank economist, says while it is difficult to measure the scale of such land purchases due to an absence of reliable global data, there is little doubt that the buying spree will continue. “Indicators such as global demographics, and induced demand for food, feed, livestock and fuel, and anticipation of food price increases indicate that pressure on land is almost certain to remain,” he says.

Arab Buyers Flock to Africa

Selod was one of the analysts authoring a report for the World Bank on such global farmland buys. “The demand for land has been enormous,” noted his report, first released in September 2010 and revised in December. Worldwide, it estimates that 115 million acres of land have been sold or leased to foreign investors — an area bigger than the entire United Kingdom, compared with an annual rate of less than 4 million hectares before 2008, the study found.

The land is usually leased rather than sold, but leases are often effectively sales because of long durations that may span over several generations, Selod says.

Many investors are likely to be drawn to Sub-Saharan Africa, which has about half the world’s available farmland, the World Bank survey found. More than 70% of the area acquired by investors is in Africa, where land is often cheap, and informal or nonexistent land-use laws have allowed some governments to sell vast tracts that have been farmed by local people for generations.

Some African countries are going to great lengths to attract foreign investment. In a report from Reuters, the head of Morocco’s Regional Investment Centre for Investment, Ahmed al-Houti, said that [investors] could export 100% of their produce. “All we are asking for is for them to invest in our sector and create employment for our people,” said al-Houti in the report.

“Africa is a natural trade partner for Gulf economies because of geography and also history,” says Nicholas Depetris, assistant professor of Public Policy at the Dubai School of Government and a research fellow at the Oxford Centre for the Analysis of Resource Rich Economies.

Between 2004 and 2009, African countries that leased the most land include Sudan, with 3.9 million hectares; Mozambique with 2.7 million hectares, and Ethiopia with 1.2 million hectares, according to the World Bank report which covered 14 countries worldwide. Other African vendor countries include Liberia, Nigeria, Mali, Ghana, and Madagascar.

In Sudan, about a third of investors are from outside the country, and most are from the Middle East, the study found. Foreign and domestic investors — who may act as a front for parties from overseas — are acquiring tracts as large as 500,000 hectares, or 1,930 square miles. The largest single-country investor in Sudan is Saudi Arabia, with about half of all foreign investment. Other Middle Eastern investors in African land include the United Arab Emirates (UAE), Qatar, Kuwait, and Bahrain. Buyers from the Middle East are more specialized in food crops than those from elsewhere, the World Bank report found.

The Saudi government said in January it had identified 27 countries for agricultural investment to bolster its food security amid international concern about rising prices. Earlier this month, Saudi-based Menafea Holdings Ltd. announced it would invest US$125 million to develop a 5,000-hectare (12,400 acre) pineapple farm and build a fruit-processing plant in Zambia. Saudi Arabia has also decided to phase out its domestic wheat production by 2016 saying it was no longer sustainable given the it’s finite water resources.

Cutting Out Import Middlemen

Behind only China and South Korea, the UAE has become one of the top purchasers of global farmland, according to a study by Washington, D.C.-based International Food Policy Research Institute. Its spending on farmland has been pushed by rising costs reflected in its local grocery aisles — prices for edible oil, sugars and rices last year in the UAE rose by 50%, according to local media reports. Concerned about price increases, the government announced this month prices of essential foodstuffs would be temporarily slashed by up to 40% in the country’s supermarkets.

One immediate benefit in having direct food supplies is cutting out the middlemen involved in food imports, UAE officials have argued. Currently, the Gulf country imports more than 80% of its food supply, spending US$680 million just last year. By having direct access to food crops, government officials have publicly estimated they can save up to 25% in import spending.

Depetris says that for investing nations, such as Gulf countries, buying or leasing land in other countries also increases their production set, and in the case of land for food staples, it works as insurance in the case of political problems that may affect the supply of food.

“The strategy of buying or leasing food may allow the food importing countries to have direct access to the food when they cannot get it through trade,” he notes. “This strategy is much better than the one implemented in the 1970s when some countries, such as Saudi Arabia, used their water reserves to grow food in the desert.”

In turn, countries selling land receive two big benefits, says Stephen A. O’Connell, economics professor at Swarthmore College, and a research associate in the Centre for the Study of African Economies at Oxford University. One is an increased flow of foreign direct investment, providing these governments with budgetary relief, while the other is technology transfer.

There is much land in Sub-Saharan Africa that isn’t being cultivated because the technology has not been developed to aid that process, he says, largely because of costs. “Africa has not had a green revolution as Asia did in the 1960s and 1970s,” O’Connell says. “That’s the big hope, that a well-funded player can push the innovation process for farmland development.”

But the investment needed to bring these lands into productivity will be an extra cost beyond the purchase price for the buyer, O’Connell says, a cost they will need to bear in order for the lands to be fruitful.

“It is important to notice, that the cheap price of land in Africa comes with a price,” Depetris adds. “Producing in Africa is much riskier because of political and social instability, low enforcement of contracts, low labor productivity, obsolete technologies, and variable weather conditions.”

A Bushel of Concerns

Such concerns may explain why relatively few land deals have so far resulted in actual agricultural production. Among the purchases compiled by the World Bank, only 21% led to active farming operations.

Although many current land deals are smaller than reported in the media, the tracts are often much bigger than investors can immediately use, the World Bank found. It said those investors saw the purchases as a way of locking in extensive land access at very favorable terms, and eliminating future competition.

The World Bank urged vendor countries to avoid transferring large blocks of land to single investors, especially if they lack experience of using land profitably. “Especially in areas where land values are expected to appreciate and no effective mechanisms for land taxation are in place, large land allocations to investors with little experience are risky,” its report noted.

Instead, it urged governments to allocate land in smaller lots, with the prospect of future sales once buyers have fulfilled their initial goals for cultivation. The report also called for leases that are long enough to allow investors to make a profit but short enough to avoid effective appropriation. But the African continent’s potential is constrained by the lack of clear land rights, and by poor infrastructure, especially the lack of roads.

Gulf nations first attempted in the 1980s to turn this African region into a breadbasket for the Middle East, O’Connell says. “As they did then, politics can stop these efforts, failure can stop these efforts. If these lands could be developed at low cost and produce high yields, they probably would have been exploited already. The serious question is whether these lands can be made to thrive commercially.”

Local politics continue to hinder large-scale land deals in Africa. In Madagascar, opposition to the planned sale of 1.3 million hectares, or half the country’s arable land, to South Korea’s Daewoo Logistics, contributed to the president’s ousting in 2009. In Zambia, China has threatened to scrap a planned 2 million hectare biofuels project if the main opposition leader, who opposes it, ever comes to power.

Depetris says that to ensure that their African farmlands deliver food supplies, Gulf countries should pay attention to the business model in growing food overseas, and think through the logistics and infrastructure required to export food.

“A good example of this is the Chinese production of cloth in Lesotho,” Depetris says. “They bring their machinery, the managers, and sometimes even the cotton and they only use the local labor force. Like that, they are sure that the production is done with the international standards and using the most efficient technology. Probably, for food production in Africa, countries should think in a similar model. Labor productivity is very low in Africa and new and more efficient technologies and techniques are often not in place.

“It does not make any sense to produce food if you cannot take it later to the port. Gulf countries, in particular Dubai in the UAE, are generally very good in logistics and infrastructure and could work well as a complement to the availability of natural resources in Africa.”

Cash Crop, or Bad Produce?

Another potential issue to consider, Depetris agrees, is the possibility of having to defend crops purchased in foreign lands, similar to how some mining and oil companies operating in Africa must provide security for their operations. “It depends on the amount of their investment, the level of diversification of their portfolio, other interests in that particular country, the cost of this effective protection, and the role reputational factor may play in a context of increasing globalization,” he says.

“In general I think that Gulf countries are very small to influence the countries where they invest. A different story is China. We know that they have been actively involved in business with governments under international sanctions like Sudan, but they can afford to do that because they are a big country.”

Stephen J. Kobrin, William H. Wurster Professor of Multinational Management at Wharton, says the land purchases risk reviving a colonial system in which large tracts are controlled by overseas interests that hire many of their own people, reducing the economic benefits to the host country. “The big question is, are you developing local skills or just creating an outpost of the investor country?” Kobrin says.

Without such local investment, outside interests may create a “plantation economy” that may create resentment among local people, Kobrin warns. He also questioned whether purchasers such as Saudi Arabia have the agricultural expertise needed to get the most out of the large expanses that they are purchasing.

Some NGOs have accused governments of secretively agreeing to transfer what appears to be marginal or unused land at low prices with little regard for the needs or legal rights of local people who may have farmed the land for generations. “There’s likely to be an acceleration of these deals by companies and countries buying up big chunks of land,” says Alex Wijeratna, a campaigner at the international charity ActionAid. “We know that there is more money on the sidelines. Investment funds are souring the globe looking for land to buy.”

Among the funds active in farmland investment are the U.S.-based Altima One World Agriculture Fund, which in 2009 attracted a US$75 million investment from the International Finance Group. Other funds include Chayton Atlas Agricultural Company, a U.K.-based private-equity firm, and Egypt-based Citadel Capital, one of Africa’s largest private-equity funds.

“Often, the deals are done between the government and the companies,” Wijeratna adds. “The first thing the local people know about it is when the bulldozers move in.”

But there is also evidence that purchasers acquire land openly and for a reasonable price, says Selod of the World Bank. “There are examples of governments transferring land in a non-transparent fashion under very cheap prices, if not for free, and disregarding the existing uses of the population,” Selod notes. “There are also examples of land transferred through auctions where investors pay a fair value for the land.”

Other critics say the trend is exacerbating food shortages by diverting land from local to international production. “Countries are diverting high-quality land from production for local and national economies to create large-scale plantations focused on feeding other nations,” the magazine Foreign Policy in Focus noted in 2009.

And there’s little evidence so far that foreign land investment is creating many local jobs, the World Bank found. A 10,000-hectare maize plantation in the Democratic Republic of Congo, for example, created only 0.01 job per hectare, while a sugar cane plantation would generate 0.351 job per hectare. “The patchy data that are available suggest that investments create far fewer jobs than expected,” the report said.

But developing countries in general could meet increased food demand if they make better use of existing farmland, and the large-scale agriculture planned by the new wave of land deals could help them achieve that without cutting down forests, the bank said. It argued that none of the sub-Saharan African countries that are currently targeted by investors is achieving more than 30% of its potential yield on currently cultivated land.

The land rush creates both risks and opportunities for people in vendor countries, argued a report from the United Nation’s Food and Agriculture Organization (FAO), the International Fund for Agricultural Development, and the International Institute for Environment and Development.

While the investment may boost economic growth and government revenues, it may also seize the land on which people depend for their food security. “The principle of free, prior, and informed consent, and robust compensation regimes should provide a cornerstone of government policy,” the FAO concluded.