The Parable of Arable Land, Pt 2

"Fortune" Magazine is running a story on its cover about the next great investment frontier: farmland! You may recall that we already discussed this issue here. But, if "Fortune" is writing about it, you know it's hit the mainsteam. How close are we to hedge funds investing in hard liquor and cigarettes, the ultimate bearish investments? Betting The Farm: The Land Grab For Arable Farmland

Over the past few years hedge fund gurus like George Soros, investment powerhouses like BlackRock, and retirement plan giants like TIAA-CREF have begun to plow (har har! - Psota) money into farmland - everywhere from the Midwest to Ukraine to Brazil. Canadian private equity firm AgCapita, which raised $18 million in 2008 to invest in Saskatchewan cropland, estimates that as of the first quarter of 2009, more than $2 billion of private equity money had been raised for farmland investments globally, and another $500 million was planned.

The growing flow of money into farms has persisted despite a major drop in the commodities markets last fall, prompted in part by the global financial crisis. In the spring of 2008 spiking grain prices caused food shortages and rioting in dozens of countries before falling some 50% by December. In fact, that crash has obscured a broader trend. Even after the correction, grain prices remain above their 20-year average, and food stocks around the world are still near 40-year lows. For many investors, last year's shortages are a preview of what could lie ahead.

Some of this is what you would expect. George Soros buying farmland in Argentina. The Chinese leasing land in Africa. Hedge funds dedicated to farmland opening their doors. But some investors are getting into bed with some shady operators in their pursuit of yield, crop or otherwise:

(Phil Heilberg) is putting his money into Sudan, Africa's largest country and one of its least stable. And he's hardly shy about the many ways his investment could go wrong. "I like to point out that it's a failed state, it's been sanctioned by the U.S., and it has a peace agreement that could unravel at any time and lead to armed conflict," he says. "The good thing is that you know what most of the risks are, and you can get paid for them."

With hundreds of thousands of acres of lush, undeveloped land in the Blue Nile and White Nile valleys, Sudan has the raw potential to develop into an agricultural powerhouse. Investors from Abu Dhabi, Qatar, Saudi Arabia, and Kuwait have already reportedly made deals to lease land in the predominantly Muslim northern part of the country. But in January, Heilberg raised a lot of eyebrows by announcing that he had agreed to lease roughly 1 million acres of undeveloped land - an area the size of Rhode Island - in Mayom County in southern Sudan

Heilberg is protecting his investment in the manner of colonialists the world over: he has hired the local warlord:

(Heilberg) makes no apologies for his associates on the ground, including the aforementioned Gen. Paulino Matip Nhial, 67, a hardened veteran of the long civil war between north and south Sudan who is now the deputy commander of the army in the south. Both Matip and one of his allies, Gen. Peter Gatdet, are on Jarch's advisory board. An Amnesty International report in 2000 recorded accusations that troops under Matip's command committed war atrocities. "One man's warlord is another man's freedom fighter," says Heilberg. "If you want to be in power over there you have to control territory, and listen, that involves tribal battles. You just have to recognize who is a good man and who isn't - who's doing it for power and who's trying to better his people. Matip is a good man."

Color me reassured!

Heilberg is clearly another rich amoral lefty; note his use of the Moorian formulation for a terrorist. Even worse, he worked for AIG! And, he knows where to go to find like-minded connections in DC.

Heilberg has cultivated connections to Washington. His vice chairman is former ambassador Joe Wilson, the husband of onetime CIA agent Valerie Plame and the man who blew the whistle on the Bush administration's obfuscations about Iraq
and yellowcake uranium. Another executive is a former CIA operative.

It's good to see Ol' Joe Wilson has landed on his feet, and is as morally dubious as ever. He might be striking land deals with warlords in a pariah state that once provided a safe-haven to Osama bin Laden, but he does have good intentions!

Wilson characterizes their approach as a version of doing well by doing good. "This is a deal that's certainly fraught with political risk," he says. "But we think that it has enormous potential to open an avenue of economic development for the southern Sudanese and make them shareholders in a positive outcome. That's my theory as I look at this."

"Theory" is one word for this, I guess. Another might be "rationalization," if Joe is capable of such mental gymnastics.