GRAIN The wave of investment in agrofuels is restructuring agribusiness itself. New, powerful players are converging into the sector. Cosmetics corporations are selling biodiesel. Big oil is buying up plantations. Wall Street speculators are swinging deals with feudal sugar barons. All of this money circulating around the globe is reorganising and intensifying transnational structures, linking the most brutal landowning class of the South with the most powerful corporations of the North. This article looks at the expanding corporate investment in and control over agrofuels. It provides an overview of who is investing in agrofuels and where the money is going, shedding light on how the development of this alternative fuel, promoted for its environmental advantages and the economic benefits it brings to farmers, is already being managed by transnational corporations and absorbed into their profit strategies and expansion plans. Where the money is coming from Is it a trend, a bubble or a structural reconfiguration? It is difficult to say at this point. The most appropriate way to describe the investment in agrofuels over the last few years would probably be to call it a flood. Hardly a day goes by without reports of a new multi-million-dollar agrofuel refinery going up somewhere. So who’s investing in all this new construction? As one would expect, big agribusiness is one of the main backers. Agriculture commodity companies like Archer Daniels Midland (ADM), Noble, and Cargill are investing heavily. So too are those companies that specialise in the sugar trade, palm oil, and, to a lesser extent, forestry. Then there’s the money from the energy sector. Big oil companies such as British Petroleum (BP) and Mitsui are making substantial investments. So too are those oil companies more directly linked to their home government’s agrofuel agendas, such as Petrobrás of Brazil and PetroChina, and smaller firms such as PT Medco of Indonesia and the Philippine National Oil Company. Table 1. Some transnational corporations investing in agrofuels Agribusiness ADM, Cargill, China National Cereals, Oils and Foodstuffs Import & Export Corporation, Noble Group, DuPont, Syngenta, ConAgra, Bunge, Itochu, Marubeni, Louis Dreyfus sugarBritish Sugar, Tate & Lyle, Tereos, Sucden, Cosan, AlcoGroup, EDF & Man, Bajaj Hindusthan, Royal Nedalco palm oilIOI, Peter Cremer, Wilmar forestryWeyerhauser, Tembec Oil British Petroleum, Eni, Shell, Mitsui, Mitsubishi, Repsol, Chevron, Titan, Lukoil, Petrobrás, Total, PetroChina, Bharat Petroleum, PT Medco, Gulf Oil Finance Rabobank, Barclays, Société Générale, Morgan Stanley, Kleiner Perkins Caufield & Byers, Goldman Sachs, Carlyle Group, Kohsla Ventures, George Soros Perhaps the most aggressive source of investment in agrofuels, however, comes from the world of finance. A number of the largest and most important houses of globalised capital have stepped into the agrofuels game. Financing is coming from banks such as Rabobank, Barclays and Société Générale, and from equity funds, such as Morgan Stanley and Goldman Sachs, that specialise in buy-outs and can quickly shift billions of dollars from one part of the world to another. Then there are the billionaires: George Soros, the hedge fund guru, owns ethanol/agribusiness operations in Brazil; Bill Gates owns one of the US’s largest ethanol producers; Vinod Khosla, of Google fame, is a major investor in a range of agrofuel production and technology ventures; and Sir Richard Branson, owner of Virgin Group and now Virgin Fuels, has a growing portfolio of agrofuel investments. These titans of globalisation not only bring their vast fortunes to the agrofuel gold rush, but their heavy political clout as well. Of course, behind all of this, lessening the risks to the world’s great “speculators”, are the governments and the international lending agencies, such as the World Bank and the regional development banks. The billions they provide through direct subsidies, tax breaks, publicly built transportation routes, carbon-trading schemes and soft loans are what make agrofuels economically viable. The Carlyle Group: an agrofuel corporation? The Carlyle Group is a US$55-billion equity fund and notorious Washington insider that has made a number of agrofuels-related acquisitions over the past few years through its renewable energy groups. Today its portfolio includes one of Brazil’s largest sugar-cane ethanol groups (see box on the Crystalsev conglomerate) and numerous agrofuel plants in the US and Europe, which it manages with agribusiness majors like Bunge and ConAgra. In January 2007 it joined Goldman Sachs and Richard Morgan, one of President George Bush’s most important financial backers, in taking over the energy distribution corporation Kinder Morgan, which handles roughly 30 per cent of the ethanol sold in the US. Where the money is going “Growing the crop is where the profit will be” - Nancy DeVore, Bunge Global Agribusiness. There is certainly a connection between today’s agrofuel binge and the jump in oil prices that began a couple of years ago. But an oil price spike hardly makes for the kind of long-term investments that big players are currently making in agrofuels. The price of oil, even if global reserves are shrinking, is still determined by speculation, which is only loosely correlated to supply and demand. Just as fast as the price of oil can rise, so can it fall, taking down agrofuels producers in the process. This is precisely what happened to the ethanol industry in the 1980s. The difference in the agrofuels market today is not so much the price of oil but the level of support from government. For an array of political reasons, certainly related to the growing corporate interest in “renewables”, the governments of the major oil-consuming countries have mandated or are in the process of mandating that transport fuel contain minimum percentages of ethanol and biodiesel. Together, the subsidies and this guaranteed demand boil down to a big captive market for agrofuel corporations. But even so, agrofuels remain on the cusp of viability, with profits still at the mercy of another important variable – the price of feedstock, the plant matter used to produce the agrofuel. The cost of the feedstock can make or break an agrofuel operation, and it is not easy for an agrofuel producer to control the price. This is because the agrofuel industry is forever in competition with other markets, especially for food, which depend on the same crops or the same lands. Indeed, the very success of agrofuels – manifest in their increasing use – drives up prices for feedstocks and tightens supplies. And a price rise can be lethal because agrofuel companies have few options for passing down costs. The surest way out of this quandary is for the agrofuel companies to control the production and supply of their own feedstocks. This is why today most agrofuel factories are being built with simultaneous investments in crop production. The clear trend is towards the formation of fully integrated transnational agrofuel networks, bringing together everything from seeds to shipping. Here the agribusiness corporations with their already well-developed global agriculture commodity chains have the advantage over their competitors. For the foreseeable future, feedstocks produced in sufficient quantities for large-scale agrofuel operations will be crops – soya, maize, palm oil and sugar – whose production and trade are dominated by a small number of transnational corporations. It is not surprising, then, that much of the investment money pouring into agrofuels is either coming from or being channelled to these corporations. Agrofuels thus bring a double bonus to big agribusiness corporations: they make money not only in the production and sale of agrofuels but also through the global commodities boom that this new source of demand helps to generate. (see “The palm-oil-biodiesel nexus”) Table 2. Corporate control of key agrofuel feedstocks Top corporations Corporate control Maize merchants (US) Cargill, ADM Top 3 control over 80% of US maize exports Maize seeds (US) Monsanto, DuPont, Syngenta Monsanto controls 41% of global market Sugar trade (Brazil) Cargill, Louis Dreyfus, Cosan/Tereos/Sucden Cargill is the largest shipper of raw sugar from Brazil Palm oil trade (Global) Wilmar, IOI, Synergy Drive, Cargill 60% of palm oil area in Malaysia is owned by corporations, only 9% is owned by individual landowners. Soya trade (Global) Bunge, ADM, Cargill, Dreyfus 3 companies control 80% of European crushing; 5 companies control 60% of Brazilian production Soya seeds (global) Monsanto, DuPont Monsanto controls 25% of global market Sources: ETC Group, WWF, UK Food Group, Cargill. There are, however, some limits to how deep and fast big agribusiness will go with its investment in agrofuels. Cargill, for instance, has openly stated its preference for selling into food and feed channels when push comes to shove. Why get tied up selling soya to agrofuel producers when you can make more money by turning it into cooking oil? [1] ADM may be the world’s biggest ethanol producer, but its main business still comes from converting maize into animal feed or into high-fructose corn syrup for companies like Coca-Cola and Pepsi, and it wouldn’t want high maize prices to jeopardise those markets. [2] These big agribusiness corporations are happy to sell agrofuels to increase overall business, but only under their careful coordination and control, so as not to lose their cherished flexibility and traditional profit channels. [3] As a result, the surplus money flowing into agrofuels that is not absorbed by big agribusiness is being diverted to the construction of alternative transnational commodity networks with their own feedstock production and supply chains. This surge in speculative investment is generating a wave of new alliances and business groupings, bringing together financial companies, shippers, traders, and producers. In some cases major investment funds, such as the Carlyle Group, are even setting up their own fully integrated agribusiness/energy networks (see box: “Wall Street on the farm”). Other companies are sidestepping already-formed commodity chains by launching production in geographic areas where agribusiness is less present and where production costs are low. Several Chinese corporations struck deals in the Philippines and Indonesia in early 2007 to convert 1 million hectares in each country to the production of agrofuel crops for export. [4] Brazilian ethanol producers are expanding sugar-cane production into neighbouring Paraguay, where costs of production are estimated to be even lower than in Brazil. Similarly, the Maple Corporation, a US energy firm, is setting up a sugar-cane plantation and ethanol plant in Peru to take advantage of the country’s low production costs and favourable ethanol export access to the US. [5] Another way to sidestep supply problems is through the production of feedstocks that are less tightly controlled by big agribusiness. Both BP and ConocoPhillips have struck deals with major meat processors for the supply of animal fats to produce biodiesel. [6] BP, along with several other companies, is also developing jatropha as a feedstock, while Chinese and South Korean corporations are busy making deals in Nigeria and Indonesia for the large-scale production of cassava. Wall Street on the farm George Soros George Soros bought the Argentine company Pecom Agribusiness in 2002, which gave him over 100,000 hectares of land in Argentina for beef and dairy cattle, soya, maize, wheat, rice, and sunflowers production.1 Then, in 2004, Soros’ company, now called Adenco, expanded into Brazil, buying 27,000 hectares of land in the states of Tocantins and Bahia for the production of cotton and coffee. In 2006, Adenco entered into a partnership with Brazil’s Vieira family, a coffee-growing clan from Minas Gerais state, to set up a mill with a productive capacity of one million tonnes of sugar cane per year. The Vieira family are now shareholders in Adenco and manage the group’s Brazilian operations. The group continues to expand, and soon its four sugar processing plants in Brazil expect to be milling 12 million tonnes of sugar cane, converting much of it into ethanol. Meanwhile, in the US, Soros announced that his company is constructing a plant for maize-based ethanol, which will process 50 million tonnes of maize, harvested from an area of 50,000 hectares, with similar plants under consideration for Argentina. Goldman Sachs Goldman Sachs, one of the world’s largest investment banks, not only handles the financing for many of the major agrofuel ventures, but is also one of the leading investors in “renewable” energy, having invested upwards of US$1 billion already, with much of it going into agrofuels.2 It co-owns leading cellulosic ethanol developer Iogen, as well as energy distribution companies Kinder Morgan and Green Earth Fuels, which are working together on an 86-million-gallon biodiesel plant and storage terminal in Texas that can handle 8 million barrels of biodiesel. Moving even more directly into agribusiness, Goldman Sachs became a co-owner in 2006 of China’s two largest meat companies, making the investment bank China’s largest investor in this sector.3 1 Fabiane Stefano and Lívia Andrade, “George Soros ataca no campo”, Dinheiro rural, October 2006, http://tinyurl.com/365e4z (also translated into English by Ethablog), http://tinyurl.com/2ww5wb 2 The CEO of British Petroleum, Lord Browne of Madingley, has served on Goldman Sachs Board since 1991. In 2007 he retires from both positions, following a highly publicised trial over allegations made by his former lover. See: http://tinyurl.com/33jkpc 3 Dominique Patton, “Foreign equity group wins bid for China’s leading meat processor”, MeatProcess.com, 16 May 2006. http://tinyurl.com/2v9zg6 On the research and development side, however, most of the money is focused on cellulosic ethanol, the supposed next generation of agrofuels. Many people within the agrofuel industry believe that economically viable methods will soon be developed to convert the cellulosic matter of plants into ethanol, opening the way for the large-scale use in agrofuel production of crops such as switchgrass and trees, or the use of the complete plant of existing agrofuel crops such as sugar cane and maize, rather than just the extruded fluid or the corn-cobs, as at present. Those who develop and patent these cellulosic technologies will clearly gain an enormous amount of leverage within the agrofuel commodity chain, so it is no surprise that Big Oil is strategically channelling its investments into this area or that biotechnology companies like Monsanto are already securing monopolies over the seeds and genes of promising next-generation crops, such as jatropha or miscanthus. Already, just a few companies, with large patent portfolios and tight alliances with major agrofuel corporations, dominate the research and development into the enzymes needed to make cellulosic ethanol viable (see “Coporate control, the sequel”). Political winds Agrofuels are not, of course, just about business. They are highly political, and the corporations that control their production both shape and follow the shifting political currents. Although there is a general euphoria for agrofuels among most governments, national policies are influenced by the different dynamics among business lobbies, geopolitical concerns and trade politics. Government and corporations in China, South Korea and Japan are looking to other countries for the production and supply of raw materials. Brazil wants to supply the world with both ethanol fuel and technologies, and has been negotiating packages with countries on every continent to that end. The US and Europe see agrofuels as the answer to everything from climate change to farm crises to problems with oil-rich “rogue” states. As a result, agrofuel deals are being struck all over the place, determining where the agrofuels are being produced, by whom and for whom, and, perhaps most importantly, how they are being traded. Nowhere is this more apparent than in the development of the global market for sugar-cane ethanol (see “The sugar-cane-ethanol nexus”). Green agribusiness? Don’t be fuelled There is nothing new about farming for energy. Most farms have always produced the energy that their families and animals use to farm the land. The difference with agrofuels, however, is that they involve the farming of energy as a commodity, which, as such, is completely integrated into the circuits of transnational agribusiness and finance. Agrofuel production, therefore, follows the dictates of the global money managers, the heads of investment banks or agribusiness corporations, who preside over immense concentrations of wealth and who, in this era of neo-liberal globalisation, can shuffle it around to wherever it generates the most profit. Thanks to the deep, long-term commitment of governments, it is now more certain that agrofuels will be profitable. So the big money is rushing in, urging agribusiness and its agroexport model of production to move more deeply and more quickly than ever before in its takeover of world farming. One clear pattern to this investment in agrofuels is that the money is increasingly going into the construction of fully integrated agrofuel networks, involving production, shipping, processing and distribution. It is also flowing to a few low-cost centres of production, especially Brazil for sugar cane, the US for maize and Indonesia for palm oil, although substantial sums are also going to countries that sign on to special deals or that have preferential trade access to the US, Japan or the EU. Production and control over the supply of feedstocks are critical, and almost all new agrofuel projects now come with plans for high-tech plantations or contract growing arrangements, often managed by local agribusiness and often on lands used for food production or communal pastures and forests. Agrofuel projects are thus generating new alliances or expanding existing ones between local producers and suppliers of the feedstock and foreign corporations. Typically, foreign investors set up joint ventures with companies controlled by large landholding and politically powerful families, getting these families to manage the production side of things. Agrofuels thus deepen the relationships between transnational capital and local landed elites, with profound consequences for struggles over land and local food production. This evolving web of global production and trade routes for the extraction and export of agrofuels will become ever more tightly controlled by corporations with time. The technology for the next generation of biofuel crops is in the hands of a few companies and their corporate partners, who will use patents and other monopoly rights to shut out competitors and control the market. Moreover, corporations are already starting to turn to brands and standards as a way to consolidate market shares. [7] None of this has anything to do with preventing climate change or even lessening foreign dependence on oil, as the US government likes to claim. The bottom line is that agrofuels are a new way for corporations, speculators and powerful agro-barons to make more money, sell more commodities, and consolidate their control over the earth. References 1 Steve Karnowski, “Cargill, ADM differ in food-duel debate”, AP, 17 May 2006: http://tinyurl.com/3bxtw7 2 Alexei Barrionuevo, “Springtime for ethanol”, New York Times, 23 January 2007. http://tinyurl.com/3y9v9t 3 Tom Philpott, “ADM, high-fructose corn syrup and ethanol”, Gristmill blog, posted 10 May 2006. http://tinyurl.com/kxmqq 4 GRAIN, “Hybrid rice and China’s expanding empire”, 6 February 2007, http://www.grain.org/hybridrice/?lid=176 “Indonesia and China sign biofuel deal”, AFP, 9 January 2007. 5 “US-based Maple invests in Peru ethanol production”, Reuters, 20 March, 2007. http://tinyurl.com/39psuj 6 “BP Brews the fat”, Engineer Online, 3 April 2006, http://tinyurl.com/2qe2lh “Pig fat to be turned into biodiesel”, BBC, 19 April 2007. http://tinyurl.com/2mrhvf 7 The Peter Cremer Gruppe of Germany, for instance, one of the largest global traders of oleochemicals, sells a branded biodiesel in the US, Europe and Australia called Nexsol.