Outsourcing of farming: is this the next big thing?

What has farming to do with outsourcing? That was also my initial reaction when I stumbled over this article in the economist. The article however points out that certain governments and companies buy the right to plant and harvest wheat, rice or other plants in countries like Cambodia, China and Ethiopia. The harvest will in this case not become available for the internal market, but is exported to the country/company ‘leasing’ the ground. The author calls it the ‘outsourcing’s third wave’ and the main question discussed in the article is whether this is beneficial for the country which provides the crops, or just another form of neo-colonialism. This is not the issue I want to write about, but more about the signs that ‘sourcing’ becomes more and more a (geo) strategic topic, with governments taking the role of ‘customer’ and ‘supplier’.

Outsourcing was started of with in the seventies (see also this post) by Western companies trying to cope with influx of low cost/high quality products from Asian countries and followed by the outsourcing of services (2nd wave, enabled primarily by developments in technology/communications). The players in these first two waves were companies, with governments either facilitating it (e.g. opening India again two decades ago) or limiting it (e.g. President Barack Obama announcing new proposals to end tax breaks for American companies that outsource jobs offshore). The role of the government within this third wave is however completely different. Both companies and governments act this time as ‘client’ and ‘supplier’ and the stakes are very different. This third wave involves access to strategic resources which fulfil basic human needs like food, (bio)fuel and water. With water being even more precious than food, are tensions between governments in dry countries sharing a river a logical result.

That the importance of food is on the rise is also reflected in new investment products being introduced by financial institutions. A recent example is the Swiss asset manager Pictet & Cie which introduced the agriculture fund PF (LUX)-Agriculture fund. They expect that the role of companies involved in food and agriculture will increase over the coming years (you don’t have to be super bright to make that prediction with a global population which shows no sign of stabilizing).

The same population growth and the desire of developing countries to increase their living standard are driving the trend of governments defining sourcing strategies allowing their population and companies to gain access to resources. But what happens if the two countries disagree?
One of the advisory services I provide is mediating between a company and its external vendor if they are throwing mud at each other. But who can mediate when two countries are disagreeing over the contract? I guess the people at the WTO will not get bored anytime soon…

More on this subject can be found here and here.