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Natural Resource Governance around the World

Farming land. Chinese purchases in the Berry. A European case

Written by: Robert Levesque

Writing date: May 2016

Organizations: La revue foncière, Association européenne des institutions d’aménagement rural (AEIAR)

Type of document: Scientific article

Documents of reference

Levesque, R. (Avec ses remerciements à Loïc Jégouzo et Sabine Agofroy). Les acquisitions chinoises dans le Berry. Un cas européen. La revue foncière. Mai-juin 2016. n° 11

Translation: BEACOM for AEIAR

Summary

The recent purchases of farmlands in Berry by Chinese investors have attracted a great deal of media attention. The topic not only raises questions for the world of agriculture, but also has many other implications. This article aims to describe the situation, consider the global context and discuss the broader issues.

The first development in the series of events in question dates back to 2014, when the Chinese “Hong Yang International Investment Company” acquired SCEA de Chambrisse (a civil farm corporation). SCEA was established by Irish founders in 1994 and is based in Châtillon-sur-Loire, north-west of the Indre region. It has a thousand hectares, 518 of which it owns. The Chinese group acquired 98% of the membership shares in the company, whereas 2% were retained by the former operators. These operators therefore continued to be involved in management, working alongside new recruit Mr Marc Fressange, who did not own any shares and was appointed on the decision of the investor. The managers’ powers remained extremely limited: they could not authorise any expenditures of more than €1,000.

The second phase saw this same Chinese company taking an interest in SCEA La Tournancière, based in Vandoeuvre in Indre. This SCEA had evolved from an agricultural land grouping (French acronym GFA) existing since 1987, and was established in 2007. It owns 370 hectares and rents out 180 hectares on long-term rental contracts, adding up to a total of 550 hectares of cultivated lands. On 20th March 2015, the Chinese company acquired 98% of SCEA’s social capital, leaving 2% in the hands of one of the previous managers. This person became joint manager of the company along with Mr Marc Fressange, although no expenditures of more than €1,000 could now be made without prior approval from the new joint manager.

As a third step, Mr Keqin, company manager, resident in Beijing, became majority owner of the two GFAs on 29th September 2015. He acquired one GFA, established in January 2013, whose land was being cultivated by SCEA du Grand Saulay. M Keqin bought 72% of the shares in the GFA, while another Chinese stakeholder purchased 18%.

The former operator retained 10% of the capital. On the very same day, Mr Fressange became joint manager of SCEA du Saulay, with over 110 hectares of cultivated land. Mr Keqin also acquired 78% of the shares in GFA Kluiskade on the same date of 29 September 2015. His Chinese partner in the previous GFA received 19%. One former operator retained just 1%. The GFA’s land was being cultivated by SCEA du grand Mée in Clion. 99% of the shares in SCEA du Grand Mée were transferred to a company entitled Beijing Reward International Trade. The remaining 1% remains in the hands of the former operator. As in the case of the two previous operating companies, this operator then found himself in the position of joint manager with Mr Fressange. In the deed of transferral pertaining to the SCEA shares, the transferee mentioned is either Hong Yang International Investment Company (which now seems to have been dissolved according to certain internet sources) or Beijing Reward International Trade Company.

In actual fact, the same stakeholders are behind all of these operations. The key investor is Mr Keqin, president of the Beijing Reward International Trade Company. This company group, founded in 1994, has its headquarters in Beijing, and is expanding in the sectors of household detergents, tourist accommodation (hotels) and the dairy industry. It owns 13,000 hectares of dairy farming land, Shuangwa Dairy in Inner Mongolia, three food processing factories and three dairy production sites, and also produces powdered milk.

By taking over the four farm corporations and appointing the same manager (Mr Fressange) for each, Mr Keqin has created an agricultural production unit with over 1,750 hectares of land. This production unit may be expanding still further as we write or be preparing to do so in future. Other companies may yet fall into the hands of this investor. The press has spoken of an objective of 5,000 or 10,000 hectares.

Classic methods for establishing major production units were used

Administrative controls have in fact been respected in the process of establishing this production unit, for the following reasons.

Firstly, structural controls were introduced in 1960 to regulate how farms can grow and the types of persons which can operate in the agricultural sector. This check does not apply when a farm is acquired via the purchase of a majority share of the company capital but its surface area is not modified and a previous owner retains some of the company capital, however small the amount. The authorisation to run the operating company is not revoked in the case of a partial transferral of company shares. The new agricultural unit was therefore established in accordance with the conditions. For each of the four agglomerated companies, surface areas have remained intact and a former operator retained their position as joint manager.

Secondly, SAFER (Société d’aménagement foncier et d’établissement rural, Association of property use and rural operations companies) does not have a pre- emption right on partial transfers of shares in agricultural companies, whether farm corporations or agricultural produce delivery companies, including GFAs and real estate companies (French acronym SCI). Since the French law on the future of farming of October 2014, SAFER has the pre-emption right in case of full transferral of shares in companies, but if a transferring owner retains even a single share, SAFER may not exercise this right. In the cases in the Indre region, the operators avoided transferring the entirety of the shares in order to prevent the possibility of SAFER exercising the pre-emption right. From 1st January 2016 onwards, all transfers of company shares must be reported to SAFER for information purposes. However, although this measure will lead to more information being collected on the company shares market, it does not provide any additional tools for guiding the market and thus restructuring farm corporations.

Just one of many cases in France and around Europe

The procedures used in the cases described above are commonly adopted by investors, particularly French agricultural investors. In Upper Normandy, for example, 20 production units of over 300 hectares group together 48 farm corporations, each with the right to submit its own CAP declaration in order to obtain European subsidies1.

As such, the number of farm corporations which submitted CAP declarations, which corresponds to the official number of corporations, is greater than the number of financial units and strategic decision-making hubs in the agricultural production sector. The concentration of French farm corporations is more significant than it might appear upon a first reading of the statistics. The situation may resemble that of other European countries. In Poland2, a single production unit of over 10,000 hectares groups together 25 companies with less than 600 hectares each.

There are many advantages to bringing together several farms within one larger management structure, and these are not limited to escaping administrative controls.

The threshold effects are also significant; for example, instead of receiving a single bonus for the first 52 hectares of cultivated land in compliance with the Common Agricultural Policy (CAP), the production unit receives the bonus for each company under its umbrella. To give another example, given that capital gain of under €250,000 is not taxable, a company can buy equipment, pay it off, create expenses which reduce the taxable earnings, then sell this equipment to achieve a non-taxable income. The company which buys the equipment could then repeat the process.

The same equipment can therefore be offset several times by a single production unit as it is passed around its various companies. This is a win-win situation for the management group but a loss for the tax authorities

These examples demonstrate the importance of being aware of the production groups established both in France and the rest of Europe, and becomes all the more relevant when we see multi-national corporations such as Spearhead becoming established, with its 80,000 hectares throughout Europe, in Poland, Romania, the Czech Republic, the United Kingdom and Slovakia, or the KTG Agrar group with its 40,000 hectares in the Brandenburg region of Germany and in Lithuania3.

These operations are part of the onward march of globalization in the economy and the attempt to secure the supply of agricultural produce.

The events in Berry must be considered in their broader context. Since the early 1980s, certain global actors have tried to portray agriculture as an economic sector like any other. For that reason, customs barriers were eased following the Uruguay Round, the World Trade Organisation (WTO) was founded in 1995 and agriculture became subject to a global regulations system. Following the fall of the Berlin Wall, numerous agricultural companies in Eastern Europe which had been established by the former USSR went bankrupt, allowing investors from other economic sectors (banking, mining, oil, property etc.) to set up major corporations with several thousands, or even tens of thousands, of hectares in Russia, Ukraine, and also Romania (which had three companies with over 50,000 hectares each). After the hunger riots in 2007 and 2008 and the bursting of the financial bubble in the autumn of 2008, a number of operators, sovereign funds, pension funds, investors etc. sought control over agricultural production. Countries and food distribution companies no longer trust the agricultural produce market to supply the foodstuffs they need. As such, the distribution sector seeks to secure its supply by participating in the corporations of collect and primary processing operations, by concluding contracts with agricultural producers or acquiring farm corporations.

For this reason, two Chinese groups (Synutra and Biostime) co-financed powdered milk factories in Brittany and Normandy. They ensured that part of the produce could be imported to China, allowing them to make use of the good reputation of French produce.

Trading companies are also seeking to secure their supply in the wine sector, either by concluding contracts with producers as in Champagne, or by acquiring wine production companies. Local, regional, national, European and extra-European companies have been attempting to purchase vineyards for several years now. Chinese operators were even able to acquire 115 Bordeaux chateaux in the space of four years.

This trend of appropriating agricultural land or buying up companies around the world with money from the West, Asia or the Middle-East is therefore not confined to Africa, Asia or Eastern Europe, but involves the European Union too, including France.

Property markets and land concentration

Nowadays, in Europe and many other countries, rights to cultivate agricultural land are conferred via the land market, the rental market and also the market for shares in farm corporations, which themselves own or rent land. When there are no more hectares of land available, the market for accessing cultivation rights becomes a market of exclusion. Those who have rights prevent others from doing so. Without market regulation, the highest bidder wins, leading to a concentration of cultivation rights in the hands of an increasingly small number of people. It is also clear that new investors make use of crises to enter into a market. In the Bordeaux wine region in the early 2010s, the first Chinese investors were well received by the transferors, who could not find buyers for their companies. They would have had to accept a price up to 20% lower for a takeover by local stakeholders. In Indre, farmers who were struggling financially were thus able to negotiate a transaction with favourable conditions.

In such situations, there are several winners: the sellers who are able to negotiate a higher price than that offered by local stakeholders, intermediaries who enjoy larger commissions, and investors.

However, there are losers as well. Large production groups employ increasingly standardised, automatized and mechanised processes with simplified production systems. Strategic decisions are taken further and further away from the location. Capital and labour are clearly distinguished. This leads to a fall in employment in the agriculture sector, and production systems which are moving away from agroecology. These groups are a far cry from the family farm model where a family holds most of the operating capital, has significant involvement in the production work and takes strategic decisions. Local candidates for installation and expansion lose out as well.

In addition, the acquisition of farms by third country nationals with the aim of producing agricultural produce for importation to their home countries entails a loss of added value for the country of origin, which thus becomes an “extraction” site. Part of its added value is displaced to third countries including France.

Concerns about Europe’s food sovereignty

The land concentration activities carried out by international groups affect both France and Europe as a whole. They raise questions about Europe’s food sovereignty, in a continent which is already experiencing a deficit of agricultural land. If we factor in imports minus exports, the net result shows that Europe’s imports the equivalent of 20% of the agricultural produce generated by its farmlands4. With its current way of living, Europe depends on farmlands in third countries in America, Africa and Asia. Europe will increasingly have to compete with the Middle East and China to secure its supply. Could Europe become even more dependent on third countries?

The European institutions are beginning to take this subject more seriously. On 21st January 2015, the Economic and Social Committee published an opinion report entitled “land grabbing, a warning for Europe and a threat to family farming”. The European Parliament also intends to tackle the subject. French Minister for Agriculture, Stéphane Le Foll, announced the setting up of a mission with the General Council of Agriculture to prevent operations similar to those which took place in Berry. The subject is far from exhausted. It raises the question of the regulation of land markets in France and Europe and at the same time the European agricultural model.

Robert Levesque is Director of Terres d’Europe-Scafr. He is a member of AGTER.

We thank the author and La revue foncière for authorizing the resumption of this article on this documentary resource site www.agter.org

1 FNSafer study, Safer in Upper Normandy, Terres d’Europe-SCAFR, Delphine Cornu, Jérôme Andrieu, Robert Levesque 2016

2 Les politiques agricoles foncières en Pologne (Agricultural property policies in Poland), Tunvezh Gloaguen-Grandjean, 2014, AGTER

3 Le prix des terres (The price of land), 2014, an analysis of rural property markets, FNSAFER

4 La question foncière renouvelée : pour une alimentation durable de l’humanité et une souveraineté alimentaire européenne (The renewed issue of property: towards sustainable food for humankind and European food sovereignty), Robert Levesque, Cahier Déméter Report n°15

Bibliography

  • Status of agricultural land market regulation in Europe: Policies, regulation and instruments), AEIAR, December 2015

  • Le prix des terres (The price of land), 2015, analysis of rural property markets, FNSafer, May 2016

  • Cahier Déméter Report n°15

Copyrights

© Levesque, R. © La revue foncière

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