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Addax – A Closer Look
There is vigorous, even
violent, opposition to these land leases from several NGOs (read Oakland Institute on Socfin agricultural company), from some affected
villagers, even from within the pages of natinpasadvantage (read Addax Bioenergy
in Sierra Leone). To many independent observers, these leases appear to
be part of a pattern of exploitation (read Farmland-the
new blood diamonds) stretching back well over three hundred years, in
which natural resources are snatched up to the detriment of (or at least with
little benefit to) local populations, until those resources are exhausted or
the overseas market opportunities no longer exist. And yet the All this brings us back to the issue of Addax Bioenergy Company, which signed one of the first large-scale land leases in Sierra Leone in this new wave of agricultural projects, and which is close to up and running with its plantation and ethanol distillery, scheduled to begin functioning in 2014. Addax, in its numerous releases, puts up a robust defense of its activities and its impact on affected communities and on the nation at large. What do we benefit from the Addax operations? What can we learn from the Addax operations? A close look at the available documentation reveals several key issues: 1) THE PRICE OF LAND Addax is leasing the land for the incredible sum of $5 per acre per year. This is with the full blessing and support of the government – in fact Addax’s literature boasts that it is paying above the government recommended price. Of this $5 per acre per year landowners get $3.40 (the rest is divided between local and central government). Even a single wild mango tree sitting on that one acre should yield much more than this!. Any serious farmer should be able to realize revenue far greater than this from that one acre of farm land. The company itself in its ESHIA summary, section 6.15, page 11 (Addax ESHIA) estimates average net yields in the area from rice planting at approximately 300kg per acre. This is equivalent to 6 bags of rice, or assuming a cash price of Le160,000/bag, approximately Le1m, about $220. This is what could be realized from the land by the average rice farmer assuming this were the only economic activity he/she undertook on it. Addax has leased a total of 136,800
acres (57,000 hectares – a large portion of this will remain unused) at $5
per acre, meaning its yearly lease payment is $684,000.00. If instead of that
very low figure of $5 per acre the company were required to pay the average
net yield of $220 calculated above, then its yearly lease payment would
skyrocket to $30,096,000.00! Suddenly the project would not look quite so
attractive after all! The company,
however, would doubtless claim that much of this land is unused, and
therefore should not attract the higher price. Maybe, maybe not, but in a
properly functioning agricultural economy it should be used, preferably by the local population. And, very importantly, the contract
with Addax locks in this assumption of unused land for the next fifty years
(seventy years if Addax exercises its option to renew). The implication is
that the rural agricultural economy will be dysfunctional stretching out
decades into the future. Far from this land being unused years hence, disgruntled villagers are actually claiming that this land is currently in use. A great part of the divergence in the two positions appears to stem from the bush fallow system. This is undoubtedly an inefficient use of farm land. Addax claims in its ESHIA, section 6.16, page 11 (Addax ESHIA) that fallowed land lies idle for 10 to 12 years. This is extraordinarily wasteful of land, and provides the opportunity for the company to apply the very low valuation to it (if the land can generate $220 for one year and then has to remain fallow for the next 12 years, the average yearly yield would be 220/13 = $16.92 per acre per year). However, the devil lies in the detail, which from the available documents is inconclusive. The lowlying swamplands are planted annually by the local farmers, whereas the upland areas are subject to the bush fallowing system. The company says on page 10, section 6.5, of the ESHIA that “…Addax land selection strategy was based on avoiding the lower lying swamp lands which are currently used for rice production by local people”. There have been claims from local people that this has not been the case, that Addax has appropriated their fertile, lower lying swamp lands. And since Addax has leased both types of land (the 57,000 hectares leased give the company the flexibility to pick and choose where it locates its plantations), there is nothing to prevent it from changing its land selection strategy at some point in the future. In its FAQ of April 2012 (Addax 2012 FAQ), the company says, “Addax will develop its sugarcane plantations mostly (editor’s emphasis) on the uplands.” Whichever way one looks at it, whether wages to workers (at Le15 20,000 - $4-5) are factored in or revenue to government, the fact remains that the bulk of the agricultural revenue from this land, which should be exploited by the local population, will be going to a foreign company. 2) PROCESSING GREATLY ADDS VALUE The second key point relates to the
value added by processing primary products. There are two distinct phases to
Addax’ operation, the production of the primary crop, sugar cane, and the
distillation of this primary crop into ethanol for export. Addax is certainly
on stronger ground when justifying this, distillation, phase of its
operations, as this could not credibly be undertaken by any Sierra Leonean
entity In its FAQ of April 2012 the company confidently claims that ,”Sugar
cane on average yields 6000 liters of ethanol per hectare of
land”(approximately 2,400 liters per acre). Assuming a net price of 60 US
cents per litre of ethanol, this would yield $1,440
of revenue per acre. Quite a hefty
markup from the lease price of $5 per acre! At this price, Addax gross revenues from its 10,000 hectare (25,000 acre) plantation would be $36,000,000. This does not include revenue obtained from the sale of power to the national grid, generated by burning the sugar cane residue. One could conservatively estimate this revenue based on Addax figure of 15MW sale to NPA (x24x365 = 131,400 MWhours or 131,400,000 KWhours or units) and a conservative price received from NPA of 5 US cents per unit (NPA’s price to its end users is around 20 US cents per unit) at $6,570,000. Thus, Addax total revenue from its 10,000 hectares could be of the order of $43,000,000, with the potential to step up production by increasing plantation acreage within its 57,000 hectare leased area. 3) WHAT DO WE GAIN? WHAT DO WE LOSE? Direct revenue to
government appears to be small, especially because of multi-year tax breaks
reportedly granted to Addax. The country will generate a significant amount
of precious foreign currency through the export of ethanol although this will
be partially offset by importation of equipment and materials, expatriate
salaries and corporate repatriation of profits. The 15MW power generation
will be a welcome boost to the nation’s power supply. The net employment
picture is unclear when one takes account of the complaints of affected
villagers. To the extent that Addax will use its labour
efficiently, with significant investments in mechanization, one would expect fewer
agricultural workers on the 10,000 hectares than had been the case pre-Addax.
How many of the 13,617 Project Affected Persons (EISHA estimate) will end up
drifting out of the area and eking out a living on the streets of All in all, there is some
benefit to the nation and Addax will make a tidy, predictable profit, but
this is all based on the underlying low valuation of the leased land. This in
turn is based on Sierra Leoneans’ extremely
inefficient use of the land and low agricultural productivity. The real
challenge facing the The issues raised by the Addax deal are issues that affect all Sierra Leoneans, rural and urban. Inefficient use of farmland and low agricultural productivity greatly contribute to rural-to-urban migration, which in turn leads to urban overcrowding, rampant street trading, poor sanitation, slums and poverty in the cities. One can not solve the urban problems without addressing the rural problem. . |
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