Addax – A Closer Look


Socfin, Sierra Leone, oil palm plantation

The issue of large-scale land leases in Sierra Leone (read Chinese company Kingho overruns small Sierra Leonean town) simply won’t go away. On Tuesday, Dec 10, 2013, police in Sahr Malen chiefdon opened fire on a large group of villagers protesting the usurpation of their lands by Socfin agricultural company (read Sierra Leone Police open fire on activists protesting against French agri-business, Socfin), who have leased 6,500 hectares of farmland for the development of an oil palm project in Pujehun district. A few days later, on Friday, Dec 13, 2013 Government announced (read Sa Lone signs $1.3 bn Agric deal with China) the signing of another massive land lease, the largest to date, this time with the Chinese company, Hainan, for the establishment of a rice and rubber plantation on 135,000 hectares of farm land in three districts.


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 Sierra Leone government is pressing ahead with yet more, larger, land leases, maintaining that this is the path to prosperity. Where does the truth lie?


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 Freetown and other big cities as a direct consequence of the incursions of the company? No one knows, but each migrant adds to the volatile mix of problems in the cities. For them, the land is lost, for fifty or seventy years, probably for ever.


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 Sierra Leone government is not to bring in more Addaxes but to improve Sierra Leoneans’ productivity on their land. In future projects of this nature, the government should strive to shift the balance of owning and planting the land in favour of the local farmer, whilst the downstream processing could continue to be the purview of the investing company.


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.