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Karuturi: a litany of problems

GRAIN | April 22, 2013

Karuturi Global Limited, a publicly registered holding company headquartered in Bangalore, India, may be under fire from the Kenya Revenue Authority (KRA) for tax evasion, but the complaints against it go further than that. The agribusiness firm, whose farm operations also straddle Ethiopia and India, has been dodging bullets about labour law violations, human rights abuses and environmental issues. Even the World Bank Group is no longer considering the company’s request for risk insurance for its investments in Ethiopia. This background note summarises the various problems that Karuturi has come to be known for among social justice movements around the world.

Tax evasion

Every year around US$ 1000 billion disappears without a trace from developing countries, ending up in tax havens or rich countries. The main part of this is driven by multinational companies seeking to evade tax where they operate.

The sum that leaves developing countries each year as unreported financial outflows, referred to as illicit capital flight, amounts to ten times the annual global aid flows, and twice the debt service developing countries pay each year. During 2000-2008 Africa was the region with the largest real growth of illicit capital flight, amounting to 21.9 % per year.

This money, if properly registered and taxed in the country of origin, could of course contribute to fulfilling human rights like the right to education and health care, and make a major difference in the fight to combat poverty. Due to just two forms of illicit capital flight used by corporations (‘mispricing’ and ‘false invoicing’), developing countries are losing three times the amount that is missing to achieve the UN millennium development goals (like universal education, stopping the spread of HIV, and halving extreme poverty) in tax revenues every year.

(For all facts on tax evasion above and more info on mispricing please see “Bringing the billions back: how Africa and Europe can end illicit capital flight” by Fröberg and Waris, 2011)

In 2012, the Kenya Revenue Authority developed a team of transfer pricing experts to audit accounts of companies in order to assess whether there was transfer mispricing and tax evasion taking place. Some transnational companies that export from Kenya are notoriously adept at it. However, the government has had difficulty tracing these firms’ operations due to lack of capacity and to date all audits and assessments, apart from one against Unilever, have been settled outside of public view.

On the 4th of April 2013 Karuturi filed a notice of appeal against the decision of the tax tribunal for taxes due to the Kenyan government and the Kenyan people. According to ICRA, an Indian credit rating research agency, in an October 2012 analysis commissioned by Karuturi as well as Karuturi’s 2012 annual report, Karuturi has been facing a number of potential threats to its financial viability, namely:

  • An INR 57.8 crore (= KES 975 million / USD 10.7 million / EUR 8 million) dispute from the Kenya Revenue Authority over transfer pricing
  • An INR 83.5 crore (= KES 1.4 billion / USD 15 million / EUR 11.5 million) claim on unpaid income taxes from the Indian authorities
  • A risk of default on a USD 54.7 million (= KES 4.8 billion / EUR 40.3 million) foreign currency convertible bond due for redemption on 19 Oct 2012 which was since restructured

The overall tax claims come to USD 26 million, which is about one-quarter of the multinational’s global turnover in fiscal year 2012 (USD 106 million) while the amount for Kenya amounts to almost 1 per cent of Kenya’s total annual tax collection.

Money of this magnitude could be used as additional income for development or to replace some current taxes that target the poor like value added tax or even to delay the enactment of additional taxes like the one on maize flour due to be activated in Kenya in 2015.

Land grabs

Since 1996, Karuturi’s core business has been floriculture, producing 580 million roses per year from 289 hectares of land the company leases in Kenya (154 hectares), Ethiopia (125 hectares) and India (10 hectares). In 2012, the group commanded no less than 9% of the cut rose market in Europe. Since the 2007/2008 global food crisis, Karuturi began expanding from floriculture into food production. Its plan is to set up farming operations on over one million hectares, mainly in eastern and southern Africa, to produce primarily maize, rice, sugarcane and palm oil for international markets.

The hub of this expansion is Ethiopia. In 2009, Karuturi acquired 10,700 ha of land in Bako for maize, rice and vegetable production. In 2010, it got an additional 300,000 hectares for expansion in Gambela. The company aims to farm a total of 750,000 ha in Ethiopia. This land is leased from the government at bargain prices, but local communities consider it their own.

As a result, many conflicts have emerged around compensation, displacement and the relocation of villagers and herders who suddenly found themselves fenced off of their lands by the Indian company.

In 2011, Karuturi announced it was expanding further by pursuing a US$500 million investment for 370,000 ha in Tanzania, including an initial 1,000 ha in the country’s fertile Rufiji Basin. That same year, the company announced that it was in discussions with government officials in the Republic of Congo for a farm project in a special economic zone in Oyo-Ollombo, 400 km north of Brazzaville. In addition, it has been planning fruit and vegetable farms in Sudan, Mozambique and Ghana, and, says CEO Ramakrishna Karuturi, “in Senegal, we have made an exploratory probe and in Sierra Leone we have made initial contacts.” All of these countries are rife with land grabs right now.

Labour issues & disputes

According to a 2012 report published by the London Business School, 5% of Karuturi’s workforce in Ethiopia is composed of foreigners. Karuturi has been bringing in staff and consultants from abroad, including India, to run management, irrigation & drainage operations, and logistics because they said they could not find the experience locally. Same for manual labourers. Karuturi hires Ethiopians as unskilled labour but for skilled labour it says it faces problems. At the end of 2011, Karuturi got into a dispute with the Ethiopian government because they brought in several hundred Indian farmers to work on their farms in Gambela, which the Ethiopian authorities said contravened Ethiopian law and for which they would not give the permits. Karuturi reportedly also expects to rely on Indian farmers to handle its work on oil palm.

According to media and labour organisation organisation reports, workers on Karuturi farms in both Kenya and Ethiopia have been complaining about, and initiating labour actions against, various conditions, especially related to wages and safety.

In November 2012, Karuturi reportedly began laying off about 900 of its 3,500 seasonal workers in Naivasha, Kenya, due to financial problems. The number was later reduced to 600. In December 2012, 1,000 Karuturi workers went on strike to demand action from management on unpaid salaries and poor working conditions.

Earlier, in June 2010, Workers Rights Watch, a Kenyan association, carried out focus group discussions with Karuturi flower farm workers in Naivasha and registered a mixed scorecard of positive and negative opinions about the company.

Regarding Karuturi’s Ethiopian farms, various media and research reports have exposed complaints of poor wages. For example, a solid report commissioned by the International Land Coalition shows that Karuturi pays Ethiopian farm labourers at its Bako farm ETB 10 per day (US$ 0.50) which compares with about ETB 20 per day (US$ 1.00) for labourers on commercial sesame farms in the country. Night guards for the company are said to be paid ETB 300 per month (US$ 15) if they own a gun and ETB 200 (US$ 10) per month if they do not.

Human rights violations

According to a powerful 2012 report by Human Rights Watch, the Ethiopian government is forcibly relocating thousands of indigenous people in western Gambela to new villages lacking adequate food, farmland, healthcare, and educational facilities to make way for large scale agricultural projects of foreign investors, including Karuturi. The report said, based on interviews with community representatives, that crops of local Anuak communities were cleared without consent for the Karuturi operations and that residents of Ilea, a village of over 1,000 people within Karuturi’s lease area, were told by the Ethiopian government that they would be moved in 2012 as part of its “villagisation programme”. In response, CEO Sai Ramakrishna Karuturi denied any connection between his company’s activities and the government’s villagisation programme. In conversation with the Wall Street Journal’s unit in India, he described the Human Rights Watch report as “hogwash” and “a completely jaundiced western vision”, and even denied that the villagisation programme exists.

Loss of livelihoods

Karuturi’s 10,700 ha Bechera Agricultural Development Project in the Bako Plains of Ethiopia has deprived several local communities of their communal grazing areas and access to water for their livestock, thus severely affecting their livelihoods. This comes from a study commissioned by the International Land Coalition, based on detailed discussions with local communities, local authorities and Karuturi employees. The study documents how the lands were provided to Karuturi without the consent of the local communities and without compensation. It reveals that Karuturi is refusing to implement even the most minimal measures recommended by local authorities to address some of the impacts from its operations. For example building a livestock corridor through its fields so that locals could access water sources for their animals, or allowing them to graze their animals on crop residues.

Environmental & health concerns

Karuturi operates one of the largest flower farms in the Lake Naivasha Basin in Kenya, the country’s second largest freshwater lake. The flower farms are blamed for causing a drop in the lake’s water level, for polluting the lake with pesticides and chemical fertiliser runoff and for affecting the lake’s biodiversity. Workers at Karuturi’s flower farms in Naivasha who spoke with Muungano wa Wanavijiji, a local partner organisations of Forum Syd, in February 2013 said that the dilapidated condition of the Karuturi operations and poor protective clothing puts them at risk to exposure from chemicals. They say the company does not seem to care about their concerns.

For its farm in Gambela, Ethiopia, Karuturi has developed an irrigation system with 50km of canals, 50km of drainage, and 40km of dykes, to pump a reported 22,000 litres of water per second from the Baro River, a crucial source of water for people dependent on the White Nile. Karuturi’s smaller 10,700 ha farm in Bako also generates significant issues related to access to water and water quality for the local communities. Although environmental impact assessments are usually required for irrigation projects in Ethiopia, Karuturi reportedly did not undertake any such assessment prior to constructing its farming complex in Bako.

Investor confidence

Karuturi and its shareholders have been waiting since at least May 2011 for the World Bank’s Multilateral Investment Guarantee Agency (MIGA) to approve the company’s long pending bid for political risk insurance for its Ethiopian operations. According to Sai Karuturi, as of 2012 the application had still not been approved due to Karuturi’s plans to produce palm oil — a sensitive issue for which the Bank would require the Ethiopian government to put in place environmental protocols. Karuturi explained that he was therefore advised by MIGA to omit palm oil from the application for now and so he did. If MIGA protection fails to materialise, the company told investors that its fallback option would be to seek support from India’s Export Credit Guarantee Agency. On 29 January 2013, MIGA informed GRAIN, flatly, that Karuturi’s application “is no longer under consideration”.

In March 2013, Bloomberg reported that Karuturi was seeking “hundreds of millions” of fresh investment dollars from an unnamed sovereign wealth fund after yet another unnamed development bank refused it a loan.

In April 2013, the Indian paper Business Today reported that Karuturi was thinking of taking the company private.

April 23, 2013 Posted by | Corruption, Deception, Economics, Timeless or most popular | , , , , , | Comments Off on Karuturi: a litany of problems

The Green Green Gold of Ethiopia

By GRAHAM PEEBLES | CounterPunch | March 8, 2013

Ancestral land that for generations has served as home and livelihood for hundreds of thousands of indigenous people in Ethiopia is being leased out, on 99-year renewable contracts at nominal sums to foreign corporations. The land giveaway or agrarian reforms as the government would prefer to present them began in 2008 when the Ethiopian government, under the brutal suppressive Premiership of Meles Zenawi invited foreign countries/corporation to take up highly attractive deals and turn large areas of land over to industrial farming for the export of crops. India, China and Saudi Arabia were all courted and along with wealthy Ethiopians have eagerly grabbed large pieces of land at basement prices; rates vary from $1.10 to $6.05 per hectare (HA), comparable land in India would set you back $600 per ha.

A total of 3,619,509 ha, the Oakland Institute (OI), a US based think tank, estimate has been leased out. Land made available by the forced re-location of hundreds of thousands of indigenous people under the government’s universally condemned Villagization progamme, which aims to forcibly re-locate over 1.5 million people from their homes.

Indian corporations have taken the lion’s share, acquiring around 600,000 ha concentrated in Gambella and Afar, split between 10 investing companies. The term ‘investing’ implies benefits for Ethiopia, which is misleading; ‘profiteering’, or ‘exploiting’ sits closer to the truth of these land deals, as the OI make clear, “taking over land and natural resources from rural Ethiopians, is resulting in a massive destruction of livelihoods and making millions of locals [farmers and pastoralist communities] dependent on food handouts”. With small scale farmers being evicted from their land, prices of staples such as Teff, used by millions throughout Ethiopia to make Injera (bread), has rocketed in price, according to Ethiotribune 22/5/2012, increasing fourfold since 2008.

Corporate expansionism: small change big profits

In line with its ambitions of diversity and world food dominance – Karuturi Global, the world’s largest grower of roses, leads the Indian charge, leasing 311,700 ha in Gambella. Not satisfied with this, GRAIN (an international NGO, working to support small farmers) report Mr.Karuturi “wants to set up farming operations [throughout Eastern and Southern Africa] on more than 1 million [ha]” – too much never enough in corporate expansionism.

Almost a quarter of Gambella’s 25 million ha has been earmarked by the federal government for agricultural ‘development’. Karuturi, whose profits “rose 55.13% to Rs 1.21 crore [10 million] in the quarter ended June 2012”, took their chunk without even seeing it, paying only $1.10 per ha. For the Indian giant it is, John Vidal in ‘Land Grab Ethiopia (LGE)’ says, “the sale of the century”. ‘Green Gold’ is how Mr. Karuturi in GRAIN (‘Who’s Behind the Land Deals’), describes his 300,000 ha of Ethiopian soil, “for which he pays $46 per ha per year including water and labour and expects at least $660 [per ha] in profit per year”. (Ibid)

In addition to paddy, Indian farmers are being sub-contracted to grow maize, cereals, palm oil and sugarcane amongst others. All of which are destined for export, either to India or Europe, where companies farming in Ethiopia (and other Sub-Saharan African nations), benefit from lower import duties applied to developing countries, notwithstanding the fact that the land is leased to, and the crops produced and sold by, multi million-rupee rich companies.

Another major Indian company leasing land in Gambella is the decidedly green sounding BHO Bioproducts. Following the corporate rhetoric, BHO Chief Operating Officer Sunny Maker told Bloomberg in 2010 that, they have “plans to invest more than $120 million in rice and cotton production”, which, by 2017, should “generate about $135 million a year from sales divided equally between domestic [Indian] and international markets.” He added that the “incredibly rich fertile land”, will all be “cleared within the next three years”. Cleared yes, violently, indiscriminately and totally; villages, people, forests, woodland, all destroyed, burnt, relocated, displaced, desecrated. The governments promise to such prized investors is that the land is handed over stripped of everything and everyone. Dissent is not allowed and dealt with brutally should it occur, as Anuradha Mittal, Executive Director of OI makes clear. “The repression of social resistance to land investments is even stipulated in land lease contracts, [it is the] state’s obligation to ‘deliver and hand over the vacant possession of leased land free of impediments’ and to provide free security ‘against any riot, disturbance or any turbulent time.”

The ‘rich fertile land’, lovingly cultivated at the hands of the men and women who have farmed it for generations, is unlikely to be nurtured so carefully by Indian (or indeed Chinese or Saudi Arabian) corporations with their thirsty ‘GM seeds’ (Ibid). For as Oxfam in their detailed report ‘Land and Power’ diplomatically point out, “investors short time scales may tempt them into unsustainable cultivation, undermining agricultural production.”

The devolution of development

Land is a prime cut asset in the commercialization of everything, everywhere, and the “rich fertile land” in Ethiopia is cheap, even by Sub-Saharan African standards. Along with long-term leases, the government offers a neat bundle of carrots, including tax incentives and unrestricted export clauses, incentives that the OI state “deny African countries economic benefits” from land deals that the Ethiopian regime wraps up neatly in its complete disregard for the human rights of the indigenous people. Government indifference encouraging corporate irresponsibility – and they need little encouragement. Businesses hardly seem to be grabbing the land, so much as accepting it as a gift, parceled up and ready to be torn open.

In exchange for such attractive deals, the Ethiopian government has been extended, the OI reports “a $640 million line of credit… over five years to boost sugar production in the country’s Lower Omo region”. Not a philanthropic gesture, more a sales trap by India’s EXIM (export and import) Bank, who stipulate, “Ethiopia must import 75% of the value of the credit line in the form of Indian goods and services.”

The government-owned sugar plantations in the Lower Omo are themselves attracting a great deal of concern and criticism from human rights groups, who highlight the environmental and human damage being perpetrated. Government acts of violence and abuse, in the various land deal regions, are justified under the overused and misleading title of ‘development’; a term appropriated by the international monetary machine – the World Bank and International Monetary Fund (IMF) primarily – misunderstood and distorted by government development agencies, acting in line with foreign affairs policies by promoting national self interest and perverted by the corrupt ideologically-blinkered governments of developing nations. An undeveloped ideological trinity whose actions have drained the 21st century sacred cow and its stable mate ‘growth’ – dry of any true and relevant meaning. Far from supporting human and or social development the “unfair terms and near give-away prices [of land deals]… are hindering development…. Foreign corporations and the World Bank are pressuring African leaders to give them exemptions from taxes, import and export duties, and local labor laws – not to mention water and mineral rights that could be worth billions”, the OI confirm.

More concerned with sitting at the top table and cultivating the right international allies than with doing their constitutional duty and serving the needs of the people, the Ethiopian government is in danger of giving away, and for peanuts, it’s ‘rich and fertile’ land to overseas companies who have no interest in Ethiopia, it’s environment, its culture and even less in its people.

Increasing hunger

Hunger and poverty stalk the land of both Ethiopia and India. 12 – 15 million people survive on food aid in Ethiopia, which ranks at the bottom of the World Hunger Index at 76. India, with the highest rate of malnourished children in the world, where 25% (around 270 million) of the world’s hungry live, despite the fact that, according to the World Food Programme (WFP), “the country grows enough food for its people”, comes in 65th of the hungriest nations, below Niger and the Sudan – neither of which, to my knowledge, boast 61 billionaires and 200,000 dollar millionaires unlike India. And whereas “most countries have made consistent progress in reducing hunger, India has seen hunger rise over the last decade compared with the late 1990s.”(Ibid) This so-called economic miracle nation refuses to feed it’s own people.

Food insecurity, the WFP makes clear is caused not by lack of produce, but by an unwillingness to share the Earths bounty equitably. The states in India with the greatest numbers suffering from hunger and malnutrition, as per WFP records, “include Madhya Pradesh, Chhattisgarh, Bihar, Jharkhand, Orissa, Rajasthan and Uttar Pradesh”; these are the states where the poorest (Adivasi – indigenous and Dalit) people in the country and quite possibly in the World happen to live. The poor are dying of hunger not because India cannot feeed everyone, as the United Nations report on regional cooperation makes crystal clear, “the root cause of hunger across the sub-region and the world today is not a lack of food. It is the economic and social distribution of that food which leaves populations undernourished and hungry.”

Men women and children living in dire poverty starve to death, in India, Ethiopia and throughout the world. They starve and die for want of the food that is rotting in warehouses, food served up to rats or destroyed by the Indian government, because it is cheaper to burn it than to distribute it to those in need. As Graziano da Silva, Director-General of the Food and Agriculture Organisation of the United Nations (26/01/13) said, “globally, a third of all food produced is wasted, and… if one could avoid this waste it would be possible to feed all the hungry people [in the world] and have food to spare.” Food to spare!Such is the inhumane ethos that underpins market fundamentalism, that allows men women and children, young and old to starve – simply because the do not have the financial means to feed themselves. Shame on governments Indian and the rest, that allow such inhumane injustice to prevail, as a wise teacher said, “throughout the world there are men, women and little children who have not even the essentials to stay alive; they crowd the cities of many of the poorest countries in the world… My brothers, how can you watch these people die before your eyes and call yourselves men”.

The commercialization of the countryside in India and Ethiopia, which is displacing large numbers of small-scale farmers and concentrating crop production in the hands of multi-nationals, is intensifying existing levels of hunger. Substantive agricultural reform and real development would see the army of skilled small scale producers, with generations of local knowledge and love of the land, supported with the needed capital and technology, given access to markets that corporations bring. Such an agrarian revolution, ethically founded, environmentally healthy and socially sustained, would build long-term food security and feed the hungry.

Soft targets easy profits

India as the WFP makes clear, has no domestic need for food produced by the overseas industrial farms that are causing such far-reaching damage, to the hundreds of thousands of displaced people of Ethiopia as well as the natural environment. The movement in Ethiopia mirrors what is taking place to a much greater degree in India. The government has shifted all support away from Indian farmers and is supporting the transfer of land from the rural poor to large companies – wealthy government benefactors, causing the displacement of millions (60 million to date, according to Arundhati Roy) of indigenous people.

Corporations are targeting countries with “poor governance”, Oxfam 7/02/2013 makes clear, that “allow investors to secure land quickly and cheaply…. [They] “Seem to be cherry picking countries with weak rules and regulations”. Needy nations like hungry people make easy targets for multi-national men, whose pockets governments are desperate to nestle inside. The driving force behind such destructive land developments, undertaken by corporations obsessed by an insatiable desire for growth and world leading economic development, is, as Oxfam suggests, profit and profit alone.

Graham Peebles is director of the Create Trust. He can be reached at: graham@thecreatetrust.org

March 8, 2013 Posted by | Corruption, Economics, Ethnic Cleansing, Racism, Zionism, Malthusian Ideology, Phony Scarcity, Timeless or most popular | , , , , , , , | Comments Off on The Green Green Gold of Ethiopia