February 10, 2009 / 7:01 AM / 10 years ago

Daewoo says may delay Madagascar corn planting plan

SEOUL (Reuters) - South Korea’s Daewoo Logistics said on Tuesday it might delay its massive corn plantation plan in Madagascar due to political instability and weak commodity prices, a move that could signal the first withdrawal of major foreign investment from the Indian Ocean island nation.

Two weeks of civil unrest stoked by a power struggle between Madagascar’s president and a sacked mayor of the capital have killed more than 125 people, worrying companies keen to make investments.

Daewoo has sought to develop an area of Madagascar larger than Qatar to plant corn, with a long-term aim to replace more than half the corn that South Korea, the world’s third-largest corn buyer, imports mainly from the United States and South America.

The delay could be another setback for resource-hungry South Korea, which has been actively snapping up depressed commodities assets in recent months to satiate its economy, Asia’s fourth-largest.

Just last month, Korea suffered a blow when top African oil producer Nigeria cancelled exploration rights at two major offshore oilfields belonging to a South Korean consortium.

“We are not in a rush to push for the plan and want it to be delayed because weak corn prices and difficult financing conditions have made the deal less attractive,” said Shin Dong-hyun, who is in charge of the project at Daewoo.

“Political instability in the country has also reduced its merit ... We have done everything we are obliged to do under the contract and are awaiting a response from the Madagascar government to take the next step,” Shin said.

Madagascar’s worst violence in years has dented the island’s hopes of drawing tourists and mining investment after the government opened its doors to firms seeking to exploit its reserves of oil, gold, nickel, cobalt, uranium and ilmenite.

Global grain prices soared to record highs early last year because of harsh weather conditions in major grain exporters such as Australia and the United States, fanning fears over food security in Asian nations.

Then, the surging food prices and a shortage of arable farm land prompted import-reliant countries, such as South Korea, Malaysia, Kuwait and Saudi Arabia, to lock in cropland abroad.

U.S. corn prices have more than halved to $3.74 per bushel in the seven months since they hit a record peak of $7.65 in June, as a worsening global economic slump crimped demand for commodities.

Daewoo Logistics had planned to start planting 2,000 hectares of corn this year before developing a massive 1 million hectares in the western part of the country with corn and 300,000 hectares in the east under oil palm.

The firm also promised to spend $6 billion in the next 20-25 years to help install infrastructure such as roads, railways, a port and schools in exchange for developing huge swathes of arable land.

Daewoo Logistics, a former unit of the now-defunct Daewoo Group, is an unlisted trading company spun off from Daewoo Corp in 1999.

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