Foreign Direct Investment in Agriculture

Foreign Direct Investment in Agriculture

Land Grab or Development Opportunity?

Drivers of Foreign Direct Investment in Agricultural Land are both economic and related to food security concerns. Economic agribusiness opportunities abound and the gradual removal of trade and investment barriers has made it easier for companies and countries to relocate their supply bases to areas where they can enjoy optimal tariff and other trade-related incentives.

The 2007-2008 food price crisis has led countries with limited food production assets to explore (often through private companies) new ways to secure access to food for their own populations, produced under the quality and safety standards required. The perceived need to increase biofuel feedstock generation without impacting domestic food production also led countries and investors to look abroad. Governments in recipient countries have generally welcomed Foreign Direct Investment in Agricultural Land as it provides funds, expertise, assistance and loans these countries are in direct need of and that would otherwise be unavailable.

Albeit a comprehensive picture on the current state of Foreign Direct Investment in Agricultural Land is hard to get, as reports are often contradictory and details on the contractual arrangements sketchy, two main forms of investment can be identified:

Leasing: In many countries the easiest and most common mode by which a foreign entity can undertake overseas farmland investments is by leasing land. Governments have facilitated this investment modality by entrusting ownership of large tracts of public land to certain state agencies, which in turn lease them to foreign corporations.

This Brief is based on the comments from an online consultation held by the Global Forum on Food Security and Nutrition, an online network for knowledge sharing in food security and nutrition facilitated by FAO.

The Forum is a neutral platform for discussing food security and development issues. As of today, 3 years after its launch, the Forum brings together over 2500 experts worldwide and hosted 60 e-discussions.

Further information on the Forum and all current and past discussion can be found at:

Joint venture: In this case, the foreign entity enters into a joint venture or similar business partnership with a domestic corporation. This may allow easier access to land, while potentially enabling the partnership to reap tax and other incentives normally enjoyed only by domestic enterprises.

It is further necessary to distinguish between Foreign Direct Investment in Agricultural Land aimed at producing for the domestic markets and investment aimed at exports. While the first can also be controversial it is without doubt the second form which raises most concerns as it can conflict with local food security concerns.

Common Issues Identified by Forum Participants

While scarcity of land in investor's countries creates Special accommodations given to overseas investors

the environment for economic opportunities of poten-

risk being in contradiction with domestic policies and

tially positive impact, it also carries many risks, mostly

being biased towards the foreign investor. Especially

for the rural poor and customary users of lands.

where land is converted from rice, corn, or other staple

crops to biofuel, feedstock, vegetable, horticulture,

Due to insecurity of land tenure in many countries

Foreign Direct Investment in Agricultural Land can

and other commodities of higher value but not essential for local food security.

cause large-scale and long-term displacement of small

farmers.

Foreign Direct Investment in Agricultural Land almost

inevitably leads to large-scale plantations employing

Also in the case leased land is largely public and unoc-

cupied, farmers and landowners on adjacent private plots can be lured, through legal and illegal means,

intensive cultivation practices which could lead to land degradation, water pollution, and long-term environmental damage.

into leasing their land with negative repercussions on

food security, welfare and social justice.

Small farmers and landowners may not benefit from

the investment as they may be enticed with low lump-

A strong one-sidedness of many of the contracts by

which farmers and landowners have ceded control of their land to foreign agribusiness investors has been

sum five-year rental payments. Welfare increase of small farmers tends therefore to be limited and unsustainable.

observed. Some of the long-term lease agreements

exempt investors from any meaningful liability in case

their agribusiness ventures prematurely fold up.

Disclaimer: This Brief is the result of an online consultation held on the Global Forum on Food Security and Nutrition. All positions and views expressed herein are exclusively those of the participants to the discussion and not necessarily reflect the views of FAO.

Land Grab or Development Opportunity

Results are dependent upon ex-

ternalities and pre-existing local conditions. In countries with large uncultivated land reserves opposition to foreign land ownership will be less than in countries with limited or densely-populated farmland.

Perception depends on the net

positive benefits of investment for all groups, including the improvement of social well being of marginalized people.

Foreign Direct Investment in Agri-

culture can enhance the efficiency of a nation's agricultural production by developing investment heavy areas such as irrigation and infrastructure. However such efficiency oriented interventions can have negative effect on the social structure and equity.

Foreign Direct Investment in Agri-

culture can raise sensitive sovereignty, social-impact and environmental issues as there is a specific wariness at putting food supplies in foreign hands.

Small farmers, not foreign enti-

ties are the real and most strategic investors that governments should encourage and support. Agricultural priority of any government should be to achieve as much food autonomy possible and extreme caution should be exercised when introducing export-targeted agriculture in areas in food production deficit areas.

It remains the responsibility of

governments to build roads, put up irrigation, deliver health and education services, and provide other basic infrastructure and

services that will enable farmers to generate profits from their farms and rear their families out of chronic poverty. Relying on Foreign Direct Investment in Agricultural Land carries the risk that the governments might feel relieved from these tasks and place the responsibility in the hands of foreign private companies.

When Foreign Direct Investment

in Agricultural Land is organized and implemented as a sustainable way to inject capital into developing countries' agricultural sector and is regulated by a code of conduct that minimizes the negative impact it can be seen as a important opportunity to solve the structural lack of capital.

How to regulate Foreign Direct Investment in Agriculture

Well informed, well negotiated and balanced con-

There is the need for the formulation and imple-

tracts between Governments, investors and com-

mentation of international codes of conduct and

munities are key to positive outcome and the mini-

guidelines for international investments. A frame-

mizing of adverse effects.

work to which national regulations, international

investment agreements, global corporate social

Rural small-holders and family farms must be in-

cluded in planning and negotiations, and should be

fairly compensated when involuntary displacement

occurs.

responsibility initiatives and individual investment contracts can refer should also be set up. FAO's Voluntary Guidelines on Land Tenure currently in the development stage, could be a step in the right direction.

It is necessary that the recipient state ensures that

land tenure is protected and that it recognizes its

The Right to Food does also play an important role

responsibility to maximize the positive outcomes

in preventing negative impacts of foreign invest-

for the global benefit of it's citizens.

ments and it's application on country level should

be pursued.

Foreign Direct Investment in Agricultural Land

needs to be coherent with the broader national

These endeavours should be coupled with other similar initiatives, by donors and recipients alike.

development policy and domestic laws and regulations. Laws should require a percentage of land

International Frameworks on Foreign Direct

acquired to be set-aside for independent farmers

Investment in Agricultural Land:

and provide for existing farmers to be employed

full or part-time by the investment venture. In general the legal conditions in the target country are

FAO Voluntary Guidelines for the Right to

of the greatest importance as they have the most direct effect on terms and conditions of the Foreign Direct Investment. Moreover legal and fiscal security and stability is paramount for long term

Food FAO Voluntary Guidelines for Responsible Governance of Tenure of Land and other

sustainable projects

Natural Resources,

Investments need to be protected over time. If the

risk of a wash-out is high, high returns will be re-

quired. This will severely curtail the number of

feasible projects and, through higher prices and

lower wages, penalize consumers and workers.

EU Land Policy Guidelines African Land Policy Initiative (AU / UNECA). WTO Agreements (TRIMs, GATTs)

For the complete proceedings of the discussion go to: PROCEEDINGS_land_grab_or_development_opportunity.doc

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