Buying farmland
abroad
Outsourcing's third wave
May 21st 2009
From The
Economist print
edition
Rich food importers are acquiring
vast tracts of poor countries' farmland. Is this beneficial foreign
investment or neocolonialism?
http://www.economist.com/world/international/displaystory.cfm?story_id=13692889
EARLY this year, the king of Saudi
Arabia held a ceremony to receive a batch of rice, part of the first crop
to be produced under something called the King Abdullah initiative for
Saudi agricultural investment abroad. It had been grown in Ethiopia,
where a group of Saudi investors is spending $100m to raise wheat, barley
and rice on land leased to them by the government. The investors are
exempt from tax in the first few years and may export the entire crop
back home. Meanwhile, the World Food Programme (WFP) is spending almost
the same amount as the investors ($116m) providing 230,000 tonnes of food
aid between 2007 and 2011 to the 4.6m Ethiopians it thinks are threatened
by hunger and malnutrition.
The Saudi programme is an example of a powerful but contentious trend
sweeping the poor world: countries that export capital but import food
are outsourcing farm production to countries that need capital but have
land to spare. Instead of buying food on world markets, governments and
politically influential companies buy or lease farmland abroad, grow the
crops there and ship them back.
Supporters of such deals argue they provide new seeds, techniques and
money for agriculture, the basis of poor countries' economies, which has
suffered from disastrous underinvestment for decades. Opponents call the
projects "land grabs", claim the farms will be insulated from
host countries and argue that poor farmers will be pushed off land they
have farmed for generations. What is unquestionable is that the projects
are large, risky and controversial. In Madagascar they contributed to the
overthrow of a government.
Investment in foreign farms is not new. After the collapse of the Soviet
Union in 1991 foreign investors rushed to snap up former state-owned and
collective farms. Before that there were famous-indeed notorious-examples
of European attempts to set up flagship farms in ex-colonies, such as
Britain's ill-fated attempt in the 1940s to turn tracts of southern
Tanzania into a limitless peanut prairie (the southern Tanganyika
groundnut scheme). The phrase "banana republics" originally
referred to servile dictatorships running countries whose economies were
dominated by foreign-owned fruit plantations.
But several things about the current fashion are new. One is its scale. A
big land deal used to be around 100,000 hectares (240,000 acres). Now the
largest ones are many times that. In Sudan alone, South Korea has signed
deals for 690,000 hectares, the United Arab Emirates (UAE) for 400,000
hectares and Egypt has secured a similar deal to grow wheat. An official
in Sudan says his country will set aside for Arab governments roughly a
fifth of the cultivated land in Africa's largest country (traditionally
known as the breadbasket of the Arab world).
It is not just Gulf states that are buying up farms. China secured the
right to grow palm oil for biofuel on 2.8m hectares of Congo, which would
be the world's largest palm-oil plantation. It is negotiating to grow
biofuels on 2m hectares in Zambia, a country where Chinese farms are said
to produce a quarter of the eggs sold in the capital, Lusaka. According
to one estimate, 1m Chinese farm labourers will be working in Africa this
year, a number one African leader called
"catastrophic".
In total, says the International Food Policy Research Institute (IFPRI),
a think-tank in Washington, DC, between 15m and 20m hectares of farmland
in poor countries have been subject to transactions or talks involving
foreigners since 2006. That is the size of France's agricultural land and
a fifth of all the farmland of the European Union. Putting a conservative
figure on the land's value, IFPRI calculates that these deals are worth
$20 billion-30 billion-at least ten times as much as an emergency package
for agriculture recently announced by the World Bank and 15 times more
than the American administration's new fund for food security.
If you assume that the land, when developed, will yield roughly two
tonnes of grain per hectare (which would be twice the African average but
less than that of Europe, America and rich Asia), it would produce
30m-40m tonnes of cereals a year. That is a significant share of the
world's cereals trade of roughly 220m tonnes a year and would be more
than enough to meet the appetite for grain imports in the Middle East.
What is happening, argues Richard Ferguson, an analyst for Nomura
Securities, is outsourcing's third great wave, following that of
manufacturing in the 1980s and information technology in the 1990s.
Several other features of the process are also new. Unlike older
projects, the current ones mostly focus on staples or biofuels-wheat,
maize, rice, jatropha. The Egyptian and South Korean projects in Sudan
are both for wheat. Libya has leased 100,000 hectares of Mali for rice.
By contrast, farming ventures used to be about cash crops (coffee, tea,
sugar or bananas).
In the past, foreign farming investment was usually private: private
investors bought land from private owners. That process has continued,
particularly the snapping up of privatised land in the former Soviet
Union. Last year a Swedish company called Alpcot Agro bought 128,000
hectares of Russia; South Korea's Hyundai Heavy Industries paid $6.5m for
a majority stake in Khorol Zerno, a company that owns 10,000 hectares of
eastern Siberia; Morgan Stanley, an American bank, bought 40,000 hectares
of Ukraine in March. And Pava, the first Russian grain processor to be
floated, plans to sell 40% of its landowning division to investors in the
Gulf, giving them access to 500,000 hectares. Thanks to rising land
values and (until recently) rising commodity prices, farming has been one
of the few sectors to remain attractive during the credit crunch.
The great government grab
But the majority of the new deals have
been government-to-government. The acquirers are foreign regimes or
companies closely tied to them, such as sovereign-wealth funds. The
sellers are host governments dispensing land they nominally own. Cambodia
leased land to Kuwaiti investors last August after mutual
prime-ministerial visits. Last year the Sudanese and Qatari governments
set up a joint venture to invest in Sudan; the Kuwaiti and Sudanese
ministers of finance signed what they called a "giant"
strategic partnership for the same purpose. Saudi officials have visited
Australia, Brazil, Egypt, Ethiopia, Kazakhstan, the Philippines, South
Africa, Sudan, Turkey, Ukraine and Vietnam to talk about land
acquisitions. The balance between the state and private sectors is
heavily skewed in favour of the state.
AP
But where's it
going?
That makes the current round of land
acquisitions different in kind, as well as scale. When private investors
put money into cash crops, they tended to boost world trade and
international economic activity. At least in theory, they encourage
farmers to switch from growing subsistence rice to harvesting rubber for
cash; from growing rubber to working in a tyre factory; and from making
tyres to making cars. But now, governments are investing in staple crops
in a protectionist impulse to circumvent world markets. Why are they
doing this and what are the effects?
"Food security is not just an issue for Abu Dhabi or the United Arab
Emirates," says Eissa Mohamed Al Suwaidi of the Abu Dhabi Fund for
Development. "Recently, it has become a hot issue everywhere."
He is confirming what everyone knows: the land deals are responses to
food-market turmoil.
Between the start of 2007 and the middle of
2008, The
Economist index of food prices rose
78%; soyabeans and rice both soared more than 130%. Meanwhile, food
stocks slumped. In the five largest grain exporters, the ratio of stocks
to consumption-plus-exports fell to 11% in 2009, below its ten-year
average of over 15%.
It was not just the price rises that rattled food importers. Some of
them, especially Arab ones, are oil exporters and their revenues were
booming. They could afford higher prices. What they could not afford,
though, was the spate of trade bans that grain exporters large and small
imposed to keep food prices from rising at home. Ukraine and India banned
wheat exports for a while; Argentina increased export taxes sharply.
Actions like these raised fears in the Gulf that one day importers might
not be able to secure enough supplies at any price. They persuaded many
food-importing countries that they could no longer rely on world food
markets for basic supplies.
Panic buying
What to do instead? The obvious answer
was: invest in domestic farming and build up your own stocks. Countries
that could, did so. Spending on rural infrastructure is the third largest
item in China's 4 trillion yuan ($585 billion) economic-stimulus plan.
European leaders said high prices showed the protectionist common
agricultural policy needed to be preserved.
But the richest oil exporters did not have that option. Saudi Arabia made
itself self-sufficient in wheat by lavishing untold quantities of money
to create grain fields in the desert. In 2008, however, it abandoned its
self-sufficiency programme when it discovered that farmers were burning
their way through water-which comes from a non-replenishable aquifer
below the Arabian sands-at a catastrophic rate. But if Saudi Arabia was
growing more food than it should, and if it did not trust world markets,
the only solution was to find farmland abroad. Other Gulf states followed
suit. So did China and South Korea, countries not usually associated with
water shortages but where agricultural expansion has been draining dry
breadbasket areas like the North China Plain.
Water shortages have
provided the hidden impulse behind many land deals. Peter
Brabeck-Letmathe, the chairman of Nestlé, claims: "The purchases
weren't about land, but water. For with the land comes the right to
withdraw the water linked to it, in most countries essentially a freebie
that increasingly could be the most valuable part of the deal." He
calls it "the great water grab".
For the countries seeking land (or water), the attractions are clear. But
what of those selling or leasing their resources? They are keen enough,
even sending road shows to the Gulf. Sudan is letting investors export
70% of the crop, even though it is the recipient of the largest food-aid
operation in the world. Pakistan is offering half a million hectares of
land and promising Gulf investors that if they sign up, it will hire a
security force of 100,000 to protect the assets. For poor countries land
deals offer a chance to reverse decades of underinvestment in
agriculture.
In developing countries as a whole,
the average growth in cereal yields has fallen from 3-6% a year in the
1960s to 1-2% a year now, says the World Bank. This reflects, among other
things, a decline in public investment. In the 14 countries that depend
most on farming, public spending on agriculture almost halved as a share
of total public spending between 1980 and 2004. Foreign aid to farming
also halved in real terms over the same period. Farming has done worst of
all in Africa, where most of the largest land deals are taking place.
There, agricultural output per farmworker was the lowest in the world
during 1980-2004, growing by less than 1% a year, compared with over 3% a
year in East Asia and the Middle East.
The investors promise a lot: new seeds, new marketing, better jobs,
schools, clinics and roads. An official at Sudan's agriculture ministry
said investment in farming in his country by Arab states would rise
almost tenfold from $700m in 2007 to a forecast $7.5 billion in 2010.
That would be half of all investment in the country, he said. In 2007,
agricultural investment had been a mere 3% of the total.
China has set up 11 research stations in Africa to boost yields of staple
crops. That is needed: sub-Saharan Africa spends much less than India on
agricultural R&D. Even without new seed varieties or fancy drip-feed
irrigation, investment should help farmers. One of the biggest
constraints on African farming is the inability to borrow money for
fertilisers. If new landlords just helped farmers get credit, it would
make a big difference.
Yet a certain wariness ought to be maintained. Farming in Africa is hard.
It breaks backs and the naive ambitions of outsiders. To judge by the
scale of projects so far, the new investors seem to be pinning their
hopes on creating technologically sophisticated large farms. These have
worked well in Europe and the Americas. Paul Collier of Oxford University
says Africa needs them too: "African peasant farming has fallen
further and further behind the advancing commercial productivity
frontier."
But alas, the record of large farms in Africa has been poor. Those that
have done best are now moving away from staple crops to higher-value
things such as flowers and fruit. Mechanised farming schemes that grow
staples have often ended with abandoned machinery rusting in the
returning bush. Moreover, large farmers are often well-connected and
spend more time lobbying for special favours than doing the hard
work.
Politics of a different sort poses more immediate problems. In Madagascar
this year popular hostility to a deal that would have leased 1.3m
hectares-half the island's arable land-to Daewoo Logistics, a South
Korean company, fanned the flames of opposition and contributed to the
president's overthrow. In Zambia, the main opposition leader has come out
against China's proposed 2m-hectare biofuels project-and China has
threatened to pull out of Zambia if he ever came to power. The chairman
of Cambodia's parliamentary foreign-affairs committee complains that no
one has any idea what terms are being offered to Kuwait to lease rice
paddies.
The head of the UN's Food and Agriculture Organisation, Jacques Diouf,
dubs some projects "neocolonialist". Bowing before the wind, a
Chinese agriculture-ministry official insists his country is not seeking
to buy land abroad, though he adds that "if there are requests, we
would like to assist." (On one estimate, China has signed 30
agricultural co-operation deals covering over 2m hectares since
2007.)
EPA
Chinese
neocolonialism going down well with Mozambique's elite
Objections to the projects are not
simply Luddite. The deals produce losers as well as winners. Host
governments usually claim that the land they are offering for sale or
lease is vacant or owned by the state. That is not always true.
"Empty" land often supports herders who graze animals on it.
Land may be formally owned by the state but contain people who have
farmed it for generations. Their customary rights are recognised locally,
but often not accepted in law, or in the terms of a foreign-investment
deal.
So the deals frequently set one group against another in host countries
and the question is how those conflicts get resolved. "If you want
people to invest in your country, you have to make concessions,"
says the spokesman for Kenya's president. (He was referring to a deal in
which Qatar offered to build a new port in exchange for growing crops in
the Tana river delta, something opposed by local farmers and
conservationists.) The trouble is that the concessions are frequently
one-sided. Customary owners are thrown off land they think of as theirs.
Smallholders have their arms twisted to sign away their rights for a
pittance.
This is worrying in itself. And it leads to so much local opposition that
some deals cannot be implemented. The Saudi Binladin Group put on hold a
$4.3 billion project to grow rice on 500,000 hectares of Indonesia. China
postponed a 1.2m hectare deal in the Philippines.
Farms control
Joachim von Braun, the head of IFPRI,
argues that the best way to resolve the conflicts and create "a
win-win" is for foreign investors to sign a code of conduct to
improve the terms of the deals for locals. Various international bodies
have been working on their versions of such a code, including the African
Union, which is due to ratify one at a summit in July.
Good practice would mean respecting customary rights; sharing benefits
among locals (ie, not just bringing in your own workers), increasing
transparency (current deals are shrouded in secrecy) and abiding by
national trade policies (which means not exporting if the host country is
suffering a famine). These sound well and good. But Sudan and Ethiopia
have famines now: should they be declining to sign land deals altogether?
Many of the worst abuses are committed by the foreign investors' local
partners: will they be restrained by some international code?
There are plenty of reasons for scepticism about these deals. If they
manage to reverse the long decline of farming in poor countries, they
will have justified themselves. But like any big farming venture, they
will take years to reveal their full impact. For the moment, the right
response is to defer judgment and keep a watchful, hopeful but wary eye
on their progress.
Policy Brief No.
13
"Land
Grabbing" by Foreign Investors in Developing Countries
Risks and
Opportunities.
Joachim von
Braun and Ruth Meinzen-Dick
April
2009
http://www.ifpri.org/pubs/bp/bp013.asp
One of the lingering effects
of the food price crisis of 2007-08 on the world food system is the
proliferating acquisition of farmland in developing countries by other
countries seeking to ensure their food supplies. Increased pressures on
natural resources, water scarcity, export restrictions imposed by major
producers when food prices were high, and growing distrust in the
functioning of regional and global markets have pushed countries short in
land and water to find alternative means of producing food. These land
acquisitions have the potential to inject much-needed investment into
agriculture and rural areas in poor developing countries, but they also
raise concerns about the impacts on poor local people, who risk losing
access to and control over land on which they depend. It is crucial to
ensure that these land deals, and the environment within which they take
place, are designed in ways that will reduce the threats and facilitate
the opportunities for all parties involved.
Rising Land
Acquisition in Developing Countries
Food-importing countries with
land and water constraints but rich in capital, such as the Gulf States,
are at the forefront of new investments in farmland abroad. In addition,
countries with large populations and food security concerns such as
China, South Korea, and India are seeking opportunities to produce food
overseas. These investments are targeted toward developing countries
where production costs are much lower and where land and water are more
abundant. Other factors that influence investments include geographic
proximity and climatic conditions for preferred staple crops. In addition
to acquiring land for food, many countries are seeking land for the
production of biofuel crops.
Many governments, either directly or through state-owned entities and
public-private partnerships, are in negotiations for or have already
closed deals on arable land leases, concessions, or purchases abroad. The
size and terms of contracts differ widely. Some agreements do not involve
direct land acquisition, but seek to secure food supplies through
contract farming and investment in rural and agricultural infrastructure,
including irrigation systems and roads.
In past decades, land acquisition abroad has been driven by the
profit-making motives of the private sector in developed countries and
has often focused on perennial tropical cash crops rather than basic
staples. Yet public investment for securing food supplies is not a
completely new phenomenon. China started leasing land for food production
in Cuba and Mexico 10 years ago and continues to search for new
opportunities to feed its large population.
More recent transnational land deals are partly an effect of the larger
changing economic valuation of land and water. Higher agricultural prices
generally result in higher land prices, because the expected returns to
land increase when profits per unit of land increase. Given that the food
price crisis has increased competition for land and water resources for
agriculture, it is not surprising that farmland prices have risen
throughout the world in recent years. In 2007 alone, farmland prices
jumped by 16 percent in Brazil, by 31 percent in Poland, and by 15
percent in the Midwestern United States. In many countries, developed
water sources are almost fully utilized, but agricultural demand for
water is expected to increase drastically in the future.
Although additional investments in agriculture in developing countries by
the private and the public sector should be welcome in principle, the
scale, the terms, and the speed of land acquisition have provoked
opposition in some target countries. According to news reports, the
Philippines blocked a land contract with China because of serious
concerns about its terms and legal validity, as well as about its impact
on local food security. Mozambicans have resisted the settlement of
thousands of Chinese agricultural workers on leased lands-a situation
that would limit the involvement of local labor in the new agricultural
investments. In Madagascar, negotiations with Daewoo Logistics
Corporation to lease 1.3 million hectares for maize and oil palm
reportedly played a role in the political conflicts that led to the
overthrow of the government in 2009.
News reports have helped shed light on these developments, but details
about the status of the deals, the size of land purchased or leased, and
the amount invested are often still murky. Well-documented examples are
scarce, and some reports are contradictory. This lack of transparency
limits the involvement of civil society in negotiating and implementing
deals and the ability of local stakeholders to respond to new challenges
and opportunities. Table 1 summarizes some typical examples of reports on
large land acquisitions by different investor countries.
Table
1-Examples of media reports on overseas land investments to secure food
supplies, 2006-09
Country investor
Country target
Plot size
(hectares)
Current status
Source
Bahrain
Philippines
10,000
Deal signed
Bahrain News Agency, February 2009
China (with private entities)
Philippines
1,240,000
Deal blocked
The Inquirer, January 2009
Jordan
Sudan
25,000
Deal signed
Jordan Times, November 2008
Libya
Ukraine
250,000
Deal signed
The Guardian, November 2008
Qatar
Kenya
40,000
Deal signed
Daily Nation, January 2009
Saudi Arabia
Tanzania
500,000
Requested
Reuters Africa, April 2009
South Korea (with private entities)
Sudan
690,000
Deal signed
Korea Times, 2008/09
United Arab Emirates (with private entities)
Pakistan
324,000
Under implementation
The Economist, May 2008
Source: IFPRI has compiled this
table from media reports. The responsibility for the accuracy of the
information presented here, however, lies with the reporting
media.
A more extensive listing of media reports on overseas land investments is
available on IFPRI's website
at
http://www.ifpri.org/pubs/bp/bp013Table01.pdf
(PDF 202K). Well-documented examples
are scarce, details on the deals are often murky, and some reports are
contradictory.
IFPRI invites observers to share evidence-based information on the listed
and on new land deals by posting a contribution on IFPRI's blog
at
http://ifpriblog.org/2009/04/24/landgrab.aspx
.
Threats and
Opportunities from Large-Scale Land Acquisitions
Given the changing global
economic context, the agricultural sector clearly requires more
investment. Because of the urgent need for greater development in rural
areas and the fiscal inability of the developing-country governments to
provide the necessary infusion of capital, large-scale land acquisitions
can be seen as an opportunity for increased investment in agriculture.
Proponents of such investments list possible benefits for the rural poor,
including the creation of a potentially significant number of farm and
off-farm jobs, development of rural infrastructure, and poverty-reducing
improvements such as construction of schools and health posts. Other
possible positive spillovers include resources for new agricultural
technologies and practices as well as future global price stability and
increased production of food crops that could supply local and national
consumers in addition to overseas consumers.
Others see these opportunities as unwarranted optimism, emphasizing the
threats that the land acquisitions present to people's livelihoods and
ecological sustainability. Even though some of the land-lease agreements
make provisions for investments in rural development, these deals may not
be made on equal terms between the investors and local communities. The
bargaining power in negotiating these agreements is on the side of the
foreign firm, especially when its aspirations are supported by the host
state or local elites. Smallholders who are being displaced from their
land cannot effectively negotiate terms favorable to them when dealing
with such powerful national and international actors, nor can they
enforce agreements if the foreign investor fails to provide promised jobs
or local facilities. Thus, unequal power relations in the land
acquisition deals can put the livelihoods of the poor at risk.
This inequality in bargaining power is exacerbated when the smallholders
whose land is being acquired for foreign investment projects have no
formal title to the land, but have been using it under customary tenure
arrangements. Since the state often formally owns the land, the poor run
the risk of being pushed off the plot in favor of the investor, without
consultation or compensation. Land is an inherently political issue
across the globe, with land reform and land rights issues often leading
to violent conflict. The addition of another actor competing for this
scarce and contested resource can add to socio-political instability in
developing countries.
In some cases, the land leases are justified on the basis that the land
being acquired by the foreign investor is "unproductive" or
"underutilized." In most instances, however, there is some form
of land use, often by the poor for purposes such as grazing animals and
gathering fuelwood or medicinal plants. These uses tend to be undervalued
in official assessments because they are not marketed, but they can
provide valuable livelihood sources to the poor. Large-scale land
acquisitions may further jeopardize the welfare of the poor by depriving
them of the safety-net function that this type of land and water use
fulfills.
Options exist, however, for correcting these power issues. Strong
collective action institutions can give smallholders enough clout to
effectively voice their concerns and negotiate on favorable terms with
the other powerful actors. Research in natural resource management and
smallholder marketing has shown that by acting collectively the poor can
stimulate a shift in power relations, which in the case of land
acquisitions can help preserve livelihood options. These efforts can be
even more effective when civil society gets involved on the behalf of the
poor.1
The benefits to local communities
also depend heavily on how investment projects are designed and managed.
On one extreme, conversion of land to large-scale farms or plantations
operated by foreign labor causes loss of local land rights and generates
little employment for local skilled or unskilled labor. Such projects are
likely to generate the greatest local opposition. But projects do not
need to evict existing farmers. Contract farming and out-grower schemes
that involve existing farmers and land users can enable smallholders to
benefit from foreign investment while giving the private sector room to
invest. Under such arrangements, small farmers are provided with business
development services such as inputs, technical assistance, and credit by
the private sector actors, which could be domestic or international. In
return, these farmers commit to sell their output to these providers,
subtracting the cost of the supplied inputs from their total profits.
This approach takes into account the threats posed by large-scale land
acquisitions to the livelihoods of the poor and capitalizes on the
opportunities for smallholders to benefit, creating a win-win scenario
for both local communities and foreign investors.
The demand for land with access to water has increased not only across
borders, but also within countries. This increased mobilization of the
domestic land market can also have adverse effects on equality in
contexts where small farm communities lack defined property rights and
judicial systems do not have a capacity to protect rights. Little is
known so far about domestic "land grabbing" induced by the
price changes, which is much less visible. This issue requires more
attention through sound monitoring, statistical assessments, and land
rights policies.
The ecological sustainability of land and water resources slated for
foreign investment is another important issue when considering
large-scale foreign investments. Introducing intensive agricultural
production can threaten biodiversity, carbon stocks, and land and water
resources. Converting forests or rangelands to monocropping reduces
diversity in flora, fauna, and agrobiodiversity, as well as aboveground
and subsurface carbon stocks. Many tropical soils are unsuited for
intensive cultivation (one reason for long-fallow cultivation cycles in
many tropical areas that are considered "unused"), or there is
insufficient water for intensive cultivation. Although fertilizer use and
irrigation can overcome some of these limitations, these activities can
lead to long-run sustainability problems such as salinity, waterlogging,
or soil erosion if they are inappropriately designed. These problems are
most likely to occur if the outside investors focus on short-term profit
or lack a sound understanding of the local ecology. Irrigating the
landholdings of foreign investors may take water away from other users in
the area or from environmental flows, and intensive use of agrochemicals
contributes to water-quality problems in groundwater and runoff. Foreign
investors with short-term leases may have a short-term perspective on the
sustainability of intensive agriculture and less identity with the area
than local residents. Thus, it is important to conduct a careful
environmental impact assessment that not only looks at effects on the
local area, but also considers off-site impacts on soils, water,
greenhouse gas emissions, and biodiversity. Land-lease contracts should
also include safeguards to ensure that sustainable practices are
employed.
Making a
Virtue of Necessity: Toward Win-Win Policies
A dual approach can help address
the threats and tap the opportunities related to foreign direct
investment in agricultural land. First, the threats need to be controlled
through a code of conduct for host governments and foreign investors.
Second, the opportunities need to be facilitated by appropriate policies
in the countries that are the target of these foreign direct
investments.
Key elements of a code of conduct for foreign land acquisition include
the following:
*
Transparency in
negotiations. Existing local
landholders must be informed and involved in negotiations over land
deals. Free, prior, and informed consent is the standard to be upheld.
Particular efforts are required to protect the rights of indigenous and
other marginalized ethnic groups. The media and civil society can play a
key role in making information available to the public.
*
Respect for existing
land rights, including customary and common property
rights. Those who lose land
should be compensated and rehabilitated to an equivalent livelihood. The
standards of the World Commission on Dams provide an example of such
policies.
*
Sharing of
benefits. The local community
should benefit, not lose, from foreign investments in agriculture. Leases
are preferable to lump-sum compensation because they provide an ongoing
revenue stream when land is taken away for other uses. Contract farming
or out-grower schemes are even better because they leave smallholders in
control of their land but still deliver output to the outside investor.
Explicit measures are needed for enforcement if agreed-upon investment or
compensation is not forthcoming.
*
Environmental
sustainability. Careful
environmental impact assessment and monitoring are required to ensure
sound and sustainable agricultural production practices that guard
against depletion of soils, loss of critical biodiversity, increased
greenhouse gas emissions, or significant diversion of water from other
human or environmental uses.
*
Adherence to national
trade policies. When national
food security is at risk (for instance, in case of an acute drought),
domestic supplies should have priority. Foreign investors should not have
a right to export during an acute national food crisis.
An internationally accepted code of conduct-as outlined above-should not
just consist of general statements without consequences, but should have
"teeth." The institutional arrangements could be modeled after
the international business laws adopted in the past 10 years to prevent
corrupt practices in the context of foreign direct investment. Civil
society organizations, especially Transparency International, have pushed
to make bribes a legal issue in the country where the corporation
resides-for instance, in a country of the Organization for Economic
Cooperation and Development (OECD)-rather than just in the country where
bribes have been paid. Such laws have subsequently been adopted
throughout the OECD. Similarly, to be effective, a code of conduct for
foreign land acquisition requires international arrangements and laws
that apply everywhere-not only in the countries that are targets of
investments, which often have insufficiently developed legal institutions
and enforcement mechanisms, but also in the countries where the
investments originate.
The second element in a dual approach consists of facilitating
opportunities in the target countries by strengthening the policy
environment and implementation capabilities. These target countries
should improve investment climates through rule of law and contract
security; pursue evidence-based agricultural policies related to
incentives, markets, technologies, and rural infrastructure; facilitate
out-grower schemes and contract farming in the smallholder sector;
enhance market information systems that can point to opportunities for
farming communities; and build extension systems that facilitate access
to knowledge and services, including rural banking.
At the root of foreign investments in agricultural land are the food
crisis and the volatility in food markets that have undermined trust in
trade on the side of importers. The combination of an international code
of conduct, on the one hand, and improved domestic agricultural policies,
on the other hand, would make a virtue of the investments that investors
consider a necessity and facilitate win-win outcomes. Well-designed
foreign direct investment could embed transfers of knowledge and
institutional strengthening into the investment and related trade flows,
thereby improving productivity in the target countries of these
investments. In the longer run, a healthy trade relationship could grow
out of such investment islands, building trust in trade, at least on a
bilateral basis and potentially more broadly, in an increasingly volatile
world food system.
Conclusion
Foreign investment can provide
key resources for agriculture, including development of needed
infrastructure and expansion of livelihood options for local people. If
large-scale land acquisitions cause land expropriation or unsustainable
use, however, foreign investments in agricultural land can become
politically unacceptable. It is therefore in the long-run interest of
investors, host governments, and the local people involved to ensure that
these arrangements are properly negotiated, practices are sustainable,
and benefits are shared. Because of the transnational nature of such
arrangements, no single institutional mechanism will ensure this outcome.
Rather, a combination of international law, government policies, and the
involvement of civil society, the media, and local communities is needed
to minimize the threats and realize the benefits.
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Santa Barbara Permaculture Network
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non-profit since 2000
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