[Scpg] Buying farmland abroad Outsourcing's third wave/Africa Water Grab Economist May 21 2009

[Santa Barbara Permaculture Network]

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
    an educational non-profit since 2000
(805) 962-2571
P.O. Box 92156, Santa Barbara, CA 93190
margie at sbpermaculture.org
www.sbpermaculture.org

"We are like trees, we must create new leaves, in 
new directions, in order to grow." - Anonymous

First Annual Southern California Permaculture Convergence August 2008
http://socalifornia.permacultureconvergence.org
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