the challenge
The recent surge of interest in foreign investment in agricultural land has aroused substantial international concern. Certainly, complex and controversial economic, political, institutional, legal and ethical issues are raised in relation to property rights, food security, poverty reduction, rural development, technology and access to land and water. On the other hand, lack of investment in agriculture over decades has meant continuing low productivity and stagnant production in many developing countries. Lack of investment has been
identifed as an underlying cause of the recent food crisis and the diffculties
developing countries encountered in dealing with it. FAO estimates that gross annual investments of USD 209 billion are needed in primary agriculture and downstream services in developing countries (this in addition to public investment needs in research, infrastructure and safety nets) to meet global food needs in 2050. Developing countries’ own capacity to
fll that gap is limited. The share of public
spending on agriculture in developing countries has fallen to around 7 percent,
even less in Africa, and the share of offcial
development assistance going to agriculture has fallen to as little as 3.8 percent in 2006. Commercial bank lending going to agriculture in developing countries is also small – less than 10 percent in sub-Saharan
Africa and microfnance loans, while indispensable, have not proved suffcient
to agricultural investment needs. Private
investment funds targeting particularly African agriculture are an interesting recent development but actual investments are
still small. Given the limitations of alternative sources of investment fnance, foreign direct
investment in developing country agriculture could make a contribution to bridging the investment gap and realizing the hunger and poverty eradication goals. The question therefore is not whether foreign direct investment should contribute to meeting investment needs but how its impact can
be optimized to maximize the benefts
and to minimize the inherent risks for all involved. To answer that question we need to understand what is happening in foreign investment and why.
What do We knoW about reCent foreign investments in developing Country agriCulture?
Unfortunately, there are no detailed data on the extent, nature and impacts of these investments: international investment statistics are too aggregated and little is
divulged by those involved in specifc cases.
Much information is anecdotal, probably
exaggerated and diffcult to verify. However,
from what limited information is available, a number of observations can be made:
Foreign direct investment (FDI) in developing country agriculture does appear to have increased in the last two years, although the number of projects actually implemented is less than the number being planned or reported in the
media. Inward FDI stock in agriculture in 2007 stood at some USD 32 billion, four times higher than in 1990.
The infow of FDI into agriculture amounted
to more than USD 3 billion per year by 2007, compared to USD 1 billion in 2000. If food and beverages are included, the
fow rises to USD 7 billion in 2007.
The main form of recent investments is purchase or long-term leasing of agricultural land for food production. The area of land acquired in Africa by foreign interests in the last three years is estimated at up to 20 million hectares.
The major current investors are the Gulf
States but also China and South Korea. The main targets for recent investment are countries in Africa but there are also investments in Southeast Asia and South America.
Investors are primarily private sector but governments and sovereign wealth funds
are also involved in providing fnance and
other support to private investors or directly.
Private sector investors are often investment or holding companies rather than agro-food specialists, which means that necessary expertise for managing complex large-scale agricultural investments needs to be acquired.
In host countries it is governments who are engaged in negotiating investment deals.
foreign direct investment – win-win or land grab?Some baSic factS
Current investments differ from the recent pattern of foreign direct investment in several respects: they are resource-seeking (land and water) rather than
market-seeking; they emphasize
production of basic foods, including for animal feed, for repatriation rather than
tropical crops for commercial export;
they involve acquisition of land and actual production rather than looser forms of joint venture.
Key issues
Why foreign investment?
A major underlying driver of the recent upturn in investments, which perhaps differentiates it from the normal run of foreign investments, is food security. This
refects a fear arising from the recent high
food prices and policy-induced supply shocks, notably the result of export controls, that dependence on world markets for food supplies has become questionable. For those countries facing worsening land and water constraints
but with increasing populations, incomes and urbanization, and hence increasingly dependent on imported food, these fears provoked a serious reassessment of their food security strategies. Investing in producing food in countries where the land, water and labour constraints faced domestically are not present is seen as one viable strategic response. This offered investment opportunities to the private sector that governments have been willing to support. Some developing countries are making strenuous efforts to attract and facilitate foreign investment into their agricultural sectors. For them, foreign direct investment is seen as a
potentially important contributor to flling
the investment gap and stimulating domestic economic growth. However, how far these investments go towards meeting their real investments needs is
uncertain. The fnancial benefts to host
countries of asset transfers appear to be small, but foreign investments are seen as
potentially providing developmental benefts
through, for example, technology transfer,
employment creation, income generation and infrastructural developments. Whether
these potential developmental benefts will
actually be realized is a key concern.
the “land grab”
The much-publicised “land grab” involving the purchase or leasing of agricultural land in developing countries for food production is just one form of investment and one which arguably is least likely to
deliver signifcant developmental benefts
to the host country. Some countries are seeking foreign investments to exploit “surplus” land currently unused or underutilized. One reason land may not be used to its full potential is that the infrastructural investments needed to
bring it into production are so signifcant
as to be beyond the budgetary resources of the country. International investments might bring much needed infrastructural
investments from which all can beneft.
However, selling, leasing or providing concessional access to land raises the questions of how the land concerned was
figure 1: investor and target regions/countries in land investment for agriculture, 2006-2009
Source: UNCTAD
investor country target countrypreviously being utilized, by whom and on what tenurial basis. In many cases,
the situation is unclear due to ill-defned
property rights, with informal land rights based on tradition and local culture. While much land in sub-Saharan Africa may currently not be utilized to its full potential, apparently “surplus” land overall does not mean land is unused, unoccupied or unclaimed. Its exploitation under new investments involves reconciling different claims. Change of use and access may involve potentially negative effects on local food security and raise complex economic,
social and cultural issues. Such diffculties
at least demand consultation with those with traditional rights to land, and favour alternative mutual arrangements for investments.
alternatives to land aCquisition
It is also not clear that land acquisition is necessary or desirable even for investors. Acquisition of land does not necessarily provide immunity to sovereign risk and can provoke political, social and economic
conficts. Other forms of investment
such as contract farming and outgrower schemes can offer just as much security of supply. It is interesting to note that in other contexts, vertical coordination tends to be based much more on such non-equity arrangements than on the traditional acquisition of upstream or downstream stages. The development of East African horticultural production for export by European supermarket chains is a case in point. Such looser arrangements may be more conducive to the interests of the receiving country. However, even here there are likely to be questions as to the compatibility of the needs of investors with smallholder agriculture, and this in turn raises questions about poverty reduction potential. Nevertheless, joint
ventures might offer more spillover benefts
for the host country smallholders. Under contract farming or outgrower schemes,
smallholders can be offered inputs including credit, technical advice and a guaranteed
market, although they do sacrifce some
freedom of choice over crops to be grown. Mixed models are also possible with investments in a large-scale enterprise at the centre but also involving outgrowers under contracts to supplement production. What business model is most appropriate
will depend on the specifc circumstances
and the commodity concerned.
What are the developmental benefits of foreign investment?
The key issue is the extent to which
benefts from foreign investments spill
over into the domestic sector in a synergistic and catalytic relationship with existing smallholder production systems.
Benefts should arise from capital infows,
technology transfer leading to innovation and productivity increases, upgrading domestic production, quality improvement, employment creation, backward and forward linkages and multiplier effects through local sourcing of labour and other inputs and processing of outputs and possibly an increase in food supplies for the domestic market and for export. However,
these benefts will not fow if investment
results in the creation of an enclave of
advanced agriculture in a dualistic system with traditional smallholder agriculture, which smallholders cannot emulate. The historical evidence on the effects of foreign direct investment in agriculture suggests
that the claimed or intended benefts do not
always materialize and catalogue concerns over highly mechanized production technologies with limited employment
creation effects; dependence on imported
inputs and hence limited domestic multiplier
effects; adverse environmental impacts
of production practices such as chemical contamination, land degradation and
depletion of water resources; and limited
labour rights and poor working conditions. At the same time, however, there is also
evidence of longer-run benefts in terms of
improved technology, upgrading of local suppliers, better marketing systems and improved product quality and sanitary and phytosanitary standards, for example.Additional political, social and ethical concerns are raised where the receiving country is itself food insecure. While there is a presumption that investments will increase aggregate food supplies this does not imply that domestic food availability will increase, notably where food produced is exported to the investing country. It
figure 2: fdi in agriculture, food and beverages 1990-2007, billions of dollars
Source: UNCTAD
Food and beverages Agriculture, forestry and fshing
6050403020100
billion
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 could even decrease where land and water resources are commandeered by the international investment project at the expense of domestic smallholders. Extensive control of land by other countries can also raise questions of political
interference and infuence.
Code of ConduCt
Fears that local concerns are not emphasized in investment contracts and international investment agreements, that foreign investments in land acquisition do not always lead to local long-term
developmental benefts and that domestic
law is inadequate have prompted calls for an international code of conduct or guidelines to promote responsible investment in agriculture. In fact many countries lack the necessary legal or procedural mechanisms to protect local rights and take account of local interests, livelihoods and welfare.FAO, UNCTAD, IFAD and the World Bank are collaborating to develop a voluntary code of conduct highlighting the need for transparency, predictability, sustainability and stakeholder involvement and including domestic food security and rural development concerns. Such a code of conduct, based on detailed joint research concerning the nature, extent and impacts of foreign investment and best practices in law and policy, could provide a framework to which national regulations, international investment agreements, global corporate social responsibility initiatives and individual investment contracts might refer.
FAO is also developing voluntary guidelines on responsible governance of tenure of land and other natural resources in collaboration with other international organizations including UN-Habitat and the World Bank. The rationale for a code of conduct includes the considerations that: foreign investment has a great potential to help meet the investment needs of developing countries and provide
broader long-term developmental benefts;
international concern has been raised over the impacts on small farmers and food security of recent large-scale foreign land
acquisitions and leasing; there are fears that local concerns may not be suffciently
taken into account in investment contracts and international investment agreements, and that sometimes domestic law provides
inadequate safeguards; and international
guidelines might promote responsible
agriculture investments that would beneft
all stakeholders.
Questions for policy consideration
for developing Countries:
What policy and legal frameworks are
needed to maximize benefts, particularly
for local populations?
How can targeted inward investment be encouraged? How can a receptive domestic sector be created?
How can a positive investment climate be created?
How can consistency be achieved between encouraging inward investment
and existing food security and rural development strategies?
What safeguards are required regarding land-use rights and the involvement and compensation of stakeholders?
for investors:
Why focus on acquisition? What alternatives are there to equity investment?
How can outward investment be encouraged? What information and incentives are required?
How can private sector fnance be
mobilized?
What kind of national code of conduct is needed?
for the international Community:
How can investment programmes be devised to meet investment needs – matching capital to opportunities?
Is there a need for an international mechanism to cover covering investment agreements and dispute settlement?
How can global corporate social responsibility initiatives be brought into the process?
for further information
Wsfs secretariat
Offce of the Assistant Director-General
Natural Resources Management and Environment DepartmentFood and Agriculture Organization of the United NationsViale delle Terme di Caracalla, 00153 Rome, Italy
Tel: (+39) 06 570 53101Fax: (+39) 06 570 56172Email: wsfs2009-secretariat@fao.org
World summit on food security
Rome 16–18 November 2009
