13 Nov Foreign investments in agriculture for food security

A new FAO report –   Trends and Impacts of Foreign Investment in Developing Country Agriculture – Evidence from case studies – has just been released.
The report presents an analysis of the foreign investment in developing countries and as such, responds to concerns around the rapid increase in large-scale land acquisitions and other forms of investment in agriculture by foreign corporate actors. The report advances inclusive business models as the way forward, noting the need for continued growth in investment in agriculture, especially of food crops.
Case studies, which analysed the drivers and the main actors in each country, as well as the institutional process and national governance context of decision-making around investment and land allocation, include:

• Brazil
• Tanzania
• Thailand
• Uganda
• Cambodia
• Ghana
• Mali
• Senegal
• Zambia

While the 2007-8 food price crisis drew attention to a 30 year fall in agricultural investment, it also raised concerns about who should invest and how. This prompted the development of standards and principles by a variety of actors, for example:

• Basic Principles on the Purchase and Leasing of Large Areas of Land in Developing Countries (BMZ)
• Elements for a code of conduct for foreign land acquisition (International Food Policy Research Institute)
• Equator Principles (Financial industry benchmark for determining, assessing and managing social & environmental risk in project financing)
• European Union Working Group on Land Issues
• Extracted Industry Transparency Initiative
• Large-Scale Land Acquisition and Responsible Agricultural Investment: For an approach respecting Human Rights, Food Security and Sustainable Development (French Position Paper)
• Minimum Human Rights Principles Applicable to Large-Scale Land Acquisitions or Lease (Special Rapporteur on the Right to Food)
• Principles for Responsible Agricultural Investment that Respect Rights, Livelihoods and Resources (FAO, IFAD, UNCTAD and the World Bank)
• Promoting responsible international investment in agriculture (Japanese government initiative at the 64th United Nations General Assembly)
• Santiago Principles (Generally Accepted Principles and Practices of Sovereign Wealth Funds)
• Voluntary Guidelines to Support the Progressive Realisation of the Right to Adequate Food in the Context of National Food Security (FAO)
• Voluntary Guidelines for Responsible Governance of Tenure of Land, Fisheries and Forests in the context of national food security (CFS)

The UN’s Committee on World Food Security is currently developing a zero draft on a set of principles for responsible agricultural investment (rai) that are to be developed in a consultative manner and hopefully will be adopted by member countries.
At a CFS side event hosted by the Inter-Agency Working Group discussing the impacts of investment and PRAI on developing country agriculture, the World Bank’s Agribusiness Unit Team Leader presented “a historical review of 179 agribusiness investments in developing countries” and noted that there was very little incentive to invest in food crops when investing in agriculture, and that most investors will opt for crops that do provide good returns, such as palm oil or rubber.
With respect to implications for food security, the report notes that “investors are targeting countries with weak land tenure security” (FAO, 2012:7). Investors tend to focus on the “poorest countries, and those that are also les involved in world food exchanges” (FAO, 2012:7).
The major concerns for food security when examining foreign investment in agriculture is that:

• 66% of the deals reported in the Land Matrix occurred in countries with high prevalence of hunger
• In most cases, the land being acquired in fertile land with irrigation. Analysis shows that land deals tend to centre around “cropland where the yield gap is relatively large, and where additional inputs (water, fertilizers, seeds, infrastructure and know-how) may create greater yields” (FAO, 2012:7).

The report identifies several direct risks associated with large-scale land acquisition:

• Displacement of local smallholders
• the loss of grazing land for pastoralists
• the loss of income for local communities
• negative impacts on livelihoods due to reduced access to resources
• which may lead to social fragmentation.

Here are some quotes I pulled out (page numbers refer to the report pages, not PDF pages) that I found interesting with regards to my own research.

• “The findings of the studies presented in this publication confirm the increasing trend of foreign investment into the agricultural sector of the surveyed countries. Resource-seeking investment accounts for a substantial share of the increase…”(FAO, 2012:323).
•  “In spite of the increasing trend, the share of total FDI that is directed to agriculture remains low with respect to other sectors” (FAO, 2012:323).
•  “Employment creation, in particular in rural areas, where most of the poor live, is often presented as an expected advantage of international investment in agriculture” (FAO, 2012:323).
•  “Some investments led to the development of new infrastructure or improvement in existing ones (e.g. roads, storage facilities, cold stores), either directly by the investor or indirectly, when the government built the infrastructure as part of the investment contract. Yet, in a few cases access to the new infrastructure was restricted to the investor’s operations only and local people could not use it.” (FAO, 2012:324).
•  The studies found evidence of negative environmental impacts, mainly due to the intensification of production generated by the investment which puts higher pressure on natural resources” (FAO, 2012:324).
•  “the data suggest that returns to investment tend to be higher where the investor builds on existing ventures in a gradual approach, as opposed to new ventures which are the most risky type of investment” (FAO, 2012:324).
•  “The case studies suggest that positive effects on local communities are unlikely to arise when the investment involves large-scale land acquisition, especially when the land was previously utilized in some ways (including
• informally). Then, the evidence suggests that the disadvantages far outweigh the benefits” (FAO, 2012:325).
•  “On the other hand, there is ample evidence of the risks of large-scale land acquisition in countries where governance is weak” (FAO, 2012:325).
•  “Land deals are too often characterized by lack of transparency, creating opportunities for corruption. (FAO, 2012:325).
•  “The negative social impacts found include the displacement of local smallholders (often with inadequate or no compensation at all), the loss of grazing land for pastoralists, the loss of income for local communities, and in general, negative impacts on livelihoods due to reduced access to resources…” (FAO, 2012:325).
•  “The studies suggest that large-scale acquisition of land can raise problems even when the transaction is transparent, complies with the established regulations and relates to land that is not utilized (formally or informally) by anyone at the moment of the transaction” (FAO, 2012:325).
•  “…the large size of the transaction has contributed to putting upward pressure on land prices in a region
• where land is becoming increasingly scarce due to demographic factors”  (FAO, 2012:325-6).
•  “…because land is such an important asset for rural people that their interests are likely to diverge from those of the investor sooner or later. (FAO, 2012:326).
• “In view of the above observations on the impacts of large-scale land acquisitions there is a case for the promotion of different business models that involve smallholder farmers while letting them keep the ownership of their land” (FAO, 2012:326).
• “Other factors have a strong influence on the impacts of agricultural FDI on the local community, its economic development and the wider economy of the host country (FAO, 2012:329).
• “The existence of a good governance system in the host country appears to be a key determinant, if not the most important one” (FAO, 2012:329).
• “In the local context, the capacity of civil society organizations (CSOs), in particular farmer organizations plays an important role” (FAO, 2012:330).
• “The active involvement of local civil society organizations in the project, in particular local farmer organizations is a critical factor” (FAO, 2012:330).
•  “The presence of impartial and effective external support from third parties is an important enabling factor…” (FAO, 2012:330).
• “The impacts on the local economy will also depend on the production system and crops selected by the investor. Production systems that rely on a large quantity of imported synthetic inputs and equipment are unlikely to create backward linkages with the local economy. Conversely, other systems make a large use of local inputs. This is the case of agro-ecological farming and organic agriculture. The type of crops selected by the project is also important. Crops such as coffee, fruits and vegetables are more conducive to the involvement of smallholder farmers than industrial crops” (FAO, 2012:331).

Conclusion 

• “Although agricultural FDI flows contracted after their peak of 2009, their level in the 2010-2011 period
• was still higher than the average for 2003-2007. The flows are characterized by regional patterns whereby intra-regional flows are greater than inter-regional flows except for Africa. The share of FDI that goes to the agri-food sector almost doubled between the periods 2000-2005 and 2006-2008 but is still low compared to other economic sectors, accounting for less than 5 percent over the period 2006-2008. The bulk of agricultural FDI flows is directed to the food manufacturing sector, while primary agricultural production accounted for less than 10 percent over the period 2006-2008. More recent trends for foreign investment in the primary agricultural
• sector are difficult to track due to the lack of recent disaggregated data” (FAO, 2012:335).
•  “…foreign investment in agricultural land in developing countries has increased markedly over the past decade. More importantly, the lands acquired by foreign investors tend to be among the best ones, with good soil quality, high production potential, irrigation and proximity to infrastructure and markets. As a majority of foreign investment projects aim at export markets or the production of biofuels, they may pose a threat to food security in low-income food-deficit countries, especially if they replace food crops that were destined for the local market” (FAO, 2012:335).
•  “Large-scale acquisition of agricultural land can have other adverse impacts, especially in countries where there is a lack of good governance, rule of law, transparency and clear land tenure rights. These negative effects include the displacement of smallholder farmers, the loss of grazing land for pastoralists, the loss of incomes and livelihoods for rural people, the depletion of productive resources, and in general, negative impacts on local livelihoods due to reduced access to resources, which may lead to social fragmentation. There is also evidence of adverse environmental impacts, in particular the degradation of natural resources such as land, water, forests and biodiversity” (FAO, 2012:335).
•  “The negative effects are likely to be worse when the company only utilizes a small share of the land it has acquired in areas where land is high demand” (FAO, 2012:335).
•  “…there is much less evidence of its benefits to the host country, especially in the short term and at local level” (FAO, 2012:336).
•  “The main type of benefits appears to be the generation of employment, but there are questions as to the sustainability of the created jobs. (FAO, 2012:336).
•  “… the studies suggest that for investment involving large-scale land acquisitions in countries where land rights are unclear and insecure the disadvantages often outweigh the few benefits to the local community, especially in the short run. (FAO, 2012:336).
•  “Developing country governments and local institutions need support in the form of policy advice, capacity building and technical assistance. Useful guidance can be obtained from some of the international agreements that have been adopted in recent years. In particular, after three years of international consultations involving governments, civil-society organizations and companies, the Committee on World Food Security (CFS) adopted in May 2012 the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the context of National Food Security (VGGT)” (FAO, 2012:337).

Recommendations are:
4.1 Further research on the impacts of agricultural investment
4.2 Policies for promoting investment for sustainable agricultural development
4.3 Increasing the effectiveness of support
4.4 A more proactive role for civil society organizations