Farmland Investment in the Developing World

Last week, CGP wrote about food scarcity issues in light of the world’s growing population. Given expected population growth, many governments are looking to guarantee their food supply for the long term by purchasing (or incentivizing the private sector to purchase) vast tracts of arable land. Though the World Bank-preferred term is international farmland investment, this practice goes by several other names, including: agro-investment, cropland expansion, and, rather controversially, “land grabbing”.

According to a 2011 World Bank report, there are multiple incentives to enter the cropland expansion market beyond food security issues. To single two of these incentives, foreign actors agro-invest because: 1) land in the developing world is relatively cheap and abundant; 2) the return on investment on commodities is high. It is not surprising that a study by the OECD reports that private agro-investment reached $14 billion in 2010. The sector continues to grow and is particularly dynamic in Sub-Saharan Africa, Latin America, and Southeast Asia.

The practice of international farmland investment is not without controversy, however. A 2009 report by the FAO acknowledges the negative publicity associated with “land grabbing,” but emphasizes the lack of rigorous scientific studies confirming or denying harm. The title of the FAO report “Land Grab or Development Opportunity?” reflects this reality. Luckily, in the years since, additional studies (from the World Bank and Oxfam among others) have distilled the issues and opportunities at hand.

In terms of the challenges, studies show concern at two distinct levels of analysis: the local-individual level and the national level.

  • National Level: Governments do not stand idly as foreigners buy up large plots of arable land because of rising concerns over food security. Recently, the Brazilian government has taken action to cap the amount of land sovereign-owned firms can purchase. While the move attempted to allay local fears over food security, it worried foreign-owned corporations. This last point demonstrates that regulating agro-investment is unlikely to be neat or ripple-less.
  • Local Level: As the media coverage is quick to note, for communities and locals that transact with foreign corporations the issues are more immediate. A 2009 report by Verie Aarts for Oxfam expresses concern over “the effects of the [farmland investment] deals on the livelihoods of the local population”. Aarts suggests that individuals trading with these large companies are often unaware of the negative externalities associated with large-scale farming. More tragically, some are promised complimentary development assistance that is never executed. Difficulties are compounded by the fact that poorly negotiated deals can strip individuals of “access to their productive resources (in this case land and water)”.

What all studies seem to agree with, however, is quite revealing: international farmland investment can be a force for good. Well-managed and properly directed agro-investment can be a vehicle for transformative change for long-forgotten rural communities. Moreover, international farmland investment can introduce new players to a regional economy. In Latin America, potential agro-investors now include non-traditional parties. Take for instance Abu Dhabi’s alleged interest in Brazil’s farmlands.  These types of market connections can spur additional investments in different sectors, yield supplemental long-term commitments, and create stability for the region in the presence of exogenous shocks.

Data from all reports suggests that  the global farmland rush is here to stay. As a result, the main take-away for all parties is to learn to harness the opportunities this type of investment presents while scholars, governments and communities continue to glean best practices. This will require forceful and frank cooperation by all sectors involved.  As reported by the World Bank “if managed well, new investments in agriculture could help create the preconditions for sustained, broad-based development”. The challenge is to attract socially responsible investors, create accountable and transparent governments, and engender informed rural communities.

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