DRFAT FOR DISCUSSION

Some Insights on the Role of Foreign Direct Investment in Agriculture

Rome
30 September 2010
 Some Insights on the Role of Foreign Direct Investment in Agriculture
Draft for Discussion onl;y

1. Introduction

Over the last decades, debate and prevailing positions on the role played by Foreign direct investment
(FDI) on development in developing countries drastically changed1.
During the 1970s, the UN with the Commission on Transnational Corporations (UNCTC), created by
the Economic and Social Council, tried to establish control over transnational corporations and to
impose international rules, norms, codes of conduct, arbitral tribunals and sanctions on them in order to
guarantee the respect of economic development and international relations. Following this approach,
UNCTAD was created to defend the interests of developing countries from the power of strong actors
who set the rules of the game, by offering advisory services, technical assistance and capacity-building.
In this period, there were those who identified the new stage of imperialism with the emergence of
Transnational corporations (TNCs), no more confined to the sphere of extraction, processing and
distribution of raw materials (oil, copper, gold) as in the previous historical phase.
During the 1980s and the 1990s, things begun to drift in a direction diametrically opposed: TNCs and
FDI were considered a sort of panacea for development in the era of new globalization and the
Washington Consensus’, emerged as the new mainstreaming faith on the virtues of the market,
recommended liberalisation, removal of protectionism, openness to FDI. Major swings in policy
pendulum moving from Market to State shifted from interpreting TNC as led by “runaways” strategies
to efficiency-seeking ones. According to the conventional theory, FDI represents a movement of
financial and real investment from a region of capital abundance to a region of capital scarcity, where
expected returns are much higher. And, in the new context, the UN promoted the Global Compact to
support the contribution of TNCs to growth and development and, in a very pro-active way, the OECD
discussed a Multilateral Agreement on Investment (MAI) and TNCs proposed self-regulation and
volunteer codes of conducts under the umbrella of the so-called Corporate Social Responsibility, as
demonstrated by the initiatives taken by the World Business Council on Sustainable Development
during the 1992 Rio Summit.
Very recently, the corporate scandals and financial crisis, as well as the success of the so called Beijing
Consensus facilitated a rethinking on the role of un-controlled FDI in favour of closer scrutiny by policy
makers and the importance of national, regional and global frameworks to regulate investments.
Then, when we look at data, we discover that the rigid theoretical distinction between “good” FDI led
by efficiency- and market-seeking strategies, and “bad” FDI led by runaways strategies, defined
speculative or portfolio investment, is not translated into statistical information. Moreover, as already
pointed out by Lucas twenty years ago, most FDI are moving from one region of capital abundance and
high wages (the United States) to another region of capital abundance and high wages (Europe) 2: the
expected catching-up process between poor and rich economies is not occurring because poverty makes
poor economies less attractive for FDI, and net capital and skilled labour flee developing countries.
Finally, FDI tend to be volatile, highly concentrated in a limited number of countries (the most attractive
ones, excluding many Sub-Saharan African countries) and sectors. Agriculture is very marginal.
Given these premises, it is important to assess rapidly available knowledge and information on what are
current trends of FDI in agriculture and their implication for developing countries.

1
T. Sagafi-Nejad (2008), The UN and Transnational Corporations: From Code of Conduct to Global
Compact, Indiana University Press, Indianapolis.
2
R. Lucas (1990), “Why Doesn’t Capital Flow From Rich to Poor Countries?”, American Economic
Review, Papers and Proceedings, May.
2
2. The Expected Positive and Negative Impacts of FDI

What in theory agriculture should benefit from FDI are the following general positive effects and
externalities associated with FDI in agriculture, which are mainly of non-equity forms:
1) inflows of financial resources, that is a supplement to domestic saving and to foreign exchange
(a contribution to fill both saving gap and foreign exchange gap) without any fixed future
repayment obligation as with borrowing,
2) increased investment in fixed (equipment, machinery, vehicles,...) and infrastructure (roads,
ports,...) capital, especially in case of land purchase or long-term leasing,
3) technological spillovers with more modern technology adoption and diffusion at local level,
4) increased investment in human capital as the demand for skilled labour rises,
5) creation of more job opportunities,
6) transfer of knowledge, managerial, organisational and institutional capital (however, these
benefits are comparative negligible in agriculture compared to other sectors),
7) new business opportunities for local and satellite companies through service contracts,
8) exploitation of agribusiness opportunities and promotion of new value chains,
9) integration in the world economy,
10) the stimulation of productivity growth.
At the same time, potential risks of negative effects associated with FDI derive from the specific
institutional context, objective and timing horizon of investment. These risks are linked to the fact that
the assumption of conventional theory, according to which perfect competition prevails, is unrealistic in
agriculture as well as in other sectors. Additionally, there are the negative effects associated with pure
speculative flows, which are not necessarily those included in the category of portfolio investment
(consisting of stocks, bonds and notes in credit and equity markets). IN particular, the potential negative
effects are the following:
1) reduction of domestic savings and investment rates, due to the crowding out effect and
disincentive to local competitors derived from exclusive production or land concession
agreement with host government,
2) reduction of foreign exchange and of (taxable) public revenue as a consequence of profit
(dividends, management fees, interests and royalties) repatriation derived from State laws, legal
or illegal transfer pricing within TNCs, royalty payments, leading and lagging payments based
on the expectations of currency exchange rate movements, tax deduction of interest payment to
the parent company, parallel inter-company loans, barter trade and re-invoicing centers,
3) obstacles to local firms, importing intermediate and capital goods from foreign partners,
discouraging local entrepreneurship inhibited by TNCs’ monopolistic dominance of market,
4) diversion of production from food for local market, with consequent worsening of trade balance
and possible stimulation of inappropriate consumption patterns,
5) increased dependence on external technology, management and human capital,
6) increased dependence on international value chain and less resilience to external shocks,
7) increased income inequality between rich and poor and dualistic structures in agriculture,
8) adoption of inappropriate capital-intensive technologies of production, with limited employment,
9) land degradation and depletion of water resources due to the adoption of unsustainable (also for
what concerns climate change: high carbon) farm practices,

3
10) influence on political decisions and institutions induced to a “race to the bottom” to attract FDI.

4
3. The Gap Between Economic and Statistical Definitions of FDI

In relation to FDI, we imagine a complete overlap between this accounting flow and underlying
entrepreneurial skills as FDI is assumed to correspond to greater production capacity (more
productive fixed capital asset), linked to built-in new technology and to the strategy of transnational
enterprises geared to increasing their international competitiveness through the delocalisation and
strengthening of the export capacity of developing countries. However, from an accounting point of
view, in the case of FDI in agriculture it is interesting to note that a simple transfer of ownership,
which does not involve any transfer of machinery/plant and equipment, is recorded as FDI. The
busy season of acquisitions widely noted in industrialised countries, with possible but not
guaranteed benefits in terms of real economics, is proof of what FDI can, in substance, entail.
Especially in recent years, FDI has often been a useful and legitimate mechanism for the
diversification of portfolios which, in weak banking and finance systems, can inflate real estate
markets, producing a vicious circle which leads to greater inflation, a drop in savings, a worsening
of the balance of trade, pressure and uncertainty over interest and exchange rates, instability in the
area of real production, capital flight and financial crisis.
In reality, it is not at all proven (see paragraph 2) that an increase in FDI coincides with greater
development in a country, even if in absolute terms – and this is the most quoted statistic – there is
always a positive link between FDI and GNI. This is simply the result of an overall increase in
financial capital connected with the process of opening up to trade which accompanies economic
growth.
Likewise, attributing a positive influence to FDI and, by contrast, a negative influence to portfolio
investments as regards their impact on the development process in a beneficiary country – as one
usually reads in the literature and policy recommendations – reveals a discrepancy between the
qualitative merits and attributes of financial flows and the statistical data employed.
In terms of statistical accounting, each entry in the “Financial account balance” reveals reporting
difficulties, as well as a certain conventionality of classification.
The first important distinction to make is that regarding the separation between short and long-term
movements in financial capital flows. The rationale of distinguishing portfolio investments (usually
associated with short-term and speculative investments) from long-term investments (as FDI is
considered to be) is to highlight financial capital movements which are in theory more volatile and
subject to withdrawal and, thus, risky for development (portfolio investments, in other words) from
those that are more stable and long-lasting (positive for development, namely FDI, which it is
presumed is undertaken with a long-term perspective and is not withdrawn except after a number of
assessments of its underlying strengths).
When we look at data, it is very difficult to maintain this distinction. The convention often adopted
in statistics of considering the contracting of receivables or payables due in over a year as long-term
and all financial transactions that concern instruments due in less than a year as short-term, is to be
taken as is. It is more descriptive of the type of instrument involved than indicative of stability.
A further problem stems from a mixed classification of transactions and parties to transactions. This
creates a disparity in the way that the same transaction is recorded in counterpart countries,
particularly when public land is acquired by private individuals: for the buyer they may represent a

5
portfolio choice and as such appear as private movements of capital; for the seller, they represent
foreign financing of the public sector and, hence, relate to the position of official authorities.
What the statistics in the balance of payments state is simply that FDI concerns the sale and
acquisition of fixed asset stock and thus involve capital transactions for those who engage in them
(whether they involve the acquisition of land, equipment for a manufacturing plant – a greenfield
investment – or the acquisition of a substantial equity interest – conventionally defined as above 10
percent - of a foreign enterprise), without making any reference to the fact that this financial
deployment of an operator’s assets may trigger actual demand for investment goods, create jobs and
result in a worsening of the conditions of the ecosystem.
Equity participation is thus classified3 as FDI if it is greater than 10 percent: an arbitrary threshold
for classifying a minority equity interest and as a portfolio investment if it is less than that
threshold. In reality, it is necessary to distinguish – which is often very difficult – cases in which the
equity interest is a controlling one and relates in some way to management, from those in which it is
a simple means of investing savings stock. Moreover, the threshold suggested by the International
Monetary Fund manual has not been adopted by all countries, which approach their reporting
differently. For instance, in United States’ accounting, investments involving an equity interest of
over 25 percent are considered direct investments while those under 25 percent are considered
portfolio investments.
Given these notes of caution, a brief description of key concepts4 may be useful.

FDI is an investment by a foreign firm to acquire real assets (such as land and real estate, plants,
equipment). Firms may acquire an existing firm through a merger or acquisition (M&E) or make a
Greenfield investment, which involves the establishment of a completely new business.

In addition, there are a whole range of arrangements through which TNCs invest in developing
countries: licensing (under which the firms transfer technologies and rights through contracts) or
strategic alliances (to share facilities or develop new products).

A TNC can be: (i) a public corporation, which trades its shares on stock exchanges or at brokerage
houses, (ii)a private corporation, without shares that are traded publicly, (iii) a state corporation or
fund, in which the majority or all the shares are owned by governmental authorities.

If the foreign operations of a firm are incorporated in the host country with a separate legal identity,
it is called a subsidiary; if they are not incorporated, it is called a branch. A parent company,
located in the TNC’s country of origin, exercises a controlling influence over a subsidiary in
another country, either directly (if it is a private corporation) or indirectly (by owning some of the
shares if it is a public corporation).

In concrete terms, the specific objectives of each FDI, the terms and conditions of the investment
agreements and the effectiveness of the policy and legislative frameworks are the key dete4rminants
in terms of real impact of FDI in agriculture on local development and productivity.

3
See page 88 of the fifth edition of the IMF Balance of Payments Manual.
4
K. Singh (2007), Why Investment Matters. The Political Economy of International Investments ,
FERN-The Corner House-CRBM, delhi.
6
4. Recent Trends in International FDI in Agriculture

There are no detailed data on the extent of FDI in agriculture. Given this premise, based on UNCTAD
estimates5, global inflows of FDI fell by 39% from US$1.7 trillion in 2008 to a little over US$1.0
trillion in 2009. The bulk of global FDI inflows are related to M&As activity, instead of greenfield
investments (more important for agricultural FDI), and largely among developed countries. All
components of FDI – equity capital, reinvested earnings and other capital flows – were affected by the
downturn.

Graph 1. Global FDI Quarterly Index, 2000 Q1-2009 Q3

(Base 100: quarterly average of 2005)

Source: UNCTAD

Table 1. Selected indicators of FDI

2006 2008 2009

FDI inflows 986 1,771 1,114

FDI inward stock 11,52 15,49 17,743

5 1

Income on inward FDI 791 1,113 941

Total assets of foreign affiliates 49,25 71,69 77,057

2 4

Employment by foreign affiliates (,000) 57,79 78,95 79,825

9 7

Gross fixed capital formation 9,833 13,82 12,404

2

Royalties and licence fee receipts 129 177 ..

Source: UNCTAD

An estimated 80 million workers were employed in TNCs’ foreign affiliates in 2009, accounting for
about 4 per cent of the global workforce.
5
UNCTAD (2010), Global Investment Trends Monitor. Global and Regional FDI Trends in 2009 ,
Geneva, January.
7
As far as developing countries are concerned, private capital flows replaced commercial bank lending as
the primary source of foreign capital in the 1990s. Nevertheless, private capital flows still account for a
small percentage of GDP of developing countries, and FDI in agriculture are particularly marginal.
Much of the economic growth is essentially driven by domestic investment in these countries. FDI
inflows to developing countries declined by 35% in 2009, after six years of uninterrupted growth.

In geographical terms, Africa saw inflows fall roughly 36% in 2009 after the peak year of 2008. The
share of FDI flows in gross fixed capital formation was as high as 29% in 2008. Furthermore, FDI flows
to Africa’s 33 least developed countries suffered a major decrease in 2009 due to a crisis-induced lull in
the global demand for commodities, which is a major driver for FDI in these economies.

In sectoral terms, services and the primary sector continue to capture an increasing share of FDI.
According to UNCTAD cross-border M&A database (www.unctad.org/fdistatistics), FDI in agriculture
declined in absolute terms in 2009, based on the value of cross-border M&As in the sector 6; the number
of transactions, however, increased from 59 to 63.

Table 2. Cross border M&As sales, by sector

Value ($ billion) Number of cases

2007 200 200 2007 2008 2009

8 9

Total 1,02 707 250 7,01 6,42 4,239

3 8 5

Agriculture, hunting, forestry and fishing 2 3 1 64 59 63

Source: UNCTAD

According to FAO, the inflow of FDI into agriculture amounted to more than USD 3 billion per year by
2007, compared to USD 1 billion in 2000. In terms of main products targeted by TNCs in foreign
locations across developing countries, the following picture summarizes the results based on the
UNCTAD M&A dataset.

Figure 1. Main Products Targeted by TNCs by region, up to 2009

6
Cross-border M&A sales in a host economy are sales of companies in the host economies to
foreign TNCs excluding sales of foreign affiliates in a host economy. The data cover only those
deals that involved an acquisition of an equity stake of more than 10 per cent.
8
 Source: UNCTAD

In food processing (the food, beverage and tobacco industries), trends vary according to the mode of
investment: cross-border M&As fell, but the number of greenfield investments was higher than in the
two previous years: from 668 (2007) to 916 (2008) to 956 (2009) greenfield FDI projects. Large-scale
restructuring is resulting in growing concentration in the agribusiness industry, whereas greenfield
investments are expected to pick up in the coming years, concentrated in natural resources and where
Latin American TNCs play a role. In particular, potentially TNCs in agribusiness have a crucial role
because they can influence their suppliers to change towards more sustainable, low-carbon farming
practices (e.g. through contract farming arrangements) significant in achieving GHG emission
reductions. Direct emissions from livestock, manure, cultivation of crops, soil management, and others
are key determinants of agricultural potential in mitigation policies, with a direct involvement of all
investment agents: households(farmers), governments, plantation companies and other agribusiness.

An emerging phenomenon is the fact that Funds set up by or on behalf of sovereign states (Sovereign
wealth funds, or SWFs) lost considerable asset value, particularly those with a high share of equity in
their portfolios. As a consequence, these Funds, such as the Korea Investment Corporation, are
considering revising their investment strategy, reducing the predominant financial sector and reorienting
their FDI towards the primary sector and industries less vulnerable to financial developments.

Correlated to the previous phenomenon, although the composition of the world’s top 100 TNCs
confirms that the triad countries remain dominant, the share of developing country TNCs in global
production is growing. FDI flows from West Asia into Africa picked up during the second half of the
past decade, with Egypt as the main destination. Recently, the Gulf Cooperation Council investments in
agriculture in sub-Saharan African countries such as Ethiopia, Sudan and the United Republic of
Tanzania have also been on the rise. Also the Russian Federation expanded FDI into Africa, seeking to
enhance access to supplies of raw materials and moving into new segments of strategic commodities.
The Russian Federation entered the African market either directly (the total value of African M&A sales
to Russian firms reached $2 billion), or through acquisitions of parent firms in developed countries. As
an example, in 2007, United Arab Emirates acquired the entire control of Egyptian Fertilizers Co SAE
(value: US$ 1,410 million), operating in the nitrogenous fertilizers sector.

Figure 2. Overseas Land Investment for Agriculture Production, 2006-2009

9
 Source: UNCTAD

In terms of foreign assets, the majority of top Southern TNCs are headquartered in Asia, followed by
Latin America. Recent interest among new global players (such as China and Brazil) in land
acquisitions and concessions for food and (bio-)energy security has drastically changed what was the
main characteristics of South-South FDIs: it is no more true that most of the investment by Southern
corporations is concentrated just in regional contexts, even though some regional arrangements provide
incentives (lower tax and tariff rates) for investment within the regions.

Against the background of the drastic FDI decline all over the world, many countries have implemented
policy changes aimed at further liberalizing and facilitating FDI entry and operations.

The main form of recent agricultural investments is purchase or long-term leasing of land for food
production. The area of land acquired in Africa by foreign capitalists in the last three years is estimated
at up to 20 million hectares7. For what concerns the phenomenon of the so called “land grabbing”, major
(private and public, including SWFs8) investors are from the Gulf States, China and Republic of Korea;
they are concentrated in Africa, taking the form of purchase or long-term leasing of agricultural land for
food (and biofuel) production, but also for livestock, and they still represent a small proportion of total
land areas. The expected food price increase is inducing an increase of competition for land and water
resources for agriculture as well as of farmland prices9.

Table 3. Examples of media reports on overseas land investments to secure food supplies, 2006–09

7
S. Chaudhuri, D. Banerjee (2010), “FDI in Agricultural Land, Welfare and Unemployment in a
Developing Economy”, Research in Economics, accepted date: May.
8
As private sector investors are often funded by government or sovereign wealth funds, it is very
difficult to separate them.
9
J. von Braun, R. Meinzen-Dick (2009), “Land Grabbing” by Foreign Investors in Developing
Countries: Risks and Opportunities, IFPRI Policy Brief, N. 13, April.
10
Source: J. von Braun, R. Meinzen-Dick, 2009

11
5. The Key Challenges in Analysing Agricultural FDI

Some key issues are now relevant in analysing FDI in agriculture. In particular:
1) as Cook and Chaddad pointed out10, agribusiness research evolved along two parallel levels of
analysis: the study of coordination between vertical and horizontal participants within the food
chain (agribusiness economics), and the study of decision-making within the alternative food
chain governance structures (agribusiness management). The specific arrangements, tailored to
the characteristics of the farm sector, emphasize the importance of different FDI in agriculture.

2) As Hallam pointed out11, the phenomenon of large-scale purchases, concessions or leasing of

agricultural land by private foreign investors (corporations or governments) in developing
countries, the so called “land grabbing”, has received increasing media attention but is not
adequately investigated in terms of analytical research and is just one of a variety of actual or
planned investment flows with different motivations.

3) As Vermuelen and Cotula pointed out12, a range of at least six different arrangements involve
large-scale and small-scale farmers into the international value chain: (i) pre-agreed supply
contract farming between farmers and buyers, (ii) management contracts in the form of lease or
tenancy, carrying the connotation of managing the land on behalf of the owner through profit-
sharing; (iii) tenancy and sharecropping agreements, as a specific version of management
contracts in which individual farmers work the land of larger-scale agribusinesses on the basis of
a fixed rental fee (tenancy) or split of the crop along as pre-agreed percentage (sharecropping);
(iv) joint ventures with co-ownership, sharing of risks, benefits and decision-making authority;
(v) farmer-owned businesses to pool assets, often through the structures of cooperatives; and (vi)
upstream/downstream business links, involving the set of businesses beyond direct agricultural
production. These different types of business models are not necessarily alternative and can be
assessed in terms of value sharing and convenience for local development by considering
ownership of the business, the ability to influence decision (voice), the sharing of economic
costs and benefits (reward) and commercial and political risk sharing. Again, no blueprint exists,
as what works best for a given local development reality is context-specific, contingent on
tenure, policy, culture, biophysical and demographic considerations.

4) As McCalla, Castle and Eidman pointed out13, with continued improvements in information
technology, transport and nanotechnology, all forecasts are for increased agricultural trade and
increased dependence on world markets for national food supplies. The supermarket revolution
which is sweeping the globe has fundamentally altered supply chains for widely traded products
and (vertical) market structure/coordination and competition and performance become crucial
factors. And searches for alternative energy sources coupled with increased overseas investment
on food supply and food security portends many vital challenges for developing countries.

10
M. L. Cook, F. R. Chaddad (2000), “Agroindustrialization of the Global Agrifood Economy: Bridging
Development Economics and Agribusiness Research”, Agricultural Economics, n. 23.
11
D. Hallam (2009), “International Investments in Agricultural Production”, International
Conference on Land Grab: the Race for the World’s Farmland , Washington D.C., 5 May.
12
S. Vermeulen, L. Cotula (2010), Making the most of agricultural investment: a survey of business
models that provide opportunities for smallholders, IIED-FAO-IFAD, Rome.
13
A. McCalla, E. Castle and v. Eidman (2010), “The AAEA: Ever Growing and Changing Research
Challenges”, American journal of agricultural economics, Vol. 92, N. 2, April.
12
 5) As UNCTAD pointed out14, recently several efforts have been launched to establish international
principles for responsible investment in agriculture – such as the UNCTAD-FAO-IFAD-WB
initiative15 or the the Santiago Principles adopted by SWFs to improve transparency – to enhance
the benefits of FDI in agriculture while mitigating its potential downsides.

BOX 1. The seven UNCTAD, FAO, IFAD and World Bank draft principles (2010)
(1) Existing rights to land and associated natural resources are recognized and respected;
(2) Investments do not jeopardize food security but rather strengthen it;
(3) Processes relating to investment in agriculture to be transparent, monitored and ensure accountability
by all stakeholders, within a proper business, legal and regulatory environment;
(4) All those materially affected are consulted, and agreements are recorded and enforced;
(5) Investors ensure that projects respect the rule of law, reflect industry best practice, are viable
economically and result in durable shared value;
(6) Investments generate desirable social and distributional impacts and do not increase vulnerability;
(7) Environmental impacts of a project are quantified, and measures taken to encourage sustainable
resource use, while minimizing the risk/magnitude of negative impacts and mitigating them.

6) According to IPCC16, sustainable agricultural practices, such as improved crop and grazing land
management to increase soil carbon storage; restoration of cultivated peaty soils and degraded
lands; improved rice cultivation techniques and livestock and manure management to reduce
CH4 emissions; improved nitrogen fertilizer application techniques to reduce N2O emissions;
dedicated energy crops to replace fossil fuel use; improved energy efficiency are all key
mitigation technologies and practices currently commercially available to be promoted. Even
though TNCs are little involved in these sectors’ direct GHG emissions, in the context of global
value chains they can potentially help diffuse more climate-friendly (e.g. organic) farming and
other sustainable practices across the globe through their suppliers or customers, involving seed
companies, fertilizer producers and technology services providers for encouraging input
switching (less use or improved types of fertilizer), enhanced recycling (use bio-waste) and
value chain (food & beverage manufacturers, food retailers/supermarkets supporting and
influencing their suppliers – farmers, plantations –) in the sector17.

7) National regulatory frameworks are essential for avoiding predatory business practices affecting
local welfare and politically sensitive areas. For instance, China adopted imposition of pre-
admission regulations for screening all FDI on case-by-case basis and sectoral percentage limits,
for protecting national interests (such as food and energy security), and India permits FDI only
in some agricultural subsectors (floriculture, horticulture, animal husbandry).

8) As David Hallam pointed out18, linked to the phenomenon of “land grabbing”, property rights
and land tenurial situation in Africa, including informal rights based on tradition, are important

14
UNCTAD (2010), World Investment Report 2010: Investing in a Low-Carbon Economy , UN, New
York and Geneva.
15
The development of such principles has been endorsed by the Group of Eight (G8) Summit in
Muskoka, Canada, in June
2010 (G8, 2010).
16
IPCC (2007), Contribution of Working Group III to the Fourth Assessment Report of the
Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge.
17
A. Kasterine, D. Vanzetti (2010), “The effectiveness, efficiency and equity of market based and
voluntary measures to mitigate greenhouse gas emissions from the agri-food sector”, in UNCTAD
(ed.), Trade and Environment Review 2009/10 - Promoting Poles of Clean Growth to Foster the
Transition to a More Sustainable Economy, UN, New York and Geneva.
18
D. Hallam (2009).
13
aspects to monitor and take into account in order to analyse the risk that selling, leasing or
providing concessional access to land may raise the question different claims on available land.

14
6. Assessing Agricultural FDI Impact by Reviewing Literature and New Questions

The conventional theoretical literature on foreign capital with full repatriation of foreign capital income
and in the presence of tariff protection of the capital-intensive import-competing sector is immiserizing.
This literature includes works of Brecher and Alejandro 19, Khan20, Beladi and Marjit21, Chandra and
Khan22. However, according to Marjit and Beladi23, and Chaudhuri24 developing countries’ search for
foreign capital is justified, despite the concrete risk of welfare deterioration, as an external input to
correct labour market distortions, presence of the vast informal economy and non-traded goods.
According to a recent paper by Chaudhuri and Banerjee 25, flow of FDI in agricultural land
unequivocally improves social welfare. And FDI in agriculture also mitigates the unemployment
problem of either type of labour. On the contrary, an inflow of foreign capital into the secondary sectors
may affect social welfare adversely.
Montalvo and Ravallion26 have discussed this issue in details, by citing both the Chinese and the Indian
experiences: China has been amply successful in both economic growth and poverty fronts by giving
top priority to agriculture, whereas India gave high priority to the tertiary sector she has not performed
well on the poverty front. This is the result of the fact that agricultural growth has a bigger impact on
poverty reduction than other sectors27.
However, by rejecting optimistic estimations to easily improve land productivity in Africa 28, Lipton
rises question of scale efficiency as related to productivity and land reform 29. This type of analysis
follows the discussion on the complex dynamic of commercialization of traditional agriculture in
developing countries which indicates that it is largely pro-poor, but influences on income, consumption
and production have to be carefully analyzed30. Also Deininger stressed the importance of establishing
markets in rural areas to achieve allocative efficiency, specialization and trigger growth 31. Other authors,
reacting to the de Soto argument on the failure to establish stable property rights over land in developing
countries, highlight that collective ownership might not necessarily be less efficient and that the
formalization process has to carefully analyze local social context, underlying the multiple nature of
rights over land32. Formulation of rights over as well as setting a price for land give space for increased

19
R. A. Brecher, C. F. Diaz Alejandro (1977), “Tariffs, foreign capital and immiserizing growth”,
Journal of International Economics, N. 7.
20
M. A. Khan (1982), “Tariffs, foreign capital and immiserizing growth with urban unemployment
and specific factors of production”, Journal of Development Economics, N. 10.
21
H. Beladi, S. Marjit (1992), “Foreign capital and protectionism”, Canadian Journal of Economics,
N. 25.
22
V. Chandra, M. A. Khan (1993), “Foreign investment in the presence of an informal sector”,
Economica, N. 60.
23
S. Marjit, H. Beladi (1996), “Protection and gainful effects of foreign capital”, Economics Letters,
N. 53.
24
S. Chaudhuri (2007), “Foreign capital, welfare and unemployment in the presence of agricultural
dualism”, Japan and the World Economy, n. 19.
25
S. Chaudhuri, D. Banerjee (2010).
26
J. G. Montalvo, M. Ravallion (2009), The pattern of growth and poverty reduction in China,
Development Research Group, The World Bank.
27
World Bank (2008), World Development Report: Agriculture for Development, World Bank,
Washington D.C.
28
World Bank (2008).
29
M. Lipton (2009), Land Reform in Developing Countries - Property Rights and Property Wrongs ,
Routledge, London.
30
J. von Braun, Joachim, E. Kennedy (1994), Agricultural commercialization, economic
development, and nutrition, IFPRI/Johns Hopkins University Press, Baltimore.
31
K. Deininger (2003), Land Policies for Growth and Poverty Reduction, World Bank Policy Research
Report, Oxford University Press, New York.
32
E. Ostrom (1990), Governing the Commons: The Evolution of Institutions for Collective Action ,
Cambridge University Press, CAmbridge.
15
rent-seeking and corruption, which can be partly understood by estimating value of land/optimal rent
using economic models and by understanding processes of rent-seeking33.
For what concerns land grabbing, despite the spate of media reports and some published research,
international land deals and their impacts remain still little understood34.
In any case, growing competition for a limited amount of agricultural land (and water), due to rising
demand for food and fodder, as well as biomass for industrial and energy use in national and
international markets, is unquestionable. According to GTZ available information 35, the following
countries are particularly affected: Brazil, Cambodia, Cameroon, Ethiopia, Indonesia, Kenya, Laos,
Madagascar, Mali, Mexico, Mongolia, Mozambique, (South) Sudan, Tanzania, Uganda and Vietnam.
Comparable trends are also becoming apparent in the Philippines, the Russian Federation and Ukraine.
Most countries with extensive foreign direct investment in agricultural land are countries with a large
territory, particularly in sub-Saharan Africa, which themselves are struggling with serious food
shortages and where democracy is not significantly consolidated. Investors are private, semistatal or
state companies from the Arab world (Bahrain, Egypt, Kuwait, Libya, Qatar, Saudi Arabia), eastern
Asia (China, South Korea, Japan) and the EU. Increasingly, contracts for investing in land are directly
negotiated between governments. In many cases, domestic elites or companies in the developing
countries are involved in land acquisition, both as contractors for foreign investors and on their own
account, to acquire land for their own purposes.
Some studies show that IFC’s advice to governments increases investor access into land markets and
how this can undermine the wellbeing of local communities, both in terms of land rights as well as
access to food36. This is linked to the fact that land use and inheritance are based on user rights (rather
than formalized property rights) and complementary markets (such as for credit, insurance or labour) are
also low developed in many developing countries.
What is still needed is the creation of a reliable information base and transparency on the extent,
conditions and effects of FDI in land, an analytical review of the existing international legal framework
and of the implementation of national land policies and laws.
Among other things, what can be useful to analyse in more detail is the following:
(1) Do FDI and the agro-investment in particular lead to an increase in productivity of an
affected region?
(2) How do investments influence the formalization of property rights and the creation of land
markets?
(3) What type of incentive, legal framework and specific agreements seem to be the most
adequate to increase agricultural productivity?
(4) To what degree does international commercialization and integration and growth take place
and how does it affect the allocation decisions of rural households?
(5) What role do national and international institutions play and how could they be improved to
better serve efficiency, without penalizing poverty reduction and environmental
sustainability?
(6) Following the recent work by Lipton, how does scale efficiency is working in agricultural
FDI?

33
M. H. Khan, K. S. Jomo (2000), Rents, Rent-Seeking and Economic Development , Cambridge
University Press, Cambridge.
34
L. Cotula, S. Vermeulen, R. Leonard, R. and J. Keeley (2009), Land Grab or Development
Opportunity? Agricultural Investment and International Land Deals in Africa, IIED/FAO/IFAD,
London/Rome.
35
GTZ (2009), Information Brief: Foreign direct investment in land, Eschborn.
36
S. Daniel, A. Mittal (2010), (Mis)investment in Agriculture. The Role of the Internati onal Fi nance
Corporati on In Global Land Grabs, The Oakland Institute, Oakland.
16
(7) How implemented and effective are the existing international guidelines and policies to help
governments establish sustainable rights of access to land (such as the UNCTAD-FAO-
IFAD-WB initiative or the the Santiago Principles, but also FAO Voluntary Guidelines for
the Right to Food, EU Land Policy Guidelines, FAO Voluntary Guidelines for Responsible
Governance of Tenure of Land and other Natural Resources, AU / UNECA African Land
Policy Initiative)?

17
7. Literature Review, Case by Case, with inputs for further research

(1) E. Msuya (2007), The Impact of Foreign Direct Investment on Agricultural Productivity and
Poverty Reduction in Tanzania, Kyoto University,

Msuya examines the impact of FDI on agricultural productivity and poverty reduction. Factors that
hinder FDI flow to agriculture in Tanzania are assessed. Specifically, the role of FDI in improving an
agricultural firm’s efficiency in Tanzania and reforms required for more effective investment promotion
in agriculture are examined. The study uses literature review to draw its conclusions and policy
recommendations. It is observed that FDI has a positive impact on productivity especially to
smallholder farmers who are linked in integrated producer schemes. The study recommends rethinking
of the smallholder institutional setup for increasing productivity and FDI flow to the agricultural sector.
An important implication of the results is that FDI to Tanzania and specifically to agriculture has a
much more far- reaching economic and social impact than in other sectors.

(2) W.H. Furtan and J.J. Holzman (2004), The Effect of FDI on Agriculture and Food Trade: An
Empirical Analysis, Agriculture and Rural Working Paper Series Working Paper No. 68,
Statistics Canada, Agriculture Division, Ottawa.

The purpose of this paper is to investigate the relationship between the level of United States – Canada
agricultural product trade and U.S. FDI into the Canadian agriculture and food sector. The authors use
FDI as well as other economic variables, such as the exchange rate, to explain product trade rather than
Ricardian or Heckscher-Ohlin trade theory. The authors have two hypotheses. The first hypothesis is
that the level of agricultural trade is positively related to the level of FDI, i.e. trade and FDI are
complements. The second hypothesis is that the level of agricultural trade is endogenously determined
with the level of FDI. Based on the econometric results the paper does not reject the two hypotheses.
First, it does not reject the hypothesis that agriculture product trade and FDI are complements. Product
trade and FDI appear as complements for all SIC codes. As U.S. FDI increases in a sector the level of
trade between Canada and the United States increases. Second, the paper does not reject the hypothesis
that agricultural trade and FDI are endogenously determined in the economy. The major limitation of
this paper is that data on FDI is limited.

(3) P. Basu and A. Guariglia (2005), Foreign Direct Investment, Inequality, and Growth, Research
Paper N. 41, University of Nottingham.

This paper examines the interactions between Foreign Direct Investment (FDI), inequality, and growth,
both from an empirical and a theoretical point of view. Using a panel of 119 developing countries, we
observe that FDI promotes both inequality and growth, and tends to reduce the share of agriculture to
GDP in the recipient country. We then set up a growth model of a dual economy in which the traditional
(agricultural) sector uses a diminishing returns technology, while FDI is the engine of growth in the
modern (industrial) sector. The main predictions of the model are consistent with the stylized facts
observed in the data.

18
 (4) International Platform (2010), Rethinking rural and agricultural finance. The African case,
Rural 21.

According to this document, The ‘Green Revolution’ has so far bypassed sub-Saharan Africa. However,
in order to feed the world and reduce poverty, it is crucial to seize the opportunities provided in Africa.
Despite being the most important sector for overall production, exports and labour, agriculture attracts
minimal FDI. The main reasons are weak infrastructure and the predominance of smallholder producers
with low productivity. Consequently, 90 percent of FDI in agriculture is channelled to only a few
organised producers. To unlock African agricultural potential, two conditions need to be met: first, new
approaches to agricultural risk management and second, closer co-operation between private and public
entities. To boost private-public co-operation, a more integrated and coherent approach is certainly
needed. As such, strategic alliances of a large scale, covering an entire value chain from production to
consumer markets, could be an adequate means of doing so.

(5) S. Kumar (2010), African Agriculture: an abiding investment venue for India, FnBNews.

The Africa India summit 2008 endeavors capacity building in the agriculture sector in terms of best
practices. India adopted collective engagement in Africa to promote infrastructure and agro industry,
African regional approach will give the member states greater opportunities to attract foreign
investment. The process of creating a free trade area that incorporates the east African community, the
common market for eastern and southern Africa, and the southern African development community is
underway, bringing together nearly 600 million people into a single market. Such a development will
have a major bearing on India-Africa economic exchanges. the India’s transfer of knowledge/
technology that could help Africa deal with the problem of food crisis. The importance of small farm
mechanisation and India’ expertise in small tractor production by good number of companies is highly
relevant to Africa. Indian investors promote agro processing firms, joint ventures in horticulture, storage
facility and technology transfer with African government to address world market. Besides the other
areas, India should focus on the Africa’s need for quality infrastructure and micro financing to enhance
the farm productivity in the African countries.

(6) S. Rozelle, C. Pray, J. Huang (2000), Importing the Means of Production: Foreign Capital and
Technologies Flows in China’s Agriculture, IATRC Conference, San Francisco.

An important contributing factor to China’s rapid economic and employment growth has been the
investment provided by external capital inflow over the past decade. China receives FDI inflows
primarily for new investments and expanding existing enterprises. The source of FDI inflow also is
unique; about 70 percent of it originates with the relatively wealthy Chinese diaspora, scattered
worldwide, especially from those concentrated in Southeast Asia. Foreign investment regulations
classify investments into categories of “encouraged”, “permitted” and “restricted” – in addition to a
“prohibited” category that describes characteristics of activities in which foreign investments are
disallowed (rather than identifying specific industrial subsectors). Given the constraints remaining in the
system and the smallholder nature of China’s agricultural economy, agricultural FDI were modest,
moreover “projects that use up large tracts offarmland, that are not beneficial to the protection and
development of land resources, . . .” are prohibited. Agricultural FDI inflows accounted for only 1.3
percent of the actual FDI inflows in the 1990s. As late as 1996, some 85 percent of AgFDI inflows were
19
into the Eastern region (the coastal provinces plus Beijing and Hebei). Other important location
determinants were transport intensity, urban population (market size) and the real wage rate. However,
China needs to increase the productivity of its agricultural sector if the nation is to meet its goal of
maintaining near selfsufficiency in food production and allow its farming sector to stay healthy during
the process of modernization. Investments in agricultural inputs including, fertilizer, pesticides (and
other agrochemicals), seeds, and agricultural machinery have substantial modernizing potential for the
agriculture sector. Although all of these inputs are listed in the “encouraged” category (except for grain,
oilseed, and cotton seeds, which are on the restricted list), investments remained exceedingly small.
Marketing problems plague companies which try to get their products out into the huge expanse of
China’s market, in part, because of wholesaling restrictions, vague rules, and poorly enforced IPR
measures. Although FDI tax policy is favorable to agriculture it has been an insufficient incentive to
attract significant investment in agricultural inputs.

(7) L. Cotula (2009), Land grab or development opportunity? International farmland deals in
Africa, Columbia FDI Perspectives, Columbia University.

In four African countries alone (Ethiopia, Ghana, Madagascar, Mali), approved land allocations to
foreign investors since 2004 amount to over 1.4 million hectares of land (just below the size of a
country like Swaziland or Kuwait); this excludes allocations below 1,000 ha, allocations to nationals
and pending negotiations. Due to incomplete datasets, this is a conservative figure. All four countries
experience upward trends in both project numbers and allocated land areas, and evidence suggests that
investment levels will grow in future. Private sector deals are more common than government-to-
government ones, though governments are using a range of tools indirectly to support private deals, and
levels of government-owned investments are significant and probably growing. Concerns about food
security (compounded by water shortages in key investor countries and by the food price hikes of 2008)
and the biofuels boom are key drivers, but other factors are also at play - such as business opportunities
linked to expectations of rising food prices, agricultural commodity demand for industry, and policy
reforms in recipient countries. the extent to which international land deals seize opportunities and
mitigate risks depends on each project’s terms and conditions: how risks are assessed and mitigated (for
instance, with regard to project location), what business models are used (from plantations to contract
farming through to various forms of equity participation by local people), how costs and benefits are
shared (including the distribution of food produced between home and host countries), and who decides
on these issues and how.

(8) P. Rossi, M. Kagatsume (2009), Economic Impact of Japan's Food and Agricultural FDI on
Worldwide Recipient Countries, Kyoto University.

The consumption of food and agricultural (F&A) products in Japan is flattening out. As a result, the
sector has been shrinking reheating the talks in Japan about the need to establish policies aimed at
revitalizing and enlarging the scope of the Japanese agri-business. One possible strategic response is
overseas expansion which also bears the potential to improve food availability for Japanese consumers.
However, concerns have been raised over whether outward FDI in F&A may in fact aggravate the
country’s food security problem by having a “boomerang effect” on the farming sector caused by FDI-
induced F&A exports to Japan, an issue closely related to Japan’s import protection policies. This paper
discusses the impacts of Japan’s outward FDI in the F&A sectors and Japan’s F&A import protection
20
policies. Two complementary methodologies are adopted. First, a panel data specification is used to
assess the F&A productivity response to Japanese FDI in the recipient economies. Following, the GTAP
model is employed to analyze the worldwide impacts of Japanese outward FDI in F&A and the effects
of unilateral changes in Japan’s agricultural import protection policies. The major policy implications
derived from this study are: increases in Japanese FDI can contribute to enhance F&A production in
some of the regions considered, although the impact is small; Japan’s FDI is welfare-improving in both
supplier and those recipient regions able to rip the benefits of the technological spillovers; concerns that
outward FDI could have a boomerang effect in Japan seem to be justified although this conclusion is
largely influenced by the year of the database used; an import tariff increase makes Japanese consumers
worse-off, producers better-off and improves the country’s self-sufficiency rate; and import tariff
reduction has positive impact for Japanese consumers, hurts producers and Japan experiences a
deterioration of its self-sufficiency rate.

(9) TIC (2010), Massive investment in agriculture only way out, Tanzania Investment Centre, Dar es
Salaam.

Statistics show that FDI inflows to Africa in 2007 were just USD72bn; the highest ever recorded but fell
to USD59bn in 2009. Globally, the FDI inflows that have been going to the agriculture sector stood at
between USD1-3bn. Tanzania’s economy would not reach the growth rate of 8 to 10 per cent per annum
- the rate needed to have a long-lasting impact on poverty – without significant investment and
improvement in agriculture. ‘Kilimo Kwanza’ is an ambitious government initiative that seeks to attain
green revolution by involving both the public and private sectors in building a strong, sustainable and
viable economic progress. that entering into large-scale commercial agriculture would be one way of
helping small-farmers in the country and Africa at large to compete with large-scale farmers in Europe,
America, Canada and other countries, who received subsidies for their agricultural produce. Tanzania
must undertake value addition in almost all of its agricultural produce alongside large commercial
farmers to sustainably supply raw materials needed by agro-industries.

(10) P. Bielik, J. Pokrivcak, A. Qineti, N. P Pokrivcakova (2006), “The spillover effect of

foreign direct investment – the case of Slovak beer and malt production sector”, Agricultural
Economics, N. 8.

The paper deals with the FDI spillover effects in production of beer and malt in Slovakia. Malt
producers have a dominant position in the market. The use of the almost monopsonistic power of malt
producers is constrained the by low asset specificity of primary producers of barley, other outlets for the
disposal of barley (export), and demand for high quality of malt from malt producers. Because of high
dependence of malt producers for high quality and reliable deliveries of barley, malt producers provide a
significant assistance of primary farmers. In spite of dominant position of the foreign owned breweries
and their malting divisions in the Slovak market there is no need for state intervention into the matter,
because of other important factors influencing the malt production sector like low specificity of assets,
export opportunity of malting barley and especially the strict requirements on the side of breweries for
the high quality and stability of barley supplies. For these breweries and their malting producers, there is
very crucial the close cooperation with their barley suppliers that consequently has a positive effect in
farmers´ productivity. In this sense, the spillover effect of FDI in the brewing sector is apparent.

21
 (11) S. Kovalyova (2010), Food majors triple investment in ending hunger, Reuters.

FAO said foreign direct investment (FDI) in agriculture tripled to more than $3 billion in 2007 from $1
billion in 2000 but that still represented less than one percent of total world FDI inflows. The figure also
pales when compared with $44 billion a year of official development assistance that FAO urges world
leaders to agree to spend to help poor nations feed themselves. Food and agribusiness majors, including
Nestle , Unilever and Cargill [CARG.UL] which gathered in Milan for a two-day meeting on food
security, said they can add value to the global cause with their funds and expertise. the world's biggest
food group, Nestle, which sources its agricultural raw materials in about 50 countries, has spent millions
of euros in building local facilities to trim costs and boost sales of affordable products on new markets.

(12) A. Tanyeri-Abur and N. Elamin (2010), Assessing International Investments in

Agriculture: A Systems Perspective, EAAE Seminar ‘Sustainability in the Food Sector:
Rethinking the Relationship between the Agro-Food System and the Natural, Social, Economic
and Institutional Environments’, Capri.

The paper attempts to present an integrated look at international investments in agriculture from a
systems perspective, focusing on Arab investments in Sudan. In particular, the paper: (i) Provides a brief
overview of the systems framework in the context of international investments, (ii) Presents the foreign
direct investments in Sudan using a systems approach, focusing on the historical, ecological, social and
economic context of the agro-food systems, (iii) Proposes an agenda for research, consultation and
policy. In particular, the major issues related to the international investments can be listed as follows:
(1) Scale: Large discrepancies between local and investment fueled operations, (2) Time: Speed of
investment and lack of sufficient time for adaptation, (3) Perspective: Focus on inflows but not outflows
and stock levels (Short term vision, Private vs. public), (4) Dynamics: Uncertainty as well as future
problems – conflict, food insecurity. Any research and policy agenda needs to bring together the various
facets of the investments, particularly focusing on the above points to effectively understand system
behavior and outcomes of specific policy actions. Given the paucity of data on agricultural investments,
the diverse concerns of the various stakeholders, and the multi-faceted nature of the impacts, assessing
investments is not an easy task. The paper develops a framework to better understand the problems and
issues surrounding FDI in Sudan to open the way for trans-disciplinary dialogue to develop ecologically
sound, economically efficient and socially fair investment alternatives and policy strategies.

(13) D. Hallam (2009), Foreign Investment in developing country agriculture, OECD

Investment Division.

Foreign investment involving acquisition of land is controversial and carries a number of inherent risks.
Other forms of investment such as joint ventures or contract farming and out-grower schemes or
investments in key stages of value chains can in principle offer just as much security of supply to
investors. 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 involvement of European supermarket chains in the development of East African
horticultural production for export is a case in point. Such looser arrangements may be more conducive
22
to the interests of the host country, offering more accessible benefits to smallholders and their
associations. However, even here there are likely to be questions as to the compatibility of the volume
and quality needs of investors with dispersed smallholder agriculture. Where this leads to increasing
size and concentration of suppliers it can raise questions about poverty reduction potential.
Nevertheless, joint ventures between foreign investors and local producers or their associations as
partners might offer more spillover benefits for the host country. Under contract farming or outgrower
schemes, smallholders can be offered inputs including credit, technical advice and a guaranteed market
at a fixed price although at the cost of some freedom of choice over crops to be grown. Mixed models
are also possible with investments in a large-scale core enterprise at the centre but also involving
outgrowers under contracts to supplement core production. Some governments have been active in
encouraging foreign involvement in such enterprises, as in the Tanzanian sugar sector or the so-called
“Farm Blocks” in Zambia. What business model is most appropriate will depend on the specific
circumstances and the commodity concerned. Where economies of scale are important or supporting
infrastructural investments are needed, for example, investors may favour land acquisitions and large
scale commercial agriculture. Where these considerations are not significant, contract farming or
outgrower schemes involving smallholders may be acceptable.

(14) M. Gopinath (2010), Foreign Direct Investment in Food and Agricultural Sectors,
Oregon State University, mimeo.

While the debate on home and host countries’ welfare continues, most of the empirical studies in food
and related sectors concluded that FDI was conducive to economic growth in developing countries, but
substituted for trade in developed countries. Within host countries, industries shifted with the
reallocation of resources, causing some to grow more rapidly and others to disappear, as with trade
liberalization. FDI has a stronger effect on growth and trade when combined with trade liberalization.
However, only a few studies have addressed the post-profit repatriation scenarios in developing as well
as developed countries. In particular, it is not clear if the host country will gain after payments to foreign
capital even under liberalized trade regimes. Conceptually, there is a need to identify conditions and
factors which enhance the joint welfare of home and host countries. As with trade liberalization,
effective transfer mechanisms (from winners to losers) may provide Pareto-superior solutions.
Empirically, the biggest challenge is to assemble data on a consistent basis for all developing countries
classified based on industry and country of origin. In addition to studies on competition among
multinationals within a host country (a condition necessary for welfare gains in a host country), further
testing for factors causing FDI and its consequences in dynamic settings is necessary for better
understanding of the benefits of globalization through FDI. Specifically, the effect on returns to
domestic resources (laborskilled/unskilled, capital), and resources specific to agriculture need to be
clearly identified.

(15) UNCTAD (2009), The World Investment Report 2009: Transnational Corporations,
Agriculture Production and Development, UN New-York/Geneva.

FDI in agriculture is on the rise, with annual FDI flows to agriculture tripling to $3 billion annually
between 1989-1991 and 2005-2007. However, the share of FDI in agriculture to total FDI remains
limited, with inward FDI stock in agriculture in 2007 at US$32 billion. Nevertheless in some least
developed countries (LDCs), including Cambodia, the Lao People´s Democratic Republic, Malawi,
23
Mozambique, and the United Republic of Tanzania, as well as other developing countries such as
Ecuador, Honduras, Indonesia, Malaysia, Papua New Guinea, and Viet Nam, the share of FDI in
agriculture to total FDI is relatively high. Moreover, food processing and supermarket transnational
corporations (TNCs) also invest in agriculture and contract farming (a non-equity form of involvement
where, for example, a foreign supermarket or food processor buys crops through an arrangement
establishing price, quantity, quality and other specifications), thereby multiplying the actual size of TNC
participation in the industry. For instance, after a rapid rate of growth in the early 2000s, FDI flows in
the food and beverage industry alone exceeded US$40 billion in 2005-2007. Contract farming is a
significant component of TNC participation in agriculture when considered in terms of geographical
distribution, intensity of activity at the country level, coverage by commodities, and types of TNCs
involved. TNCs are engaged in contract farming activities and other non-equity forms of agricultural
involvement in over 110 countries across Africa, Asia, and Latin America. Contract farming is also
intensive in particular commodities in many emerging and poorer countries, such as Brazil, Kenya, and
Viet Nam. Moreover, contract faming arrangements cover a broad variety of commodities, from
livestock through staple food produce to cash crops. For example, the TNC Olam (Singapore) sources
globally from suppliers for 17 agricultural commodities, including cashew nuts, cotton, spices, coffee,
cocoa and sugar. The bulk of TNC investment in developing regions is aimed at cash crops. There is
also a growing interest in crops for biofuel production through -- for example -- projects related to oil-
seed crops in Africa and sugarcane in South America. Among types of produce targeted by foreign
investors in developing and transition economies, some regional specialization is apparent. For example,
South American countries have attracted TNC investment in wheat, rice, sugarcane, fruits, flowers, soya
beans, meat and poultry; while in Central American countries, TNCs have focused mostly on fruits and
sugarcane. In Africa, foreign investors have shown a particular interest in crops such as rice, wheat and
oilseed; but there is also TNC involvement in sugarcane and cotton in Southern Africa, and in
floriculture in East Africa. In South Asia, foreign investors have targeted the large-scale production of
rice and wheat, while their activities in other Asian regions are concentrated more in a number of cash
crops, as well as meat and poultry. Finally, TNCs in transition economies are largely involved in dairy
products, although more recently they are also seeking to invest in wheat and grains. There are
indications that South-South investment in agriculture is on the rise, and that this trend is set to continue
over the long term. Investors from developing countries became major sources of cross-border takeovers
in 2008. Their net cross-border M&A purchases, amounting to US$1.577 billion, accounted for over
40% of the world´s total M&A value in 2008 ($3.563 billion). Examples of South-South investment
projects include Sime Darby´s (Malaysia) $800 million investment in a plantation in Liberia in 2009;
Chinese investments and contract farming in commodities such as maize, sugar and rubber in the
Mekong region, especially in Cambodia and the Lao People´s Democratic Republic; the regional
expansion of Zambeef (Zambia) into Ghana and Nigeria; and the expansion by Grupo Bimbo (Mexico)
across Latin America and the Caribbean. In addition to commercial investment in agriculture - a
common feature of developed- and developing-country TNCs - food security has also become a major
driver of new investment, in the wake of the food crisis. The scale of South-South FDI driven by food
security concerns is not easy to determine because many relevant deals have only recently been signed,
while others are being considered or are in negotiation. Of the definite larger scale investments
involving land acquisitions (that is, outright ownership and long-term leases) undertaken thus far, the
largest investing countries from the South include Bahrain, China, Qatar, Kuwait, the Libyan Arab
Jamahiriya, Saudi Arabia, the Republic of Korea and the United Arab Emirates. The most important
developing host countries are in Africa, with Ethiopia, Sudan, and the United Republic of Tanzania
among the foremost FDI recipients.

24
 (16) FAO (2009), From Land Grab to Win-Win, Economic and Social Perspectives, Policy
Brief, N. 4, Rome.

The key facts of international investments in agriculture: Investments have increased, Deals seek access
to resources, not markets, Main form of investment: land purchase or long-term lease, Share of total
land assets owned by foreigners is small, Major investors: Gulf States, China, Republic of Korea, Main
target region: Africa, also Latin America, Investors: mostly private sector, but governments involved,
Investment partners in host countries: mainly governments, New focus: production of basic foods and
animal feed. The risks attached to international investments have led to calls for a binding code of
conduct. While its enforcement is likely to be problematic, it might nevertheless offer a framework to
which national regulations could refer, especially if parties realize that compliance with common
standards is in their mutual self interest. More importantly, international investments in agriculture other
than land acquisition should be evaluated and promoted. To this end, the extent, nature and impact of
international investments going to developing countries needs to be better understood and monitored.
Best practices should be catalogued in law and policy to better inform both host and investing countries.

(17) T. Nam Binh (2004), FDI for agriculture 1998-2003 and orientations to 2010, ISG,
Hanoi.

By the end 2003, 5.424 foreign investment projects nationwide have been licensed with the total
registered funds of US$ 54.8 billion, among them 4,376 projects are still valid with total investment
capital of US$ 41 billion. The agricultural, forestry, fishery sectors account for 13.6% of the total
projects, and 7% of the total registered investment capital. In spite of several preferential policies for the
agricultural, forestry, fishery sectors, the foreign investment capital in these sectors remains too low,
and the registered capital continues to decrease. So far, over 30 countries and territories have been
investing in the agriculture sector of Vietnam, mainly the Asian nations. FDI should be encouraged and
mobilised so as to ensure the objective to build a strong commodity agriculture with high effectiveness
on the basis of making full use of comparative advantages and application of new hi-technology to
produce competitive products upon international and regional integration.

(18) L. Tang (2009), “A Study on Foreign Direct Investment Agriculture in China”,

International Journal of Business and Management, Vol. 4, N. 11.

In recent years, foreign direct investment in the agricultural utilization of foreign capital has become the
main channel. By the end of 2005, Chinese direct investment in the agricultural utilization of foreign
capital amount has more than 32.9 billion U.S. dollars. China's agricultural use of foreign investment
funds to make up for the domestic shortage of agricultural inputs, and the introduction of foreign
advanced technology and equipment, and fine varieties and advanced management experience, which
promoted the development of agricultural product processing industry, improved the level of
industrialization of agriculture and promoted rural and agricultural reform. But at the same time, the
objective situation such as the structure is not quite reasonable cannot be ignored. The specifici
recommendations ar the following: (1) Continue to intensify our country in the agricultural
infrastructure and scientific research on the input, (2) Speed up the legislative work in the field of
25
agriculture, the agricultural sector for foreign investment to be effective guidance and supervision, (3)
The agricultural sector to attract foreign investment to do indirect investment and direct investment in
both, (4) Deepening of China's agricultural management and agricultural products circulation system,
(5) Combination of different countries and regions, foreign investment in agriculture and the
characteristics of our country to strengthen and guide the direction of foreign investment.

(19) O. De Schutter (2010), Food Commodities Speculation and Food Price Crises, Briefing
Note, N. 2, UN, September.

In this briefing note, the UN Special Rapporteur on the right to food examines the impact of speculation
on the volatility of the prices of basic food commodities, and he identifies possible solutions forward.
The global food price crisis that occurred between 2007 and 2008, and which affects many developing
countries to this day, had a number of causes. The initial causes related to market fundamentals,
including the supply and demand for food commodities, transportation and storage costs, and an
increase in the price of agricultural inputs. However, a significant portion of the increases in price and
volatility of essential food commodities can only be explained by the emergence of a speculative
bubble. In particular, there is a reason to believe that a significant role was played by the entry into
markets for derivatives based on food commodities of large, powerful institutional investors such as
hedge funds, pension funds and investment banks, all of which are generally unconcerned with
agricultural market fundamentals. Such entry was made possible because of deregulation in important
commodity derivatives markets beginning in 2000. These factors have yet to be comprehensively
addressed, and to that extent, are still capable of fuelling price rises beyond those levels which would be
justified by movements in supply and demand fundamentals. Therefore, fundamental reform of the
broader global financial sector is urgently required in order to avert another food price crisis. Previously
unregulated Over the Counter (OTC) derivatives must be subject to rules requiring registration and
clearing on public exchanges, and exemptions to these rules must be highly restricted. As regards
commodity derivatives trading in particular, States should ensure that dealing with food commodity
derivatives is restricted as far as possible to qualified and knowledgeable investors who deal with such
instruments on the basis of expectations regarding market fundamentals, rather than mainly or only by
speculative motives. These measures would enable States to fulfill their legal obligations arising under
the human right to food.

(20) P. E. McNellis (2009), Foreign Investment in developing country agriculture, FAO

Commodity and Trade Polilcy Research WP N. 28.

This paper reviews the actual and potential interest of institutional private sector investors in investing
in developing country agriculture. The paper draws on in-depth industry information to identify trends
and key players. It describes the nature and activities of the various types of private institutional
investors including sovereign wealth funds, microfinance providers, investment managers, pension
funds, hedge funds, private equity investors, banks and agribusiness. The paper notes that interest in
investing in developing country agriculture has increased in each case as investors seek to diversify
portfolios and to exploit profitable opportunities either individually or in collaborations between
different types of investor. Based on the review of the data presented and discussed above, there is
sufficient empirical evidence that confirms the substantial interest in developing world agriculture by a
wide and diverse swath of institutional investors. Credible information has shown that the Sovereign
26
Wealth Funds (SWFs) are acting with private companies and have been buying/leasing large tracts of
farmland in the developing world. These same SWFs are allocating more of the funds they hold under
management to outside international money managers who are, in turn, increasing their investment
“buckets” to include more developing world agriculture exposure. The data presented also demonstrates
that the international private equity (PE) community is investing more and more in the sector as they
seek diversification and perhaps a new found appreciation for “hard assets” in light of the derivative
debacle that occurred in a number of markets over the last year or so. These investments by the PE
funds seem to know no geographic bounds as deals have been reported and announced in Sub Saharan
Africa, Asia and Latin America. The PE sector has also increased its exposure to the micro finance
world, which by almost all estimates, is booming and this should continue in the near and long term.
The private international banks are also increasing their investments in microfinance and are providing
much needed capital in this sector as well as commercial expertise particularly in the more credit intense
segment of agricultural microfinance. The banks are also expanding their retail banking operations in
certain agricultural areas of the developing world with the hope that over time this will turn into more
agricultural project lending. The larger commercial banks, we have seen, are diversified financial
conglomerates and are acting as money managers, commodity traders and investors in developing world
agriculture in a number of ways. The paper has also evidenced that the historically prudent international
pension funds have also been expanding and diversifying their portfolios to include more developing
world agriculture exposure be it in the form of commodity trading, investments in micro finance, or
investments in private equity funds which in turn invest in agricultural companies or purchase
developing world farmland. As seen, the recurrent theme in this paper has been to emphasize the
substantial amount of “cross investing” between the various investor classes through a wide array of
different assets or products. It is recommended that FAO actively expand its engagements with the
private sector on a regular and ongoing basis. A policy initiative could be to set up a “private sector
liaison desk” which would be the focal point of FAO interfacing with the private sector.

(21) L. Lv, S. Wen, Q. Xiong (2010), “Determinants and performance index of foreign direct
investment in China’s agriculture”, China Agricultural Economic Review, Vol. 2 No. 1.

Since attracting foreign direct investment (FDI) to agriculture is now an important policy concern for
the Chinese Government, it is necessary to develop benchmarks of the inward FDI performance. The
purpose of this paper is to explore the determinants of FDI and evaluate the inward FDI performance in
China’s agriculture. A multi-variable regression model is conducted to examine the determinants of FDI
in China’s agriculture over the period from 1985 to 2006. In order to evaluate the inward FDI
performance, the inward FDI performance index is developed at industrial level. The results indicate
that agricultural market size has a significant positive effect but agricultural import has a negative effect
on FDI inflow to China’s agriculture. The effect of agricultural export is positive but not statistically
significant. It is stated that the orientation of FDI policy during China’s agricultural opening process is
still not clear, and the decrease of the share of fiscal expenditure is apparently not conducive to attract
more FDI in China’s agriculture. In addition, the performance index shows the inward FDI performance
in China’s agriculture is improving but not satisfactory compared to its market size. The inward FDI
performance index is tentatively used to evaluate the performance of FDI inflow to China’s agriculture.
The results of this paper have significant policy implications for the government to determine where to
head in using FDI in China’s agriculture in the future.

27
 (22) OECD-FAO (2010), Agricultural Outlook 2010-2019, Paris.

There is a supportive investment climate in particular with respect to foreign direct investment in
emerging and developing countries, in line with internationally agreed guidelines. The recent price hike
also stirred interest of domestic or foreign investors in agriculture in land and water rich countries
including Brazil, Cambodia, Ethiopia, Indonesia, Guyana, Madagascar, Myanmar, Nigeria, Sudan, etc.
While potentially positive for agricultural production, it may be disruptive for the local economies and
harm small farmers and their historical rights on land. Tensions could also arise between the host
country and the foreign investors, should the produce be exported, depriving indigenous populations
from locally produced food supplies. For what concerns specific sectors, the meat outlook is
characterised by moderate increases in production. In the emerging economies, renewed investment,
improved infrastructures and the introduction of modern, intensive and integrated production,
processing and transport technologies, are the main factors that may spur higher productivity growth.
This is especially true for Brazil, China, India and the Russian Federation, and to some extent in the CIS
group of countries. Meat production in other non-OECD countries and regions of the world are also
anticipated to grow, including sub-Saharan Africa where the inflow of foreign private investments is on
the increase from the so called “land grab” phenomenon, i.e. increased animal feed production.
However, the global economic crisis might have had somehow impinged on the investment capacity of
developing countries. Meat production in the OECD area is anticipated to expand less than 1% p.a., as
most farmers already benefit from existing technological advances, and face increasingly stringent
animal welfare and food safety regulations.

(23) I. Faeth (2009), “Determinants of FDI: a Tale of Nine Theoretical Models”, Journal of
Economic Surveys, Vol. 23, No. 1

This paper presents a review of nine theoretical models of FDI. Discussed are early studies of
determinants of FDI (1) as well as determinants of FDI based on the neoclassical trade theory (2),
ownership advantages (3), aggregate variables (4), the ownership, location and internalization advantage
framework (5), horizontal and vertical FDI models (6), the knowledge-capital model (7), diversified FDI
and risk diversification models (8) and policy variables (9). From each of the nine theories, the relevant
determinants of FDI are derived. Empirical studies indicate the importance of these determinants in the
real world. The paper shows that there is not one single theory of FDI, but a variety of theoretical
models attempting to explain FDI and the location decision of multinational firms. Therefore, any
analysis of determinants of FDI should not be based on a single theoretical model. Instead, FDI should
be explained more broadly by a combination of factors from a variety of theoretical models such as
ownership advantages or agglomeration economics, market size and characteristics, cost factors,
transport costs, protection, risk factors and policy variables. In fact, while the neoclassical model, which
explained international capital trade due to differences in returns on capital, was heavily criticized
because of its assumption of perfect competition, Dunning’s OLI framework proved to be a better
approach of explaining FDI as linked to MNEs, which were seen as firms with market power. His model
combined ownership, location and internalization advantages as determinants of FDI after they were
previously discussed in separate theories. An alternative framework for analysing FDI and MNE
activity, combining ownership and location advantages with technology and country characteristics and
explaining both horizontal and vertical FDI, was offered by the new trade theory. Horizontal FDI, for
instance, was explained using the proximity–concentration hypothesis, while vertical FDI was explained
using the factor-proportions hypothesis. This area of research was complemented by Markusen’s
28
knowledge-capital model that allowed for both FDI forms as special cases. These models could be
modified to explain other FDI forms such as export-platform FDI, wholesale FDI and outsourcing. An
additional type of MNEs, diversified MNEs, was explained by the risk diversification hypothesis with
firms seen as risk averse and trying to spread business risk. FDI could also be viewed as a game with
two players, MNE and host government, and a contest between two or more host countries competing
for FDI with a variety of policy, fiscal, financial and other investment incentives influencing the FDI
location. Hence, the different approaches do not necessarily replace each other, but explain different
aspects of the same phenomenon. Since there are a variety of theoretical models explaining FDI, there
are many factors that were experimented with in empirical studies to determine which factors influence
FDI. R&D and advertising expenditure, skill and technology intensity, the existence of multiplant
enterprises and firm size were important ownership advantages in a number of studies while, in another
area of research, aggregate variables (such as market size, growth and trade barriers) had an effect on
FDI. combination of ownership advantages, location advantages (including market size and
characteristics, factor costs, transport costs and protection) and other factors (such as political regime
and infrastructure quality) had explanatory power when analysed under the OLI framework. The
proximity–concentration hypothesis was also robust, as FDI could be explained by market size,
transport costs and protection and agglomeration economics such as R&D and advertising intensity or
corporate scale economies in general. Studies that looked at the horizontal FDI, vertical FDI and
knowledge-capital model and their determinants found market size and characteristics (in particular a
country’s skilled labour endowment) and transport costs and protection to be important factors
explaining FDI. However, the horizontal FDI model explained overall FDI better than the vertical FDI
model, while the knowledge-capital model had the same explanatory power as the horizontal FDI
model. Risk factors (such as market risk, the exchange rate and the interest rate) affected the location of
MNEs, as did policy variables (such as corporate tax rates and tax concessions and tariffs and other
fiscal and financial investment incentives). Hence, the empirical evidence strengthens the idea that the
different approaches do not necessarily replace each other, as every theoretical model found some
support through regression analysis. Therefore, FDI should not be explained by single theories but more
broadly by a combination of ownership advantages or agglomeration economics, market size and
characteristics, cost factors, transport costs and protection and risk factors and policy variables. Many
empirical studies have already taken that approach, even when focusing on specific theories or aspects
of FDI.

(24) L. Latruffe and C. Le Mouel (2009), “Capitalization of Government Support in

Agricultural Land Prices”, Journal of Economic Surveys, Vol. 23, No. 4.

The objective of this paper is to provide an overview of existing literature, both theoretically and
empirically, on the extent to which agricultural subsidies do translate into higher land values and rents
and finally benefit landowners instead of agricultural producers. Our review shows that agricultural
support policy instruments contribute to increasing the rental price of farmland, and that the extent of
this increase closely depends on the level of the supply price elasticity of farmland relative to those of
other factors/inputs on the one hand, and on the range of the possibilities of factor/input substitution in
agricultural production on the other hand. The empirical literature shows that land prices and rents have
in general a significant positive and inelastic response to government support. Such inelastic response is
thought to reflect the uncertain future of the farm programmes. And in general, studies have indicated
that land prices are more responsive to government-based returns than to market-based returns. In
particular, main insights may be summarized as follows: (1) Agricultural support policy instruments
29
contribute to increasing the rental price of farmland. (2) The extent of this increase closely depends on
the level of the supply price elasticity of farmland relative to those of other factors/inputs on the one
land, and the range of possibilities of factor/input substitution in agricultural production on the other. (3)
Whatever the policy instrument, the lower the elasticity of farmland supply, the higher the increase in
the rental price of farmland. (4) For the output price support instrument, the higher the degree of
substitution between land and non-land factors/inputs, the lower the extent of land use and land rental
price increases. In contrast, for the land subsidy instrument, the higher the degree of substitution, the
greater the extent of land use and land rental price increases. (5) As shown by some authors, an output
subsidy will unambiguously have lower impact on land rental price than an equal cost land subsidy. In
other words, a larger part of support is ‘capitalized’ in the rental price of land when this support is
provided through a land subsidy than through output price support. Despite the wide differences
between the studies in terms of method and data, one can try to summarize the findings in a few main
points: (1) Government payments and other types of support (price support, quotas) are important in
explaining land prices. They are major determinants in land price evolution, and they account for a large
share of these prices. In general studies agree about a share around 15%–30%, although it could be up to
70% depending on specific regions and dates. (2) Land prices and rents have generally a significant
positive response to government support. Although the magnitude of the response varies across studies,
it has been shown to be less than 1. Such inelastic response is thought to reflect the uncertain future of
the farm programmes. However, there is no consensus about whether government payments are
discounted more heavily (i.e. are seen as more transitory) than market earnings. Despite this, in general,
studies have indicated that land prices are more responsive to government-based returns than to market-
based returns.

(25) L. Cotula, S. Vermeulen, R. Leonard, J. Keeley (2009), Land grab or development

opportunity? Agricultural investment and international land deals in Africa, IIED-FAO-IFAD,
Rome.

Although the terms and conditions of investment display a huge diversity among countries and even
individual projects, the main findings of this study, based on a small number of international land deals,
include the following: (1) Land deals must be assessed in the light of the often complex overall package
they are part of, including commitments on investment, infrastructure development and employment –
the “land grab” emphasized by some media is only part of the equation; (2) Land leases, rather than
purchases, are predominant in Africa, and host country governments tend to play a key role in allocating
them; (3) Land fees and other monetary transfers are not the main host country benefit, not least due to
the difficulty of setting land prices in the absence of well-established formal land markets; (4) Host
country benefits are mainly seen in the form of investor commitments on investment levels,
employment creation and infrastructure development – though these commitments tend to lack teeth in
the overall structure of documented land deals. Many countries do not have in place legal or procedural
mechanisms to protect local rights and take account of local interests, livelihoods and welfare. Even in
the minority of countries where legal requirements for community consultation are in place, processes to
negotiate land access with communities remain unsatisfactory. Lack of transparency and of checks and
balances in contract negotiations creates a breeding ground for corruption and deals that do not
maximise the public interest. Insecure use rights on state-owned land, inaccessible registration
procedures, vaguely defined productive use requirements, legislative gaps, and compensation limited to
loss of improvements like crops and trees (thus excluding loss of land) all undermine the position of
local people.
30
 (26) UNECA (2009), Promoting Agro-Industry and Agribusiness Development in African
Countries with Emphasis on Promoting Regional Value Chain Approach, UN, Addis Ababa.

The main conclusions derived from a specific meeting devoted to the issue include the following:

1- Lack of a vibrant agribusiness and agro-industry sector in Africa is a major reason behind the
increasing disconnection of farmers from both input and product markets as well as the extreme
fragmentation of the African food and agricultural markets.

2- Moreover, processing agricultural commodities could be potentially an effective means for increasing
incomes and poverty reduction in Africa.

2- Partnership between agricultural producers, processors, transporters and traders is a key factor for the
development of agriculture in Africa as well as the promotion of agribusiness. Partnership between
these private sector entities and the public sector is instrumental and is one of the important tools for
promoting agribusiness and regional value chain development in Africa.

3- More policy focus should be given to promoting the linking of small scale producers to high value
agricultural commodity chains.

4- The proposed publication on public-private partnerships provides an important medium for enabling
stakeholders to make informed choices on the potential for and application of PPPs in fostering agro-
industry and agribusiness in Africa, particularly taking into consideration the lessons learned from both
successful and failed cases . The draft report therefore has to be further revised taking into consideration
the inputs and recommendations provided in the meeting.

5- Application of PPPs to agribusiness and agro-industry in Africa should be gauged against the
comparative advantages, competencies and capacities of both the public and private sector, including
preparedness of farmers and business entities to undertake complex investment. In this context,
developing soft infrastructure including organizational and other competencies and skills for the various
actors in the agricultural commodity value chain is essential.

6- Increased policy emphasis on developing the demand side of agriculture is necessary in order to assist
in creating sustained demand for agricultural products, and linking agricultural producers directly with
processors and retailers. However, this should be matched with equal policy focus on significantly
enhancing the productivity of African agriculture which is extremely underperforming due to long term
underinvestment.

7- Increased focus towards more regional approaches in agribusiness and agro-industry development
should be promoted. In this regard, states have an obligation and important role in creating stable
enabling environment for promoting agribusiness including free trade of goods and services within and
between countries in the region. Moreover, RECs form important building blocks and have a major role
to play in the promotion of intra-Africa trade.

8- Integrated approaches at national and regional level including links with other sectors of the economy
like transport, energy, water, and communication infrastructure constitute important strands in
promoting regional based agribusiness and agro-industry.

31
9- Poverty reduction, food security, HIV-AIDS impact mitigation, gender equity and environmental
sustainability, should not be compromised in the strategies aimed at promoting agribusiness and agro
industries.

10- Population growth and rapid urbanisation are increasing potential demand and transforming
consumption patterns and therefore presents an opportunity to promote agribusiness and agro-industry
development in Africa.

11- The development of value chains on strategic agricultural commodities in Africa faces gaps in
information, data as well as mechanisms for sharing information on this approach to enable the private
sector to make informed investment decisions and for the policy community to adopt responsive policy
measures to operationalise the approach. Furthermore, enhanced collaboration and coordination among
the key actors including UN agencies involved in promoting the value chain approach would render
greater impetus to the operationalisation of the approach in the region.

12- A vision for agriculture in Africa should aim at commercialization of agriculture taking into account
food security; environmental sustainability; gender equity; HIV-AIDS; enhancing competitiveness of
the sector as well as Africa becoming a global leader in trade of some of its commodities.

These recommendations can be translated into operative proposals:

1. ECA, in collaboration with UNIDO, FAO, IFAD, AUC, AfDB, CGIAR, AGRA and selected public
and private sector representatives should establish a forum on promoting the adoption of regional value
chain approach in the development of agribusiness and agro-industry in Africa and mainstream these
recommendations with the RCM.

2. ECA should strengthen information exchange and knowledge management through establishing a
network of experts including private and public sector practitioners on promoting regional value chain
approach.

3. ECA should prepare a policy brief on regional value chain approach and PPPs as an input to the High
Level Conference on Promoting Agro-industry and Agribusiness Development in Africa planned to be
held in Abuja in November 2009, and the Intergovernmental Committee of Experts (ICE) Meeting on
Enhancing Food Security in Eastern Africa which is will be organized by ECA SRO/EA in Kigali in
March 2010.

4. ECA in collaboration with partners involved agribusiness and agro-industry development in Africa
should commission in-depth sub-regional studies to assess the potential for regional value chains based
on selected strategic commodities identified at the Abuja 2006 summit. These studies should take into
account agro-ecological zones and development corridors in Africa. The studies should inter alia
highlight lessons learned from ongoing initiatives on promoting agricultural trade based on sub-regional
approach.

5. In collaboration with UNIDO, FAO, AUC, AfDB, IFAD, CGIAR centres, AGRA, RECs private
sector and other partners, ECA should organize regional consultative conference on agribusiness and
agro-industry with the view to popularizing and building consensus and coalition for promoting regional
value chain approach. The conference should be organized within the second quarter of 2010.

6. A critical analysis of the opportunities and threats posed by the ongoing trend of selling/ “grabbing”
land for foreign agricultural investment and free trade agreements should be undertaken.

32
7. The benefits of promoting intellectual property rights, branding and linking producers together as a
way to create value addition should be encouraged for potential up-scaling and extending to various
agricultural commodities.

8. Develop a workable model to enhance the contribution of small scale enterprises to agricultural
production and marketing.

9. Informal credit systems should be developed and linked to formal finance system.

(27) L. A. Winters (2000), The economic consequences of agricultural support: a survey,

OECD, Paris.

This article has presented two sets of evidence on agricultural policy in OECD countries. The first and
major set comprised estimates of the deadweight losses of national unweighted economic welfare that
current policies entail. It showed that these losses can be measured in a number of ways of differing
sophistication, ranging from simple partial equilibrium modelling of a single sector through to complex
general equilibrium modelling of the whole economy. The attraction of the former is the detail that can
be devoted to collecting and interpreting data and to representing the processes of the sector concerned.
That of the latter is its comprehensiveness - its ability to reflect the connections between agriculture and
the resources it absorbs (labour, capital, land, foreign exchange) and other parts of the economy. While
every approach to measuring the welfare costs of agricultural policy is subject to reservations, certain
qualitative conclusions emerged from nearly every study surveyed above. OECD agricultural support:
increases food prices to OECD consumers; wastes resources by over-expanding agricultural output in
high-cost areas and curtailing it in low-cost ones; diverts resources from industry and services; reduces
OECD countries' competitiveness in manufactures. A number of other conclusions were also noted,
which while not having the force of repeated replication are nevertheless well enough justified to be
taken very seriously. OECD agricultural support: can reduce aggregate employment; transfers
substantial resources to Eastern Europe; discourages developing countries' agriculture by reducing
world prices and making them more volatile. The quantification of the deadweight losses of agricultural
intervention is still relatively imprecise, but assuming that observed prices and rewards reflect social
values, losses of up to 1 per cent of GNP look plausible in Europe, with even greater losses in Japan.
One estimate suggests that consumers and taxpayers in industrial countries are some $100 billion worse
off because of agricultural intervention. Of this, about half is transferred to producers - mostly to the
owners of land – while the rest - roughly equivalent to Denmark's national income - is lost in economic
inefficiency. Moreover, by ignoring the instabilities and uncertainties that policies entail, the wasteful
lobbying they give rise to, the environmental dangers of over-cropping and the distortions in investment
and R&D that they produce, these estimates probably significantly understate the costs of current
interventions. While it is impossible to quantify the degree of understatement, these additional
components of costs will almost certainly grow for so long as the distortions to OECD agriculture
remain uncorrected. Part I of this article considered the other side of the agricultural policy ledger:
specifically, what countries might hope to achieve in return for the lost $50 billion. The evidence
suggests relatively little. The principal beneficiaries of farm support are the land owners - in proportion,
or possibly more than in proportion, to their land holdings. Poor farmers and farm labourers appear to
gain little and maybe even lose. There is some possibility that farm policy stabilizes farm incomes, but
even that is not unambiguous. Finally, the studies surveyed in Part II suggest that OECD countries' farm
policies penalize poor consumers, do nothing to enhance national security or the environment, and may

33
be harmful to developing countries. All told, therefore, the evidence suggests considerable advantages to
the reform of agricultural policy. It is true that this would entail substantial change in certain OECD
economies; however, the associated costs may be minimized by adopting a multilateral programme of
liberalization and their effects ameliorated by offering non-distortionary compensation to the affected
parties. The details of transitory arrangements are not the subject for this article, but it should be noted
that adjustment costs are temporary and that, given the large long-run savings to be made by
rationalizing agriculture, compensation could be very generous. While there may be significant political
difficulties to undertaking it, the economic returns to reforming agricultural policy look substantial
compared with those available from almost any other area of governmental activity.

(28) UN (2009), Chair’s Summary. Promoting Responsible International Investment in

Agriculture, Roundtable concurrent with the 64th United Nations General Assembly, New York,
September.

The following key tenets could be a basis for the principles around which the international framework is
designed: (1) Land and Resource Rights: Existing rights to land and natural resources are recognized
and respected. (2) Food Security: Investments do not jeopardize food security, but rather strengthen it.
(3) Transparency, Good Governance and Enabling Environment: Processes for accessing land and
making associated investments are transparent, monitored, and ensure accountability. (4) Consultation
and Participation: Those materially affected are consulted and agreements from consultations are
recorded and enforced. (5) Economic viability and responsible agro-enterprise investing: Projects are
viable economically, respect the rule of law, reflect industry best practice, and result in durable shared
value. (6) Social Sustainability: Investments generate desirable social and distributional impacts and do
not increase vulnerability. (7) Environmental Sustainability: Environmental impacts are quantified and
measures taken to encourage sustainable resource use, while minimizing and mitigating them negative
impact. Participants recognized that the efforts in this regard should draw on the past good practices and
experience gained and, where appropriate, content already developed by relevant guidelines, standard
schemes or codes of conduct, whether public or private. Examples include the Equator Principles, the
Extractive Industry Transparency Initiative (EITI), Santiago Principles, OECD Guidelines for
Multinational Enterprises, and numerous commodity or theme specific schemes. The process of
formulating the international framework should also be in line and compliment with other food security
initiatives.

(29) J. Wilkinson and R. Rocha (2006), Agri-processing and developing countries, World
Development Report 2008 Background Paper.

The importance of the agri-processing sector for developing countries is currently being reassessed in
the light of two distinct although inter-related trends. On the one hand, important changes have been
observed in global food trade with processed products now predominating in developing country
exports and imports. Demographic trends, on the other hand, indicate that almost all net, population
growth is now concentrated in developing countries in a context of rapid urbanization in all continents,
albeit at different stages. Urbanization, which of itself demands a different organization of the food
system in which the preservation of foodstuffs becomes strategic is accompanied in middle-income
developing countries, by a dietary transition stimulating new food categories, and by the demand for
convenience foods. The importance and roles attached respectively to trade and to foreign investment
34
(FDI) when discussing the foodprocessing sector in developing countries is influenced by the relative
weight attributed to each of these two overall trends. Processed foods now account for some 80% of
global food sales estimated at US$4 trillion in 2002. Packaged food corresponds to only one third or less
of total food expenditure in developing countries but their retail sales are from 3 to 10 times faster than
in developed countries where growth has stagnated. Analysis of the UNIDO Industrial Statistics
Database, 2005 show that food processing in developing countries is an important component of the
manufacturing sector, growing as a percentage of GDP as income increases, although with a
proportionate declining share in total manufacturing. Data on food processing in developing countries
is, however, incomplete and the importance of the informal sector can vary from 20% to 70% of the
food industry depending on product category and country. Ten per cent of processed food products are
traded globally and trade growth has stalled since the middle ‘90s. The share of processed foods as a
proportion of total agricultural exports has increased sharply for all developing countries. On the other
hand, since the ‘90s most, least developing countries (LDC) have become net food importers, with the
majority of these imports corresponding to processed foods. Two very different approaches, factor
endowment and global value (GVC) analysis, have identified the key role of “non-traditional” food
exports for developing countries, geared primarily to developed markets and comprising fruits and
vegetables, poultry, dairy and especially fish/seafood products (30% of total exports of this category).
Tendencies within food processing are analyzed here in the context of global trends in manufacturing
out-sourcing. Within this perspective, the complementarities between FDI and non-traditional exports
are given pride of place. Other authors would highlight the specific features of the food industry
suggesting a more diffuse trasnationalization based on strategies of proximity to consumer markets. In
this light, FDI is more associated with the bourgeoning markets for processed food in developing
countries. Almost all, future growth in the world population, calculated to increase by a further 2.5
billion to 9 billion, is projected to occur in developing countries, primarily in Africa and Asia, before
stabilization. At different rhythms, this population growth in developing countries is being accompanied
by increasing urbanization. To the extent that urbanization has been accompanied by the growth of
formal employment opportunities this has led to a dietary transition towards convenience foods, animal
protein, especially fresh dairy products, and higher consumption of fresh fruit and vegetables. As a
result, modern food systems based on packaged food production and supermarket retail outlets are now
present in most lower and upper middle-income developing countries according to the World Bank
classification. Most developing countries, even the LDCs which are exempt from many of the demands
of the WTO, have undergone far-reaching institutional reforms, often under pressure from donor and
investment organizations, but also as a response to both domestic and export market stimuli. The results
have been uneven but the reforms have established a new regulatory framework for domestic market
growth and access to export markets. FDI in processed food continues to be concentrated in the Triad
countries, with each of these blocs, however, revealing specific spheres of influence in developing
country regions. As flows to China, Asia and probably soon, India, increase, regional spheres of interest
become complemented by more global patterns of investment whether for out-sourcing or host market
development. South-South FDI is also becoming an important factor as developing country leading
firms adopt more global strategies and as developing countries themselves advance in the direction of
regional blocs. FDI in food processing is at the same time very concentrated since, with the exception of
Japan, the host market presents itself as the prime objective and presupposes therefore a level of
effective demand provided by a solid urban middle class. Tariff barriers, particularly tariff peaks and
tariff escalation are major factors inhibiting developing country exports of processed products and were
a major issue of negotiation in the Doha round. Subsidized exports of processed foods are the obverse of
such a policy and similarly may undercut efforts to develop both agriculture and food processing. In the
case of the European Union, the two types of measures have been part of a coherent agrofood policy
35
whose consequences for developing countries are to stimulate the export of non-competitive (tropical)
agricultural products and import processed food products from Europe’s and their own agriculture. The
growing dominance of retail where logistical and quality criteria are generally invoked in the name of
the consumer has stimulated the greater part of the literature on standards and supply chain
coordination. Before retail, however, food processing and trader interests predominated in the definition
of quality and here the qualities promoted were justified according to different criteria, the better
functioning of impersonal markets in the latter case and the technical requirements of inputs in the
former. Qualities are the form in which economic actors qualify their interests, which may become
accepted as common interests (for instance in the case of specific food safety measures) or exposed as
sectoral concerns which may be at variance with those of other actors (GMOs would be an emblematic
example here). In addition, different types of actors may propose different solutions to the same
common interests (food safety would again be the paradigm case) leading either to the co-existence of
different forms of economic coordination or to the imposition of one or other as the norm, with different
consequences for the inclusion or exclusion of specific groups of actors. A number of critical strategy
and policy issues emerge from the foregoing analysis. In spite of the increasing heterogeneity of the
developing world general tendencies can be identified which affect most countries. Although there has
been some recovery in prices the crisis of the traditional commodity sector persists as also the traditional
division of labor between primary exports from developing countries and processing/manufacturing and
increasingly services, which are almost exclusively reserved to the major consumer countries. The most
promising strategies, which could become the basis of policies for the sector, have been those directed
at renegotiating the quality attributes of primary production, in line with social and environmental
criteria. The collapse of commodity prices with the dismantling of international regulatory mechanisms
would also suggest that some measure of re-regulation would be in order extreme price fluctuations. The
transnational food firms now operate globally but regulatory powers to the extent that they exist remain
national. Although these transnationals have shown themselves little vulnerable to national governments
and workforces, they have been repeatedly brought to the negotiating table by international NGOs,
which have focused on their labor and environmental record. NGOs are now strategic actors in the food
system and major sources of innovative policy proposals, as in their current campaign against corporate
abuse. The price of TNCs global power is the adoption of corporate social responsibility, and having
claimed the moral high ground issues of equity along the value chain should be raised alongside those of
quality and adhesion to legal entitlements.

(30) M. Taylor (2010), Expanding the Dialogue on large-scale land acquisitions and their
alternatives, Annual World Bank Conference on Land Policy and Administration, Washington
D.C., April.

Increasing large-scale investment in land, particularly in the agricultural sector, but also including other
sectors such as mining, agrofuels, tourism, forestry and carbon sequestration, is of interest and concern
to a wide variety of organisations ILC members launched a collaborative research project in 2009 on
this question, as have a variety of other organisations. While there is agreement that the implications of
this trend are far-reaching,opinion is sharply divided on what these implications might be. Responses
have focused on the social, economic and environmental risks it poses, and/or on the possible
opportunities arising from increased investment in agriculture and other rural sectors. The phenomenon
raises fundamental questions on land rights, development and food security, with diverse views being
held by different stakeholders. Inter-governmental and governmental agencies currently taking a lead
have proposed principles for responsible land-based investments, while producer organisations and
36
social movements representing the populations most directly affected by such investments have
generally been more sceptical of the possibility of achieving ‘win-win’ outcomes. It is crucial to enable
a wider diversity of stakeholder groups to influence the nature of global responses to large-scale land
acquisitions and to consider their alternatives.

(31) L. Hitimana (2010), Land Transactions and Investment in West Africa: A regional
perspective on principles for responsible agro-investment, Annual World Bank Conference on
Land Policy and Administration, Washington D.C., April.

Land transactions have increased in many West African countries over the past 10 years. In some
countries large scale land acquisition is not new and was even more important in the 70’s. 2. National
populations are the most important investors in land in West Africa. The scale of land acquisition by
foreign investors varies between West African countries: (1) Ghana and Mali have many significant
transactions on land by foreign investors. Several investors have more than 100 000ha; (2) Burkina Faso
has one significant land transaction (200 000 ha); (3) Niger and Senegal have relatively small land
transactions. There are: (1) imits of formal rules and laws that regulate land transactions and investment.
Lack of synergy between land programs and services. (2) Weak capacity in some nations to enforce
laws. (3) Poor integration of local agreements in land transaction process. Local agreements are not
legally binding in some countries (e.g. Senegal). (4) Little public awareness on laws related to land. (5)
Some countries lack regulation on compensation for expropriated land. (6) Governance issues: in some
cases, regulations are not respected by the states responsible for enforcing land laws. (7) Acquired land
is not always developed. A very low percentage of land acquired by the Office du Niger has been
developed. (8) Rights of users on state-owned land are not always respected. There is also the so called
Freedom of investment process (FOI), initiated in March 2010 . The FOI process seeks to support
recipient countries’ efforts to further international investment and to design effective responses to
genuine concerns raised by international investment, including investment on land. Analyses shows that
land transaction can potentially encourage investments, but rights of land-users need to be protected.
Land legislation differs from nation to nation. Some laws contradict regional agreements (e.g. settlement
rights) within ECOWAS member states. Regional principles would ensure coherence between national
and regional levels. West Africa can build on existing instruments like the west African charter on land
within ECOWAS. The regional observatory promoted by UEMOA can be an important tool to feed the
charter. Regional organisations (UEMOA in particular) have established regional funds to finance
agricultural investment. A special budget line should be set up for land planning (aménagement foncier).
Equal access to land can be promoted throughout the region by drawing on Mali’s example: The Law on
Agricultural Orientation indicates that a quota of state land will be reserved for women and youth.

(32) J. Lamb (2010), Operationalizing the principles for responsible agro-investment through
a knowledge platform and toolkit, Annual World Bank Conference on Land Policy and
Administration, Washington D.C., April.

The Principles for Responsible Agro-investment help point the way to “doing it right”. The new
“Principles for promoting responsible FDI in agriculture” are important, but a much broader consensus
is needed before they can be generally accepted, and building such a consensus depends on satisfying
certain enabling conditions: (1) An inclusive and transparent process, (2) Commitment by leaders of all
major stakeholder institutions and groups; (3) Sustained empirical research that is action-oriented; (4)
37
Competent analysis and formulation; (5) Political, social, and cultural sensitivity; (6) Appropriate levels
and types of resources. Operationalizing the principles will require more specific guidance of various
forms (Shared Principles  Voluntary Guidelines  Safeguards & Standards  Industry & Investor-
led Codes), reflecting on-going research and analysis as well as objective assessment of outcomes and
impact (i.e. impact evaluation).

(33) R. Albino (2010), Strengthening economic evaluation and data for large scale
investments in Mozambique: Key lessons, Annual World Bank Conference on Land Policy and
Administration, Washington D.C., April.

Some steps were undertaken to strengthen Economic Evaluation and Data Collection: (1) 2006:
Establishment of a new directorate: CEPAGRI, and among its attributions: Issuing Opinion Notes on
Investment Proposals; (2) New information required from the potential investors: Investment plan,
business plan, production plan; Internal Rate of Return (IRR), Net Present Value (NPV); Proof of
financial availability of funds; Experience, background of the investors; Socio-Economic Investment
(Employment, plans for the communities,...); (3) 2008: First Agrarian Zoning. In terms of results: (1)
Establishment of the“Project Application and Land Acquisition Processes” Improved the level of
requirements for project analysis; (2) the creation of CEPAGRI Improved economic and non-economic
data collection,as well as the capacity of economic and non economic evaluation thanks to this
improvement in data collection (example: is now possible to compare data of investment projects
focusing on the same cultures (investment value, social investment component, expected outcomes,
employment, preferred areas,...); (3) First Agrarian Zoning was a supporting tool for land management
and allocation: inform on the availability and potentials of the land; guide the allocation of land, the
environmental use of land; improve the targeting of investors for Agrarian projects; secure an
hamornised use of DUATs between different projects, and the communities. Despite these important
results, economic evaluation and data can be further strengthened: (1) The quality of some data
collected can be improved (IRR, NPV); (2) For new cultures: accuracy of production and business plans
should improve as knowledge on the crop improves (Jatropha); (3) More provincial branches of
CEPAGRI shall be established (2009: Nampula, 2010: Manica); (4) Work towards the publication of a
Manual of Procedures for Agribusiness; (5) The information provided by the Zoning need to be
improved.

(34) K. Ahwoi (2010), The Government's role in attracting viable agricultural investment:
Experience from Ghana, Annual World Bank Conference on Land Policy and Administration,
Washington D.C., April.

All Ghanaian Governments since 1844 have had policies for attracting viable agricultural investments
with varying degrees of success. They range from non- interventionist policy (1844-1956) to total state
intervention along the entire value chain(1957-1966) during the immediate post-independence period
through the era of structural adjustment program (SAP) where the private sector was given the role of
attracting viable agricultural investments with the help of Government incentives provided in 1994 and
1995 by Acts of Parliament. The post SAP era is dealing with accelerated agricultural
commercialization with large-scale agricultural investments expected to provide the stimulus. The paper
questions the raising of the issue of “land grab” at the very time that Africa that has not had a Green

38
Revolution (GR) yet is attracting large-scale investment in food and biofuel to have her own Green
Revolution and asks “whose interests are being served”. Despite the many Government interventions
and reforms, there has not been significant improvements in the structure, conduct and performance of
Ghana's agricultural sector, a fact which is widely acknowledged. The ending of the import licensing
system and the progressive reduction of tariffs and withdrawal of subsidies without significant
productivity gains over the years also means that Ghanaian farmers may have become more exposed to
competition from cheap imports to the detriment of their livelihood. The increasing concern in
agriculture-led developing economies for the re-introduction of Governmental support (euphemism for
subsidy) should no longer be resisted by the competitors and their surrogates. Africa's agriculture cannot
succeed on an uneven playing field. There is little impact assessment results from all the incentives
made available to investors under the GIPC Act 478 of 1994 and the GFZB Act of 1995 to guide
Government in developing “Large Scale Investment Models” in Ghanaian agriculture in the post 2006-
2008 high food and biofuels price impact. The need for external capital (FDI) inflow to finance the
current account deficit of developing countries cannot be over-emphasized . Could it be that the primary
benefit of an increase in FDI inflow into a developing country’s agriculture is the increase in current
consumption of imports without an accompanying accelerated modernization and commercialization of
the country’s own agriculture?.Could it also be that large scale investments into Ghana’s agriculture is
what is needed for a major takeoff of the Ghanaian economy after 166 years?

(35) D. Gumbo (2010), Do outgrower schemes improve local livelihoods? Evidence from
Zambia, Annual World Bank Conference on Land Policy and Administration, Washington D.C.,
April.

Contract farming delegates risks; outgrower schemes have advantages for smallholders (inputs, markets
for crop, new technologies and extension services and may realize high incomes through the cultivation
of high-value crops). The idea behind is Livelihoods approach: the activities, the assets, and the access
that jointly determine the living gained by an individual or household (Carney et al 1998, Scoones
1998); it allows for the integration of all aspects of the smallholder’s operations and context. Sustainable
mivelihoods implies coping with immediate shocks and stresses, local capacities and knowledge are
promoted, existing institutions strengthened and agenda of work extended. Therefore: it is a useful
framework to use to investigate whether outgrowers build rural livelihoods. In Zambia, Centralized
model dominant and widely used since 1970’s – early influence of group based extension. The Nucleus
model is being changed to include “labour tenancy” as in Zambia Sugar and Kaleya Smallholders: this
is the favored model by government being used in the Farming bloc initiative. However a third variant is
developing: resettlement land to be dedicated to sugar production, and applications for individual and
block title encouraged (e.g., Manyonyo, Mazabuka District). Almost all the companies provide all the
inputs and backstopping required by outgrowers (Abwino and Reiks 2006). Contracts are often broken
and there is often no recourse (Langmead 2003; CCJP2006). Prices are generally static with little
change from year to year encouraging side selling. Most of the farmers are not organized and the
“associations” established have company leanings thereby reducing their bargaining power. There is
general consensus that cotton, tobacco, sugar and paprika give good returns to outgrowers. In terms of
social capital: loan advances have potential to allow very poor households to participate (marginalized
households unwilling and unable); loans snapped up by already well resourced smallholder farmer;
schemes build up new institutions e.g., sugar growers association. In terms of Natural capital: land
rights within the communal tenure system secured – Limited search for title; individual and block titles
to land being sought e.g., sugar in Magobho and Manyonyo Resttlement areas Mazabuka District;
39
sufficient land for food crops – no land use policy; sugar outgrowers no water rights. In terms of human
capital: on site skills transfer through farmer to farmer as well as the outgrower partner exchange; labour
deficient households to hire contracted labour – been doing this already; provision of seasonal
employment as livelihood strategy; contractors receive “hands on” training skills training. In terms of
physical capital: more infrastructure – access roads, input depots, home based processing plants. In
terms of financial capital: provision of significant percentage of rural credit in the areas; secure markets
provided; income seen as a form of household savings. The Way Forward: develop a clearer policies for
outgrowers; need to develop a more comprehensive national development framework; invest in the
marginalized smallholder farmers; property Rights pertaining to outgrowers are unclear and should be
explored further.

(36) S. Gotomo (2010), Large scale land concessions in Liberia: Has the renegotiation
process improved social outcomes?, Annual World Bank Conference on Land Policy and
Administration, Washington D.C., April.

There are both positive and negative impacts of large-scale investments in Liberia. Positive: Large-scale
investments contribute to local economic growth of the communities that benefit, including social
services such as healthcare and education. Negative: Large-scale investments have potential for
environmental degradation over the long term is quite a threat to the existence of affected local
communities. Some of the investment companies do not give much attention to safeguarding local
communities from the pollutions that result from their operations. There are government policies &
investment decisions that help/hurt local communities. The Government of Liberia did not consider the
involvement of local communities in developing concession agreements in the past. The government
takes lead role in negotiating and consummating the concession agreements but takes the back seat
when it comes to resolving implementation challenges between the investors and the affected local
communities. Generally, taxes paid by investors are put directly into the central revenue system of the
government, leaving the affected local communities with no direct access to benefits. The Government
of Liberia does not take an active role to ensure implementation of “Social Contracts”; this is rather left
to the affected local communities to work out with investors on a “good will gesture” basis. This is a
major source of conflict between local communities and investors. The new Act to Establish the
Community Rights Law of 2009 with Respect to Forest Lands has removed the stigma associated with
the classification of the indigenous people of Liberia as “squatters” and restored their rights to “forest
lands”. This has laid the foundation for local communities to partially participate in the implementation
of concessions awarded to local and foreign investors by the Government of Liberia. Notwithstanding,
the Government of Liberia needs to do more to enable affected communities fully realize the benefits of
the concept of “Social Agreements” between investors and affected communities by incorporating social
agreements into Concession Agreements and Forest Management Contracts to make the commitments
undertaken by the parties to the social contracts legally binding and enforceable. The Government of
Liberia must be called upon to implement the Labor Laws of Liberia fairly, transparently and strictly in
the interest of both investors and workers. Abusive labor practices need to be stopped; and hazardous
working conditions must be improved for workers in all sectors of the Liberian economy.

(37) M. Hernandez (2010), Peru: Establishing a framework for transferring public land,
Annual World Bank Conference on Land Policy and Administration, Washington D.C., April.
40
At the beginning of the nineties, the agriculture in Peru was not integrated with the International Trade,
small fields were the predominant form of agriculture, there was no legal structure to encourage private
investments. Then, COPRI (Commission of Promotion for the Private Investment) was created en 1993,
CEPRI TIERRAS (“CEPRI LANDS”) – created in 1997 and formed by 10 executives. The government
decided to sell some specific assets to the private: agricultural land of called “Special Project”: A huge
irrigation infrastructure (dams + channels) building over the 1980s. There were almost 40,000 hectares
with water right MAJES PASTO GRANDE sufficient right. Thereafter, decision taken for the sale (and
not concession) of sizeable land lots: avoid the smallholding (or small agriculture fields), it was decided
to sell lots of 100, 500 and some of up to 5,000 hectares. This was very important in attract the interest
of companies from other sectors not linked to the agro-industry. The use of open, clear and disclosure
process, through the use of public auction mechanism, facilitated the process. The Government
demanded not only a payment to them, buy the most important was stipulated a Commitment of
Investment. The “Commitment of Investment” was a “amount of money”, in US$, to do in 3 years. That
Commitment have to be endorsed by 2 guarantee: Real Guarantee (Real state guarantee): factual
mortgages plus Financial agreements: stand by letter. If was not invest, the guarantee was executed.
Moreover, the government “impose” a water tariff of 2.5 US$ cents per m3. That tariff was 15 to 20
times higher that smallholders agriculture tariff. Key ideas: optimize the use of water using a
pressurized irrigation system and the price of water must reflect the real scarcity.

(38) L. Alden (2010), Whose land are you giving away, Mr. President of Kenya?, Annual
World Bank Conference on Land Policy and Administration, Washington D.C., April.

Using Africa as example, this paper challenges the tenure grounds upon which third world governments
are leasing land to foreign investors. It argues that most leased lands are ambivalently the property of
governments to lease or alienate. A legal basis of argument is that customary property rights have rarely
been formally extinguished. Presumption by governments that extinction is unnecessary on grounds that
the land is unowned, or that customary land interests do not amount to property are egregiously flawed
in historic and current reality. International human rights law also questions the legality of denying
agrarian customary land rights. Even without law, there is neither logic nor justice in denying
longstanding rights to land respect as private property in a modern land-commoditized world. This is so
irrespective of whether or not these land interests are registered or held by individuals or communities
of persons.

There are also practical concerns of development and security soundness. With the exception of
arrangements whereby farmers are directly contracted by investors, backward-looking approaches are
being tolerated at the very time when felt gaps between rich and poor and state-people make an
inclusive approach to natural asset-based capitalist transformation imperative. It is nonsensical for
developing economies to once again miss the opportunity to equitably engage the majority rural poor as
shareholders in income-generating agrarian enterprise. While fault lies equally with the international aid
and commerce community and with host governments which are putting their citizens’ lands in the
global market place without their consent, the latter, not investors, are the land grabbers.

Focus upon developing codes of conduct for investors is accordingly useful but essentially the wrong
target. Light needs to be directly shone on issues surrounding the ownership of lands being leased and
particularly those in the dubious class of public or national lands under state jurisdiction. Remedy lies in
accelerated domestic and international legal acknowledgement that customary and other longstanding

41
community-derived tenancy amount to real property. Without fundamental change in the legal status of
customary/indigenous land rights, majority rural landholders in especially Africa remain little better
than squatters on their own land, a condition already wrongfully endured for a century or more.

Although some Latin American and fewer Asian and African governments have made progress towards
changes needed, its pursuit is no easy challenge as more widely failing reformism demonstrates. While
house plots and cultivated lands begin to be more easily secured, in Africa alone nearly one billion
hectares historically owned and use by rural populations are still being kept vulnerable to technically
legal appropriation and reallocation by governments. The commons, those lands which rural
communities by custom and logic hold in undivided shares due to their nature as woodlands/forests,
rangelands/pasturelands and marshlands are most seriously at risk. Weakness in the status of
community-derived land rights in general but especially those held communally have historically and up
until the present been most vulnerable to involuntary loss, and primarily affecting the 66-75% of rural
populations who are the most poor. While hardly new, the current wave of state-to-state backed leasing
hardens an already dangerous dichotomy between the interests of governments and their people.

This reflects a thornier problem underwriting this issue; that tenure reforms and the democratizing
trends within which they are nested, continue to fail to challenge the embedded neo-patrimonialism
upon which state-people relations are built in pre-open order societies such as still dominate the agrarian
world. In these countries, the rent-seeking marriage of political, traditional, and economic elites is so
solidly embedded that there is little incentive for the equitable participation which new generation
capitalist transformation demands. Instead, in not grasping the nettle, host governments are putting
themselves in position for strife and civil war to in time coerce this. In going along with the status quo
the international community and investors share responsibility for this rising risk.

(39) I. Tamrat (2010), Governance of large scale agricultural investments in Africa: The case
of Ethiopia, Annual World Bank Conference on Land Policy and Administration, Washington
D.C., April.

This paper is based on a study commissioned by the World Bank to evaluate the current policy, legal
and institutional framework (PLIAF) regarding large‐scale agricultural investments in Ethiopia. The
evaluation was carried out on the basis of a diagnostic tool prepared by the World Bank comprising of a
set of indicators and sub‐level dimensions that have been designed to evaluate the context in which
these investments or investment proposals take place. 42 PLI dimensions focusing on a set of issues
related to land, investments, and social and environmental safeguards have been used to assess the
governance situation of large‐scale agricultural investments at the national level. Some progress towards
governance in some dimensions assessed: e.g. legal recognition of rights; issuance of holding
certificates; low level of conflicts. Assessment of other dimensions show major gaps and do not meet
criteria of good governance: e.g. absence of land use plans; lack of institutional coordination and
exchange of information; lack of transparency of contractual agreements; no benefit sharing
mechanisms and no EIA and social impacts undertaken. Proposed recommendations are the following:
Laws to clearly define content of pastoral and communal holding rights; Need for guidelines for
implementation of federal laws; Need for completing registering and mapping of all land holdings;
Develop and implement land use plans; Clearly define mandates and coordinating mechanisms among
institutions involved in land acquisition; Put in place benefit sharing mechanisms; Put in place policies

42
and laws on requirement and disclosure of information; Ensure enforcement of environmental laws; Put
in place mechanisms for monitoring investments projects and enforce compliance.

(40) O. Schoenweger (2010), Establishing a concession inventory: The case of Laos, Annual
World Bank Conference on Land Policy and Administration, Washington D.C., April.

In Laos, by constitution, all land is property of the state. Nevertheless, the assignment of permanent use
rights allows a land market to evolve. According to the Land Law 2003 the Lao tenure system is de
facto based on state land and private land, whereas domestic property, as long as it is not colliding with
public interests, is secured by article 16 of the constitution. Additionally, communal land is defined in
the Decree 88 from 2008, but not yet included within the Land Law. Six forms of land documents are
known, granting different bundles of property rights. A major condition for transforming state land
assets into capital is to attract investments that need state land. Two important obstacles to developing a
favorable investment climate in Lao PDR are the cumbersome investment approval procedures and
unclear responsibilities of state authorities. Domestic and foreign investors can obtain land via long-
term state land leases, concession contracts and contract farming. According to the Land Law different
authorities are in charge depending on the land size. In order to promote FDI the Government of Laos
(GoL) has implemented the “Promotion of foreign investment law“. According to this law, foreign
investors must submit their proposals to the Department of Domestic and Foreign Investment (DDFI) of
the Ministry for Planning and Investment (MPI). Proposals for projects worth USD 20 million or more
require the approval of the Prime Minister. Concession fee rates, usage charges for natural resources,
and royalties set by law are not based on supply and demand. Different approaches applied in the
provinces to determine fee rates do not seem to meet market standards. Granting land free of charge
should be restricted to joint ventures when the land offered constitutes the GoL contribution to the
project, but is entirely dispensable in the case of other domestic or foreign investments. The prospect for
reasonable profit is deemed to be a sufficient incentive and enterprises should not be subsidized. The
Concessions have had both positive and negative impacts. Positive impacts: Cash income and monthly
wages; Access to infrastructure, schools, healthcare-centers, etc.; Increased government revenue which
can be redistributed. Negative impacts: Loss of land/forests and associated resources; Conversion of
conservation or production forest; Reduced production and availability of rice and NTFPs; Increased
reliance on food markets for farmers/households involved; Increase exposure to a food security shock
during periods of higher food prices; Resettlement without/insufficient compensation.

(41) G. Schoneveld et al. (2010), Large scale land acquisitions in Ghana: Does the legal
framework effectively manage the trade-offs, Annual World Bank Conference on Land Policy
and Administration, Washington D.C., April.

This paper assesses the effectiveness of the Ghanaian legal and institutional framework in managing the
trade-offs of large-scale land acquisition, particularly for biofuel feedstock expansion. The research
focuses on the central Ghanaian regions of Brong Ahafo and Ashanti, which encompass the often
densely vegetated forest-savanna transition zone. This is coincidentally also the region where most of
the large-scale foreign land acquisitions are taking place for the cultivation of Jatropha curcas L. (a
feedstock for biodiesel). It was observed that large contiguous areas of suitable land were easily
obtained by foreign companies through direct negotiations with Traditional Authorities, often through
opaque, non-participatory and partially documented negotiations purportedly locking up large tracts of
43
land for periods of up to 50 years. In this context, many affected households were forced to relinquish
their land without any form of compensation or guarantees of future returns. Many land losing
households consequently experienced a marked decline in livelihood quality as a result of reduced
incomes, increased food insecurity, and loss of access to vital forest products. Large areas of secondary
forest and rehabilitating fallow lands were observed to have been converted to plantation monoculture.
One of primary reasons for this is that many plantations are being developed outside the purview of both
government and affected households, depriving these actors of the opportunity to assess site suitability
and steer companies’ practices to leverage more sustainable and equitable outcomes. Only a small
minority of foreign companies in Ghana was found to have registered at the appropriate government
agencies and to have obtained the mandatory environmental permits, and affected communities were
often unaware of the content of these ‘high-stake’ deals. Lack of cross-accountability between different
agencies severely undermines their capacity to effectively regulate these land-based investments. In
conclusion, effective governance of the sector is essential for enabling Ghana to benefit from large-scale
foreign investment in land-intensive activities. If the government is able to effectively control and
monitor the manner in which projects are developed, many of the identified local impacts can be
mitigated and instead be transformed into meaningful long-term development benefits. One of the most
profound consequences of biofuel development through large-scale monoculture plantations in Ghana
relates to the inefficiency of local level benefit capture by communities granting land to these
plantations. Another issue relevant to the mitigation of adverse local impacts relates to the process
through which land is acquired and impacted persons compensated. Lastly, there are few real controls
on Chiefs and Traditional Authorities for ensuring they act in the interests of customary land users.

(42) P. Munro-Faure (2010), The voluntary guidelines for good governance of land & natural
resources: Content, process & next steps, Annual World Bank Conference on Land Policy and
Administration, Washington D.C., April.

There are many initiative on Land Policy and Governance: UN and IFI initiatives (World Bank-led
Land Policies for Growth and Poverty Reduction, Land Governance Assessment Framework; FAO-led
Right to Food, ICARRD; Habitat-led Global Land Tool Network; UN Special Rapporteur on Right to
Food; etc);Regional initiatives (African Union/UNECA/AfDB; Pacific Islands Forum Secretariat’s
Pacific Plan includes land policy concerns; etc); Bilateral initiatives (including EC Guidelines on Land
Policy; UK; France; Sweden; etc); NGO initiatives (FIG Policy Series, etc); Many country initiatives;
The importance of partnerships Initiatives. There is FAO/IFAD/UNCTAD/World Bank “Principles”
Discussion Note presented as discussion paper at GDPRD in January 2010 and endorsed. These
Voluntary Guidelines provide land governance related guidance through fully consultative political
processes. The purposes are: (1) to set out principles and internationally accepted standards for
responsible practices. High level language. (2) to provide a framework that States can use when
developing their own strategies, policies, legislation, programmes and activities. (3) to allow
Government authorities, private sector, civil society and citizens to judge whether proposed actions
constitute acceptable practices. Being voluntary, they do not establish legally binding obligations for
States or international organizations, as well as they do not replace existing national or international
laws, treaties or agreements. The preparation and adoption of Voluntary Guidelines will lay the
foundation for further action through: A strategy for implementation, Supplementary technical
guidelines, Training and advocacy materials, Country action plans.

44
 (43) D. Byerlee (2010), Large vs. small scale agriculture: Towards a conceptual framework
and research agenda, Annual World Bank Conference on Land Policy and Administration,
Washington D.C., April.

Family farms widely accepted as being most efficient (Lipton 2009, many others): (1) Difficulty of
labor supervision in spatially dispersed production (2) Flexibility management of land and labor
resources to fit seasons and markets (Allen, 2004). (3) Local knowledge advantages the owner-
manager. Family farms, including smallholders, remain as main organizational model in both poor and
rich countries (owner-operated employing mostly family labor). It is also presumed that smallholder
productivity growth promotes equitable development. It is urgent to close a huge Investment Gap to get
agriculture moving, and Public investment is necessary but not sufficient. Nowadays, world’s largest
farms are in Developing and Transition Countries. Large in land area, capital invested and sales (often ~
$US1billion farm prod): Sime Darby (oil palm)—Malaysia, Indonesia and with 600 K ha + (220 k
planned in Liberia); Cosan (sugar-ethanol)—Brazil with 300k+ ha and 300k ha of contract growers
(double with Shell); El Tejar (grains)—Argentina/Brazil 600k ha Pampa; Ivolga (grains)—Russia 650
k+ ha; Fibria (pulp)—Brazil, 500 k+ ha Eucalyptus; Sudan (grains). Historically, often FDI were
timulated by perverse incentives: Subsidies to capital that promote mech (e.g., Brazil until 1990s),
Regulations that promote mechanization (Labor laws that add transactions costs; Environmental laws
that prevent burning cane), Low or zero land prices that encourage risky investments and speculation
(large grain farms in Africa, Jatropha and forest extraction policies such as in Indonesia). It is important
to look at business models specific to context and Commodity: (1) Outgrower schemes, with initial
subsidies for participation of smallholders, may not involve contracts; (2) Cooperatives and shares in
companies (Malaysia, Zambia), with independent growers with public support (Rubber in SE Asia,
Jatropha). Growing land concentration but family farms still dominate. Impacts are likely to be highly
variable (specialized Agbiz firms with tech, knowhow vs institutional investors; R&D and technology
still major issue for sustainable and profitable investments in food crops in Africa). Level the playing
field for smallholders (case for special support for start up costs and public goods: extension). In terms
of needed research: research to understand trends and performance of emerging corporate models
(operational size, company size; role of IT, new tech, new business models), plus rigorous evaluation of
partnership models (piloting of institutional innovations) and research on impacts—tradeoffs between
growth, equity, social impacts and the environment.

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