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Agricultural FDI: Global land grab or good business?

Editor's Note: Kusi Hornberger is an Investment Policy & Promotion Specialist with the Investment Climate Advisory Services of the World Bank Group.

Despite the recent downturn in global FDI flows and predictions of gloomier times to come for cross border investment flows, there has been a recent increase in FDI by wealthy investors from resource poor countries. These investors have been snapping up large plots of land in developing countries for the development of agriculture exports. For the most part the deals have come from wealthy investors or state development funds in resource-poor countries into poor resource-rich countries, such as the lease of 30,000 hectares by the Abu Dhabi Fund for Development in Sudan.

A lot of attention has been paid to these deals including large features in the Economist magazine calling them “Outsourcing’s Third Wave”, from NGOs concerned about food security and even protests from many G8 countries who are concerned about the potential negative development consequences to the local citizens who currently live and work on these lands. 

Yet little attention has been paid to how these transactions are happening and whether the investors are following the same processes and procedures as normal land lease deals involving foreign individuals or companies. The World Bank Group’s Investment Climate Advisory Service is aiming to fill this gap with a new set of indicators called the Investing Across Borders project. The project will include an indicator on Accessing Land that will help us understand how easily foreign investors can access land they are interested in leasing and what protections are in place both for investors and for the country and its citizens. The Accessing Land indicator as well as the rest of the IAB data should be available in early 2010, and with it, we’ll be able to give a better answer the question I started with: global land grab or good business?

Comments

Submitted by David Schlosberg on
Interesting trend. Thanks for pointing it out, Kusi. Definitely like to hear more when you have a chance (and other topics). Investment by "wealthy investors or state development funds in resource-poor countries into poor resource-rich countries." Would you say this is "unexpected" based on historical precedence?

Submitted by Santitarn Sathirathai on
Interesting post Kusi! I am sure that many resource-rich countries have numerous restrictions on how foreigners can buy lands in their countries. How do these restrictions shape these investors behavior? Do they focus on countries with less regualtions or can they pretty much costlessly circumvent the rules (e.g. through use of nominees)?

Submitted by Jag on
This is export oriented FDI. And like all previous FDI, access to land is an issue --- ownership, lease, period of lease, etc. So why now this special concern, blogging and new indicators? In the past you folks have been such staunch advocates of land deregulation for FDI including mining and agriculture. In the past you folks have been very muted in raising concerns about land grab; firmly convinced that the benefits of export oriented FDI were many. So what is new now? Why this sudden expression of concern by you and the other usual champions of FDI? Is it because the FDI is by non-OECD firms? OECD firms now have to compete a lot harder. Host countries on the other hand now have more choices with regard to FDI and thus a better ability to strike more favorable bargains with foreign investors. Isn't that good?

Submitted by Persephone Economou on
For an interesting article discussing the same topic see Columbia University's FDI Perspectives series, "Land grab or development opportunity?" -- http://www.vcc.columbia.edu/pubs/documents/Perspective8-Cotula-Final.pdf

Submitted by John Murray McIntire on
The microeconomics of these investments are wrong. The foreign investors face high costs in: (i) evaluating the quality of the physical resources, notably soil and water; (ii) managing the labor force; and (iii) dealing with competing claims for the land, which will always be uncertain in land-abundant environments. Moreover, as large farmers they face the supervision and technology choice costs that local large farmers would face. In most instances, foreign investors from land poor / capital rich countries would be much better in foregoing FDI in farming and simply contracting for output with producers from land rich/capital scarce countries.

Submitted by Ely on
Great post. Coming from the DR Congo, we are very concerned about the issue. Billion dollar contracts have been signed overnight in many SSA countries for a hundred years deal. The poor communities who depend on that land are not aware! Even though land grab can be an opportunity for economic development, if the government doesn't include local communities in the negotiation, the deal can be a great opportunity for government's sustainable corruption. To be an opportunity the government needs to meet basic requirements: - Readiness or willingness to work for the benefit of the country - Capacity to negociate such deals - Transparency in the negotiation process - Local (rural) communities representation in the process. etc

Submitted by John Lamb on
Readers should be aware that that WBG does not see this a inherently a positive or negative phenomenon. It all depends on the starting circumstances, the structure of the deal, and how it is carried out. FYI, a Bank-wide working group on this issue was established in late 2008, and has been operating quietly ever since. There has been increasing collaboration with with other major agencies such as FAO, IFAD, and UNCTAD, as well as interested governments on both the investing and receiving side, CSO's representing producers and themes, as well as apex organizations for at least some of the main industries (i.e. agrifood). The idea was and is to forge an international consensus around the most appropriate way to respond to this phenomenon, that would maximize the chances of a win-win-win situation between investor, host country, and affected area, be subject to constraints and safeguards, and minimize the chances of negative outcomes, especially lack of broad consultation and adverse social and environmental spillover effects. This will be the topic of a special side session alongside the UN General Assembly, on September 23rd in NYC. It will be co-hosted by many of the entities mentioned above.

Submitted by John Baffes on
Some fact checking: (i) the correlation between what the press reports on land grab (including respected newspapers such as the Economist and FT) and actual dealings or deals to be materialized is very small, i.e., not much has taken place. (ii) Estates and plantations (the colonial equivalent of land grab) have been around for more than a century. So, we do have experience to judge their performance, which can be summarized as follows: they work for perennial crops (tea, coffee, rubber, e.t.c.) but not for annual crops (an interesting example is the repeated and ultimately failed attempts by the British to introduce cotton in Uganda back in the early 1900s). (iii) Successful estates generate benefits; yet, their income multipliers are less than the equivalent expansion of smallholders.

Kusi, I look forward to the Accessing Land indicator. Btw, I really like your objective view on FDI land grabs. I agree with most comments. I don't see any problem with FDI in the agro-producing industry. Moreover, it's not something new. China was agressive with foreign land purchases for quite some time. Moreover, arable land was and remains as the major factor of production in the agro-producing industry. Then efficient land market must allocate land to a person who values it the most. Does it really matter if the highest bidder is a foreign company?

Submitted by safinaz el tahir on
Great blog on an important issue. In Sudan the White Nile Sugar Project, targeting the production of (1) one million tons of sugar-enough to satisfy domestic consumption with extra potential for export (2) around 100 megawatts of electricity and (3) ethanol fuel, is one example of recent trends in food related production in the country through consortiums of Arab fund and Capital. While potential benefits are great however violent and aggressive encounters, needing the police involved most of the time, between local communities and project officials is a daily occurrence associated with massive discontent and violence. Locals are yet to feel fairly compensated for the grab of their lands and they are yet to trust the government’s promise of the project’s social development plan. Till then we remain watching and hoping for the best

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