ACQUISITION OF FARMLANDS BY FOREIGNERS

RISKS AND OPPORTUNITIES

SAIMA IBRAHIM (Saima_virgo1@hotmail.com)
Dec 14 - 20, 2009

An increased pressure on natural resources, water scarcity, export restrictions imposed by major producers, and growing distrust in the functioning of regional and global markets have pushed countries short in land and water to find alternative means of producing food.

The land acquisitions have the potential to inject much needed investment into agriculture and rural areas in poor developing countries, but they also raise concerns about the impacts on poor local people, who risk losing access to and control over land on which they depend.

Food-importing countries with land and water constraints but rich in capital, such as the Gulf States, are at the forefront of new investments in farmland abroad. These investments are targeted toward developing countries where production costs are much lower and where land and water are more abundant. Other factors that influence investments include geographic proximity and climatic conditions for preferred staple crops. In addition to acquiring land for food, many countries are seeking land for the production of bio-fuel crops.

In past decades, land acquisition abroad has been driven by the profit-making motives of the private sector in developed countries and has often focused on perennial tropical cash crops rather than basic staples. Many governments, either directly or through state-owned entities and public-private partnerships, are in negotiations for or have already closed deals on arable land leases, concessions, or purchases abroad. The size and terms of contracts differ widely. Some agreements do not involve direct land acquisition, but seek to secure food supplies through contract farming and investment in rural and agricultural infrastructure, including irrigation systems and roads.

One of the lingering effects of the food price crisis of 200708 on the world food system is the proliferating acquisition of farmland in developing countries by other countries seeking to ensure their food supplies. Given that the food price crisis has increased competition for land and water resources for agriculture, it is not surprising that farmland prices have risen throughout the world in recent years.

Higher agricultural prices also result in higher land prices, because the expected returns to land increase when profits per unit of land increase.

Recent transnational land deals are partly an effect of the larger changing economic valuation of land and water. In many countries, developed water sources are almost fully utilized, but agricultural demand for water is expected to increase drastically in the future.

Investments in agriculture in developing countries by the private and the public sector should be welcome in principle, the scale, the terms, and the speed of land acquisition have provoked opposition in some target countries, but details about the status of the deals, the size of land purchased or leased, and the amount invested are often still murky. Well-documented examples are scarce, and some reports are contradictory. This lack of transparency limits the involvement of civil society in negotiating and implementing deals and the ability of local stakeholders to respond to new challenges and opportunities.

Because of the urgent need for greater development in rural areas, the agricultural sector clearly requires more investment. The fiscal inability of the developing-country governments to provide the necessary infusion of capital, large-scale land acquisitions can be seen as an opportunity for increased investment in agriculture. Such investments benefits for the rural poor, including the creation of a potentially significant number of farm and off-farm jobs, development of rural infrastructure, and poverty-reducing improvements such as construction of schools and health posts. Other positive spillovers include resources for new agricultural technologies and practices as well as future global price stability and increased production of food crops that could supply local and national consumers in addition to overseas consumers.

In some cases, the land leases are justified on the basis that the land being acquired by the foreign investor is "unproductive" or "underutilized". In most instances, however, there is some form of land use, often by the poor for purposes such as grazing animals and gathering fuel wood or medicinal plants. These uses tend to be undervalued in official assessments because they are not marketed, but they can provide valuable livelihood sources to the poor. Large-scale land acquisitions may further jeopardize the welfare of the poor by depriving them of the safety-net function that this type of land and water use fulfills.

The benefits to local communities also depend heavily on how investment projects are designed and managed. On one extreme, conversion of land to large-scale farms or plantations operated by foreign labor causes loss of local land rights and generates little employment for local skilled or unskilled labor.

Under such arrangements, the private sector actors provide small farmers with business development services such as inputs, technical assistance, and credit, which could be domestic or international. In return, these farmers commit to sell their output to these providers, subtracting the cost of the supplied inputs from their total profits. This approach takes into account the threats posed by large-scale land acquisitions to the livelihoods of the poor and capitalizes on the opportunities for smallholders to benefit.

This increased mobilization of the domestic land market can also have adverse effects on equality in contexts where small farm communities lack defined property rights and judicial systems do not have a capacity to protect rights. Little is known so far about domestic "land grabbing" induced by the price changes, which is much less visible. This issue requires more attention through sound monitoring, statistical assessments, and land rights policies.

The ecological sustainability of land and water resources slated for foreign investment is another important issue when considering large-scale foreign investments. Introducing intensive agricultural production can threaten biodiversity, carbon stocks, and land and water resources. Converting forests or rangelands to mono-cropping reduces diversity in flora, fauna, and agro-biodiversity, as well as aboveground and subsurface carbon stocks.

Many tropical soils are unsuited for intensive cultivation (one reason for long-fallow cultivation cycles in many tropical areas that are considered "unused"), or there is insufficient water for intensive cultivation. Although fertilizer use and irrigation can overcome some of these limitations, these activities can lead to long-run sustainability problems such as salinity, water logging, or soil erosion if they are inappropriately designed.

These problems are most likely to occur if the outside investors focus on short-term profit or lack a sound understanding of the local ecology. Irrigating the landholdings of foreign investors may take water away from other users in the area or from environmental flows, and intensive use of agrochemicals contributes to water-quality problems in groundwater and runoff.

Foreign investors with short-term leases may have a short-term perspective on the sustainability of intensive agriculture and less identity with the area than local residents. Thus, it is important to conduct a careful environmental impact assessment that not only looks at effects on the local area, but also considers off-site impacts on soils, water, greenhouse gas emissions, and biodiversity. Land-lease contracts should also include safeguards to ensure that sustainable practices are employed.

Foreign investment can provide key resources for agriculture, including development of needed infrastructure, and expansion of livelihood options for local people.