The Future UNIDROIT-FAO-IFAD Legal Guide on Agricultural Land Investment Contracts (ALIC)
The process of preparing, negotiating and implementing an agricultural land investment contract in a manner consistent with the principles and standards laid out in the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security (VGGT) and the CFS Principles for Responsible Investment in Agriculture and Food Systems (CFS-RAI Principles), can be very challenging for investors, governments, legitimate tenure right holders and local communities alike.
The International Institute for the Unification of Private Law (UNIDROIT), in collaboration with the Food and Agriculture Organization of the United Nations (FAO) and the International Fund for Agricultural Development (IFAD), is preparing a future Legal Guide on Agricultural Land Investment Contracts (ALIC), to cater for the needs of legal counsels working on the leasing of agricultural land from States and local communities.
The ALIC guide’s aim is not to promote large-scale land acquisitions, but rather to raise awareness about alternative investment models. In acknowledging that land acquisitions continue to occur, however, the instrument will help to ensure that leases of agricultural land are done responsibly, with necessary safeguards to protect human rights, livelihoods, food security, nutrition and the environment, and that stakeholders’ rights, including those of legitimate tenure right holders, are both protected and respected.
The instrument, building on the success of the UNIDROIT-FAO-IFAD Legal Guide on Contract Farming and the UNIDROIT Principles of International Commercial Contracts, is being developed by a Working Group of experts, representatives of international organisations, and stakeholders. The resulting Zero Draft is currently being circulated as widely as possible in order to solicit comments and feedback.
Structure of the ALIC Zero Draft
The instrument will address the following six main aspects:
(1) Legal framework: The applicable legal framework is made up of various domestic sources of law (e.g. legislation, judicial decisions, regulations and, in some instances, customary rules) and various international sources (e.g. international human rights treaties, investment treaties or soft law instruments). The framework may also vary according to the type of agricultural land investment contract, which might be an investment agreement, lease contract or related agreements.
(2) Parties, due diligence and formation: There are various possible parties to agricultural land investment contracts, and numerous stakeholders that could be affected by such contracts. Difficult tasks could include: (a) identifying both the holders of legal title to the land and any holders of legitimate tenure rights with respect to that land; (b) consulting with those various holders, including in customary settings in which the roles of various authorities might not be clearly defined; and (c) conducting detailed feasibility studies and rigorous impact assessments, with respect to possible tenure, social, environmental and economic impacts.
(3) Obligations and rights of the parties: The agricultural land investment contract, which may be a single agreement or series of agreements, can set out provisions addressing not only the particular tenure and related rights that are granted, but also necessary safeguards to bridge gaps in the State’s law and possible impacts of the investment.
(4) Contractual non-performance and remedies: As leases of agricultural land usually involve long-term contractual relationships, it is important to understand the inherent risks in a particular investment and to promote cooperation between the parties and stakeholders.
(5) Transfer and return: The transfer of leased agricultural land from one investor to another can raise various concerns, including whether or not the granted tenure rights are actually transferable, the transfer complies with any contractual limitations, and such transfer is disclosed to the public.
(6) Grievance mechanisms and dispute resolution: Understanding the types of grievances and disputes that commonly arise under agricultural land investment contracts and the various mechanisms for resolving them (e.g. expert determinations, negotiation, mediation, arbitration and litigation) can also create a more balanced and sustainable contract.
Your views
In this online consultation we invite you to share with us thoughts and inputs you may have on the Zero Draft. Comments concerning the general approach of the Guide or on specific Chapters, sections or issues would be most welcome. In particular, we are seeking feedback on the following:
- Are there sections in the draft Guide that appear to be non-exhaustive or to have gaps in the addressed issues? If so, how would you propose to bridge them?
- Are there sections that lack clarity? If so, how would you propose to clarify them?
- Does the draft Guide present any sections where the content is redundant (i.e. has already been presented elsewhere)?
All comments received will be submitted to the Working Group and taken into account, as appropriate, for the draft's final revision, which is to take place between 1 October and 20 December 2019.
Subject to the final revision process in coordination with FAO and IFAD, the Legal Guide on Agricultural Land Investment Contracts will be adopted by the UNIDROIT Governing Council at its 99th session in May 2020.
Many thanks in advance for your time and valuable input.
Carlo Di Nicola
Senior Legal Officer, UNIDROIT
- Read 34 contributions
In every part of this draft guide, I can see the intention of drafting organisations to contribute to sustainable and responsible investment in agricultural land and to achieve goals set in SDGs, in particular those in relation to agriculture and food. The guide mentioned CSR, responsible business conduct, and also mentioned negative risks (e.g. human rights, social and environmental impacts) that may occur if investment is not sustainable. However, the guiding instruments as the basis for this guide mainly focuses on human rights, while other relevant instruments in relation to social and environmental elements can seldom be seen in this guide. And in page 14-Intro 5, the guide mentions the consistence with the UN Guiding Principles, the VGGT, the CFS-RAI Principles and other international instruments. What does the ‘other international instruments’ refer to? For Chapter 6 – Grievance Mechanisms and Dispute Resolution, grievance mechanisms can also be regarded as a kind of dispute resolution mechanism and it might be a judicial one or non-judicial one. The classification of dispute resolution mechanisms and the order or title of this part can be reconsidered. The guide mentions Mediation in Chapter 6, however, it would be helpful if the guide can mentions the United Nations Convention on International Settlement Agreements Resulting from Mediation-Singapore Mediation Convention in the part of ‘Enforcement of Settlements or Decisions Resolving A Dispute’.
Generally speaking, it shows that the guide, once finalised, may contribute to sustainable investment in agricultural land and the implementation of the Sustainable Development Goals (SDGs). The aim of this guide is of value. But for a more practical and useful guide, there might be something that needs to be improved. The first thing that I intend to raise is similar to one of the recent contributions below, i.e. the definition of 'sustainable investment', 'responsible and sustainable investment' and similar expressions. It would be helpful, if the guide can provide definition of these terms for the purpose of realising the aim of this guide. In academic papers, policy papers and/or some international soft law instruments or statements, these terms do not have a shared or unified definition, but usually there are some key elements that were usually mentioned to defining these terms. Since this guide focuses on Agricultural Land Investment Contracts, it is important to define these terms in this field, providing specific elements or factors. Secondly, as a guide for different stakeholders or to be adopted by different parties, the structure and content of the guide need be clear and easy to read and follow. Although the table of content follows a clear order but in each Chapter, the content is not in a proper order or the content or main point of each paragraph is not that clear or reader-friendly. Thirdly, I want to raise a small technical question in relation to ‘local communities’. For the contract between investors and local communities, even though the word of ‘local community’ is known to many people or entities, but in some countries, the meaning or definition of ‘local community’ is not clear or even in some countries, the so called ‘local community’ cannot sign land contract with other investors.
With regards to the section on the rights and obligations of the parties (chapter 3), food security and realization of the RTF is the CFS RAI principle 1, yet it is not mentioned among the social/economic issues. Is this something that should be included, and that need to be considered when negotiating an investment in agriculture?
For the state the obligation is more obvious, but does the investor also have a responsibility to safeguard FS in the host state, e.g. through a due diligence not to invest in crops that would potentially present a challenge for FS such as biofuels or export crops? What is the balance here?
Public health (e.g. pest control) and phytosanitary standard concerns are also not mentioned, but could also be contemplated under a contract (CFS RAI 8)?
Another consideration I would add, is a reflection on the role for the laws of the investor’s state in incentivizing/requiring responsible investments - as this is not explored in the guide or mentioned as an area of concern for those performing due diligence.
The VGGT (12.15) says that when states invest or promote investments abroad, they should ensure that their conduct is consistent with the protection of tenure rights, food security, etc.
So should also a paragraph be inserted to expand a bit more on this issue?
Some suggested sources where this is discussed:
http://www.fao.org/3/a-i5802e.pdf
http://www.foncier-developpement.fr/publication/guide-to-due-diligence-…
https://www.land-links.org/wp-content/uploads/2016/09/USAID_Operational…
A concern of mine (as a lawyer worried about precision of language) is with regards the term "responsible investments". I would suggest to provide a definition of it, and also to maintain consistency as sometimes “responsible investment” is used, others “responsible and sustainable” - both subjective terms for which no definition is provided.
Here's a suggestion that could be adapted as needed: Responsible agriculture investment can be defined as the “creation of productive assets and capital formation, which may comprise physical, human or intangible capital, oriented to support the realisation of food security, nutrition and sustainable development”. It requires “respecting, protecting and promoting human rights, including the progressive realisation of the right to adequate food in the context of national food security”, and “entails respect for gender equality, age, and non-discrimination and requires reliable, coherent and transparent laws and regulations” (CFS RAI Preamble). The VGGT further adds that responsible investments should “do no harm, safeguard against dispossession of legitimate tenure right holders and environmental damage (VGGT 12.4). In addition, the VGGT notes that while States “should promote responsible investments in land, fisheries and forests (12.1) and “provide safeguards to protect legitimate tenure rights, human rights, livelihoods, food security and the environment” (12.6), investors also have a “responsibility to respect national law and recognize and respect tenure rights of others and the rule of law” (12.12)".
Would also be interesting to hear the insights of other members of this Forum about this term, how it is perceived and what it entails, and how would national policy makers view it.
Dear all,
This is a valuable resource in an area where not sufficient guidance is available, I believe it will be a helpful instrument for the stakeholders involved.
One suggestion would be to make the document a bit more 'digestible' for readers, as it is quite long and complex. As suggested by some below, a summary with quick guidance by topic focusing on the different stakeholders (e.g. investor, grantor, legitimate right holder, etc) could be developed, building on the checklist already prepared at the end of the draft, and potentially including potential 'model clauses', (though the latter is a complicated undertaking).
Indeed, a guide cannot make every interest group happy. However, a widely applicable guide with a practical dimension should provide everyone something they need. Foreign investors, grantors, national legislators, NGOs providing aid to negotiating a contract, and third-party certification schemes, every actor has different focuses, perspectives, rights, and responsibilities. The guide has done an impressive job of handling their roles. What would be more helpful is to give guidance from different perspectives and follow the same order of discussion on every issue. For example, in Part I Chapter 2 about legitimate tenure right, the guide can start with the rights and responsibilities of the investors, issues they need to pay particular attention. Then goes to local tenure rights holders, the local or national regulator, and NGOs and third parties afterward.
Mr. OMERANI Abdesslam
English translation below
1. Y a-t-il dans le projet de guide des sections qui semblent ne pas être exhaustives ou qui présentent des lacunes dans les questions traitées? Dans l'affirmative, comment pensez-vous les combler?
Il est à mon sens important d'inciter aux pratiques tendant à la préservation des écosystèmes et la durabilité de leurs services en les rendant profitables aux agriculteurs, agissant individuellement ou en groupements.
Ainsi, la prise en compte de dispositifs de paiements pour services éco systémiques dans les contrats d’investissement en terres agricoles favoriserait, en assurant l'internalisation d'externalités environnementales, la régulation des activités agricoles et forestières.
Ces PSE permettraient, dans l’optique de la promotion d’une solidarité territoriale et générationnelle, de rémunérer les agriculteurs, fournisseurs ou protecteurs des services environnementaux, par les bénéficiaires de ces services. Les parties impliquées dans ces arrangements pourraient être des personnes privées et les pouvoirs publics ou des personnes privées uniquement.
1. Are there any sections in the draft guide that do not appear to be exhaustive or that are deficient in the issues addressed ? If so, how do you plan to address them?
In my opinion, it is important to encourage practices aimed at preserving ecosystems and ensuring the sustainability of their services by making them profitable for farmers, individually or in groups.
Thus, the inclusion of payment schemes for eco-systemic services in investment contracts for agricultural land would promote the regulation of agricultural and forestry activities by ensuring the internalisation of environmental externalities.
With a view to promoting territorial and generational solidarity, these PES would make it possible to remunerate farmers, suppliers or protectors of environmental services, through the beneficiaries of these services. Parties involved in such arrangements could be private persons together with public authorities or private persons only.
Among the target audience, I think national legislators and local governments in developing countries who aim to promote the long-term benefits of a local area may be willing to adopt these guidelines. However, a barrier in practice is that the governments are lack of institutional capacity and funding to motivate and monitor the application of the guidelines by practitioners.
Furthermore, I think the guide would also be a valuable reference for the assessing criteria of two self-regulating entities: independent certification schemes for sustainable agricultural products and multilateral funds supporting projects to address environmental and social problems in agriculture activities.
Dear,
Thank you for your response.
Regarding your comment 'So with Legal Guide os Agricultural Land Investiment Contracts I believe it will safeguard the use and safety for investors primarily,' I think the legal guide also shows its intention to protect the rights of local tenure right holders.
The guide states in Preface 4. Focus and guidance (Alic zero draft p.11)
'The Guide, however, focuses on contracts between investors and governments and investors and local communities and, in doing so, places particular emphasis on protecting and respecting the rights of legitimate tenure right holders.'
It also shows an intention to promote the protection of small tenure right holders at other places, for example:
Intro 5, 'The failure to identify, consult and seek participation from any legitimate tenure right holders and, where applicable, obtain free, prior and informed consent (FPIC), is inconsistent with international principles and standards and may undermine those holders’ rights, the investment and even the tenure system itself, particularly when it is based on commons. The parties, instead, are to conduct the necessary due diligence and consultations in this regard, to involve legitimate tenure right holders in the preparations and to work in partnership with them...' (Alic p.14)
Intro. 6. Complexity. '...Indeed, if an investment fails to protect and respect the rights of legitimate tenure right holders, it should not proceed.'
Hence, I wonder whether it would be better to seek a balance between investors and local land grantors so that economic interests can be achieved simultaneously for both parties, as well as social and environmental benefits.
This activity is now closed. Please contact [email protected] for any further information.