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Global Forum on Food Security and Nutrition • FSN Forum

Impacts of foreign agricultural investment in developing countries: evidence from case studies

Although there has been much debate about the potential benefits and risks of international investment, there is a lack of systematic evidence on the actual impacts on the host country and their determinants. This paper summarizes the results of FAO’s case studies on foreign investment in developing country agriculture.

FAO’s studies on foreign investment in developing country agriculture suggest that the disadvantages of large-scale land acquisitions often outweigh the few benefits to the local community. In countries where local land rights are not clearly defined and governance is weak, large scale land acquisition raises particularly high risks for the local community.  Even from the perspective of the investor, land acquisition is unlikely to be the most profitable business model due to the high potential for conflict and damage to reputation.

Conversely, the studies suggest that investments that involve local farmers as equal business partners, giving them an active role and leaving them in control of their land, have the most positive and sustainable effects on local economies and social development. These inclusive business models need strong external support for supporting farmers and facilitating the investor-farmers relationship in order to succeed. They also require ‘patient capital’, as financial returns to investment are unlikely to materialize in the first years.

Beside the business model, other important factors include the legal and institutional framework in the host country, the terms and conditions of the investment contract and the social and economic condition in the investment area. Strengthening the governance and capacity of institutions in host developing countries is essential to enhancing the developmental impacts of foreign agricultural investment.

By Pascal Liu, Senior Economist, Trade and Markets Division, FAO.