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Involving local farmers is key to success of foreign investment

New FAO report focuses on investments in developing countries, urging caution on large-scale land acquisitions

Photo: ©FAO/Giulio Napolitano
Security of land tenure is vital
13 Novembre 2012, Rome - International investments that give local farmers an active role and leave them in control of their land have the most positive effects on local economies and social development, according to a new FAO report published today.

The report, Trends and Impacts of Foreign Investment in Developing Country Agriculture, emphasizes that investment projects that combine the strengths of the investor (capital, management and marketing expertise, and technology) with those of local farmers (labour, land, local knowledge) are most successful.

Business models that leave farmers in control of their land give them an incentive to invest in land improvements and also favor sustainable development. The publication offers a number of  case studies on the impact of foreign investment in Africa and Asia, including large-scale land deals often referred to as land grabbing.

"While a number of studies document the negative impacts of large-scale land acquisition in developing countries, there is much less evidence of its benefits to the host country, especially in the short-term and at local level," says the report. "For investments involving large-scale land acquisition in countries where land rights are unclear and insecure, the disadvantages often outweigh the few benefits to the local community," it notes.

The report advises that "acquisition of already-utilized land to establish new large farms should be avoided and other forms of investment should be considered."

Jobs creation in doubt


In large-scale land investments the main type of benefit appears to lie in employment generation, but there are questions as to the net gains and sustainability of the jobs created. "In several projects the number of jobs was lower than what was initially announced  ... and in some projects even low-skilled worker jobs were mainly taken up by non-locals". 

Foreign investment in agricultural land in developing countries has increased markedly over the past decade, according to the report. The lands acquired tend to be among the best available, with good soil quality and irrigation.

But since a majority of foreign investment projects aim at export markets or the production of biofuels, "they may pose a threat to food security in low-income food-deficit countries, especially if they replace food crops that were destined for the local market."

Potential adverse impacts include: the displacement of smallholders; the loss of grazing land for pastoralists; the loss of income and livelihoods for rural people; and degradation of natural resources such as land, water and biodiversity.

Alternatives to land acquisition include contract farming deals, outgrower schemes giving farmers a share of the capital, and joint ventures between investing companies and farmer cooperatives. Inclusive business models require effective local organizations that also represent groups who are often marginalized such as women, young people, landless farmers and migrant workers.

National laws and institutions are key

National laws and institutions governing agricultural investment and land tenure are critical in determining whether such investments have positive or negative effects, the report says.

Countries can obtain guidance from some international agreements  such as the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security adopted in May 2012 by the Committee on World Food Security (CFS).

Highly pertinent too are the Voluntary Principles for Responsible Agricultural Investment that respect rights, livelihoods and resources jointly proposed by FAO, IFAD, UNCTAD and the World Bank. In addition, the CFS is about to start consultations for the development and broader ownership of principles for responsible agricultural investment that enhance food security and nutrition. 

While agricultural investment is the most important and effective strategy for poverty reduction in rural areas, "the challenge for policy makers, development agencies and local communities is to maximize the benefits of foreign agricultural investment while minimizing its risks," the report says.

Foreign direct investment on the rise


FAO estimates that investment to the tune of more than $80 billion a year is needed to keep pace with population and income growth, and feed more than 9 billion people in 2050.

Although Foreign Direct Investment has risen significantly, especially in Asia and Latin America over the past decade, only a small share goes to agriculture -- less than five percent in sub-Saharan Africa. This represents an opportunity, however, given the high potential for growth, particularly in the light of currently high international food prices.

"It is important that any international investment should bring development benefits to the receiving country...if those investments are to be ‘win-win' rather than 'neo-colonialism'", stresses David Hallam, Director of FAO's Trade and Markets Division in a foreword to the report.