Economic Insights | 6 October 2011
by Eva Kersting
Five men from different backgrounds discussed the problem of “land grabbing” (a term that some in this panel felt was inappropriate) or more positively put the foreign investment in agricultural Land - the buying or leasing of land by private or state investors in foreign countries, most often in Africa and Latin America. Among the penalists were investors such as Ulrich Riemann, CEO of Bionic Palm, a company that owns more than 1.700 hectars of land in Ghana, Shenggen Fan, Director General of the International Food Policy Research Institute, Roberto Rodrigues, responsible for the reaearch on agribusiness at the Getuliio Vargas Foundation and former Minister of Agriculture of Brazil, and Thierry Tanoh, Vice President of the International Finance Corporation for the regions of Sub-Saharan Africa and Latin America.
Rising land prices and the increasing need for food make foreign investments in agricultural land a very sensitive issue
In recent years, land prices have increased all over the world. Alternative energy production and the increasing need for food for the growing world population are the prime reasons for this development. As a result, many state and private investors are buying large areas of land in developing countries, some to start agricultural production, other simply to speculate on rising land prices and a profitable resale.
Proponents of investments in foreign land argue that foreign investors buy land that is often not used for agricultural production before the entry of investors, or is used very innefficiently. “Most small African farmers are migrating farmers and use very inefficient methods of production. Africa cannot afford this kind of farming anymore”, one of the panelists claimed, referring to the rapidly increasing need for food throughout Africa that is unlikely to be met through traditional farming.
Other members of the panels agreed that win-win situations are possible if the relationship between the local population and the foreign investors are well regulated. However, this is not the case in many countries that witness foreign investments in agricultural land. Many aspects prevent such win-win situations. Among those addressed by the panel were the lack of reliable data on land ownership, the lack of comprehensive regulation of foreign investment in land, the problem of controlling what is actually done with the bought or leased land and issues related to land ownership such as the ownership of water sources on the land bought or the environmental impact of large-scale projects.
Suggestions by the panel: Better regulation, more transparency and more data
Suggestions by the panel included limits on the size of land to be sold or leased to foreign investors, high taxes on unused land to prevent speculation, and rules on the compensation of local farmers who land is being leased or sold. The issue of compensation is more complicated in practice than it may seem at first sight: the value of the land must be evaluated and property rights before the investment need to be clarified. Financial compensation, especially when done im lump sum payments, create social problems in the affected areas.
Many arguments of proponents of foreign investment in agricultural land are confuted by the actions of investors
An important aspect in the race for agricultural land that in my opinion was insufficiently addressed by the panel is the question of what is actually being grown on the purchased land and where and by whom it is being consumed:
Proponents of foreign investment in agricultural land rely on the argument of a need for increased food production, especially in developing countries. As a matter of fact, many of the food products grown on these lands are not used to feed the local population, but are exported. One of the panelists claimed that since food prices are higher in Africa than on the world market, investors would be irrational to export their produce instead of selling it on the local market. This does not apply, however, to state investors, which form a large share of foreign investment in agricultural land in Africa. China and Saudi Arabia have started to buy large chunks of land in Africa within the last decade and are using their production on foreign soil as an alternative to trading with African producers. African states do hence not only use production space, but also possible profits from trading with these states.
Another fact that confutes the argument of an increased need for food in Africa is the amount of land that is not actually used to produce food. Speculative buyers are the worst example of this: they see land as a commodity that can currently be bought and sold with a rather reliable profit. As a result, many areas that could be used for agricultural production lie idle after being bought by foreign speculators. Other areas are used, but investors – especially profit driven private investors – prefer to grow so-called cash crops (for example cotton, coffee, and exotic fruits), feeding crops for meat production or plant for the production of so-called biofuels. None of these investments contribute to the solution of the problem of food-security in Africa, but actually contribute to food shortages, drive up land prices and encourage speculation on food prices, thereby negatively affecting the availability of staple foods for the poor population instead of improving it.
Panel entitled "Dealing with the Race for Agricultural Land" at the Global Economic Symposium (GES) in Kiel, Germany, 6 October 2011.
by Eva Kersting
Five men from different backgrounds discussed the problem of “land grabbing” (a term that some in this panel felt was inappropriate) or more positively put the foreign investment in agricultural Land - the buying or leasing of land by private or state investors in foreign countries, most often in Africa and Latin America. Among the penalists were investors such as Ulrich Riemann, CEO of Bionic Palm, a company that owns more than 1.700 hectars of land in Ghana, Shenggen Fan, Director General of the International Food Policy Research Institute, Roberto Rodrigues, responsible for the reaearch on agribusiness at the Getuliio Vargas Foundation and former Minister of Agriculture of Brazil, and Thierry Tanoh, Vice President of the International Finance Corporation for the regions of Sub-Saharan Africa and Latin America.
Rising land prices and the increasing need for food make foreign investments in agricultural land a very sensitive issue
In recent years, land prices have increased all over the world. Alternative energy production and the increasing need for food for the growing world population are the prime reasons for this development. As a result, many state and private investors are buying large areas of land in developing countries, some to start agricultural production, other simply to speculate on rising land prices and a profitable resale.
Proponents of investments in foreign land argue that foreign investors buy land that is often not used for agricultural production before the entry of investors, or is used very innefficiently. “Most small African farmers are migrating farmers and use very inefficient methods of production. Africa cannot afford this kind of farming anymore”, one of the panelists claimed, referring to the rapidly increasing need for food throughout Africa that is unlikely to be met through traditional farming.
Other members of the panels agreed that win-win situations are possible if the relationship between the local population and the foreign investors are well regulated. However, this is not the case in many countries that witness foreign investments in agricultural land. Many aspects prevent such win-win situations. Among those addressed by the panel were the lack of reliable data on land ownership, the lack of comprehensive regulation of foreign investment in land, the problem of controlling what is actually done with the bought or leased land and issues related to land ownership such as the ownership of water sources on the land bought or the environmental impact of large-scale projects.
Suggestions by the panel: Better regulation, more transparency and more data
Suggestions by the panel included limits on the size of land to be sold or leased to foreign investors, high taxes on unused land to prevent speculation, and rules on the compensation of local farmers who land is being leased or sold. The issue of compensation is more complicated in practice than it may seem at first sight: the value of the land must be evaluated and property rights before the investment need to be clarified. Financial compensation, especially when done im lump sum payments, create social problems in the affected areas.
Many arguments of proponents of foreign investment in agricultural land are confuted by the actions of investors
An important aspect in the race for agricultural land that in my opinion was insufficiently addressed by the panel is the question of what is actually being grown on the purchased land and where and by whom it is being consumed:
Proponents of foreign investment in agricultural land rely on the argument of a need for increased food production, especially in developing countries. As a matter of fact, many of the food products grown on these lands are not used to feed the local population, but are exported. One of the panelists claimed that since food prices are higher in Africa than on the world market, investors would be irrational to export their produce instead of selling it on the local market. This does not apply, however, to state investors, which form a large share of foreign investment in agricultural land in Africa. China and Saudi Arabia have started to buy large chunks of land in Africa within the last decade and are using their production on foreign soil as an alternative to trading with African producers. African states do hence not only use production space, but also possible profits from trading with these states.
Another fact that confutes the argument of an increased need for food in Africa is the amount of land that is not actually used to produce food. Speculative buyers are the worst example of this: they see land as a commodity that can currently be bought and sold with a rather reliable profit. As a result, many areas that could be used for agricultural production lie idle after being bought by foreign speculators. Other areas are used, but investors – especially profit driven private investors – prefer to grow so-called cash crops (for example cotton, coffee, and exotic fruits), feeding crops for meat production or plant for the production of so-called biofuels. None of these investments contribute to the solution of the problem of food-security in Africa, but actually contribute to food shortages, drive up land prices and encourage speculation on food prices, thereby negatively affecting the availability of staple foods for the poor population instead of improving it.
