Bridges Weekly Trade News Digest (ICTSD) | 20th May 2009
A recent jump in rich country land purchases in the developing world has caught the attention of analysts in trade and human rights circles. In many cases, governments and private sector parties to such deals have remained mum on the details of the acquisitions, a fact that has caused some concern among NGOs, who worry that the scale of the acquisitions could potentially undermine development and food security objectives. But The World Bank insists that the large-scale purchases of developing country farmland can facilitate the transfer of technology and technical know-how, and ultimately have positive impacts on local populations.
Large-scale land acquisition by food-importing countries is not a new phenomenon; the roots of the practice stretch back to the colonial era. After decades of neglecting farms, today’s investors are once again betting that agriculture will be a source of growth in the coming years. The deals currently reported to be on the table are often the hundreds of thousands of hectares and in the millions, or even billions, of dollars in economic assistance.
In a preliminary report, the International Fund for Agricultural Development (IFAD), a specialised agency of the UN, cited the growing use of biofuels and last year’s unprecedented spike in food prices as triggers of the increased demand for farmland in developing countries. The mandatory use of biofuels in major importing markets such as the US and the EU drove up prices for some farm goods, while oil-rich countries faced higher food bills due to record-breaking agricultural commodity prices. Meanwhile, at least 25 countries enacted export restrictions and other trade-limiting measures in an effort to ensure adequate domestic food supplies.
China, South Korea, and the oil-rich states of the Persian Gulf have emerged as major new purchasers of farmland abroad, according to a study by GRAIN, a Barcelona-based grassroots NGO, which recently examined deals whose details have been made available in the press. The International Food Policy Research Institute (IFPRI) conducted a similar review of publicised transactions.
The Gulf countries, as a whole, depend on imports to feed their citizens, many of whom are low-wage migrant workers who are highly sensitive to increases in food prices. According to GRAIN, the Gulf region’s food import bill jumped from US$8 billion in 2003 to more than US$20 billion in 2008. With a population that is expected to double in the next 20 years, the scarcity of arable land and water will likely prevent the region from attaining any measure of self-sufficiency in food, according to the Gulf Research Council.
In contrast to the Gulf countries, China is self-sufficient in terms of its food needs. However, the pressures of increased urbanisation wiped out nearly 9 million hectares of farmland between 1996 and 2006, an amount similar to the size of the land deals currently being discussed in aggregate. Other players in the land deals, namely South Korea and Japan, also rely heavily on imports to meet their domestic food needs. According to news reports, Japan already has over 12 million hectares of farmland abroad, an area nearly three times the size of its domestic agricultural land.
The scale of the acquisitions
Although thorough statistics are not available, the few figures that have been made public reveal some staggering purchases. Many of the deals are either permanent or involve 50- or 99-year leases; the areas being negotiated range from 25,000 hectares for a Jordanian deal in the Sudan to more than 2.8 million hectares for a Chinese deal for palm oil production in the Democratic Republic of the Congo. Though the deals are in various states of negotiation, GRAIN has documented nearly 200 such agreements, while IFPRI gathered data on nearly 60.
The main parties to these deals include governments, sovereign wealth funds (via their subsidiaries), agribusiness, investment banks, commodities firms, and other natural resource extraction companies, according to a study by the International Institute for Sustainable Development (IISD). EU- and US-based private firms are looking for land everywhere - from Mozambique to Ukraine - but the Gulf states have tended to focus on regions in which they have historical ties. For example, some of the largest acquisitions from the Gulf are in the Sudan and Pakistan. Chinese, South Korean, and Japanese firms are focusing on areas in Africa and Asia where they can produce food, animal feed, and even energy crops.
In the case of Gulf countries, government officials have taken the lead in finding partners in host countries, but have left the execution of the deal in the hands of private sector actors. Deals originating in other regions seem to be driven even more explicitly by private firms. That said, clear and accurate statistics on these large-scale land acquisitions are generally not available; without such data, it is difficult to determine clear trends, other than that the purchases are increasing in frequency.
Perhaps the biggest question that analysts are asking of these deals is who they are benefiting and who, if anyone, they may be harming. The lack of transparency surrounding the agreements has been criticised by many of the researchers working on the issue, who say that the lines between the private firms and the governments that are negotiating these deals are often blurred.
Prospective buyers often offer a combination of loans, infrastructure investment, and commodity transfers - as well as cash - to the host countries. Given the dearth of public and private investment in agriculture in developing countries in recent years, poorer countries are eager to secure funding that will allow them to make better use of what may be an under-utilised resource.
Experts at the World Bank, who are working to formulate their research objectives on the subject, emphasise that such deals can provide opportunities for the transfer of technology and know-how to developing countries - if the right conditions are in place. But others, such as Raul Montemayor of the Federation of Free Farmers of the Philippines, believe that “goons and rogue elements” are facilitating the land acquisition process and that farmers, even if they gain employment in the large farms established by the deals, will be earning less than they do today.
In order for such purchases “to realise the full potential benefits,” the World Bank is urging investors in the deals to respect existing property rights, which are often undocumented and customary; to perform sound financial and economic analysis of the viability of the investment; to ensure that investors have the technical and financial capacity to execute their proposals over the long term; and to be open and transparent in the process of selection of the land and project, so long as doing so does not pose “unnecessary transaction costs or delays.”
NGOs and other actors are calling for increased transparency in the deals, and have called on the parties involved to make public the contracts for the purchases. So far, though, the contracts have largely remained sealed. Given that the land deals reach into the millions of hectares and will result in the transfer of rights for decades, if not permanently, the acquisitions are bound to affect the standard of living of many of the most economically vulnerable people in the world, the NGOs say. While the motivations for the secrecy are not clear, some have accused high-level government officials of corruption.
Developing countries’ use of trade measures may be limited
The IISD study points out that the land deals may have implications for the ability of host countries to manage their trade policy. Since many of the investors are interested in securing food for their populations, it is likely that the purchases contain provisions that would allow them the right to export the farm goods produced.
For example, during the food price spike of last year, some countries, such as India, Vietnam, Pakistan, and Argentina, imposed export restrictions on farm goods as a matter of food security policy. In the case of Pakistan, the United Arab Emirates sought an exemption for the goods that were produced on their land holdings. Though the government of Pakistan said it would grant such an exception only for ‘agricultural free zones’, it ultimately eliminated export restrictions on the products just a few months later.
The WTO guarantees its Members protection from constraints on exports for foreign investors, but the rights of people affected by the deals may be limited by the nature of the contract and the international investment agreements under which it falls.
Land as a human rights issue
Given the potential problems surrounding large scale land acquisitions, some actors are approaching the issues from a human rights perspective. In a conference organised by 3D, a trade and human rights NGO, participants called for a clear set of guidelines for the massive land deals.
Olivier De Schutter, the UN Special Rapporteur on the right to food, argued that the legal instruments that are needed to address concerns of food security are already in place. The governments negotiating the land deals should keep a greater proportion of food grown on foreign holdings in their territories when prices go up, De Schutter said, and national parliaments and courts should monitor the deals being cut. Investment in agriculture should first serve the right to food for local populations, he added.
To access the IFPRI report, please click here: http://www.ifpri.org/pubs/bp/bp013.asp
To access the IISD report, please click here: http://www.iisd.org/publications/pub.aspx?pno=1122CTSD reporting. “Hopes and Strains in China’s Overseas Farming Plan,” ECONOMIC OBSERVER ONLINE, 30 June 2008.