Foreign investment in developing country agriculture – evidence for inclusivity

Evidence that investing in agriculture in developing countries as a way of tackling poverty and hunger is growing. Given the sheer number of people working in the agricultural sector, investments can have benefits on a large-scale but there are also risks and big investments can, in some cases, harm the rural sector, taking land and resources away from local people. Aiming to illustrate these risks and benefits are a couple of recent reports.

A paper from the UN Food and Agriculture Organisation, Impacts of foreign agricultural investment on developing countries: evidence from case studies, brings together FAO case studies on “the impacts of foreign agricultural investment on host communities and countries”. These studies show that large-scale land acquisitions, particularly where land rights are tenuous and governance poor, can have detrimental consequences for local communities, depleting natural resources and harming livelihoods, factors which increase rather than reduce poverty. Such investments will also generate conflict between investors and inhabitants. More inclusive investment models, which involve local people in business decisions and are respectful of existing land rights are found to be more likely to yield positive impacts for both businesses and societies alike. Factors required for an inclusive business model are stated as “strong external support for supporting farmers and facilitating the investor-farmers relationship” and “patient capital”, understanding that returns on investment may take time. The enabling environment in the recipient country is also critical, comprising a strong and fair legal and institutional framework. As such building this enabling environment through “strengthening the governance and capacity of institutions in host developing countries” is vital if foreign agricultural investment is to have the proposed developmental impacts.

Despite evidence that foreign investment in developing countries can be beneficial, when done responsibly, there remains much polarity in debates around its utility. On the one hand, hoping to spur large-scale economic development as investment opportunities in agriculture increase. On the other, a sense that these money-making opportunities are a new form of colonialism, particularly where natural resources of a country are purchased with little concern for people’s rights. To help promote inclusive investments in developing countries, the Inter-Agency Working Group of the Food and Agriculture Organization, the International Fund for Agricultural Development, the United Nations Conference on Trade and Development (UNCTAD), and the World Bank have the aim of creating “a body of empirical knowledge” that will guide investments to being more responsible. A recent joint UNCTAD-World Bank report, The Practice of Responsible Investment Principles in Larger Scale Agricultural Investments, summarises a field-based survey conducted, which looked at the agricultural investment approaches of 39 large agribusinesses in sub-Saharan Africa and South East Asia, and in particular their attitude to social, economic and environmental concerns.

The results show that investments have generated both positive and negative impacts. The positive being job creation, market creation, the introduction of new technologies, increased rural incomes, and, in some cases, the provision of rural services such as education, healthcare, infrastructure, and access to finance. On the negative, poor outcomes for environmental resources and conflict over land was significant, particularly where formal land rights were conferred to investors despite existing claims to informal land rights. Lack of communication, unclear processes of land acquisition and rights, and poor consultation with inhabitants underlie these conflicts and resettlement was rarely a fair deal for local people. Investments did vary in their impact, however, as well as with regards to their profitability. A clear message from the report is that investments with positive economic, social and environmental benefits are possible, and indeed those that were positive for the local area were more likely to be successful.

In a policy brief from the International Institute for Sustainable Development, entitled Inclusive Investment in Agriculture: Cooperatives and the role of foreign investment, a cooperative business model is discussed as being one way of endeavouring to ensure foreign investment is responsible.

As defined by the International Labour Organization (ILO) a cooperative is an “autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise”. Cooperatives allow members to benefit from economies of scale, pooling resources and effort and they are essential in the agricultural sector for developing and developed countries alike. In Egypt, for example, “4 million farmers earn their income through cooperative membership” while in India “16.5 million litres of milk are collected every day from 12 million farmers in dairy cooperatives”.

Cooperatives have many positives, for example, increasing farmers’ power to negotiate and to access financing. There are also negatives though and cooperatives require strong planning, organisation and management to be successful. It is this role as an organiser of farmers that can be particularly beneficial in financial investments, the brief states. “Well-organized cooperatives upgrade the skills of their members, offering investors a more sophisticated and reliable market”. This organisation also means that instead of investors having to communicate with hundreds or thousands of small-scale farmers, they can work with one cooperative, the performance and reliability of which may have attracted the investor in the first place.

As with all of these reports, the onus on setting the stage for successful cooperatives and foreign investments seems to be on the government of the host country who must ensure appropriate policy and legal frameworks are in place and act as a mediator between the two. Too little in these reports, however, is focused on how countries with little resources go about designing and implementing the policies and enabling environment to support inclusive investments. What does come out as a positive is that including the people who live in the area where investments are made can have a huge impact on the success of an investment, the benefits it brings to rural people and on development as a whole.