A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 0 8 THE PRACTICE OF RESPONSIBLE INVESTMENT PRINCIPLES IN LARGER- SCALE AGRICULTURAL INVESTMENTS Implications for Corporate Performance and Impact on Local Communities WORLD BANK REPORT NUMBER 86175-GLB APRIL 2014 A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 0 8 U N C TA D I N V E S T M E N T F O R D E V E L O P M E N T I S S U E S S E R I E S THE PRACTICE OF RESPONSIBLE INVESTMENT PRINCIPLES IN LARGER- SCALE AGRICULTURAL INVESTMENTS Implications for Corporate Performance and Impact on Local Communities WORLD BANK REPORT NUMBER 86175-GLB © 2014 The International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org Email: feedback@worldbank.org All rights reserved This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. 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For additional information, please contact one of the key authors at: Hafiz Mirza (hafiz.mirza@unctad.org), William Speller (William.speller@unctad.org), Grahame Dixie (gdixie@unctad.org) C ontents iii CONTENTS Preface � � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� � v ii Acknowledgments �� � �� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� � �� � � ix List of Abbreviations �� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� � � xi Executive Summary � � �� � �� ��� � �� � �� ��� � �� � �� � 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� �� ��� ��� � �� � �� � �� � �� � �� 2 1.4 Descriptive Statistics of Investors and Stakeholders� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� 3 1.5 Structure of the Report �� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� � �� 5 Chapter 2 Building in Responsibility and Sustainability: Initial Phases of the Investment� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� � �� � �� � �� 7 2.1 Consultations and Ongoing Dialogue with Local Communities � � �� ��� ��� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� 7 2.2 Impact Assessments� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� � 10 2.3 Transparency and Disclosure � � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� � 11 2.4 Prescreening and Ongoing Monitoring of the Investment �� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� ��� � �� � �� � 12 2.5 Third-Party Certification � � �� ��� ��� � �� � �� ��� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� ��� � �� � �� � �� ��� � 14 Chapter 3 The Financial and Operational Performance of Investors� � �� ��� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� � 17 Chapter 4 The Socioeconomic Impact of Investments �� � �� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� � 21 4.1 Direct Employment � � �� ��� � �� 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6.2 Access to Water by Communities and Investors � � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � 45 Chapter 7 Conclusions and Next Steps �� ��� � �� � �� � �� ��� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� � 47 7.1 Applying Lessons from the Field �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� � 47 7.2 Further Related Work �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� � 47 A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R iv C ontents Appendix A Data Collection and Methodolgy � � �� ��� � �� � �� 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Price Stabilization Program �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� ��� � �� � �� � �� � �� � �� � 26 Box 4.5: Examples of Investor Support for Local Education� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� ��� � 30 Box 4.6: Benefits of Improved Road Access �� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� � �� � �� � 31 Box 4.7: Investor-Smallholder Joint Venture Microfinance Fund �� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� � �� � �� � �� � 31 Box 4.8: Financially Inclusive Business Models� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� � 32 Box 4.9: Technology Transfer in Rice Contract Farming� � �� � �� � �� � �� � 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� �� � �� ��� � �� � �� � 43 Box 6.2: A  pplication of Group-Wide Sustainability Goals to Individual Operations� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� ��� � 4 4 FIGURES Figure E.1: Share of Stakeholder Interviews Which Mentioned a Positive Impact, by Issue: All Investments �� ��� � �� � �� x i v Figure E.2:  Share of Stakeholder Interviews Which Mentioned a Negative Impact, by Issue: All Investments� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� ��� � �� � �� � �� x i v Figure E.3:  Share of Stakeholder Interviews Which Mentioned a Positive Impact, by Issue: Investments Involving Land Acquisition � � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� ��� x i v Figure E.4:  Share of Stakeholder Interviews Which Mentioned a Negative Impact, by Issue: Investments Involving Land Acquisition � � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� ��� x i v T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C ontents v Share of Stakeholder Interviews Which Mentioned a Positive Impact, by Issue: Figure E.5:  Investments Not Involving Land Acquisition � � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� x i v Figure E.6:  Share of Stakeholder Interviews Which Mentioned a Negative Impact, by Issue: Investments Not Involving Land Acquisition � � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� x i v Figure E.7: Degree of Land Use � � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� ��� ��� � 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Employees� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� ��� � �� � �� � �� ��� � �� � �� � �� � �� � 23 Figure 5.1: Degree of Land Use � � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� � 37 Figure 5.2: Land Use; Age and Size of Investment �� � �� � �� � �� � �� ��� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� � �� � �� � 37 TABLES Table E.1: Employment, Descriptive Statistics � � �� ��� � �� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� � x v Table E.2: Outgrower, Descriptive Statistics� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� � �� � x v Table E.3: Key Benefits and Negative Outcomes of Investments Studied� � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� � �� � x v iii Table E.4:  Key Policies and Practices Applied by Investors, Governments, and Civil Society That Maximized Benefits and Minimized Risks in Investments Studied� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� � �� x i x Table 2.1: Approaches to Environmental Responsibility �� ��� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� � 10 Table 3.1: Indicators of Operational and Financial Success � � �� � �� ��� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� � �� � 17 Table 3.2: Indicators of Success by Type of Investment� � �� ��� ��� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� � �� � �� � �� ��� � �� � �� � 20 A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R vi C ontents Table 3.3: Indicators of Success by Size of Investment�� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� � 20 Table 4.1: Perceptions of Employment and Related Conditions, all Stakeholder Interviews� � �� ��� ��� � �� � �� ��� ��� � �� � �� � �� ��� � 21 Table 4.2: Employment, Descriptive Statistics� � �� ��� ��� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� � 22 Table 4.3: Hectares Per Job Created, Estate or Estate and Outgrower Model� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� ��� � �� � �� ��� ��� � �� � �� ��� � 22 Table 4.4: Outgrower, Descriptive Statistics� � �� ��� � �� � �� � �� ��� ��� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� ��� � 25 Table 4.5:  Perceptions of Food Security, all Stakeholder Interviews� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� � 27 Table 4.6: Type of Crop and Destination for Output �� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� � �� � �� � �� ��� � �� � 28 Table 4.7: S  ocial/Rural Development Programs and Revenue-Sharing Arrangements �� ��� � �� � �� � �� ��� � �� � �� ��� � �� � �� � �� ��� ��� � 30 Table 5.1:  Perceptions of Land Issues, all Stakeholder Interviews � � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� ��� � �� � 36 Table 6.1: Approaches to Environmental Responsibility �� ��� � �� � �� � �� ��� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� ��� ��� � �� � �� � �� � �� � �� � �� � 4 4 Table 6.2:  Perceptions of Environmental Impact, all Stakeholder Interviews� � �� � �� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� � 45 Table 6.3:  Perceptions of Impact on Water, all Stakeholder Interviews �� � �� � �� � �� � �� ��� � �� � �� ��� ��� � �� � �� ��� � �� � �� � �� � �� ��� � �� � �� ��� � 45 Table 7.1: Selected Key Lessons for Investors, Host Governments, and Other Stakeholders � � �� ��� ��� � �� � �� ��� ��� � �� � �� � �� ��� � 4 8 T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S P R E FA C E v ii PREFACE Higher prices of agricultural commodities in the wake of the world food price crisis of 2007–08 have stimulated renewed interest in agri- cultural investment following decades of chronic underinvestment. For many working in the field of agricultural development, this “redis- covery” of agriculture as a focus of investment presented a promising and long awaited opportunity to promote the sector within the larger agenda of economic development. For others, this resurgence of investment in agriculture appeared fraught with peril. Investments involving large-scale land acquisition in particular raised serious concerns over their likely negative impacts on local people who have been using that land. A lack of analysis on such investments has meant that much of the debate on this issue has been fueled by anecdotes and one-off case studies. Responding to both concerns, the Inter-Agency Working Group—consisting of the Food and Agriculture Organization, the International Fund for Agricultural Development, the United Nations Conference on Trade and Development, and the World Bank—resolved to collec- tively generate a body of empirical knowledge that could be used to identify desirable forms of investment. This knowledge was intended to inform the various ongoing consultations, such as those on responsible agricultural investment as well as the ongoing formulation of the Sustainable Development Goals. It would also be used in capacity building programs for public officials, investors, and other stakehold- ers in the countries concerned. The Working Group members have now produced a number of studies on matters such as alternatives to large-scale land investments, different forms of contract farming, and trends and impacts of foreign direct investment in agriculture in developing countries. One such study was a meta-analysis of 179 larger-scale agribusiness investments in Africa and Southeast Asia over a 50-year period. This report, The Practice of Responsible Investment Principles in Larger-Scale Agricultural Investments, adds another chapter to this growing body of literature. The study examines 39 mature agribusiness investments in Africa and Southeast Asia and assesses to what extent their activities can be characterized as responsible in terms of respect for local rights, consultation and transparency with stakeholders, support of livelihoods, environmental sustainability, and other criteria. More than 550 community stakeholders were interviewed about the impacts the investments had had on those they represented. This process of consultation with those affected purposefully provided these local com- munities with a voice which the investors and national governments were clearly interested in listening to. This responds to the demand by public officials and investors for information about best practices and pitfalls to avoid. The impressions and ideas of local communities have enriched this study, and provided unique insights into what factors are at play and their impact on those most directly affected by outside investments. James Zhan Juergen Voegele Director Director Investment and Enterprise Division Agriculture and Environmental Services Department United Nations Conference on Trade and Development World Bank A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R ACKNOWLEDGMENTS ix ACKNOWLEDGMENTS This report was written by Hafiz Mirza, William Speller, Grahame Dixie, and Zoë Goodman. It was researched and prepared by a joint United Nations Conference on Trade and Development (UNCTAD)–World Bank team under the overall direction of James Zhan and Masataka Fujita (UNCTAD), and Mark Cackler (World Bank). The team consisted of Grahame Dixie, Hafiz Mirza, Zoë Goodman, Alva Kretschmer, and William Speller (staff ), as well as Elfriede Penz, Duncan Pringle, Abye Tasse, Mark Terken, and Teoh Cheng Hai (consultants). Hafiz Mirza devised and oversaw the research framework and methodology with support from Zoë Goodman (research instrument design, piloting, and revision) and Elfriede Penz (incorporation of qualitative methods, especially advice on implementing the Nvivo software pack- age). The field work was conducted by Duncan Pringle, Teoh Cheng Hai, Mark Terken, Abye Tasse, Zoë Goodman, William Speller, and Hafiz Mirza. Alva Kretschmer provided research and logistical support in arranging the field work. Zoë Goodman and William Speller were respon- sible for inputting the fieldwork results into Nvivo; and interrogation of the Nvivo database and data analysis was primarily by William Speller. Peer review and invaluable insights were provided by Pedro Marcelo Arias, Brian Baldwin, Richard Bolwijn, Mark Cackler, Tay Kah Chye, Mark Constantine, Lorenzo Cotula, Klaus W. Deininger, Masataka Fujita, Axèle Giroud, David Hallam, Andrew Hamilton, Thea Hillhorst, Jesper Karlsson, Patrick Labaste, Gunnar Larson, Pascal Liu, Elfriede Penz, Duncan Pringle, Carin Smaller, Abye Tasse, Mark Terken, Teoh Cheng Hai, Geoff Tyler, and Bill Vorley. Many companies, communities, and external stakeholders provided their invaluable time in order to allow this study to happen. The World Bank and UNCTAD are also indebted to the government of Japan for funding this work and for their support. Special recognition goes to John Lamb, formerly at the World Bank, who was pivotal in initiating this work with the government of Japan. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R L I S T O F A B B R E V I AT I O N S xi LIST OF ABBREVIATIONS CFS Committee on World Food Security EIA Environmental Impact Assessment EMS Environmental Management System EMP Environmental Management Plan FAO Food and Agriculture Organization FDI Foreign direct investment FPIC Free, Prior, and Informed Consent GHG Greenhouse Gas HACCP Hazard analysis and critical control points HLPE High Level Panel of Experts IAWG Inter-Agency Working Group IFAD International Fund for Agricultural Development IFC International Finance Corporation IFOAM International Foundation for Organic Agriculture IIED International Institute for Environment and Development INDOCERT Indian Organic Certification Agency ISCC International Sustainability and Carbon Certification ISO International Organization for Standardization MPS-SQ More Profitable Sustainability–Socially Qualified NCR Native Customary Rights NGO Non-governmental organization NPP New Planting Procedure P&C Principles and Criteria A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R xii L I S T O F A B B R E V I AT I O N S PRAI Principles for Responsible Agricultural Investment RAI Responsible Agricultural Investment RAP Resettlement Action Plan RPF Resettlement Policy Framework RSPO Roundtable on Sustainable Palm Oil SDG Sustainable Development Goal SEIA Social and Environmental Impact Assessment UNCTAD United Nations Conference on Trade and Development UNEP United Nations Environment Program T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S EXECUTIVE SUMMARY x iii EXECUTIVE SUMMARY This report presents findings from a field-based survey on the conduct of agricultural operations at 39 large-scale, mature agribusiness investments in sub-Saharan Africa and Southeast Asia, focusing in particular on their approaches to social, economic, and environmental responsibility. The objective of the report is to provide first-hand, practical knowledge of the approach, behavior, and experience of these investments,1 their relationships with surrounding communities and the consequent positive and/or negative outcomes for these com- munities, host countries, other stakeholders, and the investors themselves. The lessons learned and good practices identified are intended to inform the work of government bodies, investors, non-governmental organizations (NGOs), development agencies, and other institutions that promote responsible investment in agriculture. Experienced agricultural experts, together with UNCTAD and World Bank staff, spent 2 to 3 days interviewing senior management at each agribusiness site to complete a semi-structured questionnaire covering operational and financial information, as well as details of the inves- tor’s approach to a wide range of socioeconomic and environmental issues. Investors also provided researchers with contracts, reporting tools, and other documentation relevant to the study. A further 2 to 3 days were spent interviewing surrounding communities and other stakeholders to ascertain how people perceived and were impacted by the operations. These latter interviews were conducted in an open- ended fashion, allowing external stakeholders to raise issues that were important to them. The views of over 550 external stakeholders have been elicited in the conduct of 240 separate stakeholder interviews. On balance, the investments studied have generated positive socioeconomic benefits for surrounding communities and host countries. Figures E.1–E.6 show the most common positive and negative impacts of the investments surveyed, as mentioned by external stakeholders during the interviews. These provide an overview of how these investments were perceived by those affected by them. Job creation was the most frequently cited benefit arising from the investments (figure E.1); indeed, investors in the sample operations employed around 40,000 people—an average of one job for every 20 hectares of land—often in remote areas where formal employment had not previously existed (table E.1). Investors also indirectly contributed to employment opportunities by providing a stable market for outgrowers’ produce: for example, the 11 investors with outgrower schemes helped to support the livelihoods of 150,000 contract farmers in total (table E.2). The concomitant rise in rural incomes contributed positively to food security, directly and indirectly. Other notable tendencies toward more socially or financially inclusive business models were mentioned by communities and stakeholders. Investors provided social services such as education, health, rural and farming infrastructure, local water provision schemes, and access to finance. Finally, investors introduced new farming technology and practices which, in rare but significant instances, had a catalytic impact which extended far beyond the investor. 1 Throughout this report the terms “investment” and “investor” are used to describe the agribusinesses examined in this survey. Investment in agriculture involves a much wider set of actors apart from large-scale agribusinesses, most notably small farmers investing in their own farms. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R xiv L I S T O F A B B R E V I AT I O N S FIGURE E.1:  Share of Stakeholder Interviews Which Mentioned FIGURE E.2:  Share of Stakeholder Interviews Which Mentioned a Positive Impact, by Issue: All Investments a Negative Impact, by Issue: All Investments 0% 10% 20% 30% 40% 50% 60% 70% 80% 0% 10% 20% 30% 40% 50% 60% 70% 80% Employment Access to land Access to markets Access to water Infrastructure Outgrower schemes Outgrower schemes Environmental impact Food security Employment Education Technology transfer Technology transfer Food security Working conditions Infrastructure Access to finance Resettlement Access to water Access to markets FIGURE E.3:  Share of Stakeholder Interviews Which FIGURE E.4:  Share of Stakeholder Interviews Which Mentioned a Positive Impact, by Issue: Mentioned a Negative Impact, by Issue: Investments Involving Land Acquisition(a) Investments Involving Land Acquisition(a) 0% 10% 20% 30% 40% 50% 60% 70% 80% 0% 10% 20% 30% 40% 50% 60% 70% 80% Employment Access to land Infrastructure Access to water Access to markets Employment Food security Environment Education Outgrower schemes Technology transfer Food security Working conditions Infrastructure Outgrower schemes Technology transfer Access to water Resettlement Access to finance Access to markets FIGURE E.5:  Share of Stakeholder Interviews Which FIGURE E.6:  Share of Stakeholder Interviews Which Mentioned a Positive Impact, by Issue: Mentioned a Negative Impact, by Issue: Investments Not Involving Land Acquisition(b) Investments Not Involving Land Acquisition(b) 0% 10% 20% 30% 40% 50% 60% 70% 80% 0% 10% 20% 30% 40% 50% 60% 70% 80% Outgrower schemes Access to finance Technology transfer Outgrower schemes Access to markets Environmental impact Access to finance Technology transfer Access to water Employment Food security Working conditons Access to markets Education Employment Infrastructure Gender Environmental impact Infrastructure Food security Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. Notes: These figures were created by classifying information from stakeholder interviews into whether the investment was perceived to have a positive or negative impact, with the information further categorized by issue under each of these two classifications. For example, an interviewee who stated he was happy to have a job with the investor would be classified as having expressed a positive impact with respect to employment. Some issues appear as both a positive and negative impact because there can be both positive and negative dimensions to an investment’s impact with respect to each issue. For example, an investor may have improved local water access by installing hand pumps, but may also have had a negative impact by polluting water sources used by local communities because of environmentally unsound agricultural practices. (a) Includes pure estate and estate with outgrowers’ business models. (b) Includes pure processing operations and trading operations. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S EXECUTIVE SUMMARY xv TABLE E.1: Employment, Descriptive Statistics SUM OF ALL MEAN PER MEDIAN PER FEMALE EXPAT HECTARE/ INVESTMENTS INVESTMENT INVESTMENT MAX. MIN. SHARE(a) SHARE(a) JOB(B) Total formal employment 38,810 979 688 5,278 28 34 percent 2 percent 20 Permanent 19,832 509 200 3,086 28 24 percent 3 percent 39 Temporary/Casual/Seasonal 18,348 470 180 3,700 0 45 percent 0 percent 41 Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. (a) Not all investors provided female and expatriate shares. These percentages are based on the 24 out of 39 investors who provided female employee numbers and 35 out of 39 investors who provided expatriate employee numbers. (b) Hectare / job figures refer only to those 31 investments with land allocations, that is, excluding the 8 processing and trading operations. TABLE E.2: Outgrower, Descriptive Statistics TOTAL MEAN MEDIAN MAXIMUM MINIMUM FEMALE ( PERCENT) Outgrowers(a) 149,638 13,603 1,534 120,000 60 1.5 percent Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. (a) Averages are for only the 11 investments which provided outgrower numbers. FIGURE E.7: Degree of Land Use(a) 45% Full sample Africa only Asia only 40% 35% 30% Share of investors 25% 20% 15% 10% 5% 0% 0–10 10–20 20–30 30–40 40–50 50–60 60–70 70–80 80–90 90–100 Land use (%) Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. (a) Chart shows the percentage of an investor’s land allocation that was actively cropped, being developed, or used for ancillary purposes such as employee housing. Only those investments with land allocations are included, that is, processing and trading operations are excluded. As well as the above benefits, negative impacts also arose in the investments examined (figure E.2). Most prominent were disputes over access to land, such as conflict between the formal rights provided to the investor by the state and the informal rights of existing users of the land. Such situations were at times exacerbated by a lack of clarity on the conditions and process for land acquisition, and further com- pounded in a significant number of cases where investors were using only a small portion of their land allocation (figure E.7). Despite some positive examples, resettlement was seldom sufficiently consultative, inclusive, or adequately compensated. This lack of consultation was symptomatic of a broader concern. Involvement by local communities in decisions affecting them was deemed insufficient; and, moreover, procedures to raise grievances or hold investors to account were commonly absent. Assessment, understanding, and monitoring of the environmental impact of investments was generally inadequate, especially with regard to consequences for water resources (table E.3). Overall, communities and external stakeholders interviewed felt that the benefits of the investments outweighed the negative impacts, and were appreciative of the presence of the investor (figure E.8). Nevertheless, there is a wide range of outcomes arising from these investments A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R xvi EXECUTIVE SUMMARY FIGURE E.8: Stakeholder Perceptions of Positive and Negative Impacts of Investments, Classified by Issue(a) 140 120 Employment 100 Positive impacts > negative impacts Market 80 access Infrastructure Food security Outgrower 60 schemes Education Technology transfer Negative impacts > positive impacts 40 Working Access to finance conditions 20 Water Access to land Health Gender Environment Resettlement 0 0 10 20 30 40 50 60 70 80 Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. (a) The vertical axis shows the number of stakeholders which mentioned the investment as having a positive impact on them with regard to that issue. The horizontal axis shows the number of stakeholders which mentioned the investment as having a negative impact. The size of the bubbles represent the relative frequency with which each issue arose in stakeholder interviews, whether in a positive, negative, or neutral context. in terms of their socioeconomic and environmental impacts, their broader impact on the host country, and the operational and financial success of the investment itself. There are some investments that have generated mostly positive outcomes, while others have generated mostly negative outcomes (figure E.9). Most exhibit a mixture of positive and negative impacts, performing well on some aspects, but with significant room for improvement on others. A somewhat surprising finding from this research, at least at first glance, is that many investors were in operational and financial difficulty. Around 45 percent of investors were materially behind schedule or operating below capacity. About the same share were unprofitable at the time of survey. Investors highlighted a number of constraints which hindered their prospects of success (figure E.10). They noted the importance of host country governments in creating an enabling environment which allows investors to survive, thrive, and contribute to the local community and the broader economy. International investors in several countries experienced a lack of a clear, transparent, and consistent approach toward foreign investment in agriculture, including policies and procedures for the purchase or lease of land. Access to finance, inadequate infrastructure, and difficulties in sourcing local, qualified staff were other key constraints on profitability. Financial and operational success is an essential precondition for agricultural investments to make a positive contribution to development, whereas failure can create lose-lose-lose situations for investors, host countries, and local communities alike. In this regard, investors noted the importance of striking the right balance between imposing necessary requirements and regulations which promoted responsible investment, on the one hand, and ensuring that requirements were not so burdensome as to preclude much needed investment by agri- businesses, on the other. A key finding of this research is that a potentially win-win situation vis-à-vis investment performance and their wider positive economic, social, and environmental impact is achievable. In the survey, investors that were financially and operationally successful tended also to T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S EXECUTIVE SUMMARY x v ii FIGURE E.9:  Share of Positive / Negative Socioeconomic Impacts Mentioned in Stakeholder Interviews(a) Positive impact Negative impact 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Investor 18 19 20 Mean 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. (a) All impacts of the investment mentioned in stakeholder interviews are classified as “positive” or “negative.” Figure shows the balance of positive and negative mentions for each investor. A level of 100 percent means that the stakeholders interviewed for that investor mentioned only positive impacts. FIGURE E.10:  Percentage of Investors Mentioning Particular Constraints on Operations 0% 10% 20% 30% 40% 50% Host country policy and regulation Infrastructure Employment Suitability of environmental conditions Access to finance Land disputes Water availability All investments Estate/ Estate & outgrower Processors/ Traders Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. be those that had the most positive impact on their host economies and surrounding communities—the result of more sophisticated approaches to social and environmental responsibility. Similarly, those investments which were well-integrated with the host country and surrounding community were most likely to be financially successful. Investors which acquired land but did not conduct thorough consulta- tions with communities and impact assessments, or left it to host governments to conduct them on their behalf, often found themselves subsequently dealing with costly and time-consuming land disputes. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R xviii EXECUTIVE SUMMARY Civil society organizations in some cases played an important role in helping investors and local communities to forge partnerships, increas- ing the likelihood of mutually beneficial solutions. Particularly significant in this research was the role of NGOs in ensuring that relevant stakeholders to an investment had their voices heard, especially in community consultations, impact assessments, and grievance mecha- nisms. NGOs were also able to publicize conflicts between investors, governments, and stakeholders and contribute to greater transparency on the conduct of agricultural investment. But in some cases, investors perceived that this was done in an inflammatory or antagonistic, rather than constructive, fashion which served the NGO’s own interest but was detrimental to the interests of not only investors but also local communities. The diversity of experiences, performance, and impacts of investments in the survey suggests that a wide range of factors influence the outcomes of an agricultural investment. Some factors are context specific. As such, one cannot be categorical about the types of invest- ment that are most or least desirable. This study finds that the static attributes of the investor (its crop, country of origin, and so on) are less important than the dynamic actions, policies, and practices of the investor and host country government in determining the outcome of investments. The challenge is to understand how agricultural investment can be conducted in a responsible and sustainable manner, which maximizes the associated benefits and minimizes the potential risks. Table E.3 summarizes the key benefits and negative outcomes of the investments studied, based on analyses of all material collected during the research—stakeholder interviews, company questionnaires, other documentation, and discussions with civil society. Table E.4 summarizes the key policies and practices identified in this research which helped lead to better outcomes in the investments studied. But neither this study, nor any other, can provide all the answers. The findings of this report do not represent a final, exhaustive list of good and bad policies or practices, but rather those observed during the course of the fieldwork to have influenced the outcomes for local communities, host countries, and investors. These lessons must be heard and integrated carefully with findings from other research and acted upon in order to feed the world’s burgeon- ing population in a sustainable manner that preserves natural resources, utilizes agriculture as an engine for inclusive growth, and fosters long-term development. The achievement of these goals will require more investment, private and public. The central role of smallholder TABLE E.3: Key Benefits and Negative Outcomes of Investments Studied KEY BENEFITS •  Direct employment creation. •  Improved livelihoods for outgrowers due to purchase of produce by investor as well as technical assistance and other benefits of formal outgrower schemes. •  Social development programs (for example, schools, medical centers). •  Financially inclusive business models such as revenue sharing arrangements with local community. •  Infrastructure (for example, roads) and resulting better access to markets. •  Improved food security through rising rural incomes due to direct and indirect employment. •  Access to new farming technology and practices. KEY NEGATIVE OUTCOMES •  Disputes over access to land, especially between investors and those with informal rights to land based on use. •  Lack of transparency, especially on conditions and process for land acquisition. •  Poorly handled resettlement. •  Lack of consultation and inclusion of local communities, leading to disempowerment. •  Failure to use land as expected. •  Financial or operational failure of the investor, creating lose-lose situations. •  Lack of grievance and redress mechanisms. •  Inadequate assessment and understanding of environmental impacts, including on water resources. Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S EXECUTIVE SUMMARY x ix TABLE E.4:  Key Policies and Practices Applied by Investors, Governments, and Civil Society That Maximized Benefits and Minimized Risks in Investments Studied GOVERNMENT •  Rigorous prescreening of potential investors’ experience, financial capacity and technical capabilities. •  Obtaining commitments from foreign investors for social development programs, employment, and other benefits to the host country, as well as a detailed schedule for the development of operations. •  Ongoing monitoring of investors’ agreements and commitments. •  Monitoring consultations and social and environmental impact assessments (SEIA), but not conducting them on investors’ behalf. •  Clear, transparent regulatory framework for land acquisition (purchase or lease), consultations, resettlement, and compensation. •  Formalized local community tenure rights under a proper land registry system. •  Approval of foreign investment applications in line with capacity to screen and monitor investors. •  Encourage phasing of investments, rather than mega-land deals, for example, provision of an initial allocation of land, with further allocations contingent upon successful development. •  Monitoring and enforcement of adherence to environmental and water regulations. •  Encouragement of innovation (new crops, technology, and so on), but not initially on a large scale. •  Reducing red tape and creating an enabling environment for foreign investment and the development of domestic industry. INVESTORS •  Early engagement and consultation with surrounding communities, including previous and existing users of the land. •  Transparency about the operation and ongoing dialogue with external stakeholders, including a formal grievance procedure. •  Social development programs that reflect local communities’ development visions. •  A financially inclusive business model. •  Proper conduct of SEIAs and integration within business models. •  Setting of and adherence to realistic expectations about the pace of development of operations; use of land in accordance with commitments. •  Phasing of the investment—applying for and successfully developing a parcel of land before seeking a larger allocation. •  Fair and adequate remuneration, contractual conditions, and training for employees and outgrowers. •  Resolution of the business model prior to introducing outgrowers. CIVIL SOCIETY •  Engagement with investors to help them forge partnerships with marginalized groups and ensure that relevant stakeholders are included in decision-making processes. •  Assistance to local communities to be well-organized, understand their rights and how to exercise them. •  Monitoring conflicts between investors and stakeholders and constructively drawing attention to issues. Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. farmers’ investment in their own farms in any strategy for promoting the required agricultural investment is well-established.2 But there nevertheless remains a key role for other forms of investment, including from the types of private sector investors included in this study. This research finds that private sector investments, including those that involve land acquisition, can generate positive outcomes if conducted in a socially and environmentally responsible manner. This report is a contribution to a growing body of evidence-based knowledge, including from work by the Inter-Agency Working Group (IAWG) comprised of UNCTAD, the World Bank, the Food and Agriculture Organization (FAO), and the International Fund for Agricultural Development (IFAD), aimed at distilling lessons from past and current agricultural investments.3 This research program continues to generate knowledge on what the appropriate conduct of agricultural investment comprises in practical and operational terms, in order to satisfy both the needs of corporate performance and economic, social, and environmentally sustainable development. This research yields lessons for the content and refinement of the PRAI, which will be combined with those from other work of the IAWG and reflected in future work programs. 2 See, for example, FAO (2012) The State of Food and Agriculture: Investing in Agriculture for a Better Future; Committee on World Food Security High Level Panel of Experts (HLPE) (2013) Investing in smallholder agriculture for food security: A report by the High Level Panel of Experts on Food Security and Nutrition; and IFAD and United Nations Environment Program (UNEP) (2013) Smallholders, Food Security and the Environment. 3 See page 1 for additional details. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R xx EXECUTIVE SUMMARY The data collected for this study represent a snapshot of a particular point in time. In addition, some relevant issues identified during the field work were not fully investigated due to time constraints. These and many other issues identified would benefit from more detailed study over an extended period. For these reasons, a follow-up project will be to revisit 12–15 investments and conduct more detailed field research to deepen the understanding of impacts and how they have evolved. This report also emphasizes that many of the decisions and actions which determine the ultimate outcome of investments are taken prior to the investment or during its initial phases. For this reason, the IAWG of UNCTAD, the World Bank, FAO, and IFAD plan to embark on a new field program: the pilot-use of responsible agricultural investment principles working with investors (companies), governments, communities and other stakeholders from the outset of a project. The primary objective is to infuse responsible principles and practices into (1) agribusiness operations and (2) the interaction of these operations with local communities, the environment, and the economy as a whole. The intention is for investors to apply the principles to the establishment phase of their new agribusiness investments, and incorpo- rate them into their business processes, in dialogue with governments and communities. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 1 — I N T R O D U C T I O N A N D C O N T E X T 1 Chapter 1 INTRODUCTION AND CONTEXT 1.1 BACKGROUND While welcoming the potential positive impact of these new The challenges facing global agriculture in the coming decades resources and the infusion of dynamism into the agricultural sec- ­ are monumental. The sector must feed a projected population of tor, some point to past experiences in which corporate investors 9­ billion people by 2050. The Food and Agriculture Organization appear to have left a trail of environmental, social, and community (FAO) estimates that average annual investment flows of US$209 problems. After decades of struggling to attract a significant level billion are needed to meet growing demand for food in 2050—and of corporate investment, including foreign direct investment, in even more is required to eliminate hunger, and target poverty and their agricultural sectors, developing countries are now faced with malnourishment (FAO 2012a). However measured, the agricultural a challenge. How should they accept the type, size, and number of investment gap is enormous. such investments in order to maximize development benefits and minimize socioeconomic and environmental risks? Faced with a number of common economic, social, and environ- As one response to both encouraging the necessary investment mental challenges, developing countries require long-term sustain- and addressing concerns, UNCTAD, FAO, the International Fund for able and increased investment, including investment in agriculture. Agricultural Development (IFAD), and the World Bank (the Inter- The United Nations, member states, international policy makers, and Agency Working Group, IAWG) in 2010 proposed a set of Principles civil society are working to establish a set of sustainable develop- for Responsible Agricultural Investment (PRAI). The application of the ment goals (SDGs) that will constitute the bedrock of the post-2015 PRAI to agricultural investments is intended to reduce the level of development agenda. The scope and ambition of the SDGs will negative externalities and raise the likelihood of positive impacts. require a significant scaling-up of investment to generate produc- ­ The PRAI were always envisaged as a “living document,” which tive capacities, clean and sustainable technologies, and infrastruc- needed to be further refined, elaborated, and operationalized in ture. Investment in agriculture will assist with attainment of SDGs in light of the evidence, such as that presented in this report. many areas being discussed, including sustainable agriculture, food security, poverty eradication, and management of natural resources. 1.2  OBJECTIVES AND RELATED WORK The central role of smallholder farmers’ investment in any strategy for The IAWG has embarked on a work program to distill the lessons promoting agricultural development is widely recognized. But since from past and current agricultural investment in order to under- the mid-2000s, corporate sector interest in agriculture in ­developing stand what works and what does not work for host countries, local countries has increased sharply, driven by rising commodity prices, communities, investors, and other parties impacted by agricultural the strategic concerns of food-importing countries, and various investments of a range of types and scales; and to apply these les- commercial opportunities in agriculture. Corporate investment in sons accordingly. accordingly, not only agriculture, foreign and domestic, has jumped ­ from traditional investors such as agribusiness enterprises, but also Recent publications by the World Bank, FAO, and IFAD have already from state-owned enterprises and sovereign wealth funds, as well contributed to this emerging knowledge base. FAO and IFAD com- as private equity and other investment funds. missioned a joint FAO-International Institute for Environment A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 2 C hapter 1 — I N T R O D U C T I O N A N D C O N T E X T and Development (IIED) paper on alternatives to large-scale land 1.3  DATA COLLECTION AND METHODOLOGY ­ acquisitions in developing countries, reviewing different inclusive The field work was conducted between March 2012 and August business models for smallholders (Vermeulen and Cortula 2010). FAO 2013. Researchers spent 2 to 3 days on site with each agribusiness, conducted a series of case studies on the trends and impact of for- conducting interviews with senior management on financial, human developing country agriculture (FAO eign direct investment (FID) in ­ resources, and operational information, as well as details of the inves- 2013). The World Bank completed a retrospective study of the agri- tor’s approach to a wide range of socioeconomic and environmental cultural investment portfolio of the Commonwealth Development issues. Interviews were conducted on a confidential basis and hence Corporation, studying how 179 larger-scale agribusinesses played out no names of investors or executives are divulged in this report. over a 50-year period (Tyler and Dixie 2012). IFAD produced a review of global experiences in developing and managing outgrower pro- A further 2 to 3 days were spent interviewing a wide range of grams (IFAD and TechnoServe 2011). external stakeholders. These interviews were conducted on a confidential and anonymous basis and in an open-ended fashion, This study is based on a first of its kind, large-scale field survey, by allowing stakeholders to raise the issues that are important to them. UNCTAD and the World Bank, of investors, local communities, and Researchers sought to obtain views from a broad cross-section of other stakeholders. It uses first-hand evidence obtained through the community. However, more extensive field work is planned to ­on-site interviews with 39 relatively large-scale agribusiness ­investors study the impact of investments on all possible stakeholders and to in 13 countries in Africa and Southeast Asia; and a methodologically trace that impact over a period of time. robust dyadic approach also entailed simultaneously conducting 240 interviews with 550 stakeholders affected by those investments. The write-ups of company questionnaires and stakeholder inter- The ultimate aim of the study is to produce detailed, practical knowl- views were imported into Nvivo, a software package designed for edge and lessons from experiences on the ground which govern- the analysis of large amounts of qualitative and quantitative data. ments, investors, civil society, and international organizations can This allows the researcher to classify (or “code”) the data according to use to determine how to tackle the challenges, maximize the ben- particular themes (for example, employment, resettlement, prices for efits, and minimize the risks of agricultural investments of this type. outgrowers). Nvivo has also been used to facilitate the quantification of qualitative socioeconomic and environmental impacts obtained As such, the principal goals of this study are five-fold: during the stakeholder interviews. This is in ­addition to pure qualitative 1. to inform governments and investors and other stake- assessment of the extensive information received during the field work holders about the experiences and lessons of how best which has been sorted, compared, and analyzed on a purely qualita- to conduct relatively large-scale, corporate investment in tive basis. This combination of quantitative and qualitative analysis is agriculture; intended to strengthen the findings presented in this report. 2. to inform the many ongoing consultations on the conduct of responsible agricultural investment (including but not limited In addition to the first-hand data obtained, media, civil society, and to the Committee on World Food Security (CFS) consultation to develop principles for responsible agricultural investments other reports on each investor were consulted (including internal (RAIs) in the context of food security and nutrition); reports and documentation). A number of interviews were con- 3. to serve as a basis for a future capacity-building program, ducted with non-governmental organizations (NGOs) working providing more detailed guidance to governments, inves- on relevant issues, such as land rights or the environment, in the tors, and other stakeholders; countries visited. These materials helped inform the thinking of 4. to lay the basis for a future work program of more detailed researchers, improved understanding of local contexts, and pro- investigation of these initial findings, exploring particular issues in greater depth; and vided another lens through which to view information obtained in 5. to establish a basis for a future work program in which the field work (box 1.1). the IAWG will work with new investors and host country governments to develop concrete tools for use in the early A more detailed explanation of the data collection, potential sample phases of future investments. biases, and analytical methodology is contained in appendix A. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 1 — I N T R O D U C T I O N A N D C O N T E X T 3 BOX 1.1: GLOSSARY OF TERMS Many of the terms used in this report have different meanings or Estate: A business model in which crop cultivation and produc- implications depending on the context. This box outlines how these tion takes place only on land owned or leased by the investor. terms are used within the context and limited scope of this report. Estate and outgrowers: A business model in which crop culti- Agricultural investment: A project which changes the vation and production takes place both on land owned or leased fixed capital stock in the agricultural production process. In by the investor and in which outgrowers produce crops which this ­ report, this includes projects of agribusinesses which are are supplied to the estate operation, through a variety of contrac- operated by incorporated companies (corporates) or individu- ­ tual arrangements. als who ­neither live on the land nor rely on it for survival, that Processing operation: A business model in which no cultivation is, we exclude smallholders’ investment in their own farms from takes places on site. All produce is cultivated by outgrowers and the definition of investment because this is not within the purchased by the business for processing on site. Land ownership scope of this report. or lease is limited to that required for the processing factory. Investor: The corporation(s) or individual(s) implementing the Trading company: A business model in which an investor buys agricultural investments defined above include both foreign and produce from outgrowers, which is then sold for processing by domestic investors. In some cases, such as family businesses, the third-party companies. No cultivation or processing is conducted ultimate owners of the project are also those responsible for its by the investor. Land ownership or lease is limited to that required implementation. In other cases, such as publicly listed compa- for buying stations. nies or investment funds, the ultimate owners are disparate and hence investor refers to the company implementing the pro- Outgrower: A person not employed directly by the investor who jects visited. supplies the agricultural investment with produce cultivated on her or his own land. This involves a variety of contractual arrange- Foreign investor: An investor for which the majority or control- ments as discussed in the body of the report. ling ownership stake is held by corporations or persons foreign to External stakeholder: Person interviewed during the course the host country of operation. of the research who has been affected by the investment opera- Domestic investor: An investor for which the majority or con- tion. This includes not only local communities, but also suppliers, trolling ownership stake is held by corporations or persons do- ­ employees, government officials, and other groups outlined in mestic to the host country of operation. figure 1.9. 1.4 DESCRIPTIVE STATISTICS OF INVESTORS AND FIGURE 1.2: Nationality of Main Investor STAKEHOLDERS (FIGURES 1.1 TO 1.9) 12 FIGURE 1.1: Location of Investments 10 Indonesia,1 8 Lao People’s 6 Democratic Republic Malaysia, 1 Ethiopia, 5 Viet Nam, 2 United Republic of 4 Tanzania, 5 Cambodia, 5 2 South Africa,1 0 Domestic Singapore USA UK Switzerland Saudi Arabia Netherlands Luxembourg Thailand India South Africa Indonesia France China Italy Zambia, 4 Mozambique, 3 Liberia, 4 Ghana, 4 Côte D’lvoire, 4 A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 4 C hapter 1 — I N T R O D U C T I O N A N D C O N T E X T FIGURE 1.3: Type of Main Investor FIGURE 1.6: Size of Land Allocation (Hectares)(a) 14 0 2 4 6 8 10 12 14 16 12 <100 10 8 101–1,000 6 4 1001–10,000 2 0 10,001–50,000 Agricultural corporate (listed) Agricultural corporate (non- listed) Private equity Individuals Family business Nonagricultural corporate (listed) Nonagricultural corporate (non- listed) Endowment fund >50,000 Excludes processing or trading operations for which land allocation in negligible. Refers only to estate area, (a) that is, in “estate and outgrower” business model, excludes outgrowers’ land. FIGURE 1.4: Business Model of Investment FIGURE 1.7: Years in Operation Trading Processing 0 5 10 15 company, 7 factory, 7 <3 3–10 Estate, 17 11–20 Estate and outgrowers, 20–40 14 >40 FIGURE 1.5: Principal Product(a) 8 7 FIGURE 1.8: Experience of Other Agricultural Investments 6 14 5 12 4 10 3 8 2 6 1 4 0 2 Palm oil Rice Rubber Sugar Wheat Cocoa Barley Flowers Maize Oilseed Soybean Milk products Jatropha Banana Cotton Sesame Animal feed Coffee Vegetables Spices 0 Yes— Yes—not in None Yes—limited extensive, same country in the same including in country (a) Refers to main product of investor in cases where the investor is producing more than one product. same country T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 1 — I N T R O D U C T I O N A N D C O N T E X T 5 FIGURE 1.9: Stakeholder Interviews: Relationship with Investment(a) 120 100 80 60 40 20 0 Resident near investment Employee Government official Cooperative Community leader Previous land user Migrant NGO Resettled person Outgrower/ contract farmer Supplier/ Customer Sources for all figures: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. (a) Refers to the number of interviews conducted, some of which contain multiple interviewees. More than one category can apply to each interview; for example, an employee who was also a previous user of the land. 1.5  STRUCTURE OF THE REPORT This research finds that the proper conduct of such elements is a The experience of agricultural investment in the 39 investments key factor influencing the financial and operational success of the studied is extraordinarily diverse both with respect to the actions investor. The financial and operational experiences of investors in and behavior of investors and the socioeconomic and environmen- the sample are discussed in chapter 3, including the factors which tal impact they have had on local communities, host countries, and can contribute to or hinder success. other stakeholders. This remainder of the report describes those Financial and operational success is in turn a key determinant of actions and behaviors and the lessons learned in terms of how to the various socioeconomic impacts of the investments discussed maximize the positive and minimize the negative socioeconomic in chapter 4, including direct employment provision (4.1), and environmental impacts. improving livelihoods and market access for outgrowers (4.2), A key finding from this research is that investor and host country the impact on food security (4.3), social development programs ­actions at the preinvestment stage and during the initial phases of the and financially inclusive business models (4.4), and technology investment are critical. Important elements of these early stages and transfer (4.5). lessons for how these translate into positive outcomes and impact Disputes pertaining to access to land stand out as the main negative are discussed in chapter 2. This includes the investors’ approach to impact of investments in the sample. Chapter 5 discusses rights consultations and engagement with local communities (section 2.1), and access to land in general (5.1) and the experiences of resettle- impact assessments (2.2) and transparency (2.3), and the host country ment in particular (5.2). The environmental impact of investments government’s prescreening and monitoring of investors (2.4). While it studied is discussed in chapter 6, looking at general approaches to is important that socially and environmentally responsible practices environmental responsibility (6.1) and particularly at the impact on are embedded within the operation and monitoring of an investment water resources (6.2). on an ongoing basis, it is the processes followed, decisions taken, and requirements enforced in these early stages that dictate much of the Chapter 7 concludes with the key lessons for governments, inves- future path of the investment. Third-party certification can play a role tors, and civil society that have emerged from this research, and in encouraging the fostering of more responsible practices (2.5). outlines directions for further work. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 6 C hapter 1 — I N T R O D U C T I O N A N D C O N T E X T T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 2 — B U I L D I N G I N R E S P O N S I B I L I T Y A N D S U S TA I N A B I L I T Y: I N I T I A L P H A S E S O F T H E I N V E S T M E N T 7 Chapter 2  UILDING IN RESPONSIBILITY AND B SUSTAINABILITY: INITIAL PHASES OF THE INVESTMENT 2.1 CONSULTATIONS AND ONGOING DIALOGUE and consultation of existing rights to and formal and informal use WITH LOCAL COMMUNITIES of the land. This should include a land survey, mapping process, and Comprehensive consultations with external stakeholders prior full documentation and registration of existing claims to the land to to the investment benefited both those impacted by the invest- identify and resolve competing claims prior to the start-up of the ment and the investor itself. operation. The procedure and the results should be transparent and publicly disclosed. By fully documenting prior users of the land, the This chapter confirms that there is a strong social as well as financial potential for conflict can be substantially mitigated. case for a proper conduct of consultations with communities and other external stakeholders to the investment, especially for those Consultations were most effective when the investor took pri- investments that involve land acquisition. Establishing a strong rela- mary responsibility for their conduct . . . tionship with those who live near an agricultural investment gener- Stakeholder consultation was most effective when it was the ated positive socioeconomic impacts and was in the interests of the responsibility of the investor, with support—and oversight—­ ­ investor in terms of financial and operational success.4 provided by local and national government, as well as other inde- Initial consultations proved time consuming (in some cases 1–2 pendent parties such as lawyers and civil society representatives. years) and expensive, particularly in the case of new cultivation It proved perilous to leave consultations to the host government; ­ investments. But attempts to shortcut these processes—due to or for the investor to assume that the land acquired was being commercial expediency to get the land acquisition done quickly— provided by the government without any existing land disputes. led to negative long-term ramifications, both for the business and Similarly, it was unsatisfactory to outsource the consultation process for local communities, over a protracted period. to third parties such as land agents. Governments or land agents sometimes claimed to have “prepared the land,” that is, left it without Consultations were particularly important in minimizing the chances issue for the investor to take over. Their claims that all land conflicts of disputes with regard to access to land, which this research finds have been dealt with often proved spurious. as the key negative outcome of the investments studied (chapter 5). Many investors expended significant time and resources dealing . . . with appropriate monitoring and support from state and with land disputes. In most cases, disputes over access to land mate- nonstate actors. rialized before or shortly after the investor began operations in ear- Ensuring community interests are represented requires the involve- nest. This underscores the importance of a full and early assessment ment of state and nonstate actors. Some countries have enacted legislation requiring government oversight of community consul- 4 The FAO’s recent study on trends and impact of agriculture FDI also empha- tations. This helped to ensure that investment projects supported sizes the importance of consultations. For example: “Economically-sound projects that give local actors an active role and a say in decision-making national and local development goals. At many of the investments should be favoured”; and “The findings suggest that investment projects visited, there was at least one local government official present dur- that do not involve the local community actively at an early stage tend to be ill-designed and are likely to fail” (FAO 2013). ing some of the negotiations. Investors appreciated this presence A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 8 C hapter 2 — B U I L D I N G I N R E S P O N S I B I L I T Y A N D S U S TA I N A B I L I T Y: I N I T I A L P H A S E S O F T H E I N V E S T M E N T because it added legitimacy to the process. But there was little as pastoralists, who may not reside permanently in the area. Focusing evidence that governments are monitoring investor compliance demarcation, given on those with legal rights to land is not a viable ­ with agreements resulting from community consultations over the weakness and limited coverage of tenure law in some parts of the time. This absence was apparent even in cases where government world where agricultural investment is taking place. representatives had been present during the consultation process. . . . and resulted in written agreements with specified conse- Ensuring that consultations ultimately support local development quences for noncompliance, signed by the investor, local resi- visions requires the involvement of actors who are independent dents, and their representatives. from both the state and company management. The presence of5 One of the commendable elements of the consultations case study trusted third parties, such as public-interest lawyers or NGOs, helped outlined in box 2.1 below is that the lengthy consultation pro- to mitigate the power differentials between the negotiating parties, cesses resulted in a formalized, written agreement, signed by local as well as promote more inclusive consultations and beneficial residents, their representatives, and the investor. Such contractual outcomes. This presence was, however, rare in the consultations observed in this study. At a rice investment in Ghana, the commu- BOX 2.1: Consulting Local Communities: A Case Study nity itself employed lawyers to help draft an agreement following consultations; the lawyers also acted to ensure that all members of The steps outlined here describe a Zambian domestic inves- the community understood and were satisfied with the terms. tor’s path to acquiring land through a consultative process. These discussions took place over a 3-year period, involving Effective consultations involved all those potentially affected multiple stakeholders. by an investment, based on local views of the utility and signifi- 1. Investor approached the District Council—the local cance of a particular area . . . government—in search of land. 2. Council directed investor to an area with agricultural Several investors interviewed mentioned that consultations were potential that the local government perceived as not necessary because the land they had acquired was unused. underutilized. Council requested a meeting with chiefs. ­ But surrounding communities can hold different views about the 3. Chiefs consulted with subjects through subchiefs and village headmen. significance and productive status of the area in question. Full and 4. Subchiefs and village headmen spoke with the people thorough consultation procedures should start with the assumption they represent. that all land is used in myriad ways—be that for crop cultivation and 5. After an initial and broad acceptance of the idea of animal grazing, or as a source of water and other natural resources, allocating an area for the development of a plantation, or as a place of spiritual significance or somewhere people reside. a Community Development Trust was formed. It was constituted of village residents and local leadership. A key element of effective consultations was giving individuals and 6. The Community Development Trust, the investor, communities adequate time—and opportunities—to consider and and the district government worked hand in hand to articulate the various ways in which an area of land holds utility or establish the value of property and crops for people meaning for them. that required relocation. 7. The Ministry of Agriculture carried out the tree and Another key deficiency in some consultations in the sample was when crop valuation. Government experts on buildings and the investor only consulted with people who they plan to relocate, or construction carried out the valuations of houses, who have legal title to the land. This approach failed to involve cus- huts, and other buildings. 8. Agreements were reached between company and tomary land users and other affected persons—including those such individuals about compensation for assets and crops. 9. A memorandum of understanding was signed 5 The FAO’s recent study on trends and impact of agriculture FDI also between investor, trust, and local community. ­ ­ emphasizes the importance of nonstate actors (for example, p. 326f and Source: UNCTAD-World Bank Survey of Agricultural Investment Database. p. 341f ) (FAO 2013). T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 2 — B U I L D I N G I N R E S P O N S I B I L I T Y A N D S U S TA I N A B I L I T Y: I N I T I A L P H A S E S O F T H E I N V E S T M E N T 9 agreements are essential if local communities, civil society, or the That said, there can be no one-size-fits-all model for consultations. state are to be able to hold the investor to account regarding the Failure to recognize the unique nature of each community’s modes promises reached through consultation. Agreements should stipu- of social organization can be disruptive. For example, in one case late the consequences for noncompliance with the terms agreed. In the investor had to restart the consultation process from scratch the case of one investment, the agreement simply states that if the because the community’s structures and processes were not taken investor fails to fulfill the obligations agreed to through the consul- into account, and the appropriate people were not included the tation, the land will revert back to the community. first time around. Additional general guidelines to investors on how best to People affected by an investment often had insufficient means conduct community consultations may have been useful, but to raise grievances or seek redress. processes needed to be tailored to the particular local context. It was often the case that people did not know how to raise griev- Given the centrality of consultations to ensuring agricultural invest- ances or seek redress with the investor. This is a key means through ments contribute to positive outcomes for all involved, it is impor- which investors can be held to account. Most investors had a mech- tant that investors have comprehensive advice on how to get them anism through which staff could raise grievances. The employees right. This is a challenge. Even where investors had carried out com- interviewed were generally aware and satisfied with these pro- prehensive consultations, there were ongoing disputes with local cesses. But instances of effective grievance mechanisms for external communities, particularly regarding access to land, suggesting that stakeholders were rare. On numerous occasions, stakeholders that such issues were not adequately addressed during the consultation mentioned grievances during interviews claimed that they had no process. way of raising these issues with the investor. A significant amount of work has been conducted by various Some investors explained that they had a well-functioning infor- ­international organizations and civil society organizations to develop mal grievance procedure, such as the manager of the investment’s guidance for consultations.6 Many investors interviewed already phone number being widely available, stating that anyone could call follow standards set by certification bodies or the International with a grievance at any time. But the strength of such “open door” Finance Corporation’s (IFC’s) Performance Standards relating to Free, ­ etween procedures clearly depends on the strength of relations b Prior, and Informed Consent (FPIC). Certification schemes generally the investor and the local community; it is not hard to envisage offer detailed requirements on what consultation should entail. But situations in which people would be uncomfortable contacting the because investors only seek certification after they are already estab- investor directly, making such a process inadequate. lished, these bodies do not provide much guidance to those start- ing a new cultivation investment. The IFC’s Performance Standards The best examples of grievance and redress mechanisms are useful but not completely comprehensive either. Most notably, were those which were more formalized, typically involving a they only require investors to follow consultation procedures based Community Liaison Committee on which the investor and the on FPIC in specific instances involving indigenous communities. So local community were represented. A palm oil investment in ­ etailed and more comprehensive guide- there is room for more d Côte d’Ivoire had such a committee with representatives for vari- lines for agricultural investors on the issue of consultation. ous segments of the population (young, old, women, and so on) through which grievances could be raised. Meetings were agreed and minuted. There were few examples of grievance procedures 6 For example: FAO (2012b) Voluntary Guidelines on the Responsible which were monitored either externally or by the government or Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security (VGGT); Deng, D. (2012) Handbook on Commu- third parties. One rubber producer in Ghana had a liaison commit- nity Engagement; Human Rights Council (2011) Report of the Special tee on which the community, the investor, and local government Representative of the Secretary General on the issue of human rights and transnational corporations and other business enterprises. were all represented. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 10 C hapter 2 — B U I L D I N G I N R E S P O N S I B I L I T Y A N D S U S TA I N A B I L I T Y: I N I T I A L P H A S E S O F T H E I N V E S T M E N T Effective grievance procedures were more likely when local TABLE 2.1: Approaches to Environmental Responsibility communities were well-organized . . . SHARE OF INVESTORS WHICH HAD A: Published environmental policy 24 percent Interactions between the investors and local communities were Environmental management plan 49 percent easier when local communities are organized. At one investment, Environmental impact assessment 70 percent 84 chiefs from seven areas on whose land the investor was operat- Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. ing had formed a unified forum in which the community could raise issues and in turn resolve them with the investor. The investor has assisted by funding the construction of offices to host the forum. The internal EMP with goals, policies and mitigation strategies, but only forum dealt with grievances as well as negotiated benefit sharing 25 percent have a publicly disclosed environmental policy. arrangements with the investor. Although this was one of the more positive examples in the sample, this system does risk reinforcing SEIAs were too often “box-ticking” exercises to secure a license local power structures and denying access to the investor by locally to operate, rather than a tool actively incorporated into con- excluded individuals or groups, such as women or ethnic minorities. duct of the business. . . . and had knowledge of alternative remediation procedures. Many impact assessments were one-off assessments, not accompanied by a system of ongoing monitoring and adherence ­ Provision of information on how to hold investors to account must to recommendations for changes to operations. Some EMPs only be the responsibility of both the investor and the host country existed on paper and were not authentic tools used to manage government. Regarding the latter, there was notable divergence the environmental impact of the investment. In some cases, there between countries about the extent to which knowledge about was a stark divergence within the investor between head office alternative remediation procedures is institutionalized. In some ­ policies and the actual practices and situations on site. At one countries, there were many claims against commercial farmers investor, the country head office in the capital city possessed a ­because people have the knowledge and access to institutions nec- professional looking impact assessment, but the managers on essary for holding investors to account. In other cases, knowledge of the farm were unaware of its existence and therefore were not such procedures was totally absent. implementing any of its recommendations. Well-intended policies and documentation need to be supported by implementation, 2.2  IMPACT ASSESSMENTS ongoing monitoring, reporting, modification, and improvements to practices.7 Most investors had conducted a social and environmental impact assessment of some description, as dictated by national There were many examples in the sample of where recommenda- regulations or the demands of certification. tions contained within the impact assessment were ignored, to the detriment of the operation. For example, one impact assessment There was a noticeable trend in investors taking their environmental of an investment in Ethiopia warned of the existence of a large responsibilities more seriously, undertaking social and environmen- endemic bird population. The investor was nevertheless surprised ­ tal impact assessments (SEIAs), employing internal environmental to find birds on site eating the seeds and hurriedly had to employ management plans (EMPs), and making public their environmental 500 bird chasers to protect the crop. policies. Investors cited increasing pressure from host country gov- ernments as well as the demands of certification processes as key drivers for this trend. 7 The FAO’s study of FDI in agriculture found that negative environmental effects were often due to the lack of a proper environmental impact Around 70 percent of investors conducted an environmental impact ­assessment (EIA) prior to the investment and the absence of an effective environmental management system (EMS) during its implementation assessment (table 2.1). Around half of investors had an established, (FAO 2013). T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 2 — B U I L D I N G I N R E S P O N S I B I L I T Y A N D S U S TA I N A B I L I T Y: I N I T I A L P H A S E S O F T H E I N V E S T M E N T 11 SEIAs were most effective when their conduct was primarily the Investors noted the high costs associated with full-scale SEIAs responsibility of investors. and the need to ensure host country requirements are not overly burdensome. In eight cases, the investor had no involvement at all in the conduct of the impact assessment. It had instead been completed by the Investors interviewed pointed out that the conduct of full- government, land agents, or previous investors. Sometimes the scale SEIAs can be expensive. In some countries, the number of host country government had provided an impact assessment to independent firms qualified to perform these assessments is lim- ­ potential investors as a kind of investment incentive, or as a docu- ited, facilitating what investors perceived as exploitative pricing of ment designed to promote the attractiveness of a particular site ­assessments. This can be prohibitive to the attraction of investments to investors. These assessments did not assess the impact of the that countries need, particularly for smaller operations. Given many investment, but rather sought to prove the suitability of land, soil, investors are under severe financial constraints, a balance needs and other environmental conditions. This did not lead to good to be struck between ensuring investors are meeting their envi- outcomes either for the environmental impact or for the investor responsibilities and ensuring that requirements are not ronmental ­ itself because these assessments tended to be overly optimistic. prohibitively expensive. For example, one investor in a sesame estate complained that the To this end, some countries have undertaken so-called “strategic government-produced impact assessment described the risk of risk assessments” in which an environmental authority undertakes a excessive rain as minimal, yet the investor had subsequently had SEIA over a region, setting down areas which are suitable for agricul- its crops repeatedly destroyed by heavy rainfall, resulting in heavy ture, conservation areas, and guidelines for investors EMPs. Another financial losses over a period of 5 years. country has a system of rating potential investors according to Some investors had effectively outsourced the conduct of impact their size and staggers requirements so that stricter regulations are assessments to previous investors because no new assessment placed on larger enterprises. These are interesting initiatives worthy was undertaken and the new investor was not aware of exist- of further study; their success depends of course on practical appli- ing recommendations. Impact assessments are ideally living cation. It is important that such schemes are not used to facilitate documents, continually implemented and adjusted through- circumvention of environmental responsibilities. out the life of a project. As such, new investors should, at a minimum, be aware of the existing document, its contents, and recommendations. 2.3  TRANSPARENCY AND DISCLOSURE The government’s role in impact assessments was most effective There was an insufficient amount of publicly available infor- when limited to monitoring and ensuring proper conduct and mation for a fully transparent and accountable conduct of implementation. This included providing detailed legal require- ­ agricultural investments. ments covering what is expected of investors as well as stipulation Transparency and disclosure of information about investments stud- of requirements for third-party independent audit of such assess- ied was generally lacking. While there were some positive examples, ments. Mozambique provides a good example in this regard by this seems to be an area in which much better practices are needed. embedding the conduct of the SEIA as part of the consultation ­ In many cases, there was almost no information at all available to process. The SEIA must be conducted by the investor (at its own the public at large, other than a name listed on a government land expense) before a concession area can be granted. One meeting registry website. with local communities as part of the consultation process is dedi- cated to discussion of the outcome of the SEIA and agreement of Information was particularly lacking with regard to the terms and mitigation measures. process of land acquisition, and the extent and nature of incentives A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 12 C hapter 2 — B U I L D I N G I N R E S P O N S I B I L I T Y A N D S U S TA I N A B I L I T Y: I N I T I A L P H A S E S O F T H E I N V E S T M E N T provided to foreign investors. At the national level, some govern- disclosure of information to refute the claims an extensive public ­ ments have sought to rectify this via the publication of information made against it. on concession/land registry websites. But the information con- Transparency is complicated by the present controversy and tained therein is often incomplete and inaccurate. hostile atmosphere in which agricultural investments operate; Transparency and disclosure are particularly important in the investors were reluctant to disclosure information for fear that initial phases of an investment. This includes public informa- it would be manipulated and used against them. tion on prospective investors, the bidding and screening pro- On the other hand, investors expressed the concern that, given the incentives provided, the negotiated terms of agreements cess, ­ immense pressure investors, especially foreign investors, in agricul- ­ between investors and governments, or investors and commu- ture are under from civil society, the media, and others, transparency nities. In the sample, there was typically insufficient information can be counterproductive. Investors were reluctant to disclose even on who holds rights to use land and other natural resources for positive information about their operations due to fear that such agricultural production, how those rights were obtained, and information can be easily manipulated and used against them with what the contractual rights and obligations of different parties potentially severe repercussions, such as the withdrawal of funding are. Another key gap in public information was on the results of by partner investors. A simpler solution was to keep quiet and thus environmental ­ social and ­ impact assessments and subsequent to keep the spotlight off operations. environmental management plans. Similarly, the conduct and outcomes of consultations with communities were rarely made An example was an excellent SEIA voluntarily undertaken by an public. Financial and operational information on the investors investment in Zambia which highlighted the negative and positive was scarce, in particular regarding taxes paid. impacts of an investment on the local community. This was an inde- pendent, rigorous assessment that could usefully serve as a first-rate This lack of transparency had important consequences. Uncertainty example to other investors of the kind of assessment to undertake. about investor actions and intentions created a sense of fear and But it remained a private document because the investor feared resentment within communities nearby, with adverse conse- ­ that the one minor negative impact that was incidental to the quences for the investment. For example, some members of a local ­ operation would be used to criticize the investor. This was in spite community asked researchers whether the investor nearby planned of the wealth of positive findings about the impact the investment to take their land. This situation could in part have been avoided by has had on local incomes, food security, and the strong relationship greater transparency about the investor’s operation. it has with the local community. A lack of transparency worked against the investor in some cases. 2.4 PRESCREENING AND ONGOING MONITORING OF THE INVESTMENT A number of investors expressed significant frustration about Prescreening of agricultural investments by host governments unfounded criticism received in the media, as well as from civil could have been improved in many cases. society and, on occasion, international organizations. A bad public perception of the investment can have implications for its ability Prescreening of investors by host country governments often to obtain funding, especially in the present controversial atmos- ­ appeared cursory. In some cases prescreening involved little more phere surrounding agricultural investment. To the extent that than the submission of a business plan. In places where this largely the criticism of an investment is truly unfounded, it could be unregulated approach to investors was common, some govern- averted by better disclosure about operations. In fact, in one case, ments are now in the process of recalling allocations of land due a critical third-party report prompted an investor to undertake to the failure of investors to uphold the terms of the concession. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 2 — B U I L D I N G I N R E S P O N S I B I L I T Y A N D S U S TA I N A B I L I T Y: I N I T I A L P H A S E S O F T H E I N V E S T M E N T 13 While commendable in that the recall of land demonstrates gov- form of monitoring, typically by departments of agriculture, land, ernment monitoring and a willingness to deal with failing investors, labor, or the environment. But when government officials came to this also raises questions about the adequacy of governments’ initial assess agricultural concessions, they often focused on ensuring the prescreening. investor was meeting productivity targets, with little monitoring of the socioeconomic and environmental impacts of an investment. Host government officials indicated that more guidance on pre- The results or details of government monitoring were rarely made cisely how to screen investors was needed. The development of publicly available, making it difficult for other interested parties— detailed guidance will be part of further work, as described in chap- ­ be they local residents or civil society representatives—to hold ter 7. Governments should at a minimum assess the following issues ­ investors to account. prior to permitting investment into the agricultural sector: Investment in agriculture had in some countries proceeded at a ƒƒ The financial capacity of the investor. Does the investor have pace beyond that which governments could realistically assess a reliable cash flow, with sufficient additional funds to allow for the unpredictability of agriculture and particular local and monitor. conditions? Does the investor have sufficient funding to pay It is essential to ask whether the country in question has the human for expensive and lengthy consultations with communities and impact assessments? resources and expertise necessary to assess factors such as the ƒƒ The agricultural experience and technical expertise of the inves- financial and technical capacity of investors, the suitability and tor. Does the investor know how to grow the crop or man- viability of business plans, and so on, taking into account the various age outgrowers specified in the business plan? It is notable government departments that would need to be involved in a com- that for one-fifth of investors in the survey, the investment prehensive screening and monitoring processes. Wherever neces- constituted their first foray into agricultural investment sary, governments should consider how to improve their capacity (figure 1.8). and, in the meantime, consider slowing down or temporarily halting ƒƒ Investor experience and capacity for dealing with local com- the approval of new agricultural investments. The ongoing moni- munities. What indications are there that the company will toring of even a single agricultural investment requires a significant be able to carry out consultations based on the principles of free, prior and informed consent? What human and financial amount of time and expertise on the part of national governments. resources does the company have to undertake social and This is demonstrated by the example in box 2.2, where 21 officials environmental impact assessments? spent 3 working days checking for compliance with various condi- ƒƒ The suitability and viability of the business plan for supporting tions in the contract. local and national development goals. For example, if the host government is trying to stimulate rural employment, does Host country governments could draw on the notion of phasing the investment involve a labor intensive crop? Does the of investments recommended to investors in this report, both in investor have the intention and capacity to help improve terms of the number of investors accepted and the scale of the rural infrastructure and schools or is this purely a narrowly concession areas provided. In some instances land and conces- profit-motivated investment? sions have been given away faster than the host government’s Ongoing monitoring of agricultural investments by host gov- ability to vet and monitor investors. Better outcomes were ernments was often limited and productivity-focused. achieved for all when the host country was able to vet investors in advance (particularly with regard to financial and technical Investors frequently appeared to have a good relationship with capacity). Moreover, the government must be able to monitor local government officials, but this did not necessarily translate investments to see whether plans are being adhered to and com- into systematic and comprehensive monitoring on the part of mitments upheld. local or national administrators. All investors were subject to some A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 14 C hapter 2 — B U I L D I N G I N R E S P O N S I B I L I T Y A N D S U S TA I N A B I L I T Y: I N I T I A L P H A S E S O F T H E I N V E S T M E N T BOX 2.2: Government Monitoring In one country, a working group within the Ministry of Agriculture a. Conduct a social and environmental impact assessment conducts an annual assessment to evaluate the progress of all as soon as possible; if not, the company would be not large-scale agricultural investments against contractual condi- compliant with the law. tions set by the ministry. Prior to the assessment, the company b. Arrange to register the concession land as state private is required to complete a questionnaire to provide information land. on the status of land clearing and planting, construction of roads c. Cooperate with the Concession Land Lease Cost and infrastructure, manpower, crops and timber harvested. The Evaluation Committee for the purpose of assessing the company is then visited by a team of officials from the agricultural, fees payable for the lease. financial, and forestry­branches of the government. On the invest- d. Submit a detailed map (with coordinates) to the national ment seen by the UNCTAD-World Bank team, the most recent and provincial agricultural ministries to show the planted government visit had involved 21 officials who spent 3 working area at 2-monthly intervals. days checking for compliance with various conditions in the con- tract. The government team was particularly attentive to issues of While each of these recommendations may be desirable, boundaries (checking that no any illegal extension to the approved the first three raise the issue of why the government did not concession area had occurred), as well as progress made in land ask the investor to carry these steps earlier, that is, prior to clearing and subsequent planting of the agreed crop. Following the commencement of operations. The case is also illustra- the inspection, the company management is required to sign off tive of the government focus on productivity requirements, to on the working group’s evaluation, which includes recommenda- ­ eglect of broader social and environmental concerns. the n tions for remedial actions or improvement (to be checked at the next annual visit). After the inspection of the investment we vis- Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment ited, the company was issued the following directives: Database. 2.5  THIRD-PARTY CERTIFICATION investment. Investors cited the drive for certification as one key Certification was a useful vehicle through which investors could factor in the trend toward greater social and environmental respon- be encouraged to take a more enlightened approach to social sibility in agricultural investment discussed throughout this report. and environmental responsibility in their businesses. Improved business practices potentially brought about by cer- Twelve out of 39 investments surveyed were certified to one or tification include transparency, due diligence, external account- more nationally or internationally recognized standards. These ability, and a more comprehensive approach to consultations included crop-specific certifications (Roundtable on Sustainable with communities and the conduct of social and environmental Palm Oil, Better Cotton Initiative, 4C Association, UTZ Certified, assessments. In addition, certification can lead to tech- impact ­ More Profitable Sustainability-Socially Qualified [MPS-SQ]), non- nology transfer and improved integration of smallholders, to the crop specific social or environmental standards (Rainforest Alliance, extent that large-scale investors assist smallholders with meeting Fairtrade, International Sustainability and Carbon Certification the demands of certification. Certification can also encourage [ISCC]), and health and safety standards or quality standards (NOSA, consultations, impact assessments, and audits to occur at invest- International Organization for Standardization [ISO], hard analysis ments which have been running for many years and at which these and ­ critical control points [HACCP]). essential preinvestment procedures were not initially conducted. Often new national legislation for the conduct of these procedures Certification was generally perceived to be a key means through only applies to new investments; certification can in principle, how- which investors were encouraged to improve their social and envi- ever, require they are undertaken retroactively. These aspects are ronmental responsibility. The certification and accreditation process discussed in the specific context of the Roundtable on Sustainable provides an important incentive for investors to take on the cost Palm Oil in box 2.3. These lessons could usefully be applied to other of additional work and effort of applying principles to larger-scale crops and industries. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 2 — B U I L D I N G I N R E S P O N S I B I L I T Y A N D S U S TA I N A B I L I T Y: I N I T I A L P H A S E S O F T H E I N V E S T M E N T 15 BOX 2.3: The Impact of Certification in the Case of RSPO The Roundtable on Sustainable Palm Oil (RSPO) was established from stakeholders. Results of RSPO audits are on the RSPO in 2004 “to promote the growth and use of sustainable palm website. oil through cooperation within the supply chain.” The RSPO Conduct of SEIAs. New Planting Procedure (NPP) which among Principles and Criteria for Sustainable Palm Oil Production (RSPO other things requires a participatory Social Environmental Impact P&C) are a set of 8 principles and 39 practical criteria for produc- Assessment (SEIA) including consultation with all affected commu- ing palm oil sustainably. The RSPO Certification System certifies nities through the Free, Prior, and Informed Consent (FPIC) Process. companies that produce palm oil sustainably according to these principles and criteria.1 Consultation with communities. Consultations are conduct- ed as part of the NPP and are also conducted retroactively for The RSPO P&C and associated certification systems have a num- the purpose of developing indicators for assessing performance ber of key features which help to generate better approaches to against certification criteria. These consultations involve repre- social and environmental responsibility. RSPO provides a system sentatives from government, NGOs, and local communities. and structure which investors can use so that the approach to social and environmental responsibility is formalized, rather than External evaluation and monitoring. Independent audits are ad hoc. Certification is conducted by independent, third-party conducted to verify compliance with criteria and indicators. This evaluations. RSPO is not only useful for new operations or for is a key means to ensure that the SEIA and other commitments expansion but also provides motivation for retroactive social and are used as a part of ongoing business operations. environmental assessments and consultations, which may not be Integration of smallholders and technology transfer. required by law but are necessary for certification. Investors provide training and assistance to smallholders and out- At the investors surveyed as part of this research, the following growers in order to help meet the demands of RSPO certification. benefits of RSPO certification are evident: Sustainable land use. RSPO requires the maintenance of high- Greater transparency. Results of monitoring, audits, consulta- conservation value areas. tions, and other relevant documents are available upon request Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. 1 Further information is available at: www.rspo.org. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 16 C hapter 2 — B U I L D I N G I N R E S P O N S I B I L I T Y A N D S U S TA I N A B I L I T Y: I N I T I A L P H A S E S O F T H E I N V E S T M E N T T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 3 — T H E F I N A N C I A L A N D O P E R AT I O N A L P E R F O R M A N C E O F I N V E S TO R S 17 Chapter 3  HE FINANCIAL AND OPERATIONAL T PERFORMANCE OF INVESTORS Many investors were experiencing significant difficulty in Beyond these simple metrics, discussions with investors revealed achieving financial and operational success. that many perceived that their operation was in difficulty. Investors emphasized just how challenging it was to make agricultural Many of the investors surveyed were in financial and/or operational investments profitable and successful, particularly in a develop- ­ difficulty. It is a complicated business to make large-scale agricul- ing country context. Figure 3.1 reflects the issues which investors tural investments a success, especially in a developing country most often mentioned as material constraints on their operations. context. Table 3.1 provides some simple indicators of financial and The catalogue of risks, obstacles, and setbacks that investors experi- operational success.8 Around 45 percent of investors were materi- enced included dealing with local community issues, land disputes, ally behind schedule or operating below capacity. Fifty-five percent were unprofitable at the time of the survey. In spite of this, around TABLE 3.1: Indicators of Operational and Financial Success one-third of investors planned the acquisition (by purchase, lease, or INDICATOR OF OPERATIONAL / FINANCIAL SUCCESS YES (PERCENT) concession) of further land. Is the investor materially behind anticipated schedule or operating 44 percent below expected capacity? Three investments were struggling so badly that they intended Is the operation profitable at present? 45 percent to relinquish land. One rose grower had been granted too large Is the investment having trouble accessing finance or working 24 percent a concession area than it could develop with its available finan- capital? cial resources, and the host country had subsequently reduced its Does the operation have plans to acquire further land? 35 percent Does the operation have plans to reduce capacity or relinquish land? 9 percent land allocation. One sugar plantation had acquired land from the Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment government which was too heavily populated to set up opera- Database. tions and had requested to swap the land allocation for another area. One sesame operation had received a feasibility study from FIGURE 3.1:  Percentage of Investors Mentioning Particular the government which was overly optimistic; the environmental Constraints on Operations conditions and soil condition did not support the business model 0% 10% 20% 30% 40% 50% Host country policy envisaged. This investor was initially allocated 5,000 hectares and and regulation has subsequently asked to reduce its allocation to 1,000 hectares Infrastructure and then to 300 hectares. When surveyed it was actively using Employment around 40 hectares of the land. Suitability of environmental conditions Access to finance 8 A full assessment of the “success” of each investment would require benchmarking and normalization, in particular with regard to the age Land disputes of operation and its stage of development—as with any investment in- Water availability volving fixed costs, it takes time before the operation is profitable. Nev- ertheless, these indicators, combined with discussions with executive level staff at these investments, indicate the challenges of making the All investments Estate/Estate & outgrower Processors/Traders investments financially and operationally successful. Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 18 C hapter 3 — T H E F I N A N C I A L A N D O P E R AT I O N A L P E R F O R M A N C E O F I N V E S TO R S government bureaucracy, inadequate infrastructure, unsuitable for investors. Delays in approvals or licensing resulted in shifting soils, poor access to replacement equipment, human resources requirements as policies changed, meaning there was continually a issues, problems securing funding, and so on. Overall, investments new set of requirements to adhere to. which involved the acquisition of land felt these constraints more Investors also complained about excessive bureaucracy associated acutely than those that did not, with the exception of access to with obtaining authorization to export produce or to import inputs finance (figure 3.1). or equipment essential to the operation. In one case, an investor Investors noted the importance of host country governments was required to adhere to 33 separate steps in order to have its pro- in creating an enabling environment that allows investors duce certified for export. This gave rise to rent-seeking activity from to ­ survive, thrive, and contribute to the local community and government officials which negatively impacted the investment broader economy. climate. Host country policy and regulation was the most commonly cited Investors thought that more could be done by governments to constraint on investors’ operations. This included many different relax constraints related to access to finance, infrastructure, sourc- dimensions. First and foremost for foreign investors was the lack of ing of inputs, and employment (discussed below) and that too a clear, transparent, and consistent approach for foreign investment often much of the burden to provide services (for example, road in agriculture, including policies and procedures for the purchase construction) that would normally be the function of government or lease of land. Investors emphasized the importance of land map- fell on investors. ping and titling initiatives to improve security of land tenure and Access to working capital was a key constraint . . . minimize the risk of land disputes. Access to finance and working capital was a key constraint men- As discussed further in section 5.1, several investors had been tioned by investors. There were important exceptions, such as allocated land by governments, but subsequently found their ­ large agricultural multinationals, for which finance was relatively title impossible to enforce due to existing claims on the land. stable. Some agricultural operations relied on cash flow injections In these cases, investors felt misled about the status of the from nonagricultural affiliate companies. But a quarter of investors allocated land and also that governments provided insufficient were too cash flow-constrained (and were simultaneously having ­esolving the disputes that subsequently arose, in assistance in r difficulty getting access to funds at the right time) to match agri- ­ ecame politically sensitive and problems part because the issue b cultural seasons or the development plan. This led to critical delays ­ ddress. Weak justice systems and the were easier to ignore than a in project implementation. Purely domestic investments were ­ nforce contracts exacerbated this problem in some inability to e particularly constrained in their access to finance, in part because cases. Unrealistic feasibility studies and impact assessments, none could rely on multinational parent companies. There was a in which some investors perceived the government as having perception that governments were not doing enough to develop presented an overly optimistic case in order to attract investors, export trade finance, local development banks, and other facilities were another issue. that could help put domestic investors on an equal footing with foreign investors. Some investors thought that coordination between national and provincial authorities could have been better. Authorizations A concern was that while some investors were able to raise finance provided, or incentives offered, by local government were not for land acquisition (which was often cheap and in some cases respected at the national level and vice versa. In some cases, the provided free to foreign investors by the host government), they lack of stability of government requirements created problems had difficulties raising the capital needed to get the operation up T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 3 — T H E F I N A N C I A L A N D O P E R AT I O N A L P E R F O R M A N C E O F I N V E S TO R S 19 and running. Cheap credit offered by host country governments or was then sold back purportedly as outgrowers’ produce. Many ­ national development banks can be a key incentive for investors, investors were struggling with unexpected soil, weather, or other but can have adverse consequences if the productive assets (land, environmental conditions that hindered the development of their water resources) provided are not put to use. business as planned. Inadequate funding was a major cause of failures to live up to Most risks and setbacks materialized early on in the invest- expectations for development of projects, utilization of land, and ment and better preinvestment procedures could have helped benefit sharing within the community. Consequently, this led to identify them in advance. significant tension with governments and local communities. Some What is common to many of the constraints mentioned by investors investors may have unscrupulously relied on their acquisition of is that they could have been foreseen from an early stage and in land as a means to raise financing ex post, using the land that was many cases could have been avoided with proper preinvestment received at low cost as collateral. This underscores the importance due diligence, impact assessments, and consultations. For example, of governments assessing the true financial capacity of investors investors are hampered by land disputes which could have been before accepting investment proposals. identified by a community consultation, or by environmental fac- Stakeholders interviewed complained that investors’ working capital tors that could have been detected in a rigorous impact assessment. constraints had knock-on consequences. Failure to pay suppliers and Improved preinvestment due diligence is not only in the interests outgrowers on time was a negative impact raised in stakeholder inter- of the investor, it is also critical for the host country government to views, especially for processing and trading operations (figure E.6). ensure that investors have the best chance of success. Moreover, A common recommendation from outgrowers to investors was to do robust ongoing monitoring can identify struggling investments more to provide credit for inputs such as seeds and fertilizer. and prepare for, or elicit appropriate action to prevent, failure. Most . . . as were employment and land issues . . . investments do not fail overnight, but are beset with problems over a protracted period of time. By monitoring investors, host govern- Employment issues were also prominent constraints on operations, ments can prepare for the eventuality of failure, for example by con- in particular investors felt pressured to employ local staff, but faced sidering options, such as potential buyers in advance. As discussed practical difficulties in doing so (see discussion in section 4.1). Many elsewhere, failed investments can have severe repercussions for investors were expending significant amounts of time and resources the local community in terms of the void in employment as well as dealing with land disputes (see section 5.1). other areas such as social services which communities begin to rely on investors for. It is inevitable that some investors fail, but better . . . and other operational or environmental constraints. monitoring and preparation can help mitigate the negative impacts Finally, investors were frustrated by a range of operational and associated with failures. environmental constraints. Inadequate infrastructure can cause Some types of investment seemed to be more risky than others. difficulty in reaching national or export markets, or in receiving ­ essential capital goods or replacement machinery. Road conditions Some investments appeared to be more risky than others. Table 3.2 hinder the transport of critical inputs such as fuel to remote plan- shows some high-level indicators of the financial and operational tations. Poor rural infrastructure requires additional expenditure to success of the investments. New cultivation operations are highly make it adequate for the needs of the investor. Theft of equipment, risky with less than a fifth profitable at the time of the survey. Of fertilizers, electricity cables, and other items was often mentioned, course, a number of investments are in their early phases and would including theft of produce such as rubber from plantations which not expect to be profitable for a number of years. Nevertheless, A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 20 C hapter 3 — T H E F I N A N C I A L A N D O P E R AT I O N A L P E R F O R M A N C E O F I N V E S TO R S TABLE 3.2: Indicators of Success by Type of Investment TABLE 3.3: Indicators of Success by Size of Investment SHARES BEHIND SHARES BEHIND SCHEDULE OR SCHEDULE OR SHARES THAT OPERATING BELOW SHARES THAT OPERATING BELOW TYPE OF INVESTMENT ARE PROFITABLE CAPACITY SIZE OF INVESTMENT ARE PROFITABLE CAPACITY Investment in existing, successful enterprise 75 percent 11 percent < 1,000 70 percent 10 percent New processing facilities 71 percent 29 percent 1,000–10,000 41 percent 40 percent Rehabilitation of failing enterprise 33 percent 71 percent 10,000–50,000 63 percent 50 percent New cultivation-based operation 18 percent 64 percent > 50,000 33 percent 67 percent Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. Database. almost two-thirds are behind their expected schedule at present. something that investors could consider applying, and host country It sometimes takes several attempts to get an investment to run governments encouraging or enforcing. That is, rather than allocat- successfully. As such, investing in an existing, successful enterprise ing or accepting a large land area at the outset, the investor could is more likely to yield better results than attempts to rehabilitate a be offered a smaller but viable area to develop, in order to prove failing enterprise.9 the concept and feasibility of the business model. Once the con- cept is proven, as evident in the performance of the first parcel of Table 3.3 indicates that small investments in general tend to be land, the investor would then be allowed to apply for more land.10 more successful. Seventy percent of operations with less than 1,000 A foreign investor in a soya farm in Mozambique has employed such hectares were profitable and only 10 percent were behind schedule. an approach, initially obtaining 1,000 hectares and subsequently That is in contrast to one-third of large-scale investments of over expanding to 2,000 hectares once the initial land allocation was up 50,000 hectares being profitable, two-thirds of which are behind and running successfully. schedule. It is intriguing that 10,000–50,000 hectares operations appear to be performing better than 1,000–10,000 ones, which may be due to feasible scale economies, but with a limited sample size it is difficult to infer too much from this. There was a case for phasing investments, particularly new production and cultivation operations. Given the apparent difficulty of rapidly developing large operations involving extensive land areas, particularly for new investments, crops, or technology, there is a case for phasing investments. This is 9 This is in line with key findings from the World Bank’s retrospective study of 179 Commonwealth Development Corporation investments which finds that “The results showed significantly higher levels of failure among start-ups and investments in moribund enterprises, compared with investment in expanding existing agribusiness” (Tyler and Dixie 2012). Similarly, the FAO finds that “the data suggest that returns to in- vestment tend to be higher where the investor builds on existing ven- 10 There are various issues which imply this approach requires careful tures in a gradual approach, as opposed to new ventures which are the ­ design in order to be practical and commercially viable. For example, most risky type of investment. Greenfield investments to establish large subsequent land allocations would need to be next to each other, so the farms in unknown areas and relatively new industries (such as biofuels) investor can realize economies of scale. But that would involve holding are probably too risky to be recommended as a strategy for agricultural an area in reserve, thereby leaving a productive asset idle. These and development.” (FAO 2013, p. 324). other issues would require careful consideration. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S 21 Chapter 4 THE SOCIOECONOMIC IMPACT OF INVESTMENTS 4.1  DIRECT EMPLOYMENT benefits to incomes, food security, health, education, housing, and Employment was the main benefit arising from agricultural the general standard of living. investment. In total the 39 investments studied directly employed around 39,000 Provision of employment opportunities was the most frequently people, roughly split 50-50 between permanent and temporary or mentioned positive impact arising from investments, a view shared seasonal jobs (table 4.2) though the range was wide. The largest by employees and nonemployees alike. Perceptions of employment investor provided over 5,000 jobs and the smallest 28.11 were, on balance, very positive with regard to both jobs created and From a host country perspective, these employment benefits, associated pay and contractual conditions (table 4.1). though important, come with the associated opportunity cost of In many cases, investors created jobs for the first time in remote relinquishing productive resources (land, water) for investors to use. areas where no opportunities for formal employment had existed As such, the number of hectares each investor owns or has leased before. This was appreciated as a critical development impact for each job created provides an alternative measure of the ben- that corporate agricultural investors had on rural communities. efits of employment. Eight of the investors studied are, however, For example, one palm oil producer established over 2,000 formal processing factories or trading operations with virtually no owner- jobs in an isolated rural community in a postconflict country. In the ship or rental of land. These have together generated 2,571 direct interviews, the local community appreciated the accompanying jobs, although their existence of course depends on ownership or rental of land by those who produce inputs for the processing plant. Excluding those, estate or estate and outgrower business model TABLE 4.1:  Perceptions of Employment and Related Conditions, investments employed one person for every 20 hectares of their all Stakeholder Interviews total land allocation (table 4.3). NUMBER OF STAKEHOLDERS WHO MENTIONED Employment generation was neither dependent upon nor ISSUE MENTIONED IN A POSITIVE A NEGATIVE STAKEHOLDER INTERVIEWS IMPACT IMPACT typically associated with large allocations of land for use by Employment 119 16 investors. Working and living conditions of employees 55 13 of which: Among the sample of investors visited, although larger plantations Pay and working conditions 29 7 tended to create more jobs in absolute terms, they also required Living conditions of employees 15 0 Training 8 2 Unions and collective organizations 5 2 11 These figures represent gross rather than net employment generation. Child labor 3 0 Other studies have found that net employment benefits may be limited if new jobs replace former ones or self-employment, although the creation Health and safety 3 2 of indirect jobs can mitigate this reduction. Moreover, jobs may decrease Medical services 2 0 over time as investment projects become less labor-intensive through Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment greater mechanization (Cotula et al., 2009). These are questions to inves- Database. tigate empirically in one of the next phases of work of this research. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 22 C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S TABLE 4.2: Employment, Descriptive Statistics SUM OF ALL MEAN PER MEDIAN PER FEMALE INVESTMENTS INVESTMENT INVESTMENT MAX. MIN. SHARE(a) EXPAT SHARE(a) Total formal employment 38,810 979 688 5,278 28 34 percent 2 percent Permanent 19,832 509 200 3,086 28 24 percent 3 percent Temporary/Casual/Seasonal 18,348 470 180 3,700 0 45 percent 0 percent Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. (a) Not all investors provided female and expat shares. These percentages are based on the subset of investors who did. TABLE 4.3:  Hectares Per Job Created, Estate or Estate and Employment with an investor was generally well-regarded and Outgrower Model(a) sought after. HA / JOB A formal job with investors was generally sought after and well- Total formal employment 20 regarded for several reasons, including greater work and income Permanent 39 stability, an opportunity to shift from subsistence farming, other Temporary/Casual/Seasonal 41 Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment employment benefits (medical, food, accommodation, and so on), Database. and training opportunities. Formal employment generally repre- (a) Employment refers only to those formally on the estate. It excludes outgrowers used in the estate and outgrower model. sented greater certainty and stability (as opposed to, for example, growing own crops which is subject to the vagaries of weather, external demand, and other uncertainties). Employees appreci- FIGURE 4.1: Total Area of Investment and Job Creation(a) ated that the income generated by employment could be used to 14 purchase a wider range of crops (than possible under conditions of 12 subsistence farming), food, and other items to improve quality of R2 = 0.3957 10 life, such as transportation. As discussed in section 4.3, the impact of 8 such employment on food security was a commonly cited benefit Total (LN) arising from these investments. 6 4 However, the possibility of a failed investment and the conse- 2 quences that can result in terms of unemployment and lost income 0 warrant an important caveat. Formal employment only represents 0 20 40 60 80 100 120 Hectares per job stability to the extent that the investment itself is stable and suc- Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment cessful in the long run. Local communities which have become Database. (a) Excludes pure processing operations with low land allocations. reliant on employment with an investor may have few options if the investor fails and leaves the area. Local communities may lose their access to land if it is not subsequently returned to them when the more land per job created as compared with smaller estates, that is, investor has failed and left. The potential negative consequences the hectares per job ratio was higher (figure 4.1). The land needed to of failed investments underscore the importance of host country generate each additional job increase with the size of the operation. governments monitoring investors and preparing for failure, as dis- As such, large allocations of land to agricultural investors were not cussed in section 2.4. necessarily the most land-efficient means of employment genera- tion, although variations by crop need to be considered; and, in any Most investments visited paid higher wages than available locally case, job creation is only one measure of impact. and were sufficient to maintain a decent standard of living. Several T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S 23 FIGURE 4.2: Share of Permanent and Temporary Employees Permanent employees Temporary/seasonal/casual employees Percent 0% Investors 20% 40% 60% 80% 100% Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. interviewees compared wages at agricultural investments favorably complaint in stakeholder interviews. Contractual terms and condi- with those available at other industries in which foreign investors tions tended to be weaker for temporary or casual labor. In some were present (for example, the garment industry). cases there was no contract at all. Interviewees spoke of arriving at the company gates each morning, not knowing whether they There remain cases where pay is well below what could reason- would be employed that day or not.12 ably be considered a living wage. Employment of people residing within the immediate vicinity Wages in a few cases were, however, significantly below the of the investment generated positive outcomes. ­acceptable living wage and employees needed to supplement their income with other work. In the worst example, an investor seemed Employment in local communities can significantly contribute to unaware of what a sufficient wage level would be for local commu- local people feeling in partnership with the investor, and hence ­ nities, claiming that the level paid was adequate when researchers’ create better outcomes for all. On the other hand, inadequate pay conversations in a nearby town easily identified that it was inad- or other complaints about working conditions led to community equate. Permanent employees at this investment went on strike for tensions in some instances. Moreover, the management of expecta- an increase in salary, but were subsequently fired by the investor. tions is critical. The arrival of an investor can generate hopes of formal employment for local communities, but can result in tensions when There was sometimes a high degree of temporary or casual such hopes are not fulfilled, for example, because the investment labor, which offered limited stability. did not proceed as planned or the expectations were unrealistic. A significant number of jobs created were casual and seasonal, This speaks to the importance of close consultations (before the with limited stability. Around half of jobs provided by our investors investment and ongoing), so expectations of communities and were temporary, casual, or seasonal. This varied widely by invest- ment. For about 30 percent of investments surveyed, the share of ­ permanent employment was less than a quarter of jobs provided 12 The World Bank’s 2011 study The Rising Interest in Global Farmland (p. 69) noted that “local peoples’ appreciation for job-related benefits may … (figure  4.2). This lack of employment stability was a frequent be reduced if these jobs are only seasonal” (Deininger and Byerlee 2011). A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 24 C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S investors are in line. The survey included one instance where mem- A gender imbalance in employment was evident at most bers of the local community were coerced (with government sup- investments . . . port) to provide land to the investor in the expectation that they There appeared to be a gender bias in employment at the invest- would be employed in due course. However, the jobs did not sub- ments studied. Across the 24 investments which provided num- sequently materialize, resulting in fractious relations between the bers for female employees, around 35 percent of employees were investor and local community. women (table 4.2). Virtually all outgrowers were men. Only 1.5 Employment of expatriates was low in the sample, but not percent of outgrowers were women. One cooperative member all jobs went to the population directly surrounding the explained that this was due to obstacles women face in owning or investment. renting land in some places. Across all investments less than 3 percent of permanent employees As such, although investors claimed a large number of women were expatriates. These tended to be concentrated in management are able to access employment opportunities through agricultural and supervisory positions. The sample contained no examples of investments, their opportunities to find employment or be part of a foreign investors bringing large numbers of workers from home contract farming venture is far less than those available to men. At countries to undertake manual labor. In almost all cases, semi- the highest levels of company management, women were almost skilled, unskilled, and casual or seasonal employment was sourced completely absent—in only two cases did a woman respond to from host countries. But employees were not necessarily from sur- parts of the company questionnaire. The only exception seems to rounding communities and sometimes came from other parts of be administrative employees, where some companies have impres- the country, including capital cities. This in some instances led to sive gender parity statistics, with women representing 80 percent tensions between the local community and the domestic migrant of the office staff, or 50 percent of accountants in specific instances. community. Moreover, migrants from neighboring countries were . . . with women often confined to the worst jobs . . . sometimes employed to undertake the hardest and worst paid jobs that locals were not willing to do. There were instances when this Where women were employed, it was more likely that they were cas- created tensions between local and migrant communities. 13 ual, temporary, or seasonal jobs. Almost 60 percent of women were in jobs which fell into this category, whereas less than 45 percent of Hence there was a need for training programs that support the men employed were on nonpermanent contracts. As such, women integration of local communities into formal employment. were overrepresented in the worst paid and most insecure jobs. In While local employment may be desirable in terms of providing some cases the remuneration women receive is so low that it is diffi- benefit to the local communities whose area is affected by the cult to say that their employment was a positive impact on their lives. investment, it was not always feasible to find sufficiently qualified Women were disproportionately represented in the casual labor staff locally, particularly in postconflict countries or remote areas sector, in some particularly low-paid jobs, as well as for certain tasks, which were not accustomed to formal employment. As such, inves- notably seedling cultivation within plant nurseries, applying fertiliz- tors may need to undertake dedicated training programs to assist ers, and harvesting flowers, all of which have long been “feminized.” with local communities’ integration into the workforce. The con- That those in lower-paid and temporary jobs tend to be poorer and straints on employing local people in supervisory or management less educated is also strongly associated with the impact on women. roles are even greater. A separate and special fast-tracked selection . . . and gender issues were largely absent from investor con- of local staff, including training, education, career planning, and cerns and initiatives. monitoring effort, may help bridge the gap. While many investors disavowed active discrimination, there 13 The World Bank’s 2011 study The Rising Interest in Global Farmland (p. 69) were few positive gender opportunity programs. More generally, noted that investors employing migrants from elsewhere was a frequent social issue. (Deininger and Byerlee 2011). there was a lack of attention paid to gender issues across investor T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S 25 activities, including impact assessments, consultations, and benefit- 4.2 IMPROVING LIVELIHOODS AND MARKET sharing arrangements. The failure of most investors to consider ACCESS FOR OUTGROWERS the different ways in which women may be affected by particular Investors with outgrower schemes provided a reliable market policies and arrangements—and the limited number of initiatives for farmers’ produce, contributing to improving livelihoods. specifically designed to support female employees—was striking In the 11 investments that had outgrower schemes, there were and requires remedy. Only three investors had an explicit gender almost 150,000 outgrowers whose principal outlet for produce is the policy, an example of which is given in box 4.1. In some cases gen- investor (table 4.4). On balance, outgrowers had a positive percep- der initiatives have emerged in response to calls from local women, tion of the investors which they supplied. Key benefits mentioned an example of which is discussed in box 4.2. were the presence of a reliable buyer and relatively sure markets, better prices, training and technical support (especially to meet the BOX 4.1: Gender Committee requirements of third-party certification), and schemes to improve One oil palm company established a Gender Committee, com- access to finance. posed largely of female employees representing all sections of the operation, including the administrative staff. A key role of Investors generally purchased outgrowers’ produce for a the Gender Committee was to raise the awareness of female higher price than other buyers but prices were often disputed staff regarding their right to equal pay and reproductive rights. and pricing mechanisms were not well-understood. Importantly, the committee also provided a conduit for wom- en to report on violation of these rights. While it was evident The main advantage for outgrowers selling to major agricultural that the Gender Committee had made much progress in rais- investors was higher prices and reliable, timely payments—a ing the awareness on gender-related rights, it was unclear if the company’s grievance mechanisms were able to effectively ­ perception reiterated by senior management and outgrowers deal with gender-related complaints, with the committee alike. But even major investors faced cash flow problems and some head noting that cases of domestic violence had sometimes outgrowers—particularly those who have been assured a guaran- ­ been reported to the Security Department, but not adequately teed minimum price for all their produce—have sometimes not addressed or referred to the Gender Committee. been paid according to the agreed terms. More commonly, outgrow- ­ atabase. Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment D constraints. For ers lost money owed when investors faced capacity ­ crops that must be processed soon after harvest—including rubber, BOX 4.2:  IMPROVING ACCESS TO MARKETS FOR FEMALE sugar, and palm oil—this occurred when investors did not facilitate FARMERS timely pick-ups to transport outgrowers’ produce to the processing site, or lacked sufficient factory space to process the raw materials On a rubber plantation visited, there was currently only one market stall where women can sell the surplus food crops they once there. grow among the rubber. Because of the size of the concession, it was costly and time consuming for most women to get to Despite recognizing the advantage of selling to major agricultural the stall. The wife of a rubber plantation employee, who was investors rather than local buyers and middlemen, outgrowers nev- also the women’s representative for a local political party, was ertheless tended to feel excluded from price-setting mechanisms— instrumental in persuading the company to develop market these were usually set by the government, major industry players, stalls at central places around the plantation in order to make the investors themselves, or a combination of these actors, always it easier for growers and workers to buy and sell their own pro- duce. The same person pushed the company to provide busi- ness training to women linked to the plantation. This initiative, TABLE 4.4: Outgrower, Descriptive Statistics currently in the development phase, was an example of an en- FEMALE terprising and determined woman that has helped a company TOTAL MEAN MEDIAN MAXIMUM MINIMUM ( PERCENT) to adopt more gender sensitive policies. Outgrowers 149,638 13,603 1,534 120,000 60 1.5 percent ­ atabase. Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment D Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 26 C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S based in part on international market prices for the commodity. BOX 4.4:  Cooperative Views on Cocoa Price Stabilization Despite company efforts to inform their outgrowers of current Program prices and mechanisms, pricing was often contentious, with many One cooperative interviewed believes that the Government’s outgrowers voicing concerns about how their produce was quanti- stabilization plan for cocoa—which will introduce a fixed an- fied and assessed for quality, as well as the final sum they received. nual price and certain quality requirements (for example, farm- Thus there was a need for good communication between farm- ers will no longer be allowed to dry cocoa on the ground) for all cocoa produced in the country—will encourage more farm- ers and company management about how prices are set, as well ers to adopt good agricultural practices. Farmers will no longer as improved safeguards to ensure these prices were appropriately be able to sell substandard cocoa elsewhere and thus will sell remunerative (see box 4.3). their entire crop to the cooperative. At the same time, there will no longer be years where the price is high—and thus fewer Price volatility made some outgrowers’ livelihood precarious. opportunities for the cooperative to sometimes make high profits. The cooperative hopes that the government will set a Price volatility was a major issue for outgrowers. At the time of the truly fair price for cocoa that reflects what a farmer needs for a fieldwork, one national government was about to introduce a price decent standard of living. stabilization program, setting a fixed annual price for cocoa in their Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment ­Database. efforts to improve the livelihoods of the country’s many contract farm- ers. Investors and outgrowers were curious to see what the impact of this policy would be. Whether smallholders and businesses end up Income insecurity also relates to production peaks and troughs better or worse off in the long run requires further investigation; how- which characterize some crops, particularly cocoa. Unlike rubber ever, this was a policy initiative worth exploring. One cooperative’s and palm oil, which can be fairly consistently harvested throughout thoughts on the stabilization program are discussed in box 4.4. the year, cocoa farmers often complained of facing financial diffi- culties in the periods of the year where their trees produced little fruit. One cocoa investor had sought to respond to this problem by BOX 4.3: Inclusive Price Setting Possibilities paying outgrowers in installments, to ensure that their suppliers had In Indonesia, the price paid in each region for fresh fruit ­bunches cash at particularly expensive moments in the annual cycle, such as of palm oil was set monthly through a multistakeholder pro- the Muslim festival Eid and the start of the school year. Other inves- cess, involving members of the provincial plantation agricul- tors provided insurance cover for smallholders to protect against ture department, company management, and representatives crop failure. of cooperatives. Those present used a predetermined formula to fix the price; and one variable, the oil extraction rate, was the Outgrower schemes had several advantages. subject of much negotiation each month. Once a price was agreed, a formal notification was signed by the government, Contract farming operations allow farmers to remain in control of company, and outgrower representatives, obliging the inves- their most important asset, their land, thus avoiding disputes over tor to pay the set price. access to resources and community displacement. Outgrower This was a much more inclusive price-setting system than schemes also support far more jobs than estate farms; in the sample commonly seen elsewhere. But even in this case outgrowers were vocal about their perception that they were not being of investments surveyed, outgrower schemes employed one per- given a fair deal for their produce. Initiatives which bring small- son per 3 hectares of land whereas investors provided one on-farm holders into the price-setting discussions are to be applauded, job per 20 hectares of land. but need to be supplemented with more oversight to ensure that prices agreed enable smallholders to achieve a decent Most investors provided their outgrowers with agricultural training standard of living. and extension services, designed to help minimize disease and pest Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment damage, as well as augment the quantity and quality of the crops ­Database. grown. In most cases these services are deducted from the price T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S 27 paid to outgrowers. Outgrowers’ impression of this arrangement 4.3  FOOD SECURITY was mixed: some felt the prices they paid were too high, others The main impact of investments on food security was an indi- believed they were fair. rect positive one through the income effects of employment. Investors expressed varied views regarding the success of these All investors cited employment and subsequent impact on local training programs and services. While all had seen some improve- incomes as their key contribution to local food security. This was ment in the quality and quantity of crops they received, commonly also the most frequently cited food security-related benefit men- ­ euse expressed concerns included the tendency of outgrowers to r tioned in stakeholder interviews (table 4.5). Many employees stated seed, harvest late (when market prices are higher but quality their preferences for wages as a more stable source of income over lower), and a reluctance to spend money on inputs. This indicates subsistence farming—particularly because their incomes and food a potential weakness of these arrangements: in order to meet supplies were not as sensitive to climatic conditions, droughts, and quantity and quality requirements or expectations, outgrowers soil quality. may be required to use expensive, and environmentally destruc- tive, agricultural inputs. A number of investors also provide free or subsided food to employ- ees, both in the form of meals on site during the workday as well as The outgrowers interviewed who participated in certification grains for home consumption. These ancillary food security benefits schemes viewed those in a positive light. The key benefit men- to employees are positively appraised in the stakeholder interviews. tioned was associated training in improved agricultural practices But in one case, the substandard quality of the grains provided and business management. Certification has also improved market caused tensions between management and staff. A number of access, in particular by opening up international markets which estate-style investments also allow employees to grow food crops require certified produce. Some outgrowers mentioned premiums for domestic consumption on parts of the concession. and better prices for the produce of certified crops. But weighed against this, the demands of certified crops were noted as expen- But that relied upon jobs being sufficiently remunerative and sive and it was often questioned whether the premiums were suf- stable. ficient to justify those costs. Moreover, outgrowers complained of The positive effects of employment on food security depend on uncertainty about whether produce would be certified and delays the investor’s ability to negotiate the risks associated with farming in receiving premiums. and stay in business, as well as manage cash flow needed to pay Outgrower schemes were often only accessible to farmers that staff on time. Employment offered by investors was in cases casual, were relatively well-off already. unreliable, and offered little job or food security. Access to food can Outgrower schemes tended only to be accessible to larger, better- off smallholders. Many of the investors we visited stipulated that TABLE 4.5:  Perceptions of Food Security, All Stakeholder outgrowers had to have a minimum acreage to participate, as well Interviews as sometimes access to their own transportation. One investor NUMBER OF STAKEHOLDERS mentioned the growing tendency for agricultural companies and WHO MENTIONED A POSITIVE A NEGATIVE development NGOs to invest in cooperatives—effectively diverting ISSUE MENTIONED IN STAKEHOLDER INTERVIEWS IMPACT IMPACT resources to the farmers that are already doing quite well, to the Impact of employment on food security 26 6 neglect of those who need the most help. The same can apply to Community food programs 14 2 certification schemes which may not reach the most marginalized National food production 9 0 Impact of change in crops grown locally on food security 8 2 farmers. Some investors were considering how to look beyond the Changes in access to land impact on food security 1 4 “top of the farmer pyramid” and initiative schemes to reach more Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment marginalized farmers. Database. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 28 C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S only be improved if employment provides sufficient and consis­ TABLE 4.6: Type of Crop and Destination for Output tent remuneration that enables employees to provide an adequate ALL INVESTORS standard of living for themselves and their families. While many PRINCIPAL MARKET FOR OUTPUT employees were satisfied with the wages they received, there are Crop Foreign Domestic Food crop 32 percent 34 percent also a number of cases where people were not being paid a decent Nonfood crop 26 percent 8 percent salary. FOREIGN INVESTORS  Changes in access to land had detrimental implications for PRINCIPAL MARKET FOR OUTPUT Crop Foreign Domestic ­local food security. Food crop 36 percent 29 percent While stakeholders were generally positive about food security Nonfood crop 29 percent 7 percent impacts, some mentioned a negative impact through reduced DOMESTIC INVESTORS  PRINCIPAL MARKET FOR OUTPUT access to land and associated natural resources for local communi- ­ Crop Foreign Domestic ties. One local community complained that through a resettlement Food crop 18 percent 55 percent negotiation their land holdings had been reduced from a range of Nonfood crop 18 percent 9 percent 2–15 acres to around one-quarter of an acre. This had negatively Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. impacted their ability to both produce and procure adequate food for themselves and their families. products priced for urban consumers. Thus, while some investments Another frequent grievance was from pastoralists and others have increased the amount of food available within a country, this whose access to land, natural resources, and water is restricted should not be confused with necessarily improving access to food investor demarcates its farming operations. The fencing off once an ­ for those who need it most.14 of land, although understandable from an investor’s perspective, impede local access to particular resources if areas and routes may ­ The sample also provides evidence that differences exist between become unusable. One female community member explained that ­ foreign and domestic investors regarding this issue. More foreign she and other women in the village used to collect wild spinach and investors produced food and nonfood crops for foreign consump- a variety of other edible plants on land they no longer have access tion. Around 65 percent of domestic investors’ produce is aimed at to, due to an electrified perimeter. First and foremost, the responsi- the host country market, whereas this is only the case with a third bility of investors with respect to food security should be to ensure of foreign investors. Over half of domestic investors grew food crops that existing strategies for producing and procuring food are not for domestic consumption. adversely affected by the investment. Long-term food security impacts of investor-led initiatives to Investors only made a limited direct contribution to national improve the agricultural productivity of local communities food production and security. requires further study. The most direct means through which investment in agriculture can Investors in the sample utilized a range of techniques intended contribute to national food security is if the operation grows food to improve the productivity of local smallholders (that is, local crops for domestic consumption. In the sample only around one- third of investments produced food crops for which the principal 14 This is similar to findings in the FAO’s study of FDI in agriculture which states: “As a majority of foreign investment projects aim at export mar- market was domestic (table 4.6). While two-thirds of investors did kets or the production of biofuels, they may pose a threat to food secu- rity in low-income food-deficit countries, especially if they replace food in fact produce food crops, in half of these cases this was primarily crops that were destined for the local market. The net effect on food for consumption abroad. Even where food was for markets in the security will also depend on the additional income generated by the project, its sustainability and how it is distributed in the local economy” host country, investors generally produced higher-end agricultural (FAO 2013). T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S 29 smallholders that are not outgrowers supplying the investor). for additional assistance during times of low production. Investors One investor made specific efforts to help local households to and governments could consider introducing more stable pricing prepare land for planting. A number of investors provide training ­ mechanisms—such as minimum price guarantees and accessible to local residents—usually on demonstration plots managed by the relief funds in case of crop failure—to help ensure that outgrowers company—in alternative planting techniques, as well as the utiliza- ­ have access to food throughout the year. tion of particular inputs and technologies. These programs indicate Changes to what was grown locally could reduce local food a desire on the part of some investors to improve local livelihoods security. and food supplies. But most of these projects are in their initial phase and their long-term results require further research. Even if In the majority of cases in the sample, investors introduced a crop they are able to increase local productivity in the short term, these that has not been grown in the area before. Most also promote the schemes may also create dependence on expensive agricultural extensive cultivation of one or two crops. This can make the region inputs, with detrimental consequences for livelihood sustainability more susceptible to pests and diseases, as well as to declining com- and the environment, both in terms of chemical degradation and modity prices, and therefore have detrimental consequences for loss of biodiversity (for example, where they encourage the use of local food security. Growing a range of crops is the best defense agrochemicals and store-bought seeds). individual smallholder farmers have against the vagaries of climate, pests, and diseases. To some extent, the potential negative effects Moreover, there were no examples in the survey of investors which on both food and livelihood security can be mitigated by the inter- investigated and learned from local agricultural knowledge and cropping of cash crops with food crops intended for domestic/local techniques. The significance of this knowledge—by nature highly consumption, which some investors encouraged. adapted to the particularities of the local context—to supporting sustainable food production and improving rural livelihoods has been emphasized by a considerable body of experts.15 Rather than 4.4 SOCIAL DEVELOPMENT PROGRAMS AND assuming external methods and inputs are the answer, investors FINANCIALLY INCLUSIVE BUSINESS MODELS may wish to consider more collaborative means for improving There was a notable trend toward social development pro- productivity. grams in agricultural investment, with most investors having a social or rural development initiative of some description . . . Investors improved food security through access to markets for More investors are setting up social or rural development programs outgrowers. to assist local communities.16 Table 4.7 summarizes the range of ini- Investors can contribute to the food security of outgrowers by pro- tiatives provided by investors in the sample. These were generally viding a reliable market for their produce. Outgrowers interviewed viewed positively and appreciated by stakeholders as a key con- confirmed that investors make more reliable paymasters than tribution investors made to rural development, particularly those itinerant middlemen—and thus indirectly support a more regular operating in remote areas. food supply. But being part of an outgrower scheme is far from This trend does, however, raise questions which are beyond the ­ assured food security. Outgrowers remain vulnerable to the vagar- scope of this report about the respective roles of the public and ies of international demand and pricing conditions. Moreover, some private sectors in developing countries in the provision of social crops have cyclical harvests and so only provide income at certain services. The social development programs in the sample of times of the year, whereas others offer more stable cash flow (for example, cocoa vs. palm oil). Cocoa outgrowers spoke of the need 16 The FAO’s study on agricultural FDI in developing countries also found numerous examples, including: The Integrated Tamale Fruit Company in Ghana (p. 205); Socas in Senegal (p. 279); MBSA and PSM in Mali (p. 243); 15 See, for instance, McIntyre and others (2009). DAK LAK in Cambodia (p. 181). A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 30 C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S TABLE 4.7:  Social/Rural Development Programs and Revenue- BOX 4.5: Examples of Investor Support for Local Education Sharing Arrangements A rubber plantation in Liberia with a large concession area on TYPE OF BENEFIT OR REVENUE-SHARING ARRANGEMENT PERCENT which many people reside had an education program at a cost Internally designed and agreed social/rural development program 21 Social/rural development program agreed formally with local community 36 of US$500,000 per annum. The program was aimed at the child Explicit revenue-sharing agreement with local community  5 dependents of employees, both permanent and contract em- Occasional, ad hoc assistance provided, not formalized or agreed 28 ployees on a free basis, plus community children from outside ELEMENTS OF BENEFIT SHARING PROVIDED BY INVESTORS the plantations at a small fee. There were schools from primary Provision of education or school infrastructure to local communities 73 to senior high level for 6,263 children with 70 teachers being Provision of medical services to local communities 70 employed and housed. The quality of teacher was considered Provision of other rural community infrastructure (for example, town halls, 68 to be at a better standard than the average government em- football fields) ployed teacher and were paid at higher rates. The investor of- Improvements to local housing conditions 65 fered bursaries to school leavers to study further and have facil- Schemes to improve local water access 57 itated scholarships for them to attend the national university’s Construction of roads for public use 51 agricultural faculty. Schools were spread across the plantation Schemes to improve access to finance 43 Construction of farming infrastructure (for example, mills, storage) 30 areas for easier access by pupils. Company buses transported Improvements to local electricity access 30 the children to school, and shelters have been constructed at Loan of machinery to local farmers 27 the stops as protection against the rain. Support to local law enforcement 19 An investor in Vietnam had established an education charity. Explicit gender equality initiatives 16 The focus was on education of the children of the rural poor Explicit initiatives to support marginalized communities 11 who do not have any opportunity to attend school. The first Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. school was established within a year of starting operations and 58 schools have been built which were attended by more than investors are not necessarily the ideal model for the provision of 13,000 students. The company’s aim is to build a total of 75 social services. When such support is not coordinated with govern- schools to educate 17,000 children by 2015. The program is a partnership between employees, dealers, and customers who ments it may undermine host country policy and universal access. served voluntarily in the process to raise funds for the project. Nevertheless, there does appear to be an increasing expectation on To date, more than US$3 million has been raised through this investors, particularly foreign ones, to establish such programs. collective effort. The volunteers also work closely with local au- thorities in the constructions of the school. . . . providing social services . . . Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment ­Database. Education was the most frequently cited social benefit to local com- munities provided by investors (box 4.5). The nature and degree of support varies. Measures taken include: full-scale construction of of surrounding communities. Investors in deep rural areas develop schools; improving school infrastructure (providing electricity, water roads, electricity, telecommunications, and other facilities that come facilities, new desks, and so on); financial support to government- to benefit the local community. The construction of roads in par- run schools; provision of scholarships or bursaries for further educa- ticular is seen as a key benefit in opening up areas and providing key tion; supplementing local teachers’ salaries; provision of transport ­development benefits through improved access to markets (box 4.6). to/from schools; and adult literacy programs. Additionally, invest- . . . and improved access to finance. ments provide an indirect benefit to education possibilities because the income from employment allows people to afford schooling for Investors have supported local communities’ access to finance in the children. different ways. Most common were the provision of inputs (ferti- lizers, seeds, weed control, trees) on credit for outgrowers. Others . . . rural and farming infrastructure . . . ­ included the provision of microfinance loans and funding construc- In addition, investors play a key role in the development of rural tion of local infrastructure, including ATMs. Investors often stood as and farming infrastructure, for their own benefit as well of those guarantor for microfinance loans for outgrowers or smallholders. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S 31 BOX 4.6: Benefits of Improved Road Access BOX 4.7: Investor-Smallholder Joint Venture Microfinance Fund An investor in Cambodia has constructed and improved road One investor had established a microfinance fund which was infrastructure in surrounding villages that resulted in better ­ half owned by the investor and half owned by a local small- access for the residents and improved access of local farm pro- ­ holder cooperative. The fund lent to small-scale sugarcane duce to markets. The investor built a 4-km road to connect a growers who were not able to obtain credit from commer- key junction with its farm and has maintained a 50-km section cial banks. The fund provided finance for cane establishment, of government road. The total cost of construction and mainte- ­ repairs and maintenance, ratoon management and had a nance was between US$40,000 to US$50,000. One nearby town lease finance facility on communal land. All loan repayments did not exist prior to the improvement of the road access. Only ­ occurred through concessions registered with the mill against a few families lived in the area and although farmland was allo- delivery of the crop. ­ cated to the local population as part of a government scheme, Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment it was left largely uncultivated because of inaccessibility. Today, ­Database. it is a busy town with a population of about 600 people. Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment ­Database. negotiated and agreed with the communities that it was designed to benefit (table 4.7). At one end of the spectrum there were explicit, Nevertheless, access to finance remains a key constraint for many written, co-signed agreements between local communities and outgrowers and smallholders. A key recommendation from stake- the investor, negotiated through a process of consultation on local holder interviews was for investors to do more to improve access to development visions and needs. At the other end, some investors finance. Although there is evidence suggesting that interest rates on provided assistance to local communities on a discretionary basis loans investors offer were lower than those offered by commercial when a request arose, without any formal agreement or commit- banks, there were still a number of interviewees who complained ment on the part of the investor. There were four investors in the about the terms and conditions of loans. sample who appeared not to have provided any social or rural sup- port to local communities at all. These investors remained isolated A number of constraints limit the ability of investors to provide from local communities, with little knowledge of local development microfinance. First of all, many investors are themselves financially visions and no programs or efforts to support these communities. constrained and looking for additional working capital. The lack of bridge or commodity finance from local banks exacerbates this Almost 60 percent of investors have some kind of relatively formal- problem. Secondly, several investors cited the difficulty in ensuring ized social or rural development program (defined as, at a minimum, that terms of loan contract were upheld, in particular the condition an internally agreed program with objectives and funding). Only that the produce of outgrowers benefiting from the loan is sold to about 40 percent have an explicit agreement with local communi- the investor. This is an especially serious issue in countries where ties about the benefits to be provided. As such, a significant number contract law is weak. Some investors have a policy of not engaging of programs are decided within the company without consultation in financing schemes because violation of such provisions is rife, or agreement with the local community. Consequently these pro- especially in the case of rubber. One positive example improving grams contain no binding commitments or enforcement mecha- access to finance through partnership between the investor and nisms. In some instances, development programs have been agreed smallholders is mentioned in box 4.7. at a national level without due consultation with local communities about their particular development needs. The extent to which social development programs were formal- ized, negotiated, and committed to varied . . . . . . which had important implications for fostering genuinely inclusive development. Important defining characteristics of the benefit sharing arrange- ­ rogram ments in the sample were the extent to which the scheme or p The most successful and appreciated benefit sharing programs represented a formal commitment, and the degree to which it was were those in which the local community had been consulted A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 32 C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S BOX 4.8: Financially Inclusive Business Models communities or government, rather than the investor. For example, the External Relations Manager of one investor met with six local The land on which an investor in Ghana operates a rice communities annually to discuss, assess and prioritize community plantation belongs to the local community. The investor has ­ a 50-year renewable use right over a 1,000-hectare site within development programs. Another company’s commitments to the community’s land. The payment for this use right is a share projects were based on a needs assessment undertaken by the of the revenue made from crop sales. The community receives Community Development Officer, and the projects identified in 2.5 percent of revenue for first 5 years, thereafter 5 percent. It consultation with communities were presented in the budget for is significant that this is based on monthly turnover because that is a transparent figure, calculated and paid at the end of the coming financial year. each month. Benefit-sharing arrangements based on profits Explicit revenue-sharing arrangements were rare but seemed are i­nferior because profits are calculated once a year, with a lag and subject to manipulation. The revenue the community highly effective in forging genuine partnerships between receives is placed into a community trust which the commu- investors and local communities. nity spends on development projects at its own discretion. It can be spent on infrastructure development and projects that The sample contained two explicit revenue-sharing arrangements, increase the value of the land. The council-appointed commit- as described in box 4.8. In these arrangements, the investor is tee administers this fund. They collect project suggestions and operating on community or native land and, rather than renting vote on the priorities. the land, had entered into a revenue-sharing arrangement based In addition, the investor has made a commitment to a corpo- on a certain percentage of the monthly turnover. These schemes rate social responsibility program funded by 7.5 percent of net profit, which goes into a trust/foundation to be used for com- are beneficial because they provide a continuous revenue stream munity development and spent on initiatives such as schol- across generations and genuine community-private partnership in arships and potable water. As a consequence of this scheme, which communities take an interest in the success of the operation. local community leaders and members interviewed claimed Such schemes have served to forge genuine partnerships in which that they saw themselves as genuine partners in the invest- local communities jealously guard the investor’s operation and take ment and had a stake in ensuring its success. a strong interest in ensuring its success. This kind of arrangement is Since 2011, a palm oil company in Sarawak (Malaysia) has rare, but it holds a general lesson that communities must be actively adopted a new business model whereby the company rents land from the owners of Native Customary Rights (NCR) land consulted and involved in the determination of which social proj­ to develop it for cultivation of oil palm for a period of 30 years, ects to undertake. ­ after which the land and the palms will be returned to the owners. The company will bear the costs of development and Given these trends, governments could afford to be selective after the third year when the palms start to bear fruit, the com- about the investments and negotiate commitments for social pany will pay each owner a fixed rental per tree until the expiry or rural development. of the 30-year lease. The company has chosen this model as it is viewed as a more equitable and fairer proposition than the The rising interest in global farmland and the trend toward greater approach used by other companies in Sarawak whereby about social responsibility is a combination that host country govern- 60 percent of the ownership of the land would be eventually transferred to the company and the NCR owners would have ments can, and should, be using to their advantage. Host country only 30 percent ownership. governments can afford to be more selective about the foreign Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment investors invited to the country. They should ask what benefits the ­Database. investor is going to bring to the host country, negotiate those terms, and obtain commitments in writing as part of the investment con- tract or agreement. about local development visions and had a say in the project and how funds were used. This included investors making regular pay- It seems that too many investment concessions or agreements have ments into community charities or trusts which are administered by been provided in recent years to investors whose contribution to T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S 33 the host economy or local community is limited at best. Developing BOX 4.9: Technology Transfer in Rice Contract Farming countries are now in a position to take pause to consider how to One investor in Cambodia had developed a rice contract farm- make sure that the best kind of investors are attracted. This includes ing system whereby the company supplied improved fragrant consideration of what social and infrastructural benefits the investor rice-planting materials to farmer groups. An average farmer will bring to the host country. cultivated about one to 1.5 hectares of fragrant rice, using rice seeds provided by the investor. After retaining part of the har- vest for their own consumption, the farmer sold all production 4.5  TECHNOLOGY TRANSFER to the investor. The investor agreed to buy all the production from the farmers at market prices and provided a guaranteed Foreign investors were in some cases instrumental in intro- minimum price as an assurance to farmers. The rice from the ducing and encouraging the adoption of new technology and contract farms was milled at the investor’s rice mill and the final farming practices. product is sold in the national market (about 80 percent) or exported. One key means through which the investor can create shared value The investor provided technical support and training to for the host country and local communities is through the diffusion contract farmers on the appropriate techniques for rice culti- ­ of new technology and farming practices. Foreign investors can be vation. Farmers were given training on the use of proper agri- instrumental in bringing in technology and professional expertise cultural practices such as scheduling of various field ­operations needed for local producers to develop an export market for their (for ­example, ploughing, planting), optimal planting densi- ties, nonuse of chemical fertilizers and pesticides, and so on. produce, particularly through training on how to meet the require- Extension service staff visited farmers during the growing ments of certification. Box 4.9 provides an example of the kind of season and provided advice on how to address any problems technology transfer that investors have facilitated. observed during the visit, for example, on how to overcome attacks by insect pests. Participants in this scheme noted the The types of technology transfer seen in the sample included the higher yields resulting from the better quality seed inputs and provision of technical advice on growing practices and disease mini- technical support provided by the investor. The working rela- tionship between farmers and the investor was perceived as mization; land preparation; demonstration plots; irrigation scheme positive by both parties. development and maintenance; and provision of better yielding Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment seed varieties. Some investors also provided business training to ­Database. smallholders on, for example, how to budget and manage cash flow. Agricultural corporations with similar operations in other countries the sample, whose demonstration effects or pioneering innovations are in a particularly good position to provide technical support to have generated widespread benefits. For example, one investor has local operations because they can draw on experience learned been instrumental in bringing certified coffee to its host country, as elsewhere. Other types of investors, and those which may be new discussed in box 4.10. to agricultural investment, are less likely to disseminate technology. Technology transfer was by no means assured and often is con- In rare instances this had a catalytic effect that generated ben- fined to those outgrowers that directly provided inputs to the efits far beyond the investor itself. investor. Research undertaken by the World Bank indicates that in a small Some investors, however, do little to diffuse better farming practices number of cases, an agricultural investment has a pioneering, cata- or technologies. Raw materials were imported or grown on site and lytic impact of which benefits extend far beyond the investment in the produce was destined for export. This business model was to be question (Tyler and Dixie 2012). These investments spawn a sector a self-contained unit, with few interactions with the host country. which has wider benefits for the host country and a range of stake- Those investors that did have a formalized program for training of holders within it. This is also true for a handful of investments within and technical support for local farmers, tended to be focused on A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 34 C hapter 4 — T H E S ocioeconomic I M PA C T O F I N V E S T M E N T S BOX 4.10: Investor Support for Certified Coffee Host country governments should seek to encourage technol- ogy transfer. One coffee investor in Vietnam has been instrumental in pro- moting sustainable coffee production in the province in which it A key role of host country governments is to consider how the ben- operates. It set up the first automated coffee processing ­ factory, efits of agricultural investment can be maximized and shared, such has pioneered the establishment of a sustainable coffee s ­ upply chain involving thousands of small farmers, and has introduced that they accrue not only to the investor but also the local commu- Fair-Trade coffee into the host country. The investor has support- nities and the host country more generally. In this regard, a key fac- ed training of more than 2,800 coffee farmers covering 4,500 tor for host governments to consider when appraising investment hectares on sustainable production practices and assisted them applications is whether the proposed investor has any schemes or to be certified against various sustainability standards for coffee. intention that will ensure that improved farming techniques, supe- It has helped to build two Fair-trade certified farmers’ coopera- tives in the province. Farmer training courses and manuals have rior inputs, or other factors which provide investors a comparative been produced, based on the requirements and processes for advantage will also accrue to others. Indeed, host countries should compliance to various certification standards, including: push investors to do better in this regard. Some have already suc- a. 4C Association Principles for coffee production cessfully done so as described in box 4.11. b. Fairtrade principles on sustainable coffee farming techniques c. UTZ certified principles and sustainable coffee farming BOX 4.11:  Government-Promoted Scheme to Improve practices Rice Yields d. Addressing issues on Rain Forest Alliance sustainable One investor is operating in a government-identified develop- coffee program and improvement of agricultural ment corridor in which the country’s president and his office practices. take particular interest in the potential to contribute to small- The investor is also an active participant in numerous inter- holder development. The host country government laid down national initiatives aimed at improving the sustainability per- a challenge to investors to transfer skills. formance and profitability of coffee farmers. Interviews with In response the investor introduced a scheme to improve rice stakeholders revealed that these initiatives have made signifi- yields of local farmers living in villages close to the farm. The cant impacts on the well-being of the farmers. Implementation investor provides seeds, fertilizer, and mechanical weeders to of better management practices resulted in higher productiv- each demonstration plot which is ¼ of an acre. Smallholders ity and quality of their produce. Farmers are assured of a mar- have been trained to identify and eliminate bad seed, plant ket of their certified coffee beans, at premium prices. rain-fed seeds on a grid, space the seedlings to improve pro- Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment ductivity, and use mechanical weeders. The investor provides ­Database. extension officers and lends a combine harvester to villages. Once farmers have been involved in the scheme for over a year, they can enter the second phase through which the investor providing support to outgrowers to provide inputs to the inves- helps them to obtain loans from a microfinance institution and tor’s operation (see discussion in section 5.4). Evidence that the acts as guarantor. The microfinance institution also provides improved technology and agricultural practices have diffused more training in business skills of managing finance. broadly in the host country are somewhat limited.17 This system has seen an increase in yields of up to 400 percent. The project is being gradually scaled up and now has foreign 17 The evidence on technology transfer in the FAO’s study on FDI in agricul- aid funding for the next 4 years. The system operates in 10 vil- tural investment is similarly mixed. There are some positive examples of lages with 56 demonstration plots and around 1,300 farmers adoption of new production technology, such as in the tomato export industry in Senegal or the adoption of improved crop varieties, such as involved. Farmers who participated in this scheme noted a dra- the introduction of a new rice variety in Uganda. In some investment matic increase in yields due to the training received on seed projects involving outgrower schemes and contract farming, small farm- selection and planting techniques. ers have acquired new skills through either formal training organized by the project’s promoters or by working on the nucleus farm. But the Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment studies suggest that the actual transfer of technology is seldom up to ­Database. the level announced by the investors. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 5 — L A N D R I G H T S A N D A C C E S S 35 Chapter 5 LAND RIGHTS AND ACCESS 5.1  RIGHTS AND ACCESS TO LAND acquisition, resettlement procedures, access to and use of the land Disputes and dissatisfaction pertaining to changes in access to by communities, the degree of land use by the investor, and the land were the main negative impact of investments studied. rights of pastoralists and other customary land users (table 5.1). Reduced access to land was by far the most frequently mentioned The rights of pastoralists were a frequent grievance . . . negative impact of investments in the sample. People’s lives in rural A frequent grievance was from pastoralists and others who cus- communities are intimately tied with their access to land and other tomarily use the land whose access was restricted once an investor natural resources and the arrival of an investor can have significant moved in and demarcated its farming operations. Impediments to implications. A nonexhaustive list of the grievances with regard to cattle grazing, fishing in water sources, and collection of firewood changed access to land is as follows: or nontimber forest products could further marginalize individu- ƒƒ Commitments made to the local community as part of land als who already suffer from insufficient access or rights to land. In acquisition were not kept some cases, the investor interviewed said that no such groups used ƒƒ Dissatisfaction with the terms and process for resettlement the land in question, but researchers were easily able to identify (see discussion in section 5.2) aggrieved parties near the property boundaries. This is indicative of ƒƒ Land granted overlaps with community forests, sacred sites, inadequate consultations which did not consider customary users or other protected areas of the land. ƒƒ Local communities were denied rights to continue to use land that had been occupied and cultivated for many years, When investors have undertaken consultations with pastoralists, albeit without formal title, including that which had been outcomes seem to have been more positive. One investor agreed left dormant by previous investors to develop pastureland for use by cattle owners as supplemen- ƒƒ Reduced access to grazing land for pastoralists and other customary forms of land use, such as gathering wild plants, tary grazing during winter months. Another investor agreed to hunting, fishing, firewood collection investigate the potential to use rice straw and husks, with addi- ƒƒ Impediments to access to roads or the ability of local com- tives, for use as animal feed to, in part, offset the reduced access munities to traverse the land, instead having to travel around to grazing land. Another dug canals and water sources for cattle property boundaries to access water sources, markets, or to use. In other cases, investors and pastoralists have agreed on social services corridors of land along water sources which are not fenced off and ƒƒ Fear and uncertainty about investor intentions and the through which cattle are free to roam. The process of consultation threat of changes in access to land also helped convince pastoralists of the positive impacts of the Stakeholders interviewed had, on balance, negative perceptions investment, such as job creation and national food production, of the impact of investments across a range of land-related issues, and consequently generated a better relationship and willingness including previous use of the land, the terms and process for land to work together. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 36 C hapter 5 — L A N D R I G H T S A N D A C C E S S TABLE 5.1:  Perceptions of Land Issues, all Stakeholder Interviews Further complicating these situations, when an investment com- NUMBER OF STAKEHOLDERS WHO menced operations, people were attracted to the work opportu- MENTIONED nity and moved into settlements close to the operation—either to ISSUE MENTIONED IN STAKEHOLDER A POSITIVE A NEGATIVE INTERVIEWS(a) IMPACT IMPACT new settlements or to existing settlements. It was later difficult to Disputes about access to land 8 39 establish who had ex ante legitimate claims to the land and who Impact on previous users or owners 6 18 was trying to establish claims ex post. Some investors accused local Terms and process of land acquisition 14 15 communities of opportunistic behavior, seeking to make land Resettlement 9 12 claims purely to extract rent from investors. In some cases, cultural Pastoralist rights 4 9 and environmental beliefs and sensitivities have been allegedly Degree of land use 0 6 exploited. Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. A variety of approaches have been taken to resolve the complicated . . . as were complicated situations with regard to perceived or issue of encroachment and competing or overlapping claims on actual encroachment. land, including: ƒƒ Formal legal proceedings against settlers and government- Another common source of conflict between investors and local assisted resettlement communities was the use of, or perceived encroachment onto, land ƒƒ Private negotiation of compensation and resettlement that was temporarily unused by the formal title holder. A common ƒƒ Negotiation with government to swap “unusable” portion of situation was that previous owners of the land (the government or the concession area earlier investors) had the formal title to the land, and right to its use, ƒƒ Development of the concession area around informal land but left land unused. In the intervening period, people had moved users onto the land, cleared it, and begun cultivation and thereby estab- ƒƒ Attempts to develop the land anyway in defiance of settlers. lished informal rights to the land. When a new investor was granted Another common grievance was the failure to use the land in a concession or acquired land, they sometimes discovered that their accordance with expectations. A number of investors were only rights to the land are difficult to assert because communities are in using a small share of their land allocation . . . situ. In some cases, people had been using the land for decades or generations before new investors arrived. The degree of land use varied widely within the sample (see figure 5.1). The degree of land use is defined as the share of the total area of land These situations are variable and complex. It is difficult to establish owned, rented, or under concession by the investors which is actively which claims to informal land rights were genuine for a number of cropped, under development for cropping, or actively used for some reasons. Local communities often did not understand what rights other purpose related to the investment (for example, housing for to land they have under the laws of the country and frequently employees). The areas used by outgrowers off site are excluded from did not have formal titling deeds, even if they had been working these calculations, as are those investments such as processing facto- the land for many years or generations. The situation was more ries or trading companies for which the use of land is incidental to the complex in postconflict countries where the formal cadastral has business model. been lost during conflict and a national land titling process was in progress. Some informal rights were based on verbal agreements The distribution of land use in the sample was heavily weighted at between previous investors and local communities which were not either end of the spectrum. Of the 30 investments that have signifi- adequately documented at the time. Village leaders have also sold cant land holdings, almost one-quarter were actively using less than off rights to land which technically was not theirs to sell because 10 percent of the land, while roughly the same amount were using the formal title belonged to the state or a party who had long since over 80 percent of the land. While a larger sample would be needed departed. for verification, it does appear that the issue is more problematic in T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 5 — L A N D R I G H T S A N D A C C E S S 37 FIGURE 5.1: Degree of Land Use 45% Full sample Africa only Asia only 40% 35% Share of investors 30% 25% 20% 15% 10% 5% 0% 0–10 10–20 20–30 30–40 40–50 50–60 60–70 70–80 80–90 90–100 Land use (%) Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. FIGURE 5.2: Land Use; Age and Size of Investment 60 Size of bubbles represent relative land area of investments 50 40 30 R² = 0.172 20 10 0 0% 20% 40% 60% 80% 100% Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. Africa than Asia (figure 5.1). In Southeast Asia, only one out of seven One might also expect the size of the land area to be a factor; it is investments was using less than 30 percent of the land while four harder to fully develop larger allocations than it is to get relatively were using more than 70 percent. small operations running to scale. This is also borne out in the data to some extent. What appears to be true is that the combination . . . for a variety of reasons . . . of these factors is important: large, newly established operations It takes time to clear, develop, and crop land so relatively young tend to be using much less of their available land than older, longer- operations can be expected to be using less land than more running estates and farms. This is indicated by the cluster of large established ones. Indeed, this is borne out to some extent in the bubbles in the bottom left of figure 5.2. But the inconclusiveness data; there is a positive, albeit not particularly strong, relationship of these purely quantitative relationships indicates that many other between the degree of land use and the time an investment has factors are at play. been in operation (figure 5.2). A number of long-established opera- tions use a small portion of their available land, while some young A qualitative analysis of our survey data reveals a number of other operations are already using most of their allocation. following factors as important in determining the degree of land use: A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 38 C hapter 5 — L A N D R I G H T S A N D A C C E S S ƒƒ Unforeseen environmental conditions such as unsuitable develop the land. And some investors themselves have sought to soils, too much or too little rain, or adverse weather having reduce the size of their concession or give back land, on the basis hindered the development of some operations. that they have inadequate capacity to develop the land or because ƒƒ Disputes over access to the land which came to the fore after concession areas cannot be enforced. the land acquisition or concession had been agreed between the new investor and the government or former investor. As All this underscores the importance of consultations and ongoing discussed above, this may have been the case where land communications with local communities (as well as governments) had been left dormant by a previous owner and local com- in order to set realistic expectations for the pace of development munities had begun to use it in the intervening period. of the investment and to foster understanding as circumstances ƒƒ Inadequate financial capacity to develop the land. Some inves- change. It is also of paramount importance that investors conduct tors have financial backing to acquire the land but not suf- social and environmental impact assessments and proper due dili- ficient to develop it. In the worst cases, this can be seen as opportunistic asset acquisition in which governments have gence to be sure of their ability to develop an operation as planned. given out land too easily and investors have taken more than The onus is also on governments to prescreen investors to be sure they can possibly hope to develop. The land is then retained they have the necessary expertise and financial capacity to meet in order to be sold in the future or used as collateral in a commitments made. subsequent bid to gain the necessary finance to develop.18 ƒƒ Some investors do not use the land in accordance with the terms of the concession agreement. For example, where the conces- 5.2 RESETTLEMENT sion allows an investor to extract and profit from the timber Experiences of resettlement were mixed and included some on the land on the condition that the land is subsequently poor outcomes for affected persons. grown with a particular replacement crop, one investor had taken the timber and then left without replanting new crops. The sample of resettled persons spoken with during this field What is common to all these reasons is that they could have been research was relatively small. Researchers conducted eight inter- identified by proper preinvestment due diligence by investors and views which involved a total of 32 people directly affected by through prescreening by host country governments. They are the resettlement at four different investments. As such, experiences negative effects of inadequate consultations, impact assessments, of resettlement are an issue to delve more deeply into in further prescreening, and government monitoring. research. Nevertheless, some interesting observations emerge from findings thus far. . . . all with significant consequences for the investor, local com- munities, and host governments. The conduct and experience of resettlement was mixed. The sample was roughly balanced in terms of those resettled interviewees that Whatever the underlying cause of underuse of land, it had sig- mentioned the investment as having a positive or negative socio- nificant consequences for investors, governments, and local com- economic impact. Nevertheless, of all the stakeholders interviewed, munities. This resulted in social and community tensions between resettled persons tended to have the most negative perception of investors and local communities based on the perception that land the investment. was taken from local communities and was now being laid to waste and used less effectively than the community itself could have used The main negative outcome of resettlement mentioned in the sam- it. Host governments in some countries have increasingly begun to ple was that replacement land was not equivalent in terms of soil revoke or reduce the size of concession agreements on the basis quality and suitability for agriculture. Resettled persons complained that investors have not lived up to expectations or agreements to that new land allocations were smaller than what they had previ- ously or new land was spread across several locations and therefore 18 This trend toward “speculative” farming land acquisition is discussed more difficult to manage. Relocation to places farther away from elsewhere, including research by the World Bank (Deininger and Byerlee 2011) and International Land Coalition (Anseeuw et al. 2012). water sources or social services, such as medical centers and schools T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 5 — L A N D R I G H T S A N D A C C E S S 39 was also mentioned. Some people felt aggrieved that financial com- work with or around these communities rather than embarking pensation was inadequate and there was no program to support on a lengthy and difficult resettlement program. Indeed, this is changes to employment or livelihoods. Finally, there was a percep- something that investors and host countries would be advised tion of inadequate involvement of the resettled persons in the dis- to consider as a first solution before contemplating more painful cussions and selection of areas to which they were to be resettled alternatives that entail resettlement. There are nevertheless chal- and in negotiation procedures. lenges with this approach as well, as the customary landholdings of the village may be significantly reduced and the village may be In the worst case, displacement had been forced upon a commu- left isolated, surrounded by large farming operations which impede nity by governments and investors, without sufficient consultation, their lives in other ways. Box 5.1 provides an interesting example negotiation, or compensation. This resettlement occurred over a of alternative approaches to resettlement of two investors whose drawn-out, 2-year period involving notification, eviction and reloca- concession area overlap with the same local community. tion in which the resettled persons faced uncertainty about future living conditions and their livelihoods. The affected persons now If resettlement was unavoidable, it was best conducted through feel that their new place is inferior to their previous situation. The a formal, transparent, inclusive, consultative process, and housing is deemed inadequate. The farming area is prone to flood- some positive examples of such an approach were seen. ing. The community must travel farther to access health and educa- tion services. They are struggling to earn a living due to reduced Fears about relocation abound in the presence of a foreign inves- land holdings. tor, even when there is no such threat. Rumors about the threat of relocation are rife with many people concerned for their land and In other cases, commitments made as part of the resettlement pro- livelihood. This speaks to the importance of open communications cess have not been adhered to. In one example, the compensation between investors, governments, and local communities to assuage that had been agreed remained unpaid some 5 years after the relo- fears and create an environment which can generate positive cation occurred. In another, the local community claimed that the outcomes. investor had informally promised to provide jobs to those people who were forced to relocate, but had not subsequently done so. In some cases, resettlement has been carried out by the govern- ment in advance of the arrival of the investor and the investor claims In spite of these complaints, it was somewhat surprising that several to have no knowledge of the process or even whether resettlement resettled persons at two separate investments were happy with the has been necessary. This creates bad outcomes because the inves- outcome. Some felt that their new location had better housing con- tor may not be aware of commitments made to the local commu- ditions (as constructed by the investor). There was appreciation for nity by government and there may be lingering resentment about the assistance that investors provided in developing the new areas how the relocation was handed. for farming that were provided. And there was mention of a fair and transparent process for negotiation of compensation. This final In the most sophisticated example, one investor, as part of its pro- aspect seemed to be a critical success factor. What is important is posal to acquire land, engaged external consultants to develop a that resettled persons perceive themselves to be better off accord- Resettlement Policy Framework (RPF) and a Resettlement Action ing to what they value. Plan (RAP). The RPF was part of a publicly available social and envi- ronmental impact assessment. Further details are provided in box Some investors found it better for all concerned to leave com- 5.2. Among key features of this framework are that it sets out a clear munities in situ and work with or around them, rather than process for consultation and participation of the affected parties, undertaking difficult resettlement. including through the establishment of a Resettlement Working One solution to the difficulties of resettlement is of course not Group to engage with community representatives. It explains to resettle anyone at all. Some investors have found it better to the assistance to be provided in the case of resettlement and the A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 40 C hapter 5 — L A N D R I G H T S A N D A C C E S S BOX 5.1: Outcomes of Different Approaches to Resettlement A stark contrast in approach and outcomes is evident in two points out the new areas to them. This created a sense of fear and investments which have concessions overlapping with the uncertainty because those relocated previously had found the residential and farming land of the same local community in new land to be inferior. The existing areas they had were good Mozambique. soils, whereas the new areas they are supposed to be moved to were a swampy area in which the production of maize and soya Investor A’s policy was not to forcibly remove anyone but leave would be difficult. The resettled persons expressed fear that they them in situ and, if the person decided to move, to compensate would not be able to send their children to school based on the them as per the government-determined valuation tables. The reduced income available from less productive land. company demarcated the land in cooperation with the person using it, with their agreement, so the area is clear. The company These experiences led to a clear divergence in perceptions of worked around that area and only used it if and when the person the two investors and the community’s willingness to work with decided to relocate. Compensation would be made in the pres- them. Investor A is developing a successful outgrower scheme ence of the local government officials so the process has an inde- employing people from these communities. Investor B is mired in pendent observer. So far, 14 out of 70 affected households have legal battles and disputes and discussions with the government opted to move; the remainder are still in place, continuing to live and local communities to resolve these issues. in relative harmony with the investor. It is interesting to note that the actions of one bad investor can In contrast, Investor B chose to try to forcibly relocate those per- affect the prospects for future investors. Investor A experienced sons on the property when the investor arrived and even cut great reluctance initially from local government and local com- down their maize crops before they were harvested. New land munities when they arrived with a proposal to develop the land, was unilaterally assigned to them with little consultation on their because of the people’s bad experiences with Investor B. needs and wishes. Interviewees complained that they only know Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment if the new land will be as good as the land lost when the investor Database. BOX 5.2: Example Resettlement Policy Framework and Resettlement Action Plan The RPF’s stated purpose is: “to provide the conditions and man- 7. Vulnerable social groups must be specifically provided for. agement commitments under which such resettlement might 8. Resettlement must be seen as an “upfront” project cost. take place, whether this displacement is physical or economic. 9. An independent monitoring and grievance procedure Accordingly, the RPF sets the scene for the Resettlement Action must be in place. Plan (RAP) which will detail the specific management actions and The RAP in turn focuses on the following aspects: obligations that the project proponent will have to adhere to.” 1. Evaluation of the social and economic status of local The RPF sets out the conditions under which any resettlement communities by conducting a baseline socioeconomic will take place and stipulates nine key principles that the investor assessment and census commits itself to with regard to resettlement. 2. Identification and description of the land and water These are: resources in the area potentially available for 1. Resettlement must be avoided or minimized. resettlement 2. Genuine consultation and participation must take place. 3. Formulation of an action plan based on agro-ecological 3. A preresettlement data baseline will be established. and social indicators which center the aims of local people and the needs for project development under 4. Assistance with relocation to be made available. a safety environment for sustainable integrated local 5. A fair and equitable set of compensation options must development be negotiated. 6. Resettlement must take place in accordance with legal Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. requirements and international best practice. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 5 — L A N D R I G H T S A N D A C C E S S 41 process of negotiation of a range of compensation options. It into action in the case of the specific investment involved once the explains grievance and redress mechanisms. Importantly, resettle- project is confirmed to be going ahead. ment is treated as an upfront project cost. As discussed elsewhere, On paper, this approach seems thorough, professional and respon- often in the sample investors have the financial capacity to obtain sible. It would be an interesting avenue for further research to speak land, but not to develop it responsibly. This framework ensures that with a larger sample of affected persons about their perception of funding for the resettlement program must be available prior to the how such schemes have operated in practice. commencement of operations. The RAP translates this framework A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 42 C hapter 5 — L A N D R I G H T S A N D A C C E S S T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 6 — E N V I R O N M E N TA L I M PA C T 43 Chapter 6 ENVIRONMENTAL IMPACT 6.1 ENVIRONMENTAL IMPACT AND APPROACHES BOX 6.1: An Environmentally Sustainable Business Model TO ENVIRONMENTAL RESPONSIBILITY One investor in Cambodia is promoting organic farming in a Almost all investors had cultivation and operational models model farm which would comply with both guidelines under whose environmental impacts are likely to be negative, the the International Foundation for Organic Agriculture (IFOAM) assessment and management of which was often deficient. and Indian Organic Certification Agency (INDOCERT) require- ments for production of certified organic products. Most of the cultivation operations visited were undertaking inten- Agrochemicals and chemical fertilizers are not used. The farm sive production operations of one or two crops, often involving maintains 30 cows to produce its own compost and organic extensive use of pesticides. Such intensive use of land and water fertilizers from cow dung and urine. Weeding is done manually. contributes to degradation and depletion of these resources and Minimal tillage is practiced and the ground cover is protected by vegetation (mainly weeds) to prevent soil erosion. Crop ro- a loss of biodiversity.19 Most investors have undertaken some tation is practiced. The company is considering the feasibility measures to mitigate the negative environmental impact of their of installing windmills to provide electricity to the farm as well operations. Although these are initiatives that should be welcomed, as the surrounding village. The model farm is rain-fed for about it is important to note that they do not generate a positive or even 7–8 months in the year. In order to ensure that there is ade- quate water supply during the dry months, the company has neutral environmental impact, but merely reduce to some extent dug a network of 30 water-harvesting and retention ponds on the overall negative environmental impact of the investments stud- low points around the farm. Rain harvesting is also done from ied in this research. the roof of the workers’ quarters and other buildings. Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment As discussed in section 2.2., the conduct of environmental impact Database. assessments, their translation into environmental plans, and the monitoring of those plans were all areas where there was much Although most investors had undertaken some measures to room for improvement. In this regard, the full environmental impact mitigate the negative environmental impact of their opera- of many operations was not known and consequently efforts to tions, their effectiveness is unclear. mitigate negative environmental impacts were generally deficient. Nevertheless, most investors were increasingly cognizant of their Only one investor in the sample could be said to have made envi- environmental responsibilities and have undertaken measures to ronmental sustainability a core element in its business model, as mitigate potential negative environmental impacts. Table 6.1 pro- described in box 6.1. vides a summary of the initiatives undertaken across the sample. The most commonly arising issues were related to agrochemical 19 The FAO study on agricultural FDI found evidence of negative environ- mental impacts, mainly due to the intensification of production gener- use, such as water contamination, chemical drift, and aerial spraying. ated by the investment which puts higher pressure on natural resources. The intensive use of land and water may result in the degradation and Some more positive examples of environmentally friendly practices depletion of these resources. There is some local evidence of reduction in forest cover and biodiversity as a result of the investor’s activities. include: A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 44 C hapter 6 — E N V I R O N M E N TA L I M PA C T TABLE 6.1: Approaches to Environmental Responsibility BOX 6.2:  Application of Group-Wide Sustainability Goals to SHARE OF INVESTORS WHICH HAVE TAKEN SPECIFIC MEASURES REGARDING Individual Operations Agrochemical use 69 percent An agricultural multinational is working toward the achieve- Soil conservation 57 percent ment of the group’s sustainability goals for 2015 whereby it Biodiversity conservation 51 percent aims to: Sustainable land use 51 percent a. improve energy efficiency by 5 percent; b. improve greenhouse gas (GHG) intensity by 5 percent; Sustainable energy use 43 percent c. increase renewable energy to 12.5 percent of its Sustainable water use 43 percent energy portfolio; and Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment d. improve fresh water efficiency by 5 percent Database. The environmental performance in these areas is monitored ƒƒ A major source of air pollution in palm oil production is open at the plant level, company level in Vietnam, and at group pond effluent treatment systems. Investors have installed level. With regard to greenhouse gas emissions, the company capture systems to harness the emissions of methane for had undertaken a GHG Inventory based on the GHG Protocol energy production, thereby mitigating the environmental developed by the World Resources Institute and the World impact. ƒƒ A rice investment in Cambodia has used rice husks for the Business Council for Sustainable Development. cogeneration of energy (previously the husks were left to rot Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. at the mill, causing emission of methane). ƒƒ A sugar investor in The United Republic of Tanzania has intro- duced a “Sustainability Measurement and Reporting” system Environmental impact did not arise as a key negative impact where the Risk Management Officer collects and reports during the stakeholder interviews. all issues of sustainability and develops suitable mitigation measures. This includes energy consumption, water extrac- Only a small share of stakeholders interviewed (less than 10 percent) tion, effluent discharge, CO2 emissions, waste disposal, and mentioned environmental impact as a factor that had affected their treatment of hazardous chemicals. impression of the investment (table 6.2). Most common impacts mentioned were chemical drift and pollution of water sources and Large international agricultural corporations tend to have more the assignment of concession areas which had previously been established environmental policies and goals. One investor provides demarcated as community forests or protected areas. an interesting example of how it seeks to apply its global sustain- ability goals to overseas investments, in this case an animal feed Environmental impacts were difficult to discern, and occur over processing operation in Vietnam (box 6.2). time, and so will be the subject of further research. Plainly there are many investors with good intentions with regard Although environmental issues do not appear often in the stake- to their responsibility to conserve the environment. But a lot holder interviews, this cannot be taken as an indicator of limited depends on application of the policies and initiatives and whether environmental impact. Interviewees would tend to raise only those these translate from objectives on paper to real outcomes on the obvious issues that they directly experience (such as those men- ground. More detailed field research is needed to better under- tioned above). But most environmental consequences materialize stand how successful these initiatives have been in practice. gradually and are difficult to discern. Although some Department of This aspect will be a key focus of follow-up research described in Environment officials were visited, these interviews tended to rein- chapter 7. force the above conclusions about the inadequacy of environmental T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 6 — E N V I R O N M E N TA L I M PA C T 45 TABLE 6.2:  Perceptions of Environmental Impact, all Stakeholder separate local communities, one to the north and one to the south Interviews of the concession area. The water source was located at the south NUMBER OF STAKEHOLDERS WHO of the area; hence the investor developed this area first and went to MENTIONED greater lengths to engage with the southern community through ISSUE MENTIONED IN STAKEHOLDER A POSITIVE A NEGATIVE INTERVIEWS IMPACT IMPACT consultation and agreement of benefit-sharing arrangements. The Chemical use 4 10 northern community, however, felt marginalized by the investment Air pollution 0 2 and felt that its interests were not considered because the investor Biodiversity 1 7 could ignore their community and yet still access the water required Seed management 3 1 for the operation. Energy use 1 0 Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Positive and negative impacts mentioned tended to focus on Database. local water access, with inadequate consideration of wider impact of agricultural investment on water resources. monitoring. A more detailed investigation of the environmental consequences of these investments is required to understand their The most frequent benefit of investments cited by critical incidents true environmental impact. is improvements to local water access (table 6.3). This is gener- ally small scale as part of benefit-sharing arrangements or social responsibility schemes (construction of wells, dams, hand pumps, 6.2 ACCESS TO WATER BY COMMUNITIES AND INVESTORS and so on as well as provision of water at staff housing facilities). Access to clean drinking water was mentioned as a problem for Water issues were less prominent than expected but are never- local communities which the investor has helped to rectify. Most theless significant. recommendations provided to investors regarding water by local Mention of access to water was conspicuous by its relative absence communities pertained to improvements in local water access. In during the fieldwork, especially given the criticality of water some cases, however, the construction of water facilities is merely resources to both agricultural operations and to the livelihoods to remedy the fact that the investor has disrupted the local com- of rural communities. Access to water was not often mentioned munities’ usual water in the first place, so the net benefit to local explicitly by investors as a reason the investment was made (access communities was unclear. to land was more frequently provided as a motivation). But there The most common sources of tension pertaining to water issues is no doubt that reliable or abundant water resources are a key were accusations that investors have chemically contaminated a determinant in the choice of location for investments; land with water source utilized by local communities, or that investors’ land high rainfall or irrigation potential has good growing potential. Most investments were located close to water sources or in areas with TABLE 6.3:  Perceptions of Impact on Water, all Stakeholder high rainfall or with good ground water sources.20 Nevertheless, Interviews while this research found no examples of full-scale conflict over NUMBER OF STAKEHOLDERS WHO water resources, it has at times been a source of tension between MENTIONED ISSUE MENTIONED IN STAKEHOLDER A POSITIVE A NEGATIVE investors and local communities. INTERVIEWS IMPACT IMPACT Schemes to improve water access for local 18 2 Water availability can also influence the manner in which an invest- communities ment develops, with consequences for the impact of the invest- Impact on wider water availability 3 9 ment on local communities. One investor operated close to two Water contamination 1 7 Irrigation schemes 3 5 20 This relationship between access to land and access to water has been Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment noted elsewhere, such as Mann and Smaller (2009). Database. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 46 C hapter 6 — E N V I R O N M E N TA L I M PA C T boundaries and associated construction of fences force local commu- at the project approval stage and there was no subsequent monitor- nities to go around the investment sites and travel farther to access ing of adherence to agreements made. water resources. Resettlement has involved a move to a new location Investors seemed to be increasingly responsible with regard to from which it may be more difficult for the affected persons to access water pollution, but some bad practices remained evident. water. Finally, some stakeholders complained of excessive extraction of water which local communities rely on for drinking. One local com- Most investors take some steps to mitigate the potential for their munity complained that an investor was extracting water from a local operations to pollute local water sources, and increasingly so. source 24 hours a day and that at present rates, and given a drought, Nevertheless, some deplorable practices remain. For example, one their source would be totally used up within months. investor simply discharged untreated effluent into a local river, the only water source for surrounding communities. Only once was concern expressed that water resources have been overexploited by agricultural investment in an area. But in general, As with water use, external monitoring of water contamination regu- negative impacts on water mentioned were on a local level; the lation also differs a lot. In most cases, monitoring and enforcement broader impact on water tables and regional or national resources is cursory at best and investors appear to be virtually unregulated. does not seem to be known or have been sufficiently evaluated. Some more positive examples exist. At one investor, sampling and There was a lot of room for improvement in the assessment, monitoring of water quality in waterways around the investment is monitoring, regulation, and enforcement of water use and undertaken by an external consultant who submits the results directly rights. to relevant government departments. Sampling and monitoring of effluent discharge water quality is undertaken and the results are In general, the assessment, monitoring, regulation, and enforcement submitted to the environmental authority at monthly intervals. of investors’ access to and impact on water resources appeared in most cases to be inadequate and cursory. The administration of water There are also clear examples of monitoring uncovering unacceptable extraction rights differ widely. In around half of the 39 investments, practices and hence leading to remedial action. For example, at one the water use and extraction of the investor was totally unregulated. investment site, environmental authority enforcement officers found One example of a more positive example is countries which require that partially treated effluent had leaked from anaerobic ponds into an environmental impact assessment from the investor before the the river. The pollution of the river from this incident had a negative provision of water extraction rights. Even where there is a well-estab- impact on local communities living along the river. The investor was lished water act with use rights, monitoring, and reporting systems, instructed to take immediate action on their recommendations for the capacity of authorities to implement and enforce requirements is remedial work which included the construction of a gabion retaining not necessarily sufficient. Where investors did have to apply for water wall around treatment ponds. This work has been undertaken with rights or adhere to extraction limits, these were often only enforced progress reports submitted to the environment authority. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 7 — C O N C LU S I O N S A N D N E X T S T E P S 47 Chapter 7 CONCLUSIONS AND NEXT STEPS 7.1  APPLYING LESSONS FROM THE FIELD dyadic, it is possible to consider, and potentially apply, relevant This study has sought to contribute to a growing body of knowl- actions by each party on specific issues such as, for instance, edge on what the responsible and sustainable conduct of agri- employment creation, food security, technology transfer, especially cultural investment consists of in practical, operational terms for with a view to maximizing the gains from investment while simul- communities, governments, and investors. In doing so, its primary taneously minimizing the risks. For example, if one aim is to maxi- aim has been to provide lessons to these groups which can be mize the net positive impact from employment, when screening taken up as host government policies and procedures, corporate investments host governments can secure commitments on job strategy and operational processes, and community or NGO actions creation and training from investors, as well as determine which in order to ensure that agricultural investments are responsible and feasible business model creates more jobs per hectare of land respect rights, livelihoods, and resources. The key lessons discerned allocated (including indirect employment arising). On their part, from the report vary for each of these groups. For instance, for inves- investors should abide by their commitments and, among others, tors’ issues such as due diligence, consultations with communities, pay adequate living wages and proactively consider employment- financially inclusive business models, environmental impact assess- related gender issues. Illustrative examples of how policies and ments, and transparency issues are among those to the fore. In a practices, by governments and investors, which can reduce nega- similar vein, among others, host governments need to pay attention tive and enhance positive impacts in some important areas, are to issues such as prescreening and selection of investors, ongo- presented in appendix B. ing monitoring of investments, conduct of consultations, impact assessments and business plans, phasing of investment approvals, 7.2  FURTHER RELATED WORK and land rights. Finally, areas such as engagement with investors, In spite of the detailed, first-hand information gained during the monitoring investors, and helping investors forge partnerships with fieldwork, gaps remain. In particular, many of the socioeconomic marginalized groups are ones where active participation by local and environmental impacts identified in this research occur over communities and NGOs can make a difference. These and other key time and stakeholders’ perceptions may change as the investment lessons are summarized for each group in table 7.1. evolves. The data collected for this study only represent a snapshot The specific way lessons are taken on board is highly contextual— of a particular point in time. In addition, some relevant issues identi- depending on issues such as the crops involved, the scale of opera- fied during the fieldwork were not fully investigated due to time tions, market orientation, business model, past experience of all constraints. These and many other issues identified would benefit parties—so each section of the report has provided background, from more detailed study over an extended period. For these rea- examples, and models to facilitate both learning from the report sons, one follow-up project will be to revisit 12–15 investments and and applying the lessons from the field (some pages relevant to conduct more detailed field research to deepen the understanding each lesson are given in table 7.1). Finally, because the study is of impacts and how they have evolved. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 48 C H A P T E R 7 — C O N C LU S I O N S A N D N E X T S T E P S TABLE 7.1 Selected Key Lessons for Investors, Host Governments, and Other Stakeholders A. SELECTED KEY LESSONS FOR INVESTORS Consultations and ongoing dialogue with local communities •  Consultations were a key step in developing a strong relationship with local communities. This generated more positive socioeconomic outcomes and was in the interests of investor because it contributed to financial and operational success, in particular by minimizing the risk of land disputes. •  Initial consultations were time consuming and expensive, particularly for new investments. •  Consultations were most effective when investors took primary responsibility for their conduct; “outsourcing” of the process to host governments or land agents led to poor outcomes. •  Formally established procedures through which stakeholders could raise grievances and seek redress contributed to better relations with local communities. Land rights and resettlement •  Many investors were expending significant resources dealing with disputes over access to land. The risk of this can be minimized through full and early assessment and consultation of existing rights to and usage of the land, formal and informal. •  It can be perilous for the investor to assume that the land acquired is being provided by the government without any existing land disputes. •  Some investors found that the best solution with regard to resettlement was to leave communities in situ and work with or around them, rather than undertaking difficult resettlement proce- dures. When resettlement did occur, it was conducted through a formal, transparent, inclusive, consultative process. •  Failure to develop the land in accordance with expectations was a significant source of tension between investors, local communities, and host governments. It is important to set expectations through the consultation process. Due diligence and business planning •  Business plans provided by host government were often based on unrealistic assumptions and substandard assessments of crop suitability and other environmental factors. •  Findings from impact assessments and community consultations were not incorporated into business plans, leading to problems developing the project which could have been foreseen. •  Some investors had success in phasing their investment. That is, obtaining a small land area initially and only seeking more land once the first allocation is running successfully. This is particularly suitable for new business models, crops, or techniques. Environmental impact •  When environmental impact assessments were conducted on the investor’s behalf by host governments or land agents, this led to poor outcomes. The conduct of impact assessments should be primarily the responsibility of investors. •  Impact assessments were too often “box-ticking” exercises, not translated into environmental management plans which are actively incorporated into the conduct of the business. •  More assessment and monitoring is needed of the impact of the investment on water resources. Employment •  There is pressure to employ local people and doing so contributes to better working relationships. But it can be challenging due to a skills gap. Training programs which help integrate local com- munities into the workforce should be considered. •  Some investors were paying inadequate wages and offering unacceptable working conditions, leading to tension between staff and the investor. There was a gender imbalance at most investments which should be addressed. Social development programs and financially inclusive business models •  Social or rural development initiatives produced better outcomes if they were agreed through an inclusive, consultative approach to gain an understanding of local development visions. •  Financially inclusive business models have been successful in forging partnerships with local communities. Outgrower schemes •  Outgrower schemes were most successful when the business model was resolved before outgrowers were introduced. •  A lack of transparency and inclusivity of outgrowers in the pricing mechanisms for their crops hindered the successful operation of outgrower schemes. •  Marginalized groups, including women, were less likely to participate in outgrower schemes. Consideration should be given to how to improve access for these groups. Food security •  The main positive contribution most investors made to food security was through direct employment and outgrower schemes. But wages for employees and prices for outgrowers must be sufficient to support an adequate standard of living. •  The main negative contribution was through reduced access to land. The investor should ensure that its operations are not detrimental to existing sources of food security. Transparency •  A lack of transparency can generate fear and uncertainty about investor intentions and also open the door for unfounded criticism. Investors should consider making more information publicly available. B. SELECTED KEY LESSONS FOR GOVERNMENTS Prescreening and selection of investors •  In many cases, prescreening of foreign investors can be improved to increase the prevalence of investors likely to make a positive contribution to the host country. Prescreening should include, at a minimum, assessment of investors’ financial strength and technical capabilities, their proposed approach with respect to consultations and impact assessments, and their commitments in terms of the benefits that the investor will bring to the host country. •  More foreign investors are adopting social development programs or financially inclusive business models. Host governments can seek commitments for such aspects in advance. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S C hapter 6 — E N V I R O N M E N TA L I M PA C T 49 B. SELECTED KEY LESSONS FOR GOVERNMENTS (CONTINUED) Ongoing monitoring of investors •  Ongoing monitoring of investments can be strengthened. The better approaches were not solely productivity-focused, but more intensive and included monitoring of the socioeconomic impacts of an investment. •  Monitoring of investors’ environmental impact, including use of water resources, and adherence to environmental regulations was in most cases inadequate. •  By monitoring investors, host governments can prepare for failure, for example by discussing and negotiating with potential takeover buyers in advance. Failed investments can have severe reper- cussions for the local community in terms of the void in employment as well as other areas such as social services. •  Many investors were not putting their land allocation to full use. Governments should seek commitments from investors about the pace at which the operation will develop and retain the ability to repossess the land if commitments are not upheld. Conduct of consultations, impact assessments, and business plans •  The conduct of consultations, impact assessments, due diligence, and the creation of business plans were most effective when primarily the responsibility of the investor. Host governments should establish regulations or guidelines for their conduct and stringently monitor adherence, but not conduct these activities for investors. Phasing of investors and approvals •  Large land allocations, particularly to investors introducing new crops, are highly risky. Investors could be required to progress in stages. This can be achieved by providing small concession areas initially, waiting for the investor to prove its concept and capability to develop the land in accordance with expectations, and only then provide more land. •  Some governments had allowed foreign investment in agriculture to proceed at a faster pace than they could realistically assess and monitor the investors. Wherever necessary, governments should consider how to improve their capacity and, if necessary, consider slowing down the approval of new agricultural investments. Land rights and resettlement •  A clear regulatory framework for land acquisition approvals and a formalization of local communities’ tenure rights under a registry system contributed to reducing the risks of land disputes. •  Business models with low land needs, such as processing operations, can provide important development benefits without the land issues associated with estate operations. •  Clear, transparent procedures to follow and standard valuations for compensation in the case of resettlement could be developed. Adherence should be monitored. Employment and contribution to rural livelihoods •  Large land allocations do not necessarily create the most jobs per hectare. Outgrower schemes can be effective in supporting livelihoods while allowing people to retain their most valuable asset: their land. Governments should consider which investors and business models are likely to maximize direct and indirect employment as these are key benefits of agricultural investment. •  Governments should consider the whole value-chain and promote the down-stream of value-addition of the raw materials produced from land made available, thereby maximizing employment and other benefits. Transparency •  In general, there was an insufficient amount of publicly available information to ensure the fully transparent and accountable conduct of agricultural investment. Governments should publicize land applications under review and approved, including on an investment registry website. Technology transfer •  Technology transfer was by no means an assured benefit of foreign agricultural investment. •  Innovation in new crops, business models, techniques should be encouraged, but are highly risky so should not be initially operated on a large scale. The business model of the investor should be proven before large land allocations are provided or outgrowers are introduced. C. SELECTED KEY LESSONS FOR LOCAL COMMUNITIES AND NGOs Consultations between investors and communities •  Representatives of civil society played a useful role in monitoring consultations and can work with investors to ensure that all relevant communities and stakeholders are included within the consultation process. •  There were instances where agreements were not documented, leading to confusion and disputes. Local communities should ensure that all agreement and commitments made through consulta- tions are documented in writing. •  Investors said it was easier to include local communities which were well-organized. NGOs can assist local communities in this regard. Land rights and resettlement •  Some NGOs were effective in raising community awareness regarding their rights and how to exercise them, as well as ensuring that people had a realistic assessment of the value of their land in the case of resettlement. Monitoring investors •  Civil society can play a role in monitoring conflicts between investors and stakeholder or instances where an investment is degrading natural resources, and making those issues public or known to relevant authorities. This should be conducted in a constructive, rather than antagonistic, fashion. Marginalized communities and groups •  NGOs can play a key role in helping investors to forge partnerships with marginalized groups, for example by helping them link with outgrower schemes and by advocating that their needs are considered when deciding social development programs. Engagement with investors •  Civil society could forge partnerships with the private sector to stimulate responsible inclusive investments that give due consideration to reduction of rural poverty and more equitable benefit sharing with farmers and the local communities. Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 50 C hapter 7 — C O N C LU S I O N S A N D N E X T S T E P S It has been emphasized in this report that many of the decisions with governments and communities. The main objectives of this and actions which determine the ultimate outcome of investments program include: are taken prior to the investment or during its initial phases. For this ƒƒ Learning from, and establishing, good practices in imple- reason, the IAWG of UNCTAD, World Bank, FAO, and IFAD plan to menting responsible business practices in agriculture, includ- embark on a new field program: the pilot-use of responsible agri- ing best ways of involving governments and communities cultural investment principles working with investors (companies), ƒƒ Utilizing the lessons learned, the good practices established, governments, communities and other stakeholders from the outset and the collaborative approach taken as a powerful demon- stration to other investors of the merits of incorporating re- of a project. The primary objective is to infuse responsible principles sponsibility in their operations (and how to go about doing so) and practices into (1) agribusiness operations and (2) the interac- ƒƒ Concrete tools for use in the early phases of future invest- tion of these operations with local communities, the environment, ments. These instruments will include instruments and docu- and the economy as a whole. Companies will apply the principles ments; cases, examples, and best practices; and procedures to the establishment phase of their new agribusiness investments, and processes which can be used by governments, investors, and incorporate them into their business processes, in dialogue and communities. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S A ppendix A — D ATA C O L L E C T I O N A N D M E T H O D O LG Y 51 Appendix A DATA COLLECTION AND METHODOLGY The findings presented in this document are based on a series of economic, social, and environmental issues. The former type of of interviews carried out in 13 countries in sub-Saharan Africa questions/variables included: and Southeast Asia by agriculture experts working in concert ƒƒ An orientation of the farm(s) and the operations with UNCTAD and the World Bank during 2012–13. The experts ƒƒ Copies of any useful background documents—farm map, visited 39 investments. In Africa interviews were carried out in concession agreement, model employment contract, envi- Côte d’Ivoire, Ethiopia, Ghana, Liberia, Mozambique, South Africa, ronmental impact assessment, organogram, and so on The United Republic of Tanzania, and Zambia. In Southeast Asia ƒƒ Details of ownership structure and entities interviews were carried out in Cambodia, Indonesia, Lao People’s ƒƒ Details of farm size and enterprises Democratic Republic, Malaysia, and Vietnam. The interviews were ƒƒ History of the operation and surrounding area used to collect primary data from investors, local communities, ƒƒ Personnel details—numbers, structure, employment condi- host country governments, and others affected by the invest- tions, training, and so on ments in question. ƒƒ Outgrowers’ details—contractual arrangements, prices, qual- ity requirements, and so on A quota-based sample selection procedure was used to identify ƒƒ Markets for product(s) and sources of inputs investors, drawing from a larger population of investors. The quota ƒƒ Perspectives on the success of the investment and the con- selection was based on a number of salient variables, including the straints experienced size of investors, coverage of different business models and value ƒƒ Tax and incentives chains, inclusion of different types of companies and funds, cover- The investor’s approach to social and environmental issues enabled age of key home and host countries (including investors from devel- an assessment of the extent to which principles for responsible agri- oped and developing economies), different crops, and so on. The cultural investment were being applied. These questions/variables objective was to obtain a diverse sample of investors. include: COMPANY QUESTIONNAIRES ƒƒ Land rights and natural resource rights Researchers spent around 2 to 3 days on site with each agribusiness, ƒƒ Food security conducting interviews with senior management to complete a ƒƒ Consultation procedures semi-structured questionnaire, covering financial, human resources, ƒƒ Transparency and operational information on the investment as well details of ƒƒ Community development and social sustainability the investor’s approach to a wide range of socioeconomic and ƒƒ Impact assessments and monitoring environmental issues. The company questionnaire consisted of 140 ƒƒ Environmental impact and sustainability primary questions and sought to obtain information on both con- ƒƒ Grievance and redress mechanisms trol variables (background to the investment, motives, structure of ƒƒ Human rights and best practice policies operations, and so on) and the investor’s approach to a wide range ƒƒ Women and vulnerable communities A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 52 A ppendix A — D ATA C O L L E C T I O N A N D M E T H O D O LG Y Investors also provided researchers with documentation on inter STAKEHOLDER INTERVIEWS alia social and environmental programs, terms of the land acquisi- About 2 to 3 days were spent interviewing a wide range of external tion, contracts with employees and outgrowers, processes for and stakeholders, including: employees; outgrowers; previous users of results of public consultations, concession agreements, project out- the land; persons resettled; community leaders; government offi- lines, impact assessments, and any other relevant documentation cials; residents near the investment; non-government organizations available. and so on.21 This exercise was aimed at establishing the range of issues which affect the developmental impact (positive and nega- Interviews were conducted on a confidential basis and hence no tive) of agricultural operations, as a preliminary to full-scale, case names of individual investors are divulged in this report. This was an study-based research in a subsequent phase of research. important condition for investors to be able to share information in a frank and open fashion. Nevertheless, the sample was constrained These interviews were conducted in an open-ended, confidential in that it could only include those investments which were willing fashion, allowing stakeholders to raise the issues that are important to participate and, indeed, many investors contacted declined par- to them. Stakeholders were asked what positive or negative impacts ticipation or did not respond to requests. they had experienced as a result of the investment; what recom- mendations they had for the investor, host government, or anyone In that regard, there is some bias in the sample toward relatively else; what scope the interviewee had to raise those issues with the “good” investors, that is, those with social and environmental pro- investor; and finally were invited to raise any other issues which the grams and those performing better operationally and financially. interviewee wished to make known to researchers. One would expect that these investors would be more likely to agree to allow researchers on site. That caveat must be acknowl- This approach was taken because (a) the intention was to elicit the edged but it should not be overplayed. In fact, the sample con- issues and get some sort of “qualitative weighting,” without assum- tained several investors which have been portrayed in a negative ing that the results are definitive (the findings will be used to partly light in the media or by civil society. In some cases, the investor establish the parameters and framework for later work); and (b) by welcomed our researchers precisely because they felt aggrieved by asking for details of actual situations, interviewees can respond their external image and saw this work as a relatively independent concretely not formulaically; and the interviewer is able to tease forum through which their side of the story could be heard. Other out issues during the discussion. This approach was in line with the investors recognized that their developmental impact needed to taxonomic or bottom-up framework undertaken in this project. It improve and welcomed our researchers as a means to learn about enabled interviewees to speak about the issues relevant to them, the kind of issues and areas in which international and civil society rather than assuming that certain issues are relevant in all cases. organizations are pushing investors to do better. Stakeholder interviews were conducted on a confidential and Another potential bias in the sample is that all the investments anonymous basis. Individuals were assured that their anonymity visited were still operating, albeit with varying degrees of success. would be guaranteed and that information obtained through inter- Many agricultural investments involving land acquisition fail with views and discussions would not be passed on to the government severe repercussions for the host country and surrounding com- or the investor. munities. This research does not cover in detail the impact of failed External stakeholders were identified by a range of techniques. investments, except where information on such investments was Desk-based research prior to the field visit was conducted to iden- incidentally obtained during conversations with in-sample investors tify particular groups likely to have been affected by the invest- and their stakeholders. In several cases, local communities were able ment. Host country governments and World Bank country offices to compare their experience in dealing with the existing investment with that of previous, failed investments. The lessons learned from these discussions are incorporated into the findings of this report. 21 For 3 out the 39 investors, no stakeholder interviews were possible. T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S A ppendix A — D ATA C O L L E C T I O N A N D M E T H O D O LG Y 53 facilitated introductions to some stakeholders. The investors also prices for outgrowers, and so on). Each company questionnaire and helped to identify relevant stakeholders, but researchers insisted critical incident is assigned various attributes (for example, crop that the investor was not present during the stakeholder interviews. type, size of land allocation, sex of interviewee). Once the data are Often stakeholders were identified on the ground by surveying the coded in this way, queries can be set up to interrogate the data (for area surrounding the site of an investment or through the recom- example, what have female employees of palm oil investors said mendations of stakeholders themselves. It was not uncommon for about education?). A systematic qualitative analysis was conducted interviews to be set up in situ, spontaneously. through aggregation, disaggregation, comparison between invest- ments, comparison between investor and stakeholder views, and so Researchers sought to obtain views from a broad cross-section of on. The interrogation of data in multiple ways, viewing information the community. Members of particularly vulnerable groups were from different angles, is intended to generate more robust findings. not to be neglected. The scope of vulnerable groups varies in differ- ent communities, but could include women; specific ethnic, caste, Nvivo has also been used to facilitate the quantification of qualita- or religious groups; pastoralists; individuals without secure tenure tive socioeconomic and environmental impacts described during rights; landless people; and poor, independent farmers. the stakeholder interviews. Whenever a stakeholder mentioned the investment as having an impact, this was coded as either positive In spite of this extensive effort, time constraints did not allow for or negative. The structure of the stakeholder interviews implied an in-depth assessment of the impact on all potentially affected that little subjective judgment on the part of the researcher was stakeholders during this phase of the project. As such, the views required—interviewees are asked explicitly what was positive and from stakeholders represent a snapshot at one particular point in what was negative about the investment in question. When com- time of a limited sample of persons affected by the investments. The bined with the coding by themes and by attributes (as described focus was on those at or close to the site of the investment. But local above), queries were run to compare how positively or negatively communities may have moved away due to the investment long particular themes were perceived by particular stakeholders or before our researchers arrived. More extensive field work is neces- types of investor. In this way, one can see quantitatively that, for sary to study the complete impact of investments on all possible example, employment was the most positively perceived impact stakeholders and to trace that impact over a period of time. This is of investments, whereas land issues were the most negatively per- intended for the next phase of the research. The results presented ceived. This combination of quantitative and qualitative analysis here are thus a first cut of the emerging issues and an indication of is intended to further strengthen the findings presented in this what needs to be analyzed in greater depth through further field report. work. In addition to the first-hand data obtained, media, civil society, and METHODS OF ANALYSIS other reports on each investor were consulted. A number of inter- The write-ups of company questionnaires and stakeholder inter- views were conducted with NGOs working on relevant issues, such views were imported into Nvivo, a software package designed for as land rights or the environment, in the countries visited. These the analysis of large amounts of qualitative and quantitative data. materials helped inform the thinking of researchers, improved This allows the researcher to classify (or “code”) the data accord- understanding of local contexts, and provided another lens through ing to particular themes (for example, employment, resettlement, which to view information obtained in the field work. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 54 A ppendix A — D ATA C O L L E C T I O N A N D M E T H O D O LG Y T H E P R A C T I C E O F R E S P O N S I B L E I N V E S T M E N T P R I N C I P L E S I N L A R G E R - S C A L E A G R I C U LT U R A L I N V E S T M E N T S A ppendix B — P olicies and practices to maximize positive impacts and reduce negative risks and impacts 55 Appendix B  OLICIES AND PRACTICES TO MAXIMIZE P POSITIVE IMPACTS AND REDUCE NEGATIVE RISKS AND IMPACTS MAIN POSITIVE IMPACTS POLICIES AND PRACTICES TO REDUCE NEGATIVE AND ENHANCE POSITIVE IMPACTS HOST GOVERNMENT INVESTOR DIRECT EMPLOYMENT CREATION •  Job creation main benefit of investments. •  Seek job creation and training commitments from potential •  Ensure adequate living wages are paid. •  Most employees satisfied with pay and conditions. investors. •  Train local communities to assist integration into workforce. •  Consider business models or crops that create most jobs per •  Consider gender balance and employment-related gender hectare of land allocated. issues. ACCESS TO MARKETS FOR OUTGROWERS •  Reliable market for farmers’ produce contributed to improv- •  Prefer investors with outgrower schemes which have a •  Consider how schemes can be designed to reach most ing livelihoods. proven business model. marginalized farmers. •  Outgrowers appreciated technical support, access to finance, •  Ensure transparent and inclusive price determination. and higher prices as compared to other buyers. •  Resolve the business model before introducing outgrowers. SOCIAL DEVELOPMENT PROGRAMS •  Trend toward social development programs, including •  Consider investors’ social and rural development commit- •  Consult on and discuss local development visions when social services (for example, education, health, water), rural ments when prescreening and selecting investors. designing social and rural development programs. infrastructure, or improving access to finance. •  Negotiate with investors on the benefits to be provided to •  Formally committed arrangements. the host country. •  If financially feasible, set up a dedicated development fund. FINANCIALLY INCLUSIVE BUSINESS MODELS •  Explicit sharing of financial gains with local communities •  Promote financially inclusive business models. •  Consider whether financially inclusive business model can (for example, revenue sharing), effective in forging genuine be employed. partnerships. FOOD SECURITY •  Income effect of direct employment and access to markets •  Consider all food security implications of investment. •  Ensure adequate living wages are paid and outgrower for outgrowers. •  Ensure investments are not detrimental to existing sources of produce is sufficiently remunerated. •  Some investors had community food programs. food security for example, through reduced land access. •  Ensure sufficient land with suitable potential for food crop production is available to local people. TECHNOLOGY TRANSFER AND INNOVATION •  Foreign investors can be instrumental in introducing and •  Encourage investors with schemes or intention to introduce •  New business models, crops, or techniques should be piloted encouraging the adoption of new technology and farming improved technology or farming practices in an economical and only employed at large scale once the model is proved practices. and sustainable manner. and stable. •  In rare instances, foreign technology transfer had a catalytic •  Encourage innovation, but not on a large scale. effect which generated benefits far beyond the investor. INFRASTRUCTURE PROVISION •  Development of roads, electricity, telecommunications opens •  Consider infrastructure provision and potential spillovers •  Allow benefits of infrastructure development to accrue to up new areas and improves market access. when selecting investors. others. A G R I C U LT U R E A N D E N V I R O N M E N TA L S E R V I C E S D I S C U S S I O N PA P E R 56 A ppendix B — P olicies and practices to maximize positive impacts and reduce negative risks and impacts MAIN NEGATIVE IMPACTS POLICIES AND PRACTICES TO REDUCE NEGATIVE AND ENHANCE POSITIVE IMPACTS HOST GOVERNMENT INVESTOR DISPUTES OVER ACCESS TO LAND •  Range of disputes from coerced displacement to uncertainty •  Clear regulatory framework for land acquisition approvals. •  Early engagement with local communities and all land users. about investor intentions. •  Consider formalizing local communities’ tenure rights under •  Understand the historical and current use of and rights to •  Common conflict between formal rights provided to investor proper registry system. land based on own assessments and verification of govern- and informal rights of previous users of the land. •  Encourage business models with low land needs. ment assessments. LACK OF CLARITY OVER LAND ACQUISTION PROCESS •  Lack of public information disempowered local communities •  Publicize land applications under review and approved, •  Consider what information on operations can be made and hindered ability to hold investors to account. including on investment registry website. publicly available. RESETTLEMENT •  Despite some well-handled cases, negative experiences of •  Develop required procedures to follow and standard valua- •  Consider leaving communities in situ as first option. displacement without sufficient consultation, negotiation, tions for compensation purposes. •  Follow a transparent, formal, inclusive, monitored process for or compensation. resettlement. LACK OF CONSULTATION AND INCLUSION •  Lack of involvement of local communities in decision making •  Clear regulatory framework on consultation procedures. •  Consultations with local communities, including informal and planning led to a sense of exclusion and precluded •  Monitor consultations conducted by investors; do not users of the land. mutually beneficial solutions. conduct them on investors’ behalf. •  Develop continuous dialogue with local communities. •  Document all meetings and agreements. FAILURE TO USE LAND AS EXPECTED •  Some investors used a low portion of allocated land, creating •  Pre-screen investors to ensure they have capacity to develop •  Acquire land in accordance with ability to develop it. tension with local communities and host countries. land as expected. •  Set expectations about the pace of development through •  Seek commitments for pace of development and retain consultations. authority to repossess land not put to use. FINANCIAL OR OPERATIONAL FAILURE OF INVESTOR •  Many investors in operational or financial difficulty. •  Prescreen investors’ financial strength, technical abilities, •  Consider staging the investment, that is, obtaining a small •  Most obstacles encountered could have been identified by approach to SEIAs and consultations, and commitments for land allocation initially, only requesting more once the first adequate preinvestment due diligence. benefits to the host country. allocation is running successfully. •  Failure of investment created lose-lose situation for inves- •  Only approve investments at a pace that matches capacity to •  Create own business plan and conduct due diligence. tors, host countries, and local communities. prescreen and monitor. •  Incorporate findings from consultations and impact assess- •  Monitor investors and prepare for failure. ments into planning. •  Create an enabling environment for successful investments. LACK OF GRIEVANCE AND REDRESS MECHANISMS •  Those affected by an investment often did not have sufficient •  Facilitate and ensure establishment of formal grievance •  Establish formal grievance procedures open to both staff and means to raise grievances and seek redress. procedures. external stakeholders. ENVIRONMENTAL IMPACTS, INCLUDING WATER •  Assessment, monitoring, and mitigation of environmen- •  Require and monitor the conduct of SEIAs, rather than carry •  Undertake appropriate SEIAs. Translate those into EMPs tal impact, especially impact on water, was generally out on behalf of the investor. which are enforced through ongoing reporting and inadequate. •  Monitor and enforce adherence to environmental and water monitoring. regulation. •  Adhere to environmental and water regulation. Source: UNCTAD-World Bank Survey of Responsible Agricultural Investment Database. 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