A g r I c u lt u r e A n d r u r A l d e v e l o p m e n t & d e v e l o p m e n t e c o n o m I c s JOINTNOTES Land Policy and Administration Issue 54 september 2010 Rising Global Interest in Farmland and the 56583 Importance of Responsible Agricultural Investment There are one billion hungry people worldwide. The food and fuel price spike in mid-2008 and continuing price volatility have underscored the vulnerability of the world's food system to shocks ­ such as the losses in crop production in the summer of 2010 that prompted Russia to ban wheat exports, leading to an increase in wheat prices of more than 70 percent in five weeks. These price spikes have had a number of repercussions, including a desire by countries dependent on food imports to secure food supplies in the face of uncertainty and market volatility, speculation on land and commodity price increases, and a search for alternative energy sources. These factors have prompted a sharp increase in investor interest in acquiring significant quantities of farmland, water, and forested areas in both developing and emerging countries. Some see this phenomenon of large-scale land acquisition as an opportunity to overcome long term Photo: Tran Thi Hoa underinvestment in agriculture, catalyze technology and skills transfers, increase agricultural productivity, and reduce poverty. Such investments could allow RISING INTEREST IN FARmLANd: countries with abundant or underutilized land and CAN IT yIELd SuSTAINAbLE ANd large yield gaps to gain access to technology, increase employment, and create the preconditions EquITAbLE bENEFITS? for sustained and broad-based development. Others While the issue has been hotly debated, this debate has point to the risks as eagerness to attract investors, suffered from two main weaknesses. On the one hand, where land and resource rights are ill defined and there has been a dearth of rigorous empirical analysis institutional capacity is weak, could result in conflict, of what is happening on the ground. On the other hand, and environmental damage. most attention has been focused on investor demand If the world is to deliver on its goal of halving poverty rather than on the availability of potentially cultivable and hunger by 2015, developing countries need to land and countries determination of whether larger-scale boost agricultural productivity, improve access to farming could complement smallholder agriculture to food markets, decrease vulnerability to agricultural promote broad-based rural development. The report risks, and create better and more sustainable rural Rising Global Interest in Farmland: Can it Yield livelihoods. Foreign investment can play a role in Sustainable and Equitable Benefits? responds to helping developing countries meet these goals. these issues. It reviews global trends of land expansion But there is an urgent need to attract not just more as well as empirical evidence on land acquisitions in 14 investment, but better investment that contributes countries between 2004 and 2009: Brazil, Cambodia, to sustainable agricultural growth in the host country. Democratic Republic of Congo, Ethiopia, Indonesia, The World Bank's work on land policy and Liberia, Lao PDR, Mexico, Mozambique, Nigeria, Peru, administration and responsible agricultural investment Sudan, Ukraine, and Zambia. or "agro-investment" builds on its commitment This is complemented by a review of the policy frame- to support country efforts to improve agriculture's work and an assessment of global land availability based contribution to food security, create wealth among the on agro-ecological simulations. poor, facilitate economic transformation, and provide environmental services. The World Bank is especially Rising Global Interest in Farmland points to examples concerned that such large-scale resource acquisitions where investment provided large and sustained do not disadvantage smallholder farmers, who depend benefits to local populations. In many cases however, on land for their livelihoods. desired benefits were not achieved. Especially in Africa, investments often did not achieve their full potential in terms of Review of the policy, legal, and institutional frameworks also productivity and poverty reduction because of: leads the report to conclude that a key reason for limited success of large-scale investment to date is the significant gaps in the · Weaklandgovernanceandafailuretorecognizeorprotect laws, policies, and institutions that govern such investments. It local communities' land rights; notes that most dangers could be avoided if there are well de- · Lackofcountrycapacitytoprocessandmanagelarge-scale fined rights to use and occupy land and greater accountability on investments; the part of governments and investors. · Investorproposalsthatwereinsufficientlyelaboratedor technically non-viable; and bOX 2: EXAmPLES OF EFFECTIvE · Lack of a development strategy to determine whether large- mEThOdOLOGIES scale investment can be instrumental in helping the host coun- try to achieve its development objectives, and if it is suitable, The report provides a number of examples of methodologies where and how investment can contribute to those objectives. which have been used effectively on the ground. These Additionally, in many countries, a widespread lack of informa- include the following. tion makes it difficult for public institutions to properly do their · Securinglocallandrights,participatorymapping,andland jobs. Without addressing this lack of information, even the most use planning in Mexico and Tanzania; progressive regulations will be difficult or impossible to enforce, corruption can flourish, and it will be difficult to attract serious · Transparentlandtransfermechanismsinvolvingconsulta- investors. It will be critical to increase access to information and tion with local communities in Argentina and Peru; establish ways in which it can be used to enforce regulations and · Communityconsultationandinternaldecisionmaking allow open debate to inform policies and regulations, in addition mechanisms in Mexico; to strengthening governments' own structures and making data · Processingofinvestmentsanduseoftaxes,paymentfor publicly accessible. environmental services, and other incentives in Indonesia; and The report also identifies the `yield gaps,' the amount by which a · Ensuringcompliancewithenvironmentalsafeguards country's actual production falls short of its potential production. in Brazil. Yield gaps, together with the amount of land that is available for expansion is used to classify countries into a series of four broad typologies (box 1). mOvING FORwARd: OPPORTuNITIES bOX 1: TyPOLOGy OF COuNTRIES FOR ACTION ACCORdING TO POTENTIALLy The World Bank's empirical analysis from Rising Global Interest AvAILAbLE LANd ANd yIELd GAP in Farmland concludes that effective responses to increased pressure on land requires both government leadership in host and Type 1: Little land for expansion, low yield gap. In coun- source countries, as well as input from a wide range of stakehold- tries with high population density and limited land available ers, including private sector operators, civil society organizations, for cultivation, agricultural growth is driven by highly pro- and international institutions. Each has a critical role to play. ductive smallholders with increasing access to investment capital, technology, and markets through contract farming. As the agricultural labor force declines, efficient land markets A) Governments can facilitate land consolidation. For governments, the policy, legal and institutional frameworks will determine their ability to enhance opportunities. Specifically, Type 2: Suitable land available, low yield gap. In countries the evidence is that countries should: where land is relatively abundant and technology, infrastruc- ture, and human capital relatively advanced, the public sector A1) Identify strategic priorities and assess whether, given avail- should establish and maintain an appropriate regulatory able resources and necessary trade-offs, large-scale investments framework for efficient factor markets and the protection of could contribute to employment generation, food security, regional areas with high social or environmental values. and smallholder development, and technology transfer. Type 3: Little land available, high yield gap. In countries Identify public infrastructure or technology investments that with little cropland available, low yields, and high popula- could complement private sector efforts through a participa- tion density, increasing agricultural productivity will require tory process of land use planning. Such a process would also effective public investment in technology, infrastructure, and enable land holders to determine whether they want to transfer market development. To effectively reduce poverty, private land to investors. investment should target smallholders, particularly where non-agricultural employment is scarce. Review and refine investors' incentives in order to promote positive outcomes--examples include encouraging investment Type 4: Suitable land available, high yield gap. In coun- in areas where land rights have been clarified or infrastructure tries with low population density and low yields, smallholder is in place, or offering tax holidays only after certain milestones expansion may be limited by labor supply. It may be appropri- are achieved. ate to encourage outside investors to introduce labor-saving mechanization on large farms. The public sector should Inform and educate communities in both urban and rural areas, actively promote contractual arrangements that generate mul- ideally through a participatory dialogue that includes all stake- tiplier effects benefitting local smallholders. holders and draws lessons from experience. 2 A2) Improve land governance to ensure that the pressures develop more open modalities of land acquisition such as, from higher land values do not lead to dispossession of the auction model as practiced in Peru, while identifying and existing rights. protecting indigenous people's rights. Ensure existing rights, including user rights, are sufficiently Strengthen records management including, for example, protected to create the basis for voluntary transfers. developing and maintaining an inventory of state land and Have state land identified geographically and ensure that transfers in a central database--a task that can be conducted at mechanisms for its management, acquisition, and divestiture, lower cost with the benefit of new technologies. as well as the imposition of land use restrictions, are transpar- Strengthen technical review and screening of proposed ent and justified. projects as part of due diligence. Make information on land rights that is complete and current available to all interested parties in a cost-effective manner. b) The Private Sector Leading companies in the private sector have recently devoted Ensure that accessible mechanisms for dispute resolution and increased attention to principles, guidelines, best practices, conflict management are in place. and voluntary codes intended to guide large-scale agricultural A3) In countries where large-scale land transfers are deemed investments. In other sectors, such leadership is typically appropriate, improve the capacity of government institutions followed by the consolidation of approaches taken by key to administer and manage large-scale land transfers and learn companies into harmonized sets of private standards coupled from experience through a variety of mechanisms, including an with certification and compliance systems, eventually integrated audit of existing contracts. Such analyses could provide guid- with a target country policy and regulatory frameworks. ance on appropriate regulations and standards, environmental safeguards, and ways to ensure that approved investments are In an effort to complement the Food and Agricultural Organization economically viable and that they generate local benefits. (FAO) of the United Nations, the International Fund for Agricultural Development (IFAD), the United Nations Conference on Trade Most commonly, capacity building is required in order to: and Development (UNCTAD) and World Bank Group initiative in Establish effective consultation that enables representative formulating Responsible Agro-investment Principles, the authors participation, provides relevant information, records reserva- of Rising Global Interest in Farmland sought to identify efforts tions and decisions, and develops an agreed approach to that could be effective in setting and implementing standards monitoring and remedies. relating to environmental and social sustainability. In particular, the study focused on cases in which large transfers of rights and Streamline and review institutional responsibilities in order large-scale agricultural investments were involved, whether those to strengthen coordination between agencies and their capacity transfers took place through leasing, purchase, or other tenure to develop and monitor transparent land transfer mechanisms arrangements. as well as design environmental and social assessments. In considering industry standards regarding land acquisition, active government participation is critical in order to effectively translate bOX 3: uSING AuCTIONS TO TRANSFER experience into broad policy reform and to fully integrate those PubLIC LANd IN PERu'S COASTAL REGION standards in a country's policy and regulatory frameworks. Further, there remains a need for principles with focused, specific criteria Peru uses a public auction mechanism to divest public founded on experience, plus realistic disclosure mechanisms, lands for investment. The government first regularizes any third-party verification, and effective enforcement mechanisms. land rights to determine if anyone has claims to it that may need to be respected. This also enables to government to C) Civil Society and Local Governments determine what types of rights are eligible for transfer. Civil society and local governments can build critical links to local When the government initiates the auction, the intention to and indigenous people's communities and: divest the land and the terms of the bidding are published publically for at least 90 days. Bidders must prequalify for · Educate communities to assist them in effectively exercising the auction by posting a bond of at least 60 percent of the their rights; minimum bid price plus the intended amount of investment. · Assist in the design, negotiation, implementation, and The successful bidder must deposit the land payment and monitoring of investment projects where requested; and a letter of credit covering the proposed investment amount with the government. · Act as watchdogs to critically review projects and publicize their findings to hold governments and investors accountable Where an investor expresses interest in public land, the inves- and provide input into formulation and revision of country tor is required to present a business plan to a board of public strategies. and private sector specialists. If the project is considered via- ble, the proposal is published for at least 90 days to allow other d) International Organizations investors to present offers. If any investor comes forward, the public bidding process above is initiated. If no other investor International organizations could support countries to shows interest, the initial investor can proceed. maximize opportunities and minimize risks from large-scale and acquisition by: Auctions of 235,500 hectares brought almost US$50 million in investment to Peru's coastal regions over the last 15 years, · Assistingcountriesto integrate information and analysis on generating large numbers of jobs and underpinning the coun- large-scale land acquisition into national strategies; try's emergence as a major force in high-value agro-exports. · Offering financial and technical support for capacity building; 3 · Supporting stakeholder convergence around responsible Private investment can provide opportunities to upgrade agro-investment principles--for all stakeholders--that can be technology, improve market access, and increase implemented and monitored; and employment--all pre-conditions for sustained and broad- · Exploring mechanisms that disseminate information and based development. Private investment in agriculture has good practices on management of land acquisitions based on significant potential to complement public investment in the the experience of existing initiatives. The Extractive Industries sector. Countries with reasonably well functioning markets Transparency Initiative model is one possible, but imperfect, have derived significant benefits from private agro-investment model that could inform the design of a new approach. in the form of better access to capital, technology and skills, employment generation, and productivity increases. Contract farming, other outgrower arrangements, and joint ventures bOX 4: A FORum TO ImPROvE with local communities in which the commercial arrangement LANd GOvERNANCE relies principally on access to the fruits of the land may often Rising global interest in farmland highlights the chal- offer a better combination of risk and reward sharing than lenges posed by the dearth of information on recent invest- direct ownership, leasing, or other means of control over ments and the fact that stakeholders suffer from a lack of productive resources. such information. Lack of information on actual land use, Discussions about the risks and opportunities that large-scale existing rights, and land suitability prevents governments investment in land entails will continue. The World Bank from devising proper strategies, revising them as they go intends to inform these discussions, providing principles and along, and ensuring that policies are actually implemented standards to guide the investment, and identifying ways to (or identifying why they are not). It hurts investors who want encourage buy-in among a wide range of actors. The actors to know where opportunities for investment are available on different terms and what approaches and technologies include communities, civil society organizations, government have worked and which did not in the past. Without written institutions, development agencies, and private investors. There agreements, communities and civil society lack the ability is a diversity of investors, both private and public. to ensure that investors keep their promises and to assess They include operating companies in the agro-food, biofuels, whether policies are effective or not. and extractive industries; institutional investors such as Information gathered in the context of a country-level, pension funds and insurance companies; private equity funds; multi-stakeholder, land-governance initiative could be used governmental or government-linked companies such as not only for independent monitoring by communities and sovereign funds; and individual entrepreneurs. Each is different civil society. Increasing the availability of information on and investment objectives, time horizons, expectations of recent and proposed land transfers could also help all con- returns, appetite for risk, and stakeholders. Industry know-how cerned to more effectively capitalize on the opportunities varies widely across this cohort of actors. presented by increased global interest in land by allowing for continued feedback to decision-makers in the public and As part of this initiative, an interactive, web-based private sectors. Knowledge Exchange Platform for Responsible Agro-Investment was released in April 2010. The Platform offers a toolkit of resources that brings together examples PRINCIPLES FOR RESPONSIbLE of relevant research, analysis, principles, guidelines, tools, AGRO-INvESTmENT and best practices from multiple sources on the issue The Rising Global Interest in Farmland report is one example of of responsible agro-enterprise for global reference and the World Bank's commitment to informing debate and under- discussion. This site will continue to be updated. standing of agricultural investment trends and their impacts on economic growth and poverty reduction. As an additional input NEXT STEPS into this discussion, the World Bank has worked with FAO, IFAD and UNCTAD, and more recently with an expanding set of multi stakeholder E-discussion: Recognizing the significance governmental, non-governmental, and private partners, to help of this important and complex issue, and that the World Bank ensure that responsible investments are carried out through Group is only one of many organizations engaged in this work, the formulation of a set of principles to help governments, an open e-discussion hosted by the Global Donor Platform for investors, communities, and other interested stakeholders to Rural Development and facilitated by the International Institute facilitate "responsible agro-investment that respects rights, for Sustainable Development will take place in September 2010. livelihoods, and resources." The principles address: The discussion will focus on policy recommendations that might emerge from empirical research. · respectinglandandresourcerights; · ensuringfoodsecurity; Applying the principles operationally in cooperation with leading organizations and firms on the investor side: With · ensuringtransparency,goodgovernance,andaproper the support of networks, associations, or programs that are enabling environment; industry-driven yet not directly engaged as investors, the · consultationandparticipation; World Bank and other international agencies will work toward · responsibleagro-enterpriseinvesting; mainstreaming the RAI Principles and adapting them to different · socialsustainability;and industries or contexts, in close consultation with other stake- · environmentalsustainability. holder groups, including NGOs. 1818 H street. nW Washington, dc 20433 www.worldbank.org/rural