Farming, financial storms — and keeping a weather eye on volatility

Emma Blackmore's picture
Guest blog by
12 January 2010

Farming is usually seen as dicing with nature. So how has agriculture managed to weather the financial storms of the last year so well?

Amid a gloomy outlook for inward investment – that is, by foreign entrepreneurs, fund managers and governments - to developing countries, the recent World Investment Report 2009 tells us that agriculture is one of the brighter spots.

This begs a big question: what’s the dynamic between agriculture and the recession? And another: where do those headlining 'land grabs' — where richer countries buy up vast tracts of land in the developing world as an agricultural investment — fit into this picture? And is resistance necessary or is the phenomenon simply a recession spillover?

The UN Conference on Trade and Development, which produces the yearly report, confidently predicts that agribusiness will be at the forefront of the next investment boom. This is because it is less susceptible to business cycles and their slumps in demand than other sectors.

How would that investment work in practice? At a macro level, inward investment or foreign direct investment (FDI) in agriculture brings the promise of direct government revenues (taxes, fees, royalties) along with jobs, market access, technology transfer and infrastructure.

The land grab scenario opens up a rather different vista, however. At local level in developing countries, large-scale investments and land transfers may threaten rights, resource access and livelihoods. The impacts may extend well beyond the actual project site if, for example, a big producer floods the national market and displaces existing small-scale suppliers.

So what is the real extent and impact of those headlining land grabs? Most approved deals have yet to go into operation, raising the possibility that some at least are purely speculative. Some argue too that the phenomenon is exaggerated.

Recent land deals account for only 2-5 per cent of suitable agricultural land in some African countries, for example. Many giant deals, such as the 10 million hectare deal between the Republic of Congo and South Africa’s commercial farmers’ association Agri-SA, scheduled to be signed in October 2009, are likely in reality to involve development of much smaller contiguous areas.

In the end, the South African farmers did not sign this deal, but it hints at the opportunities being sought by powerful agricultural groups in the region.

But small total land areas do not mean low impact. The biofuels boom of 2009 has raised the stakes for agricultural land. The rhetoric goes that biofuel crops should – and will – be confined to ‘marginal’ or ’waste’ land, but the reality is that large-scale biofuels projects are targeting the best land.

In Mali, the national land registry shows that large-scale land acquisitions for biofuels and food over the past five years have been confined to the highest-potential, irrigated lands.

There are two key issues at stake. The first is whether there is a place for large-scale agribusiness in the local and national economy of developing nations. This is a question every country needs to explore, preferably through open and wide-reaching public debate that weighs up the pros and cons honestly.

The second is that the actual substance of agricultural investment deals is key to long-term benefits and outcomes. Liberia’s President Ellen Johnson Sirleaf, for instance, has been particularly alert to opportunities to renegotiate the terms of major natural resource contracts (as described in this report), leading to more equitable terms on taxation, transparency and local benefits in the country’s deals with ArcelorMittal and Firestone. This savvy approach to dealing with large corporate interests could prove a blueprint for other countries to follow.

Every country does its best to project a pleasing image to foreign investors. But stability is key for countries, while volatility is gold to speculators. And we must remember that no one is immune in a recession, as volatility becomes the norm and speculative opportunities abound. As Chris Sanger writes in The Times (UK), we need to ensure certainty is not the next casualty during the UK’s uplift from recession.

If the usually stable UK is flirting with FDI danger, then it is that clear great attention needs to be paid to the role of business in a sustainable future for developing countries even hungrier for government funds than before.

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