FDI in agricutural land and world food security: What role for the European Union?

Brussels, March 8, 2012

Harald von Witzke Humboldt University of Berlin

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Outline

1. The changing international environment of world agriculture.

2. FDI: Theoretical framework.3. FDI in agricultural land and land grabbing.4. Options for the European Union.

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1. The end of the agricultural treadmill

• The long term trend of declining agricultural commodity prices has come to an end.

• Since 2000: upward trend in prices →will continue.

• Reason: Global demand growth outpacing growth in supply.

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1. The end of the agricultural treadmill

• 2000-2050: Global demand will more than double:- Rapid population growth 2050:10 billion

rather than 9 billion humans;- per capita income growth in developing

and emerging economies.

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1. The end of the agricultural treadmill

• 2000-2050: Global supply growth will not keep pace:- shortage of land,- scarcity of water,- more expensive energy,- resource competition with non-food crops: cotton, rubber, bioenergy, flowers and ornamentals etc.- climate change,

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1. The end of the agricultural treadmill

- neglect of agriculture, agricultural research and productivity growth.

World, 1960-1989: 4% annually,World, presently: ≈ 1 % annuallyEU presently: 0.6 % annually.

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World market prices, 2003/05 -2015/17Source: von Witzke et al., 2009

Market 2003/05$/mt

2015/17 $/mtBase scrno.

15/17 in p.c. of 03/05

Wheat 158 272 +172

Corn 106 219 +207

Other grains 91 137 +151

Oilseeds 288 492 +171

Sugar 250 493 +197

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Empirical evidence: The wheat price spike of Jan. 2007- June 2008

Source: von Witzke and Noleppa (2011).

Variable Percent change Variable Percent change

Oil price 29.3 Export restrictions

6.1

Freight rates 29.6 Production -10.7

Population 2.3 Bioenergy 0.1

Income 2.0 Ttl. observed 77.8

US$ ER 7.6 Ttl. explained 78.3

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Implications of high ag prices 1

• Increase in undernutrition and hunger: - political instability, violence and migration

• Increasing incentives for expanding the acreage:– Increasing greenhouse gas emissions,– Loss of natural habitats and biodiversity.

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Implications of high ag prices 2

• Growing concerns in many countries about:- national food security,- political instability and violence.

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Implications 3: Increasing food scarcity erodes the trust in the international ag. trade system as

instrument for national food security• Exporting countries:

→ Export restrictions: e. g. Russia, Ukraine, Argentina, → Keep enough food at home and domestic food prices affordable.

• Importing countries: → Securing the natural resources for domestic food security outside their boundaries

→ FDI in agricultural land (peaceful option),→ or by other means!

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2. FDI: Theoretical framework

• The wealth of a nation depends on its capacity to produce goods.

• Production capacity depends on available quantities and qualities of production factors, inter alia.

• National food security (sufficient quantities and affordable prices) is a key public good in virtually all countries (incl. EU).

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2. FDI: Theoretical framework

• In LDCs and emerging economies ag. production capacity is constrained by:- lack of human capital- lack of capital- lack of access to modern technologies

• FDI has the potential to alleviate these constraints.This includes FDI in ag land.

• FDI have the potential to raise ag. productivity, wages and employment.

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3. FDI in ag land

• Benefits of FDI in recipient country: Depend on individual circumstances - terms and conditions of the contract; governance.

• FDI should ensure fair distribution of benefits between investor and recipient country.

• Good governance and well defined property rights in the recipient country are keys.

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3. FDI in ag land

• FDI may have drawbacks.• FDI may stabilize corrupt governments.• Governments gain but not locals: They lose

the resources they depend on for their livelyhood.

• May reduce local food availability.

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3. FDI in ag land

• Poorly defined or non-enforcable property rights:- Investors and governments gain and locals lose their resources without compensation.- Investors have little incentive for long-term sustainable activities and in developing local ressources.

• A number of announced deals have not been realized because of insufficient property rights for investors.

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4. EU‘s options

• Help developing nations implement well-defined and enforceable property rights in agricultural land.

• Help develop a set of criteria for FDI contracts which assure a fair distribution of benefits.

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4. EU‘s options

• Strive to achieve a liberal global agricultural trade system: It makes the best for everyone out of the scarce natural ressources of world agriculture.

• Improve access of farmers to productive technologies:

Hunger is most pronounced where farmers do not have access to modern seed varieties,

mineral fertilizer and crop protection.

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4. EU‘s options

• EU is not involved in land grabbing.• But because of lacking productivity growth

EU is a „virtual land grabber“• 2008: EU – World largest ag net importer.• Value of net imports: $ 45.5 billion.• EU „virtual land grab“: 35 million hectares.• Virtual land grab 1999-2008: + 9 million

hectares.

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4. EU‘s options

• Reduce net imports in food and agriculture:- Invest more in agricultural research to increase productivity,- reduce food waste,- eat healthily,- but NO „fat tax“ (little effect because of inelasic demand, regressive and costly to administer)!!!!

• NO mandatory land set-asides involving productive farm land!!!!

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4. EU‘s options

• In sum, opt for a higly productive agriculture in the EU and globally.

• This creates jobs and raises income in rual areas, incl. in LDCs.

• It reduces hunger.• It helps preserve natural habitats and biodiversity.• Thus reducing greenhouse gas emissions from an

expanding agricultural acreage.• Define a code of conduct for FDI in ag land.

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Thank you for your attention.

Additional information is available at:

www.agrar.hu-berlin.de

www.hffa.info