Friday, January 29, 2010

Foreign agricultural land purchases

A new UN brief discusses the recent trend towards cross-border agricultural land ownership has been raising eyebrows and hackles. Increasingly, agribusinesses and sometimes governments from wealthier countries that import food have been buying up large areas of agricultural land in poor countries, particularly in Africa, to produce food for their own markets:

The current land purchase and lease arrangements are largely about shifting land
and water uses from local farming to essentially long-distance farming to
meet home state food and energy needs. It is, in practice, purchasing
food production. This is not completely new, but the process of doing so
mainly or exclusively for home country consumption is.

Driven primarily by rising food prices and increasing water scarcity in developed countries, it's happening on a large scale:

A quantitative inventory of five African states (Ethiopia, Ghana, Madagascar,
Mali and Sudan)...documented a total of 2,492,684 hectares of approved
land acquisitions from 2004 to early 2009. That is almost half the arable
land of the United Kingdom and three times the arable land of Norway.

Is this something to worry about? Not necessarily. If foreign investment means that African farmland can be used more productively, then as long as what the foreigners are paying exceeds what the land is yielding right now- and as long as the people using the land right now are propertly identified and compensated- this can be a win-win.

The problem arises when you consider a nasty little thing called political economy. If the host country government actors are self-interested and corrupt, then these land sales are just another mechanism for them to enrich themselves at the expense of the citizenry, and potentially a very dangerous one. Looking at the major players listed above, there's an interesting mix- I wouldn't be worried about this so much in Mali or Ghana... but Sudan or Ethiopia? And it appears to be a very real concern:

An issue of critical importance is the lack of transparency that surrounds many
of the foreign investments in land and water today. To date, no investment
contracts appear to have been made available to the public, and only a very few
have been made available to intergovernmental and non-governmental organizations seeking to better understand and appraise these issues.

An interesting aspect to this is the role of the property rights system more broadly. Clearly, a system of strong and well-defined private property rights would be helpful here- the holders of property rights would only relinquish them if they felt the terms were fair, and the price they were being offered exceeded the benefit they were able to derive from the land themselves. But ironically, in some circumstances a sufficiently weak property rights system could also be helpful. Foreign investors might stay away if they have to worry about the locals making trouble or the government changing its mind about the terms of the lease, and where host country governments are corrupt scaring away would be land-buyers might actually be a good thing on balance.

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