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

1. FDI in agricutural land and world food security: What role for the European Union? Harald von Witzke Humboldt University of Berlin Brussels, March 8, 2012

2. 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.

3. 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.

4. 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.

5. 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,

6. 1. The end of the agricultural treadmill - neglect of agriculture, agricultural research and productivity growth. World, 1960-1989: 4% annually, World, presently: ≈ 1 % annually EU presently: 0.6 % annually.

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

8. Empirical evidence: The wheat price spike of Jan. 2007- June 2008 Source: von Witzke and Noleppa (2011).

9. 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.

10. Implications of high ag prices 2 • Growing concerns in many countries about: - national food security, - political instability and violence.

11. 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!

12. 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).

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. 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!!!!

21. 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.

22. Thank you for your attention. Additional information is available at: www.agrar.hu-berlin.de www.hffa.info