Impacts of foreign agricultural investment on developing countries: evidence from case studies

Year of publication2014

AuthorFAO

PublisherFAO

AbstractThere is growing evidence that investing in developing countries’ agricultural sector is among the most efficient ways to reduce poverty and hunger. Agricultural investments can generate a wide range of developmental benefits, but these benefits cannot be expected to arise automatically and some forms of large-scale investment carry risks for host countries. Although there has been much debate about the potential benefits and risks of international investment, there is a lack of systematic evide nce on the actual impacts on the host country and their determinants. This paper summarizes the results of FAO’s case studies on the impacts of foreign agricultural investment on host communities and countries. The studies suggest that the disadvantages of large-scale land acquisitions often outweigh the few benefits to the local community. In countries where local land rights are not clearly defined and governance is weak, large scale land acquisition raises particularly high risks for the loca l community. These include reduced access to natural resources and the loss of livelihoods, which are likely to generate local opposition to the investment. Even from the perspective of the investor, land acquisition is unlikely to be the most profitable business model due to the high potential for conflict and damage to reputation. Conversely, the studies suggest that investments that involve local farmers as equal business partners, giving them an active role and leaving them in control of the ir land, have the most positive and sustainable effects on local economies and social development. These inclusive business models need strong external support for supporting farmers and facilitating the investor-farmers relationship in order to succeed. They also require ‘patient capital’, as financial returns to investment are unlikely to materialize in the first years. Beside the business model, other important factors include the legal and institutional framework in the host country, the ter ms and conditions of the investment contract and the social and economic conditions in the investment area. Strengthening the governance and capacity of institutions in host developing countries is essential to enhancing the developmental impacts of foreign agricultural investment.

 

ThemeResponsible Agricultural Investment (RAI)

Product typeBook (stand-alone)

SeriesFAO Commodity and Trade Policy Research Working Paper

Areas of workEmerging Trends, Challenges and Opportunities

Keywordsagricultural sector; agricultural development; investment; financing; participation; sustainable development; land rights; community involvement; case studies; Developing countries