Professor Harold von Witzke

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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

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 % annually

EU presently: 0.6 % annually.

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World market prices, 2003/05 -2015/17

Source: von Witzke et al., 2009

Market

Wheat

2003/05

$/mt

158

2015/17 $/mt

Base scrno.

272

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

+172

Corn

Other grains

Oilseeds

Sugar

106

91

288

250

219

137

492

493

+207

+151

+171

+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

Freight rates

Population

Income

US$ ER

29.6

2.3

2.0

7.6

Export restrictions

Production

6.1

-10.7

0.1

Bioenergy

Ttl. observed 77.8

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 security outside their boundaries domestic food

→ 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 welldefined 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

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