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 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 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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