Buying the Farm: Protecting Human Rights and the Environment in the Face of Global Agricultural Expansion

Vol. 28 No. 2

Ms. Mance is an attorney practicing international commercial litigation and vice-chair of the ABA International Environmental Law Committee.

Though the practice of investing in foreign farmland is not a new phenomenon, the concurrence of recent global crises became catalysts for a modern, unprecedented rush on agricultural land around the world. Demands for food and energy, volatile commodity prices, land and water shortages, and population growth are driving the recent farmland investment boom, highlighting the need for agrarian reforms and resource management. This article will discuss the recent rise of foreign investment in farmland, the social and environmental costs to local communities, and the dilemma of how to enact necessary land reforms while also encouraging foreign investment.

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Two seasons of bad weather in 2005 and 2006 led to a global food crisis in 2007 and 2008, following which investors rushed to secure additional lands for food crops to hedge against future instability. Shortly thereafter, fluctuating fuel costs forced countries to focus on incorporating renewable energy sources into their energy portfolios and fuel stocks. At the same time, new laws and policies incentivizing renewables created a huge market for companies investing in energy crops for biofuel and bioethanol. Compounding these events, the volatile market conditions created by the 2008–2009 global financial crisis drove investors to focus on land in two ways: as a safe, tangible investment and as a potentially highly profitable commodity. Hence, in the wake of these crises, countries and other private investor groups began acquiring land and water resources abroad at unprecedented rates. Michael Kugelman, The Global Farmland Rush, N.Y. Times, Feb. 5, 2013 (hereinafter Kugelman).

In the past, private agricultural companies, banks, and other private agribusinesses were the primary foreign investors in farmland. As the effects of the recent food security, resource scarcity, and market turmoil crises were felt, however, governments and companies tied closely to sovereign nations, such as sovereign wealth funds, began to buy up farmland to secure land abroad in what The Economist calls a “protectionist impulse to circumvent world markets.” Buying Farmland Abroad: Outsourcing’s Third Wave, The Economist, May 21, 2009 (hereinafter The Economist). New private investors, such as hedge funds and private equity firms, are also contributing to the current investment boom.

The amount of capital devoted to investment is massive. By 2015, “nearly 200 private equity firms are expected to have almost $30 billion in private capital invested.” Kugelman. Further, the scale of land being purchased or leased is also dramatically greater than before. A typical large land purchase prior to 2007 was approximately 240,000 acres. Just two years later, South Korea signed a deal for approximately 1.7 million acres in Sudan and China secured approximately 6.9 million acres in the Democratic Republic of Congo (the DRC) to grow palm oil for biofuel. A 2012 International Monetary Fund (IMF) study reported that from 1961 to 2007, the equivalent of 10 million acres were opened to agricultural production annually. But a dramatic shift occurred, beginning in 2008, when investment deals skyrocketed, involving approximately 140 million acres, of which almost two-thirds were located in Africa. Rabah Arezki, et al., Global Land Rush, Fin. & Dev., p. 46 (Mar. 2012) (hereinafter Arezki).

Of these deals, the total land subject to deals involving foreigners from 2006 to 2009 was between 37 million and 50 million acres. The Economist. Since 2000, foreign investors have acquired an estimated 83 million hectares (approximately 205 million acres) of land in developing countries. Claire Schaffnit-Chatterjee, Foreign Investment in Farmland: No Low-Hanging Fruit, Deutsch Bank DB Research, p. 1 (Nov. 2012) (hereinafter Schaffnit-Chatterjee).

The majority of large land transactions are occurring in poorer countries with large swathes of largely uncultivated land. These countries tend to have low gross domestic product, weak land governance, low land tenure security, and low population densities but also a strong enough institutional framework to protect investment and business operations. Currently, Africa, Southeast Asia, and Brazil are the primary targets for foreign farmland investment, with two-thirds of the targeted countries located in Sub-Saharan Africa, Latin America, and the Caribbean. Klaus Deininger, et al., Rising Global Interest in Farmland: Can It Yield Sustainable and Equitable Benefits? The World Bank, p. 16 (2011).

Africa, and specifically Sub-Saharan Africa, is a primary target because much of its land is undeveloped and ripe for commercialization. Awakening Africa’s Sleeping Giant: Prospects for Commercial Agriculture in the Guinea Savannah Zone and Beyond, The World Bank, p. 1 (2009). A 2012 IMF study estimated that Sub-Saharan Africa had almost half of the approximately one billion acres of land worldwide that are uncultivated and available for farming. Arezki at 46. These large swathes of land with low population densities may be key to meeting world food demand as the population is projected to grow to nine billion by 2050. Schaffnit-Chatterjee at 8. Other target countries include Kazakhstan, Pakistan, Russia, Ukraine, Cambodia, and Indonesia, likely due to the perception that land is plentiful, available, and cheap; climates are favorable for food production; and there is inexpensive local labor.

Effects of Foreign Investment in Farmland

In many cases, host countries seek to attract foreign agricultural investors as a source of capital. Martin Khor, The Investment Issue in Trade Agreements: A Development Perspective, The Third World Network, at 15 (2006). Sudan, for example, has said it would set aside one-fifth of its agricultural lands for foreign investment. The Economist. Direct foreign investment in agriculture provides many advantages to developing the agricultural sector in developing countries. Countries seeking to attract investors can use the capital to develop infrastructure and provide for their own people, mainly to help reduce poverty. Foreign agricultural investment also can provide jobs for local laborers, import foreign expertise, link the host country to larger markets, and create exports.

Foreign investment may also yield great savings on crop production for foreign governments and private investors. However, purchases or leases of large tracts of farmland by these investors can also have considerable negative implications for local communities in target countries. Olivier De Schutter, The Green Rush: The Global Race for Farmland and the Rights of Land Users, 52 Harv. Int’l L.J. 503, 540–541 (2011) (hereinafter De Schutter).

One of the most critical concerns local populations face is land displacement and weak property rights. Nomadic groups, such as pastoralists, fishermen, indigenous peoples, and local wage laborers, who rely on access to natural resources and the commons for their livelihood but have no title to land, are easily marginalized. This affects massive numbers of people in countries targeted by investors. In Sub-Saharan Africa, for instance, 500 million Africans rely on communally held land. Kugelman. Women, in particular, are affected; while they are the primary food producers in many developing nations, most such women do not have corresponding rights to own land. De Schutter at 528.

Unfortunately, countries targeted for investment often have weak governments that provide very little protection to property rights. In some instances, governments are so desperate to bring in investment that they make deals that ultimately hurt their own people more than benefit them. For instance, in a country with weak land rights, the state could appropriate land from its own people to sell off to foreign investors. In 2009, Mali leased 386 square miles of land to a Libyan firm without consulting local communities that had long used that land. Kugelman.

Further, the promise of employment and contribution to local markets by large-scale investors often does not materialize. Kugelman. More often, investors will drive out small landholders who could make a living cultivating labor-intensive smaller plots. De Schutter at 541. Further, large-scale investors create “highly mechanized, capital-intensive plantations that replace workers with machines.” De Schutter at 553. In addition, much recent investment is primarily to produce food or energy crops for export, which limits the food available for the local population. De Schutter at 546. Those foreign-owned farms that do sell in local markets compete with small growers and often can sell at a cheaper price because of their quantity, further undermining local growers.

Foreign investment in farmland, if unchecked and unregulated, also can have significant, detrimental effects on the local freshwater resources, forests, soil, and biodiversity in the host country. This type of foreign investment tends to be in the form of large plantation-style farms that produce a single crop, which provides a more reliable supply of certain basic commodities for distant markets. In contrast, smaller landholders tend to intercrop—a more biodiverse style of farming. M. A. Altieri, et al., Agroecologically Efficient Agricultural Systems for Smallholder Farmers: Contributions to Food Sovereignty, Agronomy for Sustainable Dev., p. 2 (Dec. 2011).

Further, agriculture is water intensive, which can exacerbate aridity in water-stressed regions such as Sub-Saharan Africa and the Middle East. In some instances, water poor but economically wealthy nations such as the Gulf States have limited use of domestic lands for agriculture to save their water resources. To compensate, they outsource agricultural production to foreign countries. Benjamin Shepherd, GCC States’ Land Investments Abroad: The Case of Cambodia Summary Report, Center for Int’l Regional Stud., Geo. U. Sch. Foreign Serv. in Qatar, at 2 (2012). If foreign-owned farmland requires a disproportionate amount of critical water reserves for products shipped back to the investing country, this places greater pressure on water resources of the host country, leaving the local population to suffer. Ruth Hall, Land Grabbing in Africa and the New Politics of Food, Future Agricultures Consortium, Policy Brief 41, p. 5–6 (June 2011).

Fears of land degradation, deforestation, and overexploitation of resources are also directly related to agricultural investment. Agricultural expansion is the main driver of approximately 80 percent of deforestation worldwide as forests are cut to clear land for farms. Gabrielle Kissinger, et al., Drivers of Deforestation and Forest Degradation: A Synthesis Report for REDD+ Policy Makers, p. 5 (Aug. 2012). Yet, forests are critical for conservation of biodiversity and often contribute to food security for local populations by providing a source of food and medicine.

Finally, governments competing for foreign investment may be unwilling to demand that investors meet certain performance standards needed to make some of the benefits of investment in farmland materialize, such as local employment, respect for the environment, and local food security. Weak governance and corruption are key issues. Sudan, Cambodia, and Laos, some of the primary targets for recent investment, are also “riddled with corruption and prioritize profit-making land deals over the needs of their populations.” Kugelman. Also, poorer countries seeking investors and lacking the financial ability to pay investors who successfully challenge measures that harm investor interests may opt not to regulate environmental, health, or human rights aspects of investments, preferring the investments over regulations protecting its citizens. Luke Eric Peterson, et al., International Human Rights in Bilateral Investment Treaties and in Investment Treaty Arbitration, Int’l Inst. for Sustainable Dev. (IISD), p. 5–6 (Apr. 2003). As a result, in international arbitration disputes, investors’ rights regarding crops and water resources can trump the rights of the government to protect their citizens. See, for example, Request for Arbitration, FTR Holdings S.A. (Switzerland) v. Oriental Republic of Uruguay, ICSID case no. ARB/10/7 (Feb. 9, 2010) (demonstrating how tobacco companies effectively used bilateral investment treaty provisions to trump government regulations promoting health).

Host Country Reactions to Foreign Investment

Concerns about the potential negative effects of large-scale foreign investment have led some countries to restrict how much farmland foreign investors can acquire. This is the case in Argentina, Mozambique, Ukraine, Tanzania, and in Brazil, where foreign ownership of land in rural areas and adjacent to international borders is prohibited. Other countries have imposed temporary moratoriums on land acquisition by foreign investors or complete bans on foreign acquisition of farmland. For example, in May 2012 the Cambodian government placed a moratorium on Economic Land Concessions, transfers of arable and forest lands that are granted to investors for developing agro-industrial plantations. Anna Bolin, Big Agribusiness at the Cambodian Forest Frontier: Will REDD+ Be Able to Compete? Global Canopy Program (Mar. 2013). Similarly, the Laotian government froze all land concessions over concerns about land encroachment from rubber plantations and illegal land transfer to foreign investors. Laos Freezes Land Concessions, Village Focus International, June 27, 2012. In Tanzania, after widespread opposition to land allocation to biofuels investors and evidence of dispossession, the government imposed a moratorium on new projects and developed a set of National Biofuels Guidelines to address concerns about displacement of local people and the shift from food to fuel production. Emmanuel Sulle and Fred Nelson, Biofuels, Land Access and Rural Livelihoods in Tanzania, Int’l Inst. for Envt. & Dev., p. 18 (2009).

In Hungary, foreigners have been banned from buying farmland since 1994, a moratorium that was renewed upon joining the European Union (EU), specifically as to nationals of older EU member states, and extended until 2014. In 2012, Hungarians passed a bill prohibiting foreigners from buying land when the 2014 moratorium is lifted. Palko Karasz, Hungary Seeks to Protect Landownership, N.Y. Times, Oct. 30, 2012. Similarly, in Taiwan foreign investment is not allowed in agricultural production, and in Pakistan foreign investors may not own land for agriculture or irrigation. In Argentina, the government passed the Rural Land Law in 2011 restricting all foreign ownership of land to 20 percent of the country’s total area and to 1,000 hectares in productive agricultural areas per investor. Zachary Fillingham, The Global Farmland Boom, Geopolitical Monitor, Jan. 2, 2013.

Still other countries are considering or effecting restrictions aimed at limiting speculation and developing collaborative business models that encourage partnership between foreign investors and domestic firms or small farmers. This can be found in Algeria and the DRC. GRAIN, Land Ceilings: Reining in Land Grabbers or Dumbing Down the Debate? Feb. 28, 2013. Similarly, in Canada there has been a call for a net benefit requirement to the host country for any foreign investment of a certain amount. Other countries attempt to limit speculation by requiring investors to bring land into production within a certain time limit or they will lose the rights to it.

Brazil provides an example of a government developing public policy to support small-scale farming. Brazil created a successful coexistence scheme between large-scale, plantation-style production and small-scale farmers through the Brazilian Corporation for Provisioning, which purchases food from small farmers through the Program for the Acquisition of Food under Law 11947 of June 16, 2009. Under that law, a minimum of 30 percent of all food acquired for food programs in schools must be sourced from family farms. Also, in Mali, farming cooperatives are proposed that combine a foreign investor with a local farmers’ cooperative, with the investor buying only land necessary for its production facility to make energy crops into biofuel and contracting with farmers for the crop production.

Temporary moratoriums or other restrictions on certain types of investment or foreign-owned agricultural companies such as those mentioned above may be wise (to the extent possible in a climate favoring foreign investment) to slow the current rush on farmland, curtail immediate abuses to resources and the local economy, and allow governments to enact agrarian reforms that will provide land tenure security, particularly to those local groups who rely on communal lands but have no corresponding title. Once these critical steps have been taken to protect citizens, governments should consider easing restrictions and encouraging investment that benefits local communities. It should also be noted that, given the fluid, transnational nature of modern business structures, attempts to fully block all foreign investment may prove difficult.

Improving Investment Practices

It is crucial that better investment practices be developed that not only benefit the foreign investors’ interests but also ensure that benefits will be equitably shared by local communities in the host country. In addition to country-specific reforms and self-regulation by private investors, international organizations and regional institutions have developed, or are developing, guidelines on better investment practices aimed, in large part, at protecting local communities and the environment. For example, the Food and Agricultural Organization of the United Nations (FAO) is spearheading an initiative to establish Voluntary Guidelines for Responsible Governance of Land and other Natural Resource Rights. The first draft was published in April 2011. These guidelines adopt a human-rights-based approach and are premised on securing existing users’ rights. In May 2012, the United Nations (UN) Committee on World Food Security endorsed the FAO Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security. Previously, UN Special Rapporteur on the Right to Food, Olivier De Schutter, published the Minimum Principles for Land-based Investments in 2009, which addressed the human rights challenge of large-scale acquisitions and leases of land.

In 2010, the World Bank and its partners jointly developed and proposed Principles for Responsible Agricultural Investment (PRAI). These principles seek to ensure that land-related investments do not negatively impact local communities and attempt to improve transparency and accountability between investors and target governments. Further, they aim to guide investors to behave responsibly in the course of investing. PRAI builds on corporate responsibility and emphasizes community consultation to present a code for investors and financial backers. PRAI also seeks to address large-scale agricultural investments and, in this sense, is unique as it goes beyond other initiatives that focus on investments involving only land transfers. Large-scale agricultural investment may not necessarily involve a land transfer, so PRAI is the first such set of rules to address all types of agricultural investment. PRAI has been criticized, however, for failing to involve civil society groups in the process, for failing to create a monitoring and enforcement mechanism, and for favoring large investors.

Regional and international organizations have also begun to address issues related to foreign investment and to create forums or laws encouraging proper investment practices. Regionally, the African Union (AU) has embraced a vision of smallholder-led agricultural commercialization and a green revolution in Africa, adopting the AU Land Policy Guidelines in 2009 and working with the UN Economic Commission for Africa and the African Development Bank to operationalize these principles at regional levels and in member states to strengthen land laws and policies to protect land users. Furthermore, the Dakar Appeal Against Land Grabbing, a petition in support of local farmers’ rights and agrarian reform and against investment that violates these rights, sponsored by farmers organizations, nongovernmental organizations, unions and other social movements, among others, was adopted at the World Social Forum in Senegal in February 2011. Finally, in Europe and the United States, campaigns with Food First International Action Network and the Transnational Institute urge Europeans and Americans to ask critical questions of U.S. and European companies investing in farmland abroad.

True Land Reforms Are Critical

While foreign investment can play a critical and positive role for many developing countries, comprehensive land reforms that promote equitable access to land for small-scale farmers and decentralize landholdings are needed to protect the rural poor and the environment. Both security of tenure and protection from eviction are key to achieving such reforms that truly aim to protect the rural poor and reduce poverty. De Schutter at 526. If the rural poor and their beneficiaries are first guaranteed security of tenure, they will then have an incentive to make investments in the land.

Protecting access to land for those whose livelihoods depend on it is also necessary. This includes small-scale farmers and indigenous peoples as well as migratory groups such as herders, fishers, and forest dwellers who rely on communal lands. In developing nations, where communal rights play an important role as a safety net for the rural poor, Western style property rights and individual titling may not be the best solution. De Schutter at 507. Further, international human rights law standards primarily protect from eviction those land users who use the land permanently, such as small landholders who lack legal title. Thus, governments should consider alternative arrangements and formally recognize communal property rights that take into account the rights and various lifestyles of the rural poor. Given the current land rush, investors, host governments, and local communities should work together to explore business models that link producers to buyers.

As an alternative to titling, countries could provide security of tenure by registering land use rights and adopting anti-eviction laws protecting tenants from excessive levels of rent or crop sharing. De Schutter at 551–552. Delineating land use rights and offering a system in which to vindicate those rights, should they be broached, as well as offering legal aid and literacy training can effectively stimulate the emergence of a market for rental rights and alternative investment arrangements with the local community.

Further, developing cooperatives between local farmers and producers can help to create that power by reducing costs, distributing benefits, spreading risk equitably, and providing services and infrastructure to members. De Schutter at 550–551. This in turn can help to strengthen the bargaining power of local communities during negotiations with outside investors. Improving land security and anti-eviction laws, coupled with farmer cooperatives, will empower communities and make small-scale farming a truly viable option and an alternative to becoming wage laborers on a large plantation. Moreover, with business models that link foreign agricultural investors with small-scale farmers, investors will benefit from the increased productivity of local farmers who will, in turn, benefit from the chance for upward mobility out of poverty.

Regulation and suggestive guidelines aimed at improving investment practices are welcomed but insufficient. Rather, countries need to consider deep reforms to agrarian policies aimed at reducing poverty. By favoring collaborative, inclusive, and small landholder-based models of controlling food production and distribution and developing a sustainable investment framework, investors, the global poor, and the environment will all benefit.

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