A thirst for distant lands: foreign investment in agricultural land and water

May 2009

There has been a recent surge of interest in foreign investment in agricultural land. The purchase or long-term lease of agricultural land for food production, predominantly by state-owned and private investors from Arab and wealthy Asian states (Japan, China and Korea) into Africa and Southeast Asia, has received significant media attention. Investment banks, hurt by the crisis in the banking and property sector, and in search of new sources of investment, have also contributed to the recent surge. The surge in foreign investment in land for biofuel production has received less media attention, but may be equally important.
Foreign investment in agricultural land is not a new phenomenon. Large foreign-owned plantations exist in parts of Africa, Asia and Latin America, in many cases remnants of the colonial era, and are used to produce bananas, sugar, tea, cocoa and other export crops. Since the 1980s, however, foreign ownership of land for agriculture significantly declined as other types of foreign investment, particularly contract farming and investment in other aspects of agricultural production—including seeds, fertilizers, machinery, processing, manufacturing and retail—have been preferred by investors and transnational corporations.
The biofuels boom that began in 2003 and the global food crisis of 2008 revived the strategy of foreign investors (both states and private investors) to purchase or secure long-term leases of land. Importantly, this latest investment strategy is more strongly driven by food and energy security rather than a notion of comparative advantage in the large-scale production of indigenous crops, which has been more characteristic of foreign-owned plantations since the end of the colonial era.
This paper focuses on the renewed interest in purchasing or leasing land, and securing water rights for agricultural production; it does not focus on other forms of foreign investment in agriculture. In Sections 2 and 3, it identifies the key drivers behind the recent surge in these investments, and examines prevailing trends in reported land contracts. In Section 4, the range of legal issues associated with these types of contracts, including in relation to domestic law, the international investment contracts and international investment agreements, is identified. While there are uncertainties due to the absence of any access to actual contracts, this section suggests the key issues that are propelling the rapid evolution of this area of foreign investment.

By: C. Smaller, H. Mann (IISD)

 
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