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Buying land overseas makes sense

May 08, 2009 17:03 IST

"Buy land," advised Mark Twain a long time ago. "They're not making it any more."

Fortunes have been made by people who followed his advice within their own country. Doing that in other countries could be both profitable and dangerous, but that has not deterred investors.

The trend of acquiring land abroad for growing food and other crops may have got a fresh boost, following the food security concerns provoked by high agricultural prices in 2007 and 2008, but it began a long time ago.

Japan, with very little arable land and perpetual food supply concerns, has been investing in farmland in other countries for decades and has, in the process, accessed overseas holdings that are almost three times the size of its domestic agricultural land.

China has also been doing so for over a decade, to secure food supply for its teeming millions. But for most other countries, including the capital-rich Gulf states and over-populated countries like India, creating land holdings abroad has been a very recent phenomenon.

The International Food Policy Research Institute says that land worth between $20 billion and $30 billion has been acquired by land- and water-constrained nations in Africa, Asia and elsewhere in the past three years.

Indian companies have bought land in Ethiopia and other countries, for about Rs 10,000 crore (Rs 100 billion), and entrepreneurs continue to scout for opportunities abroad.

This is not necessarily an unwelcome trend, considering the advantages that such foreign direct investment in agriculture can offer to host countries and local communities. But the dangers of colonisation are obvious, and tales of corporate control over national politics (from where the term 'banana republics' originated) common enough.

It is important therefore that certain norms are transparently followed when doing such deals, with open negotiations, proper pricing, and the land used in such a manner as to benefit local populations.

Otherwise, such deals can very easily alienate local communities from the land and create socio-economic unrest in the form of resistance by indigenous stake holders, as has begun to happen in Mozambique and Madagascar.

On the plus side, foreign investment in land can generate additional farm and off-farm employment for local people; bring in new agricultural technology and cultivation practices; spur development of the rural infrastructure; and facilitate poverty-alleviating improvements like construction of schools and health centres. What the sterling tea companies did to develop India's tea gardens is a good example.

But the adverse fallout of bad deals, in terms of large-scale displacement of local populations without adequate compensation and alternative livelihood avenues, and the obvious consequences down the line, can be explosive.

It is therefore all the more important that there are adequate safeguards built in, and effective regulation of what companies do.

It is from this viewpoint that the proposal mooted by IFPRI in a recently issued policy brief, for putting in place an internationally accepted code of conduct for foreign direct investment in agriculture, makes immense sense. The code calls for transparency in deal negotiation; respect for existing land rights; sharing of benefits with local communities; environmental sustainability; and adherence to national trade policies, especially those concerning food security.

Since it may not be a good idea to dispossess local farmers of their land even through otherwise well-negotiated land deals, leasing of land to the investor on a long-term basis may be a better bet as it would entail some regular income to the affected farmers.

The best course of action would, of course, be to encourage contract farming on such land as it can ensure investors' access to the output without alienating land holders from their property and uprooting them from their habitats.

During national emergencies, such as droughts and local food scarcities, the governments of the host countries should have the first right over the local produce.

BS Bureau
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