Foreign participation in agriculture is on the rise, notably South-South Foreign Direct Investment

Geneva, 17 September 2009 - Foreign participation in agriculture is increasing, and can play a significant role in the agricultural production of developing countries, which are in dire need of private and public investment to boost productivity and support development of their farming sectors, reports UNCTAD´s annual survey of investment trends.

The World Investment Report 2009: Transnational Corporations, Agriculture Production and Development(1) was released today.

Foreign involvement in agriculture can take various forms, with foreign direct investment (FDI) and contract farming being the two most important, the report says. The main spurs for agricultural investment are availability of land and water in target locations and fast-growing demand in the countries where the FDI originates. A number of these nations have experienced rising imports of food crops.

FDI in agriculture is on the rise, with annual FDI flows to agriculture tripling to $3 billion annually between 1989-1991 and 2005-2007. However, the share of FDI in agriculture to total FDI remains limited, with inward FDI stock in agriculture in 2007 at US$32 billion. Nevertheless in some least developed countries (LDCs), including Cambodia, the Lao People´s Democratic Republic, Malawi, Mozambique, and the United Republic of Tanzania, as well as other developing countries such as Ecuador, Honduras, Indonesia, Malaysia, Papua New Guinea, and Viet Nam, the share of FDI in agriculture to total FDI is relatively high. Moreover, food processing and supermarket transnational corporations (TNCs) also invest in agriculture and contract farming (a non-equity form of involvement where, for example, a foreign supermarket or food processor buys crops through an arrangement establishing price, quantity, quality and other specifications), thereby multiplying the actual size of TNC participation in the industry. For instance, after a rapid rate of growth in the early 2000s, FDI flows in the food and beverage industry alone exceeded US$40 billion in 2005-2007.

Contract farming is a significant component of TNC participation in agriculture when considered in terms of geographical distribution, intensity of activity at the country level, coverage by commodities, and types of TNCs involved. TNCs are engaged in contract farming activities and other non-equity forms of agricultural involvement in over 110 countries across Africa, Asia, and Latin America. Contract farming is also intensive in particular commodities in many emerging and poorer countries, such as Brazil, Kenya, and Viet Nam. Moreover, contract faming arrangements cover a broad variety of commodities, from livestock through staple food produce to cash crops. For example, the TNC Olam (Singapore) sources globally from suppliers for 17 agricultural commodities, including cashew nuts, cotton, spices, coffee, cocoa and sugar.

The bulk of TNC investment in developing regions is aimed at cash crops. There is also a growing interest in crops for biofuel production through -- for example -- projects related to oil-seed crops in Africa and sugarcane in South America. Among types of produce targeted by foreign investors in developing and transition economies, some regional specialization is apparent. For example, South American countries have attracted TNC investment in wheat, rice, sugarcane, fruits, flowers, soya beans, meat and poultry; while in Central American countries, TNCs have focused mostly on fruits and sugarcane. In Africa, foreign investors have shown a particular interest in crops such as rice, wheat and oilseed; but there is also TNC involvement in sugarcane and cotton in Southern Africa, and in floriculture in East Africa. In South Asia, foreign investors have targeted the large-scale production of rice and wheat, while their activities in other Asian regions are concentrated more in a number of cash crops, as well as meat and poultry. Finally, TNCs in transition economies are largely involved in dairy products, although more recently they are also seeking to invest in wheat and grains.

There are indications that South-South investment in agriculture is on the rise, and that this trend is set to continue over the long term. Investors from developing countries became major sources of cross-border takeovers in 2008. Their net cross-border M&A purchases, amounting to US$1.577 billion, accounted for over 40% of the world´s total M&A value in 2008 ($3.563 billion). Examples of South-South investment projects include Sime Darby´s (Malaysia) $800 million investment in a plantation in Liberia in 2009; Chinese investments and contract farming in commodities such as maize, sugar and rubber in the Mekong region, especially in Cambodia and the Lao People´s Democratic Republic; the regional expansion of Zambeef (Zambia) into Ghana and Nigeria; and the expansion by Grupo Bimbo (Mexico) across Latin America and the Caribbean.

In addition to commercial investment in agriculture - a common feature of developed- and developing-country TNCs - food security has also become a major driver of new investment, in the wake of the food crisis. The scale of South-South FDI driven by food security concerns is not easy to determine because many relevant deals have only recently been signed, while others are being considered or are in negotiation. Of the definite larger scale investments involving land acquisitions (that is, outright ownership and long-term leases) undertaken thus far, the largest investing countries from the South include Bahrain, China, Qatar, Kuwait, the Libyan Arab Jamahiriya, Saudi Arabia, the Republic of Korea and the United Arab Emirates. The most important developing host countries are in Africa, with Ethiopia, Sudan, and the United Republic of Tanzania among the foremost FDI recipients (figure 1).

ANNEX

Tables and figures

Figure 1. Investor and target regions and countries in overseas land investment for agricultural production, 2006-May 2009


Source:UNCTAD, World Investment Report 2009: Transnational Corporations, Agricultural Production and Development, figure III.14.

Note:This figure includes only confirmed deals that have been signed, of which some have been implemented. However, not all signed deals have been eventually implemented, and all signed deals that have been rescinded by one of both parties before the end of May 2009 have been excluded from the map. Prospective deals which have been reported in the press, but have not progressed to the stage of agreements have been excluded. China and the Russian Federation are both investors and targets for "land deals"; China is primarily an investor, and the Russian Federation is primarily a target for such deals. The total number of deals in 48, shown by both source and destination countries.