Investment Contracts for Agriculture: Maximizing Gains and Minimizing Risks
Private investment in agriculture in developing countries, both domestic and foreign, has been on the rise for nearly two decades.
This paper focuses on large-scale agricultural projects in developing countries, involving the lease of farmland, which rose sharply after the food crisis of 2008. It is important that such investments are sustainable not only in the long term, but also beneficial in the short term with minimal risks or negative effects. This paper looks at one approach to achieving this, namely, carefully devised contracts with investors, and in doing so offers a number of concrete solutions.
The paper marries two substantial bodies of research to show how investment contracts can be set up to promote sustainable development.
The paper presents the top five positive outcomes and the five downsides from private sector investments in largescale agricultural projects. This is derived from empirical evidence gathered by UNCTAD and the World Bank after visiting large-scale agricultural projects (UNCTAD and World Bank 2014).
The paper then proposes legal options to maximizing the main positive outcomes and minimizing the main downsides through better drafting of contracts between investors and governments for the lease of farmland. This is derived from work conducted by the International Institute for Sustainable Development (IISD), which studied almost 80 contracts and produced a guide to negotiating contracts for farmland and water, including a model contract.
This paper contributes to the growing body of international norms and guidance on the conduct of responsible agricultural investment to help governments, investors, and communities turn investor interest into an opportunity for rural development and poverty reduction.
This paper is one element of a programmatic approach being undertaken by the interagency working (IAWG) group of UNCTAD, the World Bank, FAO, and IFAD that aims to operationalize the responsible conduct of agricultural investment through practical guidance.
The IAWG has embarked on a new phase of field research, working with 12 to 16 early stage investors in Africa to infuse responsible business principles and practices into operations from the outset. This will involve establishing good practices in implementing responsible business practices in agriculture; providing demonstration eff ects for other investors; and developing concrete tools for their use in early phases of other future investment.