Spotlight

International Land Deals: A Destabilizing Trend in the Developing World

March 31, 2011

By Peter Klicker - A critical debate is emerging over the current surge in overseas land transactions. According to a recent World Bank report, in 2009 investors announced land purchases or leases totaling over 45 million hectares, particularly in the developing word, marking more than a ten-fold increase from previous years.  The rising demand for land reflects a broader effort by state and non-state actors to ensure their food, water, and energy security.  As the global population continues to rise, control and ownership of non-renewable resources like land will influence levels of domestic and international stability, particularly in the developing world.

Several factors account for the rise in land transactions, but the efficient cause lies with increasing global food prices.  A global food crisis broke out in 2008 when prices began to rise dramatically.  Prices remain high, and in February 2011 the FAO Food Price Index, a measurement of monthly changes in international food commodity prices, rose for a seventh consecutive month, reaching a new high in both real and nominal terms.

A number of developing states have responded by placing bans or tariffs on food exports.  Doing so allows them to ensure domestic food supplies and keep prices down, but the resulting market distortion alarms food importing countries, such as Saudi Arabia, the Gulf States, South Korea, and China.  For a variety of reasons, such as a dearth of freshwater in the Middle East, or rapidly growing populations in Asia, these states can no longer ensure their own food security.  They instead rely on the global market to meet their demand, but the resurgence of protectionist agricultural policies has led many to seek more direct control of their food supply.

Land transactions also tie into the issue of energy security, particularly in regards to bio-fuels.  For example, China recently secured the right to grow palm oil for bio-fuel on 2.8 million hectares in the Democratic Republic of the Congo (i).  Diverting production towards bio-fuels reduces the food supply left for human consumption and further exacerbates prices. 

Rising food prices also entice investors looking for safe returns in an otherwise uncertain global economy.  Demand for agricultural commodities is relatively inelastic and thus more immune to price fluctuations than other goods.  Consequently, commodity traders, sovereign wealth funds, pension funds, and others view land transactions as a smart investment.  However, investors should think carefully before signing long term leases in potentially unstable states.  Successfully carrying out multi-decade projects will require gaining the support of the local population as a whole, not just the current regime in power.

Rather than resisting foreign efforts to purchase or lease their land, most host states eagerly sign on.  Due to decades of neglect and insufficient investment, many currently struggle with crop yields as low as 20-30%.  Developing states like Ethiopia and Cambodia hope that foreign investment can turn this negative trend around.  Hence their willingness to lease millions of hectares, at prices as low as $1 a hectare for 99-years (ii).  While such deals may seem beneficial in the abstract sense to government officials, their impact on the ground carries unintended consequences.

More so than anything else, locals fear that land deals will displace them.  Property that a government views as fallow or unclaimed may in fact fulfill a vital, but undocumented, local need.  Not surprisingly, weak and autocratic governments tend to side with wealthy foreign investors over impoverished smallholders when property disputes arise.  While doing so may provide immediate benefits, as with investors, host states must consider the long term implications of their actions.

Displacing locals and permitting the exportation of food supplies in severely malnourished states like Ethiopia raises human and food security concerns.  Tensions inevitably flare when investing states like China bring in their own workers or blatantly exploit local resources.  Environmental concerns such as deforestation and loss of bio-diversity further exacerbate the problem.  Failing to proactively address these concerns in contract negotiations can lead to political upheaval.  For example, in 2009, a plan to lease over half of Madagascar's arable land to a South Korean firm resulted in mass protests and the president's removal from power.  Other host states may suffer a similar fate absent an international effort to better manage land deals.

One potential path forward centers on creating an international code of conduct concerning land deals, as both the UN Food and Agriculture Organization and the African Union have done.  However, the non-binding nature of these guidelines raises the perennial question of whether institutions can actually enforce their policies, or if states and other actors will elect to observe them at their convenience.  Alternatively, individual states could create national laws aimed at protecting smallholders, but the vast power asymmetry between investing states like China and host states like Zambia would likely undermine their impact. 

Given the legal uncertainties, the international community could consider devising economic incentives for making land deals more equitable.  For example, bi-lateral donors like the United States and multi-lateral donors like the World Bank could make their assistance to investing states dependent on observing some of the codes of conduct mentioned above, initially through proactive encouragement of compliance and ultimately through sanctions if necessary.  While economic sanctions admittedly have an uneven success rate, they at least offer a more direct form of leverage than purely legal mechanisms. 



(i) "Outsourcing's third wave:  Rich food importers are acquiring vast tracts of poor countries' farmland.  Is this beneficial foreign investment or neo-colonialism?," Economist, May 21, 2009.

(ii) Katie Allen, "Rich pickings in new scramble for Africa: World Bank sees 'land grab' as modernization brings food and profits to locals," Guardian, August 16, 2010.

 

 

Photo Credit: Outplanting on degraded land in Konso, Ethiopia.  By Trees for the Future (treesftf), April 2010.

 http://www.flickr.com/photos/plant-trees/4623697982/

 

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