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Carin Smaller is an Advisor on Agriculture and Investment for the Economic Law and Policy programme of the International Institute for Sustainable Development (IISD) in Canada. She advises governments and parliamentarians on law and policy issues related to foreign investment in agriculture.
GENEVA, Dec 5 2014 (IPS) - When the Korean company Daewoo attempted to acquire half the arable land of Madagascar for free, it unleashed a tsunami of investor interest in agricultural land, popularised as the ‘land grab’.
In the last 10 years there have been more than 1,000 large-scale foreign investments in agricultural land, covering almost 38 million hectares of landequivalent to eight times the size of Britain. Investor interest in farmland was triggered, in 2008, by a confluence of the biofuels boom, global food crisis, a sharp spike in oil prices and the financial crisis.
Many of these farmland investments have created untold problems, particularly related to land rights, social unrest, and in some cases political instability. Many projects have failed or investors have simply given up, either for lack of finance, inexperience, difficult environmental conditions, or unrealistic assumptions about the crops and locations they chose.
And yet many developing countries desperately need investment in agriculture. There are over 800 million people in the world who do not have enough food to eat. Seventy five per cent of those people live in rural areas and depend on agriculture for their livelihoods.
Without increased investment in agriculture they will not be able to improve food security nor reduce poverty.
Improving the legal and policy environment in developing countries would do much to improve the situation. The most important step to ensuring positive impacts of foreign investment is the ongoing development of domestic laws and regulations. However, many states do not have all the necessary domestic laws in place and end up negotiating contracts.
Given this reality, the International Institute for Sustainable Development (IISD) has recently created a practical guide to help governments in developing countries negotiate contracts with investors to reduce the harmful effects and maximise the benefits of farmland investments.
It is the first attempt to create a model contract for developing countries to attract investment for agricultural production, while at the same time promoting the needs of the poor and protecting the environment. It is based on a three-year investigation of 80 farmland contracts and is unique in that it was drafted by a team of lawyers, social scientists and environmentalists.
This model contract does not create a blueprint. Each contract will necessarily be different, depending on the size of the project, the domestic legal systems, and the country’s needs and realities. Deciding what to include in each contract is the job of the parties both before and during the negotiations.
Nonetheless, we believe there are three factors that are critical for success.
First is the process of preparing for negotiations. This involves identifying suitable and available land (both from an environmental and a land rights perspective). It requires meaningful consultations with and consent by communities living on and around the proposed project site. It is important for investors to assess the feasibility of the project to ensure it is commercially viable.
This assessment should be presented to the governments with a business plan. In this preparatory phase, investors also need to examine the potential social and environmental impacts and prepare a plan for how to manage and mitigate those impacts.
Second is turning investor promises into binding commitments. A major complaint from governments and communities is that investors make big promises to create jobs, to build factories, and to bring new technology; and that these promises rarely materialise.
Promises can be incorporated into the contract to make them legally binding. But they must remain realistic and achievable to avoid setting up the project for failure from the outset.
The third step is turning the contract into reality after it has been signed. A contract is not an endpoint: it is only the start of a long-term relationship between the investor, government and communities.
Implementing and enforcing the contract is a much tougher challenge. It requires regular reporting by the investors on how they are implementing their promises and managing the social and environmental impacts. It requires monitoring and evaluation by governments.
And finally, all steps taken around a potential investment should be open and transparent to minimise the risk of corruption and ensure greater acceptance.
Improving the legal and policy frameworks for investment will help governments maximise the benefits and minimise the risks associated with investment in farmland and water. They will support efforts to strengthen food security and achieve sustainable rural development.
Edited by Kitty Stapp
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