FDI in agricutural land and world food security: What role for the European Union? Brussels, March 8, 2012 Harald von WitzkeHumboldt University of Berlin

2 Outline 1. The changing international environment of world agriculture. 2. FDI: Theoretical framework. 3. FDI in agricultural land and land grabbing. 4. Options for the European Union.

3 1. The end of the agricultural treadmill The long term trend of declining agricultural commodity prices has come to an end. Since 2000: upward trend in prices →will continue. Reason: Global demand growth outpacing growth in supply.

4 1. The end of the agricultural treadmill : Global demand will more than double: - Rapid population growth 2050:10 billion rather than 9 billion humans; - per capita income growth in developing and emerging economies.

5 1. The end of the agricultural treadmill : Global supply growth will not keep pace: - shortage of land, - scarcity of water, - more expensive energy, - resource competition with non-food crops: cotton, rubber, bioenergy, flowers and ornamentals etc. - climate change,

6 1. The end of the agricultural treadmill - neglect of agriculture, agricultural research and productivity growth. World, : 4% annually, World, presently: ≈ 1 % annually EU presently: 0.6 % annually.

7 World market prices, 2003/ /17 Source: von Witzke et al., 2009 Market2003/05 $/mt 2015/17 $/mt Base scrno. 15/17 in p.c. of 03/05 Wheat Corn Other grains Oilseeds Sugar

8 Empirical evidence: The wheat price spike of Jan June 2008 Source: von Witzke and Noleppa (2011). VariablePercent changeVariablePercent change Oil price29.3Export restrictions 6.1 Freight rates29.6Production-10.7 Population2.3Bioenergy0.1 Income2.0Ttl. observed77.8 US$ ER7.6Ttl. explained78.3

9 Implications of high ag prices 1 Increase in undernutrition and hunger: - political instability, violence and migration Increasing incentives for expanding the acreage: –Increasing greenhouse gas emissions, –Loss of natural habitats and biodiversity.

10 Implications of high ag prices 2 Growing concerns in many countries about: - national food security, - political instability and violence.

11 Implications 3: Increasing food scarcity erodes the trust in the international ag. trade system as instrument for national food security Exporting countries: → Export restrictions: e. g. Russia, Ukraine, Argentina, → Keep enough food at home and domestic food prices affordable. Importing countries: → Securing the natural resources for domestic food security outside their boundaries → FDI in agricultural land (peaceful option), → or by other means!

12 2. FDI: Theoretical framework The wealth of a nation depends on its capacity to produce goods. Production capacity depends on available quantities and qualities of production factors, inter alia. National food security (sufficient quantities and affordable prices) is a key public good in virtually all countries (incl. EU).

13 2. FDI: Theoretical framework In LDCs and emerging economies ag. production capacity is constrained by: - lack of human capital - lack of capital - lack of access to modern technologies FDI has the potential to alleviate these constraints. This includes FDI in ag land. FDI have the potential to raise ag. productivity, wages and employment.

14 3. FDI in ag land Benefits of FDI in recipient country: Depend on individual circumstances - terms and conditions of the contract; governance. FDI should ensure fair distribution of benefits between investor and recipient country. Good governance and well defined property rights in the recipient country are keys.

15 3. FDI in ag land FDI may have drawbacks. FDI may stabilize corrupt governments. Governments gain but not locals: They lose the resources they depend on for their livelyhood. May reduce local food availability.

16 3. FDI in ag land Poorly defined or non-enforcable property rights: - Investors and governments gain and locals lose their resources without compensation. - Investors have little incentive for long-term sustainable activities and in developing local ressources. A number of announced deals have not been realized because of insufficient property rights for investors.

17 4. EU‘s options Help developing nations implement well- defined and enforceable property rights in agricultural land. Help develop a set of criteria for FDI contracts which assure a fair distribution of benefits.

18 4. EU‘s options Strive to achieve a liberal global agricultural trade system: It makes the best for everyone out of the scarce natural ressources of world agriculture. Improve access of farmers to productive technologies: Hunger is most pronounced where farmers do not have access to modern seed varieties, mineral fertilizer and crop protection.

19 4. EU‘s options EU is not involved in land grabbing. But because of lacking productivity growth EU is a „virtual land grabber“ 2008: EU – World largest ag net importer. Value of net imports: $ 45.5 billion. EU „virtual land grab“: 35 million hectares. Virtual land grab : + 9 million hectares.

20 4. EU‘s options Reduce net imports in food and agriculture: - Invest more in agricultural research to increase productivity, - reduce food waste, - eat healthily, - but NO „fat tax“ (little effect because of inelasic demand, regressive and costly to administer)!!!! NO mandatory land set-asides involving productive farm land!!!!

21 4. EU‘s options In sum, opt for a higly productive agriculture in the EU and globally. This creates jobs and raises income in rual areas, incl. in LDCs. It reduces hunger. It helps preserve natural habitats and biodiversity. Thus reducing greenhouse gas emissions from an expanding agricultural acreage. Define a code of conduct for FDI in ag land.

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