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FDI in agricutural land and world food security: What role for the European Union?. Harald von Witzke. Humboldt University of Berlin. Brussels, March 8, 2012. Outline. 1. The changing international environment of world agriculture. 2. FDI: Theoretical framework. - PowerPoint PPT Presentation
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FDI in agricutural land and world food security: What role for the European Union?
Brussels, March 8, 2012
Harald von Witzke Humboldt University of Berlin
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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.
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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.
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1. The end of the agricultural treadmill
• 2000-2050: 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.
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1. The end of the agricultural treadmill
• 2000-2050: 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,
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1. The end of the agricultural treadmill
- neglect of agriculture, agricultural research and productivity growth.
World, 1960-1989: 4% annually,World, presently: ≈ 1 % annuallyEU presently: 0.6 % annually.
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World market prices, 2003/05 -2015/17Source: von Witzke et al., 2009
Market 2003/05$/mt
2015/17 $/mtBase scrno.
15/17 in p.c. of 03/05
Wheat 158 272 +172
Corn 106 219 +207
Other grains 91 137 +151
Oilseeds 288 492 +171
Sugar 250 493 +197
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Empirical evidence: The wheat price spike of Jan. 2007- June 2008
Source: von Witzke and Noleppa (2011).
Variable Percent change Variable Percent change
Oil price 29.3 Export restrictions
6.1
Freight rates 29.6 Production -10.7
Population 2.3 Bioenergy 0.1
Income 2.0 Ttl. observed 77.8
US$ ER 7.6 Ttl. explained 78.3
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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.
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Implications of high ag prices 2
• Growing concerns in many countries about:- national food security,- political instability and violence.
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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!
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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).
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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.
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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.
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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.
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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.
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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.
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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.
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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 1999-2008: + 9 million
hectares.
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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!!!!
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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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Thank you for your attention.
Additional information is available at:
www.agrar.hu-berlin.de
www.hffa.info
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