By Jaya Ramachandran Republished courtesy IDN-InDepth NewsAnalysis
ROME (IDN) - There is a genuine alternative to land acquisitions in developing countries that would benefit both big investors and small farmers, claims new research. It shows how agricultural investments in developing nations can be structured as alternatives to large-scale land grabbing.
A new report documents a range of more inclusive business models that can bring benefits to small-scale farmers and protect their land rights, while also ensuring returns to corporations.
The report by the International Institute for Environment and Development (IIED), was commissioned by the Food and Agriculture Organization of the UN (FAO), the International Fund for Agricultural Development (IFAD) and the Swiss Agency for Development and Cooperation (SDC).
The report shows that any international guidance on agricultural investments should go beyond minimizing the possible negative impacts of large-scale land acquisitions, to also promote investment models that maximize opportunities for local smallholders.
It describes different ways for big investors and local smallholders to collaborate without harming each other's entrenched interests. It discusses these options under six broad headings: contract farming, management contracts, tenant farming and sharecropping, joint ventures, farmer-owned business and upstream/downstream business links.
Contract farming describes pre-agreed supply agreements between farmers and buyers. Usually, local farmers grow and deliver agricultural produce for specified quantity and quality at an agreed date. In exchange, the company provides upfront inputs, such as credit, seeds, fertilisers, pesticides and technical advice, all of which may be charged against the final purchase price; and agrees to buy the produce supplied, usually at a specified price.
Management and lease contracts refer to the variety of arrangements under which a farmer or farm management company work agricultural land belonging to someone else. Management contracts may take the form of a lease or tenancy, but carry the connotation of stewardship, of managing the land on behalf the owner. To provide incentives for the farm management, the contract often entails some form of profit-sharing rather than a fixed fee.
Tenant farming and sharecropping are versions of management contracts in which individual farmers, for example smallholders, work the land of larger-scale agribusinesses or other farmers. In tenant farming the usual arrangement is a fixed rental fee while in sharecropping the landowner and sharecropper split the crop (or its proceeds) along a pre-agreed percentage.
Joint ventures entail co-ownership of a business venture by two independent market actors, such as an agribusiness and a farmers’ organisation. A joint venture involves sharing of financial risks and benefits and, in most but not all cases, decision-making authority in proportion to the equity share.
Farmer-owned businesses are formally incorporated business structures for farmers to pool their assets to enter into particular types of business (for example, processing or marketing), gain access to finance, or limit the liability of individual members. Such businesses are often owned by cooperatives in order to facilitate business transactions.
Upstream and downstream businesslink is an umbrella expression for the set of business opportunities beyond direct agricultural production that exist for both agribusinesses and smallholders and small local enterprises.
CAUTION
No approach is perfect, the report cautions. An example is contract farming, in which smallholder farmers are brought into the value chain and can sell their produce for an agreed price. This can either be a way to support poor smallholders and improve their access to markets -- or an exploitative relationship where smallholders are effectively cheap labourers who carry the risks of farm production.
There are many ways for companies to do business in more inclusive ways whilst minimising risk and still turning a profit, says the report. This can mean closer working relationships with local partners, landholders and farmers, and more sharing of the value generated by the investments.
The report, published on June 21, 2010, focuses on the way alternative business models can share value -- in terms of risk, reward, ownership, and voice in influencing business decisions -- between the investor and local partners. It analyses the advantages and disadvantages, opportunities and constraints, and options for scaling up each of these alternative business models.
According to the report, for more inclusive land agreements to work, companies need to embrace them as a genuine economic component of their business, and not just as part of a corporate responsibility programme. The report also states that action to strengthen the negotiating power of local farmers is crucial.
The report says governments and development agencies can do much to promote fairer, more inclusive business models, and support smallholders in their relations with government and investors.
Co-author Dr Lorenzo Cotula, a senior researcher at the International Institute for Environment and Development says: "Agricultural investment can bring benefits to developing nations, but large land deals carry big risks as local people may lose access to the land and resources they have used for generations. The more promising investments are those that involve supporting local smallholders, rather than large plantations."
Andrea Ries, Head of the Global Program Food Security of the Swiss Agency for Development and Cooperation says: "The report highlights the crucial role for development partners to support and strengthen the dialogue between smallholder communities, governments and investors in promoting sustainable and inclusive investments in agriculture."
Harold Liversage, IFAD's Land Tenure Programme Manager of the International Fund for Agricultural says: "At IFAD we believe that secure land rights and equitable access to land -- especially for smallholder farmers -- are essential for economic growth and poverty reduction. Partnerships between potential investors and local smallholder farmers can provide important opportunities but such partnerships don't require large-scale transfer of land rights."
Alexander Müller, FAO Assistant Director-General says: "The report shows various ways in which investments in agriculture in developing countries, including large-scale and international investments, can maximize opportunities for small-scale farmers. This will help to assess and design agricultural investment projects to improve food security for all."
IFAD works with poor rural people to enable them to grow and sell more food, increase their incomes and determine the direction of their own lives. Since 1978, IFAD has invested over US$12 billion in grants and low-interest loans to developing countries, empowering some 370 million people to break out of poverty.
IFAD is an international financial institution and a specialized UN agency based in Rome – the UN’s food and agricultural hub. It is a unique partnership of 165 members from the Organization of the Petroleum Exporting Countries (OPEC), other developing countries and the Organisation for Economic Co-operation and Development (OECD).
