Monday, 10 August 2020

Investing Abroad In Agri Sector

Updated: May 5, 2012 10:34 am

It is now obvious from all accounts that ‘agricultural outsourcing’ as a phenomenon is here to stay, and that Indian entrepreneurs are not lagging behind their global peers in acquiring lands in third countries for production of food, flowers, fuel and other agro products. While the jury is still out on whether this is the ‘new land grab’ or ‘optimising resources’ for meeting the food and fuel demands of a growing world population, there is a general consensus that a set of guidelines should be in place to ensure that the investments follow certain established norms, and do not create a situation of inequity and turmoil in the regions or areas which are subjected to it.

This edition of Agro-Watch is based on Nicolas Marcelo Perrone’s paper ‘Responsible Agricultural Investment : is there a significant role for law to promote sustainability’ circulated among stakeholders by Columbia University’s Law School and The Earth Institute. The paper assumes significance as the world food prices are beginning to surpass the 2008 peaks, thereby confirming the rising trend in food markets. Higher prices pose a challenge to both food importing and exporting countries, especially as many countries which have the potential to raise agriculture production are constrained by lack of capital and technology. While on the one hand international organizations and governments of food importing countries are looking to FDI by multinational enterprises, for many ‘host countries’ and their populations, this is associated with socio-cultural, ecological and economic dispossession. The direct involvement in production, rather than in trade has created deep rooted skepticism due to the potential effects of these projects on local population, which could also suffer loss of livelihood and access to nutrition even as commercial production of agri commodities rises to meet global demand. The counter factual is equally strong: without new technologies and investments the lands have not yielded enough produce, and the inhabitants continue to depend on external assistance for meeting many of their basic minimum needs, including those of access to health, education and life skills.

The challenge therefore is to promote investments that are sustainable and responsible—both from the point of view of the investor as also the host community. The need for such a compromise has been acknowledged by the FAO, IFAD,UNCTAD and World Bank. The most important objective of this joint effort is to recommend a set of voluntary guidelines based on the ‘principles for Responsible Agriculture Investments that respects rights, livelihoods and resources’. These are collectively called principles.

A word about these principles. First and foremost, land and resources associated with it must be respected. Thus where common lands are in question, the rights of the pastoralists to the land, especially grazing rights and rights to draw water have to be respected. The onus is now on the investor to carry out his own independent assessment of whether any livelihood is affected, and if so, a provision has to be made to ensure that the loss is compensated. Again, every agro climatic zone in the world has a normal water recharge capacity. If the investor draws water which is many times higher than the recharge, he is guilty of ‘hydrocide’: which means that he is causing long term damage to the environment. Then there is the question of food security which in the broadest sense means and includes the right to draw resources to produce marketable goods. Thus many forest dwellers extract herbs, honey, fibre, nuts and fruits from wilderness which may be affected if forest is to be replaced with plantations. It is obviously not possible to draw an exhaustive list, but it is expected that if the Principles are applied in a generic sense, equity can prevail. However it is also quite clear that the success of these principles depends more on the support of the states and a an empowered civil society rather than on goodwill alone, though the latter cannot be discounted.

As the paper notes, the basic asymmetry arises from the fact that while the obligations which the Principles purport to impose do not have a legal basis, the investments are protected by sovereign guarantees, and can be enforced by the courts. The corporates may accept these principles for improving their image and to score CSR brownie points with their shareholders and employees as long as the bottom line is not affected. However as with every innovative legislation, this is a good beginning and even if it cannot be enforced by the tribunals, the global civil society and the media has a yardstick to measure an investment is responsible or not.

Moreover, these days, most disputes are resolved not just by recourse to law, but also through arbitration. It is here that the real force of these Principles will come into play. When investors commit to observe these Principles, they do not assume a legal obligation. However, they do constitute an important role in shaping shareholder expectations, and will also impact the minds of arbitrators in the event of a dispute. They will also help states to pass necessary regulations for the investor which may become binding in the country in which the corporate is registered as a legal entity. As such they can help to strike a balance between investors and host country populations’ concerns, promoting sustainable FDI in agriculture as a partial solution to the growing needs of food and fuel across the globe.

 By Sanjeev Chopra

(An IAS Officer, the author is Joint Secretary & Mission Director, National Horticulture Mission, Government of India. The views expressed are personal.)

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