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Policy Options On Agricultural Outsourcing

Updated: January 21, 2012 2:59 pm

Agricultural outsourcing: the outright purchase or long-term lease agreement for agricultural land in another country for augmenting domestic production for food or fuel is a recent phenomenon, which gained rapid momentum after the world food crisis of 2008. Though precise data about these land deals is not available, existing literature provides a broad idea of the nature, scope and scale of these transactions. IFPRI estimates indicate that 15 to 20 million hectares were secured between 2006 and 2009 involving 180 land deals (IFPRI, 2009). However, according to the World Bank, a total of 46.6 million hectares of land was acquired between October 2008 and August 2009 involving 464 projects. (World Bank, 2010). Most of these investments have been made by China, West Asian countries Japan, Malaysia, South Korea, besides Libya and Egypt. The countries in which lands have been ‘outsourced’ are Sudan, Ethiopia, Tanzania, Brazil, Cambodia, Myanmar, Philippines, Ukraine, Russia, Thailand, Cameroon, Madagascar, Pakistan, Kazakhstan, Laos, Malawi, Senegal, Nigeria and Paraguay. It must be added that in most of these countries, the governments have been encouraging investments to add to their incomes, employment generation and domestic food surpluses as well.

Three broad trends have triggered the surge of investments in agricultural lands. First, the potentially food insecure nations, which are predominantly rich, have sought to outsource their domestic production by gaining access and control over agricultural lands in foreign countries. Notably, these countries are Bahrain, Jordan, Kuwait, Qatar, Saudi Arabia & UAE in Middle East; China, Japan, Malaysia and South Korea in Asia; and Egypt and Libya in Africa.

Second, with high crude oil costs, the demand for agrofuels has been rising. The land conversions for biofuels is estimated to range between 18 and 44 million hectares by 2030.

And third, the high food prices coupled with low-land prices in many parts of the world made investments in land attractive due to higher financial returns. The financial crisis of 2008 shifted attention to commodity profitability and therefore made land markets attractive destinations for private investments.

There are, however, challenges in integrating agricultural investments abroad into the existing policy framework on domestic food security. The experience of the countries that have been active in overseas agricultural investments shows that the state policy objective of food security underlined these projects. These operations have been managed by TNCs, SPVs or corporates backed by their governments.

A large country like India cannot depend on food imports to meet the anticipated shortages given the small proportion of food production that is internationally traded, as well as the likely increase of demand in other countries. There is also a strategic aspect to be considered in trying to meet structural shortages of food products in international spot markets. Therefore, offshore agriculture investments emerge as a necessary concomitant to India’s policy framework for addressing food security.

Considering all these factors, the Ministry of Agriculture prepared a discussion paper, and after three rounds of internal discussion requested IIFT to prepare a Policy Paper on “AO: Options for India”, which is likely to be published shortly. The main recommendations of this study are that India should enter into bilateral framework agreements with countries which are willing to facilitate Indian investments, formulate Responsible Investment Principles on the basis of international norms, in consultation with investors, co-ordinate interventions of the Government of India under the India- Africa Framework for Cooperation and private investments by Indian entities in Africa to maximise the impact, and have a special focus on Latin America, where our Missions and the host countries are eager that India should take the initiative in this regard. The general consensus is that a supportive policy will encourage Indian entrepreneurs to obtain the desired results.

The Ministry of Agriculture will obviously need to play the nodal role in the initiative, in coordination with relevant ministries/agencies like MEA, Ministry of Finance, Ministry of Commerce and Industry, Reserve Bank of India, EXIM Bank, etc. The IIFT has suggested the establishment of a dedicated division for the purpose besides recommending its presence in our Missions to the countries which have the highest potential for hosting Indian investments and trade in agriculture.

However, the main challenge to AO is building a consensus on this issue. As government has not been involved in it so far, neither political parties, nor the NGOs, nor civil society activists have taken any position on this issue. Perhaps it is important that a nuanced debate on this subject is initiated in a forum like the Parliamentary Consultative Committee on Agriculture, and in academic circles as well. What has to be considered is that whether we like it or not, China is following an aggressive policy, and is getting the first-mover advantage in this game. Farmers from Punjab, Haryana, Andhra Pradesh and Tamil Nadu are very keen that government support them in AO for land process in these states make it difficult for farmers to consolidate their operations. Thus, a ten-hectare farmer in Punjab can become a thousand-hectare agri-entrepreneur in Mongolia or Azerbaijan or Latin America. He is raring to go for agriculture in India is not as remunerative as production abroad, and the global market place offers a more competitive environment.

On the other hand, there are ethical issues like ecological and environmental concerns in regions in which AO will take place, as well as the long-term impact on livelihoods and lifestyles of people living there. For example, pastoral rights, or traditional rights of game will certainly get affected when settled agriculture becomes the norm in hundreds of thousands of hectares. Therefore, one has to tread softly, and with abundant caution to ensure that AO does not lead to deprivation of livelihoods, or degradation of lands.

 By Sanjeev Chopra

(An IAS officer, the author is a Joint-Secretary of the Government of India. The views expressed in the article are personal.)

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