B. Agriculture in Developing Countries

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT WORLD INVESTMENT 2009 REPORT Transnational Corporations, Agricultural Production and Development UNITED NATIONS New York and Geneva, 2009 New York and Geneva, 2007 PART TWO TRANSNATIONAL CORPORATIONS, AGRICULTURAL PRODUCTION AND DEVELOPMENT INTRODUCTION For the greater part of humanity, and a growing economy that is diversifying primarily in developing countries, into other industries and sectors. What is of agriculture remains at the core of their concern is that the above-mentioned decline existence: it provides sustenance, supports in investments is often the greatest in poorer people’s livelihoods and defines their countries – especially parts of Africa and traditions. Moreover, the bounty of in the least developed countries (LDCs) – agricultural production in many societies which can ill-afford them. the world over, and throughout the ages, has The lack of investment in agriculture created surplus value that has underpinned in particular regions and countries is one their material basis. This applies equally to of the factors contributing to poverty and urban civilizations founded in the past, the hunger, the reduction of which has been triangular trade of the colonial period which declared the first of the United Nations aided the industrialization of Europe and Millennium Development Goals (MDG- North America (Thomas, 1997), the more 1).1 In stark terms, 923 million people were 2009 recent transformation of Taiwan Province of undernourished in 2007. And on the basis of China from a tropical agricultural island to the global hunger index (GHI), 65 countries an electronics superpower (Lee, 1971; Wu, are in “serious”, “alarming” or “extremely 1984), and the significant agriculture-based alarming” danger of food shortages, partly dynamism and diversification of Brazil’s because of rising international food prices economy today (Brainard and Martinez- in recent years. Increasing investment in Diaz, 2009). agriculture in developing countries is thus Given the fundamental importance of a priority, but it is likely to be hampered agriculture to most developing economies, by the current financial and economic its chronic neglect by many countries is of crisis. Efforts are being made to raise utmost concern. This has occurred because investment levels in agriculture, targeting of a number of factors, including a “bias” by specific developing countries, with the aim some countries against agriculture in favour of halving world hunger by 2015. There is of manufacturing (one which does not some scope for an increase in investment sufficiently recognize the interdependence by governments, partly because of trade of the two), and a lack of finance and other surpluses, and optimistic projections suggest resources. To make matters worse, domestic that agriculture’s share of ODA might soon and regional conflicts in many parts of return to 10%. However, for many countries the world have destroyed agricultural this will still leave investment short of communities, resources and infrastructure. what is needed, which is why governments The relative neglect of agriculture is are looking to the domestic private sector reflected in the numbers. For example, and foreign investors to help meet the although the total agricultural gross capital shortfall. It is essential for governments to formation (GCF) in developing countries tap into these additional sources of finance tripled between 1980 and 2007, to $355 if, looking beyond MDG-1, they are to billion, agriculture’s share in total GCF succeed in utilizing agriculture as an engine fell from 17% to less than 10% of the for growth. total over the same period. Similarly, A number of factors, which are not official development assistance (ODA) in mutually exclusive, have resulted in a recent agriculture to developing countries, both in upswing in domestic private and foreign gross terms and as a share of total ODA, has participation in agricultural industries in a been declining since its peak in 1990. A fall significant number of developing countries. of investment in agriculture is not on its own First, the rapid rates of growth in some of an issue for concern, since this can signify the more populous emerging countries such both rising productivity in the sector itself as Brazil, China, India and the Republic 94 World Investment Report 2009: Transnational Corporations, Agricultural Production and Development of Korea have resulted in rising incomes, higher their agriculture, if properly managed in the context expenditures on foodstuffs (including a shift towards of national goals, can support the development of the items such as meat, fish and milk products) and, in industry, further its essential role for poor-pro growth some cases, imports of some food items (or feedstock) in rural communities, and, in the longer run, support from other developing countries. In turn these imports the sector’s potential as a motor for modernization have created opportunities for investors from these and diversification of the economy. and other countries to invest in agricultural industries Given these developments, it is an opportune in developing host countries. Secondly, biofuel time to examine the role of TNCs in the agricultural initiatives around the world, which have received sector and its implications for development, hence the strong support from governments in Brazil, the United focus of the World Investment Report 2009 (WIR09). States and the European Union (EU), have resulted The Report focuses on TNCs’ involvement in and in a spate of investments in developing countries to influence on agricultural production in host countries, grow sugarcane, grains (such as maize) and oilseeds including direct and indirect impacts on development. (such as soya beans), as well as non-food crops such Many types of TNCs might invest or participate in as jatropha. Thirdly, the rapid rise in food prices over agricultural production, including agriculture-based the past few years (partly attributable to the above TNCs, manufacturers, retailers and commodity trends), with subsequent shortages in commodities traders. They can do this by establishing a farm (FDI), such as rice and restrictions on exports of these by contract farming, or some other form. WIR09 products by some developing-country governments, only examines TNC activity in agriculture to the has spawned “new investors” in agriculture. Many extent that this activity directly involves or influences companies and governments in countries such as the agricultural production. Thus, for instance, traders Republic of Korea, Saudi Arabia and the United Arab such as Cargill are discussed only if they influence the Emirates are investing in agricultural production quality of agricultural production by introducing or abroad. The underlying reasons behind their decision reinforcing quality standards. Similarly, international are the lack of arable land and insufficient water supermarkets per se are not a focus of WIR09, but any for safe and viable irrigation in their own countries. farming of produce they contract with local interests Finally, seizing on these trends, a number of purely in developing countries is relevant to the report. speculative investors also appear to have emerged on Part two of WIR09 consists of three chapters. the scene. Chapter III analyses the role and evolution of TNC The renewal of interest by TNCs’ and participation in agricultural production in developing foreign governments in the agricultural industries of countries. It first provides a snapshot of agriculture developing host countries represents an opportunity in the developing world, followed by a conceptual to raise the level of investment in this critical sector framework for analysing and explaining existing even further. At the same time, there is evidence that and emerging trends and patterns in FDI and other developing host countries are reviewing their policy forms of TNC participation in the industry. Particular frameworks and legislation to encourage and permit attention is given to TNC drivers, motives and foreign participation in their agricultural sectors. strategies inasmuch as these have a bearing on the This stance represents a significant change for many impact of companies’ participation on host economies governments, which earlier had considered agriculture and constitute a major concern for policymakers. to be sacrosanct and open only to domestic interests. Chapter IV discusses the development impacts and Of course, there are attendant risks to entry by TNCs implications of TNC involvement in agricultural into developing-country agriculture. These risks production, taking a case-orientated approach to include, the possible disruption of traditional farming examining issues where possible. Finally, chapter V and loss of livelihood for subsistence farmers or other charts recent policy developments and considers the disadvantaged groups, such as indigenous peoples; the implications of the findings of chapter IV for national concentration of the industry into fewer hands, with and international policies pertaining to FDI and TNC the danger of market power being exercised against participation in agriculture. The policy discussion farmers and consumers; potential environmental focuses on a number of key concerns for both host degradation, for instance arising from the introduction and home developing countries, including issues of of water-hungry “industrial” methods in agriculture; sustainable development and food

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