The Land Security Agenda How Investor Risks in Farmland Create Opportunities for Sustainability
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The Land Security Agenda How investor risks in farmland create opportunities for sustainability S Arabia 26,000,000 2,000,000,000 1,731,000 India 1,189,000,000 1,446,000,000,000 Ethiopia 62,286,000 91,000,000 122,000,000,000 DRC Uganda 290,000 71,000,000 35,000,000 900,000,000,000 39,000,000,000 11,000 9,000 Tanzania 43,000,000 84,000,000,000 184,000 S Africa 49,000,000 45,000,000,000 1,498,000 Contents The Land Security Agenda How investor risks in farmland create Executive Summary 1 opportunities for sustainability 1 Introduction: a common 5 © Earth Security Initiative, London interest in risk March 2012 2 Land: the long-term view 15 Authors: Alejandro Litovsky, Founder and 2.1 Soil resilience 18 Director, Earth Security Initiative; and 2.2 Ecological limits 22 Paulina Villalpando, Associate, Earth Security Initiative. 2.3 Human rights 26 3 Next steps for an 31 Contact us at [email protected] operational agenda We are grateful to the Joffe Charitable Trust 4 Afterword 35 and the Swift Foundation for supporting Acknowledgements 37 the Earth Security Initiative to develop this agenda. References 38 Design: Rupert Bassett The Earth Security Initiative The Earth Security Initiative is an organization created to deal with the Earth’s ecological limits as part of a new security and risk management agenda. It engages a range of stakeholders to target the risks involved, to integrate various areas of knowledge into actionable ideas, and to cross boundaries between financial markets, industry, government and civil society to improve how these risks are managed in specific investment and policy agendas. 1st Floor, New Zealand House 80, Haymarket London SW1Y 4TE United Kingdom www.earthsecurity.org 1 Executive Summary The surge in farmland investments is expected to grow over the next decade. This is due The Land Security to a number of combined pressures: The Agenda growing global demand for commodities, rising commodity prices, ecological limits and farmland being a ‘real asset’ that offers diversification to the portfolios of investors at a time of volatility of global financial markets. The need to increase food production, against the backdrop of resource limits, soil erosion, and social vulnerability, puts the question of land at the center of a new security agenda. New risks are being created for investors, for communities and for nations, which must now be acknowledged and dealt with. As this report goes to print, the news that overseas investors have acquired over 10 per cent of Australia’s farmland and 9 per cent of water entitlements in its agriculture sector has struck a political chord in the country. Large grain-producing nations like Brazil and Argentina have passed laws to restrict the foreign ownership of land. In other global grain hubs, like Ukraine and Russia, compromised harvests due to droughts will likely result in export restrictions. In a globalized economy, the combination of scarcity, market pressures and weather volatility will make fertile land an increasingly precious resource. This report focuses on sub-Saharan Africa where this process is critical given the governance challenges, the lower levels of land tenure by communities, and the fragility of human security. The Land Security Agenda Population growth and climate change This report is about operationalizing a underpin this agenda. A worse-than-average response. It discusses why these issues form drought, exacerbated by climate change, may part of a new risk management agenda be all that is needed to realize the political, for investors as well as for countries whose humanitarian and ecological risks that are economic competitiveness and, in some cases slowly building momentum; a reason why their political stability, will be compromised. the US military refers to climate change as a Managing these risks, we argue, will require ‘threat amplifier’ of national security. an innovative approach to risk management: making human rights and ecological limits a International investments in land are firmly in central feature of a new investment paradigm. the spotlight of global scrutiny, but progress depends on moving from a ‘land-grabs’ Attention is drawn to the incentives of host debate to ‘land stewardship’ solutions. This governments required for change. This is shift, which we call a Land Security Agenda, especially important given that the majority of requires an improved understanding by land acquisitions still happen within national investors and political leaders of three borders, carried out by local actors. The Land priorities: managing soil erosion, protecting Security Agenda demonstrates why all actors human rights, and keeping within ecological— involved in this debate, even within polarized especially water—limits. positions, must realize their common interest in long-term value. People, Soil, and Water A range of international investors is already searching for solutions to engage practically These issues are universally relevant to the with this debate. Their influence will vary farmland discussion; yet vary according considerably depending on whether they to the countries in question. Human rights are directly investing in farmland assets or concerns will be very relevant in countries indirectly into funds, where their rights to where informal property rights have not yet influence a project’s management decisions been formalized, but may be less relevant to will be more limited. In these cases, seeking investors that are only investing in farmland to change the accountability (and incentives) in developed countries. For these, however, of fund managers to align to this agenda water limits and soil erosion will still be will be more important. Among those with critical. whom we have engaged throughout the study are individual investment funds, people seeking change within the financial sector, and investor networks such as the UN-backed Principles of Responsible Investment. We welcome these developments, which must now be operationalized to ensure accountability, equitable prosperity and ecological sustainability. 3 A call to action For Investors Upon reading this report, investors (fund 1 Define land security parameters managers, asset owners and risk managers) Establish a set of verifiable measures that can turn to their land and commodities allows stakeholders to distinguish those portfolios, as well as the investments currently land investments that advance equitable under due diligence, and begin to ask how and sustainable prosperity from those that soil resilience, the prosperity of local people do not. Based on these criteria, which and freshwater limits are being considered. we suggest must consider people, water We recommend beginning to assess the risks and soil, it is possible to advance their of countries where they consider investments integration into three important areas of according to how well their governments are the investment cycle: the identification of managing these issues. investment opportunities that build positive value; the due diligence process and the We similarly call on the offices of country performance reviews of fund managers. Presidents and Heads of State to become more aware that these risks undermine their 2 Build better country risk profiles country’s wealth, their stability and economic If the population of a given country is competitiveness. Political leadership is dependent on agriculture for livelihoods, needed to champion and enforce regulations shouldn’t issues like soil erosion, water that protect the country’s social and natural availability and lack of recognition capital. for people’s land rights increase that country’s sovereign risk? We think so. A This report puts forward five practical actions Land Security Index can be developed to that can contribute to create incentives in practically demonstrate how this can work, financial markets and with political leaders and generate interest by mainstream risk to advance change. We have identified rating agencies to incorporate these issues some of the actors who can participate in to their assessments. A set of guiding moving these ideas forward quickly, and policy priorities can be developed to guide will be focusing our work on catalyzing the governments in improving the situation of development of these opportunities further as the issues profiled. part of a Land Security Agenda. The Land Security Agenda 3 Develop global monitoring tools 5 Develop a high-level political Greater transparency and access to agenda Use the ranking of country risks information is needed at a territorial to advance a discussion at the level of level on the status of these trends, and Heads of State of the investment regulation as a proxy to how well authorities policies that are needed to address issues are managing them. Cross-sector of soil and water management, land collaborations can help streamline the rights and food security. Ultimately, it data that exists on soil erosion, water is up to host governments to encourage availability, social vulnerability, and investments that create long-term value climate change, and devise user-friendly for their countries and discourage those visualizations of this data by leveraging that increase their vulnerability. Heads available technology — all presented in of State are more likely to embrace this a way that is relevant to both investment agenda if it is framed as a vision of decisions and government planning. long-term economic productivity and competitiveness. For Governments As resource scarcities and the growing pressure to access natural resources 4 Advance the formal recognition increasingly define our age, we hope this of land rights on a large scale brief report provides the first step to set The universal call for the ‘prior and the right tone and direction that ensure a informed consent’ of communities must be peaceful, equitable and sustainable future for supported, but will be of little practical the land and commodities agenda. value if communities do not hold the legal rights to their land, are not well informed about their rights and the commercial opportunities available to them.