The World Bank has released Rising Global Interest in Farmland – Can It Yield Sustainable and Equitable Benefits? which reports on what has been learned in the last two years that can be applied to ongoing interest in farmland. By the end of 2009, 110 million acres of large farmland deals had been announced, with over 75 percent of the land in African countries like Ethiopia, Mozambique and Sudan. The authors found that actual farming had started on only 21 percent of the announced deals, and case studies indicate that some profitable projects do not produce satisfactory local benefits. To provide perspective, from 1990 to 2007 cultivated land increased by 6.7 million acres annually as developing countries increased by 13.6 million acres per year, industrialized countries declined by 2.2 million acres and transitional countries declined by 4.7 million acres.
According to the report, about 1.1 billion acres of potential cropland is uncultivated, non-forested, non-protected and relatively thinly populated. The increase in demand for agricultural commodities over the next decade could be met without cutting down forest by increasing yields of existing farmland and expanding acreage in non-forested areas. Of the African countries of most interest to investors, none are achieving more than 30 percent of the potential yield on existing farmland. Opportunities exist for importing countries, investors and countries with adequate land supplies to benefit from further development. The authors’ “conservative” estimate for developing countries is 15 million acres will enter production annually from now to 2030, with two thirds of that expansion in Latin America and Sub-Saharan Africa. Public policies that encourage investors to focus on existing low productivity land and its current farmers could boost incomes for existing farmers and reduce the additional farmland needed to meet growing demand.
When expansion of land area in developing countries is mentioned, the Brazilian cerrado’s soybean fields on large farms are the first to come to mind, but all development does not take that path. Almost 600,000 acres in Peru’s Pacific Coast region were auctioned off and attracted $50 million of investment over the past 15 years and focused on high valued agricultural exports. Thailand and Vietnam, the world’s number one and two rice exporters, have targeted smallholder rice farmers by clarifying property rights and improving access to technology. The rubber industry in Asia has shifted largely from large plantations to smallholders. The key is increased productivity for land and for farmers.
Eastern Europe and Central Asia, which are centered on Russia, Ukraine and Kazakhstan, are mentioned in the analysis as a “unique situation” where grain area has declined by 74 million acres since the end of the Soviet era despite investments in large farms. Seventy of the largest farms control 25 million acres of land, an average of 357,000 acres per farm. The large farms are partly an outgrowth of the previous huge state-run farms that existed in the old Soviet Union. Despite the size of farms, there is room for additional technology to improve yields. Large farms do not automatically have easier access to technology if markets are not fully developed. The authors conclude, “Owner-operated farms, linked to processors and exporters via contracts or other forms of productive partnership (including producer organizations) will therefore continue to be a key of rural development.”
Outside investors often assume that farmland is always the most limiting factor to increasing agricultural output in developing countries. That is true in some areas, but in many cases the World Bank authors conclude it is technology to increase yields on existing farmland. That requires a different development approach of working with existing smallholders to increase production and move those products to export facilities. That makes increased production less capital intensive, easier on the environment and more likely to improve the incomes of existing farmers.
The authors suggest that with or without large scale land development projects, land governance needs to be improved to protect existing property rights and make voluntary transfer of property feasible. Governments must identify government land that is available for acquisition, justify regulations and make them transparent. All interested parties should be made aware of the information, and some type of dispute resolution process must to be in place to manage conflicts. Property rights are also important for subsistence smallholders to increase output and become participants in markets that supply exporters. Use of technology is generally related to tenure security. Improving soils for long-term productivity will only occur if the current farmers believed they will receive the benefits of current investment in future years.
The small-scale and large-scale approach to increased agricultural commodity production for exports fits within the current policy framework of increasing free trade. Agricultural production equipment is already traded around the world. Technologies like planting seeds improved through hybridization and biotechnology are in widespread use. Established supply chains for pesticides and fertilizers can be expanded to reach new users. Credit and insurance services will need to be developed to use more of the available technology. The crops and livestock produced by these new investments can be sold through the existing market systems with a stronger commitment to deliver the products.
These episodes of higher commodity prices are having a positive effect in stimulating governments, investors and importers to think seriously about food production and trade to achieve food security. Market solutions are available to solve these problems and improve opportunities for producers and consumers.