As global stock markets fluctuate wildly, both individuals and institutions are increasingly looking to alternative investments to provide balance and stability to their portfolios. Given the rapid run-up in agricultural commodities and food prices recently, farmland investments are becoming an increasingly attractive asset class.
In the UK for example, over the last 10 years, agricultural land has appreciated roughly 13 per cent each year according to the Investment Property Databank (IPD). The United States and other Western countries have seen similar farmland investment returns. Farmland prices have therefore skyrocketed, reaching as high as £17,300 (approximately US$30,000) per hectare in the northwest of England to take just one example.
As a result, investors are turning their attention to areas of the world where farmland prices are starting from a much lower base, thereby providing much greater upside potential. Countries in the Asia Pacific region have seen a particular surge of interest in their farmland from foreign investors.
Interestingly enough, one of the countries in the region where large amounts of farmland has been targeted by or been purchased by foreign investors is Australia. China in particular has been extremely active in targeting Australian farmland. This has started to create resistance amongst Australian politicians, and MPs in that country are considering limiting foreign farmland purchases.
Likewise, many Middle Eastern investors such as the Kuwait Investment Authority (KIC) have also been targeting farmland investments in Asia, notably in Vietnam, Cambodia and Laos.
Farmland investors are facing a rising resistance to what is perceived by many Non-Governmental Organisations as a foreign land grab. Just as one example, the Asian Peasant Coalition has been quite active in opposing what they see as neo-colonial exploitation. Whilst some of these feelings may be based on old stereotypes rather than on current conditions, there is no question that some abuses have occurred.
What is undoubtedly true is that large institutional investors in Asian farmland do sometimes make deals directly with the central governments of poorer Asian countries, bypassing the local populations who are most directly affected. For example, an article in the Economist noted that when KIC sought to make large rice farmland investments in Cambodia directly through the central Government, it ended up provoking widespread resistance and antagonism on the ground.
By the same token, it is far from true that all foreign investments in Asian farmland are predatory and exploitive. The major issue is whether a set of basic principles for “win-win” farmland investment in Asia can be developed. Just as an example, we at GreenWorld BVI believe that the following principles can be used to evaluate the fairness of foreign farmland investment in the Asia Pacific region:
- The investment was directed at completely unused land, and none of the local population has been removed from any of the land since it was not in use as a food source;
- The farmland investment was negotiated directly with local villagers and tribal chiefs, so there was no chance for corruption at senior government levels;
- Farmland investments in developing countries should not simply be premised on food security concerns by the foreign investors, who may want to simply ship the entire crop production back to their home countries;
- The workforce should as much as possible be local hires who should be paid a fair wage well above the minimum for that country; and
- Finally, foreign investors in Asian farmland should also have at least some kind of community re-investment programme in the host country.
Whilst these principles will not solve every concern of local Asian NGOs, they are at least a starting point for examining whether a farmland investment is structured as a win-win for both the investor and the local population, or if it is inherently exploitive.
Josh Cohn is a partner at GreenWorld BVI. They can be found on the web at http://www.greenworldbvi.com.