Foreign Investments in Farmland

DB Research Deutsche Bank Dr. Claire Schaffnit-Chatterjee Aug 28, 2013

DB Research Deutsche Bank

Foreign investments in farmland Risks, opportunities,“win-win-win” strategies

August 28, 2013



There is a global rush for land

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2000

2001

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2007

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2009

2010

Pace of global land acquisitions Million hectares reported

Source: Land Matrix

0 200 400 600 800 1.000 1.200 1.400

0 10 20 30 40 50 60 70 80 90

Tota

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porte

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Ha, million (left) Number of deals (right)

Large-scale land acquisitions for agriculture

Sources: Land Matrix, DB Research



High concentration with strong interest in Africa

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0 10 20 30 40 50 60

Africa

Asia

Americas

Europe/Oceania

Land acquisitions by regions Cumulative size of deals, million hectares

Source: Land Mtrix, Asmussen et al..

0 5 10 15 20 25 30 35

Eastern Africa

South Eastern Asia

Northern Africa

Western Africa

South America

Central Africa

Eastern Europe

Land acquisitions by sub-regions Cumulative size of deals, million hectares

Source: Land Matrix, Anseeuw et all.


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Forests, grassland and cropland

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Cropland 22

Forest land 31

Grassland 27

Marginal land 2

Other* 18

Share of area acquired by land cover class, %

* Other refers mostly to bare land

Source: Land Matrix, Globcover, ESA



Former use

4

State 51 Small-

holder (private)

14

Community 14

Private company

11

Former legal land owner

Note: Based on 90 observations

Source: Land Matrix, Anseeuw etal.

Small-holder

agriculture 56

Common pool 16

Forest/con-servation

7

Commer-cial

agriculture 3

Former land use of acquired land

Note: Based on 82 observations

Source: Land Matrix, Anseeuw et al.


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Close to cities or far away

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0 2 4 6 8 10 12 14 16 18

0-1h

1-2h

2-3h

3-4h

4-5h

5-6h

6-7h

7-8h

8-9h

over 9h

Accessibility of land deal locations % area in target countries, by travel time to next city

Source: Land Matrix, Anseeuw et all.


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Both private and public actors

6

30,3

11,5

3,3

0,6 PPP

Private companies

Public/ state owned

Investment fund 3.3

Types of investors Million ha


Three broad groups of economic players in agricultural land:

- Governments eager to secure food and energy supplies

- Agricultural companies

- Financial investors


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— In the past mostly: - wealthy individuals - family offices - endowments

— Have entered: pension funds and hedge funds Long-term returns for a growing number of retired people

— Regional distribution of investor types Mostly private from America and Europe, mostly public in the Gulf States

— Partnerships

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Financial investors


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Origin of investment: Emerging countries (increasingly), Gulf states and the North

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Chi

na

Sau

di A

rabi

a

Bra

zil

UA

E

Sou

th K

orea

Indi

a

US

A

Gre

at B

ritai

n

Mal

aysi

a

Sw

eden

Egy

pt

Can

ada

Qat

ar

Sou

th A

frica

Italy

Sin

gapo

re

Aus

tralia

Nor

way

Japa

n

Arg

entin

a

Reliable Only reported

The origin of investment - top 20 countries Million ha

Source: Land Matrix, Anseeuw et al.


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Agriculture is the main objective

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Agriculture 82,9

Forestry 3,1

Livestock 0,4

Mining 3,9

Tourism 2,3

Industry 0,3

Conservation 0,3

No information

12,8

Future use of land over sectors Million ha

Source: Land Matrix


Deutsche Bank

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Agenda

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Drivers of investment in farmland

Risks and opportunities

The global rush for land

4 Win-win-win strategies


Deutsche Bank

1. Increasing demand — Growing world population (7 bn now, 9 bn in 2050 – developing countries, urban areas)

— Rising incomes in developing countries Increased consumption of resource-intensive foods like meat — Increasing use of biofuels

2. Constrained supply

— Water — Energy — Climate change

Securing food and agricultural products Interest in water

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Strong fundamentals: a tight supply/demand balance


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Increasing cultivated land to grow production

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0,20

0,25

0,30

0,35

0,40

0,45

0,50

0

200

400

600

800

1.000

1.200

1.400

1.600

1961 1965 1970 1975 1980 1985 1990 1995 2000 2005 2008

Rainfed, m hectares (left) Irrigated, m hectares (left) Cropland per person, hectares per person (right)

Evolution of land under irrigated and rainfed cropping

Sources: FAO, DB Research



Potential supply of farmland

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0

200

400

600

800

1.000

1.200

OECD LAM SSA MENA FSU Asia

Cultivated land Arable land

Arable and cultivated land across regions Million ha

Sources: B. Dorin, FAO, DB Research

202

123

52

14

3

51

0 50 100 150 200 250

SSA

LatAm

East Europe and Central Asia

East and South Asia

MENA

Rest

Potential supply of land available Million ha

Sources: World Bank, DB Research



Decades of underinvestment in ag. R&D and rural infrastructure

Limited access to inputs and credit

Some regions were bypassed by the Green Revolution

Small farms in most parts of Africa, also in Asia offer huge opportunities for productivity gains and yield improvements

Output growth – Limited yield increases

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5.000

10.000

15.000

20.000

25.000

30.000

1961 1971 1981 1991 2001

Uneven yield increases across regions Plant food production per ha of cultivated land, kcal/ha/day

Source: FAO, B. Dorin (Inra-Cirad)

OECD

SSA

FSU

Asia

LAM

MENA


Deutsche Bank

1. Good prospects of achieving income through rising agricultural productivity

2. Rising prices of agricultural land

3. Portfolio diversification

4. Hedge against inflation

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A profitable investment



Food, non-food and flex crops

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Food crops 37%

Cash crops 21%

Biofuels 21%

Other 21%

Significant driver: Energy crops

Other: forest, livestocvk area or hunting ground

Sources: World Bank, DB Research

Food crops 31%

Non-food crops 26%

Flex crops 26%

Multiple use 17%

Future use of land acquired Share of total area



Deutsche Bank

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Agenda

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2

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- Agricultural production (agronomy, bad weather)

- Volatile commodity prices

- Political risk

- Economic and social rights of local populations

- Environmental sustainability

- One-sided agricultural development

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Risks associated with large-scale land acquisitions



- Food security A concern in case of food export or non-food production in food-insecure countries

- Conflicting land claims in a context of weak land governance

- Compensation and evictions

Economic and social rights of local populations

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0 10 20 30 40 50 60

Not consulted

Limited consultation

Prior and informed consent

Involvement of the community Number of cases

86 projects, including non-agricultural deals Sources: Land Matrix, DB Research

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0 5 10 15 20

Up to 999 evictions

1,000 to 2,499

2,500 to 4,999

5,000 to 10,000

more than 10,000

Reported evictions Number of cases

Based on 40 projects Sources: Land Matrix, DB Research



- Land degradation

- Overexploitation of land

- Loss of “virtual water”

- Forests destruction

- Small-scale vs large-scale farming

- Loss of biodiversity

Environmental sustainability Agricultural development

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0 20 40 60 80

Sub-Saharan Africa

World

South Asia

LatAm and Caribbean

Southeast Asia

Square meters per year per capita

Sources: IFPRI, FAO, DB Research

Annual loss of arable land, 1961-2009



- Returns to the investor

- Local economic benefits See charts

- Country-level benefits - Economic growth - Export revenues - Workers’ skills and income - Food security

- Global food security

Opportunities from investing in farmland

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90

30

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3

0 20 40 60 80 100

Infrastructure improvement

Financial support

Capacity building

Environmental protection

Reported benefits of investments Number of projects

Based on 117 projects Sources; Land Matrix, DB Research

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12

14

11

25

0 10 20 30

up to 99 jobs

100 to 499

500 to 999

1,000 to 2499

2,500 to 5,000

more than 5,000

Projects with domestic job creation Number of projects

Based on 89 projects Sources: Land Matrix, DB Research



Opportunities for yield improvements

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EU

Chi

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Indi

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Rus

sia

Can

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Aust

ralia

Paki

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Turk

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Iran

Ukr

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Kaza

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Yields tons/ha (left) % global acreage (right)

Wheat yields- Top 12 producers 2005-2010 average

Sources: USDA, DB Research

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Yields tons/ha (left) % global acreage (right)

Corn yields - Top 12 producers 2005-2010 average

Sources: USDA, DB Research


Deutsche Bank

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Agenda

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Deutsche Bank

— Improved governance — Security of land tenure

— Involve local farmers (and businesses): informing initially

project transparency

— Collaborative business models between small farmers and investors: contract farming, joint ventures

boost agricultural productivity while reducing poverty and hunger

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Minimizing risks, maximizing local benefits Key role of investors



Principles for responsible investment

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Principles for responsible agro-investment (RAI) Land and resource rights Food security Transparency, good governance and enabling environment Consultation and participation Economic viability and responsible agro-enterprise investing Social sustainability Environmental sustainability Source: RAI, Knowledge exchange platform developed with The World Bank, FAO, UNCTAD, IFAD

Principles for responsible investment in farmland (PRI) Promoting environmental sustainability Respecting labour and human rights Respecting existing land and resource rights Upholding high business and ethical standards Reporting on activities and progress towards implementing and promoting the principles Source : UNPRI (2011)


Deutsche Bank

— A strong case for private investment in agriculture USD 83 bn needed per year to feed the world in 2050

— Enormous potential yield gains None of the countries of interest to large investors in Africa reaches 25% of its

potential yield

— Role for both smallholder and large scale agriculture

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Positive private investment in agriculture


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Publications

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Visit us at: www.dbresearch.com

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Thank you for your attention!

Dr. Claire Schaffnit-Chatterjee [email protected]

069 910 31821 www.dbresearch.de


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Foreign Investments in Farmland