The Hindu Business Line : FDI in the farm sector

Despite natural advantages, agriculture in many developing economies continues to languish for want of adequate investment and policy support. The case for revitalising agriculture to meet the rising food needs of populous countries with robust economic growth is undisputed. The global food price crisis of 2007-2008 highlighted the need to boost farm production and productivity through higher investment across the entire value chain. Accordingly, the need to liberalise foreign investment flows in the agricultural sector has been gaining credence the last year. Now, the Unctad World Investment Report 2009 has made out a cautious case for entry of transnational corporations with foreign direct investment that, it claims, can provide much-needed funding and expertise for agriculture in developing countries. The report argues that the stimulus is crucial for increasing productive capacity and farm output in the poorer countries. Suggesting that these investment inflows fall far short of their potential, the agency recommends developing a set of internationally agreed core principles for large-scale acquisition of agricultural land by foreign investors.

Interestingly, there is consensus among experts that one of the lingering effects of the price crisis on the world food system is the rapid and widespread acquisition of farmland in developing countries by other countries seeking to ensure their food supplies. While such acquisitions may inject much-needed investment into rural areas in low-growth agrarian economies, they also raise concerns about the impact on the local poor, who risk losing access to and control over land on which their livelihoods depend. It is crucial to ensure that these land deals and the environment in which they take place are designed in a manner that will secure the livelihoods of local people.

India, for instance, is home to 17 per cent of the world’s population (one in six people in the world is an Indian), but has only 2 per cent of the world’s land resources and 4 per cent of global water resources. With robust economic growth, demand for land is expanding inexorably (for housing, industry and infrastructure). Land constraints are already being felt. A large part of the 160 million hectares under cultivation at present is made up of smallholder farms (80 per cent of farmers own one hectare or less). Agricultural land is under threat of a change in use and may shrink in future. That makes land acquisition by foreign investors highly questionable, if not downright infeasible. Given the current socio-economic conditions of rural India and the fact that land is an emotive issue, the Indian policymakers should, instead of seeking FDI, encourage contract farming by transnational corporations, preferably in association with Indian corporates, without dispossessing and displacing local farmers.

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