September 15, 2014

Darryl Vhugen
Land Tenure Investment & Policy Consultant

Responsible Investment in Farmland

Since 2008, investor interest in acquiring land in low and middle-income markets has grown tremendously. Investors see the potential for significant returns. From a public policy perspective, such investments present opportunities to increase incomes, economic growth and agricultural production and export earnings. However, for these investments to be sustainable, investors need to be able to acquire secure rights to land, without conflict, and in a timely manner; and current users must be consulted, protected, and fairly compensated for the rights they might lose.

The land rights-related risks faced by investors include:

• Concerns about the security of the legal rights to use the land that is required as part of the investment, especially where both formal and customary land rights are not well documented.
• Potential financial and reputational risk if the investment is implemented in a way that fails to respect local land rights, thereby displacing and impoverishing local communities.

The Rise of Guidelines and Standards

A wide range of institutions have developed guidelines and standards in the last decade to ensure that large investments in land in developing countries do not trample on the rights or undermine the livelihoods of local people. Prominent examples include:

• The Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security. 
   
• Principles for Responsible Agricultural Investment that Respects Rights, Livelihoods and Resources (currently in development).
   
• The Principles for Responsible Investment in Farmland (developed by a group of institutional investors).
   
• International Finance Corporation (IFC) Performance Standards on Social and Environmental Sustainability. The IFC requires its clients, including those seeking loans for projects through financial intermediaries, to apply detailed Performance Standards to manage environmental and social risks and impacts.

Emerging Best Practices

A set of best practices have emerged with the aim of promoting socially responsible and financially sustainable investments in land:

• Recognize Rights. Ensure that all holders of legally and/or socially legitimate land rights (including use rights) are identified and documented. Also, identify and document nature and extent of those rights: distinguishing, for example, ownership from use rights and documenting the area covered. This should include special attention to women and traditionally marginalized groups.
   
• Assess Impacts and Avoid Harm. It is important to assess the impact of the proposed transaction to ensure that it does no harm to rights holders. If the impact is likely to have significant negative social or environmental impacts, either the project should be cancelled or reconfigured to avoid all or most such impacts while compensating affected people for their losses. Such reconfiguration should include exploring alternative investment models that do not result in the large-scale transfer of land rights to investors, including partnerships with local land rights holders and small-scale producers.
   
• Settle all Land Disputes. Before completing a land transaction, it is important to take reasonable steps to support settlement of all legitimate disputes over the land the company seeks to acquire. Such disputes should be identified and resolved through a locally acceptable dispute resolution process, which may or may not be a formal government process.
   
• Consult to Ensure Participation and Obtain Informed Consent. A land investment is more likely to succeed in the long-term if it involved early and extensive consultation with community members, specifically including women. Obtaining the free, prior, and informed consent (FPIC) from rights holders — individuals, households, and communities — for negotiated purchase or lease agreements, or for any other compensation, acquisition, or voluntary relinquishment of rights may be the single most important thing an investor can do in seeking to invest responsibly.
   
• Establish Grievance Mechanisms. Provide an accessible, transparent, impartial and well-defined process for addressing grievances related to the land transaction.
   
• Establish Accountability Structures. Develop and apply appropriate internal controls and accountability and governance systems that will ensure present and future compliance with these principles and with the requirements for implementing them.

When rights to land–the main source of sustenance and wealth of rural families throughout the developing world–are respected and protected, the interaction between investor and community is more likely to result in benefits for both sides.

Darryl Vhugen
Land Tenure Investment and Policy Consultant
vhugen@msn.com
+1.206.306.3902
Twitter: darrylv

Darryl was on the speaking faculty for Global AgInvesting Asia 2014 at the Marina Bay Sands in Singapore, September 23-25, 2014.

The opinions expressed in this editorial are the author's own and do not reflect the view of Global AgInvesting.