Responsible Investments in Farmland: Managing Land Tenure Risk

November 21, 2015

Darryl Vhugen Darryl Vhugen
Principal
Land Tenure Investment Consulting
Andrew Hilton Andrew Hilton
Senior Land Tenure Officer
UNFAO

Since 2008, steep rises in food prices and other increasing pressures on land and natural resources have led to an increased demand for agricultural land in developing countries. As a result agricultural land is being seen as an increasingly attractive asset class by many investors. From a societal perspective, private sector investments have the potential to benefit local communities by providing employment and giving small-scale farmers greater access to capital, technology, knowledge and markets. They can also deliver macroeconomic benefits such as increased economic growth and agricultural production. However, the results so far are decidedly mixed. All too often, the promised benefits have failed to materialize and investment projects have caused actual harm to local communities. There are many examples of local people losing their rights and access to their land and other natural resources, of violent conflicts, of environmental damage and of failed investments.

Much of the recent investment in agriculture in developing countries has been in settings where the governance of land tenure is weak and the prevalence of poverty is high. This has exacerbated the negative impacts. The Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security (the “VGGT”), endorsed by the UN Committee on World Food Security in May 2012, were created to help countries improve their governance of tenure and to provide safeguards to mitigate negative impacts. The primary objective of the VGGT is to reduce food insecurity and poverty.

While primarily aimed at governments, the VGGT also contain important provisions applicable to the private sector. There is particular focus on helping investors pursue their projects in ways that recognize and respect legitimate tenure rights and human rights that may or may not be reflected in national laws. Increasingly, the VGGT are viewed internationally as establishing a set of best practices for investment in land, forests and fisheries.

Acting in accordance with the VGGT can help investors to better understand and manage the substantial financial, legal, operational and reputational risks inherent in investing in land-based assets in many developing countries. The VGGT and complementary resources provide insight and practical advice on how to cope with those risks. The important links between land rights and human rights also mean that complying with the VGGT is an important tool in ensuring that the investment respects human rights.

The UN Food and Agriculture Organization (FAO) is poised to release a new publication, entitled Responsible Investment in Agriculture: A Technical Guide for Investors. This guide seeks to help investors apply the VGGT in ways that will help them to better manage land tenure and human rights risks. The primary target audience is those organizations that provide capital or manage funds that are ultimately used for investing in and/or operating land-based assets. The guide reflects substantial and valuable input from a wide range of representatives from the private sector—including a voluntary panel of investment industry professionals—civil society and government. It will be introduced on December 3 at a workshop at the Global AgInvesting Europe conference in London.

At the workshop, presenters and participants will discuss how those who plan and operate their investments in ways that are consistent with the VGGT can reduce their investment risk and increase the likelihood of realizing a reasonable risk-adjusted return through socially acceptable and sustainable investments. Doing so means going beyond traditional corporate social responsibility (CSR) practices like building a school or medical facility. Truly responsible investments do far more; they seek not only to avoid negative social and environmental impacts but also to create mutually beneficial economic relationships with the affected communities.

This means incorporating the principles of the VGGT into the due diligence process—inclusively identifying land rights holders, conducting social and environmental impact assessments and consulting effectively with local communities—can be costly. But the costs of getting it wrong can be even higher. If an investment displaces and impoverishes local people they are likely to find a way to undermine it. Recent research has begun to document just how expensive it can be if land rights-related conflicts arise in an investment. Costs can run into the millions of dollars in some of the more extreme cases.

The underlying message of the London workshop is that investments in developing country farmland are more likely to be successful if everyone—investor, local community and government—benefit. The new FAO guide can help investors play their part in achieving this result.

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

Andrew Hilton
Senior Land Tenure Officer UNFAO
andrew.hilton@fao.org

 

Darryl Vhugen and Andrew Hilton are members of the speaking faculty at GAI Europe in London, November 30-December 2, 2015.

The opinions expressed in this editorial are the authors’ own and do not reflect the views of GAI News.

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