Investment in agricultural land is currently high profile.

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(Free-Press-Release.com) September 13, 2009 -- Investment in agricultural land is currently high profile.

The ever-increasing world population and changing patterns in eating habits in large countries such as China and India are putting huge pressure on global food supplies. These are currently unable to keep up with demand and economists are unanimous that the food crisis (most recently seen in 2008) will not go away.

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Investment in agricultural land is currently high profile.

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In response to the urgent need for more food, large-scale investments have been made in farmland in many African and Eastern European countries where land is considerably cheaper. Many projects have contributed significantly to the local economy while providing much-needed supplies of food. Some, on the other hand, have attracted adverse publicity and in the case of Madagascar, even caused the overthrow of a government.

For the ethical investor, investment in land raises the obvious question - is my investment beneficial to the local people and economy? Or is it a land grab? Effects on the environment may also be a worry for investors.

Land investment is often regarded as unethical in famine-struck countries. For example, Saudi Arabia has invested US$100 million in Ethiopian land to grow rice, which is then exported to Saudi Arabia. The World Food Programme is currently spending US$166 million on feeding 4.6 million Ethiopians.

The investment could become a ‘land grab' if the land is offered as state-owned, but has been farmed by locals for generations. Once a foreign-investment deal takes over the land, these locals could lose their livelihood. A similar situation may occur if foreign investment brings in modern farming techniques and puts local agricultural workers out of work.

Ecologial issues can also arise, particularly if foreign investment involves intensive farming methods or excessive use of fertilisers. A case that has recently sounded alarm bells in environmental groups is a proposed Qatari land investment in the Tana River Delta in Kenya. Agricultural development of this unique ecosystem could cause irreparable ecological damage.
However, in spite of some high-profile unethical and ‘non-green' land grabs, land investment can be both ethical and green, and make interesting returns for the investor.

According to the European Bank for Reconstruction and Development (EBRD) and the Food & Agriculture Organisation (FAO), the rises in agricultural prices over the past two years "are a unique opportunity for farmers". A EBRD/FAO report (Fighting food inflation through sustainable investment, March 2008) highlights one particular region of the world, which it believes stands to receive huge benefit from the current food supply shortfall - Kazakhstan, Russia and Ukraine, all major agricultural producers in Eastern Europe. This is backed up by the World Bank paper, Competitive agriculture or state control: Ukraine's response to the global food crisis (May 2008), which states that "Ukraine is in a position to make a significant contribution to the international effort to deal with the food crisis, while providing attractive investment and employment opportunities in the agriculture sector".

According to the EBRD/FAO report, there are currently around 23 million hectares of abandoned arable land in these countries, land that has been unproductive since the breakup of the USSR. These hectares have huge potential - EBRD/FAO predict that Ukrainian grain yields could easily approximate those in France. Furthermore, domestic demand in the three countries "will only moderately increase compared to predicted growth in grain production". Hardly the situation in some African countries where starving populations cannot access food exported to richer nations.

The vast tracts of abandoned land currently provide no (or very sporadic) income for their owners. In rural areas, there is a chronic lack of skilled labour - many farmers have left the countryside for better employment opportunities in the cities. Foreign investment in this abandoned farmland will provide unique employment opportunities as well as much needed training in modern agricultural techniques.

Local cooperation is key to the success of foreign investment - deals in some countries have been thwarted by local opposition - and the ethical investment company will work with the community rather than against it. This includes ensuring employment is gained rather than lost and that the local economy is boosted, not deflated.

Lastly, on a green front, the EBRD/FAO identifies Kazakhstan, Russia and Ukraine as three of the few countries in the world where both an expansion of arable land-use and considerable itensification could take place without serious environmental consequences.

As with all investments, the key to ethical investment is research. Knowing as much as possible about the current status of the land, the local economy and the management company's philosophy will allow you to make an ethical decision. In the case of many African countries, the answer is probably no. In the case of Eastern Europe, the answer may well be yes. However, the bottom line should always be benefits to locals. In the words of The Economist, "if they (these deals) manage to reverse the long decline of farming in poor countries, they will have justified themselves".

More information can be found online at http://www.fairdealukraine.com

agricultural land     farmland investment     land grab