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February 12, 2012

Why agri-investors should consider sustainable farming and good community relations

Almost all the land deals that foreign investors are engaged in, whether in Africa or anywhere else, are based on typical high-inputs industrial farming, including extensive use of fertilizer and agro-chemicals. These methods have become standard for large scale farming everywhere, and the cost of inputs that are needed to get a certain return can be fairly narrowly calculated, helping investment decisions.

Alejandro Litovsky argues that in investment destinations where the soil is still relatively fertile, less inputs-intensive farming could offer benefits and should be explored.

He says, “Managing soil erosion, ensuring human security and keeping within ecological limits, especially regarding water, are risks to the long-term value of the land, the portfolios of investors and the economic competitiveness of host countries. As global agribusinesses face growing social and environmental pressures, investors seeking to manage the resulting risks will require an innovative approach to risk management: including ecological limits and human security in the agricultural equation.”

Litovsky says “Large-scale farming still operates in the bygone world of the Green Revolution relying on the heavy use of chemicals and intensive, mono-crop cultivation as a means to boost agricultural output.” He goes on to suggest that agro-investors might want to invest in organic farming instead, “to ensure the long-term value and resilience of the soil.”

What Litovsky suggests may be sound from many perspectives including even eventual cost-saving and profitability, but it arguably involves a mind set that is fundamentally different from that of most agri-business, where the land and every other chain of the process, including humans, are simply factors of production. While the need for a tractor maintenance budget may be obvious, stereotypical agribusiness thinking may not include the time, effort and resources to devote to soil maintenance.

One of the criticisms of agribusiness is that it is akin to mining: you keep extracting the natural resources until they are finished, and/or pump ever more ‘inputs’ to get outputs. The decline of natural soil fertility is countered with increasing application of fertilizer. That is just an accepted part of the whole philosophy of industrial farming which it would likely be very difficult to change for most agro-investors.

“So too agricultural models can better integrate networks of smallholder farmers into a radical rethink of their business models, to build the social resilience,” writes Litovsky.

There are certainly some agribusiness who use this ‘hub and spokes’ model, but for many others, it is simply too much trouble. They much prefer to have centralized production that is entirely under their control for all sorts of reasons.

Litovsky states, “Given the typically low levels of government accountability in sub-Saharan Africa, land investments, even if entered into by well-meaning investors, can have dire consequences for local communities. The unintended risks to human security may be significant, whether because these communities are forcibly evicted from the public lands they have cultivated, often without formal rights, for generations, or because new irrigation schemes jeopardize water availability for small-scale subsistence farming.”

This is all true enough. There has been so much negative global publicity about ‘land grabs’ that no investor can be said to enter into these modern mega deals without awareness of these issues. But to be aware of them is not the same as being concerned about them. For many investors, the consent and protection of the host government is all they care about. There are countless current examples of how Litovsky’s perfectly valid argument that to protect their long term interests, investors should pay heed to more than the bare minimum of their contractual requirements with their host governments is ignored.

As for building social resilience, where the agro-investment is as a result of some sort of land ‘grab’ by the host government from the local communities, the investor not only comes in with bad relations with those communities from the beginning, he may not much care about good relations with them. Investors whose holdings are protected by armed police or soldiers are not unheard of, which may make them feel physically secure but automatically sets them apart from locals and makes the investment more precarious in the event of political change. It would seem to make sense, even from a purely business level, for a foreign investor to cultivate ‘social resilience’ and good community relations, but this seems a priority for surprisingly few investors.

Litovsky understands that appeals to the common global good may not make much of an impact on the thinking of many investors eager to turn a profit, and seeing no particular benefit to questioning a decades old agribusiness model. His answer to that is that “Incentives for pursuing these innovations are more likely to arise from fully understanding the risk challenges involved in the current model than from appeals to global sustainability.”

Alejandro Litovsky’s article, ‘Farmland security,’ is a thought-provoking read.

African Agriculture

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