Banks, pension funds, hedge funds and other financial institutions have stepped up their investment in farmland in recent years, including financing for controversial large-scale land deals in developing countries. NGOs are now calling specifically on financial institutions to ensure that their investments are environmentally and socially sound, or consider divestment.
Last month, Friends of the Earth released a report that linked a number of European banks and investment firms to large-scale land acquisitions in Uganda. In this case, the financial institutions provided financing to Wilmar, a major agricultural trading firm with extensive interests in palm oil production and refining. FOE’s research showed that Wilmar’s subsidiary in Uganda had violated environmental and land tenure legislation in connection with recent land purchases in the country.
In the past year, other NGOs have also drawn attention to the problems associated with financial investment in farmland acquisition. The Oakland Institute, for example, released a report that highlighted the environmental and social problems associated with land grabs and the role that financial institutions, such as pension funds and hedge funds, have played in fuelling such investments. According a report by the International Institute for Environment and Development, around 190 private equity firms are acquiring land and other agricultural assets on behalf of their investors.
These initiatives are reminiscent of other NGO campaigns that emerged in the wake of the 2008 food crisis calling for a stop to agricultural commodity speculation by banks and other financial institutions. Those campaigns have seen some recent successes. A number of European banks pulled out of commodity speculation over the past year in response to NGO campaigns that associated speculation with food price increases and rising hunger. A recent Oxfam France campaign was particularly effective. But as I noted in an earlier blog, the response of financial institutions has not been uniform. Deutsche Bank decided to return to commodity speculation after a study it commissioned concluded that its investments were more helpful than harmful.
While NGO pressure has had some impact on speculative investments in agricultural commodities, financial institutions still seem to be very attached to their farmland investments. There are a number of challenges facing NGOs targeting financial investments in farmland, some of which echo those encountered by NGOs fighting agricultural commodity speculation.
First, farmland possesses certain features that make it a particularly attractive asset class for financial investors. Land investments are largely insulated from other financial investments in their portfolios, and thus providing much sought after diversification and acting as a hedge against inflation. Pension funds and hedge funds that are investing for the long-term are drawn to farmland because it provides both a capital asset whose value is rising and an annual flow of revenue over time.
Farmland investment funds advertise these features to attract more investors, who are lured in by promises of high returns that will result from rising food demand in the context of a growing population and “dirt cheap” land in African countries. Financial investment websites provide “how to” advice on investing in farmland, telling investors in African farmland to expect returns of 8% to 25%, with one website even featuring a picture of neatly rolled up five dollar bills literally popping out of the soil.
Second, financial institutions are using their vast resources to produce glossy reports espousing the benefits of their activities in farmland investment that act as counterweights to the NGO reports. Following the same strategy it used with commodity investment, Deutsche Bank recently issued a report that weighs the evidence on financial investment in farmland. The report concludes that farmland investments are a “win-win-win” strategy (for investors, home countries and local communities) and that “financial investors have an important role to play in maximizing these benefits.” The report also seems to infer that the land being acquired is empty of people, noting somewhat bizarrely that: “Over millennia, mankind has gradually spread out over the various continents. This process is now unfolding at the scale of the planet.”
Third, the financial institutions’ justifications are reinforced by powerful organizations like the World Bank that defend private sector agricultural and land investments, provided it is done responsibly through voluntary initiatives like the Principles for Responsible Agricultural Investment and the Voluntary Guidelines on the Responsible Governance of Tenure. NGOs have critiqued these initiatives as being only partial in their coverage, applying only to those investors that choose to follow them and lacking teeth to enforce good practices. But for now, these initiatives seem to be the main game in town and serve to bolster the reputation of farmland investment even though they are not widely adhered to by investors.
And finally, as is the case with commodities speculation, it is extremely difficult for the average person making pension fund contributions to find reliable information on the farmland investments financial institutions are making. The deals are complex and often lack transparency.
Meanwhile, a growing number of hedge funds are aggressively advertising farmland investment opportunities. Firstconinvest, for example, openly states that contract clauses in its African farmland fund “allow foreign companies to keep exporting as much as 80 percent of what is grown on the acquired land, even if the host country is experiencing food shortages.” It then goes on to say that “with its chosen guidelines and intentions” its investments “are both ethical and profitable.” One has to wonder what exactly that means.
We shouldn’t have to rely on NGOs to tell us what our banks and pension funds are doing with our money. There should be more transparency, and financial institutions should be held to account for the impact of their investments. The NGOs working on this issue are right to keep the pressure on these financial institutions over their farmland investments, even if it the campaign proves to be a challenging one.
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Did you notice how bizarre the English is in Firstconinvest’s prospectus: “Over 148 million acres of farmland in Africa have been purchased by Western hedge funds in the last three years and we have decided investing in this market too.” I’m not sure what to make of this (this is only one example of many) but thought it was worth pointing out.
Thanks for your comment. Yes the site is very odd. If you download the Firstconinvest brochure on the African Farmland fund you will see it is also full of typos. It does appear to be a real hedge fund, however.
The “triple” in Triple Crisis seems to be “hook, line and sinker”. Even the most cursory review of “Firstconinvest” should reveal that it is a sham outfit. It’s no more a real “hedge fund” than I am a real “lawn fund”.
In 2011, I wrote a review on global organic agriculture trends for a well-known Washington D.C.-based public policy institute that specializes in sustainability issues. In the original draft, I included an observation about investor-driven farmland speculation (note the last sentences):
“…Large-scale imports undercut small-scale producers in the domestic market, one of the factors influencing the demise of small-scale producers. This can be seen in Africa, as food production per person dropped 10 percent over the past 50 years. Agricultural imports have increased more rapidly than exports, and now Africa is a net commodity importer. Coupled to this trend are investors and sovereign funds buying or leasing African land to export agricultural goods back to their countries. In Ethiopia, for instance, Saudi Arabian investors spent US $100 million to raise various grains there for consumption at home, while the World Food Programme spent US $116 million shipping food to Ethiopia, feeding a population threatened by starvation and malnutrition.”
This section was mysteriously cut from the final published version of the report.
I’m glad to see someone else picking up this issue.
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