CC BY
4A gricultural
Bulletin of Stavropol Regi
Stavropol Region
= № 1(21)/1 Supplement, 2016
UDK 338.43
Mirela Panait, Jean Andrei, Catalin Voica
AGRICULTURAL INVESTMENTS - BETWEEN PROFITABILITY AND SUSTENABILITY
The agricultural investments are often a controversial topic, caught in the middle of fierce debate between economic profitability and the rural sustainability. During the last decade the rural communities has faced with a dramatic drop in living standards accentuated mainly by the lack of financing and financial support for a sustainable rural economy.The paper contains a short analysis regarding the role of agricultural investments in achieving a competitive rural economy, in a
larger context of the debate concerning the sustainable and profitable investments in agriculture. Also the paper presents some of the main concerns of the inland organizations and public authorities regarding the improvement of the agricultural investments level in rural economies.
Key words: investment, sustainability, food security, land acquisitions.
Mirela Panait -
Ph.D., Associate Professor,
Petroleum-Gas University of Ploiesti,
Faculty of Economic Sciences, Cybernetics,
Economic Informatics, Finance and Accountancy Department,
No.39 Bucuresti St., Ploiesti, 100680, Romania,
E-mail: mirematei@yahoo.com
Jean Andrei -
PhD., Lecturer,
Petroleum-Gas University of Ploiesti, Faculty of Economic Sciences,
B-dul Bucuresti no. 39, 100680 Ploiesi, Prahova, Romania E-mail: andrei_jeanvasile@yahoo.com
CatalinVoica, Jr. -
Ph.D., teaching assistant ,
Petroleum-Gas University of Ploiesti,
Faculty of Economic Sciences, Cybernetics,
Economic Informatics, Finance and Accountancy Department,
No.39 Bucuresti St., Ploiesti, 100680, Romania
E-mail: voicamariancatalin@yahoo.com
1. Investments in agriculture - a new challenge for farmers and undertakings
The agricultural investments represent a defining component for increasing the result in valuing the inland agricultural potential. At first glance, the issue of investment in agriculture seems to be only the interest of farmers, local authorities and communities, but the effects are more durable for the domestic economy, as a whole. If we follow the implications of investments or lack of investment on agriculture, then, many stakeholders can be detected, and the consequences of investment programs in this field is multiple and the effects can be detected at both the micro and the macroeconomic level.
The interest of undertakings to make investments in agriculture has been quite low over time. The world food price crisis of 2007-08 generated investments in this area, but positive effects are overshadowed by the negative consequences that have some form of investment, especially large-scale investments for land acquisition.
As it was already proved in literature(Zaman, 2012; Ene and Njegovan, 2012; Liu,2014; Karlsson, 2014), the benefits of investment in agriculture are multiple for local communities and for the rural economy in general, as:
- employment creation,
- higher productivity,
- improvement of food availability and food security,
- poverty reduction,
- technology transfer, access to new farming technology and practices,
- access to finance and markets,
- provision of social services like education, health, rural and farming infrastructure,
- local water provision schemes,
- improvement of livelihoods for out growers.
In addition, the investments in agriculture and
food system can multiply the effects on complementary sectors like service or manufacturing industries.
In fig.1 is presented the evolution of the Gross fixed capital formation in agriculture in some EU-27 countries during 2007-2011.
As it can be noticed from the fig.1, the agricultural investments in EU-27, analyzed form the gross fixed capital formation perspective, measured as percent of GVA in agriculture, has a quite irregular evolution. If starting from 2007 the agricultural investments describes an evolutionary trend, after the 2009 the level of is decreasing. This trend is describing the dubitative interest in achieving a rural competitive economy. The lack of investments, especially after 2009, accentuates the dependent character of rural economy from the state or EU's financial support for development and the rural communities failure in promoting green and multifunctional agriculture. The evolution of the agricultural investments in EU-27 is the effect of the PAC measures outcome, which has mainly based on promoting and diversifying rural activities more than assuring agricultural sustainable development. From neither another perspective, nor the EU-27 agricultural investments, or the domestic financing support for promoting a competitive agricultural sector were not functional. For an illustrative example, in fig. 2 is presented the evolution of the Romanian agricultural net investments during 2009-2012.
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600
500
5 200
100
2007
2008
2009
2010
2011
0
Fig.1 - Evolution of the Gross fixed capital formation in agriculture in some EU-27 countries, 2007-2011
Source: authors based on(European Commission, 2014).
Fig.2 - Evolution of the Romanian agricultural net investments, 2009-2012
Source: authors based on (INS, 2013)
During the period, the evolution of the Romanian agricultural net investments had a quite stable general trend, with small varies.
The studies carried on at the international level by reputable institutions like World Bank and United Nations Conference on Trade and Development revels the existence of negative outcomes for agricultural investments (WB 2014, p.18). The major drawbacks are: disputes over access to land, lack of transparency regarding the land's acquisition, lack of consultation and inclusion of local communities, negative impact on environment, inadequate use of the land.
The analysis performed for agricultural investments reveal the major role played by the smallholder farmers, but in the last ten years, we remark the increase of corporate investments generated by strategic concerns of food-importing countries, commercial opportunities and the rise of commodity prices. The corporate investments are made by different actor like agribusiness enterprises, energy companies, state-owned enterprises, sovereign wealth funds, private equity funds, pension funds and transnational corporations. Some studies (FAO 2013, p. 6) highlight the strengthening of trend regarding the
involvement of governments (in developing countries) in agriculture field through state-owned companies. In order to promote a risk reduction strategy, the public authorities prefer not to invest directly in agriculture but to fund state-owned companies and, most often, establish public-private partnerships.
The contributions of these investments depend on the local conditions (natural and institutional), the investment contract, the type of business model, the type of investment (local or foreign direct investment) and the relations with smallholders. For example, some specialists (FAO 2013, p. 335) have raised concerns regarding the possible negative effects of foreign direct investment (FDI) in agriculture, if taking in account large-scale land acquisitions. The acquisition of agricultural land on a large scale have many economic, social and environmental implications like displacement of smallholder farmers, reduced access to resources, degradation or depletion of natural resources, decrease of grazing land for pastoralists, the loss of incomes of rural people.
The interest of foreign investors for agriculture is doubled by the interest of national authorities from host countries. According with UNCTAD experts,
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Bulletin of Stavropol Region
№ 1(21)/1 Supplement, 2016
(UNCTAD, 2012-2014) a survey conducted at international level revealed that the agriculture is the second target industry for investment incentive policies, after IT and business services, but before hotels and restaurants (WIR 2014, p. 112).
Taking in account the negative effects of agricultural FDI on host countries, some states have modified their investment policy and have introduced new entry barriers or reinforced screening procedures (WIR 2012, p 79). These new approaches are based on the strategically importance of agriculture for food security and the consequences of overexploitation for the rural economic development and for environment. The efforts made by public authorities in order to monitories the access to land by foreigners must be accompanied by the creation of a modern, harmonized registration and cadastre system that can measure theforeign presence in an appropriate manner (WIR 2012, p 82).
2. Concerns of international organizations and public authorities regarding the agricultural investments
The poverty and food insecurity affects a large proportion of the world population, which is concentrated mainly in rural areas from developing countries. Investments in agriculture can contribute to poverty alleviation and raising living standards for the population in rural areas. The millennium development objectives include halving the number of hungry and people. This may seem easy to achieve, but if we consider the complexity of the problem (world population growth, the changes in consumption patterns, climate change and resource constraints), we realize that major efforts must be made at regional,national and international level.
According with FAO estimations, in developing countries, the agricultural investment needs to increase by at least 50 percent. This figure was calculated taking in account the necessity to meet projected increased demand by a world population that is expected to pass 9 billion in 2050 (Karlsson, 2014, p 5)
The FAO experts recommend making annual investments of over US$80 billion in order to meet targets for reducing poverty and the numbers of malnourished.
The FAO reports on The State of Food and Agriculture revealed, most often, the importance of public authorities in planning, directing and stimulating investments in agriculture. The international financial crisis affecting the ability of governments to play a primary role in making investments in agriculture. The internationaldonors were confronted with the problem in catalyzing and channeling investments in this area. At present, the experts consider that private investors and primarily farmers are the main actors in this field (FAO 2012, p.3).
The role of governmentscannot be reduced given the responsibility of public authorities to provide an investment climate and to ensure that such investment is environmentally sustainable. According with experts of World Bank (The World Development Report 2005, p.2), the investment climate is vital to growth and poverty reduction. In developing countries, the economy is highly dependent on agriculture
if we take in account the agriculture's contribution on employment and GDP. So, the public authorities have greater responsibility to provide an investment climate that is conducive to investment in the sector.
The effort made by public authorities must be associated with the behavior of private investors. In order to improve the impact of domestic and foreign investors on local economy, we note the effort made by international organizations (FAO, IFAD, UNCTAD and the World Bank) to shape the investors actions in a sustainable manner through(UNO, 2008; FAO, 2013; World Bank, 2014):
• The Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security (VGGT);
• Principles for Responsible Agricultural Investment that Respects Rights, Livelihoods and Resources (PRAI);
• Principles for Responsible Investment in Agriculture and Food Systems.
In fact, these principles and guidelines should be used to underlie the actions and decisions of other stakeholders like financialinstitutions and donors, smallholders and their organizations, workers and their organizations; local communities and consumer organizations.
So, the promotion of voluntary standards and good practices are essentials in this field, too. Even the international standards are non-binding and cannot substitute for national legal provisions, they can have a positive impact on investment's decisions. (Karlsson, 2014, p.11)
The investment made by different economic agents must improve food security, respect the rule of law and best practices, and meet principles of social sustainability and environmental sustainability. In this way, the agricultural investment must be economically, socially and environmentally beneficial.
Conclusions
The agricultural investments are one of the tools that can be used in order to achieve at least one of the sustainable development goals - «end hunger, achieve food security and improved nutrition and promote sustainable agriculture».
The agricultural investments must be re-designed taking in account the following considerations (FAO, 2013; Liu,2014; World Bank, 2014):
- in developing countries, the agriculture is the main promoter for development, food security and poverty reduction;
- the smallholder farmers are the main agricultural producers, but they have many vulnerabilities because of resource- constraints (small capital available for investment, lack of access to additional financing, agricultural inputs and markets);
- the implications of foreign investors in agriculture field;
- the multifunctional character of agriculture;
- thecompetition for land and water resourcesamong some land uses industries like tourism, agriculture and mining.
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- trade restrictions at international level. The universe of agricultural investments are very complex, taking in account the stakeholders implicated in regulation, financing, conduct and operation of a business in agriculture field: small scale food producers, transnational corporations, investment funds, international organizations.
In order to improve the agriculture productivity and incomes of agricultural producers, some measures must be considered (FAO, 2013;Committee on World Food Security, 2014; World Bank, 2014):
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