Principles for Responsible Agricultural Investment (RAI) that Respects Rights, Livelihoods and Resources

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Introduction

Many studies show that investment to increase productivity of owner-operated smallholder agriculture has a very large impact on growth and poverty reduction. The fact (ASTI/CGIAR, 2009) that investment to bring about such productivity increases in Africa has historically been in 2005 PPP dollars only a fraction of what has been spent in Asia-Pacific and LAC countries is often seen as one of the reasons for Africa’s lackluster record in terms of rural growth since the Green Revolution began. Thus any investment—public or private—in lower income countries and rural areas that can close this gap is desirable in principle. Yet even when investments seem to hold promise of raising productivity and welfare and are consistent with existing strategies for economic development and poverty reduction, it is important to also ensure that they respect the rights of existing users of land, water and other resources, that they protect and improve livelihoods at the household and community level, and that they do no harm to the environment.
A host of factors has recently prompted a sharp increase in investment involving significant use of agricultural land, water, grassland, and forested areas in developing and emerging countries. These include the 2008 price spike in food and fuel prices, a desire by countries dependent on food imports to secure food supplies in the face of uncertainty and market volatility, speculation on land and commodity price increases, search for alternative energy sources, and possibly anticipation of payments for carbon sequestration. The range of actors includes agro-enterprises in agri-food, biofuels, and extractive industries, private equity and other financial institutions, government-linked companies including sovereign funds, and individual entrepreneurs. Yet figures reported in the press and even by governments are often unreliable, partly because of data quality issues, partly because initial expectations have often not materialized, and partly because many transfers of resource rights are negotiated in private, which causes still further suspicion and speculation. Nevertheless, it is true that some countries have been confronted with informal requests amounting to more than half their cultivable land area, and other countries are actively seeking major investments as well, so the phenomenon seems to have traction.
Private investment in the agricultural sector offers significant potential to complement public resources. Many countries with reasonably functioning markets have derived significant benefits from it in terms of better access to capital, technology and skills, generation of employment, and productivity increases. Moreover, new technology, the emergence of value chains, demands for traceability, the need to adhere to rigorous standards, and consumer demands arguably favor greater scale and integration. Some large investments have managed to achieve broad-based benefits via contract farming, other outgrower arrangements, and joint ventures with local communities, by leasing rather than acquiring the land or by formulating innovative schemes for sharing both risks and rewards.
On the other hand, where rights are not well defined, governance is weak, or those affected lack voice, there is evidence that such investment can carry considerable risks of different types. Risks include displacement of local populations, undermining or negating of existing rights, increased corruption, reduced food security, environmental damage in the project area and beyond, loss of livelihoods or opportunity for land access by the vulnerable, nutritional deprivation, social polarization and political instability. Moreover, many large farming ventures attempted in the past have proven unsuccessful. Sometimes mistaken beliefs in economies of scale in agricultural production rather than value addition and better linkages to markets have saddled several countries with subsidy-dependent large farm sectors that provided few economic or social benefits.
To better spread the benefits and balance opportunities with risks in major investment programs, industry initiatives, such as the Extractive Industry Transparency Initiative (EITI), the Equator Principles, and the Santiago Principles, have formulated standards for specific subsectors or investor categories, and many institutions and large enterprises have made efforts at formulating internal codes of their own. Arguably, the magnitude of the present phenomenon and the hazards involved warrant a broader effort to build on ongoing private initiatives that involve some mix of guidelines, codes of good or best practice, and perhaps even independently verifiable performance standards coupled with benchmarking. However, the extent of actual application of such systems remains limited in general. And for land/water-intensive agro-investing, no agreement has been reached yet by private industry as to whether and how to adopt voluntary self-regulation. That probably reflects several realities: first, that agro-investing in the present context of multiple crises and future uncertainties is a very complex endeavor in itself; secondly, the fact that circumstances vary considerably between one county and another, or one deal and another; and third, because the investment objectives and the investor types are not homogeneous.
To generate the empirical evidence needed to guide its staff and others in this area, early in 2009 the World Bank began an in-depth study (“Large-Scale Acquisition of Land Rights for Agricultural or Natural Resource-based Use”) in some 20 of the most involved countries. It focuses on the policy framework, overall magnitudes, and detailed analysis of social, economic, and environmental impacts of specific cases. The principles recommended in this note are based on preliminary evidence from this ongoing work, as well as the accumulated experience of a broad set of informed observers and partners within and outside the World Bank Group, including FAO, IFAD, and UNCTAD. Considerable consultation has also occurred with all other relevant international agencies.
These organizations have joined together to recommend the principles presented below. The document concludes with anticipated next steps, which point toward a toolkit of best practices, guidelines, governance frameworks, and possibly codes of practice by the major sets of private actors. All interested stakeholders and observers will be encouraged to share their concerns and contributions via an open architecture knowledge platform that will subsume this toolkit but also offer additional functionality such as e-learning modules, a blog, and links to other resources.
RESPECTING LAND AND RESOURCE RIGHTS
Principle 1: Existing rights to land and associated natural resources are recognized and respected.
ENSURING FOOD SECURITY
Principle 2: Investments do not jeopardize food security but rather strengthen it.
ENSURING TRANSPARENCY, GOOD GOVERNANCE, AND A PROPER ENABLING ENVIRONMENT
Principle 3: Processes for accessing land and other resources and then making associated investments are transparent, monitored, and ensure accountability by all stakeholders, within a proper business, legal, and regulatory environment.
CONSULTATION AND PARTICIPATION
Principle 4: All those materially affected are consulted, and agreements from consultations are recorded and enforced.
RESPONSIBLE AGRO-ENTERPRISE INVESTING
Principle 5:Investors ensure that projects respect the rule of law, reflect industry best practice, are viable economically, and result in durable shared value.
SOCIAL SUSTAINABILITY
Principle 6: Investments generate desirable social and distributional impacts and do not increase vulnerability
ENVIRONMENTAL SUSTAINABILITY
Principle 7: Environmental impacts due to a project are quantified and measures taken to encourage sustainable resource use while minimizing the risk/magnitude of negative impacts and mitigating them.
 
Conclusions and next steps
Agreement was reached in September and October of 2009 among the main international agencies (World Bank, FAO, UNCTAD, and IFAD) that a set of principles for responsible agricultural investment involving significant acquisition of resource rights is warranted, and that the seven principles contained herein are essentially the right ones (although certain details will continue to be refined).
Agreement has also been reached among the same entities that a consultative process begun separately by the various agencies on this theme should now be expanded and carried out jointly. Commentary, suggestions, research and analytical input should be elicited from a broad swath of stakeholders (multilateral and bilateral donor agencies, civil society organizations organized thematically or geographically, all major investor categories (whether private or government-linked)). Moreover, to the extent possible, the process should generate support from all major countries from which investment initiatives are emanating and toward which such initiatives are directed. Making such a process as inclusive as possible will be critical to incorporate existing experience, generate buy-in, and ensure convergence on principles that are acceptable to the relevant stakeholders and can thus be implemented on the ground. The details of the requisite consultative process are now being worked out.
Following this, the principles will then need to be translated into actions for investors, governments, donors and international agencies, at different levels. While the scale and scope of the phenomenon may be new, and the economic context uniquely challenging, a large body of evidence and best practice can be drawn upon to assist in areas where action is required. Three areas that are likely to be of particular importance include: (i) analysis to identify ways in which agricultural investment can be used to best contribute to national strategies for development and poverty reduction and how incentives for different actors can be structured to achieve this; (ii) legal, regulatory, and institutional changes required from governments and ways in which they can most effectively strengthen their capacity to secure land rights, enforce rules, and empower local stakeholders; and (iii) ways for the private sector to incorporate social and environmental concerns specific to this type of investments in project identification and implementation.
Publicizing good practice on how to address specific principles will be important to demonstrate that compliance is not only possible but in many cases serves stakeholders’ long-term interests. Civil society can have a major role in helping to improve transparency, build stakeholders’ capacity at the local level, and help those affected to make their concerns heard. Provision of assistance to identify priority areas for improvement and foster synergies, as well as options for making incremental progress towards meeting them would be important.
To ensure that agreement on principles, guidelines, governance frameworks and perhaps eventually codes of good or best practice is not just an empty declaration of intent, independent monitoring of the extent to which they are adhered to will be critical. The impact in terms of changed behavior of simply making information on performance or compliance public is evident from recent initiatives such as the World Bank’s ‘Doing Business Indicators’ program, which regularly publicizes information on performance within and across countries. Investing firms and supporting governments are likely to be equally concerned about their reputation. Civil society can have an important role in helping local people to get heard, thereby strengthening investors’ and source countries’ resolve to agree on and move towards implementation of verifiable standards of responsible performance. And of course, recipient countries want to make sure that approved investments are succeeding.
 

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