Foreign Investment and Land Acquisitions in Eastern Europe: Implications for Africa Presented by Jo Swinnen at the AGRODEP Workshop on Foreign Direct Investment and Land Markets: Challenges and Opportunities for Africa June 8, 2011 • Dakar, Senegal For more information on the workshop or to see the latest version of this presentation visit: http://www.agrodep.org/first-annual-workshop

1. Foreign Investment and Land
Acquisitions in
Eastern Europe:
Implications for Africa
Presented by:
Jo Swinnen
LICOS Centre for Institutions & Economic
Performance KU Leuven &
Centre for European Policy Studies (CEPS)
www.agrodep.org
AGRODEP Workshop on Foreign Direct Investment and
Land Markets: Challenges and Opportunities for Africa
June 8, 2011 • Dakar, Senegal
Please check the latest version of this presentation on:
http://www.agrodep.org/first-annual-workshop

2. Foreign Investment and Land
Acquisitions in Eastern Europe :
A iii i E E
Implications for Africa
p
JO SWINNEN
LICOS Centre for Institutions & Economic Performance
f i i & i f
KU Leuven
&
Centre for European Policy Studies (CEPS)
AGRODEP ‐ IFPRI Conference, June 2011, Dakar Senegal

3. outline
• CEE vs SSA : similarities & differences
• Land FDI in CEE, concerns & policies
d i C & li i
• FDI Spillovers (capital, technology &
productivity)
• An Example of “Land Grabbing” from Senegal
p g g

4. Similarities between CEE & SSA
Similarities between CEE & SSA
• Major shock induces rapid FDI inflow
Major shock induces rapid FDI inflow
• Major income gaps with “FDI source countries”
• Underperforming agri‐food system
d f i if d
• Undercapitalized, low technology, know‐how, …
• Need for integration in international markets
• Poorly developed land rights
Poorly developed land rights
• Poor/not functioning land markets

5. Differences
CEE :
CEE :
• higher incomes;
• Better infrastructure & human capital
Better infrastructure & human capital
• FDI to (also) supply local markets
• FDI i
FDI primarily in food industry and agribusiness
il i f d i d t d ib i
• Objections from farmers and land owners
• Objections initially driven by ethnic/border
disputes

7. FDI in agriculture (EURO MN)
1000 Abania
Bulgaria
900
Czech R bli
C h Republic
800
Estonia
700 Croatia
Hungary
H
600
Lithuania
500 Latvia
400 Macedonia
M d i
Poland
300
Romania
200 Russia
R ssia
100 Slovenia
Slovakia
0
Ukraine
2003 2004 2005 2006 2007 2008 2009

8. Yearly inflows of FDI (million US $) per region, 1970 – 2006
1600000
Africa
1400000
1200000 Latin America and
Carribean
1000000
Asia and Oceania
800000
600000
Transition countries
400000
200000 Developed countries
0
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
197
197
197
197
197
198
198
198
198
198
199
199
199
199
199
200
200
200
200
Source: Calculated from UNCTAD

9. FDI stocks as percentage of GDP, 1980 – 2006
40
35 Developed Countries
p
30
Africa
25
20 Latin America and the
Caribbean
15
Asia and Oceania
O
10
5 Transition Countries
0
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Source: Calculated from UNCTAD

10. FDI flows compared to ODA flows to developing countries
1970 ‐ 2006
Resource flows to developing countries ((US $ billion))
p g
1970 1975 1980 1985 1990 1995 2000 2003 2006
FDI 3.9
39 9.7
97 7.7
77 14.2
14 2 35.9
35 9 116.0
116 0 256.1
256 1 178.7
178 7 379.1
379 1
ODA 5.4 9.2 17.0 21.2 38.5 40.5 36.1 49.7 77.0
Source: Calculated from UNCTAD

11. Industries offering the best opportunities for FDI in SSA
Source: UNCTAD

12. Foreign acquisition of land in CEE
Foreign acquisition of land in CEE
• Objections particularly strong where ethnic/border
disputes
• Not a major issue, until EU Accession:
– Single market regulation since 1992 in EU
g g
– In principle, removes any objection against foreign
ownership of land (part of capital market regulations !)
• => temporary derogations
p y g

13. Legal restrictions
Legal restrictions
1. Aft EU
After EU accession, foreigners can not purchase agricultural
i f i t h i lt l
land for a transitional period in the NMS7.
2. The transitional period is 7 years (12 years for Poland).
h ii l i di ( f l d)
3. There are differences between the NMS7 in the
implementation of these restrictions
1. in the way ‘foreigners’ are defined
2. in conditions for foreigners to acquire land
4. There are generally no restrictions on renting agricultural land
to foreigners.

14. Conceptual issues
• Land transactions stimulate development by:
•Shifting land to most productive users
•Allow the exchange of land when the off‐farm
economy develops
d l
•Facilitate the use of land as collateral
• Hence, in principle, any restrictions that
p p y
constrain land exchanges and the optimal
development of the land market would also
p
negatively affect development.

15. • To what extent is the restrictions on foreign
ownership really affecting the efficiency of land
ownership really affecting the efficiency of land
exchanges and of land allocations, and
productivity growth?
– Look at broader perspective of a variety of factors that
affect the functioning of land markets, in general and in
the NMS7 more specifically.
p y
• Restrictions on foreign OWNERSHIP, not on USE
• Other factors affect land transactions
 Constraints in other markets (eg credit)
 Transaction costs
 Imperfect property rights
 Spill‐over effects !!

16. Land sales versus land rental
Land sales versus land rental
• Are restrictions on ownership important for land
Are restrictions on ownership important for land
use ?
• How important is land ownership in land use?
p p

17. Share of rented land (%)
2005 2007
Slovakia 91 89
Czech Republic 86 83
Malta 80 81
Bulgaria 76 79
France
F 72 74
Belgium 67 67
Germany 62 62
Luxembourg 54 57
Hungary 57 56
Cyprus 50 54
Estonia 48 50
Lithuania 53 48
Sweden 40 39
Finland 34 34
Greece 32 32
United Kingdom 31 32
Denmark 25 29
Slovenia 30 29
Italy
It l 23 28
Austria 26 27
Spain 28 27
Latvia 24 27
Netherlands 26 25
Portugal 24 23
Poland 20 20
Ireland 18 18
Romania 14 17

18. Land Tenure and Farm Structures
(% single holder in land use)
(% single holder in land use)
2003 2005 2007
Ireland 100 100 100
Greece 100 100 100
Luxembourg 100 100 100
Denmark
D k 97 98 95
Slovenia 94 95 95
Norway 96 95 94
Malta 92 93 93
Netherlands 92 92 93
Cyprus
C 93 93 92
Finland 93 92 91
Latvia 89 90 91
Belgium 92 92 90
Poland 88 90 90
United Ki d
U it d Kingdom 89 85 87
Italy 88 82 87
Lithuania 88 88 86
Sweden 81 82 81
Austria 83 83 81
Portugal
P t l 77 75 72
Germany 69 69 68
Spain 69 69 68
Romania 55 65 65
Estonia 59 56 52
Hungary 50 49 48
Bulgaria 42 47 47
France 54 50 46
Czech Republic 28 29 29
Slovakia 15 18 20

19. Land Tenure and Farm Structures
in Romania
i i
100
Sh are o wn ed l an d in to tal u sed lan d (% )
%
90
80
70
60
50
40
30
20
10
h
0
less than 1-2 ha 2-5 ha 5-10 ha 10-20 ha 20-30 ha 30-50 ha 50-100 ha More
1 ha than 100
ha
h
Farm size

20. EURO/ha
0,00
5000,00
10000,00
15000,00
20000,00
25000,00
30000,00
30000 00
35000,00
40000,00
45000,00
Belgium-20
006
Denmark-20 07
Germany-20 06
Ireland-20 05
Spain-20 08
Italy-20 01
Lu
uxembourg-20
008
Malta-20 08
Ne
etherlands-200
08
Finland-20 08
Agricultral land sales prices*
08
Sweden-200
United Kingdom-20
d 008
Czech Republic-20
008
Latvia-20 08
008
Lithuania-20
Slovakia-20
008
Bulgaria-20
008
Land sales prices in the EU 27
Land sales prices in the EU‐27
Romania-20
008

21. CEE land prices and EU Accession
CEE land prices and EU Accession
Agricultural land sales prices - Romania
140.00
1600
120.00
1400
100.00
1200
Euro/ha
80.00
1000
60.00
EURO/ha
800
40.00
600 Bulgaria (rental)
20.00
400
200
0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008
0
999
1999 2000
000 2001
00 2002
00 2003
003 2004
00 2005
005 2006
006 2007
007 2008
008 2009
009
Agricultural land sales price- Lithuania
Agricultural land sales price - Latvia
2400
450.0
400.0 2200
350.0
2000
300.0
250.0 1800
200.0 1600
150.0
1400
100.0
50.0 1200
0.0
1000
2000 2001 2002 2003 2004 2005 2006
2000 2001 2002 2003 2004 2005 2006
Real Prices - Lats/ha
Real Price - LTL/ha

22. Our conclusion
Our conclusion
• Nature of land contracts:
Nature of land contracts:
– equilibrium between security of operation and
allowing for adjustments to reflect changes in
allowing for adjustments to reflect changes in
market conditions
– Multiple equilibria ? May depend on local
Multiple equilibria ? May depend on local
institutions etc

23. Our conclusion
Our conclusion
If political/social opposition too strong for full liberalization:
• Propose moderate changes
– Politically least sensitive
y
– Economically most effective
• Examples:
– Increase minimal size which one can easily acquire (Estonian model)
– Allow non‐land operation to be purchased
– Establish transparent (and enforceable) medium term rental contracts
p ( )
for rest of the land…
• Both cases would avoid issue of “foreign take‐over” of rural
g
areas, but would allow foreing farms to develop based on more
efficient “owned/rented” balance

24. Major difference between SSA and CEE
• Spill‐over effects of FDI and technology
Spill over effects of FDI and technology
transfer etc occur via FDI in Agribusiness and
Food Industry
Food Industry
• H
Huge in agribusiness and food industry FDI in
i ib i df di d FDI i
CEE through supply chain restructuring & VC
• => may affect optimal policies !
y p p

26. FDI & Supply Chain Restructuring
(Vertical Coordination)
• Problem: processors/traders/retailers face lack of
supplies, because farms are not able to supply
the type/quality of products required
• Reason: factor(*) market constraints (inputs,
credit, technology, …)
• Solution requires some form of contracting :
– Price/quality
– Supplier assistance : inputs, technology, extension
services, management, …
» (*) output market with agribusiness
( ) p g

27. “Vertical coordination” includes :
Vertical coordination
• Input supply programs
• Trade credit
• Investment assistance program
• Bank loan guarantee programs
• Extension services (technology and
management)
• .....
Variations reflect market
imperfections, investment security, …

28. Some Examples of
Contracting Models
d l

29. Proces./Retail – guaranteed supplier loans:
JUHOSUKOR in Slovakia
i Sl ki
& KONZUM in Croatia
Retail/Processing Co.
• Retailer/processor
provides loan
Farm guarantees f b k
for bank
loans to suppliers
Bank

30. Leasing dairy equipment by joint project
Wimm Bill Dann -- De Laval in Russia
Processor
Project Farm
Equipment Seller
q p

31. Dairy Processor Becomes Financial
Institution: DANONE i Romania
I tit ti in R i
• Processor takes on
Processing banking function:
– provides loans to
p
farms
– based on business
plans
Farm
– takes collateral
• Provides payment
Bank Input Supplier guarantee for input
suppliers

32. Efficiency Effects
• Important Direct Effects :
– Enhanced QUALITY (& higher PRICES)
– Increased PRODUCTIVITY
– Increased INVESTMENTS
• Important Indirect Effects: Spillovers
– Contract replication by other companies
– Farm assistance replication
– Household level spillovers

33. Change in Quality
g Q y
Dairy in Poland 1996-2001
100
otal (%)
90
80 Mlekpol
p
Share of Extra Class Milk in To
70 Mleczarnia
60
Kurpie
50
Mazowsze
M
s
40
30 ICC Paslek
20 Warmia Dairy
E
10
0
1996 1998 2001
S

34. Effect on Investment :
Farm cooling equipment in Poland
1995-2003
100
90
Share of suppliers with own c.t. (%)
80
70
60 Mlekpol
h
Lowicze
50
Mazowsze
40 Kurpie
s
30
20
10
0
1995 1998 2001 2003

35. Impact on LOANS and Investment
Small farms in Polish Dairy sector
Size Invests Uses loan Uses dairy Uses bank
(# of (% of to invest loan loan
cows) total) (% of A) (% of B) (% of B)
A B C D
1-5 52 54 41 50
6-10 78 51 43 70
>10 92 74 43 75
ALL 76 58 43 69

36. VC farm assistance : Dairy companies
in CEE (Bulgaria, Slovakia Poland)
(Bulgaria Slovakia,
Credit Inputs Extension
p Vet. Bank Total
PL 50 67 50 0 50 43
1994 SK 0 0 83 17 17 23
BG 9 18 9 0 0 7
PL 83 100 83 17 83 73
1998 SK 17 17 83 17 33 33
BG 45 64 18 18 18 33
PL 83 100 83 17 83 73
2002 SK
S 100
00 33 83 17 50
0 57
BG 82 91 73 18 36 60

37. Farm assistance by food
companies in CIS
(Armenia, Georgia, Moldova, Russia, & Ukraine)
% of firms % of farms
Credit 43 51
Prompt payments 42 87
Physical inputs 36 53
Quality control 34 78
Agronomic Support 21 81
Farm loan guarantees 21 15
Investment loans 6 0

38. FDI in SSA Agric & Land :
g
A case from Senegal

39. Comparative Analysis: 3 Cases
Comparative Analysis: 3 Cases
Small
Small‐ Industry
Industry High value
High value
holders structure exports to
EU
Madagascar 100% Monopoly yes
green beans contract
Senegal green Mixed & Competition yes
beans changing
Senegal cherry 0% Monopoly yes
tomatoes

40. Senegal horticultural exports
30,000
25,000
xport volume (ton)
20,000
15,000
10,000
Ex
5,000
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Year
French bean Tomatoes Mango Other fruit & vegetables

41. Data
• Research area: Senegal River Delta
Research area: Senegal River Delta
• Firm level interviews (Sept 2005 and March 2006)
• Household survey (Febr April 2006)
Household survey (Febr‐April 2006)
– 2 rural communities
– 18 villages
18 villages
– 299 households
– Recall data (2001)
x

46. Worst Case Scenario ?
tomato export in Senegal
1. Poor country
2. FFV sector: Increasing standards (private and
2 FFV sector: Increasing standards (private and
public)
3. Extreme consolidation
Extreme consolidation
4. Foreign owned multinational company
5. Full vertical integration
5 Full vertical integration
6. Complete exclusion of smallholders
7. FDI of land ( Land grabbing )
7 FDI of land (“Land grabbing”)

47. Definition of Land Grabbing
Definition of “Land Grabbing”
1. Large scale land acquisition (purchase or lease) by
Large scale land acquisition (purchase or lease) by
foreign investor for agricultural prod.
2. Transnational commercial land transaction focusing
on commercial nature
3. Taking possession/control of scale of land which is
gp /
disproportionate in size to average land holdings in
the region

48. Data
• Research area: Senegal River Delta
h l l
• Firm level interviews (Sept 2005 and March 2006)
• Household survey (Febr‐April 2006)
– 2 rural communities
– 18 villages
18 ill
– 299 households
– Recall data (2001)
Recall data (2001)
x

49. Employment
S h a re o f h o u s e h o ld s 50%
40%
30%
20%
10%
0%
2003 2004 2005 2006
Year
Gandon
G d Ross Béthio
R Bé hi Total
T l
• More than 3000 workers employed in 2006
p y
• Almost 40% of households in the region have at least one
member employed by GDS

50. Household participation
Household participation
• No bias of employment towards better‐off or more
No bias of employment towards better off or more
educated households
• Bias towards households with smaller per capita
p p
landholdings

51. Income effects
2500
A v e ra ge tota l ho e hold in c om e
2000
(1 ,0 0 0 FC FA )
1500
ous
1000
500
0
Total sample Households with Households without
members employed in members employed in
the tomato export the tomato export
industry industry
Total income Income from tomato export industry wages
Income from farming Income from self-employment
Income from other wages Non-labour income

52. Poverty effects
50%
Sh are o f h o u seh o ld s
40%
h
30%
20%
10%
0%
Households without members Households with members
employed in the tomato export employed in the tomato export
industry industry
Poverty Extreme Poverty
• Poverty: 35% with vs 46% without employment
Poverty: 35% with vs. 46% without employment
• Extreme poverty: 6% with vs. 18% without
employment

53. Comparative Analysis: 3 Cases
Comparative Analysis: 3 Cases
Small
Small‐ Industry
Industry High value
High value
holders structure exports to
EU
Madagascar 100% Monopoly yes
green beans contract
Senegal green Mixed & Competition yes
beans changing
Senegal cherry 0% Monopoly yes
tomatoes

54. Contract motivations for farmers
Sub Sahara Africa
Madagasc.
Madagasc Senegal
Senegal
Reasons for contracting (%) 2004 2005
Stable prices
Stable prices 19 45
Higher income 17 15
Higher prices
g p 11
Guaranteed sales 66
Access to inputs & credit 60 63
Access new technologies 55 17
Stable income 66 30
Income during lean period 72 37
Source: Maertens et al., 2006; Minten et al., 2006

55. Effects on technology adoption,
income & land use (biodiversity)
• Land use in the off‐season on rice fields
• Vegetable export contributes for 47% to household
income
• Additional positive effect on hh income through
Additional positive effect on hh income through
• technology spillovers
• increased rice productivity (with 64%)
• Sharp improvement in food security
• Reduced pressure on forests

56. Table: Impact of vegetable contract‐farming on the length of the “hungry”
season in Madagascar
5
4
months
3
2
1
0
currently contracted contracted similar households
household households before wihtout contract
the contract
Source: Minten et al., 2009

57. Green beans in Senegal
Green beans in Senegal
• % rural household participation
60%
50%
40%
Employed
30% Contract
C t t
Participation
20%
10%
0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007

61. Income effects
A verag e h o u seh o l d in co m e (1,000 F C F A ) 7000
6000
5000
4000
3000
2000
1000
0
Total sample Non- Agro-industrial Contract
participants employees farmers
Total household income Income from farming
Income from agr. wages Income from non-agr. sources

62. Poverty effects
(Green beans in Senegal)
60
50
incidence of poverty
lds
40 incidence of extreme
% of househol
(food) poverty
30
20
10
0
Scenario "No Scenario Actual situation
exports" "Contract"
Source: Maertens and Swinnen, 2009

63. Gender effects
Female employment in Senegal horticulture export sector
Source: Maertens and Swinnen, 2009

64. Importance of female income in total household income
Case-study "Les Niayes" - all households Case-study "Senegal River Delta" - all households
Transfers Total income Transfers Total income
Male income Male income
Female income Female income
Self employment Self employment
Wages - other Wages - other
Wages - FFV export Wages - FFV export
industry industry
Farming Farming
0 500 1000 1500 2000 0 100 200 300 400 500
Household income (1,000 FCFA) Household income (1,000 FCFA)
Case-study "Les Niayes" - households employed in FFV export Case-study "Senagl River Delta" - households employed in the
industry FFV export industry
Transfers Total income Transfers Total income
Male income Male income
Self employment Female income Self employment Female income
Wages - other Wages - other
Wages - FFV export Wages - FFV export
industry industry
Farming Farming
0 200 400 600 800 1000 1200 1400 1600 0 200 400 600 800 1000 1200 1400
Household income (1,000 FCFA) Household income (1,000 FCFA)
Source: Maertens and Swinnen, 2009

65. In conclusion
In conclusion
• FDI is potentially major force for growth
FDI is potentially major force for growth
• Large‐scale foreign acquisition of land:
– Serious concerns and important opportunities
Serious concerns and important opportunities
– Efficiency and rent distribution
• Nature of land contracts:
– equilibrium between security of operation and allowing for
adjustments to reflect changes in market conditions
– Multiple equilibria ? May depend on local institutions etc
• Very little careful research – and hard to do it right
• Beware of the simplistic arguments

66. More info
1. Swinnen and Vranken, Land and EU Accession, Centre for European Policy Studies (freely
downloadable from www.ceps.eu)
2. Dries, L., Germenji, E., Noev, N. and J. Swinnen, 2009, “Farmers, Vertical Coordination, and the
Restructuring of the Dairy Sector in Central and Eastern Europe”, W ld D l
R i f h D i S i C l dE E ” World Development
3. Dries, L. and J. Swinnen, 2004, “Foreign Direct Investment, Vertical Integration and Local Suppliers:
Evidence from the Polish Dairy Sector”, World Development
4. Dries, L. and J. Swinnen, 2010, “The Impact of Interfirm Relations on Investments: Evidence from the
Polish Dairy Sector”, Food Policy
5. World Bank, 2005, The Dynamics of Vertical Coordination in the Agro Food Sectors of Europe and
World Bank, 2005, The Dynamics of Vertical Coordination in the Agro‐Food Sectors of Europe and
Central Asia, World Bank Publications
6. Maertens and Swinnen, 2009, “Standards, Trade, and Poverty”, World Development
7. Maertens and Swinnen, 2009, “Gender and Modern Food Supply Chains”, LICo Discussion Paper
(www.econ.kuleuven.be/licos)
8. Maertens, Colen and Swinnen, 2011, “Globalization and Development in Senegal: A Worst Case
Scenario ?”, European Review of Agricultural Economics
S i ?” E R i f A i lt l E i
9. Swinnen, 2007, Global Supply Chains, Standards & the Poor, CABI