Deutsche Bank DB Research
Foreign investments in farmland
Risks, opportunities,“win-win-win” strategies
August 28, 2013
Deutsche Bank DB Research Dr. Claire Schaffnit-Chatterjee Aug 28, 2013
There is a global rush for land
Large-scale land acquisitions for agriculture
90 80 70 60 50 40 30 20 10 0 Total reliable+reported Only reported Reported as signed Reliably reported as signed Reliably reported as under production Reported as under prroduction Reliable 1.400 1.200 1.000 800 600 400 200 0
Pace of global land acquisitions
Million hectares reported
30
25
20
15
10
5
Ha, million (left)
Number of deals (right) 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
1
Sources: Land Matrix, DB Research
Source: Land Matrix
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013
High concentration with strong interest in Africa
Land acquisitions by regions
Cumulative size of deals, million hectares
Land acquisitions by sub-regions
Cumulative size of deals, million hectares
Eastern Africa
Africa South Eastern Asia Northern Africa Western Africa Americas South America Central Africa Europe/Oceania Eastern Europe 0 10 20 30 40 50 60 0 5 10 15 20 25 30 35
Asia
Source: Land Mtrix, Asmussen et al..
Source: Land Matrix, Anseeuw et all.
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 2
Forests, grassland and cropland
Share of area acquired by land cover class, %
Other* 18 Marginal land 2
Cropland 22
Grassland 27
Forest land 31
* Other refers mostly to bare land Source: Land Matrix, Globcover, ESA
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 3
Former use
Former land use of acquired land
Former legal land owner
Commercial agriculture 3 Forest/conservation 7 Common pool 16 Smallholder agriculture 56
Private company 11
Community 14 State 51
Smallholder (private) 14
Note: Based on 82 observations Source: Land Matrix, Anseeuw et al.
Note: Based on 90 observations Source: Land Matrix, Anseeuw etal.
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 4
Close to cities or far away
Accessibility of land deal locations
% area in target countries, by travel time to next city 0-1h 1-2h 2-3h 3-4h 4-5h 5-6h 6-7h 7-8h 8-9h over 9h 0 2 4 6 8 10 12 14 16 18
Source: Land Matrix, Anseeuw et all.
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 5
Both private and public actors
Three broad groups of economic players in agricultural land: - Governments eager to secure food and energy supplies - Agricultural companies - Financial investors
Types of investors
Million ha
PPP Investment 0,6 fund 3.3 3,3
11,5
Public/ state owned
Private companies
30,3
Sources: Land Matrix, DB Research
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 6
Financial investors
— In the past mostly: - wealthy individuals
- family offices - endowments
— Have entered: pension funds and hedge funds
Long-term returns for a growing number of retired people
— Regional distribution of investor types
Mostly private from America and Europe, mostly public in the Gulf States
— Partnerships
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 7
Origin of investment: Emerging countries (increasingly), Gulf states and the North
The origin of investment - top 20 countries
Million ha 14 12 10 8 6 4 2 0 Italy South Africa Australia India South Korea Singapore Saudi Arabia Great Britain Argentina
8
Reliable
Only reported
Malaysia
Canada
Source: Land Matrix, Anseeuw et al.
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013
Sweden
Norway
Japan
Brazil
UAE
USA
China
Egypt
Qatar
Agriculture is the main objective
Future use of land over sectors
Million ha Conservation 0,3 Industry 0,3 Tourism 2,3 Mining 3,9 Livestock 0,4 Forestry 3,1
No information 12,8
Agriculture 82,9
Source: Land Matrix
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 9
Agenda
1 2 3 4
The global rush for land Drivers of investment in farmland Risks and opportunities Win-win-win strategies
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 10
Strong fundamentals: a tight supply/demand balance
1. Increasing demand
— Growing world population (7 bn now, 9 bn in 2050 – developing countries, urban areas) — Rising incomes in developing countries Increased consumption of resource-intensive foods like meat — Increasing use of biofuels
2. Constrained supply
— Water — Energy — Climate change
Securing food and agricultural products Interest in water
Deutsche Bank DB Research Dr. Claire Schaffnit-Chatterjee Aug 28, 2013 11
Increasing cultivated land to grow production
Evolution of land under irrigated and rainfed cropping
1.600 1.400 1.200 1.000 800 600 400 200 0 1961 1965 1970 1975 1980 1985 1990 1995 2000 2005 2008 0,25 0,20 0,40 0,35 0,30 0,50 0,45
Rainfed, m hectares (left)
Sources: FAO, DB Research
Irrigated, m hectares (left)
Cropland per person, hectares per person (right)
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 12
Potential supply of farmland
Arable and cultivated land across regions
Million ha
1.200 1.000
Potential supply of land available
Million ha
SSA 202
LatAm 800 East Europe and Central Asia 600 East and South Asia 400 200 0 OECD LAM SSA MENA FSU Asia 0
Sources: World Bank, DB Research
123
52
14
MENA
3
Rest Cultivated land Arable land 50
51 100 150 200 250
Sources: B. Dorin, FAO, DB Research
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 13
Output growth – Limited yield increases
Uneven yield increases across regions
Plant food production per ha of cultivated land, kcal/ha/day
30.000
Decades of underinvestment in ag. R&D and rural infrastructure Limited access to inputs and credit Some regions were bypassed by the Green Revolution
LAM
25.000
Asia
20.000 OECD 15.000 MENA
Small farms in most parts of Africa,
10.000
SSA FSU
also in Asia offer huge opportunities for productivity gains and yield improvements
5.000 1961
1971
1981
1991
2001
Source: FAO, B. Dorin (Inra-Cirad)
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 14
A profitable investment
1. Good prospects of achieving income through rising agricultural productivity 2. Rising prices of agricultural land 3. Portfolio diversification 4. Hedge against inflation
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 15
Food, non-food and flex crops
Future use of land acquired
Share of total area
Significant driver: Energy crops
Other 21% Multiple use 17% Food crops 31% Biofuels 21% Food crops 37%
Flex crops 26% Non-food crops 26%
Cash crops 21%
Other: forest, livestocvk area or hunting ground Sources: Land Matrix, DB Research Sources: World Bank, DB Research
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 16
Agenda
1 2 3 4
The global rush for land Drivers of investment in farmland Risks and opportunities Win-win-win strategies
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 17
Risks associated with large-scale land acquisitions
- Agricultural production (agronomy, bad weather) - Volatile commodity prices - Political risk - Economic and social rights of local populations - Environmental sustainability - One-sided agricultural development
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 18
Economic and social rights of local populations
Involvement of the community
Number of cases
Not consulted 51
- Food security
A concern in case of food export or nonfood production in food-insecure countries
Limited consultation
29
Prior and informed consent 0
6 10 20 30 40 50 60
86 projects, including non-agricultural deals Sources: Land Matrix, DB Research
- Conflicting land claims in a context of weak land governance - Compensation and evictions
Reported evictions
Number of cases
Up to 999 evictions 1,000 to 2,499 2,500 to 4,999 5,000 to 10,000 more than 10,000
Based on 40 projects Sources: Land Matrix, DB Research
15 5 4 6 10 0 5 10 15 20
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 19
Environmental sustainability Agricultural development
Annual loss of arable land, 1961-2009
Square meters per year per capita
- Land degradation - Overexploitation of land
Sub-Saharan Africa
World
- Loss of “virtual water” - Forests destruction
South Asia
LatAm and Caribbean
Southeast Asia 0 20 40 60 80
- Small-scale vs large-scale farming - Loss of biodiversity
Sources: IFPRI, FAO, DB Research
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 20
Opportunities from investing in farmland
Reported benefits of investments
Number of projects
Infrastructure improvement Financial support Capacity building Environmental protection 0
Based on 117 projects Sources; Land Matrix, DB Research
90 30 23 3 20 40 60 80 100
- Returns to the investor - Local economic benefits
See charts
- Country-level benefits
- Economic growth - Export revenues - Workers’ skills and income - Food security
Projects with domestic job creation
Number of projects
up to 99 jobs 100 to 499 500 to 999 1,000 to 2499 2,500 to 5,000 more than 5,000
Based on 89 projects Sources: Land Matrix, DB Research
14 13 12 14 11 25 0 10 20 30
- Global food security
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 21
Opportunities for yield improvements
Wheat yields- Top 12 producers
2005-2010 average
6 5 4 3 2 1 0 Turkey Kazakhstan Pakistan Iran Australia Canada Ukraine Russia EU India China US 16 14 12 10 8 6 4 2 0
Corn yields - Top 12 producers
2005-2010 average
12 10 8 15 6 10 4 2 0 Argentina Ukkraine South Africa Indonesia
22
25 20
5 0 EU Canada Nigeria Brazil China India US Mexico
Yields tons/ha (left)
Sources: USDA, DB Research
% global acreage (right)
Yields tons/ha (left)
Sources: USDA, DB Research
% global acreage (right)
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013
Agenda
1 2 3 4
The global rush for land Drivers of investment in farmland Risks and opportunities Win-win-win strategies
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 23
Minimizing risks, maximizing local benefits Key role of investors
— Improved governance — Security of land tenure — Involve local farmers (and businesses): informing initially
project transparency
— Collaborative business models between small farmers and investors: contract farming, joint ventures boost agricultural productivity while reducing poverty and hunger
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 24
Principles for responsible investment
Principles for responsible agro-investment (RAI) Land and resource rights Food security Transparency, good governance and enabling environment Consultation and participation Economic viability and responsible agroenterprise investing Social sustainability Environmental sustainability
Source: RAI, Knowledge exchange platform developed with The World Bank, FAO, UNCTAD, IFAD
Principles for responsible investment in farmland (PRI) Promoting environmental sustainability Respecting labour and human rights Respecting existing land and resource rights Upholding high business and ethical standards Reporting on activities and progress towards implementing and promoting the principles
Source : UNPRI (2011)
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 25
Positive private investment in agriculture
— A strong case for private investment in agriculture
USD 83 bn needed per year to feed the world in 2050
— Enormous potential yield gains
None of the countries of interest to large investors in Africa reaches 25% of its potential yield
— Role for both smallholder and large scale agriculture
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 26
Publications
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 27
Visit us at: www.dbresearch.com
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Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 28
Thank you for your attention!
Dr. Claire Schaffnit-Chatterjee
[email protected] 069 910 31821 www.dbresearch.de
Deutsche Bank DB Research
Dr. Claire Schaffnit-Chatterjee
Aug 28, 2013 29
Disclaimer
© Copyright 2013. Deutsche Bank AG, DB Research, 60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht. In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange regulated by the Financial Services Authority for the conduct of investment business in the UK. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. .
Deutsche Bank DB Research Dr. Claire Schaffnit-Chatterjee Aug 28, 2013 30