Foreign Investments in Farmland

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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

Deutsche Bank DB Research

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

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