The Future of CDC

Written evidence submitted by Michiel Timmerman

This statement supplements the oral evidence provided, at the request of the Chairman.

Potential for agricultural investment by CDC

There has been very substantial commercial investment in agriculture in lower-income income countries over the last 5 years, driven by a number of factors. These include (1) a desire to improve food security by emerging market countries as economic growth results in increased wealth and demand for protein and general consumption of foodstuffs; (2) a consequent desire to improve food security by net food-importing countries; (3) attractive yields and portfolio diversification from farmland for financial investors in a low interest rate environment; (4) sharp rises in food prices in the 2007-08 boom and again in 2010 and into 2011. These trends continue to drive demand for agricultural land today and have resulted in sovereign wealth and investment funds buy up large tracts of land, particularly in Latin America (Brazil’s cerrado region) and in Eastern Europe. These regions are targeted because of the availability of large blocs of farmland at relatively low prices, compared to western farmland, the ability to maximise yields through large scale, mechanised cultivation, sometimes weak land governance and in some cases (eg Brazil) government support and infrastructure development.

Investors have more recently turned to Africa, where there are large areas of suitable farmland available. According to press reports, investors expressed an interest in 42 million ha globally after the 2008 commodity boom, of which 75% was in sub-Saharan Africa. Put in context, this is nearly 10% of the total 446 million ha estimated of uncultivated land available globally (Rising Global Interest in Farmland, World Bank 7 September 2010).

Unlike Eastern Europe, where large farms are available from private or former state entities, and Brazil where the cerrado region was sparsely populated, many areas of African farmland are farmed, with poor quality title, by smallholders or otherwise used by the local population. Many African countries display weak state capacity, poorly defined property rights and weak enforcement of any property laws which do exist. This creates a substantial risk that the foreign investors’ appetite for farmland can result in the displacement of the local population and the use of large scale, mechanised agricultural practices, as in Brazil and Eastern Europe. Yet with appropriate training, provision of infrastructure and processing equipment and other investment such as seed research, smallholder-based or small-holder inclusive models of agriculture can be very successful (Awakening Africa’s Sleeping Giant, World Bank 2009). Such an approach can have a substantial impact on rural poverty by improving rural incomes, which as currently at extremely low levels. It is also likely to enhance local food security as in many cases large scale agricultural production is focused on export crops.

CDC should be examining the potential for making a positive financial return while at the same time alleviating poverty by investing in smallholder-centric agricultural schemes. There are many examples of success in such schemes, for example smallholder rice production in Thailand (op cit, World Bank 2009) and small-holder based models for coffee and cocoa production, processing and export in Tanzania.

Such an approach will have the added benefit of providing competition to the financial and foreign sovereign purchasers of agricultural land and providing an alternative, pro-poor model for agricultural development.

26 January 2011