...the demand for land has been enormous. Compared to an average annual expansion of global agricultural land of less than 4 million hectares before 2008, approximately 56 million hectares worth of large-scale farmland deals were announced even before the end of 2009. More than 70 percent of such demand has been in Africa; countries such as Ethiopia, Mozambique, and Sudan have transferred millions of hectares to investors in recent years.
At the same time, in many cases the announced deals have never been implemented. Risks are often large. Plans are scaled back due to a variety of reasons including unrealistic objectives, price changes, and inadequate infrastructure, technology, and institutions. For example, we found that actual farming has so far only started on 21 percent of the announced deals. Moreover, case studies demonstrate that even some of the profitable projects do not generate satisfactory local benefits, while, of course, none of the unprofitable or nonoperational ones do.
Institutional gaps at the country level can be immense. Too often, they have included a lack of documented rights claimed by local people and weak consultation processes that have led to uncompensated loss of land rights, especially by vulnerable groups; a limited capacity to assess a proposed project’s technical and economic viability; and a limited capacity to assess or enforce environmental and social safeguards.

The 2007–08 boom in food prices and the subsequent period of relatively high and volatile prices reminded many import-dependent countries of their vulnerability to food insecurity and prompted them to seek opportunities to secure food supplies overseas. Together with the reduced attractiveness of other assets due to the financial crisis, the boom led to a “rediscovery” of the agricultural sector by different types of investors and a wave of interest in land acquisitions in developing countries. With little empirical data about the magnitude of this phenomenon, opinions about its implications are divided.
Some see it as an opportunity to reverse long-standing underinvestment in agriculture that could allow land-abundant countries to gain access to better technology and more jobs for poor farmers and other rural citizens. If managed well, new investments in agriculture could help create the preconditions for sustained, broad-based development.
Others say that an eagerness to attract investors in an environment where state capacity is weak, property rights ill-defined, and regulatory institutions starved of resources could lead to projects that fail to provide benefits, for example, because they are socially, technically, or financially nonviable. Such failure could result in conflict, environmental damage, and a resource curse that, although benefiting a few, could leave a legacy of inequality and resource degradation.

On the demand side, three broad groups of actors can be distinguished.
A first group includes governments from countries initiating investments, which, especially in the wake of the 2007–08 food crisis, are concerned about their inability to provide food from domestic resources.
A second group of relevant players are financial entities, which in the current environment find attractive attributes in land-based investments. These include the likely appreciation of land, the scope to use it as an inflation hedge, and the projection of secure returns from land far in the future, something of great importance for pension funds with a long horizon. Although land markets are quite illiquid, some of the more active investors might also benefit from steps to improve the functioning of land markets and, in some cases, use sophisticated quantitative techniques to identify undervalued land.
Third, with greater concentration in agro-processing and technical advances that favor larger operations, traditional agricultural or agro-industrial operators or traders may have an incentive to either expand the scale of operations or integrate forward or backward and acquire land, though not always through purchases.

Land acquisition has evolved over time with variations across regions and commodities in the balance between area expansion and intensification, the role of large-scale and small-scale farming, and the resulting social and environmental impacts. To set the context for recent processes of large-scale land acquisition, this chapter discusses three issues.
■ It identifies the magnitude and key drivers of demand growth and area expansion in major commodities over the last decade and reviews estimates of how these may evolve in the near and medium terms. Land expansion, much of it through commercial farming in owner-operated units, is not new and is expected to continue. Given their relative land abundance, such land expansion is likely to be concentrated in Sub-Saharan Africa and Latin America and the Caribbean.
■ To illustrate how natural endowments (such as climate or terrain), infrastructure, technology, and institutions affected nature and social as well as economic impacts of land expansion across the main regions, it differentiates structural change in the agricultural sector by region and reviews largescale cultivation trends across regions.
■ To provide the basis for assessing social impacts, it reviews key determinants of the structure of agricultural production—particularly the factors determining the competitiveness of owner-operated family farms and large corporate units—and the implications for determining fair land values and integrating large-scale agricultural investment into country strategies.

As chapter 1 highlighted, the expansion of cultivated areas through markets continues to be important in many regions. The jump in investment following the 2008 food price hike also affected countries not traditionally considered viable targets. To understand this “land rush” and the factors shaping it, we used three methods.
■ To characterize the demand for land from potential investors that may not (yet) have resulted in projects on the ground, we coded press reports on agreed or contemplated private investments. We find that putative investments have a strong focus on Africa, most of them have not started any work on the ground, and having weak land governance and poor recognition of local land rights is associated with increased investor interest in a country as evidenced by press reports.
■ To assess what is happening on the ground and governments’ awareness, we use official inventories of land transactions for 14 countries that featured prominently in press reports. Procedurally, we find that unclear responsibilities, lack of staff and capacity (and little outsourcing), poor land records, low payments (for example, for land and/or taxes), and limited emphasis on consultation, economic viability, and social and environmental criteria all reduce target countries’ ability to regulate investments and protect local property rights. These imply large implementation gaps and lower than expected generation of assets and employment. While local investors are more prevalent than foreign ones, policy is a main determinant of the volume of transactions.
■ To determine how actual livelihoods are affected, we conducted case studies of 19 projects in the field.We find that in many of the countries affected, public agencies lack the tools and capacity necessary to implement regulations or to monitor compliance. Negative impacts arise if local land and resource rights are unclear, if investors’ lack of capacity or unrealistic expectations lead to nonviable projects, and if responsibilities agreed to in consultations are not recorded and enforced. Case studies also demonstrate that well-executed projects can generate large benefits, which can then be shared with local people through provision of public goods, employment, access to markets and technology, or taxes paid by investors to local or national governments.

For an accurate assessment of future trends in land use, it is important to look at supply as well as demand (Hertel 2010). By focusing only on demand, many analyses of large land acquisition to date are investorcentric rather than country-oriented. This risks creating the impression that large land acquisition is inevitable or an end in itself rather than exploring how investments can help countries achieve their development goals most effectively. A country-level assessment of rainfed land resources available, the effectiveness with which these are used, and ways to move closer to utilizing the productive potential of these resources, has three advantages:
■ It highlights that large-scale land acquisition is only one of many options, the desirability of which has to be weighed against that of alternatives to increase output and improve smallholder welfare.
■ It highlights that, even if unused land is available, investors are likely to make socially optimal land use decisions only if current uses are appropriately compensated and if external effects are considered.
■ Having an independent assessment of land suitability to identify hotspots where investor interest may materialize in the future will allow countries to take measures in anticipation of such interest and can also provide a yardstick to assess whether investors do indeed focus on the most productive land.

The discussion thus far suggests that land potentially suitable for rainfed agriculture (both currently cultivated and not) where investment could generate considerable benefits is available in some countries but also that such investment invariably entails high risks. Experience highlights that policies are needed to ensure that private sector decisions properly account for potential external effects. It also suggests that, therefore, the extent to which available potential will be realized—and the associated benefits accrue to local populations and contribute to poverty reduction—will depend on the policy and institutional environment.

The previous chapters indicate that land acquisition and associated large-scale investment in countries that have not traditionally been targeted by such investment needs to overcome technical and economic challenges and that, in many instances, limited recognition of local rights, highly centralized approval processes, and gaps in institutional capacity further increase the associated risks. These challenges notwithstanding, host countries have an opportunity to use investor interest to help them utilize the resources at their disposal in a way that can increase smallholder productivity and improve local livelihoods. To do so, it will be necessary for different stakeholders to work together to not only address the risks described in more detail earlier in this report, but also to interact at the country level to create awareness of policy frameworks, monitor actual ventures, and adapt policies in light of new experience. This is important because policies need to be adapted to the specific reality of every country while being flexible enough to be able to respond to evolving experience and changes in the broader environment.