From Land Grab to Land Development: A Forgotten Role for Private Investment

Derek Byerlee (Georgetown U)Will Masters (Tufts U)

Daniel Robinson (Tufts U)25th March, 2015

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Transformative role of investment in land development (LD) overlooked in recent debates

Large investments per ha that greatly increase the productivity and value of land (e.g., irrigation)

Often significant economies of scale in development phase

But not usually economies of scale in farm operation phase

LD often subsidized/managed by the state but lack of resources and capacity

Historically successful private sector examples

Invested in land development but operated by family farms

Motivation

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1. Medium to large-scale irrigation

Economies of scale in building infrastructure 2. Some types of frontier expansion

Land clearing, soil amendments, pioneering experimentation, transactions cost for land acquisition, environmental compliance

3. Some types of plantations

Bulky products with quick processing require investments in roads and a mill

All with high upfront capital costs

Types of Land Development with Economies of Scale

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Options for Land Development Farm Operations

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InvestorInvestor

(few crops)

Land Development Phase (Economies of scale)

Farm Operation Phase (Few economies of scale)

Family farms

Hybrids (Nucleus-outgrower

Global capital and knowledge

Private Irrigation Schemes

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Historical Role of Private Investment

Late 19th century development of irrigation in US, Australia, Thailand• Private land & water

development• Concessions often

stipulated max size family farm operations

Investor profits based on land sales

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Development of Renmark Irrigation Scheme, Australia,1890s

Brazil, Peru, AustraliaHigh investment costs—often > $10,000/haLess focus now on family farmsHowever, Chinese investment in Oz

negotiated with indigenous groups ($50 M) Africa

Sugarcane with outgrowersRice but most large-scale operationsPPPs with smallholders (Zambia)

Contemporary Private Irrigation Schemes

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Land Development in Savannah Frontiers

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Historical—Private Settlement of Family Farmers

Land development and settlement• North Parana Land

Co (1.25 Mha)-1932-67

• Colonization companies for the Cerrado in 1970s & 80s

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AMP Land Development, Sth Aust, 1949-64• 340K ha of infertile

soils• Investment in soil

amendments, land clearing and improved pastures

• Objective to create family farms 6% return to company

Contemporary ExamplesBRAZIL SAVANNAH AREAS, AFRICA

Large land development companies in Brazil• BrasilAgro• SLC LandCo

Capital and knowledge for LD• $2,000-4,000/ha for LD• Purely market based and

results in more unequal land ownership

Infrastructural corridors searching for a model for private investment in land development• Inclusive of in situ

smallholders?• Potential for in-migrant

settlement of smallholders in low density areas

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Private land development often more successful than state schemes

Clear economies of scale in LD Many have been transformative—vibrant

family farm agriculture

But significant risks to investors and farmersCreates an immobile asset

Regulatory role of the state critical to create family farm agrarian structureBut often high costs to indigenous groups

Lessons from History

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Recognize that much land unproductive without significant investmentWon’t happen without private K

Recognize economies of scale for LD but not for farm operationDesign contracts and business models to

focus on investment in LD & turn over to smallholders

Balance deals with in situ smallholders with potential for in-migrant smallholders

Policy Implications for Today

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Extra

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Increase in land productivity from land development

  High Low

Products suitable for family farm operation (most)

Land development Investor Family farms

Farm operations

Family farm in situ & settlers

Nucleus-outgrowerFamily farms

Products suitable for large farm operation (e.g., s/cane, oil palm)

Land development Investor Not applicable

Farm operations

InvestorNucleus-

outgrower, contract

Extensive cattle operations

Typology of Land Development and Farm Operation

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