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Business Activities / Agribusiness

FDI in agriculture: Why harvesting profits must be done with care

Food production is key to human survival, making FDI in agriculture both attractive and complicated due to its potential impact upon food security and climate change.

netherlands-agriculture-tech
At the PlantLab production hall in Amsterdam, the company grows crops in high-tech cultivation areas that no longer require daylight. Such innovation is making the Netherlands a leading location for agricultural FDI. (Photo by Remko De Waal/ANP/AFP via Getty Images)

The human need for nourishment makes foreign direct investment (FDI) in agriculture a tricky field to plough. Concerns over food security can lead to protectionist measures at a national level to avoid land acquisitions by foreign investors, while on the other side of the coin, investment into the agriculture sector can help boost food security, as well as bring about improved research and development (R&D) to maximise a country’s potential when it comes to production levels.

Furthermore, during the Covid-19 pandemic, investment promotion agencies identified FDI in agriculture as one of the most likely sectors to still yield investment projects, as part of a survey conducted by the UN Conference on Trade and Development.

When it comes to FDI in agriculture – and more broadly in the agribusiness sector – the meaningful involvement of the host economy or local players is the key to the success or failure of a project, from the angle of the investment destination at least.

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To add to the importance of agriculture – and the potential of FDI in it – the world’s population is expected to increase by approximately 25.9% in the next 30 years, reaching 9.7 billion, according to the UN. This only serves to emphasise the importance of a healthy, productive agriculture industry in every country of the world. The question is, how can FDI in the sector help it meet these additional needs?

Where are the most fertile lands for FDI in agriculture?

With a strong workforce, a sizeable domestic market and good infrastructure in place, the US is a powerhouse of FDI in agriculture, with more than 311,000 workers directly employed across farming, fishing and forestry as of May 2018, and an additional 115,000 in supportive sectors such as engineering, production and food science, according to SelectUSA, the US government’s investment promotion arm.

Innovation, in our opinion, requires working together in multidisciplinary projects – the Dutch approach. Maarten Schans, Netherlands Foreign Investment Agency

Indeed, according to the US Department of Agriculture, the numbers are even higher, with 22.2 million full-time and part-time jobs related to the agricultural and food sectors in 2019, which represent 10.9% of total US employment.

Data from the UN’s Food and Agriculture Organisation on the topic of FDI in agriculture is patchy, but the American continent is generally out in front when measured by the volume of inflows, with Mexico and Brazil following the US’s lead.

On the other side of the Atlantic, the Netherlands, Spain, the UK and Ireland are the leaders of FDI in agriculture by volume of inflows, demonstrating particular strengths in food R&D and tech.

How innovation can augment FDI in agriculture

Lauded as ‘the food valley of Europe’, the Netherlands’ approach to FDI in agriculture is closely tied to innovation, Maarten Schans, agrifood specialist at the Netherlands Foreign Investment Agency, told Investment Monitor when talking about the country’s plant-based food industry.

“Innovation, in our opinion, requires working together in multidisciplinary projects – the Dutch approach,” he says. “This requires experts in their field to be open to listening to and collaborating with experts in other areas and it requires the presence of strong clusters in technologies such as digitisation, robotics, life sciences, and so on. We are a geographically small country but with strong clusters in technological areas that matter to agriculture and food.”

The focus upon innovation in the Netherlands allows for a lot of crossover between food production and agriculture, like in the case of plant-based foods, explains Schans.

“Dutch greenhouses are the latest in high-tech that could only be developed through collaboration between growers and experts in the field of plant physiology, lighting, ICT, robotics, water treatment and energy and climate  management,” he says.

“The same goes for farmers, food companies, equipment manufacturers and research institutes working together on creating new plant-based foods that meet all consumers’ needs in taste, health, convenience and ethical aspects.”

What are the challenges of FDI in agriculture?

While developed economies such as the Netherlands and the US lead the way when it comes to FDI in agriculture, the World Bank emphasises that opportunities for such investment multiply in emerging economies as they grow financially and incomes rise.

However, with these opportunities come challenges, such as decarbonising agriculture for a more sustainable food industry, stopping food waste and streamlining supply chains, while also making sure that FDI in agriculture does not translate into aggressive large-scale land acquisitions that threaten food security.

According to the World Bank, integrating small-scale farmers into wider markets is the key to making the agricultural sector in emerging economies stronger. This is because with non-competitive agricultural sectors comes “a higher reliance on imports and less agriculture-driven poverty reduction in rural areas”.

Furthermore, FDI in agriculture can play a big role in helping to meet the UN’s Social Development Goals (SDGs) by their 2030 target, which have been set back as a result of the Covid-19 pandemic.

There is particular potential to not only help achieve SDG number two – to end hunger, achieve food security and improved nutrition, and promote sustainable agriculture – but other SDGs as well such as promoting gender equality as part of the investment, and tackling climate change.

All in all, FDI in agriculture can be beneficial to both investors and host economies, and it has the advantage of being an industry with no expiry date – for as long as the world’s population needs to eat, agriculture will be around. However, this importance and longevity means that ethical investment that takes into account the sensitivities of the local population is crucial to avoid negatively affecting food security or exacerbating the climate crisis.

Marina Leiva

Marina Leiva

Senior reporter

Marina Leiva is a senior reporter at Investment Monitor, where she specialises in the agribusiness sector.