SOARING GLOBAL INTEREST IN FARMLAND

HOW CAN MOZAMBIQUE BENEFIT?

Klaus Deininger, World Bank

Maputo, Feb. 10, 2011

The global picture

Daewoo to cultivate Madagascar land for free

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Rice price (US $/t)

Commodity price rise triggers land demand

Investor demand in Africa unprecedented

Region Area cult. (M ha) Δ/yr Demand in

20091961 2007 Mn. ha

SSA 134.6 218.5 1.79 39.7

EAP 183.9 262.8 1.68 8.0

LAC 103 168 1.39 3.2

ECA 291.5 241.7 -1.06 4.6

MENA 77.9 89.0 0.24 1.4

SAS 197.9 213.5 0.33 0.7

ROW 368.7 355.5 -0.28 0.2

Total 1,357 1,549 4.09 57.8

Historically, money can’t ensure success

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Sudan: Sorghum & sesame yields (t/ha) 1970-2005 (vs. > 4t/ha in Australia)

Sorghum

Land transfers very large (5.5 Mn ha official; up to 11 Mn ha encroached)1970s oil price shock as a major determinant; inflow from Middle EastProductivity & welfare impacts very limited due to conflict & soil mining

Sesame

A large danger of neglecting rights

Dependent variable Interest Implementation

Suitable land non-forest 0.2987** 0.3916***

Suitable land forest 0.0396 0.0770

Yield gap -0.2774 -1.7457**

Land rights recognition -0.691*** -0.3416*

Investment protection +0.0058* 0.0033

Pseudo R2 0.339 0.268

Determinants of a country attracting investor interest/actual implementation

Actual land transfers lower but still large

Country All projects Share domestic (%)

1000 ha # Median (ha) Projects Area

Ethiopia 1,190 406 700 94.3 48.9Liberia 1,602 17 59,374 11.8 7.3Mozambique

2,670 405 2,22567.7 52.5

Sudan 3,965 132 7,980 68.2 77.8

Total area transferred, no of projects and share of domestic investors, 2004-2009

Investment is often not predominantly foreign.Many ventures did not start production – thus positive impacts limited.

Why has success been so limited?

Gaps in legal & policy framework Requires expropriation/extinction of existing rights (e.g. ZMB) Unclear/duplicative institutional responsibility (e.g. ETH) Low land payments/participation; non-collection (e.g. LBR) Requirements for liquidating non-profitable investments rarely considered

Weak institutional capacity & implementation Lack of information & consultation -> Neglect of property rights Neglect of economic/technical viability (e.g. GHA) Limited capacity to do or monitor ESIAs (e.g. SDN) Weak land administration -> Boundary conflicts, overlap Agreements are not written/monitored

Communities with little voice, capacity, and ability to resist Negative effects shifted to locals who receive damage but no benefits Non-viable projects encroach on local rights to make ends meet Vulnerable & women left out –poor people subsidize (foreign) speculators Historical examples of this leading to conflict or revolution

Boundary misaligned with roadAllocation over existing smallholdersNo visible large-scale cultivation despite transfer 5 yrs ago

An example from Zambia

Boundary of

allocated land

1 km

Countries that fared better did 3 things

Assessing potential and integrating it into their development strategy Rather than having ad-hoc decisions by investors determine the country’s future Identify suitable & off-limits areas as well as suitable crops (demand, endowment) Strategically provide infrastructure (roads, research) Link with local factor endowments, development strategy, and aspirations

Securing existing property rights & allowing their voluntary transfer Development is for local people & unlikely to be promoted by expropriation Often at group/community level: Need internal rules & outside representation (TZN) Well-defined mechanisms to transfer all or part of local land (PER) Clear demarcation of land & scope for transfer of unsuccessful ventures (MEX)

Implementing transparent processes & effective ways of monitoring/redress Avoiding traps of rent seeking, corruption, and another resource curse Auction of public land: Technical review, down-payments & investor vetting (PER) Publication of contracts (LBR) can allow learning and independent monitoring Build on initiatives to set technical standards & independent monitoring (RSPO; EP) Incentives to avoid merely speculative land acquisition

Assessing potential: Methodology & use

Identify potential per crop & grid cell (5’ or 1 km resolution) Data on soil, slope, elev., rainfall, temp. to simulate crop growth Output prices for ‘local’ output value; transport cost for global price -> ‘best’ crop Input prices to compute net profit & implicit land rental value

Cultivated land -> yield gap (actual/potential output) Productivity increase often only option; may be cheaper & socially more appropriate Area expansion risky & costly (soil tests, investment, compensation) Yield gap can be attributed to technology, infrastructure & institutions Leave options for expansion of existing farms (e.g. via mechanization)

‘Uncultivated’ land -> possibly available/of interest to investors Identify areas of highest potential/threat, opportunity cost & need for scrutiny Priority areas for tenure regularization Land rental surface can form a basis for negotiation Investors benefit from that knowledge – and in Brazil make lots of money from it

The scenario used below Rainfed Maize, soy, wheat, sugar, cassava, groundnut, oilpalm; high input intensity Exclude forested & protected areas; levels of population density (5, 10, 25/km2)

Source: IIASA

Mozambique has considerable potential

Land ‘availability’ by countryHigh potential, non-cult., -forested, -

protected land < 25/km2

1000 haRelati

ve 1000 haRelativ

e

Sudan 46,025 2.82 Tanzania 8,659 0.94

Brazil 45,472 0.73 Bolivia 8,317 2.92

Russian Fed. 38,434 0.32 Cent. Afr. Rep. 7,940 4.23

Argentina 29,500 1.05 Paraguay 7,269 1.34

Australia 26,167 0.57 Colombia 4,971 0.68

D.R. Congo 22,498 1.53 Ethiopia 4,726 0.34

Mozambique 16,256 2.85 Cameroon 4,655 0.68

Madagascar 16,244 4.63 Kenya 4,615 0.99

Chad 14,816 1.92 Mexico 4,360 0.17

Zambia 13,020 2.83 Mali 3,908 0.47

Indonesia 10,486 0.32 Papua N.G. 3,771 5.93

Angola 9,684 3.31 Burkina Faso 3,713 0.77

Uruguay 9,269 4.56 Belarus 3,691 0.61

Venezuela 8,966 2.29 South Africa 3,555 0.23

United States 8,756 0.05 Congo 3,476 6.79

Canada 8,684 0.17 Ukraine 3,442 0.10

World total 445 Mn ha (< 25/km2)306 Mn ha (< 10/km2)198 Mn ha (< 5/km2)

Key characteristicsHighly concentrated• > 90% in 32 countries • Half of these in Africa

Large rel. to current area• > double in 11 countries• > triple in 6 countries

Sheer size is instructive• Multiple constraints likely• Need sophisticated investors• Potential social dislocation

Illustrative expansion potential by crop

Current production ‘Available’ landArea (1000

ha) Yield (t/ha) Total < 6 h

USA 31,826 9.66 1,647 1,538Argentina 3,412 6.45 9,469 7,704Australia 68 5.69 18,870 2,890Uruguay 81 4.15 2,735 2,225Brazil 14,445 4.09 11,388 10,406Russian Fed. 1,732 3.86 2,458 2,170Venezuela 740 3.47 4,640 3,919Zambia 664 2.18 5,716 2,383Sudan 31 2.02 31,889 14,390Madagascar 250 1.48 6,753 4,654Chad 235 0.96 9,131 3,736Mozambique 1,400 0.92 7,592 4,206World total 161,017   156,828 83,310

Top countries with maize expansion potential (<25/km2)Latin America’s advantages• Technology & land for expansion

Human capital• Infrastructure & market access• Institutions:

Property rights secureThriving land marketsTransparencyContract enforcementFinancial markets

Africa’s opportunity• Borrow technology• Focus on regional markets• Expand from existing production • Rel. low opportunity cost of land *

Challenges to be overcome• Institutions• Mix of large & small• Public and private sector roles

Available options differ by country

Africa Latin America & Caribbean

Sudan

D.R. Congo

Tanzania

Ethiopia

Ghana

Malawi

Rwanda

0 0.2 0.4 0.6 0.8 1 1.2

Ratio of cultivated to total suitable area1 - Yield Gap

0.14

0.22

0.52

0.21

0.29

0.35

0.70

0.56

0.40

0.26

Area (ha/rural inhabitant)

Uruguay

Argentina

Brazil

Colombia

Honduras

Peru

Haiti

El Salvador

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Ratio of cultivated to total suitable area1 - Yield Gap

7.91

8.82

2.25

0.64

0.46

0.46

0.20

0.35

Area (ha/rural inhabitant)

CHN

MYS

PHL

VNM

EGY

JOR

INDPAKHUN

KAZ

LTUPOL

ROM RUS

SVN

TKMUKR

ARGBRA

CHL COL

SLV

GUY

MEX

PER

URY

AGOBEN

BDI

COGZAR

GHAMWI

MOZ

NGA

RWA

SDN

TZAZMB

Type 1 Type 2

Type 3 Type 4

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.6.8

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Yie

ld G

ap

-10 -5 0 5Suitable relative to cultivated area (in logarithms)

A typology of agrarian structure

Type 1 (Korea, China, Vietnam, India) Significant gains from technology & institutional change by smallholders in the past Intensification & (private sector) value addition as only sources of on-farm growth Off-farm employment a main engine for increases in farm sizes via (rental) markets

Type 2 (Brazil, Argentina, Peru) Technological barriers to large farm expansion low - big recent investment inflows Land markets function relatively well, currently danger of bubbles Regulation needed to avoid distributional, environmental & social externalities

Type 3 (Malawi, Rwanda, El Salvador) High yield gap often a consequence of past underinvestment Land is a key safety net; danger of people being pushed out with no alternative Private investment to complement public initiative; contract farming

Type 4 (Sudan, Tanzania, Zambia, Mozambique) Mechanization & larger farm size can be sustainable; incentive for private sector Institutions (property rights & land markets) a key challenge Factor market imperfections, if unchecked, can cause dualism & conflict

Implications for Mozambique

Policy focuses on the right issues

Agricultural zoning (1:1 Mn; ongoing at 1:250,000) to assess potential Based on identification of agro-ecological suitability Excluding productive forest, parks, cult. area, protected areas, concessions -> Identify blocks of land possibly ‘available’ for investors

Property rights rightly recognized as a key pillar Recognition of community occupancy rights; option of delimitation Process for negotiation with investors Land policy forum to explore key legislative & regulatory issues Investors’ DUATs conditional on compliance with investment plan

Implement transparent processes & effective monitoring/redress Establishment & gradual decentralization of CEPAGRI Format for investment processing (res 70/2008) & process to vet proposals Efforts to better regulate consultation process Increasingly vigilant monitoring of investor compliance Cleaning and consistency of data from provincial offices

But challenges remain

Zoning may be too narrowly focused on land availability only Local strategy/understanding how to close yield gap needed required Access to markets & technology has a key role; concessions underutilized The exercise could yield vastly more insights

Land rights ‘recognition’ de facto often irrelevant Lack of demarcation makes rights invisible Land system serves a small minority & excludes women Land transfers costly & uncertain even where they are allowed

Processes often costly & ineffective Process for individualization/mutation ill-defined Consultations deficient (few people, actas incomplete) ‘Plan compliance’ costly to ascertain & easy to abuse

Structures often duplicative & centralized Registry & cadastre operate in parallel spheres Low/non-collected fees ($0.8/a) foster land speculation Whatever revenues exist do not accrue to local gov’t

Yield gap for maize

Limited delimitation

Background 1997 law recognizes

community rights – good legal basis

Huge potential: 34 mn. ha arable land; only 3.7 mn. ha cropped

Want to attract investors New applications for 13 mn.

ha in 18 months Land audit: > 50% of existing

awards of land use rights (DUATs) un- or underutilized

… then backtracking Moratorium in 2008 Identify available land first

Overlaps can createproblems

AAAAAA

The potential is enormous

Use global methodology to get land prices• Large variation over space• Overall level surprisingly high: Prices > $ 3,000/ha• Considerable potential around Beira (transport)• This area has currently low level of cultivation

Cultivated areas• Average profits about $ 500/ha • Compared to current value of < $ 100• Poverty impact of closing yield gap & expansion immense

Concessions• Even higher potential ($ 700/ha)• But half of them are underutilized • Need cheap models to check (satellite imagery)• Rental fees could yield revenue & discourage speculation• Feed into local revenue; expand land rights

Residual land values; high input scenario

It may be useful to explore options for ..

Using zoning information to feed into a broader rural development strategy Identify yield gap & overlay with pop. density/poverty to define strategic options Add prices & transport cost to potential for actual & potential profits & land values Use this to evaluate potential impact of infrastructure improvement

Making occupancy rights relevant and exploring options for land transfer Use information from ‘top-down’ zoning to feed into ‘bottom up’ land use planning Define ‘community’, its representation, and its land rights (vs. individuals) Eliminate dualism of rights through systematic low-cost delimitation/titling Assess leasing options and study other countries’ experience (Vietnam, China)

Focusing on low-cost & incentive compatible monitoring/enforcement Reduce cost & eliminate dualism by unifying registry & cadastre Design low-cost compliance monitoring to cancel non-compliant DUATs (Brazil) Ensure community consultation is informed, inclusive, and results in clear contract Let lease payments benefit land owners & be determined by local level negotiation Use part of fees to maintain system to make secure land rights accessible to all

Thank you!