FINAL REPORT

Participation of Multinational Businesses in

Agribusiness Value Chain: Impacts and
Implications for the Host Countries (2009)

International Economics and Globalisation

Prof. Nguyen Thi Kim Anh

 TABLE OF CONTENTS

ABSTRACT 2

INTRODUCTION 2

MNCs AND AGRICULTURAL PRODUCTION IN DEVELOPING COUNTRIES 3

Characteristics of Agricultural Production 3
Significance of Agriculture in Developing Nations 7
Issues Influencing Investments in Agriculture 8
Multinational Companies Participation 10
Types of MNC Participation in Agriculture 15

IMPACT ON AGRICULTURE IN HOST DEVELOPING ECONOMIES 16

A. Financing and Investment 16
B. Technology and innovation 17
C. Employment and skills 18
D. Standards and supply chain management 19
E. Foreign-market access and exports 20

CONCLUSION 28

References 29

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 1. ABSTRACT
This paper investigates the impact and implications for the host country when it
allows participation of MNCs in agribusiness value chain through a detailed
analysis of the World Investment Report, 2009 (WIR, 2009): MNCs, Agricultural
Production and Development and its application on agriculture value chains in
India. An attempt has been made to examine the prospects, status and hindrances
caused due to participation of MNCs in India’s agricultural value chain. The main
focal point of the paper is on a qualitative analysis of the impact and implications
of MNC-participation along with institutional support. The results suggest that
asymmetrical gap between the developed and under developed nations is
basically deep seated in the structure and performance of domestic manufacturing.
There are some findings of a statistically significant negative impact from
liberalization of policies on the growth of participation of MNCs, but the magnitude
of the impact is rather small.

Keywords: MNCs, Agricultural Value Chain Model, India, Food Crisis and Security,
South-South Investment, Contract Farming

2. INTRODUCTION
Agriculture is a very important function in developing countries, especially where the topic
is about satisfying their growing dependency on food and providing a fundamental
platform for diversification, growth and industrial development. In the case of some

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countries, increments in investment options and technological innovations have reworked
agriculture, raising productivity and output to satisfy increasing dependency on food
furthermore as paving the instauration for fast economic process. In the case of other
countries, however, particularly in Asia and some places of Africa, agricultural
interventions haven’t been exploited to its maximum potential leading to shortfalls in the
supply of food and thereby putting constraints on economic development. (WIR, 2009)
Heavy investments in the area of agriculture is therefore crucial for the development
sector, especially to the ones that are included in the recent food crisis.

Governments are prompted to become liberal with the non-public sector - domestic and
foreign - for new important investments because of a paucity of investments and
diminishing help in agriculture from official development assistance (ODA). This is often
evident when one has to investigate matters of liberalisation of policies associated with
possession of agriculture and land by host and home countries (Anderson 2007). In fact,
it is vital to note that FDI in the past has significantly contributed to the development of
agriculture, where agricultural production was significantly sturdy in some commodities
that were exported due to MNC-activities. Although, once after the WWII came to an end,
there began a prolonged downfall of FDI inflows in developing host countries. For a wide
number of reasons this trend has been transposed in recent years, notwithstanding one
major concern among some factions of the development community is ironically based
on foreign participation – not least the questionable “land grabs” that is held in accusation
(WIR 2009).

The main focal point lies on the present year’s World Investment Report is, while there
are no relevant research or systematic studies pertaining participation of MNC in
agricultural production, inversely there is an increase in interest among private business
investors. Sustenance and rearing of cattle and crops are two fundamental functions of
agricultural production. This report shall revolve around totally on crops farmed for food.
The report shall provide an analysis of participation by MNCs, including an investigation
of various stages of charlatan involvement, for example, by value chains of agriculture in
India, however solely limited to agricultural production only. Thus, instead of examining,
for instance, the market business, it's involved with how MNCs in this business participate
or have an effect on developing-country agricultural production.

3. MNCs AND AGRICULTURAL PRODUCTION IN

DEVELOPING COUNTRIES
A. Characteristics of Agricultural Production
1. A Diverse Industry

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Agricultural production is a very vital economic activity (WIR 2009). It plays a
central part as a supplier of food, a medium to eradicate destitution and hunger, a
key agent for mass and rural employment, a significant contributor to national
economic progress and a substantial exchange for foreign currencies for several
developing countries. Agriculture is additionally a sensitive and strategic business,
due to which foreign participation in agricultural production could also be restricted
in some countries. Agriculture has options distinct from the producing and services
sectors in terms of its importance to an economy, food security and variety of social
concerns. The characteristics examined during this section embrace country and
regional variations in agricultural production, the categories of crops farmed, and
key producers and corporations that participate at numerous stages of the
agricultural worth chain.

Because of differing soil, water and atmospheric condition, not each region will
manufacture all sorts of agricultural commodities and in decent quantities, either
for native consumption or for export. Moreover, the assembly of some agricultural
commodities is heavily focused in some geographical areas, and fewer therefore
in others.
Within agriculture, crops will be classified as food and non-food commodities, and
each will be domestically consumed or exported. Non-food agricultural crops
embrace, for instance, cotton, linen and jute, which might be used for functions like
clothes and building materials. Food crops also can be cultivated and used for non-
food functions, like the employment of sugarcane, soya bean beans and maize as
feedstock for biofuels (FAO, 2008c).

2. Agricultural inputs, Technology and Institutions

i) Agricultural Inputs: Land, water and other inputs
Agriculture is extremely contingent on natural resources endowment like the
supply of land that can be used for farming, fertile soil, atmospheric condition and
water. These endowments and climatic conditions vary considerably across the
planet, with implications for the pattern of worldwide agricultural production,
investment and trade. Arid and water-scarce countries face an enormous
challenge to supply food crops for his or her own consumption (WIR, 2009). Land
problems, like uncertainty of land rights and possession and land and civil
disputes, have conjointly restricted the speed of growth of agricultural production
in some developing countries. Of all industries, farming is that the biggest user of
water resources. Other than land and water, different vital agricultural inputs
embody seeds, chemicals, fertilizers, machinery and tools. In a number of these
agricultural inputs, MNCs play a vital role as producers and suppliers, together with
through participation in agricultural production.

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Due to disproportionate agricultural endowments, while some economies became
massive web importers of food, others have food surpluses and become wide-
scale food exporters. However, there's a 3rd cluster of economies that possess
productive land and water, however are unable to become self-sufficing in
agriculture/food production or enter export markets partially thanks to their
underutilization of productive land and low productivity. This third cluster of
economies needs investment, technology and a much better use of productive
land. Where MNCs can redouble investment and personal and foreign investors
can play a job, in partnership with the general public sector. However, the role of
foreign investors will be contentious thanks to the economic and social importance
of agriculture to developing countries, and considerations over land lease or
possession and food security. The degree and nature of rivalry varies, as an
example between regions, countries and kinds of commodities and reckoning on
whether or not farming is finished on new or existing farm lands; and what crops
are to be used for (e.g. biofuel as critical food). Some African countries have liberal
policies that encourage personal and foreign participation in agricultural
production, on the face of it as a result of they possess massive tracts of productive
land that are under-cultivated, and generally in comparatively inhabited areas.

ii) R&D and Technological Advancements

Technological improvements and Research and Development (R&D) play a crucial
role in increasing agricultural productivity. They were key to the Green Revolution.
In Asia’s case, there were considerably magnified yields of major food grains in
some countries within the 1960s and 1970s. It's been calculable that doubling
agricultural analysis expenditures per area unit in continent will increase
agricultural productivity by 38% (Alene and Coulibaly, 2009). In general, there are
2 major aspects to investment in R&D: fundamental and development research,
with the former primarily undertaken by the general public sector (WIR05;
Beintema and Stads, 2008). a substantial quantity of R&D, together with in
agriculture, and particularly that with an advertisement interest, is undertaken by
the private sector (World Bank, 2007). Developed countries invest significantly
higher in agricultural R&D than developing countries; so, within the latter countries,
investment has stagnated over time, or maybe declined. at intervals developing
regions, there are giant variations in agricultural R&D disbursement, with
comparatively additional public disbursement in South and South-East Asia. On
average, Asia spends 5 times quite continent in agricultural R&D per area unit
(Alene and Coulibaly, 2009). Despite its crucial role, there's associate
underinvestment in R&D in agricultural farming and food production in developing

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countries, as compared to its potential and need; 2008; Beintema and Stads,
2008).
Agricultural technological development and basic R&D is not “just” raising crop
yields. They currently comprehend the applying of biotechnologies, enhancements
in agricultural resource management (including land use and water conservation),
reductions within the use of pesticides and fertilizers (FAO, 2003a; International
Bank for Reconstruction and Development, 2007) and support measures for
property farming. A well- better-known example of the applying of biotechnology
to agricultural production is that the introduction of GM crops, that are sickness
resistant and provides a better yield. This has revolutionized agricultural farming.
The planting of GM crops has magnified in some developing countries,4 however
it's mostly confined to bound crops (e.g. soya beans, maize and cotton) and is
targeted during a comparatively little cluster of nations (e.g. Argentina and Brazil)
(World Bank, 2007; James, 2008).

iii) Support from Agricultural Institutions

Agricultural development relies heavily on institutional support . These include
institutions such as R&D centres and cooperatives which work towards extending
agricultural development of planning a nation’s agriculture’s budget and outcome.
A country’s government usually lends a helping hand by facilitating agro-related
infrastructure like linking farms and markets by building roads in rural areas,
maintaining them, irrigation, training farmers to increase productivity and efficiently
manage waste. Notwithstanding, these crucial support often vary from one country
to another. Poor nations oftentimes are burdened by budgetary constraints which
leads to inadequate establishments of support institutions for agricultural
development.

3. Environment and Biodiversity

Agriculture and environment are closely related to each other. A significant
contributor to environmental degradation through pollution, gas (GHG) emissions,
deforestation and soil degradation is caused by agricultural farming. Intensive use
of chemicals and pesticides has contaminated rivers, lakes and different water
resources and has had damaging effects on the health of farm staff (Food and
Water Watch, 2008; Loukes, 2008; ETI, 2008; Wee and Arnold, 2009). As the
forests become farmlands, an increase in deforestation and an important impact
on multifariousness, particularly the destruction of life and its habitats is seen as
evident. (Tan et al., 2009; Koh and Wilcove, 2007). Intensive farming will eat up
water resources (thus increasing water scarcity) and contribute to erosion, that
damages the prospects of future food production for a growing population.
Agriculture additionally contributes to global climate change, because it is that the

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 second largest supply of GHG emissions – once energy – globally, accounting for
15% of worldwide emissions (World Bank, 2007). The clearing of forests for
agriculture, field burning and therefore the associated haze drawback are more
factors tributary to environmental degradation and global climate change. global
climate change and climate variability have an effect on agricultural production due
to increasing unpredictability of weather patterns and changes in temperature.
These agriculture-related environmental issues are already influencing however
native farmers and MNCs operate in agricultural production by adopting additional
property and environment-friendly farming techniques, like aquacultural farming in
horticulture, higher water management, utilization of renewable energy sources
(e.g. geothermal) in farms and technologies and practices that use fewer
pesticides and chemicals, as in integrated persecutor management. use of
wastewater for irrigation and crop waste as a supply of chemical element are more
samples of property farming and creating agricultural systems more
environmentally sustainable (World Bank, 2007).

B. Significance of Agriculture in Developing Nations

In spite of the significance of agriculture as an engine of improvement, it has been
dismissed in many emerging nations (FAO, 2008d; HLTF, 2008). Agribusiness'
relative financial significance in creating nations has fallen altogether since the
1970s, the same number of creating and change economies have moved or
endeavored to move their economies towards assembling and administrations
(United Nations, 2006: 32). Notwithstanding, there is a critical contrast between
those nations where the low/declining significance of farming is because of their
going through a procedure of agricultural change and progress or expansion, and
those where it is the consequence of disregard, underinvestment and subsequent
low profitability in agribusiness. Low agrarian item costs over a delayed timeframe
in the past have additionally influenced creating nation farming fares and terms of
exchange, bringing about stale or low rates of development and venture limit in
ware send out nations. In certain nations, national approaches favoring fast
industrialization, urbanization and other mechanical exercises over the local
private area and MNCs.

Agribusiness additionally gives critical business opportunities in emerging nations

and is a pivotal wellspring of vocation for the rustic poor, specifically women (part
IV; OECD, 2006). In 19 emerging nations, farming represented over 40% of all out
work amid 2002– 2006.8 More than 60% of the populace in Africa and Asia live in
rustic territories, and the vast majority of them are utilized in agribusiness (table
III.3). While agriculture represents the greater part of work in Africa, wide varieties

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 exist inside the region. Similarly, substantial varieties exist in Asia where work in
agribusiness represented over 40% of absolute work in South, East and South-
East Asia yet under 25% in West Asia amid 2002– 2006. Compelling rural
development could along these lines add to business creation and diminish
destitution in emerging nations, in accordance with MDG-1.10 Indeed, in poor
nations, under the correct conditions, agribusiness is somewhere around twice as
viable in decreasing neediness when contrasted with GDP development beginning
outside horticulture (World Bank, 2007: 6).

C. Issues Influencing Investments in Agriculture

1. Food Crisis and Sustainability Issues
The Food Crisis of 2008 conveyed to the fore the need to genuinely address
the issue of future sustenance weakness in emerging nations (FAO, 2008b
and 2008d; UNCTAD, 2009). The sustenance emergency has set off
various reactions. At the universal dimension, there is developing worry
about nourishment security in the midst of the further difficulties presented
by a dangerous atmospheric deviation, which is relied upon to influence
sustenance frameworks. At the national dimension, a few nations stressed
over nourishment security have taken measures to address their tensions,
including through endeavors to build interest in farming. Some sustenance
crop delivering nations limited the fare of staples at the tallness of the
nourishment emergency, while nourishment bringing in nations have begun
putting resources into abroad cultivating to verify future sustenance supply
(Brown, 2008; Blanche, 2009; Smith, 2008; segments D and E).
Nonetheless, nourishment security does not infer sustenance autarky. The
two imports and fares of agrarian items establish components of
government approaches for nourishment security and farming's job in
monetary improvement.

2. Investments of Low Standards

The decrease in interest in horticulture in creating nations as of late has
fundamentally upset nations and the worldwide network in gathering the
MDG-1 targets. Various investigations, in light of shifting suppositions,
inclusion and strategy, have evaluated the sustenance security-related
horticultural venture needs of creating nations. For example, the Common
Framework of Action proposed by the United Nations High-level Task Force
on the Global Food Crisis evaluated that the worldwide gradual money
related prerequisite for interest in horticultural improvement for nourishment
and sustenance security and to meet different goals would run from $25
billion to $40 billion for every annum;18 and this venture would essentially

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 must be secured through open fund and ODA (HLTF, 2008). Also, FAO
assesses that an additional $30 billion every year should be put resources
into horticulture and security nets to guarantee that the MDG focus of
dividing irrefutably the quantity of hungry is met by 2015 (FAO, 2003b and
2008b).

Albeit national open parts and ODA are viewed as giving the mass or total
of subsidizing for this speculation, it isn't clear how attainable this is,
particularly in Africa. For instance, in their Maputo Declaration in 2003,
African Heads of State and Government consented to distribute at any rate
10% of their nations' national spending plans for farming and rustic
advancement inside five years (African Union, 2003; FAO, 2006b).19
However, the normal rural spending allotment for the area had not achieved
the concurred focus in 2008: less than 10 nations accomplished the 10%
dimension or higher (IFPRI, 2008; African Union, 2008). The effect of the
current monetary and money related emergency implies that a few nations
will be tested to discover horticultural venture assets for gathering MDG-1
targets, however this objective by and by remains a basic for interest in
agribusiness (UNCTAD, 2009e), some of which needs to originate from the
private area (FAO, IFAD and WFP, 2005).

3. Emergence of New Alternatives: Biofuel

The quick development of the biofuels business is adding to major auxiliary
changes in worldwide horticultural generation (Flammini, 2008).
Specifically, the productivity of developing yields for biofuel feedstock is a
significant motivator for private interest in this movement. 21 various huge
created and creating nations and groupings, for example, Brazil, China, the
European Union, India and the United States, are among the pioneers in
the worldwide development in biofuel generation (table III.5), which has had
a thump on impact on farming product costs (World Resources Institute and
A.T. Kearney, 2008).

Government strategies in certain nations have encouraged the

development of biofuel creation and use. For example, in help of the ethanol
business, Brazil presented enactment requiring the utilization of ethanol-
fuel mixes. With an end goal to create elective fuel sources, other creating
nations are likewise propelling biofuel programs that utilization molasses,
sugarcane or potentially oilseeds, for example, soya beans, oil palm and
Jatropha curcas. Biofuel creation gets support through utilization motivating
forces (for example fuel charge decreases), creation impetuses, (for

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 example, charge motivating forces and credit assurances) and obligatory
utilization prerequisites (World Bank, 2007; FAO, 2008c). At present,
worldwide biofuel creation is overwhelmed by only a couple of major
delivering economies (James, 2008), however numerous other creating
nations are propelling their very own projects (World Bank, 2009c). Current
evaluations show that the biofuels business will keep on developing, with
yield of worldwide ethanol and biodiesel anticipated to dramatically increase
somewhere in the range of 2007 and 2017 (FAO, 2008c). That would make
the business a conceivably noteworthy supporter of the extension of rural
generation in some creating nations. Nonetheless, there is a solid
discussion on whether horticultural assets ought to be redirected from
nourishment generation to biofuel crops, particularly since this utilization of
yields for biofuel was viewed as a supporter of the value climbs amid the
ongoing sustenance emergency. There is a need to analyze the difficulties
and openings presented by biofuel generation with regards to the twin
difficulties of world sustenance and vitality security.

D. Multinational Companies Participation

Early instances of MNC contribution in agrarian creation incorporate FDI in the
nineteenth and twentieth hundreds of years by organizations situated in Japan,
Europe and the United States, basically to deliver money and nourishment
harvests, for example, cotton, elastic, sugar and others (Freeman, Holslag and
Wei, 2008; Suret-Canale, 1964). The historical backdrop of remote interest in
agribusiness is in reality even more established, and returns to the early frontier
time (from the sixteenth century onwards), when outside extension by European
forces to the creating nations of today was generally propelled by the scan for
characteristic assets, joined with modest work by contracted specialists or slaves
(Thomas, 1997). Along these lines rural creation, together with extractive
enterprises, was an early focus for outside financial specialists, some of which took
after MNCs in the advanced sense; others were brokers or State-commanded
organizations, all of which went for providing rural products to the developing
populaces and ventures of their nations of origin (and third markets) (Jones and
Khanna, 2006; Wilkins, 2008; Munro, 1976). Not very many, assuming any,
preparing exercises were situated in the creating host nations. The depiction
current-day operations of MNCs can be better understood through a Global Value
Chain illustrated below. It shall display the positions of key players such as MNCs,
producers, buyers etc. and their importance in a Value Chain referred to as the
Agribusiness Global Value Chain (GVC) in a developing Country

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Agribusiness Global Value Chain of a Developing Country

Source: Adapted from UNCTAD 2019. World Investment Report.2019

GVCs help see how exercises performed at various phases of the chain are
composed and the complexities of the administration structure (Gereffi, Humphrey
and Sturgeon, 2005). As far as the intensity of organizations at various phases of
GVCs, chains can be embodied as either "producer driven" (for example amid the
provincial time, responsibility for manor was key in conveying new produce to
modern or last clients), or "purchaser driven" (for example in the post-war period,
responsibility for or dispersion, among others, implies that the lead firms in GVCs
are all the more regularly organizations, for example, merchants and stores,
contingent upon the item) (Gereffi, 1989). The idea of a worldwide esteem chain
is a usually utilized structure for dissecting the succession or stream of interrelated
exercises performed by firms, associations or people in various geological areas,
essential for bringing an item or administration from generation stages to definite
clients (UNCTAD, 2006a). On account of horticulture, a common or summed up
agribusiness GVC incorporates the generation of data sources, (for example,
seeds and manures) bolstering into agrarian creation and driving onto exchanging
and coordinations, preparing and at last to retailing, and thereupon to conclusive
customers in the downstream piece of the chain.

Agricultural Value Chains in India

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 - Field Trip to the Agricultural Genetics Institute, Hanoi VN

Dr. Samarendu Mohanty

Asia Regional Director, International Potato Center

A typical example of Agribusiness Global Value Chain of India

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Source: CUTS INTL. 2016. Agricultural Value Chains in India: Prospects and Challenges 2016.

The agribusiness framework in India has experienced fast changes in the course
of recent decades especially after the financial changes of 1990s. The
development of coordinated agriculture and nourishment supply and GCVs is a
standout amongst the most noticeable market wonders in India. Expanding focus
on preparing, promoting and send-out is being seen in every one of the sections
of the chain. The customary method for sustenance creation is being supplanted
by practices increasingly like assembling forms, with more noteworthy co-
appointment crosswise over ranchers, processors, retailers, exporters and
different partners in the farming quality chain (Kumar et al. 2011).

Gross Domestic Product (GDP) of agriculture expanded at a yearly rate of 3

percent somewhere in the range of 1980 and 2012-13, making India the third
biggest rural maker by incentive after China and USA. In any case, this area is yet
to understand its maximum capacity. The division right now satisfies just 60
percent of yield for most harvests, especially products of the soil. However for
some yields India does not have worldwide scale handling offices. In India just 4
percent of the organic products are handled contrasted with China (23 percent),
Indonesia (50 percent) and Brazil (70 percent) (Shivakumar 2016). Aside from
these, another issue is loss of horticultural items. Postharvest misfortunes in India
are excessively high (25-30 percent of all out creation) (Joshi et al. 2007). Along

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these lines, products of the soil are reasonable regions for thought to restore Indian
farming. Foods grown from the ground can give 2-4 times higher salaries to
ranchers and expend 40-80 percent less water for each hectare in contrast with
grains. China’s accomplishment in apple can be an important exercise for India
where China’s fare of handled apple expanded from US$50 million to more than
US$1.4bn in eight-nine years (Shivakumar 2016).

Aside from it, with soak ascend in pay of white collar class, change in inclinations
and way of life, change in work profiles and demography has made a gigantic
interest for high-esteem items and items, for example, natural products,
vegetables, domesticated animals items and so on. Other than these, adjustments
in tastes, inclinations and sustenance propensity for Indian towards solidified and
pre-cooked or prepared to-eat things have additionally expanded especially youth
and average workers and with the rising quantities of shopping centers and eating
joints. This has additionally required changes in quality and wellbeing of items,
creation and preparing procedure and circulation strategies.

Farmers need to develop and attempt to enhance their generation frameworks as

needs be and in a portion of the regions they are endeavoring to do this. This
additionally opens a tremendous open door in the development of household
advertise for non-customary, crops, for example, products of the soil. In India, GVC
has not been considered as a primary technique to bring more proficiency,
efficiency and income. There has not been sufficient accentuation on the
development and improvement of proficient horticultural esteem chains in India.

Through the advancement of present day horticulture value chains at national and
provincial dimensions, farmers in India can pick up from expanded learning,
information, and data and Agricultural Value Chains in India: Prospects and
Challenges correspondence advances. In the meantime, current and especially
urban purchasers in India will improve quality and safe nourishment items as per
their decisions and inclinations. Costs, dangers and misfortunes to retailers and
exporters will likewise go down with the better esteem expansion. Figure 1
demonstrates the essential model of foods grown from the ground farming quality
chain in India. Farming quality chains in products of the soil give an option in
contrast to the broadening of horticulture in perspective on high salary, work,
remote trade profit and another strategy to battle difficulties of nourishment
security. These items have high pay versatility of interest. At whatever point and
any place salary of the populace goes up, interest for these items additionally goes
up primarily in the center pay gatherings of creating nations. The ascent in salary

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 and weight on quality has impacted the interest side while new advancements and
exchange understandings can possibly impact the supply side.

In any case, it is additionally important that in India, because of absence of

technology to identify with quality seeds, manures, water system and great
agrarian practices farmers think that its exceptionally hard to upgrade their
profitability. There is earnest need to create inventive advances identified with
farming sources of info, for example, quality seeds basically atmosphere flexible
assortments, manures and improved water system equipment.

E. Types of MNC Participation in Agriculture

1. Various Trends of FDI Patterns
Regarding FDI stocks, farming records for an extensively littler offer than
sustenance and refreshments, showing a more prominent spotlight by
MNCs on downstream exercises (table III.7). The internal FDI stock in
agribusiness was higher in creating nations than in created nations over the
period 2001– 2007. Additionally, as far as its offer in the absolute FDI supply
of all enterprises in all areas – essential, assembling and administrations –
joined, agribusiness has been significantly more significant for creating
nations than for created nations. This may reflect different elements,
including the overall significance of horticulture in the economies of creating
nations when all is said in done, the accessibility of land for development
and government strategies. Then again, created nations reliably get more
FDI in sustenance preparing than creating nations, proposing that most of
higher esteem included exercises in agri-nourishment supply chains are as
yet gathered in the previous gathering. Be that as it may, in some LDCs, the
offer of FDI in horticulture altogether FDI streams or stocks is moderately
noteworthy (for example Cambodia, Lao People's Democratic Republic,
Malawi, Mozambique and United Republic of Tanzania), as additionally in
some other creating nations (for example Ecuador, Indonesia, Malaysia and
VietNam). A few explanations behind this moderately high offer identify with
the structure of the local economy (particularly the high offer of farming in
GDP), accessibility of agrarian land (for the most part for long haul rent),
and national strategies (counting venture advancement in horticulture). The
significance of FDI and MNCs additionally fluctuates by product. FDI is
normally insignificant in staple nourishment things, for example, rice, yet
moderately significant in some money crops, for example, cut blossoms,
and in the sugar business in which crop creation is firmly connected with
the initial step of preparing. In some different items, for example, soya
beans, MNCs control the esteem chain from their situation in the discount

15
 exchanging section, and are associated with creation generally through
legally binding courses of action.

2. Contract Farming
Contract farming is a critical substitute to FDI as far as MNC interests in
farming, and there are a few signs that it is developing (Da Silva, 2005). The
term contract farming covers an assortment of courses of action, varying by
kind of contractual worker, sort of item, force of coordination (typically
vertical) among farmer and MNC, and number of key partners included. Five
distinctive essential models of contract farming can be recognized:
incorporated, "core domain", multipartite, casual and go-between. MNCs in
downstream phases of significant worth chains, for example, sustenance
makers and retail MNCs, secure rural contributions to have nations by going
into contracts with nearby ranchers. These agreements can be arranged
and overseen by the parent organization, specialists or neighborhood
subsidiaries. There are no general information accessible at the worldwide
dimension – and in the vast dominant part of nations, even at the national
dimension – to measure the full degree and forms of agreement cultivating
in a similar quantitative way with respect to FDI or cross-border M&As. Be
that as it may, there are adequate information accessible to quantify the
general extent of the wonder, just as its wide geographic spread and
impressive power in creating nations.

4. IMPACT ON AGRICULTURE IN HOST

DEVELOPING ECONOMIES
The participation of MNCs in developing countries can completely revolutionize the
agricultural process in developing countries through their impact in the agribusiness value
chain in a very commercialized and modern way. As observed from the literature review,
it is important to take into account that the participation and involvement of these
companies can have severe positive and negative impact on the agricultural development
of host developing countries. We have identified six different factors where the MNCs
have made an impact through their involvement in the MNC activities (UNCTAD
 ).

A. Financing and Investment

1. Contributing capital and increasing investment through FDI
Usually the MNCs only focus on very niche agricultural activities and thus, their capital
contribution to agriculture is as low as 1.1% compared to the total capital inflows of 12.7%.

16
Although, comparing agricultural FDI to total value added in the agriculture in host
countries is quite significantly high. However the two countries that have higher FDI
investment for agriculture are China (Ministry of Commerce of China) and Vietnam
(Foreign Investment Agency). Apart from an increase in their capital and investment,
there also has been a significant improvement in their agricultural production processes,
productivity and exports. The investment levels in agriculture is expected to rise as many
MNCs are willing to directly engage in business if the host countries have risk averse
policies in place that improves the Ease of Doing business in the developing nations.
Apart from direct impact, MNCs can also impact indirectly by investing on domestic
entities causing spillover effect that might attract more investors. As more investment
occurs, the preference to production of high value crops can be done. Public investment
in agriculture has a lot of benefits like, technology infrastructure in rural areas, better
farming skills for farmers, and creating a better environment for private investments.

2. Easing financial constraints through contract farming

Despite the boom of financial services for agriculture, it still remains inaccessible to the
smallest to the majority of rural areas in developing nations. Banks and financial
institutions usually tend to focus on urban areas as they have more access to affluent
clients, lower operating costs and easier enforcements of contracts compared to rural
ones. Thus, the emergence of contract farming as it increases the participation of local
farmers. Contracts helps to ease the situation as it helps farmers’ access to loans. Banks
find it easier to consider contracts with large agro- firms as collateral against the loans
(Reardon and Swinnen, 2004). Thus this leads to more credit and investment facilities for
farmers as well as more income. For instance, Contract farmers in Guatemala, Indonesia
and Kenya (World Bank, 2007) have a 10% to 100% higher income than normal farmers.
The revenues of Contract farmers in India (Birthal, Joshi and Gulati, 2005) were two to
four times higher than those of non-contract farmers. The drawback of this could be
delayed payments (Reardon and Berdegue, 2002) or inability to match the global
standards. This is where the MNCs step up. For instance, a Singaporean based agro-
firm; Olam Nigeria supported its rice farmers by leasing a mill from the government and
providing credit to its farmers. Another example is of American MNC, Bunges that
provided $1billion worth of inputs to Brazilian soya farmers in 2004 (Greenpeace, 2006).

B. Technology and innovation

1. MNC participation and technology transfer
Most of MNCs spending on R&D are towards commercial crops in larger markets and not
on genetically modified (GM) crops in developing nations. Even the availability of
technology may not be suitable for the developing nations due to geographic and climate
constraints and lastly the barriers to do trade as well as the difference of working
conditions between developing and developed nations makes the scope of technology

17
transfer very bleak. Thus, MNC participation really helps in this scenario through FDI,
contract farming, and by involving foreign seed companies. Through FDI, Vietnam had
substantial technology transfer in foreign projects like plantation of vegetable and fruits
and as well as sugar production. Through contract farming, Pepsi India supplied its
farmers with hybrid seeds free of cost while Cadbury India held capacity building training
for its existing suppliers on new techniques in planting and harvesting of crops. Similarly,
involving foreign seed companies as seed providers help in rapid development of seed
industry in developing nations. For example, in Uganda, there are more than 10 seed
companies, among them Mosanto that helps in hybridizing the seeds according to the
country specifications and thus helps farmers to produce good standard crops.

2. MNC participation and the agricultural innovation system in host

countries
The involvement of MNCs as a key player in the agricultural innovation system helps to
increase the agricultural R&D in developing nations. For example, In India, four MNCs-
Pepsi, GlaxoSmithKline, Nestle and Cadbury have agreed to conduct product
development with research partnerships with local universities to develop hybrid crops
and vegetables.

C. Employment and skills

1. Employment Creation
The involvement of MNCs through contract farming has led to a direct impact via
employment creation. Some indirect impact on job creations comes from more
competitors in the market or via spillover effect. For example, the largest Malaysian
plantation company Sime Darby has created 20,000 jobs in the rubber plantation project
in Liberia. A large Joint venture in China led to creation of 400,000 jobs for fiberboard
production

2. Skills Enhancement
Apart from better-paid employment, MNC participations also enhance the skills of farmers
by providing technical training and capacity building sessions. Some complementary skills
that the farmers learn are record keeping, resource management and quality control
assessment. They also learn about export markets. Farmers could use all these skills for
the production of local staple crops but its not feasible as most of the skills acquired for
very specific high-growth crops. This could lead to some negative impact such as poor
working conditions and an imbalance between employers and farmers. For example, the
global effect of low purchasing prices of bananas led to bad working conditions in
producing countries (Arias et al., 2003). Another negative impact is the prevalence of child
labor with hazardous environment that usually occurs in plantations or coffee producing

18
nations like Ghana, Nigeria, & Ivory Coast. It is estimated that 70% of child labor occurs
via agriculture (Food & Agricultural Organization).

D. Standards and supply chain management

1. Diffusion of Standards
Reputation and brand image are very important for the MNCs. Thus they play a key role
in ensuring the quality and standard of their products. Thus, sometimes they require their
suppliers to met the company’s internal standards, which are harder than the
internationally recognized standard created by Food and Agricultural Organization (FAO)
called Codex Alimenrtarius. Some of the international food standards are British Retail
Consortium (BRC) Global Standards, the international Featured Standard, and Safe
Quality Food (SQF). The two popular standards are SQF1000 and GLOBALGAP. For
instance, South African Supermarket called Shoprite owned an procurement agent called
Freshmark that had to ensure its suppliers were from areas where most crops were
supplied to export markets and complied with GLOBALGAP. Thus, most of Shoprite’s
retail network had to meet same standards in Africa as it did in Europe (Weatherspoon
and Reardon, 2003).

2. Use of contract farming and specialized procurements agents

MNCs face problems when they try to assess the standards of traditional supermarkets.
It’s hard to trace the origins of produce. Thus, they use contract farming for sourcing
agricultural products or use specialized agents to establish relationships with farmers,
hence tracking the standard of the final product. Specialized procurement agents are
used to ensure proper production processes of farming that meets the company’s
requirements. In this agreement, the company makes a list of exclusive suppliers
(farmers) to meet their standards in return for buying from them solely. The drawback of
this system is that it requires a considerable investment from farmers and it becomes
harder for farmers to get out of this contractual obligation.

3. Agribusiness MNCs’ supply chains and the decline of small farmers.

Accessibility of supermarkets to farms is very important in terms of logistics and
transportation to ensure the smooth operations of supply chain and small-scale farmers
cannot afford this in most situations. This often leads to farmers not meeting their
contractual obligations. For instance, in Latin America, the specialized procurement
agents dominate the food industry for supermarkets and thus, this leads to diminishing
alternative outlets for farmers who cannot meet the requirements of the supermarkets
(Dolan, Humphrey, and Harris-Pascal, 1999; Reardon and Berdegue, 2002). Research
shows that smaller producers of diary in Argentina and Brazil were out of business if they
failed to meet the requirements of the supermarkets. Eventually they end up serving in

19
local markets that has no requirements of meeting any formal standards or any quality
control, nor any obligation to pay taxes. As a result, this enables them to charge a lower
price (Fabrina et al., 2005).

E. Foreign-market access and exports

1. Trading MNCs and exports of traditional agricultural commodities
Most coffee, tea, sugar exported by MNCs were from developing nations. In most cases,
the companies owned lands and plantations for exporting these products or they hired
specialist traders to sell it in the international markets. For example, MNCs used spot
market trading to buy commodities from host countries. As a result, it helps generate more
exports and sometimes help the host countries exploit their comparative advantage. For
instance, the world’s largest cashew crop is grown in Africa but less than 3% is consumed
in Africa, as there is lack of resource and capabilities and poor governmental policies in
Africa. Also labor costs in Africa are high compared to those in India and Vietnam.
Exporting processed cashews is hard for Africa as it as bad reputation of kernels. Thus
MNC participation can help in Africa upgrade its comparative advantage. Olam, a
Singaporean MNC exported cashews through its traders in Vietnam and India for 20
years. In 2003, it decided to start a 5-year plan of increasing productivity and export
infrastructure in Africa by building factories in Ivory Coast, Nigeria, and Tanzania.

2. MNCs and exports of non traditional agricultural products

Despite having few trade barriers, non-traditional products are very strictly assessed for
quality control, which puts a lot of pressure on host countries. Kenya had very poor
resource and capabilities, but the involvement of MNC helped boost its exports and
access to foreign market. For instance three quarters of Kenya’s vegetables and fruit
sales in United Kingdom were accounted the supermarkets (Dolan and Humphrey, 2004).

5. IMPLICATIONS OF AGRIBUSINESS FROM

MNCs.
From above, there are various areas of impact when MNCs participate in agribusiness,
such as the provision of finance and investment, technology transfer and innovation, and
foreign market access and exports. It also considers the overall impact on agriculture and
wider economic implications.
When involving into agriculture production in developing countries, MNCs’ activities also
have various broader implications which are concerns about their environmental, social
and political repercussions. This part of report will address some aspects of these broader

20
implications and, in the case of food security, also consider the implications for both host
and home developing countries.

A. Implications on the environment

Agriculture and natural environment are closely connected. Agriculture activities have
created and maintained a variety of semi-natural living environment. However, the
agriculture production can also harm the environment through its damaging impacts on
air, water, soil and biodiversity. As other industries, the impact of MNCs activities in
agriculture production is an important aspect on sustainable development in host
countries. These impacts are depended on the number of elements, which are: the
specific crop or activity where MNCs are participated; the production technologies are
used; MNCs’ scale of operation; their management strategies and their practices; and the
rule and regulations with respect to the environmental impacts. It is not clear that MNCs’
operation takes bad impact or reduce negative effects of agriculture production on the
environment as normal operation at the host developing countries.
When operating in agriculture production, MNCs have transferred and disseminated
technologies. Although this activity has support for sustainable agriculture development
in developing countries, MNCs have done both positive and negative performance. For
example, in cut flower industry, MNC has brought their environment-friendly farming
technology of using geothermal steam to fight fungal diseases. Organic planting
technologies and standards introduced by MNCs have contributed more value creation
and higher income for farmers in the host countries. In other side, the technologies MNCs
used in banana industry during 1980s ~ early 1990s, caused some environmental issues.
Two case-studies in Banana plantations and Soya Beans in Latin America will give more
insights into the environmental impacts and implications of MNCs’ practices in
agribusiness.

Banana plantations in Latin America:

During the period of late 1980s to early 1990s, the MNCs’ evolvement in the banana
plantations in Latin America arose many environmental issues. The demand by
consumers of industrialized countries for bananas of excellent appearance, has led the
international companies to produce a banana of uniform size and color without blemishes.
The production of these bananas is carried out under highly technician systems, in which
great quantities of pesticides and chemical fertilizers are used. Another result of this
highly selective production is that great quantities of bananas that do not comply with
international norms are discarded. The "cosmetic banana" is dependent on high
technology and intense use of agrochemical, as well as generating high levels of waste.
For example, in 1992, the polluting of water sources with Chlorothalonil was
demonstrated in a study carried out in the Valle de la Estrella (production area of Standard
Fruit Company, comes from United States, now Dole Food Company) by the Association

21
for the Defense of Watersheds and by Guilombe Foundation. This case was recognized
internationally by the International Water Tribunal with headquarters in the Netherlands,
where Standard Fruit was sanctioned. The MNCs in banana industry also came under
increasing criticism from NGOs concerned with human rights and environmental issues.
It made pressure to the Board of Managers in these MNCs. As well as pressure from
shareholders, as the concept and practice of corporate social responsibility became more
popular. It required MNCs in banana industry in Latin America to improve their social and
environmental performance. Other market influences, such as surplus production, strong
competition, the pressure of retailers and changing consumer preferences, also ask
MNCs to vary products to retain their market share by offering “environmentally friendly”
banana as a way to attract more consumers.
Applying environmental standards and certifications is also played a significant role to
MNCs to response with environmental concerns. Initially they established their own
standards and increasingly are conforming to International standards. However,
sometimes MNCs apply environmental certifications are not willing due to their un-
openness culture made it difficult for them to collaborate with civil society organizations.
Even though, collaboration with NGOs and independent certification programmers has
helped MNCs reduce their criticisms, but it’s not enough. MNCs still need to demonstrate
real progress towards environmental sustainability of their banana production activities.
This progress is required to deploy into their suppliers also.

Soya Beans in Latin America:

Beside of impacts in directly agriculture production can lead to environmental issues, the
impacts of MNCs in entirely agribusiness value chain in host countries also may have
critical environmental effects. By influencing the scale of production and the variety and
quality of agricultural products, MNCs supply seeds as one of inputs for processing
agriculture production can affect land using and other production sources, which lead to
affect to various aspects of the environment. For example, in the planting of soya bean –
a main source of animal feed, MNCs and seed suppliers have had an important effect to
scale and character of farming. The way of these MNCs take part in soya bean production
has led to a large-scale expansion of production and to a shift to huge farming in South
America. This has raised concerns about the impact in term of the vanish forest around
Amazon biome, especially in Brazil, the second largest soya bean producer in the world.
Currently, the area for soybean planting is around 0.3% Amazon biome. Therefore, it may
be a slight factor for deforestation in Amazon. However, this situation could change if the
profitability of soya farming continues to increase. It may lead to expand farming area to
Amazon, which play as a indirectly driver of deforestation. The expansion of soybean
production has also brought positive impacts on environment. These MNCs has used
Genetically modified soybean, Roundup Ready soya bean, which enables the use of
Glyphosate. This kind of is herbicide is used to kill weeds, especially annual broadleaf

22
weeds and grasses that compete with crops. It’s also reduced soil erosion by controlling
the serious weed growth that such a system generates. However, there are concerns that
using Glyphosate may also have environmental and health issues, and that the Roundup
Ready soya bean could be potentially damaging to environment due to the uncertain
impact of releasing genetically modified organisms into nature as well as its impacts to
biodiversity and health which are concerned. To handle the pressure from environmental
groups, the MNCs soya producers and exporters operating in Brazil have signed an
agreement to commit themselves to refrain from purchasing soya from lands that have
been deforested in the Amazon biome.

Overall, firms in agriculture production has improved their environmental performance in

many parts around the world, basically in response to environmental regulation and/or
community pressure, but also with respect to MNCs participated in the specific agricultural
crops as above.

B. Social effects and political implications

It can divide into four types of the issues and concerns related to social and political
implications that MNCs created while involving into agribusiness, which are: (1) impact
on the political process of the host country; (2) impact on income distribution and poverty
in rural areas; (3) arising a range of socio-political externalities, such as the disruption of
traditional economic systems, and impact on health, safety; (4) land rights.

MNCs’ impact on the political process in the host country.

There are many concerns about the participation and involvement of MNCs in political
process, such as supporting sensitive regimes or agrarian elites in Latin America or Asia.
During their operation, MNCs’ lobbying may also have impacts to harm to the broader
interest of the host country, especially the countries have weak governance structure. It
has been indicated on the Right to Food by United Nations Special Rapporteur that “As
financially powerful lobbying groups, corporations can also exert great control over laws,
policies and standards applied in their industries, which can result in looser regulation
and negative impacts on health, safety, price and quality of food”. Not only in national
level, lobbying may also take place at the international level. The Special Rapporteur also
notes that: “the FAO/World Health Organization Codex Alimentarius Commission, which
sets international standards for food safety recognized by WTO, is criticized by civil
society organizations for failing to include the participation of small producers and
consumers, and being heavily influenced by the lobbying and participation of large
agribusiness, food and chemical corporations”.

MNCs’ impact on income distribution and poverty in rural areas.

23
According to the analysis in previous, commercialization of agriculture can drive small-
scale farmers out the agriculture supply chains. With the participant of MNCs in
agriculture production, despite the entire economy can gain, the poverty of farmers in
rural might be made worse. In fact, this situation happens in any industry, but it’s
particularly majority of poor people living in rural areas could be the worst affected. In
additional, in developing countries, rural citizens act less political influence on their
national government than urban citizens. Thus, it’s difficult for rural citizens to attract
public action for their problems. However, there are possibilities to reduce or even reverse
these negative impacts by investing in capabilities and facilities in rural areas.
The unfair distribution also has significant gender aspect. For example, in the traditional
retail markets, women can get income-generating opportunities. With the involvement of
MNC’s which might lead to loss these markets, women can also lose their source of
income. In some countries, especially the developing countries, there are restriction on
women’s mobility or jobs the can undertake, or they are denied educational and other
rights. It makes these women can loss more than men through the processes associated
with commercialization, often driven by MNCs. In other hand, some MNCs’ investing
operation may create more employment opportunities for women. Almost it happens in
export-oriented products, like cut flowers and vegetables. However, these women have
get impact as mixed with other worker. For example, in Kenya, women in flowers cutting
jobs were treated illegally as other type of workers which may lead to reduce their income
and other benefits.
Socio-political externalities
There are both sides of negative and positive for the socio-political externalities arising
from MNC participation in agriculture production and rural communities. When involving
in agriculture, MNCs operation may replace an existing system by the new one which
support for their operation and benefits the poor in the long term. This operation may have
unpredictable consequences. For example, the rural communities in developing countries
often rely on a local credit system which operates through traditional markets. When these
markets lost by MNCs’ operation, the credit system also lost, causing financial problems
for these communities. In other side, the rural communities can take advantage of
capabilities, facilities or institutions provided or created by MNCs. Rural road
improvement is an example for this positive side. Another example for both sides of socio-
political externalities that is the health of workers and communities’ issue. As mentioned
in previous, planting GM soya bean can raise many concerns about health for
communities. However, with the MMCs induct organic produce can provide better working
condition, which make their maker be healthier than the farmer use conventional
methods.

Land acquisitions and land rights.

24
To running the operation, International companies frequently acquired land in developed
as well as developing countries. Some companies use the land to establish factories;
others need it to create infrastructure facilities such as ports other hinterland operation;
and of course, agribusiness companies need land for their huge plantation and farms.
However, almost the agricultural companies implement leasing operation rather than take
the ownership of land. However, there are a number of large-scale deals in developing
countries recently, have led to protests/vociferous debate over so-called “land grabs”.
There are two basic issues with promoted the concerns. First, the sensitive balance
between the positive and negative impacts of MNCs participation may well be skewed in
favor of the latter for these MNCs. Furthermore, it’s important to notes that the large-scale
land deals take places in LDCs or the poor countries, which are facing several food
insecurities and these deals may hinder their food security. Secondly, away from large-
scale land acquisitions, MNCs involvement in agricultural production has implication for
land rights of host countries communities. In the countries MNCs involving in commercial
agriculture, their operation accelerates the process of reform to property rights. It can
increase the investing opportunities of MNCs and other firms (domestic and foreign), and
may unlock the productive potential of land. However, it also may lead to the loss of right
of local communities if they are not properly compensated. MNCs are both drivers for
land-reform and beneficiaries which may arise both advantages and disadvantages for
host countries. Thus, even though land reforms may be essential for the long-term
development of a country, it is important that they be introduced in a fair, reasonable and
transparent manner.

In general, there are consideration of social and political impact of MNCs involvement into
agriculture on host countries. Based on above discussion, it can determine the host
countries’ government need to consider how best the revolution of agriculture and rural
communities can be brought our which can utilize and ensure effective linkages of MNCs
with local communities. They also should examine carefully the resources used and
changes created or induced by MNCs to make sure that they are in line with national
development goals and trajectories.

C. Implications for food security in host and home developing

nations

According to FAO’s definition, food security is required four conditions to be met: (1)v
availability of food, (2) access to food, (3) stability of supply, and (4) safe and healthy
utilization. This part of report will present the implications of MNCs’ involvement for these
four dimensions for all developing countries, even they are host to MNCs in agricultural
production or home to such MNCs.

25
1. Implications for host countries
While involving in agriculture production, MNCs operations surely affects aspects of
food security as below figures refer from World Investment Report 2009, in both positive
and negative ways.
TNC participation in agricultural production and impact on food security.

Availability of food
As the most important dimension of Food Security, the availability of domestic food crops
is contributed by MNCs operation in agriculture production, such as increasing the entire
production volume for the certain crops. However, as major purpose of these MNCs,
almost of this production may be spent for exports. Moreover, a large ratio of MNCs’
production are high-value types of tree, which may not play as staple foods of host
countries concerned. In additional, there is a risk that MNCs’ operation may take bad
impact to smallholders or other local farmers, either through direct competition in product
markets and or through using for natural resources. By that, it might lead to reduce the
volume of food supply available for domestic consumption.
When involving into agricultural production, especially by contract farming, MNCs also
give opportunities for local farmers to approach the advanced agricultural technology,
modern management techniques and knowledge of supply chain management. It can
take positive impacts to improve the capacity of local agricultural producers. The host-

26
country farmers can apply these knowledges to their own food crops other than the one
they produce under contract farming with MNCs.

Access for food

Depend on the cooperation from MNCs and management of host developing countries,
the modernize agricultural industry in the host countries can be promoted, and the
productive agriculture can be used to speedup the development process, and also the
increasing income for both urban and rural citizens will support to enhance the access to
food of citizens. The wider operation of MNCs will required more investigation in
infrastructure. This helps to enhance access to food as well.

Stability of supply
Even not contribute a direct impact on enhancing the stability of food supply, the operation
of MNCs may effect on supply stability by introducing new crops or utilize technical
transferring for local farmers in new fields. In other hand, planting only certain kind of
crops can lead to serious risk if disease and natural disasters are be cared well. With the
MNCs such as manufacturers or supermarkets they have ability and motivation to ensure
the stability of food supply for their customers.

Food utilization
By introducing and applying the higher quality and safety standards to the host developing
countries, MNCs can spread the knowledge of these standard to farmers and consumers
in their host countries. It will affect to the food utilization in the host countries. However,
not only the good factors of food utilization can be transferred, the host countries will
receive either negative and unhealthy eating habits which are against to their traditional
ones

2. Implications for home countries

The GCC countries and Republic of Korea has set up their national food security
strategies by investing in agricultural production aboard, particularly at staples as rice and
wheat for their own domestic consumptions. Among four main elements of food security
mentioned above, their primary objective is to ensure the stability of supply. For some
other countries, they are shifting their production of crops to overseas due to their lack of
land and water resource in their own countries.
However, the past investment of Republic of Korea in the 1960s, 1970s and 1990s, and
some GCC countries in 1970s were unsuccessful generally. There are plenty reasons of
these failures, such as strict regulation in the host countries, not proper investment
policies and lack of experience and understanding local culture from home countries’ side.
Another major reason was too long for investment return period while the required initial
investment can be huge for infrastructure.

27
Even there were bad experience in the past, there are meaningful difference between the
investment environment of the past and the present. This may lead to a brighter result for
home countries on their overseas investment for food security. First, it is necessary to get
success in these investments, because the risks of expensiveness, shortages and
volatility in food crops are highly possible to happen in future. Secondly, there are more
investments in agriculture from developed home countries, so the new investments can
benefit from others as the agglomeration and scope. Finally, home countries perceive
there is no longer availability of the past abundant subsidized domestic agriculture. They
are willing to explore and find the solution to ensure their own food security.

6. CONCLUSION
It is obvious to evaluate the impact of MNCs participation in agricultural production as an
important development aspect, such as its contribution to investment, technology transfer
and foreign market access.
International companies can help to fill the investment gap in agriculture in developing
countries, which can support for increasing production capacity and output. However,
“there are no free lunch” for this kind of finance for agricultural development in developing
countries. There are relative terms in the farming contracts which made contractual
relationship of MNCs with local farmers with may lead the benefit for MNCs for long-term,
and these kinds of contracts are limited. Even though. MNCs participation in agricultural
productions provides effective channels of technology transfer. Evidence from case
studies suggest that the involvement of MNCs bring a variety of useful technologies to
developing countries. There are also opportunities the MNCs take R&D operation locally,
It makes them become players in local agricultural innovation system. However, their real
contributions are generally limited, specially for food staples in low-income.
The transfer of advanced technologies, the strengthening of farmers’ skills and
introduction of standards and modern SCM help to improve labor productivity, while better
watering and land management, improved seed varieties and soil fertility help to increase
land productivity. All these factors have been implemented while MNCs takes part in
agricultural production at developing countries. It also helps the host countries promote
sustainable and pro-poor agricultural development.
MNCs can help developing countries utilize their comparative advantages, to cross
various trade barriers and subsidies affected in developed countries with aiming to limit
the scale and scope of agricultural exports from developing countries.
However, there are also negative impacts arisen for the host developing countries while
MNCs involve the agribusiness value chain. For example, direct MNC involvement may
displace domestic investment and small farmers and may lead to unfair distribution of
economic benefits. Not all famers get benefits from MNCs’ involvement. Some may not

28
be able to work in a plantation or participant in contract farming schemes. When the MNCs
keep large agricultural land, it may raise numerous issues of social and political matters.
Depend on the host countries’ governmental environment, the real impacts and
implications of MNC involvement are different by side by side of countries and type of
crops. They involve significant more in high-value-added commercial products than
traditional cash crop, rarely in staple food crop. However, regarding to food security in
host countries, it is not defined by food supply. MNCs also take parts in food access,
stability of supply and food utilization. Eventually, MNCs impacts in food security are
taken more important roles.
Regarding to the method that MNC used for agricultural involvement, it can said that the
host developing countries can receive most of benefits via contract farming and also can
stay away of negative impacts may occur. By the contract farming, both sides of MNCs
and local farmers can increase their income and optimize their advantage when
considering the terms of contracts.
In general, the participation of MNCs agricultural production has promote the
commercialization and innovation of agriculture in developing countries. They contribute
importance elements in numerous countries, which included both positive and negative
factors. Thus, the governments in these countries need to be aware and sensitive to
these negatives and consider to prevent or reduce them.

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