Transnational Corporations,

Agricultural Production and

Development

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 Main Messages

 Foreign participation can play a role in agriculture in

developing countries to boost productivity and support
economic development.

 TNC participation in developing country agriculture is

small but larger than in developed countries.

 TNC participation in developing country agriculture can

have significant positive and negative impacts.

 TNC involvement for long-term agricultural development

requires an integrated policy approach aimed at
generating development benefits.

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 TNCs and agricultural
production in developing
countries

3
TNC participation in agricultural production in
host countries can take various forms
FDI and contract farming are the most important ones

4
FDI in agriculture and in food and beverages:
rising; the latter is larger
1990–2007, billions of dollars

60

50
Food and beverages Agriculture, forestry and fishing

40

30

20

10

0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

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In some developing and transition economies, the share of
agriculture in FDI inflows is relatively high
% of 2005–2007 inflows

Cambodia 15.1
Lao People's Democratic Republic 12.0
Malaysia 10.9
Ecuador 10.0
United Republic of Tanzania 9.4
Mozambique 9.4
Peru 8.7
Honduras 6.8
Indonesia 4.8
Ukraine 4.0
Ethiopia 4.0
Viet Nam 3.0
Vanuatu 2.5
Fiji 2.3
Chile 2.3
Costa Rica 2.2
Madagascar 1.7
Brazil 1.6
Islamic Republic of Iran 1.5
The FYR of Macedonia 1.3

0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0

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 Contract farming is a significant
component of TNCs’ participation in
agricultural production

 Why contract farming?

 For TNC: better control over quality than spot markets;
and less capital-intensive, less risky and more flexible than
FDI
 For farmers: predictable income, access to markets, and
TNC support in areas such as credit and know-how

 Extent of TNCs’ contract farming: over 110

countries across Africa, Asia and Latin America
 In some developing countries, share of
contract farming in output is high:
 Brazil: 75% of poultry production and 35% of soya bean
 Viet Nam: 90% of cotton and fresh milk, 50% of tea and
40% of rice
 Kenya: 60% of tea and sugar
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 TNCs from developing economies are key players in
agricultural production, but not in related industries
Top 25 TNCs in agribusiness industries (developing-country TNCs in green), 2007*

Privately owned (ranked

Rank Agriculture-based Suppliers Food and beverages Retail by agri-food sales)
1 Sime Darby Bhd. (Malaysia) BASF AG Nestlé SA Wal-Mart Stores Cargill Inc.
2 Dole Food Company, Inc. Bayer AG Inbev SA Metro AG Mars Inc.
3 Fresh Del Monte Produce Dow Chemical Company Kraft Foods Inc Carrefour SA Lactalis
4 Socfinal SA Deere & Company Unilever Tesco PLC Suntory Ltd.
5 Charoen Pokphand Foods Public Company EI Du Pont De Nemours Coca-Cola Company McDonalds Corp. Dr August Oetker KG
Ltd. (Thailand)
6 Chiquita Brands International, Inc. Syngenta AG SAB Miller Delhaize Group Louis Dreyfus Group
7 Kuala Lumpur Kepong Bhd. (Malaysia) Yara International ASA Diageo Plc Koninklijke Ahold NV Barilla
8 KWS Saat AG Potash Corp. of Saskatchewan Pernod Ricard SA Sodexo Ferrero
9 Kulim (Malaysia) Bhd. (Malaysia) Kubota Corp. Cadbury PLC Compass Group PLC Keystone Foods LLC
10 Camellia PLC Monsanto Company Bunge Limited Seven & I Holdings Company Ltd. McCain Foods Ltd
11 Seaboard Corp. Agco Corporation Heineken NV China Resources Enterprise Ltd. (Hong Kong, OSI Group Companies
China)
12 Sipef SA The Mosaic Company Pepsico Inc Yum! Brands, Inc. Perdue Farms Inc.
13 Anglo-Eastern Plantations PLC ICL-Israel Chemicals Ltd Molson Coors Brewing Company Autogrill Bacardi Ltd.
14 Tyson Foods Inc Provimi SA Kirin Holdings Company Limited Alimentation Couche Tard Inc Groupe Soufflet
15 PPB Group Bhd. (Malaysia) Bucher Industries AG Archer-Daniels-Midland Company Safeway Incorporated Golden State Foods
16 Carsons Cumberbatch PLC (Sri Lanka) Nufarm Limited Associated British Foods PLC Sonae Sgsp Groupe Castel
17 TSH Resources Bhd. (Malaysia) CLAAS KGaA Carlsberg A/S George Weston Limited J.R. Simplot
18 Multi Vest Resources Bhd. (Malaysia) Sapec SA HJ Heinz Company Dairy Farm International Holdings Ltd. (Hong Schreiber Foods
Kong, China)
19 Bakrie & Brothers Terbuka (Indonesia) Terra Industries Inc Danone Jeronimo Martins SA Muller Gruppe
20 PGI Group PLC Aktieselskabet Schouw & Co.A/S Anheuser-Busch Companies Inc Kuwait Food Company (Americana) (Kuwait) Bel
21 Firstfarms A/S Genus PLC Wilmar International Ltd. (Singapore) Kesko OYJ Perfetti Van Melle
22 New Britain Palm Oil Ltd. (Papua New Guinea) Scotts Miracle-Gro Company Sara Lee Corp. Starbucks Corp. Rich Products

23 Karuturi Global Ltd. (India) Kverneland ASA Constellation Brands Inc Burger King Holdings, Inc. J. M. Smucker
24 Nirefs SA Sakata Seed Corp. Fraser & Neave Ltd. (Singapore) Maruha Nichiro Holdings, Inc. Haribo
25 Country Bird Holdings Ltd. (South Africa) Auriga Industries A/S Danisco A/S Familymart Company Limited Eckes-Granini

* Ranked by foreign assets 8

 An example of South-South investment:
Olam’s (Singapore) agricultural commodity global network

Locations where Olam has a significant presence are highlighted by darker shading

Kazakhstan

Uzbekistan Tajikistan
Turkmenistan
China

Algeria
Egypt United
Arab India
Emirates
Honduras Vietnam
Thailand
Gambia
Guinea Burkina Faso
Nigeria
Liberia Cote
d'Ivoire Cameroon
Colombia
Ghana Singapore
Uganda
Congo
Togo Gabon Indonesia
Tanzania
Peru
Brazil Angola
Zambia Mozambique
Madagascar
Zimbabwe

Argentina

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Main agricultural produce targeted by TNCs
varies by subregion

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 Land acquisition is important for new investors
Investor and target regions/countries in land investment for agriculture, 2006–2009,
number of deals

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Development Implications
of TNC involvement in
Agriculture

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 Key observations

 TNCs are by no means the only – and seldom the

main – agents driving the commercialization and
modernization of agriculture in the developing world,
but they play an important role in many countries.

 FDI can help fill the investment gap in agriculture in

developing countries, as well as that in technology
and other resources.

 Contract farming can have various beneficial effects:

 Providing inputs and transferring skills to a very large number
of small farmers;
 Easing financial and technological constraints facing farmers;
 Linking farmers up to global markets.

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 Governments need to be aware of the
potential environmental, political and
social consequences

 Environmental consequences are diverse.

 Social consequences can be significant.

 Concerns also cover political interference and

extensive lobbying.

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 TNC participation in agricultural production
touches on all four dimensions of food
security

Domestic value chain

(Entry by agriculture-related
TNCs such as manufacturers
and supermarkets)

Spillover effects
(For instance, commercial
attitudes in standards and
safety, transferable skills)

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Policy challenges and
options

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 Policy Challenges of TNC participation in
agricultural production in developing countries

 To meet the rising food needs and to revitalize

agriculture, policymakers need to promote more
investment in this industry, both private and public,
and domestic and foreign.
 Main challenges in this regard include:
 Strategizing the agricultural sector and finding the right
place for TNC involvement (both FDI and non-equity
forms of participation) in order to implement the
strategy.

 Addressing social and environmental concerns, such as

land grab, crowding out of local farmers, protection of
indigenous peoples and environmental degradation.

 Design of an integrated policy approach, including

policies related to infrastructure, competition, trade and
R&D.
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 Leveraging TNC participation in agriculture
Policy recommendations

Host countries

In order to maximize development benefits and

minimize costs, host countries should consider:
 Promoting contractual
arrangements between
TNCs and local farmers,
such as contract farming.
 Addressing specific
obstacles to efficient
cooperation, such as
 Capacity-building
 Development of model
contracts.
 To maximize the development
contribution of FDI, special
regard needs to be paid to:
 The domestic legal
framework;
 Investment contracts
between the host
government and foreign
investors.
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 Leveraging TNC participation in agriculture
Policy recommendations

Home countries International

community

 Need to evaluate the pros  Consider the development of a

and cons of national set of internationally agreed core
strategies to promote principles for large-scale land
outward FDI for food acquisitions by foreign investors
security reasons. in agricultural production.

 Besides outward FDI, other  Encourage FDI in developing

approaches that could be countries by reducing import
taken into account are: tariffs, non-tariff barriers and
agricultural subsidies in
 Contract farming developed countries.
 Investments in local  Consider use of ODA for
infrastructure, e.g. trading agricultural development
houses, logistical strategies involving TNCs.
infrastructure
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 Four Development Challenges
Agriculture, development and the role of TNCs

WIR09 has examined the investment challenge, but to

realize the promise of agriculture also requires
addressing four other interconnected development
challenges:
 Work towards food security in developing
countries
 Harness technology to support agricultural
development
 Build domestic and regional value chains in
agribusiness
 Address concerns about « land grab », with a
particular accent in favour of the poor,
marginalized and dispossessed.

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