Soaring global interest in Farmland how can mozambique benefit?

1. Soaring global interest in Farmlandhow can mozambique benefit? Maputo, Feb. 10, 2011 Klaus Deininger, World Bank

2. The global picture

3. Daewoo to cultivate Madagascar land for free Commodity price rise triggers land demand

4. Investor demand in Africa unprecedented

5. Historically, money can’t ensure success

6. A large danger of neglecting rights • Determinants of a country attracting investor interest/actual implementation

7. Actual land transfers lower but still large 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.

8. 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

9. Boundary of allocated land 1 km Boundary misaligned with road Allocation over existing smallholders No visible large-scale cultivation despite transfer 5 yrs ago An example from Zambia

10. 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

11. 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)

12. Mozambique has considerable potential Source: IIASA

14. Land ‘availability’ by country • World total • 445 Mn ha (< 25/km2) • 306 Mn ha (< 10/km2) • 198 Mn ha (< 5/km2) • Key characteristics • Highly 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

15. Illustrative expansion potential by crop Top countries with maize expansion potential (<25/km2) • Latin America’s advantages • Technology & land for expansion • Human capital • Infrastructure & market access • Institutions: • Property rights secure • Thriving land markets • Transparency • Contract enforcement • Financial 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

16. Available options differ by country • Africa • Latin America & Caribbean

18. 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

19. Implications for Mozambique

20. 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

21. 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

22. 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 create problems Limited delimitation

23. 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 A A A A A A

24. 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

25. Thank you!