World Investment Report 2009

Transnational Corporations, Agricultural Production and

Development

EMBARGO 17 September 200917:00 hrs GMT

UNCTAD Division on Investment and Enterprise 17 September 2009

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PART ONE

FDI Trends, Policies and Prospects

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PART ONE Main messages I

� Global FDI flows have been severely affected worldwide by the economic and financial crisis, and the crisis has changed the FDI landscape.

� The agriculture and extractive industries have weathered the crisis relatively well, compared with business-cycle-sensitive industries.

� The crisis has affected all modes and components of FDI.

� FDI by funds has also been hit, in some cases severely.

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PART ONEMain messages II

� The crisis has impacted adversely on TNC FDI plans both directly and indirectly.

� Nevertheless TNCs plans indicate an improvement in FDI in 2010 and substantial recovery in 2011. Thus, though the immediate FDI prospects are bleak, the mid-and long-term prospects are favourable.

� Overall policy trends during the crisis have so far been mostly favourable to FDI.

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Global slowdown in FDI prompted by the crisis

Global FDI inflows, 1980 – 2008

($ billions)

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Regional developments in FDI inflows in 2008

($ billion)

FDI inflows, by groups of economies, 2006-2009:Q1For 2008:

� Developed: $962 billion, 29% decline

� Africa: $88 billion, 27% increase – record

� LAC: $144 billion, 13% increase – record

�South Asia, East Asia, South-East Asia: $298 billion, 17% increase – record

� West Asia: $90 billion, 16% increase – record

�Least developed countries: $33 billion – record

� Preliminary data for more than 90 countries reveals that FDI inflows plummeted in all regions in early 2009.

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The FDI landscape has shifted in favour of developing and transition economies

Average 1999-2001

Developed economies

78%

Developing economies

21%

South-East Europe and the

CIS 1%

Average 2007-2008

Developed economies

63%

South-East Europe and the

CIS 6%

Developing economies

31%

(Percentage share of inward FDI received by developed, developing and transition economies)

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Top recipients of FDI inflows in 2008

� The United States remained the largest recipient country, followed by France, China, the United Kingdom, and the Russian Federation

• The entry of the Russian Federation and the return of China to the list of top five recipients are symbolic of the changing FDI landscape of 2008

Global FDI inflows, top 20 economies, 2007–2008

($ billion)

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Cross-border M&As have declined strongly in wake of the crisis

a Data for 2009 are estimated by annualizing data for the first half of 2009.

Value of global cross-border M&As, 1988-2009a

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2008 was a record year for SWFs… but the picture is very different in 2009

Value of FDI by SWFs and number of deals,

1988-2009:Q2

� FDI by sovereign

wealth funds (SWFs) rose by 16% in 2008 to $20 billion

� The value of their cross-border M&As –the predominant form of FDI by SWFs – shot up 44% to $14.8 billion

� Cross-border M&A data from the first half of 2009 suggests that SWFs are also being strongly impacted by the crisis as exports from their home countries fall

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National policy changes towards FDI

5.0 6.0 8.018.0

95.0 94.0 92.082.0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1993-1996 1997-2000 2001-2004 2005-2008

Less favourable More favourable

Policy changes towards FDI are still largely favourable

� Favourable measures towards FDI are still far greater than

unfavourable changes, despite the financial and economic crisis.

� However, there are some signs of increasing “covert” protectionism in the form of favouring products with high “domestic” content in government procurement and the invocation of “national security”exceptions that stretch the definition of national security.

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Preliminary data for 2009 confirmsTNCs’ forecasts for the year

• Preliminary data for 2009 suggest that FDI inflows nosedived in across all economic groupings.

• Compared with the same quarter of 2008, FDI inflows fell during the quarter by:• 46% in developed countries

• 39% in developing countries

• 46% in transition economies

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Global FDI Prospects, 2009 - 2011

($ billion)

Global FDI inflows, 2005-2007 and projection for 2009-2011

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PART TWO

Transnational Corporations, Agricultural Production and

Development

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Why have we selected this topic in the middle of the financial crisis?

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� 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.

Main Messages

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TNCs and agricultural production in developing

countries

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TNC participation in agricultural production in host countries can take various forms

FDI and contract farming are the most important ones

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FDI in agriculture and in food and beverages: rising; the latter is larger

0

10

20

30

40

50

60

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

Food and beverages Agriculture, forestry and fishing

1990–2007, billions of dollars

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

% of 2005–2007 inflows

1.3

1.5

1.6

1.7

2.2

2.3

2.3

2.5

3.0

4.0

4.0

4.8

6.8

8.7

9.4

9.4

10.0

10.9

12.0

15.1

0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0

The FYR of Macedonia

Islamic Republic of Iran

Brazil

Madagascar

Costa Rica

Chile

Fiji

Vanuatu

Viet Nam

Ethiopia

Ukraine

Indonesia

Honduras

Peru

Mozambique

United Republic of Tanzania

Ecuador

Malaysia

Lao People's Democratic Republic

Cambodia

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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 key players in agricultural production, but not in related industries

Top 25 TNCs in agribusiness industries (developing-country TNCs in green), 2007*

* Ranked by foreign assets

Rank Agriculture-based Suppliers Food and beverages Retail

Privately owned (ranked

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

Ltd. (Thailand)

EI Du Pont De Nemours Coca-Cola Company McDonalds Corp. Dr August Oetker KG

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,

China)

OSI Group Companies

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

Kong, China)

Schreiber Foods

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 N ichiro Holdings, Inc. Haribo

25 Country Bird Holdings Ltd. (South Africa) Auriga Industries A/S Danisco A/S Familymart Company Limited Eckes-Granini

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Colombia

Argentina

Honduras

PeruBrazil

AlgeriaEgypt

Togo

Liberia

GambiaGuinea

Cote d'Ivoire

Burkina Faso

Ghana Uganda

Tanzania

CongoGabon

Cameroon

AngolaZambia Mozambique

ZimbabweMadagascar

Nigeria

United Arab

Emirates

Kazakhstan

Uzbekistan

Turkmenistan

Tajikistan

India

China

ThailandVietnam

Singapore

Indonesia

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

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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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� 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.

Key observations

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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 countriesHost countries

� 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 developmentcontribution of FDI, specialregard needs to be paid to:

� The domestic legalframework;

� Investment contractsbetween the host government and foreigninvestors.

In order to maximize development benefits and minimize costs, host countries should consider:

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Leveraging TNC Participation in Agriculture

Policy recommendations

Home countriesHome countries International International communitycommunity

� Need to evaluate the pros and cons of national strategies to promote outward FDI for food security reasons.

� Besides outward FDI, other approaches that could be taken into account are:

� Contract farming

� Investments in local infrastructure, e.g. trading houses, logistical infrastructure

� Consider the development of a set of internationally agreedcore principles for large-scaleland aquisitions by foreigninvestors in agricultural production.

� Encourage FDI in developingcountries by reducing import tariffs, non-tariff barriers and agricultural subsidies in developed countries.

� Consider use of ODA for agricultural developmentstrategies involving TNCs.

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Four Development ChallengesAgriculture, 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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Thank You!

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www.unctad.org/diae

and

www.unctad.org/wir

www.unctad.org/fdistatistics