By Mahmood Hasan Khan
A three-page piece in the well-known British magazine, The Economist of May 23, 2009 (pp.61-3), included an interesting statement that ‘Pakistan is offering half a million hectares of land and promising Gulf investors that if they sign up, it will hire a security force of 100,000 to protect the assets.’ But Pakistan is not the only country where land is being offered to foreigners for (corporate) farming; it is in good company, e.g. Cambodia, Madagascar, Ethiopia, Sudan, Zambia, Congo, and Mali. The investors, e.g. from China, South Korea, Saudi Arabia, Kuwait, UAE, and Libya, want cheaper food (mostly grains) and raw material (crops for bio-fuels). The recipients see foreign investment as a source of new capital, technology, jobs, incomes, government revenue, and foreign exchange. Who is against foreign investment? Well, it depends! The anticipated benefits from foreign investment in farming would depend on a number of conditions.
If the statement cited from The Economist is fairly accurate, it raises several questions in the context of Pakistan. Who are the contracting parties? Whose land is being offered (sold or leased) and to whom? Is it a government-to-government transaction? Or is it a private-to-private transaction and the government is acting as an intermediary? What are the locations in Pakistan? Is it already developed land with access to surface or ground water? Or, would the foreign investors develop the land at their own expense? What price (per hectare) if the land is bought or what annual rent (per hectare) if the land is leased? What are the investors bringing in terms of capital and technology? Will labour will be local and how will its rights (wage, safety, etc.) be protected? What will be produced and in which market will the output be sold? Will the investors be given access to subsidised water, electricity, fuel, and other farm inputs? How about taxes on goods, incomes and repatriated profits?
Farming in Pakistan does need private and public investment—share agriculture in public investment has fallen quite significantly—and new technologies and management practices to raise productivity and produce cheaper food and raw material. But the benefits of foreign investment in farming (through buying or leasing of land) will depend on a number of factors. For one thing, there is not much cultivable land—primarily owned or controlled by the state—which can be used without substantial new investment. Most of the cultivated land is privately owned and operated by owners and tenants. There are also large uncultivated areas used collectively by communities for grazing of livestock. Which of these lands are being bought or leased by foreigners and on what terms? The answers to these questions will greatly influence the private and public benefits.
But land without adequate and reliable supply of water is of little value for agriculture in Pakistan, given the scanty and unreliable rainfall. The country’s surface irrigation system is notoriously inefficient and water scarcity is a severe constraint on agriculture. Ask any farmer! The ground water supply and its quality depend on location and would also require substantial investment. Then there is the issue of supply of power (i.e. electricity and fossil fuels). Farmers, as indeed other consumers, in Pakistan know well how inadequate and unreliable the supply of power is and how expensive it is to acquire. It is also well known that both the irrigation water and power are under-priced. Will the foreign investors compete for the subsidy on relatively the most scarce farm inputs (water and power)? Or will the investors bear the full cost of these and other farm inputs?
Related to these issues is the question of labour employment: extent of new jobs, level of wages and working conditions. Will the investors use technologies that save on land and capital and absorb relatively abundant domestic labour? Imported capital (machinery) often tends to reduce (and not induce) the demand for labour. In addition, labour contracts can be quite flexible, giving disproportionate leverage to the employer. It is important, therefore, to secure and protect the rights of labour, including wages, health and safety. In case the foreign investors are offered cultivated lands on which farm labour is currently employed (as tenants or wage labour), it is essential to protect (and even strengthen) their existing claims.
There are important consequences of the decisions that the investors would make about the types of output (crops and livestock products), their processing and disposal in foreign and local markets. From Pakistan’s point of view it would be important to produce output that economises on farm inputs (particularly water), carries relatively high value, and generates employment. The more the output is processed locally and then marketed the more beneficial it will be in terms of its impact on jobs and incomes inside the country. If the output consists mainly of food crops (or livestock products) which are then exported, it would be important to know the impact on domestic supply and prices of these products.
Finally, there are issues related to the taxation of goods and income (repatriated profits) since they have serious implications for the government revenue and foreign exchange earnings. If concessions are given on taxation and repatriation of profits, it would be important to know the benefits (i.e. new income, output, employment, and technology) in return and compare these concessions with those given to domestic producers.
Needless to add, good governance requires that the intended transactions are made public and the transaction process is kept transparent. In fact, public discourse and debate on these issues, preceding these transactions, would facilitate and not hamper the flow of foreign investment to serve the public good and not the interests of particular groups or individuals.
