10 FROM SUBSISTENCE TO PROFIT


cycles or their long-term needs for more productive capi- tal investments, such as machinery and storage facilities. Further, microcredit schemes are oſten incompatible with high covariate risks (including droughts and floods that affect whole communities) and the high transaction costs of delivering services to small-scale and geographically dispersed farmers. Tis situation forces some smallhold- ers to turn to informal moneylenders (who charge even higher interest rates) for short-term loans to cover their unsustainable microfinance debt. Microfinance loan delin- quency in Bosnia and Herzegovina, Morocco, Nicaragua, and Pakistan has been linked to borrowing from multi- ple geographically concentrated microcredit institutions, overstretched microfinance capacity, and a loss of micro- finance credit discipline (Chen, Rasmussen, and Reille 2010; Schicks and Rosenberg 2011). Foreign direct investment (FDI) offers another way to


bridge the investment gap in agriculture, but challenges remain on how to link it beter to smallholders and maxi- mize smallholder benefits. Currently, only a small segment of FDI in developing countries reaches the agricultural sector. In Cambodia, 15 percent of authorized FDI bene- fits agriculture, in Mozambique the share is 9 percent, and in other countries it is even smaller: 4 percent in Ethiopia


and less than 1 percent in Bangladesh (UNCTAD 2009). FDI flows to African agriculture are growing, how- ever, and have tripled in the period from 1989–1991 to 2005–2007. Although FDI in agriculture is not new, recent trends


indicate increasing levels of resource-seeking investments (compared with past market-seeking investments). A signif- icant fraction of the growth in FDI flows to Africa is spent on land acquisition. Figure 4 shows the amount of arable land allocated to investors between 2004 and early 2009 in five countries in Africa. Almost 80 percent of this amount is from foreign investors, except in Ethiopia, where 60 per- cent is owned domestically. It is oſten unclear, however, whether the land is leased or purchased, whether invest- ments are installments or full payments, what fraction is spent on investments beyond land acquisition, and what proportion is accrued by smallholders. Although large-scale land deals have the potential to stimulate rural economic development by bringing in capital and technology, there are potential risks, including irreversible natural resource degradation; displacement of smallholder farmers by large, capital-intensive farms; and increasing domestic food inse- curity due to rising food exports (Robertson and Pinstrup- Andersen 2010).


FIGURE 4 Land area allocated to investors, 2004 to early 2009


100 200 300 400 500 600 700 800 900


0 Madagascar Source: Cotula et al. (2009). Ghana Ethiopia Mali Sudan 2.5


Other land allocations (left axis) Largest single land allocation (left axis)


Allocation as a share of land suitable for rainfed crops (right axis)


1.5 1.0 0.5 0.0


2.0


Allocation as a share of land suitable for rainfed crops (%)


Total area (thousand hectares)


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