Analysis & Opinion

Investors overseas or the industrial squeeze?

Written by Chris Chancellor

In response to growing concerns over EU farmland concentration, a recent European Commission communication has addressed how states can deal with foreign farmland acquisition. But does this miss the point?

The state of EU agriculture is fast becoming a topic of concern. As officials endeavour to hammer out a new Common Agricultural Policy (CAP) for the post-2020 period, alarming revelations have continued to emerge on both the environmental and social impacts of current production systems. A big part of this is related to who actually controls European agriculture today.

A creeping crisis

In April this year, the European Parliament adopted an own-initiative report that demanded action to reverse the trend of farmland concentration in the EU, in which 3% of the farms now control over 52% of the land.

3-52
Concentration of farmland control in the EU. Source: data taken from TNI report.

In addition, a 2015 investigation revealed widespread farmland grabbing within the bloc. These trends go hand in hand with a CAP that has prioritised a technical industrial agricultural model; this has been built on a vision of ‘productivity’ defined narrowly by yield and economic revenue, with little acknowledgement of wider socioeconomic and environmental factors. This oversight has its consequences.

A recent study found a worrying decline in insect populations in Germany, which it attributed largely to increases in chemical pesticide use; flying insect numbers have decreased by 75% in the last 27 years. Insects are crucial to human agriculture: they are pollinators, help control pests, and are agents of soil fertility and health. Their demise points to a worrying state of affairs for agricultural livelihoods and general food security.

Flying insect decline copy
Flying insect population decline in Germany. Source: data taken from Hallmann et al. (2017)

This year also saw the launch of the Global Land Outlook report from the UN Convention to Combat Desertification (UNCCD), which warned of the worrying pace at which soils are being depleted worldwide. Again, industrial-scale intensive agriculture shoulders much of the responsibility.

As a result of these developments, civil society as well as some Member States have been pushing the EU in order to clarify how they can intervene in agricultural land markets without breaking EU law. In mid-October, the European Commission (EC) issued a document explaining where it stood on regulating farmland acquisition within the EU. The communication basically provided an initial commentary on the current scenario as they see it, and then some recommendations for policymakers in Member States.

 

The Commission position

The communication is based largely on the jurisprudence of the Court of Justice of the European Union (CJEU). It has looked at the court’s historic rulings on attempted farmland regulation within EU member states, and interpreted these to provide some basic guidelines on what is considered acceptable and what is not.

The key barrier to strict farmland regulation is the need to comply with fundamental freedoms and principles from the Treaty of the Functioning of the European Union (TFEU). Those most relevant for agricultural land acquisitions are the free movement of capital, the right of establishment, and the principle of non-discrimination on grounds of nationality. The EC document highlights the importance of maintaining these principles, especially the free movement of capital, and forwards the viewpoint that these capital flows are needed in order to enhance agricultural productivity.

There is thus very little room for manoeuvre for states looking to control how their arable lands are traded, who comes to control them, and how they are used.

The special nature of agriculture

However, farmland does get some form of special dispensation. The CJEU has recognised the special nature of agriculture, and accepts that in some specific circumstances, these fundamental freedoms can be restricted in the interest of the ‘overriding public good’. Some objectives that justify regulating farmland transactions, according to the EC document, include:

– to increase the average size of holdings to allow greater economic exploitation

– to prevent land speculation

– to preserve agricultural communities, keep land in agricultural use, and maintain a favourable distribution of land ownership for socio-economic and environmental reasons.

Whether or not a particular Member State’s policy intervention is justified by one of these objectives is reviewed on a case by case basis by the CJEU.

In addition, states must comply with the principle of proportionality. This means that the law must be adjudged to suit the relevant objective, but must not go beyond what is deemed necessary to achieve that objective. Basically, it must be proven that the regulation cannot be replaced by a less restrictive alternative.

Tools to rule (or rule out)

The types of regulation deemed likely to pass CJEU scrutiny are as follows:

– Prior authorisation of farmland transactions (process must be based on objective and pre-released criteria, and not subject to discretion of relevant state authority)

– Pre-emption rights (considered less restrictive than prohibition of purchase by non-farmers)

– Price controls (prevention of ‘excessively speculative’ prices).

Whereas the following policy tools are considered unlikely to gain approval:

– Self-farming obligation (not considered proportionate)

– Requiring farming qualifications from purchasers (not considered proportionate)

– Restrictions based on residence (adjudged to restrict free movement of capital, as well as freedom of establishment and ability to choose residence freely)

– Prohibition on selling to legal persons (adjudged to disproportionately restrict free movement of capital and freedom of establishment)

– Acquisition caps (CJEU has actually discerned land concentration as being in the overriding public interest, so caps are unlikely to receive approval)

– privileges in favour of local acquirers (adjudged to restrict free movement of capital and freedom of establishment, as well as discriminate on grounds of nationality)

Miscommunication?

The communication seems to have identified foreign ownership of arable land as the primary cause of concern here. While it recognises this as a political issue, it plays down foreign ownership levels in the EU, portraying them as negligible, although increasing.

However, they base their interpretation on outright acquisition, which is a rather out of touch approach, as it misses the preferred tactic of controlling land through national subsidiaries or through leases. In addition, firms controlling input markets or the downstream sector essentially gain de facto control over farmland decision-making. Acknowledging these aspects would paint a wholly different picture, and a rather alarming one at that. This is particularly the case in Central and Eastern Europe (CEE), where fertile soils and cheaper land are attracting increasing numbers of agricultural investors and speculators. In Romania, for example, up to 40% of the land is estimated to be controlled by foreigners.

Romania foreign controlled farmland
Foreign-controlled farmland in Romania. Source: data taken from European Parliament (2015)

More to the point though, this focus on foreign investment as the main cause of concern is a misplaced one. The anxiety in civil society has nothing to do with nationalism, nor should it. Of primary concern here is the nature of land transactions, and the accelerating transfer of farmland control to industrial agribusinesses and financial investors. This is occurring both within and across borders.

These sorts of investors are propagating a production model that is draining not only the soils, but also populations from rural areas. The drive for productivity has transformed European agriculture into an extractive industry, treating land as any other input and people as disposable aspects of progress.

In rural areas, the livelihoods of entire communities have been replaced with machines and farm managers. This has deepened rural poverty and placed the reigns of our food system in ever fewer hands. The new generation has been left with little choice but to head for the cities. Of course there are many other factors at play in this process, but there is no doubt that industrialisation of agriculture has been central in deconstructing viable rural livelihoods.

A capital affair

Another point put forward by the EC document is the benefits for productivity that foreign investments have brought. It highlights how undercapitalised agricultural areas across the globe have benefitted from inflows of capital and knowledge from foreign investments. However, the focus on foreignness once again deflects attention from the real problem: the nature of these investments and the way in which productivity is defined.

The capitalisation of agriculture has focused on a technical production model, often importing the inputs and then exporting the produce. Productivity in this sense is defined by the yields per hectare that can be achieved, and the economic revenue that can then be attained from the output. This framing passes over who controls the whole process, who reaps the benefits, and the wider socio-economic and environmental consequences of this structure.

Productivity in agriculture is in urgent need of a redefinition. It must incorporate a more holistic understanding of the ecological and social costs and benefits of different modes of production.

If it did so, a wholly different picture would emerge. A recent study estimated that for every $1 of agricultural produce that consumers purchase, society pays an extra $2 in an attempt to clean-up the environmental and health costs of its production.

Out of proportion?

Recognising agricultural productivity in a wider context would also help to reconfigure the legal policy environment. Many of the objections to different policy options set out by the CJEU are to do with this issue of proportionality. This is a subjective judgement, rather than something based on concrete criteria.

Given the favourable light in which the EC views deregulated investments in agriculture, there is not a sense of urgency or necessity in regulating farmland control and acquisitions. Because of this, tougher and more effective measures to protect farmland from dangerous forms of investment are unlikely to get the go ahead, as a lesser ‘more proportional’ measure will always be sought.

The problem is that the proportions of the emerging food system crisis are not fully understood, nor is it fully appreciated how close to the brink we might be teetering. This needs to be addressed, and there is evidence that the tide is starting to turn.

In October this year, the European Parliament demonstrated a strong opposition to some of the ills of industrial agriculture. On 24th October, Members of the European Parliament (MEPs) voted to reject EC proposals to renew the license for glyphosate, a highly potent chemical ingredient in herbicides. In addition, they voted to decrease acceptable limits for cadmium, a hazardous metal present in fertilisers. On the same day, EC proposals for licensing for placing on the market of new GM varieties of soy, oilseed rape and maize were voted down by MEPs.

If EU farmland is going to be sustained in a state that can feed, nourish and provide livelihoods for future generations, this kind of foresight needs to be shown and acted upon across the sector.

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