Research Activities: A new IEE Working Paper Addresses Issue of Minimum Compensation for Landgrabs

Co-author Marc Hansen shares the key ideas of the paper.

Recently, the practice of land grabbing has come under increasing scrutiny by researchers and civil society. This is due to the fact that in the wake of the 2007/2008, food, financial, and fuel crisis investors have increasingly shown an interest in large-scale land leases and acquisitions, particularly in developing countries. The current re-emergence of land grabbing post-2008 can be characterised by a diversification of crops cultivated on the purchased or leased lands. Whereas cash crops, such as coffee and cacao, were previously the main drivers of land acquisitions in developing countries, the food, financial, and fuel crisis resulted in the additional acquisition of land for the cultivation of staple crops, such as maize and rice, as well as crops for the production of Biofuels, such as sugarcane. This last purpose of land acquisitions in developing countries is further stimulated by EU agro fuels policies, in particular the renewable energy targets for EU member states outlined in EU Directive 2009/28EC, which encourages EU member states to enact consumption incentives for products such as biodiesel and bioethanol (e.g. in Germany, the UK, and France).

A recent practice with possible negative effects

Accompanying the increasingly lucrative practice of land grabbing, from the perspective of the purchasing or leasing agent, are negative effects on indigenous peoples who are often (semi-)subsistence farmers, who lose their agricultural land and face the loss of their livelihoods and a threat to their, often already tenuous, food security. The international community and civil society have laboured to create good practice guidelines in order to mitigate the negative effects of land grabs on indigenous peoples. Such guidelines range thematically from the observation of the right to food, to the rights of the agricultural workers and the empowerment of women amongst local communities. However, little attention has been paid to assessing to which extent the rent paid to local stakeholders compensates them for the loss of their agricultural land so far.

Machinised irrigation on field in Sierra Leone (picture: private)

Determination of stakeholders

Due to the coexistence of both positive law and customary law, the establishment of who the stakeholders are in a large-scale land lease is paramount. Naturally, the leasing agent, local government, and landowners are established stakeholders. However, since customary government coexists with elected government, as recognised by Sierra Leonean law, local paramount chiefs were also identified as stakeholders. Furthermore, land use rights are recognised by customary law establishing non-landowning land using households as stakeholders in the subsequent analysis. Thus, this paper acknowledges four stakeholders (land using non-land owning households, land owning households, local government, and paramount chiefs) as potential recipients of rent payments for the loss of agricultural land. The paper focuses primarily on land using households, as these stakeholders are the most vulnerable to the loss of the cultivated land, and assesses to what extent the rent received compensates these households for their lost agricultural output.

Welfare-neutral rent payments would be higher than rents actually paid

This paper takes a close look at the costs incurred by the local farming households and establishes an analytical framework founded on the household production function that allows the situation specific calculation of a rent payment that would allow farming households to incur no welfare loss due to the land grab. Household level consumption and production data were collected by conducting surveys with a stratified random sample of 203 households living in and around the project area. The analysis shows that for the farming households to incur no welfare loss, the rent payments should, on average, be between €48.5 and €55.41 per acre. This welfare-neutral rent payment for the average farming household in our sample lies in stark contrast to the €3.91 per acre paid by the project.
Additionally, it is possible to investigate the distributional effects of the land lease and rent payment on each individual interviewed household; and as such, on the various stakeholder groups as well as income quintiles. Such a deeper distributional analysis provides information about the most vulnerable stakeholders by showing how each household was affected by the loss of agricultural land. For instance, while the wealthiest 20% of the sampled households lost between 6% and 9% of their total household income due to the land lease, the poorest 20% suffered a much greater loss of between 51% and 56%. The difference between the losses of household income suffered by landowning land-using households and non-landowning land-using households is not as pronounced, with the former group losing on average between 10% and 14%, and the latter between 17% and 20% of their total household income.

Proposed analysis could be conducted ex ante

While it can be shown that the rent paid significantly underestimates the actual value of agricultural land, the project followed international good practice guidelines, adhered to local law, and established a farmer training program to facilitate the transition and consequently can credibly call itself fully compliant. This paper argues that, while the international community has made progress in protecting all the stakeholders from the adverse effects of large scale land leases, a more detailed analysis with the here established framework of the project, specific rent payments would result in a mitigation of the negative welfare effects and consequently ensure that local farming households will not suffer food security reduction. Moreover, the analysis can be conducted prior to a potential land lease, allowing the leasing agent to accurately set the value of the land and counteract potential negative distributional effects of the land lease before the start of a project.

The full paper is available here.

Marc Hansen, MSc
Research Fellow + PhD Student
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