On Food Security and Foreign Direct Investment
In 1928, Colombian workers employed by an American entity called United Fruit Company went on strike. United Fruit requested that the Colombian authorities quell the protests and ramp up production. Colombian military forces complied by open firing on the striking Colombian farmers, and the issue was, unfortunately, resolved.
Years later in 1954, Guatemala’s President Jacobo Arbenz decided to redistribute unused farmland to low-income citizens in his country to enhance living standards. Some of that land was owned by a foreign corporation called United Fruit Company. United Fruit was able to gain support from the US government in helping to overthrow this particular democratically-elected leader rather quickly. It was important, according to the multilateral coalition who organized the coup, to ensure food security for Americans.
Earlier today, I picked up a book called Food Security in the Middle East. Flipping through the pages, I stumbled across a section on outsourcing food production to developing countries like Cambodia and Ethiopia. Prior to the section on doing business in these two nations, there was a quite fascinating preamble about the moral aspects of purchasing land in developing nations and purposefully or inadvertently thwarting the long-term development of an impoverished people using capitalist means. At least, this was my interpretation of the book’s much subtler introduction on the topic of Ethiopia and Cambodia foreign-direct investment.
It is perfectly legal in most countries for foreign companies and individuals (from non-sanctioned nations) to buy land, add sustainable agricultural infrastructure, and enjoy the profits. As a matter of fact, the United Nations is a major promoter of private investment in sustainable agriculture, especially if it lowers carbon emissions in the fight against climate change.
As it turns out, purchasing large swatches of land in developing countries and growing massive numbers of trees in it even entitles companies to carbon credits. Many of the UN’s humanitarian and environmental organizations have historically been staunch supporters of these types of a initiatives in the name of saving the planet. These UN-endorsed carbon credits are purchased by CO2-emission-heavy enterprises like Exxon, Chevron, Shell, etc. By purchasing these carbon credits, these companies enjoy tax benefits in their various countries of domicile and can even avoid environmentally conscious pension fund blacklists for their efforts to fight climate change. If land is profitable due to perfect climate conditions, it is essential that maximum effort is exerted to ensure that the climate does not indeed change.
To summarize, low-cost labor and foreign investment in developing countries is both helping to slow global warming, improve conglomerate brand imaging and minimize foreign corporation tax bills. Sometimes, where foreign land ownership isn’t allowed, foreign entities have to secure long-term leases. As a dramatic example, the infamous Guantanamo Bay area was leased out by Cuba to the US government in 1903. Needless to say, Cuba has been trying to cancel that lease for a while now with no avail.
What’s The Point?
Food security is an important global issue, especially in developing nations. Because some nations lack the capital or moral ineptitude to extract resources from poorer nations, it is important to structure new models that can ensure sustainable and equitable food production capabilities to meet domestic demand. Let’s examine one (albeit, developed) nation that does this incredibly well.
The Netherlands is a rather small nation by size in comparison to its European neighbors. However, it is the largest exporter of agricultural products in Europe. In fact, it is the second largest exporter of agricultural products in the world, after the United States, which is 237 times larger than its Dutch counterpart. The Dutch knack for efficient farming, technological prowess and long-term capital investments contributes to what is this food production miracle.
So, what’s the idea? Carbon credits and tax incentives geared towards enabling locally-owned enterprises that replicate the Dutch agricultural miracle in developing countries might go a long way. It is not a simple endeavor by any means, but it is obviously a doable one. However, it is a bit of a shame that credits derived from foreign entity land acquisitions and low-income labor is more profitable credit-wise.
One of the more interesting aspects of the carbon credit adoption phenomenon, though, is that it is becoming an entrenched feature of contemporary economic theory and practice. The CFA Institute now offers a certificate in climate finance. I’ve even started to come across financial model templates that include carbon credits. As new waves of business students join today’s work force, indoctrinated into contemporary methods of accounting for ESG as a sort of asset class, there may be an opportunity.
As carbon credits become more liquid in new types of exchanges, the ultimate corporate buyers (our Shells, Exxons, etc) can be incentivized to shift the demand-side dynamics. Specifically, the ESG-oriented policymakers could provide greater tax incentives for carbon-related development credits that enhance the number of highly productive, smallholder-owned agricultural operations in both domestic and developing nations. Of course, we run into another market dilemma even in the political arena. There would need to be sufficient constituency consciousness and demand for this to work.
