Large scale agricultural investments and international investment law
Over the past years agribusiness, (sovereign) investment funds and government agencies have been acquiring long-term rights (either acquisitions or long-term leases, typically between 50-100 years) over large areas of land (typically above 1000 ha), mostly in developing countries.
The development has been underpinned, on the one hand, by home state governmental concerns about food and energy security and, on the other hand, by private sector expectations of increased returns from agriculture due to rising agricultural commodity prices. However, this development also raises concerns about access to food, the displacement of small-scale local farmers by large investments (which may also lead to human rights violations of small landholders) and the related need to preserve the livelihoods of small farmers as well as weak governance mechanisms in host states. Nevertheless, these investments may be beneficial to the host country, provided that the appropriate institutions and safeguards are in place. Investment contracts and international investment law represent two such major institutions.
In this context it is pertinent to point out potential conflicts that may arise from FDI in agriculture and investment law. Conflicts are, inter alia, especially likely to emerge due to the long-term prospects of the investments. Investment law needs to find a balance between the commitments states undertake on the one hand, and their ability to implement measures to ensure sustainable outcomes in times of crisis, on the other. UNCTAD has been at the forefront of analyzing the link between sustainable development and investment. This analysis can be applied to agricultural investments as well. In order to ensure that FDI in agriculture contributes to the welfare of host states, safeguards can be adopted to provide a safety net to protect the interests of local farmers. Such safeguards can be deployed at two levels: first, at the national level of the host state in investment contracts; and second at the public international law level, in the investment treaties.
The UN Guiding Principles on Business and Human Rights approved by the UN Human Rights Council in June 2011 contained an additional report, which introduces “Principles for Responsible Contracts”. The report identifies investment contracts as an important instrument through which states and companies can address the human rights impact of a project. First, there ought to be access to an effective non-judicial grievance mechanism as provided for in the principles. Second, host states should also enjoy contractual rights in case of defective performance on the part of the investor (that is, if certain requirements and safeguards for local interests are not met by the investors, such as land that is left fallow, or when human rights obligations are not respected). States need to be aware, however, that poorly drafted contracts can be potentially enforced through international arbitration against the host state, with the umbrella clause in investment treaties as legal base.
Some investment treaties already contain prudential carve-out clauses for measures taken in response to financial crises. In light of the food crises of the last years, similar clauses should be introduced in investment treaties to cover the agricultural sector. These clauses should caution to be self-judging, as this could invite opportunistic behavior by host state governments. Instead, they ought to be reviewed within the parameters of good faith. Alternatively, a legal innovation found in the new US Model BIT 2012 concerning financial markets might be adopted. This BIT includes provision for the assessment of the prudential measure to be delegated to independent (i.e. non-political) expert authorities of both signatory states of the BIT. Since such authorities usually do not exist for the food sector, states might want to delegate that judgment to international organizations, such as FAO or UNCTAD.
The agricultural sector is characterized by multiple human rights-related facets, which makes this an exceedingly delicate sector. Ample flexibility should therefore be carved out for states to be able to respond meaningfully to food security, human rights and sustainable development concerns, thus minimizing negative outcomes for states and their citizens at large.
See also IPFSD clauses: