FDI and TNCs in Agriculture of Developing Countries

Abstract

FDI in agriculture in developing countries is very small. It is not among priorities of most developing countries as regards FDI promotion and attraction. It is also not facilitated by often unresolved regulatory issues concerning access of investors to arable land. In addition, there a fewer candidates for foreign investment than there were several decades ago, as TNCs ― food processing and retailing TNCs as well as trading intermediaries ― withdrew from agricultural production and focus instead on downstream activities, including processing, trading and marketing of food. To secure agricultural inputs, TNCs as well as domestic players, establish local and cross-border supply chains, which they control, using for this purpose contracts with local farmers or buy inputs through spot market transactions. Therefore TNCs affect agriculture of most developing countries indirectly, through contracts, rather than directly, as producers of agricultural products. The paper examines implications of TNC activities for developing countries in the area of financing, investment and exports. TNCs can be instrumental in providing financing and other forms of assistance to farmers as well as in stimulating exports. They can, however, crowd out farmers, unable to meet stringent requirements of TNCs concerning quality, product safety or logistics. In addition, excessive concentration of market power of international trading companies in some international markets reduces benefits of developing countries from exports of agricultural products. In an exception from an overall pattern of small FDI in agriculture, some countries such as China and Viet Nam attracted considerable FDI into their agriculture.