The Role of Foreign Direct Investment and Food Processing Industry toward High Value Agriculture in Asia-Cross Country Statistical Analysis and Farm Level Evidence-

Abstract

In many Asian countries, agricultural industrialization led by agro-industries has been progressing, and agricultural production has been shifting from staple foods to high value commodities such as vegetables, fruits and livestock products. This trend is considered to have contributed to improving agricultural profitability as well as to expanding rural employment. The purpose of the paper is to test the hypothesis that the foreign direct investment (FDI) promotes high value agriculture through development of the food processing industry. We estimated factors that determine labor productivity in the food processing industry and agricultural sector, and obtained cross country statistical results that provide supports to the hypothesis. The typical case of this FDI-food industry-farm linkage is seen in contract farming, in which firms provide technical assistances and guaranteed markets to farmers. The results of a farm household survey implemented in China by the authors provide the farm level evidence to the linkage, in which foreign affiliated enterprises play important roles in technology transfer in compliance with food safety standards.