In order to maximize development benefits and minimize costs developing countries should consider promoting contractual arrangement between the TNCs and local farmers such as contract farming, the UNCTAD has recommended in the World Investment Report, 2009. Analysts apprehend that radical recommendation like promotion of contract farming through the TNC participation is likely to raise political temperature in many developing and poor countries where agriculture continues to remain the only subsistence for millions of people. There is widespread apprehension that direct involvement of TNC in farming sector in developing countries through contract farming can lead to exploitation of small and marginal farmers, analysts say.
Revamp legal framework
The UNCTAD has also recommended that to maximize “development” contribution of FDI in agro sector developing countries should make necessary changes in their domestic legal framework to promote investment contract between the host government and the prospective foreign investors.
UNCTAD has suggested developing counties should consider development of a set of internationally agreed core principles for large-scale land acquisitions by foreign investors in agricultural production.
It said “FDI can provide much-needed funding and expertise for agriculture in developing countries—stimulus that is crucial for increasing productive capacity and output at a time of continuing global concern about agricultural output in poorer countries.”
Vouching for contract farming, UNCTAD has suggested that TNCs’ contractual relationships with local farmers can bring important benefits through their provision of inputs and their transfer of skill to a very large number of small farmers. TNCs can confer benefits by easing the financial and technological constraints affecting small farmers by linking these farmers with global markets and by providing them with more “predictable” incomes.
“All these are conducive to promoting sustainable and pro-poor agricultural development and can help alleviate rural poverty.”
However, it says, there is evidence that TNC participation in agricultural production also can have negative impacts. It can result in job losses in restrictive business practices or on excessive dependence among farmers on TNCs to supply inputs or buy produce.