Box 1.5 (Continued) consider the value of profits from (planned or actual) production. As a rule of thumb, data from the United States indicate that leases are a relatively constant portion of crop value (35 percent to 40 percent of gross crop value from corn and 45 percent to 50 percent of gross crop value from soybeans). Source: Authors.
With decentralized contracting, market imperfections due, for example, to limited access to markets or lack of access to technology, that affect potential returns from landowners’ self-cultivation will weaken the bargaining position of small producers and the returns they can obtain from their land. The potential impact of such imperfections is illustrated in Ukraine, where high transaction costs in input and output markets and lack of competition in land markets reduce land rents to only a fraction of what is obtained in Argentina, even though the productive capacity of the land is very similar. This implies that there is an important role for the public sector to ensure access to information and a level playing field for all. The public sector needs to be involved only to ensure that no negative external effects on others or the environment are imposed so that land users can make informed and independent decisions. There Can Be Considerable Potential for Employment Generation How much local populations can benefit will be determined to a large extent by the employment intensity of potential investments. Employment generation is often a key avenue for local people to benefit from outside investment because for bulk commodities, it is at the production, rather than the processing stage that employment is generated. In many developing economies, the ability of the agricultural sector to absorb labor and provide gainful employment provides a key safety net. Labor requirements for production vary greatly among crops and production systems so that crop choice and organization of production will have far-reaching impacts on the scope for agricultural growth to reduce poverty.8 The crops of interest to large investors differ widely in their labor requirements. Oil palm and (manual) sugarcane generate between 10 and 30 times more jobs per hectare than does large-scale mechanized grain farming (table 1.6), generating large amounts of employment. The reason is that, for tree crops and perennials, the scope to substitute capital for labor is more limited than in grains and annuals. In the former, key operations, especially harvesting, are thus usually manual regardless of farm size and labor intensity varies little between production systems. In fact, large oil palm
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RISING GLOBAL INTEREST IN FARMLAND