Emerging Markets / June 30, 2016

Foreign Investments Boost Competition and Free Markets

The market economy works best when there are no barriers to trade and each country specializes in the goods for which it has comparative advantage. When foreign investors participate in ventures in emerging markets, they are empowering their respective sectors through capital injection and the transfer of new technologies. Such is the case in Latin America, where foreign investors provide credit that otherwise would not be available. Likewise, foreign investors can guide projects and bring new ideas to the table, thus boosting overall productivity. Consequently, food exports from countries such as Colombia and Peru towards North American markets will be cheaper. Furthermore, because of regional specialization, exports such as Quinoa, coffee, and tropical fruits do not necessarily compete with US or European production.

Investing and Innovating Responsibly

In accordance with the United Nations Global Compact – Food and Agriculture principles, businesses should promote access to information, knowledge, and skills for more sustainable food and agricultural systems. The productivity and infrastructure advantages that come from foreign investment will ultimately benefit all consumers at every grocery store. Likewise, food and agriculture investment overseas allows world markets to have year-round access to crops that would otherwise be seasonal. By investing in small and medium-sized enterprises (SME), investors are betting on farm automation, precision farming solutions, crop protection systems, and other emerging technologies to help boost yields. Furthermore, foreign direct investment (FDI) in the food and agriculture industry helps optimize water and fertilizer efficiency, ultimately lowering costs for growers. Likewise, when there is substantial exchange amongst citizens and sectors of different countries, it is more likely that trade agreements will be established between the respective nations.

Foreign Direct Investment as Mutually Beneficial

A major advantage of overseas investments in agriculture is that these ventures serve to “import the resources” that are not readily available in the home country. For example, agricultural investors in Nevada or California, where water is a precious and scare resource, can produce water intensive crops abroad and have the goods imported to their states. Thus, the investors are getting the products and benefits that they want, without depleting a precious or inaccessible resource in their home states. Similarly, a variety of economic externalities can be “exported” through foreign investment.

USDA studies and other research have shown that the main challenges preventing the wide spread adoption of new techniques, such as agroforestry, are unfamiliarity with technologies alongside a lack of training, funding, and awareness regarding their success. Therefore, there are numerous opportunities for agricultural technologies to be exchanged and adopted around the world. Over the medium term, however, many such solutions will need to be simple and affordable in order to be accessible to growers in developing markets. It is in this struggle that high-net worth investors can play a vital and compelling role. By funding initiatives such as drip irrigation and agroforestry, investors not only generate profits but also help build momentum for the sustainable food and agriculture movement. In this regard, the categories of venture capital and trade finance in farmland agriculture are becoming relevant and benefiting from strong trends. Such trends include the convergence of innovative technologies around the agriculture-tech space and the growing need for working capital finance – especially in emerging markets.