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.

Can China’s Agricultural FDI in Developing Countries Achieve a Win-Win Goal?—Enlightenment from the Literature

“…In addition to seeking land for agricultural production, Chinese investors are also implementing a contract farming model [7]. Investors will provide local farmers with inputs to grow certain crops, as companies provide farmers with seeds, fertilizers, and agricultural machinery [10], and agree to purchase agricultural products from these farmers [10,50]. Some people think that this method may increase the income of small-scale farmers and connect them to the market [50].…”

“…Investors will provide local farmers with inputs to grow certain crops, as companies provide farmers with seeds, fertilizers, and agricultural machinery [10], and agree to purchase agricultural products from these farmers [10,50]. Some people think that this method may increase the income of small-scale farmers and connect them to the market [50]. Others believe that in the case of a weak legal system, small farmers have weak negotiating skills, and if they do not understand the terms of the contract, they may suffer losses, and it involves mechanisms that comply with established quality standards and timely delivery [7].…”

“…By the end of 2016, Chinese companies had directed local farmers to carry out agricultural production for a total of 362,941 people [43]. In addition, China's market demand may also bring profits and business opportunities to farmers in developing countries [46,50]. China's agricultural investment can not only develop crops suitable for China's needs [4], but also expand the market share of agricultural products in developing countries in China [15], and promote the development of the agricultural sector and agricultural trade in the host country [57].…”

“…The social benefits of China's agricultural FDI are shown in Table 7. The positive impact of China's agricultural investment is first reflected in the ability to create jobs directly in relevant industries and markets [50], and the plantations generated some employment opportunities for daily wage work [60]. According to Chinese official statistics, as of the end of 2016, Chinese agricultural enterprises overseas employed a total of 147,292 people in the host country [43].…”

Chinese Migrant Farmers in the Russian Far East: Impact on Rural Labor Markets

“…Foreign investment in agriculture can potentially bring benefits to local populations if it creates employment, generates revenue through land rental, taxation, and export duties, and contributes to the development of downstream industries. China’s agricultural investment directly creates employment opportunities for daily wage work (Tada et al 2009; Friis and Nielsena 2016). In 2016, Chinese agricultural enterprises overseas employed a total of 147,292 people in the host countries (China‐MARA 2018).…”