Land Issues Dim Optimism on Agriculture

On paper, Cambodia presents a laundry list of what investors need for success in the agriculture sector: a good climate, fertile soil, ample water resources and cheap and available labor.

But land disputes and problems with securing land concessions continue to discourage investment and have dimmed optimism in the sector despite potential, investors and agriculture experts say.

They describe a nontransparent process of pursuing economic land concessions that can take years and requires approvals from multiple ministries and local authorities. Even when concessions are granted investors could face long and costly land disputes and the resulting bad press.

Foreign investment has been a sought-after component to economic growth in Cambodia for the last two decades, and some say that Cambodia is missing opportunities.

“When you look at Cambodia from a macro-economic perspective it looks great, but actually getting something done is very difficult,” said Scott Lewis, chief investment officer for the private equity fund Leopard Capital.

“Agriculture has a lot of potential, but it needs to be made easier to invest in the sector: It takes too long to get something done,” he said.

When Leopard Capital launched its fund in May 2008, it extolled the obvious opportunity of agriculture in Cambodia. But Mr Lewis said, its $32 million fund might not invest in the sector after all, focusing instead on nascent industries such as food processing.

“We want to do something, and we are going to keep trying. I am just expressing frustration that it hasn’t happened thus far,” he said.

His fund has considered investing in pepper, rice, rubber and cassava, identifying and pursuing two areas of land that the Agriculture Ministry said was available. Eventually in both cases, after months of work the plots turned out to be on protected areas. They are now trying a third time.

Agriculture has steadily grown at about 5 percent before and during the economic crisis, and the International Monetary Fund, Asian Development Bank and World Bank have all said agriculture would soften the crisis as garments and tourism took a hit.

The boosterism is nothing new. Economists have promoted agriculture’s potential for decades. Prince Norodom Sihanouk’s government had mixed results with agriculture investment, and the Khmer Rouge had planned to fund its revolution on the wealth in Cambodia’s soil, but its agricultural ambitions failed miserably.

Currently agriculture makes up about 32 percent of the country’s GDP, but it’s unclear how much land concessions contribute. According to a message on the Ministry of Agriculture’s website as of May, there were 85 contracted and validated companies with economic land concessions totaling 956,690 hectares located in 16 provinces. But it’s unclear how many companies have applied, and it’s unclear how many of these concessions are foreign, though it appears that few are western.

The criticism of land concessions has raged since the 1990s, with frequent news of evictions and violent confrontation between company officials and villagers. Rights group say that land concessions often play a role in evictions and according to Amnesty International, as many of 150,000 Cambodians are under the threat of forced evictions.

Matt Rendall, a legal advisor at the firm Sciaroni and Associates, said issues with the legal system and land tenure create obstacles that some investors want to avoid rather than overtake.

“Two or three years ago people came to look, and they have found it to be more difficult than they anticipated,” he said, adding the process of getting land concessions is overly complicated. “I think it probably does stall, prevent, these investors from going forward. Some who would invest may not, some that would be up and running, may find delays.”

He said that the government needs to sell the land outright and create a clearer system for investment in agriculture which is currently a “mystery” to some investors wanting to proceed. The process can so unclear that the land is not demarcated until after the concession is granted, so investors cannot determine who is on the land beforehand, he said.

And though the national government grants land concessions, commune and district authorities issue some land documentation, such as land titles, which can lead to overlapping claims, and disputes.

These issues creates fertile ground for land conflict and frustration, he said.

Concession holders find themselves in the unenviable position sorting out those claims, complicating their efforts to get investments off the ground, he said.

“Anybody coming in now is going to have to deal with all those issues,” he said. “The risks are greater than in countries where the legal systems are in place. The yields can be greater here.”

While some investors may have no intention stealing land, they fear villagers making unfair claims on land and the suggestion of impropriety, he said.

“That press is a bad thing for any company and they don’t want to have their name in the same sentence as a land dispute with poor Cambodians being kicked off their land, and it’s hard to convince the court of public opinion.”

Those concerns also affect Western investors, who may face more criticism and restrictions than Chinese and Vietnam investors.

Westerners often expect guarantees in contracts that may appear unnecessary to a Cambodian official or businessmen.

Westerners object to paying per hectare for a concession without the guarantee that the government won’t take away the concession if they don’t act within three years as the law requires.

“The reality is that government needs the investors, and they don’t take away concessions because they know no one else will come,” he said, adding that investors often remained unconvinced.

At the same time the country faces the global economic crisis and Cambodia is less of a bargain as prices for land decrease around the world, he said.

“If you have money there are certainly more options than two years ago because it is a less-crowded market than it was two years ago,” he said.

Still, he said the issues are not permanent ones. In ten years time many of the problems will evaporate as enough investors dealt with the land problems.

In some cases, conflicts can frequently become violent or just ugly.

In March villagers in Kompong Speu burned make-shift shelters on a 10,000 hectares economic land concession granted to CPP Senator Ly Yong Phat.

In February the last remaining ethnic Suoy community accused a Singaporean firm HLH of depriving them of their land and threatening the indigenous community’s very existence, pronouncements which were published in the international media.

In May a coalition of NGOs including the Cambodian Human Rights Action Committee, and Housing Rights Taskforce, issued a statement calling on the government to stop issuing land concessions until it could guarantee proper rights to land owners.

It specifically cited “The failure to conduct a thorough public environmental and social impact assessment and the failure to solve the problems with the people affecting by the concessions beforehand.”

It also requests that all information available on economic land concessions be made public.

Land concessions play a consistent and significant role in land disputes in the country, and currently don’t provide the economic benefits that the business community claims said Mathieu Pellerin, a consultant with local rights group Licadho.

A more transparent and organized process would reduce problems on both sides, but he expressed doubts that the process would be revamped as the murkiness benefits government officials and particularly Cambodian businesspeople.

“The problem is they don’t want to have proper procedures, if you don’t have any proper processes then it is much easier to use force to take land away,” he said. He said bribes are also more easily paid under a non-transparent system.

He said while some opportunists do make claims on land concessions fraudulently, it’s a minority that is used by companies to justify illegal actions.

“It’s an excuse not to do the right thing, the right thing for the legitimate owner of land,” he said.

Chan Tong Yves, Secretary of State of the Ministry of Agriculture, defended the process for getting land concessions saying that it takes time to survey land properly, but that the process can be improved gradually.

“You need to have a lot of land surveys and social impact assessment, there are a lot of things to do before we can grant a economic land concession,” he said.

Asked about accusations that the government doesn’t carry out social and environmental impact assessments or that its handling of land concessions discourages investment, he referred questions to Ith Nody, under secretary of state of the Ministry of Agriculture. Mr Nody could not be reached and Ministry Chan Sarun could not be reached over the last several weeks.

Mong Reththy, co-chair of the government-private sector forum working group on agriculture, said that land concessions encourage investment, but agreed some of the complaints of other businessmen concerning slowness of the process, stating “The problem is coming from the Ministry of Agriculture.” Still, he declined to elaborate.            He also blamed villagers fore creating land disputes by claiming land that is not theirs, and said government officials also create obstacles.

“Some government officials are very bad. They always make the problem for the companies by accusing the investors of doing wrong on this or that as their ways to extort the money,” he said.

Foreign investment is badly needed for the sector, and few western companies have ventured into the sector, but that local partners should help smooth over the process, he said.

“A foreign company that wants to invest in the agriculture sector can not succeed without having a good local partner,” he said.

But even as he said agriculture has potential, two of Mr Reththy’s land concessions-a palm oil concession in Preah Sihanouk province, and an acacia and sugar plantation-have both faced a series of problems including land disputes with villagers who claimed to own the land.

“I have invested in agro-industry since 1995 and I still could not make my profit back,” he said.

Sia Phearum, executive director of the Housing Rights Taskforce, said investors need to do more due diligence and meet with the local communities to sort of land issues.

Noting that even powerful Cambodians run into major issues with land rights, he said ugly land disputes hurt more than just villagers.

“The good investors. they don’t want to invest,” he said. “For America or Europeans they might spent a lot time and send a lot of money and then they have problems.”

Tim Purcell, managing director of the firm Agricultural Development International, said that land concessions do raise concerns among investors, many are simply not prepared for the long term commitment that is needed in a country such as Cambodia.

“It’s a lot of work. The land concession in general doesn’t pay off in the short term,” he said. “From what we’ve seen, some investors who come in they don’t realize the amount of time, effort and money to turn an land concession into a profitable activity.”

Negative press that can accompany turns off investors, but there are more pressing issues, he said.

Often roads, irrigation and other infrastructure is needed. Given the time consuming nature of land concessions, he often recommends that investors work with existing farmers, a process that can also be time-consuming. Access to international markets is another impediment.

Existing farm tends to be more appealing, as land concessions are on often on former forests which may not be as fertile or easy to develop as other land.

Christophe Forsinetti, vice-president of Davenco capital, a private equity and consulting firm, said investment in general can be difficult in Cambodia, but that Cambodian agriculture sector doesn’t meet the expectations of many investors.

“Definitely, sophisticated investors, they want transactions. They want to know how much it’s going to cost them. They want to know the terms the agreements and it’s difficult to get all that in Cambodia in a transparent manner,” he said.

His fund plans to make an investment in agriculture with Mr Reththy agreeing that having a good local partner is key to avoiding some of the trouble that foreigners run into with extortion.

“It’s a very long lengthy process and you will be conflicted in ways you don’t want at several levels, so for a foreign investor it’s difficult to handle that,” he said.

      (Additional reporting by Phann Ana)



Related Stories

Latest News