Investment Contracts for Farmland and Water

This guide provides a ten-step framework for parliamentarians, government officials, and local communities to negotiate agricultural investment contracts with foreign investors from a sustainable development perspective. It emphasizes the importance of preparatory data, independent feasibility studies, and legally binding environmental and social obligations to avoid the negative impacts often associated with large-scale land acquisitions.

• The guide argues that investment contracts are not always necessary; if a state has robust domestic laws and regulations, these should govern foreign investment, including the issuance of permits and licenses. This approach is described as the "preferred situation and the dominant practice in most developed countries."
• A 2012 World Bank survey of 179 agricultural investment projects across 32 countries revealed that 50% were financial failures or moderate failures. The primary cause was a "fatally flawed" concept, citing issues such as incorrect crop selection, wrong location, or over-optimistic planning assumptions.
• Environmental and Social Impact Assessments (ESIAs) are often deficient or skipped in the agriculture sector, even when legally required. To be effective, the guide states that ESIA results and subsequent management plans must be incorporated as "legally binding obligations in the contract," and failure to comply should be treated as a "material breach."
• The document warns against broad stabilization provisions—clauses that protect investors from new or changed laws. While limited stabilization for fiscal issues may be acceptable to prevent arbitrary government acts, broad provisions covering non-fiscal regulatory areas like health, safety, labour, and environment are "widely considered to be unacceptable."
• To ensure local benefits, the guide recommends specifying the investor's development obligations—such as workforce training, technology transfer, and local procurement—and establishing a Community Development Agreement (CDA). A CDA can include a Community Development Fund funded by a percentage of project profits for activities like education, health, and infrastructure.
• Regarding water rights, the guide notes that international investment treaties may grant foreign investors rights to draw water that could prevail over the needs of local communities. It advises that contracts and domestic laws must clearly provide for "periodic reviews of water tenure rights" to prevent this conflict.
• For dispute settlement, the guide advises host states to prioritize domestic courts over international arbitration. If international arbitration is used, it should only occur after attempts to settle the dispute amicably and through domestic processes.

APA

Smaller, C. (2013). Investment Contracts for Farmland and Water. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/investment_contracts_farmland_en.pdf

Chicago

Smaller, Carin. Investment Contracts for Farmland and Water. International Institute for Sustainable Development, 2013. https://www.iisd.org/system/files/publications/investment_contracts_farmland_en.pdf.

Wikipedia

{{cite report |last1=Smaller |first1=Carin |title=Investment Contracts for Farmland and Water |publisher=International Institute for Sustainable Development |date=April 2013 |url=https://www.iisd.org/system/files/publications/investment_contracts_farmland_en.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{smaller2013investment, author = {Smaller, Carin}, title = {{Investment Contracts for Farmland and Water}}, institution = {International Institute for Sustainable Development}, year = {2013}, month = apr, url = {https://www.iisd.org/system/files/publications/investment_contracts_farmland_en.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }