Three kinds of property are important in the agribusiness sector:
• real property (land or buildings);
• movable property (personal property such as equipment, inventory, or motor vehicles); and
• intangible property (a future harvest or intellectual property rights such as those embodied in a new seed variety).
Real property. Land is the real property asset most closely associated with crop and animal production. Stable ownership of land provides the rights to exclusively use and enjoy the property and the right to transfer all or part of such ownership rights through sale, gift, exchange, or inheritance. According to most analysts, clear property rights to farm land is the most essential factor in providing the incentives necessary for owners to invest their labor, capital, and management expertise in amounts adequate to maintain and improve its productivity.
For off-farm agribusinesses, buildings are critical real property. These include warehouses, processing plants, and offices. In principle, such real property ownership involves the issuance of a title, the registration of the title in some independently managed operation, and perhaps insurance against fraud or abuse. Registration of land in rural areas may be slightly more complex than in urban areas, but the advent of the global positioning system (GPS) has greatly simplified the surveying work involved.
In much of the developing world, however, and especially in Africa, agricultural producers do not own the land they cultivate or use for grazing or acquiring other agricultural products (shea nuts or wood for charcoal, for example). They are, rather, granted tenure rights with differing levels of security guaranteed by either the community through traditional means or the state through various approaches to usufruct, leasing, or certification. While such tenure rights are often felt to provide adequate security, their non-heritability (especially by women) and the fact that they cannot serve as collateral for credit do not let them serve as a fundamental building block for social stability and economic activity.
Further, in some countries, multiple systems of land ownership persist. Some farmers and animal producers are able to secure ownership rights through modern titling systems while other farmers occupy land marginalized under insecure tenure conditions. Herding of animals on communal pastures can be threatened by encroachment of farmers for purposes of annual cropping. When such multiple tenure systems can no longer be sustained (as in Zimbabwe and Darfur), conflicts can result, with devastating impacts on the prospects for economic growth.
Natural resources held as community property—forests, lakes, ponds, grazing lands, and wildlife areas—serve as an additional real property asset for many participants in the agribusiness sector. Even where major conflicts of interest do not arise, equity of access and tenure security are common issues. Such community property is often legally set aside for communal use and management, but encroachment and destructive use reduce the value of the asset to both users and the nation as a whole. Stronger legal frameworks for sustainable use of such community property are needed if these are to continue to contribute economically.
Movable property (e.g., equipment, inventory, motor vehicles) can also serve as collateral for credit and the basis for secured transactions. Secured transactions pertain to the laws, procedures, and institutions designed to facilitate commerce by promoting transparency, predictability, and simplicity in creating and enforcing security interests in assets. For many participants in the off-farm agricultural marketing chain, movable property in the form of inventory is the most important asset. Warehouse space and transport services can be rented or leased as necessary, but unless credit can be secured against movable property, many agribusinesses specializing in trade can find themselves in a cash crunch. In some developing countries, however, banking law does not permit the use of movable property as collateral and does not provide a legal basis for its use as the basis for secured transactions. Traders have thus developed a reputation for exploiting producers by taking products against a promise of later payment—forcing producers to bear greater risks.
Donors have supported efforts to increase the use of stored crops (inventory) as the basis for borrowing. The history of community cereal banks (often associated with cooperatives or village associations) is fairly checkered, however, and they are not used widely as originally envisioned as the basis for managing commercial risks. More recently, attempts to develop more formal commercially oriented systems of warehouse receipts as the basis for expanding agricultural credit and offering farmers mechanisms for smoothing income and mitigating price risks have met with some success. A further extension of the warehouse receipt concept has been the development of commodity exchanges in which futures contracts or options to buy/sell can be negotiated. For most developing countries, these are still concepts that need considerable investment of time, money, and effort to become reality.
Intangible property (e.g., future harvests, intellectual property) is thought to be under-valued as an asset held by the agricultural sector in many developing countries. The pledging of crops in the field in exchange for cash advances is a well-known mechanism that can help farm enterprises cope with the seasonality of the agricultural cycle. When it works well, everyone wins—the buyer secures a planned volume of supply and the seller smoothes out her income stream. Often, however, this process is associated with horrific tales of exploitation by the creditor—implicit double-digit interest rates, under-valuing of the production due to alleged poor quality, and other abuses. There are also, of course, stories of producers accepting advance payments (or credit advanced in the form of production inputs such as seed, fertilizer, and pesticides) against set purchase prices through verbal contracts and then reneging on these contracts at harvest time.
Over the millennia, farmers and herders have domesticated wild crops and animals, gradually developing their capacity to produce greater volumes of the products that humans want by carefully selecting specimens with the desirable characteristics and breeding them for greater productivity. Similarly, over the millennia, rural people have conserved many wild plants and animals as they have identified them as having beneficial uses as food, medicine, and fiber. The intellectual effort involved in both breeding and biodiversity conservation and management is now recognized as having an enormous value for current and future generations. The issue of rewarding past efforts has been a major point of negotiation in international treaties and conventions and remains largely unresolved.
Local populations, for example, are beginning to recognize their right to the economic benefits that can accrue when extracts from wild plants they have carefully conserved are used in a major cancer-treating drug. Pharmaceutical companies, on the other hand, see that their intellectual contributions of identifying and manufacturing (and often synthesizing) the extract are the critical ones and are less willing to share the economic benefit in ways perceived as fair.
Similarly, agricultural seed companies have grown increasingly skilled at extracting genetic information from the crops and animals (phenotypes) that were carefully selected by farmers and herders over the years. When new varieties are developed on the basis of this information, how should the original developers of this intellectual property or their heirs be fairly recompensed?
