Foreign Investment in Agriculture and High Commodity Prices: A Contribution to Understanding MERCOSUR's Present Challenge

The aim of this article is to analyse the main incentives for foreign investment in agriculture in the four original Southern Common Market (MERCOSUR) countries. This study constitutes a contribution to the debate about the effects of the present high agricultural commodity prices. Although there is substantial scholarly research on trade patterns, dependency and Dutch Disease, there is a much less understanding of the connection between commodity prices and foreign investment. The goal of this article is to provide some starting points to understand this dynamic. This paper argues that the incentives of domestic and international actors are aligned to investing more capital into commodity farming activities. Particularly, in this scenario of high prices. In this sense, it submits that there are limited probabilities that foreigners will get involved in food processing or distributing activities, except for projects seeking to serve the regional market or very specific sectors. In addition, although the MERCOSUR governments may have an interest in curbing a potential excess in commodity farming (to prevent dependency or a Dutch Disease), the paper explains why the interaction of private and public incentives shifts government attitudes to self-indulgence.