Investing in agriculture
- 1. Transforming agriculture for sustainable development How public finance can help mobilize more and better private investment
- 2. The challenge: growing population… World population likely to grow to 9.7 billion by 2050, 11.2 by 2100
- 3. … more and better food needed… Around 60% more food is to be produced to feed world’s population in 2050 (FAO 2012) Today about 793 million chronically undernourished people - 10.9% of world population (FAO 2015) Micronutrient deficiencies, overweight and obesity affect much larger population groups in all countries Concerns with nutritional content, safety, and environmental footprint of food are growing, globally
- 4. … with a smaller environmental footprint + more efficient food systems Sustainable food systems Sustainable and resilient agriculture Processing Distribution Consumption and disposal Need to produce, process, distribute, consume, and dispose food with less carbon emissions, better use of soils and water, less losses and waste
- 5. A large global financing gap for SDG2 Agenda 2030 includes SDG2, on ending hunger, good nutrition for all, and sustainable agriculture This requires more and better investment, including financing to and for agriculture FAO 2015 estimates need for additional 140 billion $ annually in pro-poor growth in the rural sector Earlier estimates were of need for 83 billion $ additional investments in agriculture to feed the world of 2050 Other estimates vary, but all converge around sense of great magnitude of needs
- 6. Tackling rural poverty to boost agricultural investments, and vice versa Meanwhile, over three quarters of extreme poor live in rural areas, most are small farmers (WB 2013) Small farms (<5ha) are 94% of total, family farms produce 80% of food value (FAO 2014) Farmers are by far the main on-farm investors in agriculture (FAO 2012)… … but most small farmers, notably women, have very poor access to finance for their investments, due to: Limited asset base (e.g. insecure land tenure) Limited capacity of financial institutions to serve them Agriculture perceived as high risk sector
- 7. How to fill the financing gap while building more sustainable food systems and reducing rural poverty?
- 8. Bottom line answer: we need a more enabling environment for the sector Investment in agriculture means facing multiple risks (climatic/market shocks, pests, policy changes…) for uncertain returns Transaction costs in doing business in agriculture or in rural areas are often high State of infrastructure and services in rural areas is often poor, human capital often low Market and trade policies in many countries have long penalized agriculture Inefficient subsidies have sent wrong signals to investors and rarely favoured poor farmers
- 9. Public finance has a key role in creating an enabling environment Domestic public financing is key in providing public goods, notably: Basic services Rural and agricultural education Also key where short-term risk/return balance is such as not to attract private investors alone, but partnerships are possible, e.g. : Climate-sensitive, low carbon, and last mile rural infrastructure (including small-scale) Agricultural research and development focused on smallholder farmers, sustainability, nutrition
- 10. Meanwhile, ODA to agriculture has recovered in recent years, though it remains much lower than in past decades. Source: http://devinit.org/#!/post/global-oda-to- agriculture-increased-in-2013
- 11. ODA can usefully complement domestic public finance ODA to agriculture is likely to remain a small share, but can be used catalytically to: Spur or help scale up public spending on relevant public goods E.g. testing innovations and sharing related risks, using pull mechanisms for new technologies, pooling resources to scale up successes… Strengthen domestic resource mobilization and improve the rural targeting of public spending E.g. through policy dialogue, capacity building, technical assistance
- 12. MDBs can also play important roles Agriculture is on the agenda of all MDBs, but generally in a small way - exception of International Fund for Agricultural Development (rural sector focus) Direct roles may include (inter alia): de-risking products for agricultural investors policy and technical assistance supporting financial system infrastructure at country level equity investment in agri-enterprises (also SMEs) support to farmers and agri-SMEs to attract private financing and to use it competitively promoting “greener” approaches and technologies Also, MDB role in infrastructure financing can help by ensuring consideration of impact on agriculture, rural poverty, and sustainable food systems in infrastructure project preparation and implementation
- 13. Ultimately, public finance needs to foster sustainable private investment Most financing for investment in agriculture comes from farmers, processors, retailers… all of them “private” actors Growing interest of investors due to higher food demand All confront risks, which public sector and MDBs can help address through a more enabling environment Many face liquidity issues, which requires public sector and MDBs to work on a sustainable and inclusive financial infrastructure All need clear signals + incentives to invest sustainably, for which policies are key and public sector must set example Smallholders and SMEs – notably women-led - are particularly constrained and need particular focus in public finance interventions to ensure level playfield
- 14. In short: Public finance, domestic and international, has important roles to play in enabling the agriculture sector to meet new challenges Multiple entry points need to be tackled, but focus should be on: financing public goods in the rural sector partnering with private sector to ensure last mile, rural reach of new infrastructure investments rural and agricultural financial inclusion reducing risks faced by private investors – notably smallholder farmers providing incentives for more sustainable investments by all