- Development & Aid
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Friday, March 6, 2015
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- The current financial and economic crisis drew attention away from the food crisis, but the latter still remains a threat to the achievement of the Millennium Development Goals (MDGs) and sends a warning of the dangers of low investment and poor policies in the agricultural sector.
The causes of the food crisis lie partially in the specific conditions of the 2008 price spike, which included climatic conditions, such as drought, and widespread speculation in commodity markets. But the food crisis reveals also an underlying and persistent crisis of development in some countriesÂ´ agricultural sectors. Addressing the long-term threat of food insecurity will require nothing short of a Green Revolution.
Using Africa as a case study, growth in the continentÂ’s agricultural sector overall has averaged 2-to-2.5% per annum since the late 1970s, with serious implications for its ability to feed itself: it is a well-known fact that having been a net food exporter until as recently as 1988, the continent is now a net food importer. The situation is compounded by price increases, which have meant that a growing proportion of export earnings is used to feed rapidly expanding populations. However, higher prices also provide opportunities and incentives for producers and for investment in agriculture.
The prices of basic food and agricultural products have dropped significantly since their peak in June 2008. They are nonetheless almost 50% higher than in the late 1990s and the earlier part of the 2000s, thus continuing to pose challenges for the most vulnerable.
As pressures on land availability grow, countries will have to depend more on yield gains than on the expansion of cultivated land. Yet there is also the potential for rapid increases in yields if better access can be provided to fertilizers and technology -not necessarily sophisticated biotech solutions, such as genetically manipulated plant varieties, but new crop varieties, tractors, ploughs and irrigation systems.
As is now widely accepted, the relative neglect of the agricultural sector in many developing countries has led to disinvestment in supply capacities, such as extension services and infrastructure. In the past, market reforms, including structural adjustment programmes, have also played a role in undermining agricultural productivity: SAPs encouraged the dismantling of extension services, marketing boards, special agricultural banks and caisses de stabilisation (price stabilization boards). The role of the State in agricultural development was significantly reduced. The result: private investment, both domestic and foreign, was diverted more into cash crops for export than into food for local consumption.
In poorer economies where domestic investment in agriculture is limited, the potential for increased investment in agriculture relies on either official development assistance (ODA) or the attraction of foreign direct investment (FDI). Yet, multilateral and bilateral ODA for agriculture declined dramatically between 1980 and 2002, by 85% and 39%, respectively. And while the greater emphasis now being placed on social and humanitarian aid is clearly justified, it has also resulted in less aid going to the productive sectors and to agriculture, with potentially disastrous consequences.
UNCTAD research has shown that FDI in agriculture (including forestry and fisheries) and food processing (including tobacco) grew more slowly than in other industries from 1990 to 2006, in both flows and stocks. Thus the shares of these industries in total FDI inflows declined during this period by nearly half, and are now insignificant in both developed and developing host countries. The agricultural sector accounted for 0.2% of world FDI inward stock in 2006, while the food processing sector attracted less than 3%. Given the very healthy long-term prospects for the agricultural sector, these small proportions are quite surprising.
UNCTADÂ’s World Investment Report 2009 explored the role that FDI can play in helping developing countries fight hunger and develop their agricultural sectors to meet the needs of their people. The reportÂ’s main message was that transnational corporations (TNCs) have the potential to play a more significant role in agricultural production in developing countries than they have done so far, but that care should be taken to avoid any negative impact of foreign investment.
Between 1990 and 2007, FDI flows into agricultural production tripled from $1 billion to $3 billion a year.
Although these flows are quite small in proportion to overall FDI flows, they represent a huge source of finance for many low-income countries. Examples include such countries as Cambodia, Ecuador and Tanzania.
TNCsÂ’ participation in agriculture can have both positive and negative effects in developing countries. On the negative side, governments should be especially sensitive to environmental and social concerns associated with their involvement, such as the crowding-out of small farmers that might create job losses, land grab, dispossession of indigenous peoples and an overdependence on TNCs.
On the positive side, TNCsÂ’ involvement can result in the transfer of technology, standards and skills, along with jobs and market access -all of which can improve the productivity of the industry, including the farming of staple foods, and the economy as a whole. The contribution of TNCs to food security is not just about supply: they can exploit potential economies of scale that can make food more affordable, and their higher level of conformity with standards enhances food safety. All of these factors depend, however, on host countries adopting the right policies that will maximize benefits and minimize the costs of TNCsÂ’ participation.
The “real” question for most developing countries, then, is not whether to involve TNCs in agriculture and agribusiness value chains, but how to establish a framework and develop national capabilities to best harness their involvement in agriculture. (END)
(*) Supachai Panitchpakdi is the Secretary General of the United Nations Conference on Trade and Development (UNCTAD).