Private sector agricultural investment needed to close global food security gaps

By Sara Wyant

© Copyright Agri-Pulse Communications, Inc. 

WASHINGTON, June 27 - As food prices have increased and become more volatile, global concern about poverty and hunger has grown sharply, especially in developing countries. To address these concerns, the private sector will need to help bridge an estimated $90 billion annual agricultural investment gap, according to a new briefing paper released by the Global Harvest Initiative (GHI).


The policy issue brief, “Enhancing Private Sector Involvement in Agriculture and Rural Infrastructure Development,” outlines several recommendations to enhance private sector involvement, including the importance of establishing government/industry partnerships, working to improve the business climate and rural infrastructure in developing countries, and encouraging these countries to devote more resources for overall development to attract private capital.

“With a $90 billion annual investment gap in the agricultural sector of developing countries, the task of doubling agricultural productivity in 40 years is a formidable one,” said Dr. William G. Lesher, Executive Director of the Global Harvest Initiative. “There are simply not enough resources in either developed or developing nations to bridge this sizable gap, so enhanced private sector involvement is the key to improving agricultural and rural development to ensure that the world's future agricultural needs are met.”

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“The role of private capital in this struggle is paramount,” notes the briefing paper. “While private investors clearly are prepared to engage and invest in developing countries, additional efforts to support and sustain this investment are needed.” Several “new approaches” must be explored that can more effectively stimulate additional private sector involvement, including:

·         Developing countries must help themselves by devoting more resources for overall development. 

In 2008, developing countries spent an estimated 4 percent of their GDP-about $696 billion-on development from their own resources. The needs, however, are closer to 2.5 times that level, reflecting an annual development investment gap of many billions. Based on investment guidelines and performance estimates reviewed, GHI suggests that developing countries strive to spend at least 10 percent of their GDP on overall development efforts-some $1,741 billion annually. Included in this need is a share for rural/agricultural development, although electricity, water, health, education and many urban needs traditionally attract the bulk of the development spending.

·         Improve governance and reduce corruption. 

Private investors cannot be expected to put scarce capital at risk in nations where corruption is rampant and the government untrustworthy, or where essential infrastructure is missing.  Good central governance is fundamental to increasing private support for the development of agricultural systems.  The Obama Administration could make such concerns more prominent and integral to the Feed the Future initiative, and in most other areas of engagement with developing countries. 

Likewise, GHI urges the Obama Administration to leverage its development assistance programs as incentives for developing country governments to improve their business climate, for both the indigenous private sector and foreign investors.

·         Improvement of the business climate in developing countries should be a threshold requirement for global food security initiatives offered to any nation.

Investment in developing countries entails greater risk, and capital flows to business environments with clearly defined and uniformly administered rules and regulations.  Likewise, businesses tend to minimize their exposure to environments characterized by official favoritism and uneven application of taxes, regulations, ownership limits, discretionary tariffs, and customs practices.  Such conditions stymie the flow of investment, as firms seek more favorable alternatives.  Additionally, the developing country civil service should be supported and strengthened in order to help administer and oversee new investments and provide support to programs and policies within the context of developing countries-many ministries involved in agriculture lack staff capacity to absorb, administer and manage new programs that can benefit their countries.

·         Establishing an effective government/industry partnership could buttress efforts to achieve sustained agricultural development, with the potential to lift millions out of poverty and significantly reduce the number of malnourished-now approaching 1 billion worldwide.

A more structured mechanism to support this interaction would enhance the exchange of ideas between the government and private companies on an ongoing basis-a process that could help harness private-sector capital. 

The Obama Administration's global food security initiative Feed the Future is an important place to start, and GHI applauds the administration for providing strong leadership in this area.  However, while Feed the Future represents a rhetorical nod to the importance of private-sector involvement, a clearer focus is necessary to achieve the program's ambitious goals.

·         Greater focus must be given to the development of rural infrastructure as the foundation upon which business climates can be improved with fully functioning markets. 

For example, investment in road improvements is vital. Without adequately maintained roads, producers and communities are often isolated, leading to high costs and low returns. Roads, however, are just one essential infrastructure component for sustained development and accelerated agriculture productivity.

The GHI review observes the compelling logic behind the development model of the Millennium Challenge Corporation, which recognizes that balanced development, including many types of infrastructure, is crucial to agricultural modernization and productivity enhancement. GHI suggests that a more robust Millennium Challenge Corporation (MCC) could help stimulate the needed expansion of private sector business activity in developing countries. Significantly expanded funding for FY 2011 and beyond would leverage an established program and make MCC a far more complementary approach to the Feed the Future initiative.

·         Other non-traditional approaches and tools should be explored.   

One example involves using the concepts underlying the Orphan Drug Act to develop a Neglected Crop Act that could induce additional investment in food crop genetics, possibly using patent extensions and tax incentives to encourage companies to develop more productive crops where commercial market potential is limited and would not warrant the required expenditures. Examples of such work exist through the Neglected and Underutilized Species work of CGIAR.[11] Encouraging collaboration and joint efforts also would be productive, and could extend to processing, irrigation and harvesting technologies specific to a particular part of the world.

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