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The case for coordinated investment in agriculture

July 20, 2015

Overcoming hunger and poor nutrition in ACP countries will depend to a large extent on boosting both private and public investment to raise agricultural productivity and rural incomes. A call for a more vigorous and coordinated approach to investing in the agrifood sector was made at a session staged by CTA and partners as part of the Third International Conference on Financing for Development, held in Addis Ababa, Ethiopia, from 13 to 16 July 2015.

The High-Level Panel on Investments and Agribusiness for Food and Nutrition Security: Public and Private Sector Coordination was held in Addis Ababa, Ethiopia, on July 14. It was organised by CTA, together with the Food and Agriculture Organization of the United Nations (FAO) and the Secretariat of the African, Caribbean and Pacific (ACP) Group of States.

The side event, which focused on Africa, highlighted ways to attract investments in the agrifood sector from the public and private sectors and from civil society, so as to achieve sustainable food and nutrition security. Special attention was placed on the importance of coordinated public- and private-sector investments in food value chains and food systems to achieve Sustainable Development Goal 2 on ending hunger, achieving food security and improved nutrition and promoting sustainable agriculture and Goal 8 on promoting inclusive and sustainable economic growth, full and productive employment and decent work for all.

“Achieving sustainable, equitable growth in agriculture will be critical for reaching many of the Sustainable Development Goals – to tackle poverty and malnutrition, to create employment, to provide a base for sustainable industrialisation, to protect ecosystems,” said CTA Director Michael Hailu, who moderated the event. “Agriculture has special powers in reducing poverty,” he added.

Agriculture drives economic growth

World Bank figures show that growth in gross domestic product (GDP) driven by agriculture is far more effective in benefiting the poor than growth generated by other sectors. And a study carried out by the Organisation for Economic Co-operation and Development (OECD) of the 15 countries that were most successful in tackling poverty in the past decade showed that most of the poverty reduction was the result of increases in agricultural GDP.

Yet lack of investment in agriculture is seriously hampering efforts to tackle poverty and ensure food security. To meet the rapidly growing demand for food, an investment of US$480 billion (€438 billion) will be needed each year from 2015 to 2030, the session heard. This compares with current annual funding of US$220 billion (€201 billion), leaving an annual shortfall of $260 billion (€238 billion). Investment is urgently needed for infrastructure to support short-distance value chains to serve rapidly growing cities in developing countries. Africa will have to invest heavily in building cold chains for trade in food and vegetables, a sector that is expected to be worth more than four times as much as the continent’s trade in cereals by 2030.

Small-scale farmers will also need to make investments in inputs, machinery and seeds, and in greenhouses, irrigation facilities and secure on-farm storage sites to make their agriculture more productive and resilient. However, currently, many ACP farmers have very limited access to finance. In countries such as Kenya, Rwanda and Uganda, fewer than 10% of farmers have access to formal credit, and women have even less access. In Ghana and Nigeria, for example, fewer than 4% of commercial bank loans go to agriculture.

Smallholders as entrepreneurs

Discussing the importance of investments to benefit small-scale farmers, small and medium-sized enterprises and value-chain actors, panellists shared examples of successful public-private partnerships in the agriculture sector, stressing the need for policy support, finance and capacity building.

"The need to transform the African agribusiness sector is a development challenge as it involves small-scale and family farmers who are the largest private investors in African agriculture," said Michael Hailu. "Public-private partnerships have the potential to accelerate agribusiness investment, strengthen value-chain activities and business linkages, mobilise producer communities for economic activities, promote technology transfer and linkages with research systems."

According to FAO Director General José Graziano da Silva:

"Small farmers cannot remain only producers of foodstuffs but have to take on the additional role of entrepreneurs in order to improve their livelihoods and move beyond subsistence farming. Further, agribusiness companies are in need of reliable domestic raw material supplies to improve their international competitiveness."

"The African, Caribbean and Pacific Group of States has long recognised the critical role that the private sector plays in the socio-economic development of its member states and this has been reflected in the programmes supported under the Lomé Conventions and Cotonou Agreement signed between the EU and the ACP Group over the years," added ACP Secretary General Patrick I. Gomes.

A conference on agri-value chain finance (Fin4Ag) organised by CTA in Nairobi, Kenya, in July 2014 identified a wide range of sustainable ways to enhance smallholders’ access to finance. Information and communication technologies, warehouse receipt finance, collateral management, commodity exchanges and credit bureaux all hold strong potential for facilitating agricultural finance. In the run-up to Fin4Ag, CTA commissioned a study to explore the state of digital and mobile payments in agriculture. 'Mobile payments: How digital finance is transforming agriculture', published earlier this year, presents the results of the research, which was based on three case studies: SmartMoney from Uganda, NWK Agri-Services from Zambia, and Rice Mobile Finance (RiMFin) from Ghana.