Breaking the cycle of crisis and boosting growth through African agriculture: A call for urgent action

The food crisis in the Horn of Africa tragically portrays the impacts of drought and conflict, but it also brings to the fore the effects of neglecting agriculture and local food systems: increased vulnerability to shocks for 13.3 million people. Yet the food crisis also highlights the positive impacts of smart investments in agriculture. Where smart investments have been made, farmers and pastoralists have proved resilient to the crisis. Tigray, Ethiopia was the epicentre of the 1984-85 famine that claimed the lives of hundreds of thousands of people.

Today, after years of agriculture-centred development, Tigray is experiencing a “stressed” food security situation but it is far from the crisis situation found in most of Ethiopia. This is due to substantial public investments in agriculture, risk management and safety nets.  Drought, flooding and other natural disasters are inevitable, but food crises and famines are preventable.

Why is agriculture so important?

Investments in agriculture can have a huge impact on many of the world’s poorest people, particularly in Africa. Of the 1.4 billion people living in extreme poverty, about 70% live in rural areas. [1] In sub-Saharan Africa, more than three-quarters of the poor live outside of urban centres and depend on agriculture for their livelihoods. For at least 29 African countries, agriculture makes up a 20% share of GDP, and in some countries, such as Ethiopia, Liberia and Sierra Leone, it accounts for more than 50%. Yet on Africa’s 33 million small farms, [2] agricultural productivity has lagged behind the rest of the world, with grain harvests just one-third of those that were achieved in Asian and Latin American countries when they were undergoing rapid development. [3]

With few exceptions, no country has been able to achieve economic growth without boosting agriculture. [4]
Across Asia, for instance, broad-based economic development efforts that included significant advancements in agriculture helped reduce the number of people living on less than $2 per day from 80% in 1980 to just above 60% in 2010.  Indeed, the OECD recently concluded that “rapid and sustainable progress to reduce extreme poverty is next to impossible, except where incomes of poor people who farm for a living increase.” [5] Moreover, growth in agricultural productivity increases incomes, and stimulates activity in the rest of the rural economy. Every dollar of growth from agricultural products sold outside the local area in poor African countries leads to a second dollar of local rural growth from additional spending on services, manufactures, construction materials, and prepared foods. [6]

It is clear, then, that investing in agriculture is one of the best ways to reduce poverty in Africa. With access to suitable seeds, technologies, and improved connections to markets, small-holder farmers can generate more income, send their children to school, help to keep food prices affordable and contribute to lifting their communities out of poverty for the long-term.  The World Food Programme estimates that hunger and malnutrition cost US$450 billion annually to developing countries, equivalent to $1.2 billion every day. The UN’s Food and Agriculture Organization estimates that one US dollar spent on agriculture now leads to savings of at least US$10 in humanitarian assistance for the following year.  Simply put, we can no longer afford to neglect agriculture. 

What is needed to improve agriculture and drive poverty reduction?

1. Increased investment in agriculture financing mechanisms

Despite the clear benefits of improving farming in developing countries, investments in agriculture fell from $20 billion in the mid-1980s to just $3 billion in the early 2000s. But things are changing. Following the wake-up call of the 2007/8 global food crisis – where staple foods doubled and tripled in price and pushed an estimated 150 million people into poverty – donor countries pledged US$22 billion over three years to drive agricultural growth and combat food insecurity. Unfortunately, many countries are off track to meet these pledges.  As ONE’s recent report Agriculture Accountability highlighted, it is essential that these commitments are urgently fulfilled.

However, as well as meeting their broad commitments, donors must also ensure that two key mechanisms for financing and implementing agricultural development are fully funded. The Global Agriculture and Food Security Program (GAFSP) and the International Fund for Agricultural Development (IFAD) are crucial components of the accelerated effort to reach the first Millennium Development Goal to halve hunger and poverty by 2015. Likewise, all African Governments must implement the CAADP (Comprehensive African Agricultural Development Programme) initiative and fulfil their Maputo promises to spend 10% of their national budgets on agriculture.

• As part of the L’Aquila Food Security Initiative in 2010 the US, Canada and Spain created the GAFSP, a multilateral trust fund to finance gaps in food security and agricultural development plans. The GAFSP is designed to fund programmes that directly support national or regional agriculture and food security measures, as well as uphold the Rome principles of funding locally determined development plans. As of September 2011, seven donors had pledged $971 million to the GAFSP, yet only US$531 million had been delivered. Slow pledge delivery and a lack of new donors has left more than 10 well-designed plans unfunded and halted the process to identify new projects. Donors must deliver their pledges in full and new donors should step-up so that the GAFSP can be fully functional.

• IFAD, created in the mid-1970s in response to the food crises earlier in the decade, works to empower poor rural women and men to increase incomes and improve food security. Over the past three decades, IFAD has invested US$12 billion in 860 programmes reaching around 370 million poor rural people. Under the Eighth Replenishment of IFAD’s resources, which is scheduled to conclude in December 2011, donors should commit to fully funding IFAD.

• CAADP is an entirely African-led and African-owned initiative whereby countries establish need-driven investment plans designed to expand agricultural productivity growth by 6% a year. While 17 countries met or surpassed growth rate targets of 6% in 2009; just 7 countries devoted at least 10% of their budgets to agriculture. It is past time that African governments deliver on their Maputo commitments and conclusively break the cycle of rural poverty.

 2. Investments in risk management to help avert future crises

Investing in social protection and risk management schemes reduces the incidence and severity of food crises. Such investments – especially early warning systems, insurance, emergency preparedness plans, and national safety net programmes – can dramatically help countries to cope when faced with drought or other disasters. Crop storage, road networks and better information help farmers get more crops to market, maximize their profits, and in turn keep food prices affordable.

Social protection and conditional cash transfer programmes also have demonstrated increasing success in assisting people to weather adverse shocks and stresses, and in preventing them from having to make tough choices that ultimately prevent recovery afterwards. Successful examples include:

• Ethiopia’s Productive Safety Net Programme which provides food and cash in exchange for work that builds community roads, schools and health clinics. By providing nearly 7.5 million people with income 6 months out of the year, this program has played a leading role in mitigating the impacts of the current drought in the Horn of Africa.

• Opportunidades, the Mexican conditional cash transfer programme which insulates people against having to choose between feeding their family and sending their children to school, has increased secondary school enrolment for girls by 20% and boys by 10%.

• Brazil’s Bolsa Familia program, which provides cash for food and other necessities, is credited with raising 20 million people out of poverty between 2003 and 2009.

3. Ensuring humanitarian needs are met when crises do occur

While decisive action must be taken to prevent food insecurity in the future, the international community must respond aggressively and rapidly if crises occur in order to save lives and stop the self-perpetuating cycles of crisis and poverty. For the on-going crisis in the Horn of Africa, by the end of September, donors had committed only 71% ($1.7 billion) of the $2.5 billion that the UN had identified as necessary to address the crisis. The bulk of this funding was not committed until eight months after those needs were identified, and, as a result, needs increased. Unfortunately, “too little, too late” is a donor pattern when it comes to delivering humanitarian assistance making the victims of famine even more vulnerable in the future. Lack of access and security for humanitarian aid has further compounded the funding gap. Going forward, the international community must ensure that those in need are reached and that the underlying causes of insecurity are addressed.  In the case of Somalia, greater regional and international political will is required to support an inclusive multi-stakeholder process, which includes a prominent voice for Somali civil society.

4. Curbing global food price volatility 

High and volatile food prices create severe hardships for the poor in developing countries, who on average spend between 50 and 80 per cent of their income on food. Erratic prices also send mixed signals to farmers that can result in small harvests and high prices or large harvests and low incomes for poor farmers who also spend their majority of their incomes on food. While the causes of the 2007/8 food crisis and food price volatility are many and varied, the G20 has the ability to ease the impact of excessive market speculation on food prices and should act swiftly to do this.

Absence of transparency and oversight in agricultural futures markets can leave poor people vulnerable to volatile swings in food prices. Better reporting of movements in financial markets, however, can help identify trends and establish early warning systems for major disruptions, such as another global food crisis. More reliable information for trading in food commodities as well as stock levels can help reduce price volatility and prices.  Transparency also enables citizens to hold financial entities accountable for their actions. Disclosing market information for commodity futures trading can help to identify when and how financial actors are acting irresponsibly and are pushing up prices and exacerbating volatility.  

5. Enabling private sector investment

The private sector is a key component needed to drive growth, create markets, and improve food security by creating employment opportunities and reducing barriers to agricultural trade. The Asian and Latin American “Green Revolutions” that increased incomes and access to food for an estimated 1 billion people was underpinned by public and private investments in research, irrigation, infrastructure and extension. [7] Therefore, investments are needed across the African agriculture sector for improving suitable seeds and fertilizers, farming practices, storage, processing, distribution and marketing.  However, relative to other sectors, agriculture presents greater barriers to private sector investment because diverse landscapes, poor infrastructure, low population density and weak markets mean that returns may be comparatively lower. To unleash the enormous potential for African agriculture, attracting private investment will require policies and regulations that improve the business climate; expanded and improved infrastructure for transportation, telecommunications, energy and water; and innovative risk management mechanisms.

In a time of constrained budgets, more must be done to unlock all potential financing sources. Innovative examples include mobilizing new privately-managed investments funds that specialize in, and span across, the entire African agriculture sector.  Additional examples include loan guarantees and so-called advanced market commitments as a way to jumpstart new agricultural innovations. 

• Public and private investors should pool capital into new and existing funds to finance commercial opportunities in often neglected areas. While the development benefits would be sizable, the funds must address the needs of small-scale farmers and not negatively impact rural communities.

• The US Development Credit Authority and other related programs should be expanded in smart, prudent ways to provide underserved farmers with the capital required to grow their small businesses and income.

• Advanced market commitments (AMCs) for agriculture should be launched to promote the rapid development and availability of technologies such as suitable seeds and fertilizers in remote areas.  By guaranteeing a future market for successful products, AMCs incentivize private companies to get creative and push the envelope.  Their success in jumpstarting the development and availability of life-saving vaccines demonstrate their power. 

What should development partners do?

Agriculture’s centrality to development, crisis prevention and growth is undeniable, yet too many promises to prioritize agricultural development go unfilled. Financing for agriculture is in complete disarray: over two years after the 2009 G8 L’Aquila Summit, many donors have yet to clarify how and when they will meet their commitments, which were intended to address the impacts of volatile food prices and more frequent food crises; the Global Agriculture and Food Security Programme (GASFP) lacks funding overall, and pledges have only been 50% met; and eight years after committing 10% of national budgets to agriculture, only 7 countries in sub-Saharan Africa have met that promise to their people.  Development partners must:

Increase effective public resources for agricultural development

• All L’Aquila donors must reaffirm to urgently and rapidly fulfil their financial and aid effectiveness commitments to prevent future food crises.
• All G20 members must establish a post-L’Aquila framework for long-term investments in agricultural productivity and access to nutritious food in developing countries.
• New and existing donors should finance the GAFSP to allow it to operate with US$500 million per year.
• Donors should ensure the International Fund for Agricultural Development is fully replenished.
• All African countries must keep their Maputo promise to spend 10% of their national budgets on agriculture and commit to using transparent budgeting processes.

Develop risk management tools and social safety-nets

• Invest in disaster risk reduction, agricultural risk management and social safety-net programmes.
• Develop regional risk pooling mechanisms so governments can respond immediately to disasters.

Ensure humanitarian needs are met when crises do occur

• All donors must urgently fill the financing gap for the Horn of Africa UN Appeal.

Curb Food Price Volatility

• Establish regulatory measures including the creation of position limits on OTC food derivatives and index-fund food commodity futures trading.
• Ensure transparency in agricultural futures markets for derivatives and commodity index funds by requiring that all food-related derivatives  are subject to notification, clearing and monitoring by making position information publicly available.
• Commit to increase the transparency of grain stock availability by establishing the Agricultural Market Information System (AMIS).
• Establish a regulatory body, similar to the US CFTC, for European and other market future trading.

Encourage sustainable private resources for agricultural development

• All G20 members should incentivize private sector investment in agriculture by improving investment climates in host countries, scaling-up infrastructure related to agricultural trade in developing countries, and developing risk-sharing mechanisms for potential investors.
• The G20 should take concrete steps to support and mobilize private investments across the Africa agriculture value chain, including among other things, the launch of new privately-managed investment funds.
• All G20 members should establish a commission to report back to the G20 finance ministers group by June 2012 proposing a set of principles for transparent and fair land acquisition in developing countries that protects the rights and promotes the sustainable development of smallholder farmers and rural communities. 

Notes