The UN Food and Agriculture Organisation (FAO) this week released its annual report, the State of Food and Agriculture, for 2012. This year’s focus is on “the accumulation of capital by farmers in agriculture and the investments made by governments to facilitate this accumulation.” Farmers are part of the private sector and their investments in developing their businesses can have large impacts on the wider rural economy. This, as the report asserts, is why farmers are crucial stakeholders in national plans to improve agricultural investment.
And developing agriculture is important. Improvements in the sector can have wide reaching benefits for reducing hunger and poverty. Given that 80% of the world’s chronically hungry are farmers, greater investment in agriculture, which has been stalling or declining for several decades, can significantly contribute to meeting the first Millennium Development Goal of halving hunger and poverty by 2015. Indeed the report finds that over the last 20 years, countries with the highest rates of on-farm investment have made the most progress in halving hunger.
But farmers are only part of the story; governments have an important role to play. In low- and middle-income countries, farmers’ own investments to farming outstrip investments made by governments or the private sector. This report shows that farmer investments can have greater social and economic benefits when undertaken in an inductive investment climate, an area controlled by markets and government. As the report states, “Governments are responsible for creating the legal, policy and institutional environment that enables private investors to respond to market opportunities in socially responsible ways”. Developing this enabling environment is a crucial function of the public sector, particularly in terms of levelling the playing field between smallholders and larger investors. Improving incentives for farmers to invest and reducing the barriers will aid agricultural development significantly.
An enabling environment, discussed in Chapter 8 of the book, must also include investing in the provision of public goods such as infrastructure, research, education and extension, areas that have often been neglected despite yielding high returns on investment. The issue of large-scale investment is a controversial one. It has the potential to bring about great benefits but also carries significant risks at the local level. Ensuring that governments and local communities have the capacity to negotiate contracts as well as monitor and enforce them is a key recommendation of this year’s report.
They key messages of the report are summarized below:
- Investing in agriculture is one of the most effective strategies for reducing poverty and hunger and promoting sustainability.
- Farmers are by far the largest source of investment in agriculture.
- Farmers must be central to any strategy for increasing investment in the sector, but they will not invest adequately unless the public sector fosters an appropriate climate for agricultural investment.
- A favourable investment climate is indispensable for investment in agriculture, but it is not sufficient to allow many smallholders to invest and to ensure that large-scale investment meets socially desirable goals.
- Governments and donors have a special responsibility to help smallholders overcome barriers to savings and investment.
- Governments, international organizations, civil society and corporate investors must ensure that large-scale investments in agriculture are socially beneficial and environmentally sustainable.
- Governments and donors need to channel their limited public funds towards the provision of essential public goods with high economic and social returns.