Technical
background
document
Executive summary
FAO, 1996
Acknowledgements
Executive summary
2. CATEGORIES OF AGRICULTURAL INVESTMENT
Intensification
Post-production operations
Rural infrastructure
Technology generation and transfer
Regional priorities
Public versus private investment
3. PRESENT AND FUTURE LEVELS AND SOURCES OF AGRICULTURAL INVESTMENT
Present levels
4. TOWARDS AN INTERNATIONAL INVESTMENT STRATEGY
Priorities for action
The preparation of the World Food Summit technical background documents has mobilized, in addition to FAO�s own staff contributions, a considerable amount of expertise in the international scientific community, drawn from partner international institutions and governmental or non-governmental circles. The process has been monitored at FAO by an internal Reading Committee, composed of staff selected ad personam and established to ensure that the whole collection meets appropriate quality and consistency criteria.
The present document has been prepared by the FAO Investment Centre's Rolan Sch�rmann, with substantive inputs from Simon Hocombe and Gerold B�deker of the same division, as well as from colleagues of FAO's Economic and Social Department, particularly the Statistics Division and the World agriculture: towards 2010 (WAT2010) team. After initial review within FAO by all technical departments, invited colleagues and the Reading Committee, and by selected external reviewers, a fist version was published and circulated for comment to governments, intergovernmental organizations (IGOs) and non-governmental organizations (NGOs), as well as further peer reviewers. Much appreciated comments have been received from M.S. Rao and K. Anderson, University of Adelaide, Australia; E. Alves, Brazilian Agricultural Research Enterprise (EMBRAPA)< S.N. Saigal, formerly of the International Fund for Agricultural Development (IFAD), Rome; G.M. Karissa, African Development Bank; S. Fisher, International Monetary Fund; J. Howell, Overseas Development Institute; Y. Mundlank, University of Jerusalem; A. McCalla and H. Binswanger, World Bank, Washington, DC; and M. Kassas, University of Cairo.
While grateful for all the contributions received, the FAO Secretariat bears responsibility for the content of the document.
Although many individuals have inadequate access to food, the world as a whole has been generally successful in recent decades in meeting aggregate food demand. Estimates by FAO in its study World agriculture: towards 2010 (WAT2010) suggest that there are reasonable prospects for maintaining an overall balance between food supply and effective demand, although the elimination of chronic undernutrition remains a formidable additional challenge. The investments needed to achieve this, and more equitable food distribution, have not been gauged so far. Few systematic records exist of past investments, nor are there good models of the causal relationship between investment in agriculture and food supply.
The paper discusses the driving forces behind agricultural investment and broadly estimates the types and volumes of investment needed to secure the increases in food output required in developing countries over the next 15 years. The contributions required from the private and public sectors, and the role of external assistance within these totals are discussed. However, the direct cost of targeted or emergency assistance to the undernourished, urgent as it is, does not fall within the scope of the paper. Also the complex question of the relationships of investment in agriculture with food security and with environmental sustainability would merit more exhaustive treatment than can be given in the paper.
It should be underlined that the estimates/projections provided in the paper apply to developing countries only, and constitute estimated investment amounts and flows considered necessary to achieve the food and agricultural production targets set out in WAT2010.
Reliance on diverse agro-ecological settings to enhance food supplies and food security requires systems approaches, greater participation of the farmers themselves in technology generation and transfer and a change in the mindset of researchers and extension workers towards meeting farmers' needs. A variety of on-farm investments will be required in irrigation, land improvement, new agricultural tools and machines, livestock breeds and plant varieties. Much of the investment will be in the form of farmers' own labour. Upstream and downstream investments will supply new types of inputs, crop or animal breeds and machines, and processing, marketing and storage facilities, to make new forms of sustainable intensification physically possible and privately profitable. Facilitating investments in rural infrastructure will link producers to the mega-cities in which an increasing proportion of consumers will live; and social services will enable rural people to respond physically and mentally to new opportunities. Important transboundary and global issues will need attention: pooled investments are more cost-effective than individual country actions in approaching common problems of technology and resource management. Global alliances are required to monitor emerging trends of, and possible threats to, world food supplies.
Investment patterns will vary between regions. In Asia, the threat of plateauing responses to green revolution cereal technology is a major concern. Irrigation rehabilitation, drainage and the creation of efficient water markets to cope with rising water scarcity are priorities. Massive urban growth calls for investments in marketing infrastructure and communications. In Africa, scarce and deteriorating infrastructure is a major bottleneck. Investments need to help improve the management of rain-fed land to maintain fertility, structure and enhance in situ capture of variable rainfall. Irrigation can be expanded or rehabilitated where physical and socio-economic conditions allow this at acceptable cost/benefit ratios, without neglecting alternative routes to food security. Participatory approaches to research and development will be important to bring progressive modernization to Africa's traditional farming systems at costs and risks which poor and subsistence-oriented farmers are willing to accept. In Latin America, much could be gained from market-assisted land reforms to give small-scale and landless farmers better access to remaining reserves of productive land. Sustainable mechanized farming systems need to develop, as well as the processing and marketing infrastructure required by a population which will be 80 percent urban by the year 2010. In all regions rural areas are underequipped with social infrastructure, critical to developing the most important productive resource, human capital.
Some broadly indicative figures on current investment can be derived from FAO data and other sources. These imply that net investments in on-farm improvements in the developing world may have been US$26 billion per year in the recent past (US$77 billion gross) and in the post-production sector US$15 billion per year (US$34 billion gross).
In addition to these largely private investments, public expenditure on research and extension in developing countries may be estimated at about US$10 billion per year and on rural infrastructure at, very tentatively, US$20 billion per year.
A significant share of public investment in the rural sectors of developing countries has been funded by official development finance (ODF). International assistance to agriculture in developing countries rose from around US$12 billion per year in the early 1980s to nearly US$16 billion in 1988. It has since declined to under US$10 billion annually by 1994.
The efficiency of investments is as much an issue as their volume. Macroeconomic adjustments in many countries are reducing subsidies and providing more rational signals to private investors on whom future growth in food output depends. Countries and donors are also making efforts to match public funding more closely with beneficiary needs, through decentralization and participatory approaches in the planning and implementation of development programmes and the privatization in part or in whole of formerly public agricultural services where returns can be privately appropriated.
As to future investment, provisional estimates suggest that to increase food production in developing countries in line with effective demand until 2010, gross investment of some US$86 billion will be required annually in primary agricultural production (including irrigation), US$43 billion for related post-production facilities and US$37 billion for public support services and infrastructure. Taking into account all relevant factors and their different effects on the level of investment, e.g. real price changes for capital items, technological progress and disinvestment in the past, it may be assumed that the resulting incremental gross investment figure in terms of primary production, post-production, and public support services and infrastructure of US$31 billion annually, constitutes a conservative but realistic estimate. On this basis, the total gross investment required to sustain growth rates implied by the WAT2010 study would be some US$166 billion per year, or about 23 percent above average agriculture-related total gross investment over the past decade.
Net investments needed to increase capital stock, and hence food supply, are estimated at about the same level as in the recent past at some US$42 billion annually. There are, however, major regional variations. In sub-Saharan Africa, net investment in primary production will have to rise substantially above historic levels to meet future food demand. In North Africa, the Near East and much of Asia, however, emphasis will be on improved use of existing capital stock, so that the required amounts of incremental net investment to expand food supply will gradually decline. In Latin America net investments will have to exceed recent past levels substantially and a significant investment backlog in terms of replacement and renewal of existing stock needs to be addressed.
Nearly three-quarters of the future investment needed in the developing countries would, as in the past, consist of private commitments by farmers for land improvements, new equipment, expansion of livestock herds and plantations, often in the form of family labour, and for private investments in the post-production chain. The remaining one-quarter, representing about US$41 billion per year, will consist of complementary public investments to create and maintain the conditions for profitable private-sector agricultural investment. If external multilateral and bilateral financial support for these public investments were to provide the same share as in the past, i.e. around one-third overall, external commitments would need to rise by some US$5 billion per year, from US$10 billion at present to US$15 billion annually, i.e. to the same level already attained in the late 1980s.
Table 1 shows a working hypothesis concerning the average incremental annual gross investment needs in developing countries to underpin agricultural growth requirements as projected under the WAT2010 scenario. These estimates do not cover the needs of countries in other categories or the additional investments required to reduce even further persistent problems of malnutrition [see WFS companion paper Assessment of feasible progress in food security (WFS 96/14)]. The incremental investments shown would, under the WAT2010 scenario, satisfy the market demand of the existing population and of an additional 1.3 billion people in developing countries expected by 2010, although between 600 and 700 million people who do not have the necessary purchasing power would still be in a state of chronic undernutrition unless special policies and actions are adopted on their behalf.
Table 1 | ||||
| Region | Private | Public | Total | |
| Domestic | Oficial development finance (ODF) | |||
(US$ billion) | ||||
| Sub-Saharan Africa | 3.4 | 1.6 | 3.9 | 8.9 |
| Near East and North Africa | -1.8 | -1.0 | -0.5 | -3.3 |
| Asia | 9.0 | 3.3 | 1.2 | 13.5 |
| Latin America and the Caribbean | 8.0 | 3.1 | 0.4 | 11.5 |
| Developing world | 18.6 | 7.0 | 5.0 | 30.6 |
Policy-makers in government and the international donor community should continue to pay attention to the following requirements:
Food assistance: within an investment strategy for global food security, food assistance to the undernourished will continue to have its place. This cannot be provided through the market system, but if carefully targeted, can be an economically profitable investment in human resources, rural infrastructure and international stability, in addition to relieving human suffering.
Reduction of urban bias: for most low-income food-deficit countries, agriculture is the dominant sector of their economies and the main employer. In such countries government policies which discriminate against agriculture will exacerbate rural poverty and jeopardize national development as a whole. Policies are needed to remove disincentives to farmers and other rural investors, favour job creation, slow unmanageable urban migration and improve rural financial markets.
Redefinition of the public-sector role: a sharper demarcation between public and private tasks is necessary. To further the provision of complementarity, government expenditure should be reserved for public goods, essential social services, targeted poverty reduction and food assistance. It should be growth-enhancing. On the other hand, public expenditures which have low net social benefits should be avoided. Governments should routinely screen their expenditure structure to weed out misallocations and transfer resources to growth- or equity-promoting uses.
Global issues: some constraints to agricultural growth and food security require regional or global pooling of investment efforts. Agro-ecological zones transcend national boundaries. Technologies adapted to needs in a given zone will often be applicable across countries in a region. Management of international water resources and common fish stocks and desertification and pollution control in coastal waters or multinational lakes call for regional cooperation. Global threats to food security such as shrinking animal and plant genetic diversity, climate change and ozone depletion imply a global pooling of resources. Lenders and donors should strengthen their commitments to concessionary or grant funding of actions aimed at easing regional or global constraints, such as through the Consultative Group on International Agricultural Research (CGIAR) and the Global Environment Facility.
Focus and continuity of donor commitment: with scarce amounts of international assistance available to agriculture, a focus of available concessional resources on well-identified priority subjects is needed. All too often assistance is subject to fashions and transient perceptions of development issues. Agricultural development involves complex biological processes and changes in human attitudes and behaviour. Success requires perseverance and long-term support, in most cases exceeding the customary disbursement period of individual public-investment projects.
