Global Forum on Food Security and Nutrition (FSN Forum)

I have been positively surprised by Bertrand Vincent’s well-structured and thorough analysis; many points of which I fully share. Inter alia, it is relevant bringing into the debate the taxation issue and its redistribution function, underpinning the equity dimension of development. Yet, I think that something important is really missing. It is truth that in developing countries “the population is insolvent” but the fact that “taxation is almost non-existent” is about a more complex issue. To me, there is a huge issue of governance. In several developing countries, e.g. multinational companies are paying too little contribution to equity dimension of development as they do pay dramatically low taxes if any. So, along with population’s insolvency we assist at population’s disempowerment.

To add my contribution to the debate, I will probably repeat what is already known but there is always need to come back to the fundamentals.

1.       Whatever the ideas, models and schemes of funding, innovative or traditional, there is a huge need for progressing in governance, rule of law and people’s empowerment. Whatever the level, from micro-project up to policies, these elements have to be included and budgeted. The FAO new strategy, envisaging the right to food, opens an appropriate frame yet we assist to a cultural deficit at institutional level as well as at the level of the staff used to more “technical” / vertical solutions.

2.       Along the dual path of economic efficiency and social equity, aims related to equity and goals related to efficiency pose typical trade-offs, depending on the prevailing paradigm. The current hegemony of the “neo-liberal” model is not much helpful. In fact, the Washington Consensus provides the background for the primacy of cost-effectiveness and efficiency when designing policies. In this context, looking for innovative financing, surveillance is needed to avoid surrogate solutions in alternative to social-equity based on public policies.

3.       Policy making, including taxation, is subject to “political bargaining”. This is particularly relevant when considering that the food insecure are in many ways politically weak. Though in great numbers, they usually are voiceless and lack political capabilities. At local / community level it does not work out much better. Inequality does not stop at communities’ gates. Therefore, our efforts always have to organically include the governance dimension, the rule of law and people’s empowerment.

Emilia Venetsanou

Freelancer, Development practitioner

 

Dear FSN Forum members,

in our little book on How to End Hunger in Times of Crisis, Ignacio and I had proposed a Global Mechanism to Cut Food Waste and Over-consumption, based on  principles similar to those that underlie the design of the Clean Development Mechanism. The idea is that affected countries would voluntarily set themselves time-bound targets for

Cutting waste and over-consumption and put in place programmes of their choice  designed to achieve these goals. To the extent that they failed to meet their reduction targets, they would be able to buy entitlements to over-consume from under-consuming countries which would be required to use the funds for certified investments support of their hunger reduction programmes. The assumption is that – as in the case of programmes for alcohol and tobacco reduction, behavioural change would occur more slowly than intended and that the mechanism would, therefore, raise considerable resources.  In countries that consider using differential rates of taxation on foods as an inducement to reduce over-consumption, the resulting revenue could be applied to meet the costs of purchasing entitlements through the Mechanism.

The attachment (copied from our book) offers a fuller explanation of the proposal.

Best wishes,

Andrew

 

Colleagues,

As part of the task force on this debate of innovative finance, I think the discussion has been good. I would like us to be less focused on the taxing approaches and more on how to leverage in additional private investment since the world has excess investment funds looking for a place to invest, thanks to the turmoil and doubt in the traditional stable country investments and the higher potential in emerging market agriculture. We can use our organizations, and hopefully additional funding, to help steer that investment through better governance, impact investment guidance and better steering of funding through value chains.

Calvin Miller

Senior Officer and Leader- Agribusiness and Finance Group

Food and Agriculture Organization of the UN (FAO),

www.fao.org/ag/ags/subjects/en/ruralfinance

www.ruralfinance.org

 

[English translation, original in French below]

 1. What would be innovative sources (public and private) of financing for agriculture, food security and nutrition?

Some comments related to taxes:

- Taxes intended for redistribution (taxes on financial transactions) and those for changing behavior (taxes on sugary products) should be analyzed in different ways, because in terms of public policies the objectives are different.

- In relation to developing countries (which are the countries principally concerned with food security questions), the imposition of a new tax can only be supra national, because the taxation in these countries is almost nonexistent and, in general, the population is insolvent. The redistribution mechanisms must therefore be made global (Northern Hemisphere countries towards the Southern Hemisphere countries) or based on solidarity and/or aid mechanisms for bilateral development. There again, a differentiated analysis will be necessary since objectives and interests can be divergent.

- Thus, every negotiation of new global taxes must be the object of a consensus which, as we have seen with the refusal of James Cameron over the taxes on financial transactions, cannot be guaranteed.

Why not rethink the existing flows? There is an innovative idea!

Some existing North /South financial flows generate a debt that strains the development possibilities of many poor countries, and a servicing that results in South/North financial flows. What is legally correct (the duty to repay a debt) becomes ethically questionable when the objective of this debt is to generate a development which is in return strained by the servicing of that same debt. The HIPC [Heavily Indebted Poor Country] initiative and the C2D (developmental debt reduction contracts) developed by France for its bilateral debts are mechanisms worth emulating so that the service cost generated by the debt stays in the beneficiary country.  The question of the burden of the process to reach the point of completion and  of conditionalities is for  critical discussion but the principle of extending  debt cancellation (at the very least multilateral) to all countries subject to recurrent food crises should be considered.

A much more delicate question is that of  States where the population depends on urgent food aid, or more generally on development aid, while substantial income is generated by the exploitation of natural resources. The deployment of these funds is of course, an attribute of national sovereignty, but some diplomatic steps could, even so, be more "innovative" by being less underpinned by the interests of " realpolitik."

I admit that these two points may seem a bit militant, but is it not also the role of UN and FAO to ensure that such ideas are translated into recommendations for public policies?

Financial flows resulting from migration

The potential is undisputed. It is estimated that in 2007, the remittances from migrants amounted worldwide to USD$318 billion, of which USD$240 billion was sent to developing countries.  This figure should be compared with the USD$103.5 billion of public aid for development in the same year. However these flows do not use official routes, which make their measurement and utilization difficult (these figures are estimates considered broadly undervalued). Furthermore, these flows do not have national coherence or logic, but are extremely localized. Successful instances of organized integration of migrants´funds targeted and concentrated in urgent or support projects have been achieved on the basis of long term association of migrant populations in the host country and original source communities using local methods to promote development.

But the subject is complicated: (i) the migrants’ communities of origin are not entirely destitute. Indeed, they need to be able to finance the migration. (ii) The logic of community or village solidarity sustaining these flows involves essentially the first wave of migrants. This “commitment” weakens as the ties to the country of origin become more and more distant for the second or third generations born in the host country. The “contributors’” sociological evolution must be taken into account. (iii) Agricultural issues regarding land titles are not simplified by the utilization of migrants´ capital. Social expertise and counseling are essential.

A certain number of NGOs should be approached to share their expertise (www.grdr.org).

Flows resulting from decentralization

Regarding this subject, I can only speak about France and some West African countries that I know. As a result of colonial history, a number of African countries reproduce or are encouraged to reproduce systems of institutional organization put in place by the old colonial power, with whom they keep very close ties of cooperation. The dynamics of decentralization are a good example of this.

Associations based in France can dedicate a part of their budget for international solidarity actions pertinent to their areas of competence.  They seek to develop “twinning-cooperation” with local organizations in the Southern-Hemisphere countries. Furthermore, in Southern countries where the decentralization process has started, some local organizations find themselves with new areas of interest (particularly related to the management of natural resources) but without means.

The biggest problem for Northern organizations is the follow-up of actions financed in this way. They are more and more inclined to resort to third parties, professionals on international development issues, for implementation.

Therefore, very innovative co-financing mechanisms could be put in place (migrants, Northern CT) which could work as leverage for other public or private funding on a greater scale. I have in this way been able to finance urgent actions (after a locust invasion), of rehabilitation (upturn of agricultural season) as well as development (watershed management) for agriculture.

2. What would be innovative uses of funding generated by mechanisms of innovative financing?  What should be their core target(s)?

The previous decades have illustrated the incapacity of multilateral mechanisms to contain hunger on a permanent basis and to generate lasting rural development. The need for consensus and the existence of often conflicting  interests have prevailed over good intentions and given rise to  unacceptable situations: increasing performance of SAPs  early warning systems) but whose warnings are not heeded, distribution of  free food aid six months after the hunger gap and  in  the middle of the  marketing season, open conflict between the World Food Program and FAO for the leadership of emergency relief actions , donors refusing  to buy local excess production and favoring the marketing of their own  over production to support their farmers... all this is  well known!

The resilience of agricultural systems and rural populations when having to confront shocks, whether economic or climatic, can only be built over the long term. In the meantime, responsiveness and adaptation are essential. Experience has shown that innovation is derived from the intelligent and appropriate articulation at local level, in the context of place and time (therefore by people close to the grassroots) of the different above-mentioned sources of financing. The objective being to allow the rural poor to feed themselves, and then, progressively to envisage the commercialization of the surplus to local, and eventually to national markets... But also, to be capable of taking opportunities and of seeing them through to their conclusion (cf. argan oil production in Morocco, seaweed production in Mozambique...)

The ideal, of course, consists in building a true strong agricultural policy, which protects the farmers in the South, on the basis of sub-regional integration mechanisms, and is, moreover, financed by the Northern countries... but I agree, this sounds utopic.

 

3. What could be new and suitable innovative financing tools for leveraging private investments for agriculture, food security and nutrition? And what could be their advantages/drawbacks?

When we talk of financing coming from the private sector, they are too often presented as the ideal substitution for public funds since they are free of the conditions applied by diplomacy. And yet, this would be at best a candid analysis, and at worst a serious error. By nature, redistribution is a public service mission, the expenses generated are at cut price and it is not supposed to have any counterpart (surely, this is also naïve). By nature, the private sector invests to generate economic activity and increase its competitiveness.  A private operator investing has the legal right to expect a return on the investment. It is his role as economic agent. The invoiced expenses include a necessary profit, otherwise the company goes under!

The agricultural sector, on which food depends, is a special sector. Its liberalization is an extremely complex process with huge consequences for a state. If subsidies in Europe and the United States of America are seen as the cause of lack of competitiveness in African agriculture, their pure and simple elimination will generate the collapse of many Northern farmers, the concentration of land ownership and in terms of capital and mechanization the accentuation of the lack of competitiveness between the Northern and the Southern farmer. Modern agriculture is capital intensive and, as a result of technology and economies of scale accentuated by this concentration, a Northern farmer produces 400 times more than a Southern farmer.  Even when the Southern farmer will become competitive, he could never supply the necessary quantities by cultivating on average his half hectare.

The agricultural model of the Southern countries, in their majority, is essentially food-producing. It must be protected from a market logic in which it cannot evolve without the necessary assets and indispensable attributes. And the boundary is slender between "private investment" and "land grabbing." Both in the North and in the South, the increase in the strength of market power of the operators in agro-industry and distribution must be circumscribed so as not to be detrimental to Southern farmers who must, first and foremost, be able to feed themselves.

Having said that, an intelligent reading of a given situation can reveal some real opportunities. As long as you find a private partner with a truly supportive outlook, interesting experiences can emerge: argan oil production for the cosmetic industry, seaweed production for the agro-food …

In that case, it is essential that the Southern partner stays the master of his decisions, that the private partner accepts to invest in the South and that the value added production (transformation) takes place, as much as possible, in the South. Therefore, the private sector becomes a real lever of development by their investments rather than by donations ... or by loans! Indeed, every initiative which leads a farmer (activity based on cycles where the results are uncertain due to the climatic risks) poor (insolvent, and generally without guarantees) to borrow is doomed to failure. It is for these reasons in particular that the micro credit could be a misleading good idea in terms of rural and agricultural development.

Payments for environmental services could be an interesting tool, but there again; this is not so evidently straightforward.  The economic evaluation of these services relies on methodologies which are by nature imperfect. The question of actualization rates and the discussions around it are crucial. Furthermore, the PES relies on the hypothesis that the public or private actor has an interest to compensate farmers for practices which protect him from more significant expenditures (decontamination). Roughly speaking, it is about substituting a public policy justification by a contractual justification, Whereas that could be considered as innovative in countries with developed economies, legitimate doubts  arise in respect of countries without effective constraining environmental legislation and where the public or private actors able to undertake this activity  are not very many…



4. How could these identified tools or mechanisms be used for innovative areas of agriculture, food security and nutrition (e.g. climate smart agricultural practices, research, migration)?

What is an innovative area in agriculture? Speaking for myself, agro-ecology, sustainable management of land, farm forestry …

Furthermore, the three mechanisms for getting started in agricultural terms: the project, the program and public policy must be convergent.

5. Which actors/stakeholders - at the various levels - would be relevant to mobilize and implement such instruments?  What would be their roles and interactions with each other?

I think that I have covered this point in question 1.

 

[French original]

1. Quelles sources innovantes (publiques et privées) de financement pour l’agriculture, la sécurité alimentaire et la nutrition pourraient être envisagées ?

Quelques remarques à propos des taxes:

- Les taxes à vocation de redistribution (taxe sur les transactions financières) et celles à vocation de modification des comportements (taxes sur les produits sucrés) doivent être analysées de façon différenciée car les objectifs en matière de politiques publiques sont différents.

- Concernant les pays en voie de développement (qui représentent l’essentiel des pays concernés par les questions de SA), la levée d’une nouvelle taxe ne peut être que supra national car la fiscalité de ces pays est quasi inexistante et les populations généralement non solvables. Les mécanismes de redistribution doivent donc être globaux (pays du Nord vers pays du Sud) ou basés sur des mécanismes de solidarité et/ou d’aide au développement bilatérale. Là encore, une analyse différenciée serait nécessaire tant les objectifs et intérêts peuvent être divergents.

- Ainsi, toute négociation de nouvelle taxe à l’échelle globale devra faire l’objet d’un consensus qui, comme nous venons de le voir avec le refus de James Cameron sur la taxe sur les transactions financières, n’est pas garanti.

Pourquoi ne pas repenser les flux existants ? Voilà une idée innovante !

Certains flux financiers N/S existants génèrent une dette qui grève les possibilités de développement de nombreux pays pauvres, et un service à l’origine de flux financiers S/N. Ce qui est juridiquement correct (le devoir de rembourser une dette) devient éthiquement discutable lorsque l’objectif de cette dette est de générer un développement qui est grevé en retour par le service de cette même dette. L’initiative PPTE et les C2D (contrats désendettement développement) développés par la France pour sa dette bilatérale sont des mécanismes dont il faut s’inspirer pour que le service généré par la dette reste dans le pays bénéficiaire. La question de la lourdeur du processus pour atteindre le point d’achèvement et des conditionnalités est à discuter et à critiquer, mais le principe d’élargir l’annulation de la dette (multilatérale à tout le moins) à tous pays sujets à des crises alimentaires récurrentes est à envisager.

Une question beaucoup plus délicate est celle des Etats dont les populations dépendent de l’aide alimentaire d’urgence, ou plus généralement de l’aide au développement, alors que des revenus substantiels sont générés par l’exploitation de ressources naturelles. L’usage de ces fonds relève bien entendu de la souveraineté nationale, mais certaines démarches diplomatiques pourraient être dès lors bien « innovantes » en étant un peu moins sous-tendues par des intérêts de « realpolitik ».

Je reconnais que ces 2 points relèvent du militantisme, mais le rôle des NU et de la FAO n’est-il pas aussi de faire en sorte que ces idées soient traduites en recommandations de politiques publiques?

Les flux financiers issus de la migration

Le potentiel est certain. On estime qu’en 2007, la remise de la migration représentait, à l’échelle mondiale, 318 milliards de dollars, dont 240 milliards à destination des PVD. Ce chiffre est à mettre en perspective avec les 103,5 milliards de dollars d’aide publique au développement pour la même année. Mais ces flux n’utilisent pas les circuits officiels. Ce qui rend difficile leur évaluation (ces chiffres sont des estimations considérées comme largement sous évaluées) et leur orientation. En outre, ces flux n’ont pas de cohérence ou de logique nationale, mais extrêmement locale. Les expériences réussies d’intégration organisée de l’argent des migrants ciblé et concentré dans des projets d’urgence ou de solidarité se sont faites sur la base d’un accompagnement de long terme des populations migrantes dans le pays d’accueil et des communautés d’origines au travers d’outils d’animation du développement local.

Mais le sujet est complexe : (i) les communautés d’origine des migrants ne sont pas les plus indigentes. En effet, elles doivent être capables de financer la migration. (ii) Les logiques de solidarité communautaire ou villageoise sous-tendant ces flux concernent essentiellement les primo-migrants. Cet « engagement » se délite tout comme le lien de plus en plus distant avec le pays d’origine qu’entretiennent les 2eme ou 3eme générations nées dans le pays d’accueil. L’évolution sociologique des « contributeurs » doit être prise en compte. (iii) Les questions agricoles touchant au foncier, elles ne sont pas les plus simples à aborder via la mobilisation de l’argent des migrants. L’expertise sociale et l’accompagnement sont clés.

Un certain nombre d’ONG devraient être approchées pour partager leur expertise (www.grdr.org).

Les flux issus de la décentralisation

Sur ce sujet, je ne peux parler que de la France et de certains pays de l’Afrique de l’Ouest que je connais. Du fait de l’histoire coloniale, nombre de pays d’Afrique reproduisent ou sont incités à reproduire des schémas d’organisation institutionnelle mis en place par l’ancienne puissance coloniale avec lesquels ils entretiennent des liens de coopération très étroits. Les dynamiques de décentralisation en sont un bel exemple.

Les collectivités territoriales françaises peuvent consacrer une part de leur budget pour des actions de solidarité internationale relevant de leurs domaines de compétence. Elles cherchent à développer des « coopération-jumelages » avec des collectivités locales de pays du Sud. Par ailleurs, dans les pays du Sud ayant initié un processus de décentralisation, certaines collectivités locales se retrouvent avec de nouvelles compétences (notamment en lien avec la gestion des ressources naturelles) mais sans moyens.

Le problème majeur que rencontrent les collectivités du Nord est le suivi des actions ainsi financées. Elles sont de plus en plus disposées à recourir à des tiers, professionnels des questions de développement international, pour la mise en œuvre.

Dès lors, des mécanismes de cofinancement extrêmement innovants peuvent être mis en place (migrants, CT du Nord) qui peuvent servir de levier pour d’autres financements publiques ou privés de plus grande importance. J’ai ainsi pu financer des actions d’urgence (après une invasion acridienne), de réhabilitation (relance de la campagne agricole) comme de développement (aménagement de bassins versants) à vocation agricole.

2. Comment utiliser de manière innovante les fonds générés par les sources innovantes de financement ? Quelles devraient en être les principales cibles ?

Les décennies précédentes ont illustré l’incapacité des mécanismes multilatéraux à endiguer durablement la faim et à générer un développement rural durable. La nécessité du consensus et la réalité d’intérêts souvent contradictoires ont eu raison des bonnes intentions et génèrent des situations inacceptables : SAP toujours plus performants mais dont les avertissements ne sont pas suivis, déversement d’aide alimentaire gratuite 6 mois après la soudure et en pleine période de commercialisation, conflit ouvert entre le PAM et la FAO pour le leadership d’actions d’urgence, refus de donateurs pour l’achat d’excédents locaux  et privilégiant l’écoulement de leurs propres excédents de production pour soutenir leurs agriculteurs… tout ceci est du vécu !

La résilience des systèmes agricoles et des populations rurales face aux chocs, qu’ils soient économiques ou climatiques, ne peut se construire que sur du long terme. Dans l’intervalle, la réactivité et l’adaptation sont essentielles. L’innovation réside, par expérience, dans l’articulation intelligente et appropriée au contexte du lieu et du moment (donc par des gens proches du terrain) des diverses sources de financement citées plus haut au niveau local.  L’objectif étant de permettre aux ruraux pauvres de se nourrir eux-mêmes, puis, progressivement d’envisager la commercialisation des surplus sur les marchés locaux, puis nationaux… Mais c’est aussi être capable de saisir les opportunités et de les mener à terme (Cf. production d’huile d’argan au Maroc, production d’algues au Mozambique…)

L’idéal, bien entendu, consiste à construire une réelle politique agricole forte, protectrice des agricultures du Sud, sur la base de mécanismes d’intégration sous-régionale, et, en outre, financé par les pays du Nord… mais je suis d’accord, ceci relève de l’utopie.

3. Quels outils de financement innovants, originaux et adaptés au contexte, pourraient encourager les investissements privés dans l’agriculture, la sécurité alimentaire et la nutrition ? Quels en seraient les avantages et inconvénients?

Lorsque l’on mentionne les financements provenant du secteur privé, ils sont trop souvent présentés comme la substitution idéale aux fonds publics car s’affranchissant des conditionnalités de la diplomatie. Or, ceci serait au mieux une analyse candide, au pire une grave erreur. Par nature, la redistribution est une mission de service public, les frais générés sont à prix coûtant et il n’est pas censé y avoir de contrepartie (certes, ceci est aussi candide). Par nature, le privé investit pour générer de l’activité économique et accroitre sa compétitivité. Un acteur privé qui investit est légitimement en droit d’attendre un retour sur investissement. C’est son rôle d’agent économique. Les frais facturés intègrent un nécessaire bénéfice, sinon la boite coule !

Le secteur agricole, dont dépend l’alimentation, est un secteur particulier. Sa libéralisation est un processus extrêmement complexe et aux conséquences énormes pour un état. Si les subventions en Europe et aux Etats-Unis sont vues comme la cause du manque de compétitivité de l’agriculture africaine, leur suppression pure et simple va générer la faillite de nombreux agriculteurs du Nord, la concentration foncière et capitalistique et mécaniquement l’accentuation de l’écart de compétitivité entre un agriculteur du Nord et un agriculteur du Sud. L’agriculture modernisée est intense en capital et, du fait de la technologie et des économies d’échelle accentuées par la concentration, un fermier du Nord produit 400 fois plus qu’un fermier du Sud. Quand bien même l’agriculteur du Sud parviendrait à être compétitif, il ne pourrait jamais fournir les volumes nécessaires en cultivant ses 0.5 ha en moyenne.

Le modèle agricole des pays du Sud dans leur grande majorité est essentiellement vivrier. Il doit être préservé d’une logique de marché dans laquelle il ne peut évoluer faute de disposer des atouts nécessaires et des armes indispensables. Et la frontière est tenue entre « investissement privé » et « land grabbing ». Au Nord comme au Sud, la montée en puissance du pouvoir de marché des acteurs de l’agro-industrie et de la distribution doit être cadrée pour ne pas être préjudiciable aux agriculteurs du Sud qui doivent, avant tout, être capables de se nourrir.

Ceci étant dit, une lecture intelligente d’un contexte peut permettre d’identifier de réelles opportunités. Pour peu que l’on tombe sur un partenaire privé avec une réelle fibre solidaire, des expériences intéressantes peuvent émerger : production d’huile d’argan pour l’industrie cosmétique, production d’algues pour l’agroalimentaire…

Dans une telle démarche, il est essentiel que le partenaire du Sud reste maître de ses décisions, que le partenaire privé accepte d’investir au Sud et que la production de valeur ajoutée (transformation) se fasse autant que possible au Sud. Dès lors, le privé devient un réel levier de développement par l’investissement et non par le don… ni par l’emprunt ! En effet, toute démarche conduisant un agriculteur (activité basé sur des cycles dont les résultats sont aléatoires du fait des risques climatiques) pauvre (non solvable et généralement sans garantie) à emprunter est vouée à l’échec. C’est notamment pour ces raisons que le micro crédit peut être une fausse bonne idée en matière de développement rural et agricole.

Les paiements pour services environnementaux peuvent être un outil intéressant, mais là encore, la candeur n’est pas de mise. L’évaluation économique de ces services repose sur des méthodologies imparfaites par nature. La question du taux d’actualisation et les débats qui l’entourent sont centraux. En outre, les PES reposent sur l’hypothèse qu’un acteur public ou privé a un intérêt à rétribuer des agriculteurs pour des pratiques le protégeant de dépenses (dépollution) plus importantes. En gros, il s’agit de substituer une logique de politique publique par une logique contractuelle. Si cela peut être considérer comme innovant dans des pays d’économie développée, le doute s’installe légitimement pour des pays sans réelle législation environnementale contraignante et où les acteurs publics ou privés en mesure d’assumer cette démarche ne sont pas nombreux…

4. Comment ces mécanismes pourraient-ils être employés dans des domaines innovants de l’agriculture, la sécurité alimentaire et la nutrition?

Qu’est-ce qu’un domaine innovant de l’agriculture ? Pour ma part, l’agroécologie, la gestion durable des terres, l’agroforesterie…

Dès lors, les 3 mécanismes de mise en œuvre en matière agricole : le projet, le programme et la politique publique se doivent de converger.

5. Quels sont les acteurs ou parties prenantes clés – aux différents niveaux – pour  mobiliser et mettre en œuvre lesdits instruments? Quels seraient leurs rôles et interactions?

Je pense avoir couvert ce point dans la question 1.

Bertrand Vincent

PAGI unit

UNCCD-Secretariat

Hermann-Ehlers-Str. 10, 53113

Bonn, Germany

Hi,

I was looking at your list of IFMs and wondering how it has become that mechanisms for outright credit to small-holder farmers do not feature as often these days.

Are we discussing innovative financing with an already set bias towards a particular direction that steers away from direct engagement with the smallscale farmer and strengthens the place of the large scale producer?

I realise that there have been major challenges to developing mechanism that provide finance and/or input credit to smallholder farmers, but this is where innovation must surely come in.

I had for instance put forward the possible use of models that take account of mind-set and cultural dimensions that tend to haunt direct financial sector engagement with small-holder farmers. This is just one idea. Working through collective entrepreneurship models is yet another. I am sure there are other possible mechanisms. Some that have been previously tried and have failed may need to be re-examined from an innovation perspective.

Just about all the mechanisms I could see on your list have the potential to dis-empower the small-holder farmer and reduce them to a producer that is locked into a system that they have little control over.

I think contract farming and outgrower schemes should serve as (good) alternatives and not so much as principle mechanisms. Warehouse receipt systems come in at post-production stage and may not necessarily be as helpful to farmers that need to break out of the poverty trap, boost production so they move to "net-seller" status where they have significant marketable excess beyond their domestic needs.

Anyone that has worked closely with smallholder farming communities realises that there are tough realities to be dealt with if productivity is to be improved and poverty reduced. Financial inclusion is key, but innovation must provide the platform. Whilst there are no easy answers, I don't think avoiding engagement with smallholder actors provides any.

 

Christian Chileshe

Principal Consultant

3C - Development Management & Entrepreneurship Experts

Lusaka, Zambia

 

Friends –

Thanks to Géraldine Tardivel for her excellent summary of our conversation on innovative financing mechanisms.

The “Preliminary List of Innovative Financing Mechanism for Agriculture, Food Security and Nutrition” that Géraldine provided describes four broad categories of funding sources. Perhaps a fifth, Community-based Funding, could be added? Imagine an area in which there are many small farms, and a local population that obtains much of its food from those farms. A local credit union could be created, based on deposits from those farms and that population. Its rules could limit it to lending only to local small farms.

In my previous contribution I spoke about the need for discussion of how the proceeds from any innovative funding mechanism would be managed. Géraldine said, “a mechanism could be identified where resources collected by national taxes on currency transactions would be matched with a number of uses and needs in various sectors like health, education, food security.” This could be done, but it is really not easy. In far too many cases, nice sounding efforts have been hijacked by managers who steer the new resources to serve their own interests. Very often programs intended to meet the needs of the poor end up serving the wants of those who are relatively well off.

The idea of a transaction tax has been around for a long time. Perhaps it has not been implemented because, under many of the proposals, the powerful would not control the revenues. Another example is the global negotiations on the law of the sea. Many analysts think there is great economic potential in mining the seabed, but countries such as the U.S. do not want to have those resources managed as our common heritage. The powerful want those resources to belong to whoever has the power to take them.

The top of p. 3 of the Preliminary List says, “Preserving and enhancing food security requires agriculture production systems to change in the direction of higher productivity . . . “It is important to make a clear distinction between addressing the issue of overall food supply for the general population over the long run, and the hunger problem, which is the distinctive food security problem faced by people with little income. They require different sorts of policy responses. I carry on about this point at http://www.huffingtonpost.com/george-kent/achieve-sustainability-or_b_66...

Near the bottom of its third page, the Preliminary List says, “Malnutrition remains widespread, with market failures due to lack of competition and poor information . . .” This implies that malnutrition results from markets not functioning the way they are supposed to function. I don’t agree. I think that in any normally functioning market there is a steady flow of value from the bottom toward the top. This helps to explain the steadily widening gaps between rich and poor, both within countries and among countries. New investments can help the needy, but that is only likely where there is a strong element of caring about the needy. That caring is outside the market mechanism. These views are explained in my recent book, Ending Hunger Worldwide.

To summarize: while market-oriented programs, including strengthened investment programs, may be effective in increasing food production, one needs to look to other motivations and other mechanisms to ensure the food security of the poor.

Aloha, George

Feedback from the facilitators

Dear all,

We are grateful to all of you for the contributions to the discussion.

We read all comments with great interest and see that good ideas are being proposed as well as questions and concerns that we would like to address.

To enrich and facilitate this exchange, we are happy to add some further information on our work and on where the Task Force stands at the moment and respond to some of the concerns raised by participants.

Please see an annex on a preliminary List of Innovative Financing Mechanisms for Agriculture, Food Security and Nutrition on which the Task Force has worked.

Professor George Kent noted "One could imagine innovations such as a small tax on currency transactions, but how would those revenues be managed? Would the powerful accept such a tax if the revenues were used primarily for the benefit of the poor?"

In this specific connection, the Leading Group Task Force on International Transactions produced, in 2010, a Report which indicated that at the onset a mechanism could be identified where resources collected by national taxes on currency transactions would be matched with a number of uses and needs in various sectors like health, education, food security.

In the area of food security, a facility could be established within the mechanisms of existing institutions. This is an area that will have to be addressed in the report and in the debate.

What is central now, is that the levies on financial/currency transaction for development purposes are not repurposed only to face the present credit crunch.

However, the present debate, particularly within the FSN should not be focused only on using part of possible new taxes for food security.

The Task Force is trying to see into possible innovative ways to channel funds into the agricultural and food security efforts. This, by combining public and private funds in a catalytic manner. In the annex, there is a short description of a number of mechanisms identified at this stage on which comments will be most welcome.

Several contributions from the participants such as Dimitra Zervaki, José Luis Vivero or François Stepman, have a research related component and indicate that in any case mechanisms have to be revolving and sustainable.

In this connection, one of the areas indicated in the annex refers precisely to this issue. The superiority of public spending on R&D has emerged from several studies as compared to spending in other activities related to agriculture (irrigation, extension, fertilizer subsidies). It is a country specific effort, but countries have in common higher internal rate of return of investment in research as compared to other agricultural investments.

The example of the Platform for African – European Partnership in Agricultural Research for Development proposed by Mr François Stepman, to involve a diversity of stakeholders (research, public, private partners, all from North and South) is very interesting in terms of R&D.

Some questions from George Kent and from Falana Adetunji referred to the motivation for IFM, "what is the main problem we want to address, which countries should be targeted and, among them, which segments of the population? In addition, what evidence do we have that there is a lack of investment in agriculture? What are the key indicators. Are we referring to low-income countries, high-income countries, or everywhere?"

By 2050 the world population is projected to be of 9 billion people, most in countries already suffering from hunger and natural resources degradation. Crop and livestock systems have to become more capital intensive (physical, human, intellectual). In other words, the challenge in the poorest countries is to lift the agricultural productivity curve.

The correlation between agricultural investment and hunger reduction is dramatically illustrated by the fact that progress towards the MDG hunger-reduction target is closely linked with on-farm investment in agriculture.

According to recent estimates, agricultural capital stock per worker, a proxy for private domestic agricultural investment, has grown at an average rate of 1 percent per year since 1990 in the 29 countries that are on track to achieve the target. However, it has grown much more slowly in the 31 countries where progress has been insufficient and it has fallen in the 17 countries where undernourishment rates have stagnated or increased (FAO, 2011a).

There is a well know long term decline in the share of agriculture in overall government expenditures as well as in terms of Official Development Assistance, although some changes are now taking place, particularly in Africa. To sustain demand by 2050 various estimates say that additional $ 209 billion will be required for on-farm investments.

Other questions asked by George Kent, Christian Chileshe, Felix Tékpon Gblotchaou and Muhammad Irfan Kasana, referred to "what type of IFMs are we talking about. Large-scale? Small-scale? Maybe the concern is that certain groups have less access to credit than others?"

Small farmers are the backbone of agriculture in many low-middle income countries but they face special constraints to investment( remoteness, lack of access to market , finance, insurances to tolerate risks, insecure property rights).

Most farmers in low-middle income countries operate small-scale, family centered enterprises. They invest more than three times as much as their governments spend on agriculture, and 50% more than donors or foreign investors. Yet, these levels are too low to make them reach the MDG, get out of poverty traps and the constraints to investment.

Large-scale corporate investments in agriculture can represent an opportunity because they can fill large investment gaps in poor countries with abundant natural resources but no capacity to invest massively in enhancing productivity and build infrastructure. However, such investments must be inclusive in that they actively involve local farmers (e.g. outgrower schemes, contract farming, joint ventures, etc). Mike Brandolino proposes private funding to sponsor the purchase of land plots for agriculture development, where the funder can benefit from publicity and the community from increased productivity.

George Kent, Lisa Kitinoja and Falana Adetunji also added:"There are big differences between investments for agriculture and for basic nutrition. Why is there not enough investment in agriculture, or the particular type of agriculture that interests us?

New investments in conventional agriculture are not likely to help them very much. However, well-designed investments in the poor could be very helpful. We should think of better spending."

There are large gaps in agricultural capital labour ratios between the high income countries and the middle-low income countries as the agricultural capital stock in the low income countries has not kept up with growth in the labour force. The regions with the highest undernourishment percentages - Sub-Saharan Africa and South Asia - are also the ones that spend the smallest share in relation to the importance of the sector in GDP.

In low-middle income countries as a whole, the capital-labour ratio declined at an average annual rate of 0.3 percent during the 1980-2007 period. In many developing countries the levels of investment, both public and private, are too low to push the lift curve. Small farmers in marginal areas are neglected and often denied resources.

Governments thus have an important role in supporting private investment to ensure that resources are spent well and orientated towards agricultural development. The public sector has a crucial role to play in catalyzing agricultural investment and channeling them towards socially beneficial outcomes.

Public investments by governments and donors will be crucial in creating a conducive environment for farmers to make their own investments. An enabling environment influences the perceived profitability and risks associated with private investment. This will require a partnership between governments, donors and farmers.

Governments and national and international institutions have a role to play in funding a broad range of public goods, such as human capital, and infrastructure development that private agents are not able or willing to undertake themselves and to correct economic inefficiencies brought by market failures.

George Kent and Jose Luis Vivero expressed the following concern:.

"There are abundant resources in the world that could be directed to ensuring decent opportunities for the poor, but those who control those resources obviously have other priorities. New sources of funding could be proposed, but is there any reason to expect that those who control those funds would prioritize the poor?"

Frequently governments spend public funds in agriculture on subisidies to private goods (pesticides, fertilizers), often benefiting rural elites, rather than in investment in public goods (rural roads, education, marketing infrastructures, research), with negative implications both in agricultural performance and social equity. Funding of such common goods will have a positive spillover on investment by farmers.

We hope that the debate will continue to generate interesting ideas and inputs and look forward to keep receiving your comments.

Maurizio Malogioglio

Marie-Caroline Dodé

Géraldine Tardivel

Dear FSN Moderator

Well, financing for agriculture in developing and least developed countries is a major obstacle especially for the small scale farmers. Financial institutes are always reluctant in providing better financing products to these poor farmers and mostly on higher interest rate. This higher interest rate some time backed by some grantees to which majority of farmers failed, always pushes small farmers away in getting finances from these institutes. This situation ultimately open windows for middleman, who in turn get the whole produce on a very low rates.

To overcome this a possible solution could be a "Collateral Management Model". Under this model we can bring all the key stake holders in board where the key stake holder are individual or farmer groups, Banks and warehouses. Farmers can keep their produce into those warehouses on a very nominal fee where warehouse generate a Warehouse Receipt to a particular farmer. Here, the holder of warehouse receipt (Farmer) can go into bank and can get loan on the base of that receipt. Bank can keep this receipt as a grantee and can also sell the produce on behalf of that farmer into market or on a futures commodity exchange and later on can make settlement with that particular farmer. Warehouse can also buy that produce to sell it later on.

I can make more material on the said Collateral Management Model if some one want to know.

with best of my personal warm regards

Muhammad Irfan Kasana

Agriculture Corner

Email: [email protected]

Web: http://www.agricorner.com

Ref: innovative use of funds raised.

Every 2 months we post an overview of the ARD funding opportunities. But what is striking is that a lot of publicity is made about calls, less about the selected proposals and still less about the outcomes of projects.

http://paepard.blogspot.be/search/label/funding

“The growing global demand for agricultural innovation makes it vital to assess the characteristics that separate effective from ineffective innovation fund mechanisms” [DESIGNING AND IMPLEMENTING AGRICULTURAL INNOVATION FUNDS: Lessons from Competitive Research and Matching Grant Projects © 2010 The International Bank for Reconstruction and Development/ The World Bank](http://paepard.blogspot.be/2011/08/information-event-globe-global-food.html)

But innovation cannot be funded through research funding [only]. And innovation means willing to take risks. In addition the agricultural innovation system approach requires different actors to collaborate.

For the past two years the EC-funded PAEPARD project has been supporting 19 multi stakeholder platforms in Africa for innovative agricultural research in development on a variety of commodities (chicken feed in Nigeria, multi-layer plastic bags for maize in Ghana, African Solanaceae Plants in Uganda, etc). But while preparing those consortia to submit proposals, the majority of funding opportunities are research oriented.

In the initial proposals the users took the lead (farmers and private companies) with a strong market component. But the proposals needed to be reoriented towards the traditional research call criteria (for instance: The African Union Research call with deadline 20/04/2012).

A diversity of stakeholders (instead of mainly researchers) should be able to submit joint proposals in line with value chain consultation, research and innovation. One example is the German call for proposals GlobE. http://paepard.blogspot.be/2011/08/information-event-globe-global-food.html. What is attractive in this scheme is that consortia get funding for up to six months in the first phase. The maximum grant is €75,000 over a period of six months. During this period the consortium members have the time to draft a full proposal for an interdisciplinary, systemic cooperation research project. This forms the basis of a second round of evaluation. The duration of the funded research period proper will be 3+2 years.

Typical though for bilateral funding opportunities is that those consortia have necessarily to involve an European (German) research partner, limiting the bargaining power and research priority setting of African and users-led (farmer organizations and private companies).

The advocacy message of PAEPARD towards bilateral donors in ARD is therefore to rethink funding mechanisms.

http://paepard.blogspot.be/2012/06/steering-committee-meeting-of-efard.html

Francois Stepman

European Co-manager

Platform for African - European Partnership in ARD

c/o CTA Brussels Office

39 rue Montoyer. 1000 Brussels.

Tel. 00-32-2 513 74 36

Mobile: 00-32-474627686 (Belgium)

http://paepard.blogspot.com