The importance of Capital formation at the farm level
For any investment to have positive impact on production and productivity, it must contribute to capital formation at the farm level. In this respect, it is investments made by the farmers themselves that are indispensable. Their investments constitute the motor for sustainable development and the reduction of poverty and hunger. The main sources of investment finance are their own savings and their fixed capital, which is used as collateral for credit.
Capital formation is certainly higher for farming households with positive savings and clear ownership of their land as recognized by law. The same is true for farmers with larger than average land holdings, more fixed assets and more diversified production. However, in countries where the levels of poverty and hunger are high, such as India and Bangladesh, the average farmer does not even earn half of what is needed to cross the poverty line. For small and marginal farmers with below average land holdings, the situation is even worse, both in terms of their ability to save and to secure their rights to the land.
Public investment complements farm-level investment
Public sector support and investment are not a substitute for the investment that farmers themselves need to make to increase production. Public sector investments mainly play a complimentary role. Providing support to farmers without savings to gain access to credit often contributes to their indebtedness. It can even increase the number of poor and hungry.