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FAO Investment Centre

Increased agricultural investment is critical to fighting hunger

Eradicating extreme poverty and hunger is the first Millennium Development Goal (MDG) for a reason: none of the other MDGs can be met without food security and economic development. Because 75 percent of the poor in developing countries live in rural areas, strengthening the agricultural sector can not only improve access to nutritious food, it does more – at least twice as much – to reduce rural poverty than investment in any other sector.

This is proving true today in China, Ghana, India, Latin America and Vietnam, all of which have witnessed steep declines in rural poverty with rapid agricultural growth. Overall, countries with the greatest success in reducing hunger are those with higher net investment rates in agriculture per agricultural worker.

The decline in investment

Despite this evidence, the share of Official Development Assistance (ODA) to agriculture has dropped significantly, falling from a peak of 17 percent in 1979, the height of the Green Revolution, to a low of 3.5 percent in 2004. It also declined in absolute terms: from USD 8 billion in 1984 to USD 3.5 billion in 2005. Why? The answer is complex, involving a cluster of factors about which economists debate.

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Some of the most-frequently cited reasons can be noted. Falling commodity prices hurt profitability. Competition for Official Development Assistance increased, especially from social sectors. Resources were diverted to cope with emergencies. Farmers in some donor countries objected to supporting agriculture in their export markets. Environmental groups argued that agriculture adds to pollution and the destruction of natural resources. Lack of rural infrastructure such as roads, storage and market facilities, dramatically reduced the possibility to expand agricultural production in many areas. Donors reduced their foreign aid overall during the recession. Finally, it must be acknowledged that many agricultural investments of this period performed poorly, due mostly to lack of capacities to implement the projects and weakness in governance.  This challenged belief in the positive role of investment in agriculture.

 

Additional challenges

The level of investment of most developing countries in their own agricultural sectors is also considered inadequate. In the 1980s and 1990s, under pressure from Bretton Woods Institutions, developing countries in fiscal crises undertook structural adjustments, leading to public spending cuts and a breakdown in public sector services for agriculture. In 2004, agriculture-based economies still applied only 4 percent of their public spending to the sector. Far less than the 10 percent Asia spent during its growth spurt of the 1980s.

Some progress

Recent years have seen improvements. Official Development Assistance to agriculture rose to 5.5 percent in 2007. African countries are striving to invest more of their own resources in agriculture. A recent independent evaluation for the World Bank shows that, of those projects approved from 1999 to 2006 and performing at satisfactory levels, more are in agriculture than in any other sector; and this is true in terms of both project design and supervision.

The need for investment is growing

Yet, the low levels of investment have had a negative effect.  It is one of the factors contributing to soaring food prices and a sharp increase in global hunger.  Add to that the need to increase global agricultural production 70 percent – almost 100 percent in developing countries – by 2050 to feed the world’s forecasted 9.1 billion people, and it is easy to see that current levels of investment are not enough.  FAO estimates that net investments to agriculture must top USD 83 billion per year – up roughly 50 percent from current levels – to meet future demand.

In 2009, the number of hungry people in the world reached a record 1.02 billion.  This is largely due to complex economic circumstances that affect the poor most of all.  Investing in agriculture and rural development – and making those investments as effective as possible – is both the means to provide more food for more people and the way to improve rural livelihoods so the poor can buy the food they need.