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Global Forum on Food Security and Nutrition (FSN Forum)

A Novel Financing Mechanism to Start and Sustain Rural Agriculture Projects

In a considerable number of areas, how to finance and sustain rural agricultural projects is a major stumbling block to providing a decent livelihood to rural youth, and to moving towards better nutrition and greater food security. This proposal presents a financing mechanism that may be used to attain those objectives.

All available evidence suggests that the success rate among local agricultural projects is greater than that among the larger regional and national ones. Moreover, wide-spread poverty and unemployment in the rural areas continue to drive the rural youth to cities exacerbating the already considerable urban problems, and greatly threatening the most important food supply in developing countries by depopulating the village farms.

It is envisaged to cover three main areas of rural food production, viz., cultivation, animal husbandry, fishing and aquaculture. Moreover, it may be profitably used in any suitable processing, transport and storage, and marketing activity on a cooperative basis. However, before we proceed any further, it is important to outline the conditions absolutely necessary for its success and sustainability.

General Requirements:

  1. Very often, rural unemployment rates are high. Therefore, projects ought to be labour-intensive to benefit the maximum number of people.
  2. Potential project participants often do not have the agricultural competence, i.e., knowledge and skills relevant and appropriate for the area. Therefore, a suitable on-the-job training programme should form an integral component of each project. While its range may depend on the relevant background knowledge and skills of the participants, its relevance and appropriateness to the local conditions must be strictly ensured. As a general rule, use of the ‘latest methodology’ is a sure road to failure.
  3. Relevance and appropriateness of what is chosen to produce should be ascertained with reference to the local food culture. Not only does it ensure bio-diversity in food production, but also indicates what is best produced under the local geographic and climatic conditions. It is always a mistake to introduce cultivars or animal breeds whose introduction and use is expensive relative to the local living conditions. Our aims are providing a decent living to the rural youth and better local nutrition and greater food security.
  4. It follows from the arguments above that the cost of the methods and implements used in projects should be compatible with the local cost of living, and repair and maintenance of tools in use must take into account that cost as well as the level of local knowledge and skills.
  5. It is essential that no project results in environmental degradation, and it is highly desirable that every project contributes to environmental regeneration as much as possible. This would ensure that the local ecosystems services could satisfy a greater part of some needs of projects like water, soil fertility, etc.  This in turn would reduce cost of the projects.
  6. It is important to site a project at a place conveniently near to existing water, rail or road transport so that its produce may be quickly sent to where it is needed. But if this is not available, select a place from which the produce may be transported at the least possible cost and the fastest possible speed.
  7. One of the greatest obstacles to the sustainability of these projects is corruption at national, regional or at the local level. Its source may be the authorities, bureaucrats or the field officials involved in agriculture. One of the realistic ways of combating corruption is to make projects not lucrative enough to tempt the corrupt, but enough to enable the rural youth make a decent living. At the same time, judicious use of publicity to combat corruption may be used after careful consideration.
  8. The mechanism proposed below represents an evolutionary approach to a world-wide problem. At the start, it will be very labour-intensive to provide as many employment opportunities as possible, and use materials and methods best suited to local capabilities, climate, geography, etc. As a certain minimum number of projects are established in an area and become sustainable, they may be expanded and/or improved as required in an environmentally sustainable way. However, it would be difficult to use this mechanism where the security of the civil population is under any physical threat.
  9. A major difficulty most rural agriculture projects face is how to dispose of their produce at a fair profit, i.e., fair to both the producer and the end-user. As the commonest selling systems are only motivated by gain for themselves, it would be best to link the projects envisaged here to cooperative outlets, family-run restaurants/cafes, etc. Providing quality food stuffs at a fair price is the best way to ensure a sustained demand without resorting to expensive and mendacious advertising.
  10. It is essential that the law of the land is able to guarantee a secure land tenure, grazing, biased fishing or forest harvesting rights to the participants of a project. Moreover, it should guarantee them significant tax benefits and protection of their investment.

Meanwhile, regardless of how it provides food for sale, success of a project is closely tied up with the extent to which the following local requirements may be met:

I. Good will and the willingness of the local leaders, elders and authorities to help and encourage the local youth to participate in such projects, and their willingness to share their knowledge and skills with the project participants.

​​​​​​​II. Having adequate resources to establish and run local training centra to provide a sound on-the-job training to rural youth in agriculture, animal husbandry, fisheries or stewarding and harvesting forest products. It would be highly desirable to reward the participants during their training period in some suitable way, which may vary considerably.

​​​​​​​III. While a training centre may serve trainees from several areas, it is crucial that the training is relevant and appropriate, and totally practical with respect to a specific type of a project.

​​​​​​​IV. It would be wise to ensure the availability of arable land, access to grazing, fishing grounds, forests, etc., well before training programmes end.

​​​​​​​​​​​​​​V. It is necessary to establish the support services needed for the next phase well in advance. These may include seed, animals, fish for aquaculture, some fertilisers, guidance en route, etc.

My reason for this longish preamble is quite simple. Unless its organisers ensure those two sets of requirements are met in advance, no financial mechanism could make a project a success. In the real world where the rural youth everywhere is tempted to migrate into cities in the belief that they have a better chance there,  their retention at home calls for full and honest cooperation among all age groups there to help them to earn a decent living. In many instances, not enough ground work is done locally to obtain a truly inclusive approach.

The Financing Mechanism:

The mechanism proposed here is neither a loan nor a grant, but it combines a loan’s capacity to motivate a person to work well in order to repay it, and the freedom a grant offers by removing the need to worry about whether a person will be able to pay the next instalment of a loan. As it will be seen, it offers an additional incentive by enabling a person to convert the amount received for a project into a personal saving with no strings attached.

Here, the first step is to establish a fund for the exclusive use of rural agriculture projects and their adjuncts as outlined earlier. It would be desirable to open contributions to the fund to anyone provided that its administration remains solely in the hands of a suitable international organisation like the FAO. However, it is envisaged to be administered by a small number of people in order to cut costs. What means may be used to raise funds will have to be worked out in detail.

It would be advisable to entrust FAO’s country offices to administer financing the projects undertaken in a country as it entails less administrative organisation and expenditure. As the first step, an FAO country office may open an account in a reliable bank in a target country specifically for this purpose. The amount deposited for the purpose will depend on the number and nature of the projects involved.

Before the operations could commence, it is important to map out the food products for which there is a sustained need, the areas best suited for their production/harvesting, etc. One of the most important criteria of this suitability is how little ecosystem supplementation would be necessary for the success of a project, i.e., irrigation, use of fertilisers and biocides, etc.

The next step would be to obtain the necessary agreement and guarantees from the local authorities, and to form groups of skilled field workers with relevant knowledge and skills to   organise and run the local projects. Each group may need a person with appropriate managerial skills, but the emphasis should be on people with skilled in relevant food production/harvesting.

Before selected personnel are engaged, it would be useful to make dependable arrangements to establish and run the training units, land tenure, fishing, grazing and forest harvesting rights, etc. It is crucial to recall at every stage that time is of the essence, and those who migrate out of their rural homes are difficult to bring back. Therefore, a rapid start to projects based on rough and ready data is much more preferable to those that require precise data before they begin.

How the rural youth and their elders may be motivated to act in unison for mutual benefit varies widely, and ought to be left to the discretion of the local field workers who have an insight into local socio-cultural norms. These additional remarks, though not related to financing are given to ensure that one may obtain the best possible results under circumstances that do not make life easy for most rural populations.

Once the cost of a set of local projects has been ascertained by its manager and the field workers, the amount of money each project participant would need to carry on the work and to live reasonably   relative to the local living conditions for one year will be calculated. The latter amount will be called the individual cost of participation (ICP). As a participant begins to work on his/her own project after a suitable training, his/her ICP will be deposited in a nearby bank, post office savings account, or some such.

A participant will have the right to draw on ICP funds provided that it is approved by one’s mentor who helps and supervises the participant. A mentor should be acceptable to all parties and possess demonstrable skills in the area covered by the project concerned. Money may be drawn for two specific purposes, viz., project expenditure and one’s personal cost of living. What percentage of ICP should be used for each purpose has to be determined by the participant and the mentor with reference to local living conditions.

Using the money drawn on required items through a local cooperative might prove to be the way to avoid unnecessary complications and over-spending that would surely arise when it comes to purchasing items needed for a project and things required for personal use. Such cooperative shops/bulk purchasing units may be financed either by a donor organisation, or by the project participants themselves.

A similar approach is highly recommended with regard to agricultural machinery, repair and maintenance facilities, fuel dumps, etc. Not only do these cut costs, but they also encourage engaging in cooperative activities for mutual benefit without leaving someone behind.

When a participant is able to dispose of one’s produce, the participant will be required to inform the local paying unit how much one has earned by the transaction and place back in one’s account about 90% of it. This percentage is open to negotiation.  The small percentage one is allowed to keep may be used for anything as an incentive to the participant to work more efficiently.

Here is a simple example to illustrate the principle involved:

A participant’s ICP at the local bank, etc at the commencement of a project =   $1000.00

Amount assigned for the completed part of the project =   $300.00

Assigned as living expenses for 6 months =   $200.00

Now, let us assume the participant has used up $75.00 from the quota of living expenses.

So, the remainder of the ICP = 1000 - 300 - 75 = 625.

Thus, there is $625.00 left in the ICP for one to fall back on if that should become necessary.

Let us say that at this point the participant has managed to earn $150.00 by selling produce. Then, keeping $15.00 for personal use (10% of the earnings), one needs to put back $135.00 into one’s ICP account, so that now one has access to $770.00. While ICP withdrawals will not be charged interest, the amount will be revised should the local cost of living increase.

In this example, the participant has only used $75.00 of the $200.00 assigned to him for his living expenses. So, he still has $125.00 which may be drawn for food, clothes, etc. It would be very useful if all parties could agree right at the beginning what percentage of an ICP should be set aside for a project and for living expenses.

If all goes well, after a time a participant’s ICP might reach the original level, i.e., $1000.00 and even exceed it. When a participant has achieved a reasonable level of success after 5 years, say capable of having $600.00 or more in one’s ICP, one is not required to put back any percentage of one’s earnings into the ICP account. Then a participant may deposit one’s money in the ICP account, because at this point the account will officially become his own personal account with all its content!

This then is the novel aspect of the suggestion. It is not a grant until a participant has shown himself to be capable of making use of money to develop a career that would enable him to make a sustainable decent living. It is not a loan, but it imposes on one a gentler version of the discipline one needs to repay a loan not through hard competition, but by mutually supportive cooperation.

It is difficult to suggest how long a project should be followed-up to ensure its sustainability.  Experience everywhere shows that agriculture projects remain fragile for a period much longer than their planned ‘project duration’. It would repay to plan a project at least for five years, and then phase out the follow-up gradually. This would provide organisers a chance to smoothen out unforeseen problems should they arise and thereby ensure the endurance of their project.

Best wishes!

Lal Manavado.