Investment Learning Platform (ILP)

Plan Strategically

The Plan Strategically phase encompasses the analytical, planning and coordination work that will inform and guide specific investment commitments to achieve food security, nutrition, agriculture and rural development goals.

It includes analyzing the context, understanding opportunities for concrete investments, and forging consensus about priorities and means of coordinated implementation between different investment stakeholders in the public and private sectors, civil society and development partners. Depending upon the specific context and entry point, this involves policy and sector analysis, public expenditure reviews, development of national investment plans and considerations about implementing sector-wide approaches, as well as identification of specific projects to address the priorities identified. A proper analysis will consider perspectives of agriculture or agribusiness sector or subsector development to inform decision makers on production, consumption, trade and policy changes as they affect costs, benefits and risks of the investment options considered.

The types of analysis and/or planning tasks to be conducted in the Plan Strategically phase depend upon the specific context. In all cases, analytical work is most useful if it brings together all relevant stakeholders – including government institutions, non-governmental organizations (NGOs), the private sector and civil society – in the decision-making process regarding investment priorities and interventions. The process should forge closer links between the research community and decision-makers to ensure, on the one hand, that analytical results are used in investment decisions and on the other, that research work is relevant to the decisions at hand.

The major tasks and options – some of which may be pursued consecutively or even in parallel – are as follows:

Policy and sector analysis

Policy and sector analysis includes analytical work as well as a process of consultation and dialogue to forge consensus between different stakeholders on opportunities and constraints for agriculture investments and ways to address them. Governments need to evaluate and design policies to mobilize investments for steady economic growth and sustainable development. Attracting investments in agriculture requires a wide set of policies beyond agriculture, including macroeconomic policies and policies that guide other sectors. Sectoral policies influencing the business climate in agriculture include policies on trade and investment, education, research and development, infrastructure, financial markets, environment and tax policies. Policy analysis should further identify the potential impacts of policy reforms options on the agriculture sector and the incentives faced by individual players within that sector, as well as the country’s overall investment climate, which will also have significant implications for agricultural investment (see box below).

Sector reviews and diagnostic studies, using a variety of methodologies, aim to support governments in identifying the sector’s main strategic issues and constraints, as well as opportunities and drivers for achieving development goals. Sector analyses also highlight priority areas for interventions to ensure the highest return on agricultural investments in terms of growth, food security and poverty reduction.   Sector analysis findings can guide and inform investment project identification, making investment choices more credible, robust and realistic. They provide indications on where and how resources should be allocated in order to most effectively and efficiently achieve policy objectives for agriculture, food security and nutrition.

When planning for the future it is important to review past performance of the sector overall and of specific interventions within it, assessing what has worked in achieving desired outcomes, and how good practice can be scaled up. An assessment of past performance will also assist in determining whether the assumptions underlying the sector performance targets are realistic and provide baseline elements for assessing progress.  A review of practical implementation experience and lessons learned from past or ongoing investment projects can complement more formal analytical work to promote good practices in investment.  

Unleashing the potential of the private sector

A Conducive Investment Climate

Agriculture is a sector in which private investment predominates; therefore a conducive investment climate is essential for agricultural development.

According to the State of Food and Agriculture Report1, the existence of a conducive climate depends on markets and governments. Markets generate price incentives that signal to farmers and other private entrepreneurs when and where opportunities exist for making profitable and sustainable investments. Governments are responsible for creating the legal, policy and institutional environment that enables private investors to respond to market opportunities in environmentally and socially responsible ways.

The investment climate for agriculture is not only determined within the agricultural sphere; macroeconomic stability, transparent and stable trade policies, effective market and judicial institutions and respect for property rights – in short, governance – are integral parts of the enabling environment.

Public-private partnerships (PPPs) in agriculture 

Public-private partnerships (PPPs) have received increasing attention as a way to involve the private sector in supplying goods and services with some degree of public goods characteristics and for bringing together private and public investors to promote agricultural development, poverty reduction and food security. Public-private partnerships are generally defined as the participation by the private sector in an economic activity in which the parties involved share costs, risks and benefits but where, if left to the free market alone, such private activity would not occur due to low private returns to investment or the high level of risk involved. PPPs are found in farm-to-market roads, water for irrigation, wholesale markets and trading centres, agro-processing facilities and information and communications technology. Public-private partnerships specifically for sustainable agricultural development can also include “hybrid value chains” which are multi-partner structures that bring together private companies with entities such as nongovernmental organizations, university research institutes and foundations. Another type of PPP involves collaboration among public and private entities for undertaking research, developing new technologies and creating new products to benefit resource-poor farmers and marginalized groups in developing countries.

Each type of public-private partnership offers specific benefits and challenges. Common elements of success attributed to public-private partnerships generally include project plans with clearly defined objectives, roles and responsibilities, milestones, risk management and mitigation strategies, as well as the provision of in kind rather than cash only contributions from private sector partners. Effective and efficient definition of and implementation of local government policies is also crucial. Challenges arise through the creation of hidden transaction costs which can pose significant barriers to success.  Inadequate risk management or mitigation strategies, mechanisms for internal conflict resolution and legal and financial strategies, further threaten the value produced in these public-private partnerships.
Adapted from “The State of Food and Agriculture – Investing in agriculture for a better future”, FAO, 2012

Public expenditure reviews

A Public Expenditure Review (PER) is a powerful tool for understanding past patterns of public expenditure. It maps areas and relevant budget votes to a particular sector, which can be defined narrowly or broadly, depending upon the purpose of the review. PERs can provide indications of the degree to which public funds are allocated in line with stated policy objectives and in support of investments with highest returns. PERs also highlight how much of budgeted amounts are actually spent, providing an indication of implementing capacity. Depending upon the specific PER methodology applied, they can also highlight complementarities and trade-offs between different categories of spending. 

Investment plans

An Investment Plan is a country-wide plan that maps the investments needed to achieve national development targets over a defined time frame. It is a strategic tool for policy implementation and the scope of coverage – from a narrow focus on productive agricultural activities to a broader scope that includes natural resources management, rural development and value addition, as well as food security and nutrition and social and health aspects – depends upon the country’s policy and institutional environment. The name of the plan in a given country will reflect its scope and other national considerations. IPs are developed and managed by governments in consultation with national stakeholders from the private sector and civil society. For an IP to be successfully implemented, all relevant stakeholders must be engaged in its development. Sector goals can only be achieved through a combination of public and private investment and IPs are an opportunity to forge greater synergies. IPs should be anchored in country systems, structures and procedures, especially the budgeting process. They can be a useful tool in the implementation of sector-wide approaches (see box below). 

Sector-wide Approaches (SWAps)

Sector-wide Approaches (SWAps) aim to strengthen sector performance by increasing coherence and complementarity of interventions in support of a common policy framework. The adoption of SWAps has important implications for investment design and implementation. SWAps originally arose in the mid-1990s to enhance aid effectiveness, but national governments must be firmly in the lead to promote and implement SWAps. A SWAp should broaden national ownership over public sector policy and resource allocation decisions within the sector, bringing together government, non-state actors and development partners to implement a common agenda. A SWAp does not necessarily mean that there has to be one all-encompassing programme, nor that external funding has to be exclusively through budget support. To reduce fragmentation and transaction costs, however, procedures for implementation, including disbursement of funds, should be harmonized where possible, and should increasingly rely on government procedures for accessing public funds. All projects need to be aligned to the common results framework and should apply coherent monitoring procedures. Sector coordination occurs not only through greater dialogue, but through actual alignment of planning, implementation and monitoring. Including annual sector reviews as part of the budget cycle to review sector performance, impediments and implications for public spending during the next year can provide an important forum for debate and consensus development on improved implementation.

Project Identification 

Projects are important implementation mechanisms for priority investments. Projects can be funded by domestic public or international resources or by the private sector. In some countries all implementation of public investment occurs through projects. The first step in setting up a project is identification. The purpose of project identification is to develop a preliminary proposal for the most appropriate set of interventions and course of action, within specific time and budget frames, to address a specific development goal in a particular region or setting. This is presented in a concept note prepared in line with the specifications and requirements of the intended financing source. Investment ideas can arise from many sources and contexts. They can originate directly from a country’s sector plan or investment plan, programme or strategy, as follow-up to an existing project, or from priorities identified in a multi-stakeholder sector or local development dialogue. Proposals for public investment should be screened against and aligned with national strategies, plans and programmes to ensure that their implementation will be coherent with broader efforts and contribute to overall development goals. Proposals should also be screened against Principles for Responsible Investment in Agriculture and Food Systems, to ensure that they guard against and mitigate risks to food security and nutrition, while promoting food security and nutrition benefits. Identification involves: a) a review of alternative approaches or options for addressing a set of development problems and opportunities; b) the definition of project objectives and the preliminary scope of interventions and expected outcomes at pre-feasibility level, noting the major issues and questions to be addressed and studies to carry out during preparation before design can be finalized and any funds can be committed.

Footnotes

1The State of Food and Agriculture – Investing in agriculture for a better future, FAO, 2012. Chapter 5.

Key Resources

Easypol (FAO)

An FAO collection of resources, including tools, guidelines and case studies, for the various stages of agricultural and rural development and food security policy processes

The State of Food and Agriculture – Investing in agriculture for a better future (FAO, 2012)

Synthetic science based overview of status, trends and issues in investment in agriculture

World Development Report - Agriculture for development (World Bank, 2008) 

Comprehensive overview of agricultural development challenges and opportunities as well as the appropriate instruments to stimulate agricultural development

MAFAP Methodological Implementation Guides: Analysis of Public Expenditure on Food and Agriculture (FAO, 2013) 

Methodological guidance on carrying out PERs for agriculture and food security

Practitioners’ toolkit for agriculture public expenditure analysis, (World Bank, 2011)

World Bank toolkit on PERs in agriculture.

Promoting investment in agriculture for increased production and productivity (FAO, 2013) 

Assessment of the relationship between savings and investment at farm level, corporate private and public investment in agriculture as well as appropriate policies to foster investment.

How can we improve public expenditures in agriculture? (World Bank, 2011)

Synthesizes lessons learned to improve the allocation and efficiency of public spending for agricultural growth and poverty reduction

Strengthening systemic capacities for the formulation and management of National Agriculture Investment Plans (FAO, 2014)

Modular learning resource on investment planning developed in the context of a project to strengthen capacities for investment planning in five African countries 2012-14.