International Investment in Agriculture

At RNRF’s Congress on Adapting Food Production to a Changing Climate, Christopher Delgado with World Resources Institute presented on building financial support for international agricultural programs. [See Delgado’s Power Point presentation and video recording] Here, we revisit international funding for agriculture in more detail.

According to a U.N. Food and Agriculture Organization (FAO) report, agricultural investment has remained stagnant or declined in several countries in recent decades, particularly in sub-Saharan Africa and South Asia. However, investment is necessary for agricultural growth, which is crucial to reducing hunger and lifting the world’s poor and food-insecure out of poverty. Shifting consumption patterns, a world population projected to pass 9 billion in 2050, erosion of the natural resource base, and the impacts of climate change all add to the urgent need to increase investments in agriculture. FAO estimates that agricultural investment in developing countries needs to increase by at least 50% to meet projected increased food demand. Even more investment is needed to reach the Millennium Development Goal’s Zero Hunger target of eradicating hunger in a sustainable manner.

Delgado put today’s public financial support for agriculture into historical context at RNRF’s congress. Official development assistance directed towards agriculture rose sharply in response to the 1973-1974 food spike, resulting in an expansion of aid programs and organizations. After the 1980s, however, the percentage of public spending on agriculture declined significantly. A rise in food prices in 2008 broke this trend, triggering an increase in government and private sector response. The share of agricultural loans at the World Bank increased from 7% in the early 2000s to 12% in 2010-2012. This recent increase has encouraged more foreign direct investment in least developed countries. The majority of production response, however, has been in developed and emerging countries. Additionally, overall investment numbers are still low; in 1980, the share of agricultural loans at the World Bank was 30%.

The FAO report advises that public investments by governments and donors, as well as national and international policies, regulations, and incentives, should encourage small-scale producers and domestic micro, small, and medium enterprises along the agricultural value chain to save and invest. Farmers’ own investments are central; in fact, farmers in low- and middle-income countries combined invest more than $170 billion, three times more than all other sources of investment combined. While foreign agricultural investment in the agri-food sector of developing countries plays a much smaller role than domestic private investment, foreign investments can contribute valuably to the generation of jobs, development of domestic value chains and infrastructure, access to global markets, and stimulations of new technologies or business models.

According to Delgado, agricultural resilience to climate change is the great underfunded issue in agricultural investments. For example, African financing needs for climate adaptation are estimated at $35-50 billion per year, yet total adaptation financing directed towards Africa was only $1.6 billion in 2012. Low-income populations in tropical countries are and will continue to be the most impacted by climate change in terms of yield and income. To respond effectively to the challenges of climate change, research and investment support for agriculture internationally must increase.

FAO also acknowledges the need to mainstream climate-change considerations into agricultural investment projects and programs. Adaptation and mitigation in the agricultural sectors can either be implemented as stand-alone projects or incorporated into larger ones. All agricultural development activities must be “climate-proofed” to avoid a business-as-usual trajectory. FAO has published a guidance document for incorporating climate change considerations into agricultural investment programs. Additionally, climate change cannot be effectively addressed without mitigating greenhouse-gas emissions from the agricultural sector, which is responsible for about one-third of global emissions.

Source: Delgado 2014. Presentation at RNRF’s 2014 Congress on Adapting Food Production to a Changing Climate.

International investments in agriculture are complex and do not always result in favorable outcomes [see FAO’s report for more details]. However, the message is clear that responsible investments must increase to successfully address current food insecurity, an increasing global population with shifting consumption patterns, an eroding natural resource base, and climate change. Delgado notes that increased support for agriculture will require the attention of heads of state. Support can be achieved in one of two ways: through concern over an impending global food crisis, or through an appreciation of agriculture as a relatively quick and cost-effective pathway to addressing issues of food insecurity and climate resilience.

For more information on food production and climate change, including a written summary of Delgado’s presentation, download RNRF’s report on its 2014 congress.