Investment in
Agriculture
Alexander Mueller
Assistant Director General, Natural Resources Department
Finance High Level Panel
5th World Water Forum, Istanbul, Turkey
The Challenges
• World population is projected to grow from 6.5
billion in 2005 to nearly 9.2 billion by 2050. Thus
global food production must nearly double by 2050.
• Natural resources scarcity: expand the land basis
(4.2 billion ha available for rainfed production ) or
tap into yet-unused yield enhancing resources.
• Climate change will cause a decline in yields and a
higher occurrence of extreme climate events.
• Rapidly rising energy prices and higher demand for
energy: agriculture will become increasingly
important as a supplier to the energy market.
Food Prices
• 2007/2008:
- Sharp rise in food prices, thus in food production, mostly in OECD
- Increase in the number of undernourished people (963 million)
• Since July 2008:
- Decline in food prices: -50% for world grain prices
- Is this the end of the food crises?
Financial Crisis
The current financial crisis will affect agricultural
sector in many countries negatively
Demand Side
Supply Side
- Lower demand for commodities
- Negative expectations may
negatively affect demand
- Incentives for investment to
ensure greater food security
are suppressed
- economic activity slows,
employment falls, remittances
decrease
- Household income declines, not
compensated by lower prices
- Cutback of agricultural
production
- Decrease in input prices
(especially if energy prices
decrease)
- The overall effect depends on
the relative adjustments of
input and output prices
- Restrictions on the availability
of credit
The end of the crisis?
• Cereal stocks need to be replenished
• Lower prices will divert more supply to fuel
generating a further decline in agricultural prices
• The benefits of higher prices did not accrue to
developing countries:
- Developed countries increased their cereal output by 11%
- The developing countries only scored an increase of 1.1%
- Cereal production fell by 0.8% (excluding China, India and Brazil)
• Another food crisis?
- Dropping prices and economic uncertainty could discourage farmers
from investing in means of production
- Less planting next season
- Significant fall in output in 2009/10 and steeper price surge
- Low prices are driven by lower demand: lower prices may be
associated with more poverty and hunger
Investment in Agriculture
Donor countries and investors should meet
their commitments taken towards the
development of agriculture, especially at a
time when agriculture may act as a “buffer”
and help cushion greater losses incurred in
other sectors of the economy
Central role of Agriculture
• Agriculture provides the primary source of livelihood
for 36 percent of the world’s total workforce
• In sub-Saharan Africa, two-thirds of the working
population make their living from agriculture
• Agriculture is key to poverty reduction:
GDP growth
generated in agriculture is four times more effective in benefiting
the poorest than growth generated outside agriculture
• Increased farm production improves farmers’
incomes thus stimulating demand for the goods and
services offered by the small-scale enterprise sector
Low Investments in Agriculture
• Agricultural investments: reduction in real terms of 58% in
the period 1984-2004
• The share of agriculture in ODA fell from 17% in 1980 to 3%
in 2006
• In many African countries spending on agriculture is far
below the target set by the Maputo Declaration
• External commitments have
steadily declined since the
1980s and multilateral
assistance has declined
proportionately much more
than bilateral assistance
The Investment Road Map
FAO has tabled an investment road map to 2015: a
annual investment volume of US$ 30 billion in the
following five areas would engender an overall
annual benefit of US$ 120 billion.
1. Improve agricultural productivity and enhance livelihoods
and food security in poor rural communities.
2. Develop and conserve natural resources.
3. Expand and improve rural infrastructure and broaden
market access.
4. Strengthen capacity for knowledge generation and
dissemination.
5. Ensure access to food for the most-needy through safety
nets and other direct assistance.
Investing in Water for Agriculture
• By 2025:
- two-thirds of the world population could be under “stress conditions”
- 1800 million people will live in countries with “absolute scarcity”
• Irrigation:
- increases yields
- stabilizes output
- enables crop diversification
- reduces risk
- increases farm incomes
- Increases employment
• Irrigation has a multiplier effect on non-farm incomes and it
contributes to food security and poverty alleviation.
• Irrigation has good distributional effects
Water for agriculture needs to increase 60% to
feed an additional 2 billion people by 2030
Investing in Water for Agriculture
• Nearly half of the ODA committed to the water sector in 20032004 benefited to large water supply and sanitation systems
• Lending for irrigation and drainage partially recovered in the
late 1990s but in 2002-05 was still less than half the level for
1978-81
• In 2003-2004 the
proportion of ODA
for water that
benefited to the
LDCs decreased in
comparison with
2001-2002
Investing in Water for Agriculture
• The WWC/GWP Vision and Framework for Action
(2000): annual investment US$40 billion by 2025.
• To meet the MDG for Hunger: annual investment
US$47 billion in the period 2005-2015, US$67 billion
in 2015-2030, and US$58 billion in 2030-2050.
• Sirte Conference: water related investment in Africa
is estimated to US$65 billion spread over twenty years
• A more strategic development of the available land and
water resources.
• Flexible and service oriented irrigation systems.
• Focus on small-scale irrigation
• More accountable institutions.
The Commitments
• High-Level Conference on World Food Security: the total pledges
amounted to US$22 billion
• G-8 Summit in July in Japan: US$30 billion should be invested each
year in agriculture
• Maputo 2003: allocate 10% of national budgetary resources for
agriculture and rural development.
• Food Facility for Developing Countries’: 1 billion €
• Replenishment of IFAD’s resources and greater credit to the
agricultural sector from the World Bank
THIS IS NOT ENOUGH!
To feed 9 billion people in 2050 we need to double world
food production with the financial resources needed for
investment in agriculture
Climate Change and Agriculture
• The agricultural GDP in developed countries would likely benefit
from climate change. North America could gain in all scenarios.
• With the exception of Latin America, developing countries would
face a decrease of GDP from agriculture due to climate change. Asia
(-4%) and Africa (-2 – -9%) would generally be negatively affected.
Impacts of CC on world market prices for cereals (2080)
Trade in agricultural products
• OECD countries are still dominant players in world agricultural trade
• Exports of processed products by middle-income countries grew at
double-digit rates between 1985 and 2004.
Tariffs on agricultural products
• The agricultural exports of developing countries still face significant
tariff barriers and tariff escalation in developed country markets
• The export taxes had a detrimental effect on the response of the
developing countries to the high international prices
Governments and donors
should avoid reducing aid to
developing countries’
agriculture and introducing
protectionist trade measures
in response to the unfolding
global financial crisis.
Such steps may INCREASE THE
RISK OF ANOTHER FOOD
CRISIS occurring next year.
FAO’s Actions
• Special Programme for Food Security (SPFS)
• Initiative to combat soaring food prices: invited
donors to allocate US$1.7 billion to developing
countries for agricultural development
• In the last 10 years, FAO has implemented 1 022
projects dealing with the distribution of agricultural
inputs with a budget of about US$931 million
• High-Level Task Force on the Global Food Security
Crisis
Final to say:
The world is now in serious financial and economic
crisis with non predictable price fluctuations.
The world will have not only to ensure adequate food
for 963 million hungry people in the world, but also
to feed 9.2 billion people in 2050.
Investments in agriculture are the
cornerstone of any sustainable solution to
overcome these challenges
Thank You