Food Security: All Investment Is Not Created Equal

The G8 countries committed $20 billion in aid to address global hunger and promote more productive farming in the world's poorest countries this July in L’Aquila, Italy. Major commitments came from the United States and Japan. The challenge remains to make sure the investments are structured properly and the environment that caused the hunger crisis is reformed to ensure food security for all.

Tokyo has already begun targeting its investment [1] in ways that might exacerbate food security problems in developing countries. This demonstrates the need to maintain pressure on donor countries and the international financial institutions (IFIs) to adjust their assumptions and protocol so that the crisis is addressed in the short, medium and long-term.

Tokyo believes that expanding food production, through public-private partnership with its local trading houses and other companies, will help mitigate future risks. Among Japan’s five mammoth trading houses, Mitsui & Co, Itochu and Marubeni are expanding into food commodities such as soyabean, palm oil, wheat and corn. . . . Beyond their homeland, where demand for grains and oilseeds is relatively stable, industry observers say the Japanese trading houses seek to tap the voracious appetite for soyabean and grains in China and elsewhere in Asia, particularly in Vietnam, Thailand and the Philippines, or in Middle-East countries such as Saudi Arabia.

What is being pitched as a new agricultural revolution using these forms of investment will look very much like the colonial model of exploitation with the exception that the output will meet commodity demand in high growth countries versus demand in the colonizing nation. Regardless, the same distribution of benefits will apply without proper safeguards. These should include mechanisms to coordinate international production as well as mechanisms to ensure investment is directed at local producers, and to ensure prices are low enough so that developing countries will have food security and access to their own goods. By simply funding industrial agricultural conglomerates, the company, in typical neocolonial fashion, will utilize the resources of developing countries, extract the raw materials and export them to sell in foreign markets at a profit.

The current framework discussed by the G8 nations and embodied in the new IFI push for investment assumes increased investment in agricultural production will generate greater supply, which will naturally decrease prices and address the problem. Although increased production will tend reduce prices generally, this does not mean that this strategy will address the global food crisis for several reasons. This line of thinking presumes the large run-up in commodity prices resulted from a uniform increase in demand against a less responsive supply chain. Leaving aside the ways in which speculative players affect commodity prices, there is a structural supply problem because of the increasing cost of energy.

However, this issue of increasing costs affecting global food prices predominates because a technological mode of agriculture production and transportation predominates. This mode is extremely capital-intensive, industrial and large-scale. Thus what we are seeing is not a food security problem as much as an investment problem in certain kinds of agricultural production and distribution. It is also a global food supply chain coordination problem. On the demand side, there aren’t fast growing populations of hungry people in the least developed nations driving up the prices of food; there are changes in the diet preferences of high growth nations representing a dynamic middle-class who are driving demand for more energy and resource intensive food sources.

Although demand exceeds supply, the demand for staple crops is driven by demand for livestock feed and for biofuel crops in addition to basic staple consumption by households. Thus, the problems of food security for the poor are being caused by structural distribution problems that drive up prices on basic staples. This leaves local populations, even in arable, land-abundant nations, without access to their own agricultural products.

International price fluctuations wreaking havoc on production in developing countries has been particularly damaging over the past 30 years of neoliberal development policy. This has occurred after the privatization of their development and agricultural banks and the liberalization of their agricultural and commodity markets. The export and foreign exchange-oriented development strategy which promote economic growth before food security presumes the distribution of gains from increased economic growth will benefit the population equally. However, the impact of privatization and globalization on the rural poor, historically has not demonstrated that this happens naturally. Income inequality has grown across the developing world during this period of neoliberal polices. Further what we have witnessed is the trend in the rapid transformation of small-scale agricultural producers into struggling slum dwelling communities. See more here [2]. A solution to the global food crisis must then also address these neoliberal policy failures to address the root causes of the problem.

The original document [3]drafted by the agricultural ministers to the G8 and the subsequent joint statement [4] with G8 ministers recognized the significance of investment in smallholder farmers and women farmers. However, it still maintained that open and efficient trade markets were part of the solution. This part of the statement might have sought to draw attention to the large distortionary impact of US agricultural subsidies on the developing world’s agricultural markets. If this was the case, it should have stated explicitly that wealthy nations, particularly land and resource abundant wealthy nations, should work to scale-back their subsidies to large-scale, industrial producers. The ministers should have then gone further by endorsing developing countries’ use of protections to develop their agricultural sectors through whatever means are necessary including revitalizing publicly subsidized agricultural banks.

A well-coordinated strategy would use the WTO, not to police nations to reduce barriers to trade uniformly, but to coordinate international agricultural policy to ensure food security for all. Particularly, the WTO could be tasked to ensure short-term efforts to address food security via dumping excess commodities on low income country markets do not crowd out domestic production of agricultural crops in the medium- to long-term. Likewise, along the lines of the Kyoto Agreement, nations that are large consumers of staple-intensive livestock, should commit to lowering their consumption to less resource intensive foods. Treating wealthy nations that are agriculturally constrained differently from resource abundant nations that are poor when allocating IFI investment is also particularly important. The International Financial Corporation’s latest commitment to boost agricultural production by 30% would seem to be targeting production in developing and high-risk nations, however, the companies benefiting from the investments will be donor country corporations and budding domestic partners, not traditional farmers. Funding small local producers is the right thing to do socially and politically but also makes economic sense. Walden Bello states [5]:

[S]mall farmers have confounded those who have preached their demise by showing that labour-intensive small farms can be far more productive than big farms. To cite just one well known study, a World Bank report on agriculture in Argentina, Brazil, Chile, Colombia and Ecuador showed that small farms were three to 14 times more productive per acre than the large farms.

Kanayo F. Nwanze, president of the International Fund for Agricultural Development (IFAD) explains [6] the value of investing in smallholder farmers over larger-scale producers in the developing world even with reaching industrial levels of productivity:

Eighty percent of the farmers in Africa are smallholder farmers. The majority of them are women. They produce 80 percent of the food that is consumed by Africans. Obviously, if these are the people that produce the food that we eat we must invest in smallholder agriculture. . . . We have proof that investment in smallholder agriculture is two to four times more profitable than investment in any other sector or sub-sector. It's very simple mathematics.

The investment generated to address the food crisis must be tied to measures to ensure the domestic population gains from the increased production and use of their land, energy and resources. Thus, investment should be targeted toward local producers for local consumption in low and middle income countries. These countries should be allowed to maintain tariffs on their commodities if they choose to export to wealthy and middle-income countries. Likewise, price controls should be permitted for countries with hunger problems.

If the G-8 and IFIs were sincere about addressing the food crisis, they would be permitting more flexibility of developing countries' policy responses to address this crisis using all tools at their disposal. This would include channeling investment on favorable terms to local producers; working with the WTO on global food production and distribution coordination; encouraging populations in high-demand countries to eat further down the food chain; and reigning in speculation in commodity and futures markets. Now's the time to ensure the US doesn't follow in Japan's wake.