Six steps to good private investment in agriculture
Erinch Sahan Senior Policy Adviser on Business and Markets for Oxfam Asia
1st Oct 2012
Private investment can be a potent tool in the fight against poverty, but it needs to be done in the right way. Erinch Sahan outlines what's needed to make private sector investment work for poor farmers.
Oxfam is in the business of fighting poverty. This often takes us to farming communities across the developing world where people are struggling to earn a living and feed their families. These are places where it's tough to do business. Due to a myriad of obstacles - from poor infrastructure, to governance challenges, to lack of business services - companies too often stay away.
But things are changing. Driven by the rising demand for agricultural produce, as well as economic growth in the developing south, companies, large and small, global and regional, are expanding and investing into regions that formal businesses would once have not considered.
Private investment can be spectacularly powerful in the fight against poverty
This private investment can be spectacularly powerful in the fight against poverty. It can drive innovation and job creation. It can help marginalised producers access markets and services that are critical to them getting a leg up to gain meaningful market opportunities. It can even help women gain a voice in the economy. However, none of this is automatic. Poor investments can not only exclude poorer producers but they can also undermine the rights of communities.
We've been thinking hard of late about what type of private investments build food security, generate good jobs and help fight poverty. Often, these are investments that empower small-scale producers - because eighty per cent of hungry people live in rural areas, mostly working as small-scale producers.
Six steps to pro-poor investment
We wrote down some key characteristics of the types of investments we think achieve pro-poor impacts. Here's our list.
1. Choose the right markets
Demand for food is growing across developing countries. This provides small-scale producers with opportunities to grow their incomes by focusing on food crops for local markets. While international markets can also be powerful levers for generating wealth in developing countries, most small-scale producers cannot access these markets. For those that are able to meet the onerous standards of international markets, dependence on these markets is a real danger, as foreign exchange fluctuations and international competition can rapidly mean they are excluded. It is too simplistic to say that
poverty can only be alleviated through focusing investments on food crops for local markets. But we do know that this is where most of the opportunities will come for the vast majority of the producers in marginalised parts of the developing world.
2. Work with producer organisations
We cannot overstate the power of producer organisations (POs) to link disparate and marginalised producers with more lucrative markets. They allow small-scale producers to share risks and costs, meet quality requirements and negotiate more effectively with buyers. Businesses are seeing the value of working through POs, not only as an efficient means to aggregate produce but also as an effective way to deliver inputs and services to farmers. For instance, in Sri Lanka, Plenty Foods has moved to a model of working with POs and are now able to deliver finance, insurance and seeds to more
farmers by working through POs.
3. Invest in processing
Processing generates real value-addition, meaning that jobs are created and skills are built that create income for the local community. This doesn't have to be an investment into a factory but can involve helping small-scale producers obtain the right equipment and training. It can be an investment that allows small-scale producers to conduct some on-farm processing. We saw some good examples from across Africa where investments have allowed sesame growers to produce sesame seed oil, fruit farmers to dry their produce and bee-keepers to produce wax.
4. Invest in access to services
A common problem for small-scale producers across the developing world is that they are denied critical services, such as agricultural inputs, technical assistance, information, logistics and finance. Investments that extend these services to small-scale producers can help improve yields, market-access and incomes. However, the world of small-scale producers can be vastly different to that of larger more developed users of these services. For this reason, these services should be tailored for small-scale producers.
5. Invest in sustainable agriculture
Degrading the eco-system is in no one's long-term interest. However, it can require some patience, costs and focus to invest in sustainable agriculture. In return, sustainable agriculture can result in improved productivity and a more resilient set of producers.
6. Empower women
Women are disadvantaged across the developing world. They are over-represented in precarious and low-waged jobs and have less access than men to resources crucial for producing food. Businesses can empower women workers and small-scale producers by adapting their business models. This can include insisting that women have greater representation in decision-making bodies and actively sourcing from women's small-scale producer groups.
These are some of our observations on the characteristics of good private investments in agriculture. They're explored further in our recent paper: Private Investment in Agriculture: Why it's essential, and what's needed
What do you think? Add your comments below.