Driving Private Sector Innovation to Fight Hunger

By Emily Alpert, ONE Campaign

Driving Private Sector Innovation to Fight Hunger

Business and food go hand in hand. Researching and developing new technologies that improve the quality of a seed or reduce the amount of time a farmer spends harvesting crops is largely done by the private sector. Private companies process, package, transport and market foods to all of us every day. So there’s no question that private companies play a huge role in, if not dominate, our food supply.

Yet, they also have a role in development and particularly agricultural development. First off, farming is an entrepreneurial activity; people don’t just farm to grow food to eat, they also grow food to make a living. Even the majority of small-scale producers in developing countries are “net-food buyers.” This means they buy more food than they produce. So without earning an adequate income from farming, families will be undernourished and underfed.

Second, successful farms lead to booming rural businesses. Farmers need to buy seeds, fertilizers, farming equipment and even get advice from retail distributors. They also need someone to process their food and transport their harvests to market. So the demand for food creates demand for farming related services in rural areas. As new businesses open and expand, this creates jobs, raises incomes and kick-starts the process of poverty reduction.

Yet, in order to make this happen on a grand scale, significantly more investment is needed in rural areas, in poor countries. Currently 70% of the 1.4 billion people living in extreme poverty live in rural areas. And despite the major gains in poverty reduction through agriculture made over the last few decades, the capacity to do so much more exists. However, existing tools are not being used to their full potential.

About $9 billion was spent in 2010 on agricultural development globally through official development assistance channels. The latest available data shows that in 2000, total R&D from both the public and private sectors spent on agriculture reached $35 billion. More than $22 billion—61%—was spent in developed countries.

This suggests two things:

1) The private sector needs to invest more R&D for agriculture in developing countries for developing country needs. In Africa, several “orphan” crops such as cassava, millet, sorghum or teff that are nutritionally important but play a minor role in global trade, and have been largely neglected by science.

2) In a time of constrained donor budgets, more investment in agriculture will need to come from the private sector and from innovative sources of financing.

Innovative examples include mobilizing new privately managed investment funds that specialize in, and span across, the entire African agriculture sector. Further, loan guarantees and so-called advanced market commitments are also ways to jumpstart new agricultural innovations and private sector investment in developing countries. For instance:

  • Public and private investors should pool capital into new and existing funds to finance commercial opportunities in often neglected areas.
  • The US Development Credit Authority and other related programs should be expanded in smart, prudent ways to provide underserved farmers with the capital required to grow their small businesses and income.
  • Advanced market commitments (AMCs) for agriculture should be launched to promote the rapid development and availability of technologies such as suitable seeds and fertilizers in remote areas.

While the development benefits would be sizeable, these funds must address the needs of small-scale farmers and not negatively impact rural communities. Yet guaranteeing a market for successful products, reducing risk and generating returns, might be all it takes to get the private sector to be creative and push the envelope to invest increasingly more sustainably in developing country agriculture.

Editor’s Note:

We would like to thank Emily Alpert of the ONE Campaign for her blog contribution to coincide with World Food Day and Blog Action Day on October 16th, 2011.

As a member of the policy team, Emily guides ONE’s agriculture policy strategy and contributes to other areas of economic development work for the global policy team.

You can follow ONE on Twitter at @ONECampaign

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4 Responses

  1. Thanks for opening my eyes. I realize that we have huge potential in Zimbabwe to involve some private companies in poverty reduction among rural communities. For example, we can facilitate a partnership between National Breweries Pvt Ltd to assist farmers in the drought-prone areas with sorghum seed and training. The farmers will grow the sorghum on contract basis then National Breweries will buy an agreed proportion of harvested sorghum. This way, household income can be increased together with availability of food at household level.

    Thanks Emily for the article!

  2. Thanks indeed Emily Alpert for this very important article.  I think this should really open a sincere discussion on how to proceed. Its true that a lot of resources have been invested to uplift the standards of living of the so called poor smallholders in developing countries.  And its also true that there still needs a lot to do as many are still trapped in this cycle of poverty despite the existence of value addition and productivity enhancement technologies.

    I have been working for a long time on donor funded projects and one challenge has been sustainability. It is good that donors are now pushing for opening up of space to include the private sector.  There is also a realization that markets for smallholders are important and many projects today involve some sort of marketing component. However the challenge or drawback is that there is less involvement of the private sector. There is therefore need to have the private sector play a more leading role where issues have to do with business and let the public sector handle what they can best ie technology generation.  However, this too can be managed or overseen by the private sector. My argument is that we should have the private sector driving the commercialization process  and different models for their involvement can be worked out. Assuming I have a private company that deals in cassava and I happen to get a grant for a cassava project, I will be more interested in the output ( cassava production) since my incomes depend on how much cassava I sell. This is clearly different from a public servant whose income depends on his salary that is in most cases fixed. Also, these civil servants do have a lot of other projects that they are involved with and it would be better for them to play more of a supervisory role and technical backstopping rather than being heavily involved in implementation. The other idea I have been nursing is that it would be much better and more feasible for a private sector company to hire the public technocrat for generation of research products. A private company would have more power as opposed to millions of smallholders in holding government research officers accountable.

    Thanks Emily for these thoughts and I hope this debates continues to include donors who hold the key to funding policies and approaches.

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