Article

Driving Private Sector Innovation to Fight Hunger

2011-10-17 · 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.