Financing food security:
the role of the private sector
Lars Thunell, executive vice-president and CEO, International Finance Corporation,
World Bank Group
From "The G20 Mexico Summit 2012: The Quest for Growth and Stability,"
edited by John Kirton and Madeline Koch, published by Newsdesk Media Group and the G20 Research Group, 2012
To download a low-resolution pdf, click here.
The private sector will key in helping to achieve world food security, but concerted international effort, with leadership from the heads of the G20 countries, will be necessary to coordinate policies
There is widespread agreement that the private sector should play a greater role in food security, moving markets in ways that help the world's most vulnerable groups. It can, and should, happen. But it has not happened yet – at least not with the necessary scope and or on the necessary scale. Not in a world that must produce 70 per cent more food to feed the two billion more people it will have by 2050. Meeting this goal will require an estimated $83 billion per annum in new investment. Most of this will have to come from the private sector, and we are not there yet.
The G8 Camp David Summit's announcement in May 2012 of the New Alliance for Food Security and Nutrition, including a commitment to mobilise new private capital, was especially welcome. It is a promising initiative, but it is still very much in the early stages.
Much good work is already being done in many quarters to stimulate this process. The business community, bilateral donors, private foundations, international finance institutions, civil society, research organisations and others are all making important contributions. But a great deal has occurred in individual pilot projects. The issue must instead be addressed holistically if a food crisis is to be averted.
Achieving this transformation will not be easy. It will take sound government policies that attract significant levels of private investment. To get there, one central point needs to be remembered: farmers are business people, too. Reframing the food security debate along these lines is one of today's great challenges of development facing the international community. As the G20 leaders gather in Los Cabos for their annual international policy coordination talks, good models of a private sector–based agricultural transformation must not be left behind.
Consider just one case: Nigeria. In the 1960s its share of global exports was more than 60 per cent in palm oil, 30 per cent in peanuts and 15 per cent in cocoa. Yet today its share in these markets has fallen to five per cent or less. Africa's most populous country is now a net importer of agricultural products, spending more than $4.2 billion in hard currency reserves each year to import wheat, fish, rice, sugar and other essentials to feed its nearly 160 million people.
Clearly a new, private sector–based approach must be taken in Nigeria and other developing countries with great potential for increased production of food crops.
A good overarching framework for such an approach, including vital questions of land use, now exists in the Principles for Responsible Agro-Investment launched by the World Bank and key United Nations agencies in 2009, drawing support from the following year's G8 Muskoka Declaration. IFC, a member of the World Bank Group, is pleased to partner with the G20 on a global initiative to build the private sector's role in food security in the world's poorest countries: the Global Agriculture and Food Security Program (GAFSP).
A multilateral mechanism to help implement pledges from the G20 summit in Pittsburgh in September 2009, GAFSP's largest component is a public sector window managed by the World Bank that has total funding of $697 million pledged by seven donors to date.
Complementing these efforts on the government side is GAFSP's private-sector window managed by IFC. Designed to provide long- and short-term loans, credit guarantees, and equity to support private-sector activities for agricultural development and food security, it now has approximately $200 million in funding, with a recent large Dutch contribution supporting existing grants from Canada and the United States.
IFC announced the first transaction under the private-sector window of the programme on 4 April 2012. Together, IFC and GAFSP provided a $15 million loan to expand production at PRAN, a food-processing company based in Bangladesh. This project will help fulfill continued growth Left unattended, this tragic situation will in domestic demand as well as increased export market demand in India, Africa and the Middle East for packaged food products. It will soon be followed by many more.
More large-scale efforts of this kind must follow to tap into the private sector's capital, technology and management expertise in ways that help the poor and hungry. The focus must be on improving infrastructure and logistics, on increasing access to finance and on raising farmers' productivity, education and incomes.
Farmers produce enough to feed everyone on Earth today. But poor storage, distribution and other factors leave a billion people hungry. Left unattended, this tragic situation will only become worse in the coming years. So innovative approaches are needed to mitigate risks that have so far kept many of the world's major logistics companies from entering markets where they are needed most. Attracting them into new public- private partnerships would allow them to cut today's excessive rates of wasted food by building new silos, cold storage facilities, warehouses and ports.
Meanwhile, new risk-sharing facilities and other measures should be developed to help small-scale farmers start to attract more financing from the local banks that rarely do business with them now. This would allow them to invest in new seed, fertilisers, machinery and other key needs to increase production.
This could include work with a major global reinsurance company on a large-scale fund to help local farmers better manage their biggest risk – weather.
It also could include a significant portfolio-based bank risk-sharing facility with a donor-funded first loss facility. There are many good ideas to be considered in the context of a new global commitment for private-sector action to finance improved food security.
Given today's serious constraints on land and water resources, a focus on increased productivity, education and incomes must be embedded in all these efforts. IFC's experience shows that one of the best approaches here is to bring more small-scale farmers into the supply chain of demanding, sustainabilitydriven global food companies.
These buyers' high standards drive the producers to increase their productivity, especially in export crops such as coffee and cocoa. But this same approach can and should be taken as well with the domestic-market staples on which the most poor and vulnerable people depend.
IFC is the world's largest global development finance institution focused on the private sector. In the past four years, the World Bank Group has increased its annual agriculture investment from approximately $4 billion to $8 billion, nearly half of which now comes from IFC.
IFC welcomes the G20's current emphasis on food security issues. We are pleased to be part of the response – one we hope will only grow stronger in the future. The world's poor deserve nothing less.
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