Policy address by IFAD President to the Center for Strategic and International Studies

26/04/2010 Washington D.C. USA Accelerating progress toward global food security: Smallholder farms as agribusinesses Distinguished Colleagues,Ladies and Gentlemen. The role of agribusiness and agro-industry in reducing rural poverty goes to the heart of IFADs mandate. I am therefore delighted to have been invited to deliver this policy address. I hope that we shall be able to use todays discussions to encourage greater engagement in agro-industry by governments, the private sector and multilateral organizations. In doing so, I hope we will be able to improve the competitiveness of agribusinesses and benefit those most in need the worlds poor and hungry. Feeding the worlds poor and hungry is the challenge of our time. More than 1 billion hungry people or one sixth of humanity can attest to this fact, having been hit first by the food price crisis of 2008 and then by the economic downturn. And of course they also have to live with the growing impact of climate change. Thankfully, global food security was at the top of the G8 agenda last year in LAquila. And thankfully, declarations from LAquila as well as from Maputo, Paris, Rome and Copenhagen, carry the signatures of world leaders, confirming their commitment to address food insecurity, poverty, hunger and unemployment. But declarations, commitments and speeches do not feed hungry people. Rather, a productive agricultural sector is what is needed. Agriculture has driven economic growth through the centuries, from 18th century England, to 19th century Japan, to 20th century India, to Brazil, China and Viet Nam today. GDP growth generated by agriculture has been shown to be at least twice as effective in reducing poverty as growth in other sectors.Agriculture spanning crop production, fisheries, livestock, forestry and pasture is predominantly a rural sector activity. It is also the largest source of employment in many low-income countries. For instance, in sub-Saharan Africa, agriculture provides jobs to 70 per cent of the working population, and smallholder activity is the backbone for the agricultural sector. A vibrant rural sector generates local demand for locally-produced products and services. In turn, this can spur sustainable off-farm employment growth in services, agro-processing and small-scale

manufacturing. This is crucial for rural employment. Because without local jobs, poor rural young people will be driven away from rural areas in search of work in the cities. And then who will feed the world in 2020 or in 2030? Recognizing smallholder farms as agribusinesses, irrespective of their size or scale, is an important first step in making the rural sector a viable choice for young people. Unfortunately, however, too many small agribusinesses in developing countries are neither productive nor profitable and are trapped in a cycle of subsistence. IFAD is clear about the agriculture and agribusiness landscape at large:

Agriculture is not an urban activity. Farmlands exist in rural areas. Agriculture or farming is a rural activity whether large or small. Commercialization of agriculture is not reserved for large-scale farming. Commercialization of agriculture means economic profitability producing more per unit input, whether land, irrigation, fertilizer, etc. Agriculture is a business and at IFAD our business is to make smallholder agriculture a profitable agroenterprise. Young women and men can be tomorrows food producers. Or they can be a time bomb waiting to explode in urban areas. We believe that investing in rural youth is an investment in our future. The reason why developing country agriculture remains largely subsistent especially in Africa is because it relies heavily on basic farming practices and on government and donor handouts. The problem is compounded by insufficient access to productive assets, such as land, water and other inputs, as well as poor infrastructure, such as roads, power and storage. As a result, yields are generally too low to allow the millions of rural households to generate any marketable surpluses. And even if the smallholders were able to produce a surplus, the disconnect between production and downstream activities, such as processing and marketing, hampers the access of their produce to markets.Yet urbanization, rising incomes and increased participation by women in the workforce are expanding market opportunities. If smallholder farms were sufficiently competitive, then these growing opportunities could be exploited.

Governments, donors and private sector operators need to act individually and collectively to make rural agribusinesses viable, particularly for women and youths who shoulder the future of rural agribusinesses. We need to make rural agribusinesses the main engine of economic growth; we need to make rural agribusinesses a business opportunity for young people; we need to make rural agribusinesses a pathway out of poverty. And indeed, agribusiness can provide a pathway out of poverty. But for this to happen, states and the private sector need to work together to support smallholders. States can support smallholders through the right policy environment public policies that expand the choices of

smallholders to sell their products on local or global markets. The private sector, including buyers, can also improve the ability of smallholders to have access to local, regional or global markets through the right investments and through measures that incorporate rather than exclude smallholders. I should like to suggest four courses of action to ensure the development of agribusinesses and agro-industries in the developing world: First, as far as Africa is concerned, national government investment in agriculture must meet the Maputo target of at least 10 per cent of GDP. While a few African countries have already achieved this and should be congratulated for doing so unfortunately many have yet to come close1. So I shall continue to call on those countries to make a special effort to boost their public spending on agriculture because time is not on our side. Investments by the international community as well as by developing country governments need to be smart. Investments need to be in the research and development of new technologies to enhance productivity and intensify production. They need to be in natural resource management, to conserve the environment while increasing yields. And they need to be in the development of infrastructure to facilitate access to markets. Indeed, support for rural infrastructure is a crucial element in the value chain approach including last-mile roads, electrification, postharvest facilities, support to rural institutions, such as associations and cooperatives, and access to land and irrigation facilities. Second, developing country governments must create the right policy environment to allow agribusinesses and agro-industries to develop and flourish. Market liberalization and macroeconomic policies, such as fiscal and exchange rate policies, have brought much-needed improvements already. But there is still more that governments can do both to help existing agribusinesses grow and to encourage the start up of new agribusinesses, providing much-needed employment for young people. Third, smallholders need support to enable them to compete in domestic, regional and international markets. For example, training can help improve smallholders managerial skills. Training can also help small agribusinesses meet the increasingly stringent sanitary and phyto-sanitary standards required by the burgeoning supermarkets for their increasingly demanding customers. And fourth, access to financial services needs to be addressed holistically. Poor access has long hampered rural agribusinesses. The recent development of microfinance in rural areas has eased some short-term constraints. But more effort is required to ensure the long-term financing needed to attract investments in activities that can sustain the viability of agribusinesses. What does all this mean for IFAD?

As we implement and plan our portfolio in Africa, Asia and Latin America, we continue to explore business solutions to foster rural growth. We have financed the development of micro-, small- and medium-sized enterprises (or MSMEs) since the mid-1980s. And to date we have invested US$272 million in MSME development across all the regions we work in. IFAD also funds investment into local infrastructure, to provide small-scale irrigation and water control schemes, as well as communications and rural roads. We invest in agro-processing to ensure reduced post-harvest losses and improved quality; and in market linkages as well as better access to market information, including on prices. The aim is to strengthen each link in the value chain, from the smallholder, through the local trade agents, through agro-processing, to regional and national markets. In value terms, the total approval of IFAD projects in which value chains were either components or the primary instruments for poverty alleviation increased from 1.8 per cent in 2005 to 50 per cent last year. The key to addressing many of these value chain issues is through partnerships. At IFAD, we are increasingly turning our attention to the scope for publicprivate partnerships. We are looking both to mobilize resources through the private sector, and to invest in, and strengthen, private enterprises that underpin thriving rural economies, offering options for agroprocessing, marketing and business development assistance. In conclusion, we need to spark an agribusiness and agro-industrial revolution in the rural sector. A revolution that sees sustained investment in the entire agribusiness value chain, prompting greater agricultural productivity, higher yields, increased competitiveness, and consequently larger profits for small-scale agribusinesses. But for this we must change our thinking. We must see smallholder agriculture as a business. And we must see smallholder farmers as entrepreneurs. This is attainable with the commitment of all stakeholders governments, private sector operators and the donor community alike. This commitment must be deeply rooted in transparent partnerships and geared toward closing the gap between downstream and upstream players. Only that way will it be possible to reposition agriculture to take its leading economic role. Only that way will it be possible to spur the growth of agribusinesses. Only that way will it be possible to move beyond poverty management to poverty eradication and from social protection to wealth creation and rural empowerment. Thank you. 1/ Only 8 countries Burkina Faso, Ethiopia, Mali, Malawi, Ghana, Niger, Senagal and Zimbabwe reached or surpassed 10%. 16 other countries (including Nigeria) reached expenditure shares between 5% and 10 %,

while 14 countries devoted less than 5% of their total budgets to the sector