Global Food and Financial Crises: Lessons and imperatives for accelerating food production in Africa

1. Global Food and Financial Crises: Lessons and imperatives for accelerating food production in Africa Akinwumi A. Adesina Presidential Address African Association of Agricultural Economists

2. Global food crisis • Food price index trend increased in 2007-2208 to all time high • 2006: 9% • 2007: 23% • 2008: 54% • Rising food import bill (billions) • 2007: 820 • 2008: 1,035 • Impacts on the poor • Reduced caloric intake • Shift to lower quality foods • Food rationing • Food riots

3. Short term transitory factors affecting the food crisis • Rising incomes and urbanization • Rapid growth in global demand for grains • Rising oil prices • Demand and subsidies for bio-fuels in US and EU • Speculative demand for commodities due to financial crisis and collapse of stock markets • Restrictive trade policies (export restrictions, export bans, export taxes etc)

4. Long term structural factors affecting food crisis (1) • Decline in total factor productivity of agriculture (see Table 1) • Flattening of returns to green revolution investments in Asia (see Table 2)

5. Table 1.Total factor productivity growth in developing country regions 1992-2003 Source: Von Braun (2008); Fan, et al (2008); Nin Pratt

6. Table 2. Returns on agricultural growth in different phases of the Asian Green Revolution Source: Fan, Gulati and Throat 2007, Cited in Adesina (2010) in Karapinar and Häbaril (2010), eds

7. Long term structural factors affecting food crisis (2) • Decline in official development assistance • ODA to agriculture declined by 58% between 1984-2004: $8 billion to $3.4 billion • Shift of development assistance away from agriculture to social sectors • Uganda: Agriculture spending as share of total spending declined from 33% (1980) to 4.2% (2002) • Climate change impacts • Declining global food stocks • Declining net food trading position of developing countries (see Figure 1)

8. Fig. 1. Value of net trade in agriculture, net food importing developing and least developed countries, 1961-2007

9. Key questions for developing countries: Sub-Saharan Africa • Extent of reliance on thin and volatile global markets for food? • Given social, fiscal, economic and political problems from the crisis, how should governments assure food security? • How should Africa address underlying structural factors limiting its capacity to feed itself? • What kinds of production support to provide? • Why has Africa not taken advantage of the opportunity offered by the food crisis?

10. Solving the long term impediments to agricultural growth in Africa • Solution to Africa’s food crisis will come from addressing the underlying structural factors limiting agricultural growth • Technologies exist that can solve the food crisis in Africa but they are not being used at scale – “boom and burst” approaches/revisionist policies

11. Obstacles to accelerated agricultural growth in Africa • Negative effects of structural adjustment • Lack of political will to support agriculture • Poor level of infrastructure • Poorly developed markets and low prices for agricultural products • Policy asymmetry in support of developed countries’ agriculture and bias against Africa (“immoral economics”).

12. Importance of agriculture and subsidies:Sub-Saharan Africa and OECD countries

13. Agricultural Subsidy per Hectare (US$) in selected OECD and SSA Countries

14. Lessons of the food crisis for African economies • Dependence on food imports from global markets is a risky way to assure food security • Climate change will worsen volatility of global markets and future food supplies • Governments around the world are increasing support for their farmers to produce more food • Rising demand for food globally offers opportunity for Africa in global markets • Africa must take bold steps to accelerate food production, with structural supply response • Need to move beyond short-term measures, to addressing long term underlying causes of the food crisis

15. Policies for solving the food crisis in Africa • Accelerate growth in productivity of staple crops • Growth Enhancement Support for farmers • Policies to promote the use of fertilizers • Policies to accelerate growth of the seed sector • Leverage commercial banks into agriculture • Invest in breadbasket areas • Adapt to climate change • Stronger role for the state to spur agricultural growth and guide markets

16. 1. Accelerate growth in productivity of staple food crops • Staple crops have highest impacts on GDP growth • East and Central Africa (effect of 1% growth on GDP, millions US$): • Staples $1,700 • Livestock $ 1,110 • Vegetables and fruits $600 • Hot beverages $100 • Scale up public expenditures for R&D • Expand investments in processing, value addition, staple crop market development and regional trade • Promote staple crop processing zones supported with fiscal, investment and infrastructure policies

17. 2. Growth Enhancement Support • Majority of farmers live below poverty line • Supporting farmers is not the issue, but how best to do it • New Policy Framework to drive agriculture: Growth Enhancement Support (GES): • Public support to unlock poverty traps and delivery of support through the private sector • Connect farmers, once out of poverty traps, to commercial financial markets for financing • Advantages of Growth Enhancement Support: • Unlocks poverty traps • Progressive transition of farmers to market systems • Builds private sector markets • Commercial financing of agriculture • Sustainable support for accelerating growth

18. Growth Enhancement Support (GES) to unlock poverty traps and accelerate economic growth mobility for farmers

19. Growth Enhancement Support @ work in Africa: Kenya • National Accelerated Agricultural Input Access Program (NAAIAP), designed by Rockefeller Foundation and the Government of Kenya (2006) • Step 1: Unlock poverty traps Kilimo Plus (or Kilimo -Bora): • input subsidy for poor smallholder farmers (10 kg hybrid seed, 50 kg of basal fertilizers; 50 kg of top dressing fertilizer; inputs enough for 0.4 ha or 1 acre • Target to reach 2.5 million farmers • Stiff resistance by donors (including World Bank): I persisted! • Program has expanded into 100 districts • World Bank in 2009 put in additional funds to reach an extra 150,000 farmers • World bank additional funding provided for orphan crops to reach 500,000 farmers

20. Growth Enhancement Support @ work in Africa: Kenya (2) • Step 2: Transition to market systems • KilimoBiashara program • Accelerate access to finance for transition to market based systems • AGRA and IFAD launch KilimoBiashara program in 2008, with $ 5 million in guarantee funds • $50 million leveraged for farmers and agribusiness value chains • $19 million lent to smallholder farmers (36,000) and small agribusinesses • World Bank in 2010 agreed and put in additional $10 million, to leverage additional $100 million in loans

21. Growth Enhancement Support @ work in Africa: Tanzania • Step 1: Unlock poverty traps • Fertilizer use collapsed after structural adjustment • 1991/92: 142,676 MT • 2002/2003: 77,557 MT • Rockefeller Foundation assists Government to design a new approach for subsidies (2005/2006) • Government of Tanzania (2005/2006) changes its subsidy program from subsidizing fertilizer transporters to input voucher program for farmers • Fertilizer use rebounds after input vouchers • 2005/2006: 260,000 MT • 25 seed companies participate in input vouchers • 3000 agrodealers trained • 700,000 farmers reached and produce 5 million MT of maize • World Bank will now invest $160 million for scale up

22. Growth Enhancement Support @ work in Africa: Tanzania (2) • Step 2: Commercial Financing Phase • AGRA and Kilimo Trust leverage $10 million in financing from National Microfinance Bank for farmers and agrodealers (2008) • Program started in 5 districts, now in 80 districts • Government of Tanzania delivers all input vouchers through the commercial banking system • AGRA raised additional $25 million for farmers and agricultural value chains • Government of Tanzania now targets 2.5 million farmers under Kilimo Kwanza • IFAD to invest $30 million to help leverage $300 million for scale up with AGRA

23. 3. Need to address the fertilizer crisis • Fertilizer use is still low in Africa (<10 kg/ha) • Demand factors • High poverty; low value to cost ratios; limited availability of agrodealers; lack of knowledge on efficient use • Supply factors • Poorly developed fertilizer value chains; high cost of imports; high transport costs; low domestic manufacturing; low import volumes • Technical factors • Variable response rates; non-economic fertilizer recommendations; limited extension on integrated soil fertility management • Fiscal factors • High taxes on imports and transit cross border shipments; poor rail systems;

24. Policies to promote expanded use of fertilizers in Africa • Subsidies for farmers, as part of Growth Enhancement Support • Voucher-based approach for targeting • Target subsidies along the entire fertilizer value chains • Improve regulatory environment to assure quality and environmentally safe use • Promotion of more cost -efficient fertilizer types • Eliminate fertilizer taxes and cross-border taxes • Accelerate agro-dealers networks across rural areas • Improve transportation, storage, port efficiencies etc

25. 4. Accelerate growth of the seed sector • Conventional plant breeding holds greatest scope for accelerating food production • Use of improved seed is very low: 30% for maize • Seed demand constraints • Limited awareness; high cost of seed; high level of poverty; high search costs; poor quality of seed • Seed supply constraints • Lack of access to foundation seed; lengthy periods for varietal release; seed companies lack capital; lack of implementation of harmonized seed laws and regulations

26. Policies to expand use of improved crop varieties by farmers • Public-private extension systems and demonstrations • Expand access and affordability • Enforcement of seed quality and certification • Reform varietal release regulations to shorten time to getting varieties to market • Implement harmonized seed laws for economies of scale in seed production, marketing and trade • Expand access to finance for seed companies • Liberalize access to foundation seed for private seed companies

27. 5. Leverage commercial bank financing into agriculture • Strong economic growth rates in Africa • Only 1% of commercial bank lending goes to agriculture • Excess liquidity exists in commercial banks • Banks don’t lend due to high risks – perceived risks > real risks • Risk sharing models are working in Africa to leverage commercial lending to agriculture • Impact Investing Guarantee Fund for African Agriculture (to leverage $2.5 Billion) • Nigeria Incentive-based Risk Sharing for Agricultural Lending ($500 million risk facility to leverage $3 billion)

28. 6. Invest in breadbasket areas • Prior models of investments have spread resources too thinly leading to low returns • Population density, market access and infrastructure density should guide areas to target investments • Focus should be on the breadbasket areas • Optimize extension capacity • Lower cost of infrastructure investments • Spill over effects into lower potential areas • Use institutional models that enhance smallholders benefits from new investments

29. 7. Policies to promote adaptation to climate change • Africa will need $7 billion/year for climate change adaptation • Land suitability changes for double and triple cropping • Priority investments needed: • Expansion of roads • Agricultural research and development • Irrigation and water management • Expand access to drought tolerant crops • Scale up weather-indexed crop insurance • Community based adaptation • Safety nets for the poor • Climate information • Carbon bonds to promote ‘green growth’ in local economies

30. 8. Stronger role for the state to spur agricultural growth • Failure of market fundamentalist policies, including structural adjustment • Africa needs home grown policies specific to its needs • Need for policy varietal trials: not one size fits all • The global financial crisis showed the weakness of markets: bail outs and economic stimulus packages • Lesson for Africa: unfettered markets alone cannot solve Africa’s food crisis, need a more proactive state • Need a new generation of agricultural economists in Africa sharply focused on practical and soundevidence-based policies to accelerate food production

31. African Agricultural Economist in a world of confusion by theories and a continent of poverty and hunger • “While they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings” – Franklin D. Roosevelt • “There is no such thing as part freedom” – Nelson Mandela • “Poverty and hunger will not be national endowments of Africa” – Akin Adesina

32. Thank you