Mr Chairman,

I am honoured to be invited to take part in today’s High Level Panel, in the distinguished company of His Excellency the Right Honourable Mr Pakalitha Mosisisli, whom I had the pleasure of receiving in Rome earlier this month.  I would like to commend Juan Somavia and the ILO for convening this important panel.

The focus of international attention is increasingly – and rightly – on the wide-reaching effects of high food prices.  How should we tackle them?  And – more importantly – how can we ensure that they do not undermine the welfare of the world’s poorest and most vulnerable people?  

The issue was discussed at the High Level Conference in Rome, last week, which brought together a large number of Heads of State and Government to address the issue, placing it at the top of the international agenda.  The food crisis is also the focus of the Task Force established by the United Nations Secretary General, which brings together the UN system, the Bretton Woods institutions and WTO.  IFAD is closely involved in this Task Force, working with our sister agencies in Rome, FAO and WFP, as well as with the World Bank.

The Secretary General’s Task Force is developing a Comprehensive Framework for Action to address the food crisis.  The CFA will establish, for what is perhaps the first time, a strategic and coordinated approach that deals with the immediate as well as the longer term aspects of the crisis.  Meeting emergency food requirements is obviously the most urgent task.  But raising agricultural productivity and output, especially by smallholder farmers, is also essential.  Our collective aim must be not only to address the present crisis but to reduce, if not eliminate, the danger of future food crises.    

Rural areas, agriculture and employment

Today’s Panel brings a new and vital dimension to the debate – that of employment and decent work.  I am hopeful that our discussion will produce some tangible and achievable proposals.  We need to protect vulnerable groups in the face of high food prices and, at the same time, expand employment prospects for the poor. 

Three-quarters of the world’s extremely poor people live in rural areas and depend directly or indirectly on agriculture for their livelihoods. These groups, together with urban poor people, are the most vulnerable to today’s high food prices.  In low income countries, agriculture is often the largest source of employment: in sub-Saharan Africa, as much 70 per cent; in other low income countries, between 50 and 70 per cent.  In these countries, what happens to agriculture, especially to smallholder agriculture, is a critical factor in determining the prospects for overall employment. 

Smallholder farmers are closely linked to the local economy as suppliers of food and other agricultural products and as buyers for locally-produced services and products.  Thus, only when the farm economy is vibrant, is there a demand for off-farm products and services.  A growing farm economy is critical for sustainable off-farm employment growth in services, agro-processing and small-scale manufacturing.   

Unless rural employment growth accelerates, an increasing number of unemployed – especially youths – will be driven to the cities in search of work.   The rural poverty problem will thus be transferred to the cities and become an urban poverty problem.  As we have seen in so many mega-cities in the developing world, this will put increasing stress on urban housing, infrastructure and services.

Background to food crisis

Mr Chairman,

If we look back over the past twenty years, it is clear why we have reached this critical point today.  Over the past two decades, food on the international market was affordable and available.  Export subsidies and dumping practices were also widespread. 

Complacency set in and the need for continuing investment in agriculture lost its urgency.  Development aid for agriculture dropped from 18% in 1979 to just 2.9% in 2006.  

Domestically, too, investment in agriculture has fallen.   Agricultural spending to total Government  spending by developing countries declined by a third in Africa and by as much as two thirds in Asia and Latin America.

During this period productivity growth was also declining, from three or four per cent in the 1980s to one or two per cent today, while demand was rising because of growing populations and growing incomes. This underlying decline in productivity growth would sooner or later have created the problem we now face.

Today the world is literally paying the price for its complacency.  As we face the prospect of insufficient supply to meet this growing demand, and with prices predicted to remain high, the focus needs to shift back on agriculture. 

Importance of smallholder farms and smallholder farmers

There are around 450 million smallholder farms worldwide, measuring two hectares or less and home to approximately two billion people – or about a third of humanity.  Most of these people live on less than one or two dollars a day.  They are trapped in poverty and are rightly the focus of the Millennium Development Goals. 

Smallholder farmers have tremendous, under-utilised capacity.  With help, they can increase their productivity and production, raise their incomes and, at the same time, contribute to greater food security and rural employment.  Unless this is done, poor rural people will continue to be marginalised, living in poverty and dependent on aid.   

Responses to today’s high food prices: boost agricultural production and develop off-farm employment opportunities

Confronted with today’s soaring food prices, our first priority must be to feed the hungry.  That is the specific focus of the WFP’s mandate, and I fully support their appeal for sufficient resources to enable them to maintain and augment their food aid programmes in the face of rising prices.

We also need to take action immediately to help farmers boost their food production, through improved access to essential inputs, such as seeds and fertiliser.  IFAD has already made available up to US$200 million to finance the provision of fertilisers, seeds and other inputs to smallholder farmers, to boost their production in the forthcoming crop season.  This will increase food availability and allow poor farmers to benefit from the higher food prices.  

Such measures for the immediate imperatives have to be combined with action for longer-term food security.  On present projections, global population will grow by 20 per cent, to eight billion, by 2025 [UN Population Division estimate].  And rising incomes and growing demand for a more varied diet will raise the demand for food by an even greater proportion.  Meeting this demand requires a step increase in investment in all aspects of the production cycle as well as enhanced dialogue with those on the ground – the poor rural people themselves, their communities and their organisations.  This is essential to ensuring that the world’s 450 million smallholder farms are able to increase their production and be part of the longer term response. 

Investment in agricultural research is key.  This means investment into the specific crops and conditions of importance to poor rural farmers, including drought, pest and salinity resistant varieties.  Agricultural research, which so successfully drove the Green Revolution in Asia, has been shown to deliver rates of return in excess of 40%.

Investment is also crucial for developing off-farm enterprises in rural areas.  The reduction of rural poverty is increasingly linked to the ability of poor rural people – especially rural women, unemployed and underemployed youth and landless poor people – to diversify and complement their sources of income through off-farm micro and small enterprises, such as food processing and marketing, trading,  construction, manufacturing and services.  That is why IFAD pursues a two-pillar strategy in rural areas, based on promoting improvements in agricultural production in parallel with the development of small-scale enterprises and agribusinesses. 

In a number of low- and middle-income countries, the agricultural sector has good potential and the labour force is skilled, but rural youth unemployment is a growing problem.  Creating employment opportunities for young people is therefore a key objective of IFAD programmes.  IFAD-supported projects are strengthening the delivery of rural financial services, which will help build small and medium enterprises and link farmers and other rural producers to markets. 

A recent project in Moldova illustrates this approach.  The Rural Finance and Small Enterprise Development programme in Moldova assisted the expansion of some 411 small and micro enterprises, creating several thousand jobs and providing commercial services for agricultural production, marketing and processing to an estimated 56,000 farmers. 

Access to financing is often a critical handicap that prevents rural farmers and entrepreneurs from raising their productivity or starting micro enterprises.  Building viable rural financial systems is therefore essential.  IFAD has pioneered the development of rural micro-finance and today provides about US$200 million each year to help build micro-finance institutions that serve poor rural men and – especially – women. 

One example is the Kenya Women’s Finance Trust, a micro-finance institution to which IFAD, working closely with the Belgian Survival Fund, has provided substantial technical and financial support.  During the 1990s, Kenya Women’s Finance Trust grew to be the largest NGO-based micro-finance institution in the country with 139,000 outstanding loans to its members, and having achieved financial sustainability.  Today, the Kenya Women’s Finance Trust is looking to convert itself into a micro-finance institution, with the aim of expanding its membership to a quarter of a million by 2011. 

This is only one of many IFAD-financed micro-finance institutions.   Another is the Rural Women's Development and Empowerment Project in India, which enabled participants to take up income-generating activities, by improving their access to credit, skills training, technology transfer, technical support and promotion of market linkages. Some 17,700 women’s self-help groups, comprising over 300,000 women, were created, 75 per cent of whom accessed credit. Participants took up a range of on- and off-farm activities, individually or in groups, which enabled them to increase their incomes by as much as 60 per cent. The project experience was such that it triggered changes in the Indian Government’s National Women's Empowerment Program the across the whole country.

Micro-financing institutions could also help transform remittances into a development resource.  Remittances, according to a recent IFAD study, have reached an estimated value of US$300 billion a year of which 100 billion go to rural areas.  Remittances are, of course, private flows and about 80% of them are rightly used to provide food, shelter and education for the families of the migrants.  If we could find innovative ways for rural micro-finance institutions to mobilise a part of the remaining 20% for agricultural investment, it could make a major impact on both food production and rural poverty.  In Latin America, IFAD is working in collaboration with the Inter-American Development Bank on pilot projects to develop such an approach. 

IFAD also funds investment into local infrastructure, to provide small-scale irrigation and water control schemes, 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 farmer, through the local trade agents, agro-processing, to regional and national markets.   

The step increase in resources for agriculture that is urgently needed would come from domestic budgetary allocations and official development assistance.  But a potential new and important source is private investors, including Sovereign Funds, which now control hundreds of billion dollars.  These investors have increasingly expressed interest in using their financing to develop under-utilised crop lands in countries that have adequate land and water.  The potential is certainly significant for such collaboration, but there are a number of regulatory, legal and social issues that need to be addressed. 

Many of the potential recipient countries have weak regulatory frameworks not accustomed to managing billions of dollars of foreign investment.  These will have to be strengthened.  Land rights of existing farmers need to be safeguarded.  In fact, the aim should be to develop innovative forms of collaboration in which large numbers of smallholder farmers can organise themselves as a counterpart to the foreign investor.  The latter would then be able to make investments for infrastructure, including roads and irrigation, the provision of fertilisers, seeds and other inputs, to enable the farmers to increase their production sharply.  In return, in a medium-term arrangement, the farmers would provide assured supplies on agreed market-related prices.  IFAD is supporting a pilot initiative along these lines in Ghana.  Its lessons could serve as a model, which could be replicated and up-scaled in other countries. 

Conclusion

Mr Chairman,

These are challenging times – for Governments and the international community.  But especially for the poor, rural men and in particular women.  The ability of poor rural people, indigenous peoples, landless people, rural youths to avoid slipping deeper into poverty and hunger will depend on our collective ability to provide secure, profitable, productive working environments for them. 

I am particularly happy to address my remarks at this meeting of the ILO.  As far back as 1972, the ILO was instrumental in highlighting the potential of the informal sector and micro enterprises, beginning with its employment mission to Kenya that year.  It has since continued to support micro enterprise development in various countries. 

I know that my friend, Juan Somavia, is deeply committed to providing employment prospects for poor people through innovative means, including rural micro enterprises.  I look forward to further enhancing IFAD’s collaboration with the ILO in support of our shared objective to eradicate poverty and ensure that even the poorest peoples have access to decent work and a decent life. 

Thank you.

International Labour Conference of ILO
Geneva, 11 June 2008