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Key note address by Lennart Båge to the African Green Revolution Conference

Location: Oslo

28 August 2008

Introduction

First, let me thank you for inviting me to speak at the start of the second day of this African Green Revolution Conference.   

Last year saw an unprecedented rapid rise in food prices.  The effect has been keenly felt by poor people purchasing food staples, causing upheaval, unrest and even riots.  Governments have also suffered the effects, with balance of payments and internal markets being hit particularly hard.  The crisis that has ensued demands an urgent response.  We need to address the humanitarian consequences as a priority, but equally we need to tackle the medium-term production aspects, and work towards a significant and sustainable increase in food production.

The crisis has roots going back over the past three decades, during which time development aid for agriculture dropped from 18 per cent in 1979 to just 2.9 per cent in 2006.   Domestically, too, investment in agriculture fell.   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 3 to 4 per cent in the 1980s to 1 to 2 per cent today, while demand was rising because of growing populations and growing incomes.

Background – Africa, agriculture and today's global challenges

Three-quarters of Africa's poor live in rural areas and depend on agriculture as their main source of livelihood, whether as producers, traders or small-scale artisans.  Small-scale farms provide up to 80 per cent of African agricultural production. Agriculture is also a major source of employment: in sub-Saharan Africa, it provides as much 70 per cent of jobs, the majority of which are in smallholder farming where women farmers produce the bulk of Africa's food crops.  There are around 80 million smallholder farms in sub-Saharan Africa, out of a total of 450 million worldwide.  It follows that the key focus in bringing about a Green Revolution in Africa must be these 80 million smallholder farms.  

But land degradation and dwindling water resources for irrigation have resulted in Africa's soils being the most depleted in the world.  Moreover, in sub-Saharan Africa up to 40 per cent of some crops grown are lost as a result of poor agro-processing.  Since the early 1960s, Africa has gone from being a net food exporter to a net importer.  Per capita food production has declined as the population growth rate of 3 per cent a year has outstripped the 2 per cent annual increase in food production.  As a consequence, Africa is the only place in the world where overall food security and livelihoods are deteriorating. 

Too often agriculture is seen as an unproductive and unprofitable sector, a merely residual sector, somewhere that those tilling the land will one day leave.  But the truth is that agriculture and those tilling the land – the men and women smallholder farmers – have the capacity to feed the world while managing and protecting some of the key assets of our global environment.  But they need to be supported by investments, by knowledge and by access to markets.  Investment in smallholder farming and rural development can turn agriculture into a vibrant and productive economic sector, with positive effects for global food security and poverty reduction. 

In responding to today's global challenges, we need to restore agriculture to centre stage.  We need to boost investment in agriculture – both domestic and international.  Only that way will we be able to support much-needed increases in productivity, production, quality standards and marketing.   

The relationship between agriculture and today's global challenges is a complex one.  Poverty and hunger, high food prices and climate change are, in part, a result of historically inefficient agricultural practices.  Low agricultural productivity, which is itself a consequence of under-investment in agriculture, has contributed to the problem of hunger and malnutrition.   Agriculture has also contributed to global warming, for example through livestock emissions and deforestation.  And while rising food prices may be good for agriculture in general, few smallholder farmers are feeling the benefit through higher farmgate prices and many poor rural people are hungrier as a result. 

In all three of these areas agriculture holds the key to the solution, but only if it gets the resources and policy attention that it needs.  Poor rural people are often powerless but they are not irrelevant.  How they manage their land matters to us all.

Agriculture as a driver of economic growth

Historically, agriculture has been shown to be an important driver of economic growth – from 18th century England, to 19th century Japan to 20th century India.  Moreover, agriculture has been shown time and again to have a powerful impact on poverty reduction: according to the 2008 World Development Report, GDP growth generated by agriculture is up to four times more effective in reducing poverty than growth in other sectors.

Agriculture and productivity / food prices

Sound agricultural practices can also boost agricultural productivity and production, and so provide an effective response to today's high food prices.  For example, small-scale African farmers need efficient, affordable and reliable water management practices to grow their crops, and yet currently less than five per cent of Africa's land is irrigated.  But irrigation is only part of the solution.  While less than five per cent of African land is irrigated, twenty per cent is irrigable.  That leaves 80 per cent that is rain fed.  In these areas, land degradation is a key problem.  But by improving soil quality and land fertility, it is possible to improve the capacity of the land to store and release moisture, and so increase its productivity. 

Agriculture and the environment

Similarly, sound agricultural practices can do much to protect the environment.  Small farmers can be important contributors to climate change mitigation.  They are potential providers of a wide range of environmental services that contribute to carbon sequestration and limit carbon emissions, such as planting and maintaining forests, managing rangelands and rice lands, as well as watershed protection that limits deforestation, soil erosion and flooding risks. 

Promoting sustainable natural resource management by poor rural people is part IFAD's core business in Africa, often in partnership with other agencies and institutions such as the Global Environmental Facility.  Projects in arid zones in particular have assisted small farmers to manage scarce water better, improve soil fertility, reverse desertification, and cope with the growing levels of salinity. Several projects in Africa have been successful in up-scaling good practices and recovering marginal land and ecosystems, such as rangeland management in Eritrea and Rwanda, improved land husbandry and crop production in Ethiopia and soil fertility management and improvement in Malawi.

This is where investment in agricultural research is critical.  Agricultural research, which so successfully drove the Green Revolution in Asia, has been shown to deliver rates of return in excess of 40 per cent.  IFAD is one of the major financial supporters of the CGIAR system and is now helping to review the system and reorient it to the new research agenda of today.

NERICA rice is one example of the fruits of such research, supported by several donors, including IFAD, the Japanese government, the Rockefeller Foundation, amongst others.  NERICA is a new rice variety that combines the hardiness of local African rice species with the high productivity of Asian rice.  There are currently about 200,000 hectares of Upland NERICA grown by over 100,000 farmers in 27 countries across sub-Saharan Africa.

Cassava is another striking example.  IFAD has invested in research to develop virus-resistant, more productive varieties and to finance their cultivation by poor farmers.  As a result, over a hundred million people in Africa's cassava belt have benefited and many African countries have become self-sufficient.  Indeed, Nigeria is now the largest cassava producer in the world.

A third example is Malawi where, in 2006 and 2007, a subsidy investment of about US$90 million in around two million farm households, or about US$50 per farm, yielded an additional harvest output of up to US$160 million, which isn't a bad rate of return. You can't take that as a blueprint for universal application, but if you make a quick calculation, and figure US$50 input per farm for the 80 million or so smallholder farms across Africa, that tots up to about US$4 billion of investment needed.  Sadly we're not even close to that.  But we should be, if we want to reap the clearly substantial rewards of investment in smallholder agriculture.

A global response

Poverty, climate change and high food prices are global challenges that require a fully coordinated, global response if we are to deal both with the short-term emergency needs of those who are hungry today, as well as with the medium- and longer-term imperative to improve agricultural practices and so achieve a higher and sustainable level of agricultural productivity and production.  The United Nations Secretary-General, Ban Ki-moon's High-Level Task Force aims to do just that.

The High Level Task Force brings together the UN system, the World Bank, the IMF and the WTO.  It has prepared a Comprehensive Framework for Action, or CFA, with the objective of ensuring that the international effort is both well planned and well coordinated.  Importantly, the CFA gives full recognition to the importance of promoting agricultural investments focused on smallholder farmers and rural development. 

Agricultural investment – what, how and who?

I have talked about why agriculture is important to economic growth, and why, therefore, investing in rural development is so critically important for poverty reduction.  But what kind of investment is needed? How should it be financed? And who is going to lead Africa's Green Revolution?

Starting with the third of these, if Africa is to achieve its own Green Revolution, significant political leadership is essential.  Africa's leadership is now deeply committed to giving agriculture the priority it needs.  This is reflected in the commitment made by African countries, within the framework of the African Union in the 2003 Maputo Declaration, to raise investment in agriculture to at least 10 per cent of national budgets. 

With the personal commitment and determination of the Alliance's Chairman, former UN Secretary General Kofi Annan, AGRA is in a strong position to stimulate the kind of financial investment and political support that an African Green Revolution requires.  It has already received initial generous financial backing from the Bill and Melinda Gates Foundation and the Rockefeller Foundation. 

Africa has always been a key priority for IFAD and receives about half of IFAD's annual financing.  During IFAD's Seventh Replenishment period from 2007 to 2009, IFAD will provide about US$1 billion to African countries to finance agricultural and rural development programmes and projects, with a total investment cost of about US$1.7 billion.  On full development, these projects will reach some ten million poor African men and women and help them work their way out of poverty. 

In short, a successful and sustainable Green Revolution in Africa requires long-term support and commitment.  This needs to come from African governments themselves, supported by international organisations, NGOs and, importantly, also the private sector.  A Green Revolution in Africa is a huge undertaking, which will require an equally huge commitment from all players. 

On the question of finance, I understand that there was a good deal of discussion yesterday about how financial products need to be tailored to the needs of farmers, to enable them to become small business owners. 

We need to help smallholder farmers to access financial services, so that they can buy fertiliser and better seeds, gain more control over when and where to sell their produce, and insure themselves against risks such as drought.  Micro-finance is an area where IFAD has played a pioneering role, and today IFAD provides about US$200 million each year to help build micro-finance institutions that serve poor farmers, 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. 

Micro-financing institutions could also help transform remittances into a development resource.  According to a recent IFAD study, remittances have globally reached an estimated value of US$300 billion a year of which US$100 billion go to rural areas.  While the bulk of remittances go to Latin American and Asian countries, some African countries are also significant recipients. 

Remittances are, of course, private flows and about 80 per cent 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 per cent for agricultural investment, it could make a major impact on both food production and rural poverty. 

Beyond remittances, there is also a need to further innovate and create new financial products, such as overdraft facilities for input dealers, weather insurance for farmers, and other ways to build financial alliances as a way to mitigate climatic and market risks.

In Tanzania, for example, IFAD is supporting a warehouse receipt system, which gives farmers access to reliable storage facilities for their grain.  This allows them to sell after the end of the harvest season, when prices are higher.  The warehouse receipt system also allows farmers to overcome the historical reluctance of banks to finance agricultural-related activities, because of the uncertainty of external factors such as drought or floods. The farmer can use the warehouse receipt to obtain a loan from local savings and credit cooperatives, themselves financed by bank loans, of up to 70 per cent of the value of the deposited stock.

On the question of what kind of investment is needed, today's first session, on New Models of Engagement, will look at how donor agencies are changing their business model, with potentially a greater focus than was previously the case on agriculture as a profitable target for investment. 

Today's high food prices have prompted substantial interest from 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 and so boost potential yields.  According to the Financial Times last week, wheat fields in Ukraine are a case in point.  They currently yield less than 3,000kg a hectare in spite of some of the world's most fertile soils and abundant rain, and well below the US's yield of about 6,500kg a hectare.  But more tractors, a lot more fertiliser, better techniques and higher-yielding seeds could change the situation.

So 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. 

Working in partnership is key.  In a number of countries, IFAD has pioneered the development of Public-Private Partnerships (PPPs) to leverage investments and know-how from the private sector; mobilize the productive potential of smallholder farmers while reducing the risks for all them by providing infrastructure and other public goods. Some of these PPPs were developed in collaboration with agro-dealers and fertiliser companies, like Yara.  Others were developed in collaboration with buyers of produce and farmers' organisations.

But while the importance of working in partnership is not to be underestimated, it is also important to ensure that our collective efforts are truly effective.  The 2005 Paris Declaration has helped shape international aid and development over the past three years, and it has proved extremely important in bringing together the needs of developing countries to have greater ownership, with the needs of donors for better accountability on the ground.  The Third High-Level Forum on Aid Effectiveness in Accra next week will produce an Agenda for Action that will give due recognition to the importance of country-ownership and country-led development, thereby ensuring that the voices of poor rural people are properly heard. 

To improve our own hearing at IFAD, we created the Farmers' Forum – an ongoing, bottom-up process of consultation and dialogue between small farmers, rural producers' organizations, IFAD and governments.  In February this year, over 70 global, regional and national organisations representing hundreds of millions of farmers from all parts of the world, including Africa, came to Rome for the second meeting of the Farmers' Forum.  Thanks to this partnership, farmers' organisations now participate in the development of most of the country strategies, programmes and projects funded by IFAD, thereby making them better and more sustainable.

The focus of the second session this morning is the African entrepreneur, the small business owner in the agricultural sector.   

As suppliers of food and other agricultural products, and as buyers for locally-produced services and products, the economic welfare of the African entrepreneur is closely linked to those who work on the land, the smallholder farmers themselves.  Only when the farm economy is vibrant, is there a demand for off-farm products and services.  In other words, a growing farm economy is critical for sustainable off-farm growth in services, agro-processing and small-scale manufacturing.  

In order to support sustainable, broad-based rural development, we need to strengthen the linkages throughout the food value chains, from the farmer to the consumer – or, put another way, from farm to fork.  IFAD is working to address the key infrastructure, market and financial constraints, and improve productivity throughout the chain.  The idea is that smallholder farmers should have better access to market outlets and benefit from a fairer share of the value-added.

An IFAD-funded project in Uganda, for example, has linked together smallholder producers of palm and oil seeds with an agro-processor, who has invested over US$40 million for a processing plant.  The farmers now have secure markets at good prices.  And the agro-processor has assured supply – to the benefit of both.

An example of a pro-poor value chain approach is an IFAD-supported project in Burkina Faso, which is working to develop processing and marketing networks for local produce, including cowpea, sesame, small livestock meat production, traditional poultry and onions.  Within value chains, IFAD's target groups tend to be located upstream. One of the project's core objectives is therefore to shift value addition - and thus profit margins - upstream within the targeted value chains. It is doing so through several means, including small on-farm processing technologies, and pro-poor contract farming brokered by value chain organisations owned and run by the rural poor people themselves.

Much of what IFAD does has to do with integrating vulnerable and isolated smallholders into the market economy on decent terms. Strengthening the value chain linkages, together with providing a more conducive environment, is the key to increasing private and public investments in agriculture and improving productivity at all levels.

Closing remarks

The world urgently needs a green revolution in Africa.  And the African continent has the potential to deliver.  But we are still failing, collectively, to give Africa the level of co-ordinated and cohesive support that it needs to do so.  Not hand-outs, or short-term fixes, but effective, innovative and sustained investment, to empower smallholder farmers to become rural entrepreneurs, and to build productive and profitable partnerships with the private sector.

This Conference, "An Alliance for Action", can provide the right impetus.  And this morning's sessions will provide valuable input, as we consider not "who?" or "why?" – These are questions for which we already have answers.  But "what?" and "how?" Proactive questions that demand proactive answers.  And "when?" Now – before it is too late.

Oslo, 29 August 2008