One rarely explored aspect of the intersection between Trade Policy and Food Security is the issue of Capital Investors, and “Benefit Corporations” or “B Corps”. This issue is a corollary to my post on “Impact FDI’s vs. 100% Exporters”.
IF one of the important ways to improve food security is to develop the Holistic Food Value Chain (or FSVC), and IF that development is to be done in such a way that FDI’s will have a positive impact on the entire FSVC, THEN the question becomes one of “Where does the capital come from?” Who, or what type of firms, are willing and able to invest in “B Corp” or “Benefits Corporation” firms whose mission is to promote that Holistic Food Value Chain (FSVC)?
Capital investment will be necessary to transform subsistence level & manual farming in many rural areas (of Africa & elsewhere) to the Holistic Food Value Chain. Some level of mechanization of farming must occur, storage & handling methods must be developed, transportation must be improved, and markets must be expanded. Those transformative changes require capital investment from somewhere and by someone.
To date, much of the recent efforts at improving smallholder farming seem to have gone into farm productivity improvements. As my earlier post pointed out, this is a necessary (i.e., important) but not sufficient condition. Groups like the HGBuffett Foundation, the Gates Foundation, and others have invested, or committed to invest, millions of US$ to improve seed, soil, fertilizer, and related farm productivity.
Howard G. & Howard W. Buffett’s book “40 Chances” is a good view of that approach to Investment in smallholder farm productivity. Unfortunately, both Buffetts presume that storage and transportation systems either pre-exist, or will be magically developed by someone. Given that they are farming in Decatur, IL and Nebraska, that is an understandable presumption. However, they did not go back into history far enough to see that 170 years ago, grain elevators and railroads did not exist in their locations. The Gates Foundation efforts at food security improvements and ZeroHunger in Africa are similarly myopic, in terms of focusing primarily on farm productivity rather than the entire FSVC.
Another source of potential capital are the International Aid Agencies and/or NGOs. This source of capital has its own challenges, however, because both government aid agencies and non-profit NGO’s are primarily geared towards emergency assistance. Because their donor base, funding strategies, and programs (government and non-profits) are focused on addressing crises, funds are rarely allocated towards addressing the underlying systemic causes of food insecurity. Handing out food, or distributing farm hand tools is a good photo opportunity. Building grain silo’s, or roads, or buying trucks to move food to markets are long-term capital projects that do not seem to fit the mission of “emergency aid & development”.
The one source of capital that seems to be developing, albeit still in its infancy, are the “Impact Investors” and the “Benefit Corporation” (aka “B Corps”). Alice Korngold (A Better World, Inc.: How Companies Profit by Solving Global Problems...Where Governments Cannot) and Cathy Clark, Jed Emerson and Ben Thornley (The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism) have written two of the best, and most recent, books on this area. Paul Polson, CEO of Unilever is perhaps the most vocal advocate of this approach, from a large corporate POV. Lord Michael Hastings (UK) is another very strong advocate.
The first challenge for many Impact Investors and B Corps is the tension between “insisting on normal Private Equity Returns” vs. “lesser financial returns (ROI) but greater “Impacts” as measured by some desired metrics. Are the Impact Investors willing to trade off lower ROI for greater impacts on the “number of lives affected” through investment in food security, grain silos, roads, or markets?
A second challenge, especially in some areas of Africa, is the question of whether the Impact Investors and B Corps are willing to trade off the possibility of some capital loss for the chance to achieve a higher return among the “most needy”? Some Impact Investors have chosen to avoid all risk of capital loss, and hence make their impact investing sound good, but their investments are in “safe” areas that really don’t need their capital. Other Impact Investors have chosen to split their ImpInv Funds into several pools, with some funds allocated to “higher risk of capital loss”. Those are the investors who can really make a difference in alleviating global hunger – IF they also focus on the entire Food Value Chain, not just farm productivity improvements.
The jury is still out on whether relatively new Impact Investment Funds located in New York, San Francisco, and London have the ability to change the future of Food Security by thoughtful, and perhaps audacious, capital investments in the entire Food Value Chain. Keep Trade Policy neutral, and encourage/support these new sources of capital, and we can eliminate world hunger by 2030.
Ms. Bookie Ezeomah’s questions about land-grabbing and the potential negative effects of FDI (Foreign Direct Investments) on trade and local African markets is important to the discussion of trade policy & food security.
There are at least three immediate negative impacts of FDI and foreign acquisition of farmland that one must be careful to avoid: 1) acquiring land rights from the national government without permission from the local tribal owners; 2) selling (or giving away) food that drives down the local price of food; and 3) producing food purely for export to the home country, effectively removing (potential) farmland assets from providing food security for local population. Additionally, there are the negative longer-term environmental effects of water usage, pollution, and mono-farming.
First, permission to farm land should be negotiated at both the national and local level, customized to each individual countries unique structure and tribal culture. This is more complex, but would avoid much of the abuses we have seen from many African land grabs. Essentially, the private company should conduct themselves as a citizen of both the national government and the local tribe and village region. Local partnership is crucial to success.
Bottom line, unless the investors behind the FDI are Impact Investors, or Social Investors, where the goal is to both make a return on capital while positively affecting the holistic food value chain, it is very difficult to achieve this “human rights” and “positive local citizenship” goal.
A second, more rare situation is where FDI is adversely affecting local food prices by flooding local markets with too much food. Most FDI cannot afford that luxury, even if they are Impact Investors. However, it does occasionally happen, where food surplus is so high that it drives down prices temporarily and causes famers to stop growing surplus food. One solution which we are using to avoid this affect is to purchase surplus grain from local farmers, and add that to our Food Value Chain. We are actually encouraging local farmers to produce surplus grain that we will purchase, store, transport and sell, just as a farmer cooperative would - but on a larger scale. Our pilot test of this approach nearly doubled local food production in a single year, as the farmers were confident they had a willing buyer of their surplus grain. BTW, the farmers used the same inputs and their traditional farming methods, yet doubled their production.
The worst situation, in my opinion, is where the FDI acquires (vacant or otherwise) farmland with the express goal of producing food for export to the home country. Currently, there are FDI investors from China, India, and the Mideast who are seeking as much farmland as possible in order to produce food solely for export to their home markets. In five years, if these projects are approved and implemented, the amount of “available” farmland necessary to feed local populations will be significantly reduced. It is quite possible to have a situation where local farm production is high, but the local population are food deficit/food insecure because FDI food production is exported without the possibility of local sales.
There are multiple ways to restrict or inhibit the “100% export” FDI from acquiring (vacant or otherwise) farmland. Insisting on both national and local permission to farm, a percentage of local ownership, and due diligence of potential FDIs are some of the approaches that could be utilized. Restricting exports to a percentage of the total is also possible, but more difficult to craft in legal language that encourages FDI while protecting local food security. Again, Impact FDI are less of a concern in this, because it would be unusual for them to be acquiring land for 100% export.
Much of the negative environmental effects Ms. Ezeomah and others have mentioned should be able to be avoided with Impact FDI’s, as opposed to the “100% Export” FDIs. FDIs that are serious about good local citizenship will by definition be sustainable, and long-term stewards of the land, people and resources. Often the 100% Exporters are solely interested in local land exploitation, to the detriment of the local people and eco-system.
This issue of sustainability and good local citizenship is going to become even more important as countries with large wealth funds and foreign currency reserves seek to acquire land resources in Africa primary to secure scarce African farmland resources. Some have observed that this is similar to the colonial rush for mining resources, or the rush for oil, which is then restricted to the foreign owners sole benefit. The 2015 SDGs should help address these concerns, but the international trade and food security negotiations around this issue are going to be “challenging”.
What were the “necessary and sufficient” conditions that enabled the mid-1800’s American Agricultural Revolution and how can we replicate/update/adapt those necessary and sufficient conditions in 2015 for Africa?
Here are my answers on the “necessary and sufficient” conditions:
Transportation (canals, railroads - adapted to rivers and roads today)
Markets (grain merchants that travelled to farms, the Chicago, Minneapolis, etc. boards of trade, Liverpool grain market, Chicago Futures Markets)
Communications (often included in “Markets” - the transcontinental telegraph, transatlantic telegraph, adapted to mobile phones, tablets, laptops, radio and television)
Scientific Agricultural Education (adapted today to Primary School curriculum)
Land Policy (enabling farmers to buy government-owned land inexpensively) Plus perhaps an 8th: political stability.
These are based primarily on academic literature, especially Louis Bernard Schmidt’s articles from the 1920s-1930’s, quoted by subsequent researchers in the 1940’s - 1970’s. Harvard Kennedy School Associate Professor Ryan Sheely and I are collaborating on a much more detailed journal article on this topic.
One final comment to emphasize why these “necessary and sufficient conditions” need to be adapted to local conditions: the locals know where the elephants walk at night. Never bet against local knowledge. You will lose the bet.
Free Trade, Food Security, Human Rights & Opportunity:
It is important for Food Security and Free Trade that participants work together AS participants/partners, treating all stakholders with dignity and respect. Our "bottom-up" approach to Food Security Value Chain is based upon historical precedent from the US mid-1800's Agricultural Revolution, which perhaps needs a bit of contextualizing. Our underlying premise is that all humans are created equal, regardless of whether they live in a grass hut, a chalet in Gstaad, or a Park Avenue townhouse.
In 1821, Nathan Dillon was one of many families that migrated from the Ohio frontier to the Illinois prairie. His children died from starvation, exposure, and diseases such as cholera. They had no doctors, no schools, and were subsistence level farmers in every way. In the Midwest US just 50 years ago there were still farm communities that had no indoor plumbing, no electricity, and no telephones. The point is that none of us are far removed from the rural farm areas of America, Africa or Asia.
Human innovation and drive, combined with education, technology improvements, transportation, storage, and market development, were the "necessary and sufficient" conditions that enabled the Revolution in mid-1800's US Agriculture. Trade Policy, Agricultural Policy, and Food Security Policy all need to support those "necessary and sufficient" conditions. Our role is to provide those opportunities to support those "necessary and sufficient" conditions.
What is very exciting is that as we make opportunities available to local smallholder and rural farmers, (necessary & sufficient conditions) the following generation will not only surpass their parents, but their creativity will apply the technology and knowledge in ways we can not even imagine. The students will become the teachers.
Thank you all for this continuing dialogue. Both moderators have raised some very important questions.
How can the FSVC approach address what is grown from a bottom-up perspective (rather than a market demand perspective)?
We believe there needs to a multi-faceted bottom-up approach to FSVC that includes education, market demand, and technology improvements.
EDUCATION: One of the important elements that Professor Louis Bernard Schmidt discussed in his multiple papers on the American Agricultural Revolution in the 1800s was “the establishment and growth of various agencies for promoting agricultural scientific knowledge”. We believe education is a necessary condition in “bottom-up” FSVC improvements. Local smallholder farmers and their children need to learn the modern science of farming as well as the basics of nutrition.
We are incorporating what we know today about sustainable farming methods, biodiversity, and nutrition into classes at the village level. We want the next generation of smallholder farmers to not only understand scientific farming, but be able to creatively apply that knowledge in appropriate, sustainable, and biodiverse ways.
This agricultural education will enable us to collaborate with the local smallholders to produce a much more nutritionally balanced “suite” of products than they now produce using current manual farming methods.
MARKET DEMAND: We are not only producing food ourselves, but we are also offering to purchase surplus food from local smallholder farmers. We have some ability to influence what type of food is produced at the local level by offering to buy specific types or varieties of food. This alone will not increase the diversity or nutrition of food, until farmers are educated about why they need to produce non-traditional crops, but it does reinforce the education with financial incentives.
TECHNOLOGY IMPROVEMENTS: Education and market demand for non-traditional products need to be combined with practical ways to produce those new crops. Some of the technology is new seed, some of the technology includes new ways/tools to farm. Bottom line, it is finding ways to assist local smallholder farmers to meet the desire (education) and demand for new, non-traditional crops.
How is what is grown determined so that diversity, including dietary diversity, is encouraged and how does this approach ensure that food gets to the hungriest regions?
This is a very important question. One of the oft-repeated comments all of us in food security have to overcome is “We have never done it that way before”, followed often by the comment “If it was good enough for my grandmother, it is good enough for me…”
We are addressing the issue of dietary diversity using a combination of agricultural and nutritional education, demonstrations of non-traditional foods grown locally to improve dietary diversity (e.g., sample farm plots with new crops), and offering incentives to local farmers for non-traditional crops.
Moving food to the hungriest regions is primarily a transportation and logistics challenge, especially when combined with market pricing. A historical example may help to demonstrate the issue. In 1830, it is reported that the cost of moving a wagon load of grain 60 miles to Chicago was greater than the sale price for that grain in Chicago. The result was that no grain was shipped 60 miles to Chicago. It was not until the cost of shipping grain dropped substantially due to the opening of a canal, followed by railroads, that Chicago became a major grain center.
The situation is the same today. The cost of transporting from food surplus areas to food deficit regions has to be in line with the market price at the delivery/sale point. Supply chain literature has much to say on this topic, of course.
The challenge in areas where subsistence level farmers have lost their annual crops (and thus will starve without external assistance), is that they have no resources to purchase food they were planning on growing themselves. This is where the World Food Programme must enter the picture, because by definition subsistence level farmers do not grow enough food for more than a single crop year, nor do they have storage methods or capacity to safely store food from one crop year to the next.
The long-term, systemic solution to the dilemma of the subsistence farmer is to change both farming methods so that they are capable of growing surplus food, and the storage technology so that they can safely store grain from one year to the next. A corollary option is to encourage farmers to grow surplus food that they can sell, and encourage financial savings using mobile banking technology. This would enable them to purchase food at market prices should their crops fail.
How does the FSVC approach encourage the continuous process of developing and maintaining agriculturally biodiverse systems (one of the components mentioned in question 3)?
In our experience, agriculturally biodiverse systems are a future development goal for much of East Africa. However, long-term agriculturally biodiverse systems (ABS) can be developed and maintained through a combination of local education, market demand and incentives, reinforce by demonstrations on the practical benefits of ABS. Education on nutrition and sustainable farming methods creates the awareness and knowledge, local incentives provide financial benefits of behavior change, while demonstrations of the practical benefits shows that “ABS really works”.
Is the market-based, traded system resource intensive? What about negative environmental externalities beyond the loss of biodiversity?
The transformation from human-powered, manual farming and transportation to animal-powered then to mechanized farming & transportation systems enables increased productivity with less labor. This transformation is capital-intensive, for it requires capital to purchase a horse, oxen, tractor or plow. It is more efficient to carry farm produce in bulk, via truck, barge, or ship than to carry the same amount of produce on the backs of people. But someone must provide the capital to purchase those productivity-enhancing tools, and the market prices must work so that investors or lenders earn a return.
Negative environmental externalities have frequently occurred in the FSVC where we have not been aware of those negative effects. In general, farmers are (and should be) long-term stewards of their land and resources, so the most sustainable methods provide earnings now and long into the future. As improved sustainable methods are developed and proven to work, implementation occurs as that knowledge travels and capital becomes available (if necessary). The combination of education/knowledge transfer at the local level, combined with technology improvements and behavior changes, should minimize environmental externalities.
Can one use the FSVC approach and support small-scale farmers in agro-biodiverse systems? How is specifically does it do this?
Supporting small-scale farmers using the FSVC means educating small-scale farm communities, removing“blockages” to the FSVC, and encouraging behavioral/cultural changes where necessary to create a robust, sustainable, agro-biodiverse local “system”. Each element is a necessary condition, but separately are not sufficient conditions to create sustainable agro-diverse systems.
Education in agricultural science and nutrition needs to be incorporated at the primary school level, as part of the standard curriculum. In regions where it is rare for children to attend school beyond Primary School, the farming and nutrition curriculum needs to be included to reach the broadest possible number of students.
Agro-biodiverse, surplus food production needs to be incented through offers of forward purchases of food at planting time, because it is too late to effect behavior change (i.e, plant more crops) any later in the crop cycle. If additional seed is required, then innovative solutions (e.g., “seed loans”) should be adopted so that that farmers are able to plant and grow surplus crops.
At harvest time, storage and handling facilities have to be available to thresh, dry, and store the newly created surplus crops. Trucks, roads and barges need to be acquired to transport surplus produce to storage facilities, and to markets. Supply chain logistics are very important to solving the FSVC impediments.
Price risk of the trading company or food cooperative or intermediary must also be carefully managed, so that they can pay reasonable prices for local agro-biodiverse food and profitably store, transport and sell that production to the end consumers.
1) From your knowledge and experience how have trade agreements and rules affected the four dimensions of food security (availability, access, utilization, stability)?
In our experience, trade agreements and rules have a mixed affect on all four dimensions of food security. Jennifer Clapp’s 2014 paper provides an excellent survey of the literature both pro and con regarding cross-border trade agreements vs. free markets
The problem with much of the well-intentioned trade agreements and rules is the unintended consequences on local food production, storage, and markets that most global policy approaches tend to ignore until after the fact.
A better approach to global food security would be to focus more efforts on all aspects of the local food security value chain (see question #3 below), and then determine how national and regional trade agreements and rules can be applied to support the local food security value chain.
2) What is your knowledge and experience with creating coherence between food security measures and trade rules? Can rights-based approaches play a role?
Coherence between food security measures and trade rules is achievable, if the local food security value chain (FSVC) is addressed first. Rights-based approaches can and should play a role, but must first be addressed from the “bottom up” of the local FSVC.
One of the missing elements in the global food security, malnutrition, and trade agreements debate seems to be an understanding of what motivates farmers (including smallholder farmers) to grow a specific quantity and type of food. Farmers are rational producers in our experience, and will not grow more food than they can use themselves, or can profitably sell. Long-term food security depends upon all aspects of the Food Security Value Chain working in harmony. When “blockages” occur in the FSVC, whether from lack of the right seed (farming), or onerous trade rules that force prices to be too high or too low (markets), food security is diminished.
Similarly, if the participants in all aspects of the FSVC are not treated with dignity and respect, i.e., treated with basic human rights, then the FSVC and food security will be reduced because inefficiencies are introduced into the system. Thus, we would again argue that a “bottom up” approach to the local FSVC, including the rights of all stakeholders for fair pricing, should then lead to a regional and national approach that is more supportive of the FSVC “system”.
3) How can a food security strategy, including components that explicitly support small-scale farmers in agro-biodiverse settings, be implemented in ways that might be compatible with a global market-based approach to food security?
At AfriGrains, we believe the “Food Security Value Chain” (FSVC) includes the entire food security "system". This includes: 1) field preparation; 2) farming; 3) storage and handling; 4) transportation; and 5) markets. Without attention to all elements of the Value Chain, and unless they are viewed as a comprehensive "system" (or as a "complex adaptive system"), food security will only be minimally improved. International trade agreements and cross-border rules are only one small aspect of the Food Security Value Chain.
Policy makers should continually ask: “why would a farmer produce more food than they can store, transport and sell at a price that is greater than the cost of production-storage-transportation-sale?” If there is no way for the farmer to adequately store produce after harvest, resulting in post-harvest-losses due to disease, mold, or animal destruction, then the farmer is irrational to grow more food than can be safely stored prior to sale. If the farmer has only a donkey for transport to market, or can only transport food to market on his/her back/head, then there is little incentive to grow more food than can be consumed by the family. If the final price for the food at the market is less than the cost of storage, or cost of transport (even by donkey-back), or cost to produce, then the farmer is likewise irrational to grow more food than that needed to feed his/her family for the next year.
We believe that most farmers are rational, all else being equal. If farmers are rational producers, then they will only produce surplus food to the extent that they can reasonably expect to realize value from their efforts. If that food is expected to be lost during storage, is unlikely to be transported to market at a reasonable cost, or cannot be expected to be sold at a profit after expenses, then the rational farmer will not grow surplus food. Change that equation to correct the storage, transport or market incentives/prices, and the farmer will rationally grow as much grain as he/she is able to ultimately sell.
If our goal is to feed the 800million people who are food insecure today as well as the expected 2 billion more people by 2050, then we need to identify what systemic blockages exist within the FSVC that restrict the profitable production, storage, transportation and sale of food from farm to the consumer. Crossing national borders is only one small element of the entire FSVC. This assessment must be done at all levels: local, regional, national and international.
Historically, we see that it was not until the combination of farm mechanization, storage innovations, transportation improvements, and the creation of markets, that farmers in the Midwest United States transitioned from being subsistence-level farmers to food surplus producers. This transformation occurred in approximately the fifty years between1825-1875 and required all 4 sufficient conditions to be present before the region became food secure. The John Deere steel plow, the McCormick harvester, the steam-powered grain elevator, the Erie Canal, railroads, the telegraph, and the Chicago Board of Trade futures markets are just some of the changes that contributed to the transformation from subsistence level to food surplus farming over that time frame. It was also during this time frame that the increased production of food enabled the formerly subsistence-level farmers to produce enough surpluses to feed the growing urban populations of New York, Boston, Chicago, etc.
These same challenges face us today in Africa and Asia. Before addressing the trans-national trade agreement questions, we need to ask how x country is to grow enough food to feed its own urban population. Are there blockages within the local FSVC that restrict local farmers from providing the amount of food to the end consumer within the urban centers in their own country? If so, have they been identified, and what solutions are available to remove those blockages? Only after we have addressed the local FSVC issues can we then address the trans-national issues and blockages.
For example, in our experience, farmers in East Africa have the capacity to produce more food than what the family/household needs to feed itself. The growing urban populations are an easy market for local (smallholder) farmers to sell into. The demand is there. However, storage facilities are lacking, transportation systems (roads, railroads, trucks, trains) are not adequate, or not cost-effective, and thus the final price to the consumer is either too high, or locally produced food is simply not available. Until the local storage, transportation, and pricing issues are resolved, local farmers will not increase food production because why should farmers grow something that will spoil in storage, not be transported, or not be sold because the local FSVC system is too inefficient.
If the local FSVC of production, storage, transportation and markets can be more adequately addressed, then local (smallholder) farmers will successfully be able to compete with alternative sources of food. This levels the playing field between farm, storage, transportation, and merchants globally. Sorghum produced in the US is much more efficiently produced than in East Africa. However, capital costs of production are also higher in the US. Storage is more efficient in the US than East Africa. But the cost of transport should be much less from local producers in East Africa to urban centers than the cost of transport from the US. Except that donkey-back is not an efficient means of transport, and cannot provide enough quantity of food to market. Hence, the “blockage” to the local FSVC chain is the inefficiency of transportation, combined with poor (or non-existent) storage facilities. Solve the “donkey-back” transportation issue, and local smallholder farmers will be more than competitive with global, more efficient but very distant (cost of transportation) farmers, in terms of “delivered cost of food”.
In conclusion, achieving global food security is possible if policy makers such as FAO and Committee on Food Security change the paradigm, and address the entire FSVC systemically from the “bottom up”. Private companies such as AfriGrains can profitably address FSVC in East Africa, through purchasing from local smallholders and its own production, fixing the local storage and transport issues in a way that allows us to compete against the large multi-nationals. The solution is not more trade agreements and rules, but rather investors and companies willing to solve the world’s hunger challenge in creative, sustainable, and new ways, with human dignity and respect for all stakeholders.
Г-н Dennis Bennett
Impact Investing, Capital Investment, & B Corps
One rarely explored aspect of the intersection between Trade Policy and Food Security is the issue of Capital Investors, and “Benefit Corporations” or “B Corps”. This issue is a corollary to my post on “Impact FDI’s vs. 100% Exporters”.
IF one of the important ways to improve food security is to develop the Holistic Food Value Chain (or FSVC), and IF that development is to be done in such a way that FDI’s will have a positive impact on the entire FSVC, THEN the question becomes one of “Where does the capital come from?” Who, or what type of firms, are willing and able to invest in “B Corp” or “Benefits Corporation” firms whose mission is to promote that Holistic Food Value Chain (FSVC)?
Capital investment will be necessary to transform subsistence level & manual farming in many rural areas (of Africa & elsewhere) to the Holistic Food Value Chain. Some level of mechanization of farming must occur, storage & handling methods must be developed, transportation must be improved, and markets must be expanded. Those transformative changes require capital investment from somewhere and by someone.
To date, much of the recent efforts at improving smallholder farming seem to have gone into farm productivity improvements. As my earlier post pointed out, this is a necessary (i.e., important) but not sufficient condition. Groups like the HGBuffett Foundation, the Gates Foundation, and others have invested, or committed to invest, millions of US$ to improve seed, soil, fertilizer, and related farm productivity.
Howard G. & Howard W. Buffett’s book “40 Chances” is a good view of that approach to Investment in smallholder farm productivity. Unfortunately, both Buffetts presume that storage and transportation systems either pre-exist, or will be magically developed by someone. Given that they are farming in Decatur, IL and Nebraska, that is an understandable presumption. However, they did not go back into history far enough to see that 170 years ago, grain elevators and railroads did not exist in their locations. The Gates Foundation efforts at food security improvements and ZeroHunger in Africa are similarly myopic, in terms of focusing primarily on farm productivity rather than the entire FSVC.
Another source of potential capital are the International Aid Agencies and/or NGOs. This source of capital has its own challenges, however, because both government aid agencies and non-profit NGO’s are primarily geared towards emergency assistance. Because their donor base, funding strategies, and programs (government and non-profits) are focused on addressing crises, funds are rarely allocated towards addressing the underlying systemic causes of food insecurity. Handing out food, or distributing farm hand tools is a good photo opportunity. Building grain silo’s, or roads, or buying trucks to move food to markets are long-term capital projects that do not seem to fit the mission of “emergency aid & development”.
The one source of capital that seems to be developing, albeit still in its infancy, are the “Impact Investors” and the “Benefit Corporation” (aka “B Corps”). Alice Korngold (A Better World, Inc.: How Companies Profit by Solving Global Problems...Where Governments Cannot) and Cathy Clark, Jed Emerson and Ben Thornley (The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism) have written two of the best, and most recent, books on this area. Paul Polson, CEO of Unilever is perhaps the most vocal advocate of this approach, from a large corporate POV. Lord Michael Hastings (UK) is another very strong advocate.
The first challenge for many Impact Investors and B Corps is the tension between “insisting on normal Private Equity Returns” vs. “lesser financial returns (ROI) but greater “Impacts” as measured by some desired metrics. Are the Impact Investors willing to trade off lower ROI for greater impacts on the “number of lives affected” through investment in food security, grain silos, roads, or markets?
A second challenge, especially in some areas of Africa, is the question of whether the Impact Investors and B Corps are willing to trade off the possibility of some capital loss for the chance to achieve a higher return among the “most needy”? Some Impact Investors have chosen to avoid all risk of capital loss, and hence make their impact investing sound good, but their investments are in “safe” areas that really don’t need their capital. Other Impact Investors have chosen to split their ImpInv Funds into several pools, with some funds allocated to “higher risk of capital loss”. Those are the investors who can really make a difference in alleviating global hunger – IF they also focus on the entire Food Value Chain, not just farm productivity improvements.
The jury is still out on whether relatively new Impact Investment Funds located in New York, San Francisco, and London have the ability to change the future of Food Security by thoughtful, and perhaps audacious, capital investments in the entire Food Value Chain. Keep Trade Policy neutral, and encourage/support these new sources of capital, and we can eliminate world hunger by 2030.
Dennis Bennett
CEO
AfriGrains
Г-н Dennis Bennett
Land: Impact FDIs vs “100% Exporters”
Ms. Bookie Ezeomah’s questions about land-grabbing and the potential negative effects of FDI (Foreign Direct Investments) on trade and local African markets is important to the discussion of trade policy & food security.
There are at least three immediate negative impacts of FDI and foreign acquisition of farmland that one must be careful to avoid: 1) acquiring land rights from the national government without permission from the local tribal owners; 2) selling (or giving away) food that drives down the local price of food; and 3) producing food purely for export to the home country, effectively removing (potential) farmland assets from providing food security for local population. Additionally, there are the negative longer-term environmental effects of water usage, pollution, and mono-farming.
First, permission to farm land should be negotiated at both the national and local level, customized to each individual countries unique structure and tribal culture. This is more complex, but would avoid much of the abuses we have seen from many African land grabs. Essentially, the private company should conduct themselves as a citizen of both the national government and the local tribe and village region. Local partnership is crucial to success.
Bottom line, unless the investors behind the FDI are Impact Investors, or Social Investors, where the goal is to both make a return on capital while positively affecting the holistic food value chain, it is very difficult to achieve this “human rights” and “positive local citizenship” goal.
A second, more rare situation is where FDI is adversely affecting local food prices by flooding local markets with too much food. Most FDI cannot afford that luxury, even if they are Impact Investors. However, it does occasionally happen, where food surplus is so high that it drives down prices temporarily and causes famers to stop growing surplus food. One solution which we are using to avoid this affect is to purchase surplus grain from local farmers, and add that to our Food Value Chain. We are actually encouraging local farmers to produce surplus grain that we will purchase, store, transport and sell, just as a farmer cooperative would - but on a larger scale. Our pilot test of this approach nearly doubled local food production in a single year, as the farmers were confident they had a willing buyer of their surplus grain. BTW, the farmers used the same inputs and their traditional farming methods, yet doubled their production.
The worst situation, in my opinion, is where the FDI acquires (vacant or otherwise) farmland with the express goal of producing food for export to the home country. Currently, there are FDI investors from China, India, and the Mideast who are seeking as much farmland as possible in order to produce food solely for export to their home markets. In five years, if these projects are approved and implemented, the amount of “available” farmland necessary to feed local populations will be significantly reduced. It is quite possible to have a situation where local farm production is high, but the local population are food deficit/food insecure because FDI food production is exported without the possibility of local sales.
There are multiple ways to restrict or inhibit the “100% export” FDI from acquiring (vacant or otherwise) farmland. Insisting on both national and local permission to farm, a percentage of local ownership, and due diligence of potential FDIs are some of the approaches that could be utilized. Restricting exports to a percentage of the total is also possible, but more difficult to craft in legal language that encourages FDI while protecting local food security. Again, Impact FDI are less of a concern in this, because it would be unusual for them to be acquiring land for 100% export.
Much of the negative environmental effects Ms. Ezeomah and others have mentioned should be able to be avoided with Impact FDI’s, as opposed to the “100% Export” FDIs. FDIs that are serious about good local citizenship will by definition be sustainable, and long-term stewards of the land, people and resources. Often the 100% Exporters are solely interested in local land exploitation, to the detriment of the local people and eco-system.
This issue of sustainability and good local citizenship is going to become even more important as countries with large wealth funds and foreign currency reserves seek to acquire land resources in Africa primary to secure scarce African farmland resources. Some have observed that this is similar to the colonial rush for mining resources, or the rush for oil, which is then restricted to the foreign owners sole benefit. The 2015 SDGs should help address these concerns, but the international trade and food security negotiations around this issue are going to be “challenging”.
Dennis Bennett
CEO, AfriGrains
Г-н Dennis Bennett
What were the “necessary and sufficient” conditions that enabled the mid-1800’s American Agricultural Revolution and how can we replicate/update/adapt those necessary and sufficient conditions in 2015 for Africa?
Here are my answers on the “necessary and sufficient” conditions:
These are based primarily on academic literature, especially Louis Bernard Schmidt’s articles from the 1920s-1930’s, quoted by subsequent researchers in the 1940’s - 1970’s. Harvard Kennedy School Associate Professor Ryan Sheely and I are collaborating on a much more detailed journal article on this topic.
One final comment to emphasize why these “necessary and sufficient conditions” need to be adapted to local conditions: the locals know where the elephants walk at night. Never bet against local knowledge. You will lose the bet.
Dennis
Г-н Dennis Bennett
Free Trade, Food Security, Human Rights & Opportunity:
It is important for Food Security and Free Trade that participants work together AS participants/partners, treating all stakholders with dignity and respect. Our "bottom-up" approach to Food Security Value Chain is based upon historical precedent from the US mid-1800's Agricultural Revolution, which perhaps needs a bit of contextualizing. Our underlying premise is that all humans are created equal, regardless of whether they live in a grass hut, a chalet in Gstaad, or a Park Avenue townhouse.
In 1821, Nathan Dillon was one of many families that migrated from the Ohio frontier to the Illinois prairie. His children died from starvation, exposure, and diseases such as cholera. They had no doctors, no schools, and were subsistence level farmers in every way. In the Midwest US just 50 years ago there were still farm communities that had no indoor plumbing, no electricity, and no telephones. The point is that none of us are far removed from the rural farm areas of America, Africa or Asia.
Human innovation and drive, combined with education, technology improvements, transportation, storage, and market development, were the "necessary and sufficient" conditions that enabled the Revolution in mid-1800's US Agriculture. Trade Policy, Agricultural Policy, and Food Security Policy all need to support those "necessary and sufficient" conditions. Our role is to provide those opportunities to support those "necessary and sufficient" conditions.
What is very exciting is that as we make opportunities available to local smallholder and rural farmers, (necessary & sufficient conditions) the following generation will not only surpass their parents, but their creativity will apply the technology and knowledge in ways we can not even imagine. The students will become the teachers.
Dennis Bennett
CEO, AfriGrains
Г-н Dennis Bennett
Thank you all for this continuing dialogue. Both moderators have raised some very important questions.
How can the FSVC approach address what is grown from a bottom-up perspective (rather than a market demand perspective)?
We believe there needs to a multi-faceted bottom-up approach to FSVC that includes education, market demand, and technology improvements.
EDUCATION: One of the important elements that Professor Louis Bernard Schmidt discussed in his multiple papers on the American Agricultural Revolution in the 1800s was “the establishment and growth of various agencies for promoting agricultural scientific knowledge”. We believe education is a necessary condition in “bottom-up” FSVC improvements. Local smallholder farmers and their children need to learn the modern science of farming as well as the basics of nutrition.
We are incorporating what we know today about sustainable farming methods, biodiversity, and nutrition into classes at the village level. We want the next generation of smallholder farmers to not only understand scientific farming, but be able to creatively apply that knowledge in appropriate, sustainable, and biodiverse ways.
This agricultural education will enable us to collaborate with the local smallholders to produce a much more nutritionally balanced “suite” of products than they now produce using current manual farming methods.
MARKET DEMAND: We are not only producing food ourselves, but we are also offering to purchase surplus food from local smallholder farmers. We have some ability to influence what type of food is produced at the local level by offering to buy specific types or varieties of food. This alone will not increase the diversity or nutrition of food, until farmers are educated about why they need to produce non-traditional crops, but it does reinforce the education with financial incentives.
TECHNOLOGY IMPROVEMENTS: Education and market demand for non-traditional products need to be combined with practical ways to produce those new crops. Some of the technology is new seed, some of the technology includes new ways/tools to farm. Bottom line, it is finding ways to assist local smallholder farmers to meet the desire (education) and demand for new, non-traditional crops.
How is what is grown determined so that diversity, including dietary diversity, is encouraged and how does this approach ensure that food gets to the hungriest regions?
This is a very important question. One of the oft-repeated comments all of us in food security have to overcome is “We have never done it that way before”, followed often by the comment “If it was good enough for my grandmother, it is good enough for me…”
We are addressing the issue of dietary diversity using a combination of agricultural and nutritional education, demonstrations of non-traditional foods grown locally to improve dietary diversity (e.g., sample farm plots with new crops), and offering incentives to local farmers for non-traditional crops.
Moving food to the hungriest regions is primarily a transportation and logistics challenge, especially when combined with market pricing. A historical example may help to demonstrate the issue. In 1830, it is reported that the cost of moving a wagon load of grain 60 miles to Chicago was greater than the sale price for that grain in Chicago. The result was that no grain was shipped 60 miles to Chicago. It was not until the cost of shipping grain dropped substantially due to the opening of a canal, followed by railroads, that Chicago became a major grain center.
The situation is the same today. The cost of transporting from food surplus areas to food deficit regions has to be in line with the market price at the delivery/sale point. Supply chain literature has much to say on this topic, of course.
The challenge in areas where subsistence level farmers have lost their annual crops (and thus will starve without external assistance), is that they have no resources to purchase food they were planning on growing themselves. This is where the World Food Programme must enter the picture, because by definition subsistence level farmers do not grow enough food for more than a single crop year, nor do they have storage methods or capacity to safely store food from one crop year to the next.
The long-term, systemic solution to the dilemma of the subsistence farmer is to change both farming methods so that they are capable of growing surplus food, and the storage technology so that they can safely store grain from one year to the next. A corollary option is to encourage farmers to grow surplus food that they can sell, and encourage financial savings using mobile banking technology. This would enable them to purchase food at market prices should their crops fail.
How does the FSVC approach encourage the continuous process of developing and maintaining agriculturally biodiverse systems (one of the components mentioned in question 3)?
In our experience, agriculturally biodiverse systems are a future development goal for much of East Africa. However, long-term agriculturally biodiverse systems (ABS) can be developed and maintained through a combination of local education, market demand and incentives, reinforce by demonstrations on the practical benefits of ABS. Education on nutrition and sustainable farming methods creates the awareness and knowledge, local incentives provide financial benefits of behavior change, while demonstrations of the practical benefits shows that “ABS really works”.
Is the market-based, traded system resource intensive? What about negative environmental externalities beyond the loss of biodiversity?
The transformation from human-powered, manual farming and transportation to animal-powered then to mechanized farming & transportation systems enables increased productivity with less labor. This transformation is capital-intensive, for it requires capital to purchase a horse, oxen, tractor or plow. It is more efficient to carry farm produce in bulk, via truck, barge, or ship than to carry the same amount of produce on the backs of people. But someone must provide the capital to purchase those productivity-enhancing tools, and the market prices must work so that investors or lenders earn a return.
Negative environmental externalities have frequently occurred in the FSVC where we have not been aware of those negative effects. In general, farmers are (and should be) long-term stewards of their land and resources, so the most sustainable methods provide earnings now and long into the future. As improved sustainable methods are developed and proven to work, implementation occurs as that knowledge travels and capital becomes available (if necessary). The combination of education/knowledge transfer at the local level, combined with technology improvements and behavior changes, should minimize environmental externalities.
Can one use the FSVC approach and support small-scale farmers in agro-biodiverse systems? How is specifically does it do this?
Supporting small-scale farmers using the FSVC means educating small-scale farm communities, removing“blockages” to the FSVC, and encouraging behavioral/cultural changes where necessary to create a robust, sustainable, agro-biodiverse local “system”. Each element is a necessary condition, but separately are not sufficient conditions to create sustainable agro-diverse systems.
Education in agricultural science and nutrition needs to be incorporated at the primary school level, as part of the standard curriculum. In regions where it is rare for children to attend school beyond Primary School, the farming and nutrition curriculum needs to be included to reach the broadest possible number of students.
Agro-biodiverse, surplus food production needs to be incented through offers of forward purchases of food at planting time, because it is too late to effect behavior change (i.e, plant more crops) any later in the crop cycle. If additional seed is required, then innovative solutions (e.g., “seed loans”) should be adopted so that that farmers are able to plant and grow surplus crops.
At harvest time, storage and handling facilities have to be available to thresh, dry, and store the newly created surplus crops. Trucks, roads and barges need to be acquired to transport surplus produce to storage facilities, and to markets. Supply chain logistics are very important to solving the FSVC impediments.
Price risk of the trading company or food cooperative or intermediary must also be carefully managed, so that they can pay reasonable prices for local agro-biodiverse food and profitably store, transport and sell that production to the end consumers.
Dennis Bennett
CEO, AfriGrains
Г-н Dennis Bennett
1) From your knowledge and experience how have trade agreements and rules affected the four dimensions of food security (availability, access, utilization, stability)?
In our experience, trade agreements and rules have a mixed affect on all four dimensions of food security. Jennifer Clapp’s 2014 paper provides an excellent survey of the literature both pro and con regarding cross-border trade agreements vs. free markets
The problem with much of the well-intentioned trade agreements and rules is the unintended consequences on local food production, storage, and markets that most global policy approaches tend to ignore until after the fact.
A better approach to global food security would be to focus more efforts on all aspects of the local food security value chain (see question #3 below), and then determine how national and regional trade agreements and rules can be applied to support the local food security value chain.
2) What is your knowledge and experience with creating coherence between food security measures and trade rules? Can rights-based approaches play a role?
Coherence between food security measures and trade rules is achievable, if the local food security value chain (FSVC) is addressed first. Rights-based approaches can and should play a role, but must first be addressed from the “bottom up” of the local FSVC.
One of the missing elements in the global food security, malnutrition, and trade agreements debate seems to be an understanding of what motivates farmers (including smallholder farmers) to grow a specific quantity and type of food. Farmers are rational producers in our experience, and will not grow more food than they can use themselves, or can profitably sell. Long-term food security depends upon all aspects of the Food Security Value Chain working in harmony. When “blockages” occur in the FSVC, whether from lack of the right seed (farming), or onerous trade rules that force prices to be too high or too low (markets), food security is diminished.
Similarly, if the participants in all aspects of the FSVC are not treated with dignity and respect, i.e., treated with basic human rights, then the FSVC and food security will be reduced because inefficiencies are introduced into the system. Thus, we would again argue that a “bottom up” approach to the local FSVC, including the rights of all stakeholders for fair pricing, should then lead to a regional and national approach that is more supportive of the FSVC “system”.
3) How can a food security strategy, including components that explicitly support small-scale farmers in agro-biodiverse settings, be implemented in ways that might be compatible with a global market-based approach to food security?
At AfriGrains, we believe the “Food Security Value Chain” (FSVC) includes the entire food security "system". This includes: 1) field preparation; 2) farming; 3) storage and handling; 4) transportation; and 5) markets. Without attention to all elements of the Value Chain, and unless they are viewed as a comprehensive "system" (or as a "complex adaptive system"), food security will only be minimally improved. International trade agreements and cross-border rules are only one small aspect of the Food Security Value Chain.
Policy makers should continually ask: “why would a farmer produce more food than they can store, transport and sell at a price that is greater than the cost of production-storage-transportation-sale?” If there is no way for the farmer to adequately store produce after harvest, resulting in post-harvest-losses due to disease, mold, or animal destruction, then the farmer is irrational to grow more food than can be safely stored prior to sale. If the farmer has only a donkey for transport to market, or can only transport food to market on his/her back/head, then there is little incentive to grow more food than can be consumed by the family. If the final price for the food at the market is less than the cost of storage, or cost of transport (even by donkey-back), or cost to produce, then the farmer is likewise irrational to grow more food than that needed to feed his/her family for the next year.
We believe that most farmers are rational, all else being equal. If farmers are rational producers, then they will only produce surplus food to the extent that they can reasonably expect to realize value from their efforts. If that food is expected to be lost during storage, is unlikely to be transported to market at a reasonable cost, or cannot be expected to be sold at a profit after expenses, then the rational farmer will not grow surplus food. Change that equation to correct the storage, transport or market incentives/prices, and the farmer will rationally grow as much grain as he/she is able to ultimately sell.
If our goal is to feed the 800million people who are food insecure today as well as the expected 2 billion more people by 2050, then we need to identify what systemic blockages exist within the FSVC that restrict the profitable production, storage, transportation and sale of food from farm to the consumer. Crossing national borders is only one small element of the entire FSVC. This assessment must be done at all levels: local, regional, national and international.
Historically, we see that it was not until the combination of farm mechanization, storage innovations, transportation improvements, and the creation of markets, that farmers in the Midwest United States transitioned from being subsistence-level farmers to food surplus producers. This transformation occurred in approximately the fifty years between1825-1875 and required all 4 sufficient conditions to be present before the region became food secure. The John Deere steel plow, the McCormick harvester, the steam-powered grain elevator, the Erie Canal, railroads, the telegraph, and the Chicago Board of Trade futures markets are just some of the changes that contributed to the transformation from subsistence level to food surplus farming over that time frame. It was also during this time frame that the increased production of food enabled the formerly subsistence-level farmers to produce enough surpluses to feed the growing urban populations of New York, Boston, Chicago, etc.
These same challenges face us today in Africa and Asia. Before addressing the trans-national trade agreement questions, we need to ask how x country is to grow enough food to feed its own urban population. Are there blockages within the local FSVC that restrict local farmers from providing the amount of food to the end consumer within the urban centers in their own country? If so, have they been identified, and what solutions are available to remove those blockages? Only after we have addressed the local FSVC issues can we then address the trans-national issues and blockages.
For example, in our experience, farmers in East Africa have the capacity to produce more food than what the family/household needs to feed itself. The growing urban populations are an easy market for local (smallholder) farmers to sell into. The demand is there. However, storage facilities are lacking, transportation systems (roads, railroads, trucks, trains) are not adequate, or not cost-effective, and thus the final price to the consumer is either too high, or locally produced food is simply not available. Until the local storage, transportation, and pricing issues are resolved, local farmers will not increase food production because why should farmers grow something that will spoil in storage, not be transported, or not be sold because the local FSVC system is too inefficient.
If the local FSVC of production, storage, transportation and markets can be more adequately addressed, then local (smallholder) farmers will successfully be able to compete with alternative sources of food. This levels the playing field between farm, storage, transportation, and merchants globally. Sorghum produced in the US is much more efficiently produced than in East Africa. However, capital costs of production are also higher in the US. Storage is more efficient in the US than East Africa. But the cost of transport should be much less from local producers in East Africa to urban centers than the cost of transport from the US. Except that donkey-back is not an efficient means of transport, and cannot provide enough quantity of food to market. Hence, the “blockage” to the local FSVC chain is the inefficiency of transportation, combined with poor (or non-existent) storage facilities. Solve the “donkey-back” transportation issue, and local smallholder farmers will be more than competitive with global, more efficient but very distant (cost of transportation) farmers, in terms of “delivered cost of food”.
In conclusion, achieving global food security is possible if policy makers such as FAO and Committee on Food Security change the paradigm, and address the entire FSVC systemically from the “bottom up”. Private companies such as AfriGrains can profitably address FSVC in East Africa, through purchasing from local smallholders and its own production, fixing the local storage and transport issues in a way that allows us to compete against the large multi-nationals. The solution is not more trade agreements and rules, but rather investors and companies willing to solve the world’s hunger challenge in creative, sustainable, and new ways, with human dignity and respect for all stakeholders.
Dennis Bennett
CEO
AfriGrains, Inc.