Investment in Agriculture Alexander Mueller Assistant Director General, Natural Resources Department Finance High Level Panel 5 th World Water Forum, Istanbul, Turkey

The Challenges World population is projected to grow from 6.5 billion in 2005 to nearly 9.2 billion by Thus global food production must nearly double by 2050.World population is projected to grow from 6.5 billion in 2005 to nearly 9.2 billion by Thus global food production must nearly double by Natural resources scarcity: expand the land basis (4.2 billion ha available for rainfed production ) or tap into yet-unused yield enhancing resources.Natural resources scarcity: expand the land basis (4.2 billion ha available for rainfed production ) or tap into yet-unused yield enhancing resources. Climate change will cause a decline in yields and a higher occurrence of extreme climate events.Climate change will cause a decline in yields and a higher occurrence of extreme climate events. Rapidly rising energy prices and higher demand for energy: agriculture will become increasingly important as a supplier to the energy market.Rapidly rising energy prices and higher demand for energy: agriculture will become increasingly important as a supplier to the energy market.

Food Prices 2007/2008:2007/2008: -Sharp rise in food prices, thus in food production, mostly in OECD -Increase in the number of undernourished people (963 million) Since July 2008:Since July 2008: -Decline in food prices: -50% for world grain prices -Is this the end of the food crises?

Financial Crisis The current financial crisis will affect agricultural sector in many countries negatively -Lower demand for commodities -Negative expectations may negatively affect demand -Incentives for investment to ensure greater food security are suppressed -economic activity slows, employment falls, remittances decrease -Household income declines, not compensated by lower prices Demand Side Supply Side -Cutback of agricultural production -Decrease in input prices (especially if energy prices decrease) -The overall effect depends on the relative adjustments of input and output prices -Restrictions on the availability of credit

The end of the crisis? Cereal stocks need to be replenishedCereal stocks need to be replenished Lower prices will divert more supply to fuel generating a further decline in agricultural pricesLower prices will divert more supply to fuel generating a further decline in agricultural prices The benefits of higher prices did not accrue to developing countries:The benefits of higher prices did not accrue to developing countries: -Developed countries increased their cereal output by 11% -The developing countries only scored an increase of 1.1% -Cereal production fell by 0.8% (excluding China, India and Brazil) -Dropping prices and economic uncertainty could discourage farmers from investing in means of production -Less planting next season -Significant fall in output in 2009/10 and steeper price surge -Low prices are driven by lower demand: lower prices may be associated with more poverty and hunger Another food crisis?Another food crisis?

Investment in Agriculture Donor countries and investors should meet their commitments taken towards the development of agriculture, especially at a time when agriculture may act as a “buffer” and help cushion greater losses incurred in other sectors of the economy

Central role of Agriculture Agriculture provides the primary source of livelihood for 36 percent of the world’s total workforceAgriculture provides the primary source of livelihood for 36 percent of the world’s total workforce In sub-Saharan Africa, two-thirds of the working population make their living from agricultureIn sub-Saharan Africa, two-thirds of the working population make their living from agriculture Agriculture is key to poverty reduction: GDP growth generated in agriculture is four times more effective in benefiting the poorest than growth generated outside agricultureAgriculture is key to poverty reduction: GDP growth generated in agriculture is four times more effective in benefiting the poorest than growth generated outside agriculture Increased farm production improves farmers’ incomes thus stimulating demand for the goods and services offered by the small-scale enterprise sectorIncreased farm production improves farmers’ incomes thus stimulating demand for the goods and services offered by the small-scale enterprise sector

Low Investments in Agriculture Agricultural investments: reduction in real terms of 58% in the period Agricultural investments: reduction in real terms of 58% in the period The share of agriculture in ODA fell from 17% in 1980 to 3% in 2006The share of agriculture in ODA fell from 17% in 1980 to 3% in 2006 External commitments have steadily declined since the 1980s and multilateral assistance has declined proportionately much more than bilateral assistanceExternal commitments have steadily declined since the 1980s and multilateral assistance has declined proportionately much more than bilateral assistance In many African countries spending on agriculture is far below the target set by the Maputo DeclarationIn many African countries spending on agriculture is far below the target set by the Maputo Declaration

The Investment Road Map 1.Improve agricultural productivity and enhance livelihoods and food security in poor rural communities. 2.Develop and conserve natural resources. 3.Expand and improve rural infrastructure and broaden market access. 4.Strengthen capacity for knowledge generation and dissemination. 5.Ensure access to food for the most-needy through safety nets and other direct assistance. FAO has tabled an investment road map to 2015: a annual investment volume of US$ 30 billion in the following five areas would engender an overall annual benefit of US$ 120 billion.

Investing in Water for Agriculture By 2025:By 2025: -two-thirds of the world population could be under “stress conditions” million people will live in countries with “absolute scarcity” Irrigation:Irrigation: -increases yields -stabilizes output -enables crop diversification -reduces risk -increases farm incomes -Increases employment Irrigation has a multiplier effect on non-farm incomes and it contributes to food security and poverty alleviation.Irrigation has a multiplier effect on non-farm incomes and it contributes to food security and poverty alleviation. Irrigation has good distributional effectsIrrigation has good distributional effects Water for agriculture needs to increase 60% to feed an additional 2 billion people by 2030

Investing in Water for Agriculture Nearly half of the ODA committed to the water sector in benefited to large water supply and sanitation systemsNearly half of the ODA committed to the water sector in benefited to large water supply and sanitation systems Lending for irrigation and drainage partially recovered in the late 1990s but in was still less than half the level for Lending for irrigation and drainage partially recovered in the late 1990s but in was still less than half the level for In the proportion of ODA for water that benefited to the LDCs decreased in comparison with In the proportion of ODA for water that benefited to the LDCs decreased in comparison with

Investing in Water for Agriculture The WWC/GWP Vision and Framework for Action (2000): annual investment US$40 billion by 2025.The WWC/GWP Vision and Framework for Action (2000): annual investment US$40 billion by To meet the MDG for Hunger: annual investment US$47 billion in the period , US$67 billion in , and US$58 billion in To meet the MDG for Hunger: annual investment US$47 billion in the period , US$67 billion in , and US$58 billion in Sirte Conference: water related investment in Africa is estimated to US$65 billion spread over twenty yearsSirte Conference: water related investment in Africa is estimated to US$65 billion spread over twenty years A more strategic development of the available land and water resources.A more strategic development of the available land and water resources. Flexible and service oriented irrigation systems.Flexible and service oriented irrigation systems. Focus on small-scale irrigationFocus on small-scale irrigation More accountable institutions.More accountable institutions.

The Commitments High-Level Conference on World Food Security: the total pledges amounted to US$22 billionHigh-Level Conference on World Food Security: the total pledges amounted to US$22 billion G-8 Summit in July in Japan: US$30 billion should be invested each year in agricultureG-8 Summit in July in Japan: US$30 billion should be invested each year in agriculture Maputo 2003: allocate 10% of national budgetary resources for agriculture and rural development.Maputo 2003: allocate 10% of national budgetary resources for agriculture and rural development. Food Facility for Developing Countries’: 1 billion €Food Facility for Developing Countries’: 1 billion € Replenishment of IFAD’s resources and greater credit to the agricultural sector from the World BankReplenishment of IFAD’s resources and greater credit to the agricultural sector from the World Bank THIS IS NOT ENOUGH! To feed 9 billion people in 2050 we need to double world food production with the financial resources needed for investment in agriculture

Climate Change and Agriculture The agricultural GDP in developed countries would likely benefit from climate change. North America could gain in all scenarios.The agricultural GDP in developed countries would likely benefit from climate change. North America could gain in all scenarios. With the exception of Latin America, developing countries would face a decrease of GDP from agriculture due to climate change. Asia (-4%) and Africa (-2 – -9%) would generally be negatively affected.With the exception of Latin America, developing countries would face a decrease of GDP from agriculture due to climate change. Asia (-4%) and Africa (-2 – -9%) would generally be negatively affected. Impacts of CC on world market prices for cereals (2080)

Trade in agricultural products OECD countries are still dominant players in world agricultural tradeOECD countries are still dominant players in world agricultural trade Exports of processed products by middle-income countries grew at double-digit rates between 1985 and 2004Exports of processed products by middle-income countries grew at double-digit rates between 1985 and 2004.

Tariffs on agricultural products The agricultural exports of developing countries still face significant tariff barriers and tariff escalation in developed country marketsThe agricultural exports of developing countries still face significant tariff barriers and tariff escalation in developed country markets The export taxes had a detrimental effect on the response of the developing countries to the high international pricesThe export taxes had a detrimental effect on the response of the developing countries to the high international prices Governments and donors should avoid reducing aid to developing countries’ agriculture and introducing protectionist trade measures in response to the unfolding global financial crisis. Such steps may INCREASE THE RISK OF ANOTHER FOOD CRISIS occurring next year.

FAO’s Actions Special Programme for Food Security (SPFS)Special Programme for Food Security (SPFS) Initiative to combat soaring food prices: invited donors to allocate US$1.7 billion to developing countries for agricultural developmentInitiative to combat soaring food prices: invited donors to allocate US$1.7 billion to developing countries for agricultural development In the last 10 years, FAO has implemented projects dealing with the distribution of agricultural inputs with a budget of about US$931 millionIn the last 10 years, FAO has implemented projects dealing with the distribution of agricultural inputs with a budget of about US$931 million High-Level Task Force on the Global Food Security CrisisHigh-Level Task Force on the Global Food Security Crisis

Final to say: The world is now in serious financial and economic crisis with non predictable price fluctuations. The world will have not only to ensure adequate food for 963 million hungry people in the world, but also to feed 9.2 billion people in Investments in agriculture are the cornerstone of any sustainable solution to overcome these challenges

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