Promoting Investment in Agriculture for Increased Production and Productivity. Saifullah Syed

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СКАЧАТЬ crisis cast doubt on the belief that the global food supply was sufficient to meet demand. The introduction of export bans on food items in response to soaring prices also created severe hardship for poor food-importing countries. To address this critical situation, world leaders gathered in Rome in June 2008 for the High-Level Conference on World Food Security: The Challenges of Climate Change and Bioenergy. The world leaders recognized that reductions in food insecurity and poverty are positively related to overall economic development. They also recognized that due to its strong linkages with the other economic sectors, growth in agriculture is crucial. The Joint Statement on Global Food Security, which came out of the G8 meeting in L’Aquila, Italy in July 2009, acknowledged that consistent underinvestment in agriculture, combined with economic instability, were some of the main reasons for the persistence of food insecurity.

      Every country that has made the transition to development, reduced poverty and increased food security has done so during periods of high agricultural growth. Empirical evidence shows that higher levels of economic development and non-farm activities are positively correlated with agricultural development, particularly with improved efficiency of the sector in terms of land and labour productivity and its aggregate value added. Conversely, the persistence of poverty and food insecurity is often associated with, and can largely be attributed to, lower growth of agriculture as well as low land, labour and total factor productivity.² The experience of developing countries strongly suggests that a sustained increase in agricultural production and productivity is required to make the transition from economic stagnation to self-sustaining growth in the agricultural sector and consequently in the overall economy.

      The latest UN estimates suggest that by 2050 the world’s population will have increased from 6.8 billion people to 9.1; a 34% increase over the next 41 years. FAO has estimated that agricultural production needs to grow by 70% over the same period to feed this population. This increased production is required because of a shift in demand towards higher value products of lower caloric content and a greater use of crop output as feed to meet the rising demand for meat. These estimates for additional output are likely to be low, as they do not take into account increases in agricultural production to meet the expanding demand for biofuels (FAO, 2009).

      In the same study, FAO calculates that the investments needed in developing countries to support the required expansion in agricultural output far exceed the current trend. Another challenge is to increase capital stocks in areas that are lagging both in terms of hunger reduction and agricultural productivity.

      A study looking at the long-term record of investment in agriculture since the 1970s showed that, in general, the countries that performed best in terms of reducing hunger were also countries that manifested higher net investment rates per agricultural worker. Throughout the 1990s, in countries where less than 2.5% of the population was undernourished, the value added per worker was about 20 times higher than in countries where more than 35% of the population was undernourished.

      In view of this, FAO, with financial support from MAFF, Japan initiated a project: Support to Study on Appropriate Policy Measures to Increase Investment in Agriculture and to Stimulate Food Production. The aim of the project is to identify a policy framework for promoting, facilitating and supporting the acceleration of investment by the public and private sector to achieve domestic capital formation for stimulating sustainable food production.

      The process of formulating a policy framework for promoting investment requires a clear understanding of what conditions drive investment. Appropriate policies and measures must then be designed to promote and facilitate these conditions. This report identifies drivers of investment and then analyses policy options that cause those drivers to channel investment into agriculture.

      Chapter 2 presents the concept and definition of investment in general, and Chapter 3 analyses investment in agriculture. Chapter 4 presents levels and trends of current investment in agriculture at the global and national level. Chapter 5 describes the different investors who invest for capital formation at the farm level and their relative contributions. It focuses on the private sector, the public sector, official development assistance (ODA) and FDI. Chapter 6 discusses the drivers of investment for farm-level capital formation and in agro-industry. Chapter 7 looks at ways to promote investment for on-farm capital formation, investment by the public sector, investment in agro-industry and FDI.

      CHAPTER 2

      The concept and definition of investment

      2.1 WHAT IS INVESTMENT?

      The term investment refers to forgoing consumption in the present to pursue a higher level of income in the future. Investments include: the purchase of stocks, shares, bonds and securities; the purchase or building of real property, such as residential or commercial land and/or real estate; and the purchase of machinery, equipment and transport for commercial purposes.

      Farmers and governments invest in order to build capital, which allows the agricultural sector to become more productive in the future. Investment is generally defined as activities that result in the accumulation of capital, which yields a stream of returns over time. In economic growth theory, initiated 70 years ago by Harrod and Domar, investment is simply a change in capital stock or fixed inputs used in a production process (Harrod, 1939; Domar, 1946). From the 1940s to the present, the Harrod and Domar growth formula has been widely adopted and used for calculating target rates of investment in economic planning and development. In the words of Joan Robinson, ‘By investment is meant an addition to capital, such as occurs when a new house is built or a new factory is built. Investment means making an addition to the stock of goods in existence’ and it is the part ‘of the production not merely replacing past sales, but is directed to increasing the rate of output in the future’ (Robinson, 1956).

      In official national accounts, investment is mainly referred to as gross fixed capital formation (GFCF), a macroeconomic concept. This concept does not make any adjustments to exclude the consumption of fixed capital (depreciation of fixed assets) from the investment figures. Regarding land, GFCF includes only the value of land improvement as a net addition to wealth. Investment is largely about changes in produced non-financial assets, the stock of which can be increased through economic activities. Annex 3 gives a full description of the non-financial assets in the System of National Accounts.

      In the System of National Accounts 2008, apart from GFCF, investment includes: changes in stocks of inventories, including raw materials and final products; acquisition less disposal of valuables; depreciation; and acquisition less disposal of natural resources and third party property rights.³

      2.2 DISTINCTION BETWEEN INVESTMENT AND EXPENDITURE

      As elaborated in the State of Food and Agriculture (SOFA) 2012 (FAO, 2012a), some of the ways farmers invest in their farms include: acquiring farm equipment and machinery; purchasing animals or raising them to productive age; planting permanent crops; improving their land; and constructing farm buildings. Government investments include building and maintaining rural roads, and large-scale irrigation infrastructure. These assets generate returns in terms of increased productivity over a long period of time. Governments also invest in other, less tangible, assets such as the legal and market institutions that form part of the enabling environment for private investment. Determining whether expenditure, public or private, constitutes an investment can be both conceptually and empirically difficult. In some cases, the determination СКАЧАТЬ