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Interview

“Capacity development is very important”

by Rashad Kaldany

Opinion

“It is impossible to build toll roads in rural districts.” Mud road in Tanzania

“It is impossible to build toll roads in rural districts.” Mud road in Tanzania

High food prices are causing hardship in many countries. Smallholders in developing countries – and even subsistence farmers – could make important contributions to improving supply, even though they tend to be very poor and often suffer from malnutrition themselves. The better they gear their production to marketing, the more market supply will grow, and the better off the farmers will become themselves. Prudent policy is needed, but private enterprise can make a difference too. D+C’s Hans Dembowski discussed matters with Rashad Kaldany of the International Finance Corporation (IFC), the branch of the World Bank Group that supports the private sector.

In 2009, the G8 started the Global Agriculture and Food Security Programme (GAFSP), which was later adopted by the G20 too. The IFC is in charge of the Programme’s “private sector window”. What does that imply?
When the programme was first launched at the G8 summit in L’Aquila, world market prices for food had been rising fast. So the idea was to ensure adequate supply. The greatest challenge for us is to reach out to very poor smallholders in remote areas where there is not much commercial agriculture yet, if any at all.

What experience does the IFC have in this field?
Well, at the moment, our investments in agriculture amount to around $ 2 billion. We plan to double that sum in the next three years. The GAFSP is part of the effort, but so far, donors have not committed more than around $ 100 million. Money is not the only thing that matters, however, capacity development is very important too. We need to transfer and disseminate knowledge.

Basically, private sector approaches contribute to food security in two ways:
– they can boost agricultural pro­duction or
– they can reduce harvest losses through better marketing.
What is more urgent?

Well, both aspects are important, but if you want to improve the food situation immediately, the obvious thing is to reduce losses. Boosting agricultural production will take at least one planting season’s time. And to reduce losses, what you need is better infrastructure. One thing we are focussing on is warehouses. The idea is to provide smallholders with storage space and perhaps even cooling facilities. The tricky thing, however, is that we also need to improve their cash flow …

… because smallholders – if they sell their products at all – are typically forced to sell their goods imme­diately after the harvest when the prices are low because there are lots of sellers.
Exactly, that is the challenge. We are working on schemes that pay farmers for depositing their harvests in warehouses. Another thing we are considering is better transportation, which would also stem losses. An individual smallholder cannot afford to rent a truck, but the situation changes when many small­holders pool their resources. Together, they can afford to rent trucks.

But aren’t better roads the most crucial thing to improve trans­portation?
They are very important, no doubt. But they are nothing the private sector can tackle on its own. It is impossible to build toll roads in rural districts, though you can use toll roads to link rural districts to distant capital, and that will help farmers. The IFC has invested in that kind of a public-private partnership in Senegal. But if the issue is connecting villages to district markets, toll roads are not an option. That is something the public sector has to take care of. Our colleagues at the World Bank and various bilateral agencies are cooperating with governments in developing countries to tackle these issues. But even where the public infrastructure is not what it would be in an ideal world, the private sector can make a difference. Just consider warehouses, or collective transportation, as I just mentioned. Small steps that reduce poverty are worthy in themselves, and they can help to bring about better public policies eventually. There is no guarantee that this will happen, but it does become more likely.

Who do you work with to reach out to collectives of smallholders – cooperatives?
Yes, cooperatives are an option, but not the only one. Traditionally, the IFC lends funds to local banks that then pass on the money in the form of targeted credits. That approach, however, does not get us very far in terms of cooperating with smallholders because hardly any banks operate where they live. So we need other intermediaries. Apart from cooperatives, various non-governmental and community-based organisations can play that role. There may also be market boards in district towns. In any case, we have to find new partners.

But isn’t investing in cooperation with untried partners in remote rural areas inherently too risky?
There are serious risks, but risks can be managed. One way to do so is through insurance – and we are quite keen on improving farmers’ insurance coverage. For instance, we have recently started a partnership with JP Morgan to make agricultural insurance available in Latin America. We are discussing similar measures with other partners to provide services of this kind in sub-Saharan Africa, or the Middle East, for instance. In developing countries, the risks are often so high that private-sector engagement is not viable on its own. But if we find partners and mix concessional money with commercial financing, meaningful engagement can become viable. We have to join forces with other partners from both the public sector – including donor agencies – and the private sector.

East Africa is the world region where famine has most recently struck. It is probably no coincidence that, apart from Kenya, the affected countries do not really welcome private-sector activity.
This region is indeed challenging. We cannot work in strife-torn Somalia. Eritrea is very difficult, and so is Ethiopia, though we have been making some progress there. On the other hand, we know that food security is especially at risk in countries that are affected by conflict, so we are looking for ways to do more there in spite of the problems. To do so, we need new intermediaries and partners.

We’ve discussed better marketing, but what about boosting agricultural production?
Basically, what you need is better inputs. Smallholders often cannot afford to buy good fertiliser or insecticides, even though such inputs would increase their yields. They normally don’t take loans to purchase those goods – even if someone is willing to provide credit – because they are afraid of being unable to repay if something goes wrong. So once again, the core issue is risk. In Ukraine, the IFC is cooperating with Bayer to provide more smallholders with up-to-date input.

What about water? Irrigation makes the greatest difference in agriculture.
Yes, but water utilities are mostly public infrastructure. Unless users pay, the private sector cannot do anything. Water prices, as you know, are a very hot topic politically. In India, for instance, the state is supposed to provide farmers with free water. There is a lot of wastage, however, so there often is not enough water. While the private sector cannot compensate for misguided public policies, some things are feasible. An Indian company, for example, has developed very efficient drip-irrigation technology that does not need much water. The IFC is cooperating with this company to expand its business in India, and perhaps even export the technology to Africa.