By Ambassador Christopher E. Goldthwait
This blog is part of a series organized by The Chicago Council’s Global Agriculture Development Initiative and InterAction to highlight the importance of public-private partnerships in agricultural development. This commentary is cross-posted with InterAction’s blog.
Initiatives like the G-8’s $20 billion commitment and the U.S. Government’s Feed the Future have thankfully made agriculture a central development focus again after decades of neglect and underinvestment. Equally gratifying is the attention given to a whole-value-chain approach rather than just production agriculture. But the full dividends of renewed funding for agricultural development won’t be realized without enormous emphasis on creating public-private partnerships (PPPs), especially at the middle and upper ends of the value chain. For a clue as to why, visit a modern supermarket in one of Africa’s thriving middle class neighborhoods. You’ll see a selection of food products close to that in America or Europe — but very few of them are produced in Africa.
Small holder farmers in developing countries need markets if they are to increase their production and transition to being, at least in part, commercial farmers. Supplying those supermarkets with processed African foods can play a big role. This requires investment beyond the farm gate in storage, transportation, transformation and preservation of foods processed from the raw commodities these farmers grow.
Investment, of course, starts with the private sector which has more capital than governments and requisite expertise along the value chain. But the agribusiness investor in a developing country needs the help of donors and governments to provide both public goods and risk mitigation in order to confidently invest. The public goods include the obvious things like roads, but also less apparent things like plant varietal research. Wealthy countries provide risk mitigation not only to farmers, but also through incentives higher in the value chain. This reflects the fact that agriculture, both the production level and beyond has risks like weather that exceed those in many other industries. Add the additional risk dimension of investing in a developing country, and the investor needs to be incentivized in order to create a vibrant food processing sector. This can be done with PPPs that avoid the kinds of distorting subsidies familiar in the industrialized countries.
There are two structures that will help the most. The first draws on the relative skill sets of the public and private sectors. The public sector and donor community are experienced in working with small holder farmers and on the delivery of public goods. The private sector does best operating the levels of the value chain beyond the farm level. At its most basic, the partnership would take the form of a donor/host government project to ensure that local farmers can produce the quality and quantity of input commodities over a sufficient number of months to support a specific food processing enterprise built with private capital.
The second structure goes further. Here, in addition to working at the farm level, a donor actually provides a small share of funding for the enterprise. Programs that do this include USAID’s Global Development Alliance and more recently the Development Innovation Ventures Program. As with the refocus on agriculture generally, it is highly encouraging that the age-old aversion to direct risk sharing with the private sector seems to be eroding.
These partnerships have the potential to trigger large investment beyond the farm gate, enabling local farmers to tap into the burgeoning demand from middle class consumers in their own countries and regions.
Ambassador Christopher E. Goldthwait is an independent consultant working with a number of clients in the areas of international agriculture and food security. His government career included service as U.S. Ambassador to Chad from 1999 to 2004, and as the Department of Agriculture’s General Sales Manager during the 1990’s.