Center on Food Security and the Environment, Stanford University
February 5, 2013
Rapid population growth, urbanization and rising incomes will present an unprecedented opportunity for growth of commercial agriculture and agribusiness in coming years. The value of food consumed in urban areas is set to expand by four times to 2030, but given evidence of a continuing decline in competitiveness much of this could be sourced from imports even in countries with an apparent comparative advantage in agriculture. At the same time, the number of youth entering the labor force will rise to 25 million annually by 2025 putting tremendous pressure on job creation, especially through agriculture. Rising investments in large-scale farming seen in recent years may contribute to increased food supply (although this is highly uncertain given the track record) but some investment, especially in mechanized grain farms, provide few jobs. Even so there is a dire need for increased investment in the sector, both public and private, if it is to realize its potential for growth and poverty reduction.
This paper lays out a number of models of inclusive agribusiness growth, grouped into three categories (i) institutional arrangements for improving productivity of smallholders operating in spot markets, (ii) various types of contract farming arrangements, and (iii) large-scale farms that generate jobs and/or include community equity shares. The institutional and policy context as well as commodity characteristics that favor these models are discussed within a simple transactions cost framework. Examples of apparent successes with each of these models are provided, many based on direct interviews and case studies of innovative firms.
The final section discusses cross-cutting policy priorities to enable the growth of commercial agriculture and agribusiness. These include continuing reforms to liberalize product and input markets, access to technology and skills, stimulating financial and risk markets, securing land rights, and investment in infrastructure through public-private partnerships. Priorities differ by value chain and implementation presents challenges of delicately balancing state intervention and leadership with private initiative. These challenges are illustrated through examples from Africa as well as emerging countries of Asia and Africa.