Agriculture in Transition

Globally, agriculture is in a period of transition that is leading to increased food prices. But the transition is also creating new opportunities for business investment and poverty reduction in some of the world’s poorest regions.

In high-income nations – such as the US and in Europe – large, pervasive and inefficient agricultural subsidy regimes may finally be dismantled due to economic slowdowns and ballooning fiscal deficits. In the short run, this will put continuing upward pressure on food prices globally, potentially leading to another round of political and social unrest around the world. In the long run, however, the lifting of subsidies will help reduce international market distortions and provide increased opportunities for many farmers in Asia and Africa.

In many parts of the developing world, poverty continues to be highly correlated to smallholder farming and its attendant problems of low productivity, lack of marketable surpluses and lack of access to mainstream markets. Sustained high macroeconomic growth in a swathe of lower-income nations – including China and India, but also parts of Africa such as South Africa and Ghana – are leading to increased demand for agricultural products and contributing to the upward pressure on food prices globally.

But economic growth in these nations is also leading to structural reforms to modernize their agricultural sector and is opening up new opportunities for domestic and international investors.

India is a good example. While beset by a range of problems that are making smallholder farming unviable in large parts of the country, India is also undertaking a series of reforms to bring in private investments to the agricultural sector and build modern supply chains from the farm to the consumer. These include a range of tax incentives and one-stop investment approvals for setting up food-processing units, and warehousing and cold storage units.

Other sub-sectors that are growing rapidly and need investments are organized retail outlets such as supermarkets, transportation logistics, and manufacture and distribution of agricultural inputs, including better-quality fertilizer and seeds.

India is also developing interesting new models of connecting farmers to mainstream markets that have the potential to influence business models globally. Examples include providing agricultural information to small farmers at low cost through mobile phones, contract farming efforts by large multinational companies that are bringing in new technology and growing practices, and aggregating farmers into collective enterprises to connect them to mainstream markets.

The changing context for agriculture requires new approaches and business models. It seems increasingly likely that such new models will come from the developing world, where the shift from agrarian to more diversified economies, coupled with rapid economic growth, is opening up spaces for new approaches.

Author: Adarsh Kumar is Founder and Executive Director of Livelihoods Equity Connect in India, a fund that seeks to promote new models of aggregating small farmers and connecting them to mainstream markets.

Photo Credit: Adarsh Kumar