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How rising food prices can bring about the end of poverty

One of the world's cruellest dilemmas is that the great majority of its starvation and malnutrition cases are found among farmers. A third of all humans attempt to live off the land, and often find themselves uttering some earth-bound version of the Ancient Mariner's lament: Fields, fields everywhere, without a grain to eat.

The world's 450 million tiny farms (under two hectares) should be producing much of our food, but instead, they tend to produce grinding misery. Until very recently, this problem was the domain of charity and aid: The rural poor were seen as victims and kept away from the brink of starvation by drip-feeding outside assistance.

This has changed rather abruptly. As food prices have shot upward – and as projections show even greater food demand, driven in part by reductions in world poverty, leading to more calories consumed – those tiny farms suddenly look less like victims and more like business opportunities.

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The potential is enormous. There are entire fertile regions of sub-Saharan Africa, the Indian subcontinent and East Asia that could each produce more food and commodities than all of Europe's fields, but that are, in fact, large-scale food importers, because their land is tied up in barely functioning farms. Everyone finds this frustrating: farmers, food buyers and agriculture corporations.

"We see these farmers as customers. Getting to their market and reaching out to small-hold farmers is part of our business growth and business development strategy," said Kavita Prakash-Mani, the head of the food-security program for the giant seed-and-pesticide multinational Syngenta. She spoke during an annual summit organized by Canadian billionaire philanthropist Jeffrey Skoll in Oxford this week. Executives from Starbucks and Coca-Cola also spoke about their desire to tap this giant market in tiny farms.

But, Ms. Prakash-Mani said, they have found it surprisingly difficult get small farms connected to the market: They are much more difficult and expensive to reach than traditional commercial farmers. "We're used to dealing with the big farmers in European and North America, where you meet them on a golf course and make a deal. There may be 500 million farmers growing on less than a hectare, but that 500 million hectares could just as easily be 20 farmers in Brazil."

Because this is both a business problem of interest to large corporations and a poverty-reduction problem of interest to governments and charities, a very odd ecology of intermediate organizations has sprung up – including a number of companies that work, sometimes for profit, to turn thousands of tiny farms into functioning businesses.

There's a basic problem here, says Kola Masha, the head of a Lagos-based credit firm that doles out $2-million in loans to thousands of maize farmers in northern Nigeria.

Those small farmers don't produce much food in part because they can't afford to buy decent seeds and fertilizer. They can't afford seeds or fertilizer because they can't borrow money based on their future crop sales. And, Mr. Masha notes, that's because lending them money can be so expensive: Interest rates on tiny loans are already, by definition, very high; add to that the cost of servicing loans across regions, and the considerable cost of hedging those loans against volatile developing-world currencies, and, he says, "you've priced them right out of the credit market."

Banks and micro-credit agencies are also reluctant to lend because small farmers often have no collateral: Property ownership is ambiguous and few countries have small-claims courts to deal with defaults. (Brazil, an exception, owes a lot of its development success to the creation of such institutions.)

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While the potential in these farms is huge, few want to take the risk of building agricultural supply and value chains in the developing world. Such investments take many years to generate returns, which tend to be very modest – rendering them uninteresting to corporations and venture capitalists, but increasingly appealing to Chinese state enterprises and a few people with local knowledge.

Mr. Masha's approach is to set up tiny farms as franchises, so lower-interest loans can be part of a larger financial relationship between farm and buyer. Others are trying to solve the problem by teaching the smallest farmers to link into futures, commodity and credit markets.

"What we're all attempting here is for small farmers to grow their product better so they can get to markets better so they can have better incomes," says Simon Winter of TechnoServe, a long-established Washington-based non-profit whose 1,400 employees provide technical assistance to small developing-world farmers.

"At the end of the day," Mr. Winter says, "we're talking about poor people getting a little less poor."

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About the Author
International-Affairs Columnist

Doug Saunders writes the Globe and Mail's international-affairs column. He has been a writer with the Globe since 1995, and has extensive experience as a foreign correspondent, having run the Globe's foreign bureaus in Los Angeles and London.He was born in Hamilton, Ontario, and educated in Toronto. More


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