In this OECD Observer Roundtable, we ask a range of experts and stakeholders: What innovations or new policies are needed to enable the farm and food sectors to deliver sustainable productivity growth?
Alexander Brewster, Carmel Cahill, Ashok Gulati, Handewi Purwati Saliem, Phil Hogan, Thomas Kirchberg
Plant it! And let innovative businesses grow
Alexander Brewster, Farmer and Nuffield Scholar 2016*
The EU’s Common Agricultural Policy (CAP), in its current form, rewards lack of technical innovation, protects the primary producer from the marketplace and, by default, stifles any meaningful land churn or proactive farm succession. This protectionism has to stop in order to allow innovative and sustainable businesses to grow. Farm size will certainly increase, but this added efficiency is needed to keep European food production competitive.
What needs to be done in practical terms? Plant it! All upland and other unproductive land should be redirected towards maximising carbon capture through ecological stability. A base level of agricultural support should be provided, with the focus of this reformed payment on water quality, and carbon capture and management. Savings from a reformed CAP budget should be redirected towards agricultural research into genetic progression and efficiency through plant and animal science. At present, most of the large investments in agriculture come from private limited companies in a relentless attempt to capture market share, with a race to the bottom in terms of sustainable agriculture.
The co-operative model as a route to market should be further developed to reduce the primary producer’s exposure to the commodities market; in the past this model of agricultural co-operation has helped lead to a standardisation of production and a higher farm gate value. A new model of co-operation would also aim to add environmental value to the market value. For example, a carbon tax, where a value of carbon exchange per kilo of output per hectare would be added to the cost of production, could favour local production, but with the overarching aim of reducing global food miles.
The overall investment priority should be people, whether through investment in education in general or in the development of strategic groups delivering sustainable approaches through food and farming academies. A world population of 11 billion by 2100 is a sobering and challenging prospect. Sustainable innovation has to be encouraged and rewarded. Developments in agriculture are a slow process and achieving sustainable productivity growth has to start now.
*Nuffield Farming Scholarships Trust sponsors UK farmers and those working in associated industries and in rural industry, with a view to developing agricultural sector leaders and innovators.
A paradigm shift to a long-term strategy is needed
Carmel Cahill, Deputy Director, OECD Trade and Agriculture Directorate
The production and input subsidies which governments have put in place over many years may now be exacerbating the problems agriculture faces. Across the 49 countries whose policies are regularly measured and monitored by the OECD, 67% of the support to farmers derives from direct price support, and production and input subsidies. Only a negligible share is invested in specific measures targeting sustainable productivity growth. A major shift in policies is needed, which will enable farmers to seize the opportunities that are opening up in a context of rising populations and incomes, and to respond to the challenges of scarce resources and climate change.
What does this mean in practice? First, we need to carry out in-depth examinations of innovation systems, asking in particular whether the different sectors and actors are sufficiently joined up to be able to deliver on sustainable productivity growth.
Second, we need to make sure that all the players along the food supply chain, from farmers to retailers, are aware of, and have the knowledge and training needed, to adopt sustainable production and business practices. Scarce natural resources need to be appropriately priced.
Third, in a world where market, climate and resource-related risks abound, we need to devise risk management systems that clearly delineate the respective roles and responsibilities of farmers, markets and governments. We need to be careful not to crowd out private, market-led initiatives, and not to mask the need for adaptation by insuring the uninsurable. Lastly, we need to foster strong and competitive farm and food businesses by allowing necessary structural adjustment and creating an enabling business environment, especially in rural areas. This means ensuring, inter alia, well-functioning markets, finance, logistics and regulatory systems.
To do this will require a paradigm shift, away from short-term market and income support measures, which often create perverse signals and counter-productive effects, to a long-term strategy that will allow the sector to become more market oriented, more competitive and resilient, and above all more sustainable. Scarce public resources spent in this way will generate much higher returns for all.
Plug those subsidy leakages
Ashok Gulati, Infosys Chair Professor for Agriculture at the Indian Council for Research on International Economic Relations (ICREIR)
In the last 12 years, the global population has increased by almost a billion people– the largest increase in the shortest time period in human history. Of the 7.35 billion people alive in mid-2015, 60% were living in Asia and within Asia, China and India together accounted for 2.7 billion people, or some 37% of the global population. According to UN population projections from 2015, India’s population is likely to surpass that of China, at 1.4 billion by 2022, and reach 1.7 billion by 2050. As India’s overall GDP growth is likely to hover around 7% per annum for the next decade or so, per capita incomes are likely to rise by 5.5% to 6% per annum. Today, an average Indian household spends about 45% of its expenditure on food, and with rising incomes, the pressure on food will be tremendous. With limited land (2% of global land) and water (less than 4% of global fresh water supplies), and the increasing frequency of extreme weather events resulting from climate change, India will be challenged to find more food, feed and fibre for its people in an efficient and sustainable manner.
The potential answer to these increasing challenges lies in innovations, in policies, technologies, institutions and products. Accordingly, a major reform agenda is needed for agro-food policies in India. Just take the case of food and fertiliser subsidies in the country’s Union Budget 2016-17. The two together amount to a budget of over US$30 billion, and have in addition generated unpaid bills of more than US$16 billion. Massive inefficiencies plague the public distribution system of highly subsidised food, with leakages amounting to more than 40%. This is the case with fertiliser consumption, where urea is highly overused, and diverted to non-agricultural uses, and even to neighbouring countries. Innovations in policies, switching from price support in food and fertiliser to direct income support (cash transfers) through Aadhaar (Unique Identification Number) has the potential to plug leakages, and save the government at least $7-8 billion per annum. This can be invested in better water management, so as to get more crop for every drop of water, thereby feeding India in a sustainable manner.
Towards agricultural knowledge systems
Handewi Purwati Saliem, Director, Indonesian Center for Agriculture Socio Economic and Policy Studies (ICASEP)
The agri-food sector faces several emerging challenges, of which three in particular: first, growing and shifting food demand, which necessitates appropriate responses from the food production system; second, limited natural resources (land, water, energy), which emphasises the need to place priority on productivity growth; and third, uncertainties for agricultural productivity brought about by climate change, which make the efforts needed more complex, with harder constraints. These challenges are more pronounced in developing countries, where agriculture is made up predominantly of smallholder farms. In responding to these challenges, national governments should focus on the following innovations and policies: (i) increasing investment in rural and agricultural infrastructures to promote a more conducive business environment, more efficiency, and lower logistical costs; (ii) building agricultural knowledge systems that are capable of delivering innovations throughout the supply chain; (iii) promoting a more open trade regime, which benefits smallholder farms and ensures that consumers have reliable access to food; (iv) building resilience, particularly at the farm level to ensure their capacity to respond to shocks, coupled with risk management tools, such as crop insurance; (v) strengthening the capacity of smallholder farms to access new technology and growing market opportunities; (vi) encouraging government spending policy away from subsidy and direct assistance towards spending on general services, such as infrastructure and research and development; and (vii) promoting the transformation of smallholder farms from subsistence to profit-oriented and commercial farms.
In addition, there are strategic policy areas which should be pursued at the global and regional levels. These include continuing unfinished business on multilateral trade talks as mandated by the World Trade Organisation ministerial meeting in Nairobi. They include increasing investment and engagement by international donor agencies and philanthropists in international agricultural research and development, particularly that undertaken by CGIAR (a global research partnership, visit www.cgiar.org). Policy coherence and co-ordination across countries should also be promoted to create a predictable policy and regulatory environment for the private sector. Finally, international and regional collaboration should be strengthened across countries and organisations in areas such as knowledge sharing and capacity building.
Uptake and collaboration matter
Phil Hogan, European Commissioner for Agriculture and Rural Development
The recent COP21 climate agreement in Paris has highlighted yet again the need for agriculture to become more efficient and climate-friendly. But we also know we need to produce more, and better, food to feed a growing global population. This will be achieved only through a smart policy mix to unleash the power of research, innovation and collaboration in the sector.
The EU is taking a position of global leadership to make this happen. We are prioritising innovation in a big way, because we know that agriculture must become smarter, leaner and cleaner. We have to increase yields while respecting safety standards and ensuring sustainability. As I often say, we have to learn to produce more while using less.
Our challenge is to assess which policies can make this happen. If we give farmers and agri-businesses the right support, they will succeed. Farmers never stop innovating. Every generation brings new technological and organisational improvements.
Smart and digital agriculture holds many promises for a more sustainable, productive, and competitive farm sector. We have seen solutions that have the potential to improve resource efficiency, animal health, carbon footprint, and farmers’ position in the supply chain.
But we have yet to witness a wider uptake in the broader farm community. Developing new solutions is not enough in itself; encouraging sufficient uptake is an issue we must address.
Collaboration is the key to making innovation happen. Collaboration is especially relevant when speaking about opportunities in digital agriculture where technologies need to be adapted to users’ needs. This means giving farmers and agri-business leaders the tools and confidence to reach out to new partners in the digital and information technology industry. We need to establish vehicles to bring together people from the agri-food and IT sectors, as well as researchers and investors. In so doing, common opportunities will be identified, key collaborations will be established and things will start to happen.
Smart, innovative agriculture holds many promises for a more sustainable, productive and competitive farm sector. By working together, we can achieve these vital changes.
For a stable innovation and investment framework
Thomas Kirchberg, Member of the Executive Board, Südzucker AG, and Vice-Chair of the BIAC Food & Agriculture Committee*
Unprecedented growth opportunities are foreseen for the agri-food sector because of rising global demand for agricultural products and food. At the same time, meeting this demand in a sustainable way is the biggest challenge the sector has faced to date, given limited availability of new productive land and climate change. If we are to succeed, we need closer co-operation between all stakeholders–states, science, donors, civil society actors and the private sector–for instance, via public-private partnerships in research, joint initiatives for enhancing biodiversity or involvement of agribusiness in development aid.
The key to sustainable productivity growth is availability and access to modern production methods and technologies, such as improved crop protection, new high-yielding and stress-resilient varieties, precision farming, big data analytics and advanced irrigation systems. These reduce the need to farm additional land and simultaneously contribute to conservation of natural resources, ensuring security of supply for food companies.
The role of agricultural policy is to provide a stable framework for innovation and investment to foster sustainable productivity increases. More specifically, it should support agricultural research, knowledge transfer to farmers and their investments in the adoption of new technologies. At present, new approaches often take too long to arrive on the ground and the needs of practical farming are not communicated sufficiently to the scientific community.
Only profitable farming will be attractive for the young generation and ensure supplies of agricultural products in the future. Therefore, when adopting new requirements and standards, policy makers should take into account the competitiveness of domestic producers in the global context. Both farmers and businesses would be helped significantly by cuts to red tape. For times of crisis, effective safety-net programmes are crucial.
*BIAC is the Business and Industry Advisory Committee to the OECD, visit www.biac.org
©OECD Observer April 2016