Agriculture hike not all bad news

Emanuel Shahaf ,  Jerusalem   |  Sat, 05/17/2008 11:15 AM  |  Opinion

At an event I recently attended in Israel, World Bank representatives presented the Bank's yearly World Development Report which for the first time dealt with agriculture for development. The World Bank people and several local agricultural experts attempted to make sense of the current dramatic developments in the agricultural commodities market, which appears to threaten the livelihood of the poorest populations of the world's developing nations, most of whom live in rural areas and rely on subsistence agriculture.

No doubt the recent price increases, in the short run, threaten not only the rural poor but even the stability of some developing nations once the situation brings desperate people into the streets, something that already has happened in a few countries.

The severe price increases have been caused by several factors, including the rapid depreciation of the U.S. dollar, increased consumption by China and India which continue to exhibit very high growth rates, the recent competitive introduction of agriculture into the energy market through biofuels and, last not least, the entry of large volume speculators into the commodity market.

Still, according to Dr. Dan Dvoskin, a local expert, there may be a silver lining to these price increases. While previous price increases in agricultural commodities (in the 1970s) were short-lived and the developed nations, through massive subsidies, have for decades kept agricultural commodities at prices which, much to the detriment of the developing nations, have actually decreased in real terms for the last 30 years, the present price increases are likely to be longer lasting.

The coupling between agriculture and energy, a brand new development, ensures that we are not in for a short-lived phenomenon. The immediate result is that finally investor money is beginning to flow into agriculture as never before, money which will have a significant impact on development. Dvoskin's reading of the events is supported by initial data, mainly a sudden and marked increase in demand for agricultural expertise and know-how. We may well be at the threshold of a new era in agriculture.

One thing certain is that the large inflow of money will make its biggest impact in countries where a sizable part of the GDP comes from agriculture. Indonesia, where the agricultural share of the GDP is about 16 percent, may become one of the bigger beneficiaries of this development.

Care will have to be taken by the central and local governments to funnel some of the money that is becoming available not only into large-scale projects for industrial agriculture (biofuels), but also toward projects that will benefit the millions of small farmers who try to eek out their living from the land.

They need access to more advanced agricultural know-how which can only be provided through efficient extension programs, possibly privately run. They also need access to easy credit or microcredit and guidance to help implement long overdue changes in applied agricultural methods and technologies and in what they grow to make a better living.

As it is, the economics of biofuels are highly dependent on subsidies paid by the world's rich nations and thus susceptible to sudden changes. Spreading investment more evenly between industrial and smaller-scale agriculture may very well be the more prudent approach.

If Indonesia is able to manage this crisis wisely and provide those basic elements to the rural poor, the recent developments in agricultural markets may yet make the biggest contribution to the eradication of poverty for many years to come.

The writer is a retired Israeli diplomat who served in Southeast Asia from 2000-2003. He can be reached at techasia2006@yahoo.com

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