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courtesy AfromusingAgricultural investment is the one bright spot amid the gloomy outlook for FDI to developing countries as the recession drags on, according to the new World Investment Report 2009.  UNCTAD, which produces the report each year, predicts that agribusiness will be at the forefront of the next “FDI boom” as it is less susceptible to business cycles and slumps in demand than other sectors. 

FDI in agriculture brings with it the promise of direct government revenues (taxes, fees, royalties) along with jobs, market access, technology transfer and infrastructure.  On the other hand, large-scale investments and land transfers may threaten local rights, resource access and livelihoods.  Impacts may extend well beyond the actual project site if, for example, a big producer floods the national market and displaces existing small-scale suppliers. 

“Land grabs” have made plenty of headlines in 2009, but what is their real extent and impact?  One argument is that the phenomenon is exaggerated.  Recent land deals account for only 2-5% of suitable agricultural land in sample African countries, for example.  Many of giant deals such as the 10 million ha deal between the Republic of Congo and South Africa’s commercial farmers’ association Agri-SA, scheduled to be signed in October 2009, are likely in reality to involve development of much smaller contiguous areas.  Furthermore, most approved deals are yet to go into operation, raising the possibility that some at least are purely speculative.

But small total land areas do not mean low impact.  In spite of the common rhetoric that biofuels should – and will – be confined to “marginal” or “waste” land, the reality is that large-scale agricultural projects are targeting the best land.  In Mali, the national land registry shows that large-scale land acquisitions for biofuels and food over the past five years have been confined to the highest potential, irrigated lands.  These are the areas that are most likely to under existing uses and claims.

There are two key issues at stake.  The first is whether there is a place for large-scale agribusiness in the local and national economy – this is a question that every country needs to explore, preferably through open and wide-reaching public debate that weighs up the pros and cons honestly.  The second is that the actual substance of agricultural investment deals is key to long-term benefits and outcomes.  Liberia’s President Ellen Johnson Sirleaf, for instance, has been particularly alert to opportunities to renegotiate the terms of major natural resource contracts, leading to more equitable terms on taxation, transparency and local benefits in the country’s deals with ArcelorMittal and Firestone.

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The relationship between economic growth or income and consumption is frequently discussed in the realm of economics and beyond. The economic crisis provides ‘laboratory’-like conditions in which to explore how stagnating or declining economies, falling incomes or decreased purchasing power affects what we buy and consume.

14698176_7c44839711Demand for fish, for example, has been argued by the Food and Agricultural Organisation (FAO) to be ‘sluggish’ in 2009 compared to 2008, which was a record year in fish production and consumption. According to the FAO ‘sales are sluggish in all major markets and prices and margins are under pressure for most seafood products’. Meat, dairy and fish have commonly been argued to be elastic products – that is, as incomes rise, consumption of these products also increases significantly. The crisis has demonstrated that the reverse is also true – as incomes fall, consumption decreases. However, the sheer variety of fish and seafood deems any generalised analysis of elasticity problematic. Cheaper, more ‘staple’ fish, for example, cod, may be inelastic and difficult to substitute, whereas more expensive fish, for example, tiger prawns, may be more elastic and can be replaced by other fish types or protein sources. For example, in the UK, some have claimed that fish and chips may be recession proof. More disaggregated data of fish consumption (by type or species) during the crisis is needed to draw any meaningful conclusions about elasticity, but we do at least know that consumption of fish overall has declined.  

For fish stocks the economic crisis may therefore come as a welcome break. Though a large proportion (approximately 45%) of our fish comes from farmed sources – aquaculture – the dominant proportion is still sourced from capture fisheries, i.e. the open sea. Concerns about the sustainability of fish stocks, particularly in regards to bluefin tuna, have dominated the media in recent months. A particularly controversial study carried out in 2006 argued that commercial fish stocks will have completely collapsed by 2046.

The New Scientist reports that there is some initial evidence that commercial fish stocks are recovering, although 63% of world fish stocks are still found to be at unsustainable levels, particularly in the developing world (which produces 80% of the world’s fish). Though the partial recovery in some stocks has been argued to be due to effective ‘conservation measures’ the economic crisis may well give these efforts an added boost.

The economic crisis may have momentarily achieved what many a public campaign could not and may signify a crucial turning point in the survival of some stocks. Ironically, the length of the recession may be a crucial determinant. However, there are equity issues involved, with the majority of people in the developed world eating fish in excess of their dietary needs whilst many in the developing world lack the purchasing power to consume enough fish to fulfil their basic nutritional needs. In the EU and US, people consume on average approximately 19kg per annum, whilst people in South America and Africa consume on average 8kg per person, per year.

For many the crisis will have a significant impact on total food consumption and may lead to far higher numbers of people who lack sufficient protein in their diets, are undernourished and go hungry.

Smallholder farmers are the mainstay of agricultural production in the developing world. It is estimated that over 2 billion people in the developing world depend on smallholder farms for their livelhoods.

However, smallholders face several barriers and challenges both for domestic production and production for export. Access to credit is just one of these and has long been a key barrier to production for smallholders, undermining smallholders’ abilities to invest in their farms and production, often leading to declining levels of productivity. In cocoa and coffee production – an important source of foreign exchange and income for many developing country governments and farmers –  a lack of access to credit (or at considerable expense) has meant that farmers have been unable to invest in new trees and have relied on older trees which have declining yields and, therefore, diminishing returns.

The UN has argued that access to credit and financial services is ever more important in the context of the financial crisis and declining levels of remittances, which serve as an important safety net for much of the world’s poor.

In April this year, the first ever meeting of G8 Agricultural Ministers took place. Kanayo Nwanze President of the International Fund for Agricultural Development (IFAD) said at the meeting that:

“Protecting and increasing the access of poor rural people to financial services is even more vital now…the well-being of 2 billion poor people who depend on smallholder farms in developing countries hinges on it…that is why we are encouraging ministers to return home and make sure that in all countries, rich and poor, we work together to keep agriculture at the top of their national agendas”.

IFAD argues that private sector involvement in agriculture is more important than ever, particularly with regard to the provision of services such as finance and marketing. 

For many large businesses who source from smallholders in the developing world, sustainability concerns (related in particular to climate change) are driving projects to ensure that smallholder production is economically, socially and environmentally sustainable. An example of this growing trend is the shift of two major confectionery brands – Mars and Cadbury’s – to using certification (in these cases, Rainforest Alliance and Fairtrade) as a means to bring about sustainable production. As part of these transformations, support services are also provided to the smallholders involved, a gap that developing world governments have often been unable to fill. For example Cadbury’s is implementing farmer education programmes that explore best cocoa management practices leading to improved quality cocoa and increased yields and offering enterprise loans to start up farming or small businesses. Several examples  have shown that investing in services for smallholders can be a win-win for businesses.

Let’s hope these trends continue and the recession provides ample evidence of the importance of private sector investment in agriculture.

The financial crisis is hitting but not crippling African airlines. And those that are performing poorly, particularly SAA and Kenya Airways, are doing so owing to poor hedging strategies over oil prices rather than passenger and cargo management, which for KA volumes are up 10%.focus-4

And some, like Ethiopia Airlines, are booming, up 45% this calendar year. And investments in new airports, and new hubs – in Rwanda and Swaziland, indicate the private sector share confidence in the projected 9% year-on-year expansion in passenger numbers, which is estimated by IATA.

From an economic development viewpoint, aviation has an immediate impact on land use as options for marketing produce change. Managing this change is key to dictating whether the impact of more aviation in a new place is good, sustainable and viable. Once establised, the gradual growth over time of aviation has more mixed benefits.

The transfer of technology (soft and hard) is a key enduring benefit for many developing countries. There are legitimate concerns however that this is always in the interests of the nation, the workers, and particularly smaller businesses, and the poor.

Is this resilience in the aviation sector in Africa a sign of buoyant economies, fertile trades? What role can aviation play in securing sustainable economic development in the continent?

The need for host governments with growing aviation sectors to invest rents in ensuring that development is appropriate and managed.

Whilst the ‘Dairy Milk goes Fairtrade’ story has been around since early this year, it has now become a reality, despite a wider context of financial crises and a stagnation and decline in sales of some certified produce such as Organic.

On Monday the Bournville factory in the West Midlands, churned out its first line of Fairtrade Dairy Milk bars. A first in the world of ‘mainstream’ chocolate. Fairtrade has existed on the ‘fringes’ of most commodity sales (1-20% of all commodity sales in Europe and the US, Fairtrade’s biggest markets), albeit with growing sales, with most Fairtrade cocoa traditionally associated with niche or gourmet chocolate. It has now been propelled firmly into the mainstream. 

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The Fairtrade certification of Dairy Milk is expected to increase UK Fairtrade sales by 25%, after they reached £712.6m last year. Cadbury’s adoption of Fairtrade for its largest brand, Dairy Milk, is the sign of a big commitment. Cadbury’s claims that other varieties such as Fruit & Nut and Wholenut will follow once Fairtrade sources for ingredients such as hazelnuts and raisins are established (The Guardian).

And despite now being a time of financial difficulties for many companies, for Dairy Milk the transition to Fairtrade in the midst of a recession, should not be too finanically taxing. Cocoa is currently trading at $2,000 on the open market — well above the  minimum floor price of $1,750 a tonne for cocoa set by Fairtrade. This will mean no impact on purchase prices in the short term. However, the Fairtrade commitment does means the company is now locked in to paying higher prices than that on the open market if prices fall. Cadbury’s biggest driver for certification is thought to be that of securing supply and guaranteeing the sustainability of supply. This they regard as a necessary investment, rather than a cost.  

Cadbury’s may well be on to something here, as prices for cocoa rise due to shortages in supply, and as they have the added benefit of reduced reputational risk and increased shareholder value. This can only be a positive thing as the recession has severely undermined our faith in big businesses. Undoubtedly the commitment of a brand like Cadbury’s will only encourage others to follow suit and this trend is already emerging. Mars has pledged to buy 100% of its cocoa from sustainable sources by 2020,  working with the Rainforest Alliance. Nestlé, meanwhile, is working with the International and World Cocoa foundations.

World wide the informal economy is booming during recession with OECD estimating more people employed in informal sector than the formal – 1.8 bn to 1.2bn. The constituency of this growth is worrying with ILO estimating an extra 200 million people earning less than $2 per day by 2010 – all in the informal economy. Yet some are from formal jobs, using the informal sector as a cushion, an insurance, until things pick u again. photo-1

Historically, the informal economy has been seen as problematic by developed country governments owing to lost tax revenues, workers’ lack of unions rights, low wages and the exploitation of the poorest. And developing country policies and approaches to economic planning and management are largely apeing the developed world’s model.

Yet, the recession is alerting us to the inherent resilience in the informal economy globally. It has existed for far longer. It is an evolved, even natural economy, suitable for local interactions. It cushions formal employment dropouts. And in developing countries it is larger, on average 40% of GDP over 17%.

But right now it is being stretched in developing countries. More informality coupled with less demand, owing to the recession’s cumulative impact, equals lower prices, and an even more competitive market. While the informal economy might be able to apparently support growing numbers of entrants (see this India example), it is unclear if this means lower overall individual earnings and margins? “Smaller-and-Smaller Slivers of a Shrinking Pie

The simultaneous growing informality and poverty is clearly a worry. Yet the apparent resilience of the informal sector hints at a solution; that developing country governments would be wise to reroute their economic development planning from the path of the developed world, and to make visible the informal economy, give voice to its participants and begin to validate their presence as useful and welcome economic actors through targeting them with appropriate economic policies. How can the developing world’ governments help the informal economy without formalising it?

Despite many experts arguing (and hoping) that the developing world would be sheltered from the economic crisis, it appears that the answer to the question ‘will the recession impact developing countries?’ is yes. And not only yes, but that the impact has been more severe than we might have expected.

2009 will be worse in terms of the severity of the impact than 2008 as the recession really begins to take hold, and much of the economic growth to date and the associated development gains will be undone throughout this period of global financial turmoil. A depressing story has begun to emerge. By the end of 2009, developing countries are expected to lose incomes worth at least $750 billion. In sub-Saharan Africa, the figure is over $50 billion. The consequences of this fall in income will be increases in unemployment, poverty and hunger. The ODI estimates that an extra 50 million people will be trapped in absolute poverty, with the number expected to rise to 90 million. As previously mentioned, hunger is going to increase significantly and is already on the rise, with 100 million more expected to go hungry because of the recession – having risen for the first time in 20 years.

There are a number of key ‘transmission belts’ which transmit the impacts of the recession to the developing world. These are explored further below:

1) Trade

The value of trade has been falling in some countries. Japan recently reported that it exported 50% less in February than it did a year ago. Falling trade is argued to be a result of a combination of falling demand for goods and a credit squeeze (npr). The ODI found that tightening credit conditions were happening for domestic bank lending in Cambodia, Ghana and Zambia.

Indonesian exports of electronic products experienced a fall of 25% (in value terms) in January 2009 compared to the previous year. Similarly the value of garment export in Cambodia has dropped from a monthly average of $250 million in 2008 to $100 million in January 2009 (ODI). This has inevitably led to decreases in employment, for example, Cambodia laid-off 15,000 construction workers in mid-2008 and 51,000 were laid off in the garment industry. Kenya, which is highly reliant on the labour-intensive horticultural industry, saw 1200 jobs lost this year and a 35% decrease in exports of flowers. Uganda, a traditional commodity exporter, has faced significant declines in the value of its exports, because of falling prices for coffee, flowers and cotton and declining demand since November 2008. The recession has been particularly damaging for countries highly reliant on one or very few commodities that have experienced falling commodity prices.

2) Remittances

The World Bank revised its estimates of remittances downwards, after remittances reached $305 billion in 2008, to $290 billion in 2009, the first decrease in a decade.

In all countries studied, remittances had decreased, but Africa is thought to have seen the most significant decline.  In Kenya, for example, remittances were down by 27% in January 2009 compared to January 2008, following a volatile year. In Bangladesh emigration fell by 38.8% between February 2008 and February 2009, jeopardising future remittances.

3) Private financial flows

Private financial flows have been affected by the downturn. In particular portfolio investment flows fell significantly in 2008, with some signs of significant shifts from inflows to net outflows. For example, in Bangladesh and Kenya, studied by the ODI, experienced net outflows of portfolio investment flows worth $48 million in July-December 2008 (for Bangladesh) and $48 million in June 2oo8 and $12 million in October 2008 (in Kenya).

Net private capital inflows to developing countries fell to $707 billion in 2008, a sharp drop from a peak of $1.2 trillion in 2007. International capital flows are projected to fall further in 2009, to $363 billion (World Bank). In Indonesia, there has been a massive sell-off of government bonds and in Kenya and Nigeria there has been a significant drop in portfolio equity flows, consistent with the sharp fall of their stock markets (ODI).

The World Bank noted this trend in South Asia. It estimates flows to South Asia fell by 29% in 2008, among the sharpest declines posted among developing regions.  Credit conditions for bank lending has been tightening in Cambodia, Ghana and Zambia. Foreign Direct Investment has been less severely affected, but this has varied by country.

Economic policy and social protection provision responses

Economic and social protection policy responses have been extremely varied across countries in the developing world, with some adopting a business as usual approach and others being more-proactive (ODI). For example, Cambodia is implementing growth accelerating policies whereas Indonesia is implementing fiscal stimuli. Kenya, on the other hand, has done relatively little.

In terms of social protections, some countries are struggling to implement anything that even meets existing commitments such as Kenya and Uganda, whilst others are attempting to extend coverage of social protection provision to respond to the crisis (Bangladesh, Ghana and Cambodia).

During the recession it will be important to continue monitoring the impacts and the effectiveness of policy approaches, and building on any lessons learnt. This may enable developing countries and the developed world to better support the most vulnerable and avoid the further undoing of past progress.


Meat eating and its connection to climate change has suddenly come to dominate the media, with the likes of celebrities Paul McCartney, Kevin Spacey and Chris Martin (Coldplay) urging people to have one meat free day a week (Reuters, Bloomberg). As mentioned in a previous post, animal protein production (particularly large-scale) is a bigger contributor to greenhouse gas emissions globally than the transport sector – it is responsible for 18% of greenhouse gases (this includes both gases emitted from livestock and land use change). Greenpeace estimates every kilo (2.2 pounds) of beef eaten represents about the same greenhouse-gas emissions as flying 100 kilometers (62 miles).

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Unfortunately the types of gases livestock release (Methane, Nitrous Oxide) have far more powerful global warming power and potential than the typically demonised CO2 (nitrous oxide, for example, has 296 the global warming potential of CO2). This direct impact on climate change is exacerbated by the loss of forests to accommodate this growing industry, particularly in tropical zones such as Brazil and South America, that have significant potential to store carbon and help slow the current alarming rate of climate change. To add to the severity of the situation, production of meat is estimated to double from 2006 to 2050 (FAO, 2006), driven by growing demand in low and middle income countries as incomes rise.

Whilst climate change is evidently a serious issue, its consequences for society, particularly in the developing world, is of particular concern. Research suggests that the developing world is most vulnerable to climate change and its effects will be most strongly felt in the developing world. For example, whilst changes in the climate may be positive for agriculture in the developed world, the developing world is likely to see significant reductions in yields, due to decreases in rainfall and increases in temperature: ‘Results from a case study in Mali ..indicate that climate change could reduce forage yields by as much as 16 to 25% by 2050 and crop yields with a reduction from 9% to 17% for sorghum. In contrast pastures in cold areas are expected to benefit from rising temperatures’ (FAO, 2006).

I previously asked how the recession might impact demand for meat – suggesting that the recession could both reduce the amount of meat being bought (as a relatively expensive protein source and consumption being strongly correlated with income) and reduce the quality and types of meat being purchased. Some anecdotal trends suggest that this has been happening, particularly in the US. One industry expert argues that people are eating less beef, pork and poultry and that per capita consumption in the US is the lowest its been since 1982. In addition, people have been buying cheaper cuts of meat. This fall in consumption may give sustainable development a temporary reprieve from the negative impacts of animal protein production, but there are equity issues to bear in mind.

There are important differences in regards to global patterns of meat consumption. Whilst 100 million people go hungry and could benefit vastly (both in regards to physical and mental capacity, particularly children) from an introduction of more meat and dairy products into their diets, 1 billion people are either overweight or clinically obese and are far more prone to suffering from cardio-vascular disease, diabetes mellitus and some cancers because of excessive meat consumption. In India people consume 5kg per year of meat on average whilst in the US people consume 123 kg of meat, on average, per year.

The recession is likely to undo some of the economic growth and associated income gains in the developing world, potentially reducing any increases in animal protein consumption that are much needed. Meanwhile, for a vast majority in the developed world, the recession and any reductions in consumption may bring much needed health advantages and be benefical for the environment and society. Let’s hope the recession instills deep-seated changes in regard to how much animal protein consumption is necessary and ethical in the developed world. Maybe, just maybe, the recession has added fuel to Paul McCartney’s fire.

The UN approximates that an additional 100 million people will now go hungry as a result of the recession, as total numbers of those suffering from hunger hit 1 billion – a 6th of the world’s population. Many experts predicted that the recession would impact poverty levels, despite the recession’s origins in the West, and that through rising unemployment and food prices and falling incomes, hunger would be ever more pervasive. Despite these predictions they had not been quantified, until now. And what a depressing figure it is, demonstrating how something so seemingly detached (sub-prime mortgages) has led to the undoing of significant progress made to date. This number has fed fuel to the debate of just how globalised the economy has become.

In Asia and the Pacific, an estimated 642 million people are suffering from chronic hunger; in Sub-Saharan Africa 265 million; in Latin America and the Caribbean 53 million; in the Near East and North Africa 42 million; and in developed countries 15 million in total (FAO).

Whilst the crisis appears to have been indiscriminate for the poor, it is thought to have affected urban populations more severely than rural areas, due to the stronger connection between jobs in urban areas and falling export demand and foreign direct investment. However, rural areas have been by no means immune and migration from urban to rural areas has become a phenomenon. Remittances have also thought to have declined this year as a result of the recession, delivering another blow to the poor, whilst more recent falls in food prices have yet to benefit the developing world:

“While food prices in world markets declined over the past months, domestic prices in developing countries came down more slowly. They remained on average 24 percent higher in real terms by the end of 2008 compared to 2006. For poor consumers, who spend up to 60 percent of their incomes on staple foods, this means a strong reduction in their effective purchasing power.” (FAO).

The FAO Director-General, Jacques Diou, has argued that investment in agriculture is vital as a solid basis for further development and economic growth and because of the dominance of agriculture as the mainstay for a significant proportion of the developing world.

Whilst a clear solution may not be obvious, what is clear, is that this is a global recession, with global ramifications and one that makes us all responsible for its solutions. Even though the ethical and moral grounds for eradicating hunger are powerfully clear, the threat posed to global peace and security makes finding a solution a global imperative.

Evidence is showing that across the board, niche markets are appearing to do well in the slump. Bespoke tailoring, super-expensive Hermes bags, large yachts and Fair Trade chocolate are just some examples.

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While niches are often occupied by smaller businesses with a lot of time, experience and sweat invested in promoting and supporting that niche, it isn’t taking long for the bigger suppliers to realise that in this slump, carving up their market segments into smaller pieces and hypothecating their marketing at these, is one strategy for beating the recession into submission.

A great article by Damian Joseph in Business Week argues that “supermarkets may not be able to pull shoppers away from the competition by putting 2-liter sodas on sale, but convenience, green products, or a ready-to-eat meal just might do the trick……Differentiation works for the retailer who can truly master it.” Supermarkets may be able to capitalise on several trends – for example offering the high quality ready meal for those who want to ‘trade down’ and avoid the cost of eating out, whilst also offering greater variety in their ‘own brand’ budget lines for basic goods. Waitrose is a good example of offering its customers a new lower-price range of ‘essentials’ to prevent customers defecting to competitors and Sainsbury’s profit growth for the first quarter of 2009 has been attributed to the expansion of its budget line.

Within commodified goods supply chains, those goods with sustainable development (SD) criteria are often occupying niches – for example, ecotourism in SE Asia, Fairtrade flowers, green beans from Kenya, BEE wine from South Africa.

 Does a renewed focus on these niches by the bigger businesses spell boom or disaster for these SD poster-goods?

 Will profit motives crowd out good SD intentions within these supply chains by increasing competition and price pressures between retailers and ultimately reducing the price premium for producers?

 Or will good intentions that also turn a profit open these businesses eyes to the potential for business-led SD throughout their businesses?

For the niche product champions, it is clearly time to raise their game, look the Board in the eye and spell out the concessions that they are not willing to make. For the Board, they need to realise that profit isn’t everything [honest].

Indeed, the fugacious consumer is a persistent worry for retailers aiming to imbue brand loyalty “Grocery stores lose or gain about 10% of their customer base each year,” says Neil Stern, a senior partner at Chicago-based retail consultancy McMillan Doolittle. “So the question is: Can you grab your share of new customers?”

And it isn’t just the recession, the “global village” is also driving differentiation: As the purchasing power of minorities grows, grocers are increasingly attempting to accommodate their tastes. Wal-Mart’s Supermercado and Publix’s Sabor are examples of smaller, ethnic stores that cater to Latinos or immigrants from Asia and the Middle East.

It sounds like mid-Slump might be the right time to start marketing new niche products to the big players in your industry – assuming they are listening!

Either way, SustainableSlump will keep an eye on these emerging trends.