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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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Anecdotal evidence suggests that in some countries around the world the recession is having an impact on the levels of carbon dioxide – a gas that plays a key role in contributing to atmospheric warming – and other greenhouse gases being emitted into the atmosphere.

In the European Union (EU), for example, a 1.5% reduction in greenhouse gas emissions has been reported for 2008 (compared to the previous year) for all 27 members of the EU, by the European Environment Agency (EEA). In addition a 1.3% reduction in the EU 15 has been reported – the 15 wealthiest and oldest members of the EU. This reduction has been attributed to lower carbon dioxide emissions from fossil fuel combustion in the energy, industry and transport sectors which has occurred as a result of the economic recession.

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Similarly, a study in the UK has concluded that there has been a 31% decline in traffic on motorways over the past two years. This story is likely to be similar in other developed countries that have been affected by the recession and where car ownership and use is high. The fall in traffic in the UK is thought to be due to falling numbers of people travelling during morning and evening rush hours as unemployment rises. In addition people who have been fortunate enough to remain employed have made cost-savings by working at home, sharing lifts with other people and using public transport.

The United Nations Environment Programme also argued that 2008 was the first year when new investments in renewable energies were greater than investments in fossil-fuelled technologies.

Whilst these changes may bring some temporary respite for the environment, evidence suggests that as the economic crisis wanes old patterns will be re-established. However, if the recession has provided ample opportunity and motivation for investment in renewable energy in order to replace fossil-fuel based energy use then the recession may well have provided just one, although not insignificant, silver lining.

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.

Whilst researching the impacts of the recession on the demand for crocodile leather and stumbling over some tales of recession-induced woes, it seems Hermes, an internationally renowned luxury fashion brand, is the shining star – bucking all trends, and potentially single-handedly fuelling demand for exotic skins, like crocodile leather.

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Hermes sales rose by 3.2% at current exchange rates to €428.4 million over the first 3 months of 2009, despite the wider market context of a floundering global economy. Much of that growth is attributed to sales of leather goods, which rose 21.7% to €206 million and has been driven by ‘robust’ expansion in China and Korea (Hermes 2009).

Hermes’ Birkin bags fanatics, including celebrities like Victoria Beckham, are paying up to $US50,000 (with bags made from exotic skins hitting the 6-digit mark) for a single bag with a waiting list of 2-3 years. Beckham reportedly owns $US2 million worth of Hermes Birkin bags (Murray and Williams 2009). Three thousand coveted Saltwater crocodile skin bags will be made this year, and limiting them in number maintains the exclusivity, luxury image and mystique surrounding them. No doubt it helps that Hermes’ key clientele are unlikely to be affected by the recession and are seemingly “recession proof”, but Hermes ability to conjure such furore over a handbag can only be admired. The exclusivity of its brand is partly reflected in its differing sales results for own stores versus distribution networks, with a 16% growth in sales (at current exchange rates) in the former and a decline in the latter. Clearly stepping into Hermes’ own stores is a far more compelling shopping experience than that found in its distribution stores.

Experts argue that “the people who can afford these goods are not affected by the recession. Even if they lost millions of dollars in the market, they are still worth hundreds of millions of dollars. If you want something super special, if you want a handmade crocodile bag and you can afford it, Hermes is the only place you’ll go”.

Hermes, usually very closed-book about its activities, has claimed that “we cannot meet demand. We are facing massive over-demand. We are limited by our ability to train new craftsmen” [Patrick Thomas, CEO, cited in Goldman (2009)]. Craftsmen in a small French town of Pantin, spend up to 2 weeks preparing each bag. In order to guarantee supply Hermes is vertically integrating its supply chain, establishing new farms in Australia: “It can take three to four crocodiles to make one of our bags so we are now breeding our own crocodiles on our own farms, mainly in Australia,” and it is looking to add to its existing number of 1400 craftsmen to alleviate the bottleneck it currently faces in turning the leather into the exclusive Hermes handbag.

Whilst Hermes success might not be replicable in any market other than the ‘luxury’ fashion market, its role in fuelling demand for crocodile skin, and in driving the demand for 8 high quality skin and skilled, highly trained craftsmen can not be ignored.

This article is cited in the Crocodile Specialist Group Newsletter. See: http://iucncsg.org/.

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?

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.