SPOKANE, Washington — A central question of the complex poverty puzzle is how to increase agricultural productivity in the developing world. One reason is that a 1% increase in agricultural GDP per capita can reduce the poverty gap five times more than the same increase in other sectors. Another is that a large portion of the 1.4 billion people living under $1.25 per day, or the global poor, work in agriculture. These numbers testify to the massive potential that agricultural investments, which serve to increase productivity, have for reducing poverty across the globe.
A quick glance at this map produced by the World Bank, shows a stark productivity gap between developed and developing nations in terms of agricultural output per unit of land. A major reason for this difference is rooted in the divergent investment climates between the two. A lack of capital and difficult-to-access lines of credit make it a struggle for poor farmers to buy what they need in order to get the most out of their land.
Without money to buy better seeds and farm equipment, productivity will languish and poor farmers will be caught in what the World Food Programme refers to as a poverty trap.
One possible solution can be found in an alternative form of agricultural financing, the Community Supported Agriculture, or CSA, model. Essentially, CSAs function by locking in a guaranteed price for what the farmer produces, and helps the farmer meet these production quotas by providing the investment capital before the growing season.
This arrangement is achieved when the clientele for CSA, also known as member investors, front the farmer a sum of money for a basket of goods that they expect to receive at a later date. This infusion of equity allows the farmer to buy fertilizer, irrigation equipment or whatever else is needed to increase output. Increased output equals increased income.
A potential concern with the success of the CSA model would be that few people in poor countries could have enough disposable income and could not afford to forego money for future goods, undermining the functionality of the CSA. The extent to which this is true is not reflected in the data.
A recent trend in the developing world has been a burgeoning middle class. In 2010, the African Development Bank estimated that 34% of Africa’s population was in the middle class. In 2009, the Asia Pacific Region, which holds 58% of the world’s population, was home to 28% of the world’s middle class. The Brookings Institution projects that by 2020, Asia’s share will rise to 54%.
This middle class has high expectations. The Organisation for Economic Co-operation and Development, among others, is forecasting that the increased consumption from the middle class will have a large impact on global economic growth.
This growing middle class and their expanded consumption can be leveraged to finance investments in agriculture which will serve to increase productivity and lift farmers out of poverty.
– John Wachter