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Using the private sector to boost third world farming

This week President Reagan will meet with 21 other government leaders from both developed and developing countries (the LDCs) in Cancun, Mexico, to discuss ways and means of raising food production, employment, and living standards in developing countries. He is expected to reiterate his desire to stimulate increased involvement of the free-market private sectors in third world development.

The concept merits serious consideration. However, it will not be simple to implement nor will it constitute the total answer to the LDC development needs.

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Many third world leaders have recently come to the conclusion that they need the developed nations' private sectors in agriculture and food-related fields.

They can help the small farmer increase his production, store and process his crops, and market them at a fair price. They can stimulate the creation of rural industries and help stem the migration of village youth to the slums of the cities. Such activities would raise the nutritional levels of subsistence farm families, increase commodity export earnings, and generate new employment in the cities by building a rural market for the products of urban factories.

Simultaneously, many developed-nation entrepreneurs have discovered that there is a very large potential export market in the developing nations, which currently buy approximately one third of US exports.

But trade barriers, pricing policies in both developed and developing countries, as well as fears of mutual exploitation create constraints to a global partnership which is in the interest of all parties, both North and South. At present impassioned speeches are made on all sides but there is no rational dialogue. Fresh initiatives are needed.

The first initiative must be to create opportunity for a dispassionate, unpublicized dialogue between the private sectors of the North and government leaders of the South. Each must begin to understand the goals, objectives, needs , and problems of the other.

It is therefore suggested that a private, nonprofit, nongovernmental International Development Orientation Center be established in the United States as a locus for such dialogues. It should draw on the most experienced talent in both worlds including universities, farm cooperatives, private voluntary organizations, farmers, and experts from development assistance agencies and governments. It could be financed by private and corporate foundations, OPEC funds, and development assistance agencies.

Assuming the dialogue and better mutual understanding that such a center would provide, there still will remain a major deterrent to significant private investment in third world agriculture. This is the magnitude, scope, and variety of risks which are inherent in many developing countries.

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They include the lack of adequate physical infrastructure such as roads, bridges, dams, storage facilities, rural electrification, transportation equipment, machine maintenance facilities, harbors, docks, schools, clean village water, health facilities; lack of human infrastructure such as competent teaching and training personnel, competent organizational and managerial personnel in governments, at all levels from the central governments to the villages, including agricultural research and rural extension services; lack of needed inputs including appropriate seeds, credit, fertilizer, pesticides, animal pharmaceuticals, and so on.

They also include climatic and geographic factors, such as floods, drought, water-logged and salinized soils, soil erosion from deforestation and unregulated grazing, crop diseases and pests, inadequate irrigation and drainage , among others.

These risks are not political risks or risks of civil insurrection. They are inherent in the basic condition of many developing countries. If we seek significant investment on the part of our private sectors in third world agriculture, we will have to find a way to reduce these risks.

One obvious way to accomplish this is through a strong project loan guarantee program implemented on a selective and carefully monitored basis and sponsored by one of the international development agencies, logically the World Bank, with the full support of its industrial member countries.

The projects should be carefully appraised through professionally conducted feasibility studies. The mutual undertakings of all parties, including host governments at the national, provincial, and local levels, should be carefully spelled out in advance.

The loans would not be substitutes for concessional aid or for host-country inputs. They would provide the basic capital requirements of potentially economically viable projects which should be capable of repaying the loans with accrued interest and of returning a profit to the investors as the project matures.

Some countries, the very poorest, would not be far enough along in their development processes to be able to absorb such relatively sophisticated programs. They would have to rely on concessional aid for the time being.

The mechanics of such a program would have to be worked out by the international development agencies and their respective member governments. It should be a pooled risk.

Such an agricultural development program would not affect the export market of US farmers since most of the non-oil-producing developing countries do not have the foreign exchange or availability of bank credit with which to purchase their products. They must feed their people from their own small farms.

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