Business Case for the Global Agriculture and Food Security Program

Transcription

1 Business Case for the Global Agriculture and Food Security Program (GAFSP): Public Sector Window Improving agricultural performance in low-income countries is the most effective way of reducing poverty and hunger. Higher levels of longer-term public investments in the sector are urgently needed to accelerate progress towards the Millennium Development Goals. GAFSP provides an innovative mechanism for delivering these critical longer term investments. An additional $1 of donor support for the GAFSP public sector window could generate at least an additional $2 in cumulative incomes for the poor. The current fund raising target for the GAFSP Public Sector Window is $575 million in new donor commitments. Support to GAFSP targets funding to technically sound, longer-term agriculture and food security investment proposals and focuses on countries with higher rates of poverty and hunger. In contrast to traditional funding mechanisms, GAFSP is recipient-led with broader participation of multiple stakeholders, provides additional and frequent financial allocations to lowincome countries, has low administrative costs, has faster preparation time than standard multilateral development bank projects, and benefits from complementary private sector investments. Currently allocated funding is expected to benefit an estimated 8 million people, but GAFSP has the potential to reach an additional 11 million if funding goals are met. We call on our colleagues from other G8 and G20 countries to join us in this extraordinary effort to help the world s most vulnerable populations and, in the process, take an important step towards creating a more balanced, prosperous, and secure world for all. A Key Sector: Agriculture reduces poverty, and improves food and nutrition security About half of developing countries have made insufficient progress towards the Millennium Development Goals (MDGs) of halving hunger and poverty and even fewer have made progress on the lagging nutrition MDGs. Unfortunately, the recent higher and more volatile food prices over the last 5 years reversed some of the recent gains made 1. The world needs to produce about 50 percent more food to feed its growing population by 2050, with increasingly constrained land and water resources. Climate change further compounds the challenge as it could reduce yields by 30 percent (without effective adaption) 2 over the same period. Improving agricultural performance is a highly effective way to reduce poverty and hunger. Three of every four poor people live in rural areas in developing countries and most rely on agriculture for their livelihoods. As a result, growth originating from agriculture has been 2 to 4 times more effective at reducing poverty than growth originating in other sectors 3. Improved farm productivity can raise farm incomes, generate on and off farm employment, reduce local food prices, and provide a diverse and nutritious diet. Importantly, income gains in agriculture have been no more costly to achieve than income gains in other sectors 4, but these gains benefit poorer people. More is needed from today s agriculture system than just income gains and food supply. Environmental services such as sequestering carbon, managing watersheds, and preserving biodiversity are also of growing importance. To addressing these challenges more and better investment in agriculture, and food and nutrition security is urgently needed. 1 Following the world food price spikes, poverty increased in 13 of 25 developing countries which have poverty data pre- and post World Bank (2012). Turn Down the Heat: Why a 4 o C Warmer World Must be Avoided. Washington D.C. 3 World Bank (2007). World Development Report 2008: Agriculture for Development. Washington, D.C. 4 World Bank (2010). Cost-benefit Analysis of World Bank Projects. Independent Evaluation Group. Washington, D.C. 1

2 A Critical Time to Act: High need, better policies, higher government commitment The already urgent need for action in agriculture, and food and nutrition security was amplified by the three world food price spikes in the last five years; their lasting impact on poverty and nutrition; and the associated risk of social and political tensions. This situation is partly the result of past neglect of agriculture reflected in the historical decline in both donor and government support for the sector. Yet the overall policy environment for agriculture in low-income countries has improved with macro-economic stability, less conflict, and lower agricultural taxes. Government commitment to the sector has also increased across developing countries, for example with commitments to increase support for agriculture under the Africa-led Comprehensive Africa Agriculture Development Program (CAADP). Estimates of the financing needed in agriculture to halve poverty and hunger are significant. While the level of direct investment in agriculture has begun to increase, earlier estimates by the International Food Policy Research Institute in 2008 suggested that the total public investment in agriculture in Sub-Saharan Africa required to achieve the MDG of halving hunger by 2015 is $32-39 billion per year 5, today it would be higher. According to FAO estimates, the overall additional annual public and private financing needed in developing countries is $67 billion per year in order to ensure food security for all by An Innovative Mechanism for Impact: Global Agriculture and Food Security Program GAFSP is an innovative mechanism for delivering critical investment to the agriculture sector through provision of needed longer-term grants that support low-income countries efforts to increase incomes and reduce hunger. (see Annex for comparative approaches). The program is country-led, supporting countries priorities reflected in national agriculture and food security investment plans. To date, the GAFSP Public Sector Window has channeled funding towards technically sound investment proposals from 18 low-income countries with higher rates of poverty and hunger, to generate an estimated $140 million per year in additional household income in these countries (table 1). The demand from countries for GAFSP financing has far exceeded available funds ($1.4 billion in proposal requests with $658 million allocated). An additional $1 of donor support for the GAFSP public sector window could generate at least an additional $2 in cumulative incomes for the poor. Table 1: Progress and goals on GAFSP financing, number of beneficiaries, and expected gains in household income Aggregate indicators Progress: Support provided $658 million ($220 million per year equivalent) Goals: (incremental to ) $900 million 7 ($300 million per year) Low-income countries receiving support (number) People benefitting (targeted with full implementation) 8 million 11 million Estimated additional household income per year generated by investments 8 $140 million $260 million 5 Fan, S., Johnson, M., Saurker, A., Makombe, T. (2008). Investing in African Agriculture to Halve Poverty by International Food Policy Research Institute Discussion Paper Schimdthumber, J., J. Bruinsma and G. Boedeker (2009). Capital Requirements for Agriculture in Developing Countries, paper presented at the FAO meeting on How to Feed the World in 2050, June 2009, Rome. 7 $575 million from new commitments from donors would unlock the full $475 million from the US, which after administrative and impact evaluation costs, would facilitate about a $300 million allocation per year for the next three years. 8 This is the estimated income increase implied by a 20 percent rate of return on the $658 million and $900 million allocations respectively. The 20 percent return estimate is similar to the average ex-ante returns of GAFSP projects reflected in completed appraisal documents (for 9 GAFSP projects), and is taken as a proxy for future returns of all GAFSP projects. The assumption used is that income increase begins only in year 2 of project implementation when it will reach 20 percent of the expected full income increase. From year 3, the assumption is an equal increase until year 6 when the expected full target is reached. After year 6 the full income increase is expected to remain for at least 14 years. 2

3 Unlike many other funds, which have a narrow thematic target, GAFSP can reflect country priorities more effectively and realize impact of higher incomes and reduced hunger by investing in a broad set of opportunities across five key components: Raising Agricultural Productivity and Resilience to climate change remains vital for income gains and food security in many of the poorest countries. Expressed country priorities supported by GAFSP include adoption of higher yielding, more flood and drought resilient (Box 1), and more nutritious crop varieties; development of new varieties; and improved water management. Expected results for 10 projects with established baseline values and results targets, reflective of country priorities, include: an increase in the number of farmers using improved technologies and practices by 325,880 farmers aggregated across Bangladesh, Cambodia, Ethiopia, Haiti, and Togo; an increase in the areas where improved technologies and practices are being applied by 21,044 ha in Ethiopia, Haiti, Liberia, Niger, and Togo; and an expansion of land with functioning irrigation and/or drainage services by 153,088 ha in Bangladesh, Ethiopia, Liberia, Niger, Rwanda, Sierra Leone, and Tajikistan. Box 1: Improving Climate Resilience By 2050, climate change could reduce yields by 30 percent without effective adaption. More than 65 percent of GAFSP investment projects include activities that provide climate change adaptation benefits (like improved watershed and soil management), and/or mitigation benefits (like afforestation or organic fertilizer production). For example: In Bangladesh GAFSP promotes climate adaptive technologies and practices by forging close researchextension-farmer linkages. In Haiti the projects: increase the availability of quality agro-climate data and tools to better manage climate variability risks; and promote technologies and practices that reduce land degradation, encourage resilient agriculture, and help farmers adapt to changes in weather patterns. In Rwanda, the project improves hillside agricultural management to protect against erosion and enhance sustained productivity and ecosystem conservation. Linking farmers to markets allows farmers to profit from their labor and increases food availability. In the poorest countries, transport costs are often percent of total marketing costs, reducing the share of retail market prices received by farmers. Expected results based on 10 projects that have established baseline values and results targets, reflective of country priorities, include: building and/or rehabilitating 1,024 km of rural roads aggregated across Cambodia, Ethiopia, Liberia, Niger, and Togo; construction of 99 new rural markets and/or market centers in Ethiopia, Liberia, and Sierra Leone; and strengthening producer associations, and cooperatives of 58,540 farmers in Ethiopia and Togo (who will have formed or joined producer associations, cooperatives, and water user associations). Improving non-farm rural livelihoods as an important source of income growth and safety net support for rural households. Investment areas include improving the rural investment climate, expanding rural infrastructure, upgrading skills, improving access to finance, and communitydriven approaches. Reducing Risk and Vulnerability cuts across all GAFSP investment areas. Key elements of this include nutrition related investments (box 2) and gender targeted actions (box 3). Bringing yields on the land farmed by women up to the levels achieved by men would increase agricultural output in developing countries between 2.5 and 4 percent. 3 Box 2: Support for Nutrition More than half of all GAFSP awarded projects (in 10 out of 18 countries where GAFSP is so far active), explicitly address undernutrition. Five projects (Burundi, Malawi, Cambodia, Nepal, and Haiti) contain nutrition activities with key objectives to improve household diets through interventions such as crop diversification, household gardening training, and research on nutritious crops. Nutrition activities often supplement the main project activities. For example, 3 GAFSP projects (Cambodia, Kyrgyz Republic, and Nepal) support nutrition activities in the context of community health programs, particularly those targeting pregnant women and children. Even in projects that do not have an explicit nutrition objective, GAFSP s investments incorporate activities that have an impact on household diet. For example, Rwanda s GAFSP financed project has invested in farmer field schools where high nutrient crop varieties have been introduced alongside nutrition training sessions, and is monitoring the impact of improved agricultural productivity on households dietary diversity, especially for women.

4 This will require actions to improve women access to services, assets, and opportunities. GAFSP proposals are assessed to ensure gender targeted action. GAFSP is supporting nutrition sensitive investments, through the expressed prioritization in country proposals, most explicitly in Nepal through increasing food availability for targeted households and promotion of diversified diets and improved feeding and care practices for pregnant and nursing women, and children between 6-24 months. Technical assistance, institutional building, and capacity development through support to strengthen agriculture and food security policies and public expenditure management; related institutional reforms; improved donor coordination; and expanding technical expertise and monitoring systems. Box 3: Gender mainstreaming GAFSP projects to date have an average target rate for direct beneficiaries being women of about 40 percent, individually being as high as 75 percent (Nepal). Seventy nine percent of projects include all three dimensions of gender mainstreaming in project design gender analysis, gender actions, and gender disaggregated M&E, 14 percent include two dimensions, and 7 percent (one project) includes one dimension. Examples of gender actions in GAFSP projects are: promoting kitchen gardens and backyard poultry in households with pregnant or nursing mothers and children under two; providing nutrition education to farmers groups; promoting simple household labor-saving technologies for women; ensuring women s equitable access to cash-for-work employment; promoting women s membership and decision-making in farmers organizations and/or self-help groups; ensuring women s equitable access to agriculture related productivity inputs and extension training; and raising awareness of women in improved nutrition, food preparation and feeding practices. Share of projects with gender analysis, actions and/or M&E 79% 7% 14% Compared with other funding mechanisms, GAFSP also has the following valueadded features: (summarized in annex) Recipient-led with broad participation: GAFSP reinforces and builds on recipient-led processes in its governance structure, application process, and throughout implementation. All decisions pertaining to the Public Sector Window, including funding allocations, are made by the GAFSP Steering Committee, which operates in an inclusive and transparent manner, with equal access to information for all members, and functions by consensus. Participation in the Steering Committee is broad, including donors, recipients, supervising entities and civil society representatives from both developed and developing countries (figure 1). Recipient representatives on the GAFSP Steering Committee have the same voting power as donors in funding allocation decisions. As a pre-requisite for proposal submissions, countries in Africa must have completed the Comprehensive Africa Agriculture Development Program (CAADP) process; and non-african countries must demonstrate their proposals are derived from their own agriculture and food security investment plans that were designed through a multi-stakeholder process. Recipients can select their preferred supervising entity. Figure 1: Participation in GAFSP Funding Allocation Decisions Includes Donors, Recipients, CSOs Composition of the GAFSP Steering Committee CSOs 11% Supervising Entities 25% Other 14% Donors 25% Recipient representati ves 25% Voting members = Donors and Recipient Representativies; Other = UN Special Representative on Food Security and Nutrition, and non-voting donors (Ireland, Japan, Netherlands). 4

5 Provides additional and frequent financing allocations to low-income countries: Financing from multiple donors allows for the pooling of funds to generate scale. Eight donors have currently provided financing Australia, Canada, Bill & Melinda Gates Foundation, Ireland, South Korea, Spain, UK, and US. Calls for Proposals have been issued as soon as about $150 million is available to allocate (figure 2). To date, four funding allocations have been made totaling $658 in recipient executed grants to 18 low-income recipient countries Bangladesh, Burundi, Cambodia, Ethiopia, the Gambia, Haiti, Kyrgyz Republic, Liberia, Malawi, Mongolia, Nepal, Niger, Rwanda, Senegal, Sierra Leone, Tajikistan, Tanzania, and Togo. In some cases, funds have been allocated to countries with little alternative sources of funding, such as Togo, helping to leverage scale in financing and impact. GAFSP provides additional and frequent financing allocations, with no need to wait for three year replenishment cycles as is the case with the multi-lateral development banks and the International Fund for Agricultural Development. Since 2012, the US has pledged to match every two dollars of donor support with an additional dollar of its own support. Higher impact on incomes of the poor: GAFSP projects have focused on countries with higher rates of poverty and hunger. The average poverty headcount of countries awarded GAFSP financing has been 43 percent compared to 25 percent for all developing countries, the average share of the population undernourished has been 26 percent for GAFSP recipients compared to 17 percent for all developing countries, and the average share of children under 5 moderately or severely underweight has been 25 percent for GAFSP recipients compared to 14 percent for all developing countries (figure 3). Ex-ante estimated economic returns of appraised GAFSP projects have averaged 23 percent, similar to regular projects of multilateral development banks. This implies every dollar of GAFSP financing generates the same increase in household income as a dollar of financing in multilateral development banks; but this income increase, on average, benefits poorer households, and therefore generates a higher percent household income gain per dollar invested. As some of Figure 2: Funds Have Been Allocated as Soon as an Available Threshold of About $150 million Has Been Reached $ millions June 21, 2010 the increased farm incomes will be spent on local businesses in poor rural areas, the income multiplier effects are also likely to be larger in poorer countries. Targeting poorer households in richer countries would have a similar impact on farm incomes but likely a smaller multiplier effect on the more established local economy. GAFSP projects are selected based on a weighted formula that attributes 30 percent to country need (measured by the MDG indicators on poverty and hunger) and 70 percent to country and proposal readiness. This formula, together with the rigorous independent technical reviews and the selective nature of the program (so far, selecting about the top 30 percent of projects), has helped ensure relatively high ex-ante economic returns November 4, 2010 Available Allocated to recipient grants June 8, 2011 May 23, 2012 Figure 3: GAFSP Projects Have Focused On Countries with Higher Rates of Povery and Hunger Poverty headcount (%) Developing countries GAFSP recipients 17 Share of population undernourished (%) GAFSP recipients numbers are for those GAFSP financed projects which also had appraisal stage estimates of ex-ante economic returns. 14 Children under 5 moderately or severely underweight (%) 5

6 Low administrative costs: 94 percent of the available funds have been allocated for recipient grants with only 6 percent of total funds supporting administrative costs (figure 4). Costs have been kept low by using existing processes and procedures of supervising entities; maintaining large enough project sizes (average about $35 million) to keep the share of administrative fees per project at about 5 percent; and keeping a small GAFSP coordination unit (monitoring and evaluation and the coordination unit costs have accounted for about 1 percent of overall financing). These costs are lower than some of the alternative funding mechanisms (see annex) and other comparator funds where the average share of Figure 4: 94% of Financing Gets to Poorest Countries with Administarative Costs Kept Low at 6% Use of Funds Recipient grants 94% Admin Costs & M&E 6% administration costs has been 13 percent of overall financing, with a range from 3.2 percent to 24.1 percent 9. Faster preparation time of projects: Thanks to the high levels of commitment by recipient governments as well as the detailed design of accepted GAFSP proposals, GAFSP project preparation times have been a third less than the average for regular agriculture/food security-related projects at supervising entities (figure 5). Figure 5: GAFSP Projects Have Started Disbursing in A Third Less Time than Regular Projects Preparation time from GAFSP award to first disbursement (months) Complementary private sector investments: Private investment through the GAFSP Private Sector Window can potentially enhance returns to projects financed through the Public Sector Window, and vice versa. The Private Sector Window will help increase the commercial potential of small-and-medium agribusiness and farmers by bringing them into local, national, and global value chains. These associated investments will help increase productivity, improve market access, support innovation, and develop GAFSP projects Regular projects Average preparation time for 9 approved projects being implemented by the Asia Development Bank, African Development Bank, the International Fund for Agricultural Development, and the World Bank, compared to the weighted average preparation times of regular projects at these respective supervising entites. new ideas in financing and technology. This can be complementary and jointly reinforcing of investments through the public sector window. Both windows focus on financing activities in the same set of lowincome countries. In Bangladesh, GAFSP finances a public sector project to support on-farm productivity and climate resilience and a private sector project that will source produce from local farmers. Monitoring and evaluation: GAFSP project monitoring and evaluation frameworks have common results indicators across thematic areas allowing for aggregation of progress across all projects. All GAFSP projects will also undergo an impact evaluation to assess impact, foster learning, accountability, and aid effectiveness. In-depth impact evaluations (using experimental or quasi-experimental methods) will be undertaken in 30 percent of projects, while other investment projects will carry out a rapid impact evaluation. Of the 18 approved GAFSP projects, in-depth impact evaluations have started in 6 countries Bangladesh, Haiti, Mongolia, Nepal, Niger, and Rwanda. Continuous improvement process: GAFSP has a continuous improvement process of learning-bydoing, monitoring, refining, and improving its design to enhance its value added aspects (table 2). 9 World Bank (2010): The World Bank s Involvement in Global and Regional Programs: an Independent Assessment. Independent Evaluation Group. 6

7 Table 2: Value Added of GAFSP at Inception, Associated Design Features, and Evidenced Progress to Date Envisaged Value Added of GAFSP (at inception) Evidence of Value Added (to date) Design Features to Enhance Each Value Added Element (since inception) Recipient-led with broad participation Additional and frequent financing focused on agriculture, and food and nutrition security Higher impact on incomes [as it focuses on poorer countries] Low administrative cost Faster preparation of projects Complementary private investments 18 recipient-led proposals financed $658 million in additional financing for agriculture, and food and nutrition security Funds allocated when available threshold of about $150 million has been reached Particular benefit to poor countries with limited alternative sources of finance Generates higher percentage income gains per $1 spent, as it focuses on poorest countries Countries Returns 10 Poverty 11 Hunger 12 GAFSP 23% 43% 26% Developing 24% 25% 17% 94% of financing gets to poorest countries 6% administrative cost 13 Projects prepared in a third less time than regular projects : 30 months vs. 20 months Initial investment through the private sector window was in a country that received public sector window financing. Broad composition of Steering Committee (including CSOs; equal number of voting donors and voting recipient representatives) Builds on the CAADP Process Recipient selection of Supervising Entity Multiple donors with financing in a pooled multi-donor fund to generate scale and reduce transaction costs Call for proposals issued as soon as about $150 million is available The poorest countries, with limited alternative sources of financing are eligible 30% weight in funding decision given to country need (poverty and hunger rates) Projects reviewed by independent Technical Advisory Committee on technical merit Civil society participation in Steering Committee Selective allocations (selected top 30% of projects) Cost kept low through: Small coordination unit No-parallel processes, with use of existing supervising entity procedures Larger project size to keep share of administrative fee at about 5% Pooled multi-donor fund to keep transaction costs low Information sought in Country guidelines is aligned around information needed in final project design documents as required by Supervising Entities 70% weight in allocation decisions are given to country and proposal readiness Public and private sector window restricted to invest in IDA-only countries. 10 For GAFSP projects these are ex-ante appraisal estimates of project economic rates of return [9 countries], for developing countries they are end of project ex-post estimates. 11 Average poverty headcount in countries with GAFSP financed projects which also had appraisal stage estimates of economic returns, and for developing countries (UN MDG data). 12 Average share of the population undernourished in countries with GAFSP financed projects which also had appraisal stage estimates of economic returns, and for developing countries 13 Costs are lower than some of the alternative funding mechanisms (see annex) and other comparator trust funds where the average share of administration costs has been 13% of overall financing. 7

8 Annex: Business Case Summary Opportunity/ Problem Contributing to a Solution Improving agricultural performance in low-income countries is the most effective way of reducing poverty and hunger. Higher levels of longer-term public investments in the sector are urgently needed to reverse past neglect and accelerate progress globally towards the Millennium Development Goals. Government commitment to the sector has increased across developing countries (e.g. CAADP) offering a significant opportunity for donors to directly support country-led efforts. GAFSP responds to this urgency and opportunity: it provides frequent, additional funding allocations (unlike longer replenishment cycles of IDA, IFAD, and ADF); is recipient-led with broad participation of multiple stakeholders (more so than alternatives), drawing on expertise from multiple supervising entities, and giving the choice to recipients on which supervising entity to work with has quicker preparation for longer-term investments (a third faster than alternatives e.g. MCC, IDA, IFAD, and ADF) by financing the most investment ready proposals (unlike the formula based allocations of IDA, IFAD, and ADF) and has lower administrative costs (than IFAD, MCC, and IDA); targets 100% of its support to agriculture and food security (unlike alternatives, except IFAD), and has a global focus (unlike the ADF, which focuses only on Africa); targets countries with high rates of poverty and hunger (more so than IFAD, MCC, and IDA) to enhance impact, has complementary private sector investment. Comparative approaches Financing mechanisms Focus on Agriculture and Food Security Comparative Value Analysis Steering Committee/ Board Representation Fund Allocations Average rates of Poverty Hunger In disbursing countries Administrative cost (as a % of recipient awards/allocations) Preparation time of projects (months) Complementary private investments (equity, loans, credit guarantees) GAFSP IFAD IDA ADF (Africa) Bilateral MCC 100% 100% 19% 14 12% 15 8% 16 18% 17 Donors (incl. foundations) Recipients, CSOs, Supervising entities, UN Special Rep. Allocations made, as funds become available, to the most ready proposals with high need 43% 26% Donors Recipients Donors Recipients Donors Recipients Country allocations made every three years following three year replenishment cycles based on formula based country allocations 25% 17% 40% 24% 48% 27% Donor Recipient - - Donor Country selected on governance and policy indictors 31% 19% 6% 10% 18 7% 19 6% 20-10% months ~30 months - 36 months Yes No Yes Partial - No IFAD = International Fund for Agricultural Development, IDA = International Development Association (part of the World Bank Group providing concessional loans and grants to the poorest countries), ADF = African Development Fund (part of the African Development Bank providing concessional funding to 40 least developed African countries), MCC = Millennium Challenge Corporation (a US bilateral foreign aid agencies) IDA average for agriculture as reflected in the World Bank Group Agriculture Action Plan FY African Development Fund Loan (ADF) - grant approvals for agriculture in 2012 was 12.3% 16 As reflected by OECD-DAC 17 Millennium Challenge Corporation Annual Report IFAD 2012 Annual Report [administrative costs/(commitments + disbursements)] 19 World Bank 2012 Annual Report and Financial Statements [IDA administrative costs/(commitments + disbursements)]. This estimate is for all sectors. 20 African Development Bank 2012 Annual Report [ADF administrative costs/(commitments + disbursements)]. This estimate is for all sectors. 21 (Administrative costs + compact development, oversight, due diligence)/(new compact commitments + disbursements)]. Congressional Budget Justifications FY13-14, MCC Annual Report This estimate is for all sectors. 8