Category: Environment

Supportive Legislation Can Improve Agribusiness and Create Jobs

  International Ph.D. economist Augusto Lopez-Claros was a World Bank director who previously worked as a chief economist and director of the Global Competitiveness Program at the World Economic Forum in Switzerland, where he interacted with senior policy makers and heads of the world’s largest corporations on multiple aspects of economic development. At the World Bank, Augusto Lopez-Claros was involved in the production of the annual Enabling the Business of Agriculture report, which analyzed how regulations affected the business of agriculture in countries across the world.

Agriculture has the potential to create millions of jobs, lifting a lot of people out of poverty while boosting food security. Research shows that 65 percent of the world’s poor working adults are involved in agriculture. Therefore, growth in this sector is up to four times better at raising incomes for these people as compared to growth in other sectors. However, this can only be achieved when regulations support agricultural growth rather than inhibit it. The importance of this issue cannot be overstated. While there has been much progress in the past 3 decades in reducing the incidence of extreme poverty, the progress made has been fairly uneven, geographically speaking. High economic growth in China (and, to a lesser extent, India) has contributed to pulling out of extreme poverty hundreds of millions of people. But the number of poor in Sub-Saharan Africa has actually risen over the same period.

Furthermore, the poverty line used by the World Bank to define extreme poverty is extremely austere: $1.90 per day. At a more reasonable $3.20 per day, the number of poor more than doubles and is close to some 2 billion people, which is unacceptably high. Having a dynamic agricultural sector, therefore, that provides employment and enhances food security is a vital economic goal. Furthermore, the scientific evidence suggests that climate change will have a particularly harmful effect on countries’ agricultural sectors and low-income countries—heavily dependent on agriculture—will be particularly affected. In addition, population forecasts suggest that we are rapidly headed to a world population of some 9-10 billion people by 2050, 95 percent of it taking place in the developing world and creating huge demand for food production.

Farmers and entrepreneurs in the farm-to-plate value chain face a lot of legal barriers that inhibit growth. These barriers affect various elements of agriculture from access to land, seeds, and fertilizer to the availability of credit and transport. Water use and market access are other issues. Inhibiting regulations around these issues impedes agricultural growth. For example, if the procedure for obtaining food export documents in one country is unnecessarily long, it increases business costs and causes food wastage. If legal bottlenecks make it harder to sell or use new tractors, as is the case in South East Asia, farmers cannot farm efficiently, leading to reduced yields.

Government regulations affect agriculture in many ways. The World Bank calls upon governments to implement public policies that support agribusiness growth to end poverty and ensure global food security.

Ensuring a sustainable development path

 

Prior to going on sabbatical, Dr. Augusto Lopez-Claros served as the director of the World Bank’s Global Indicators Group for six years. An expert with extensive experience in economic development, he has written extensively on a range of issues. He has argued that although high economic growth in recent decades has greatly improved average life expectancy, infant mortality, and other leading indicators, policymakers and development practitioners are still worried about the sustainability of these trends and whether people in developing countries would eventually enjoy the high standards of living of high-income countries, against the background of a planet under increasing stress as a result of climate change.

A key finding of the latest scientific work on climate change is that the annual cost of introducing control measures for greenhouse gases is far smaller than the potential cost of uncontrolled climate change. The UN’s Intergovernmental Panel on Climate Change (IPCC) has, in the past, provided estimates suggesting that stabilizing greenhouse gases by 2030 would slow global economic growth by maybe 0.1-0.2 percentage point per year. The risks of inaction, however, are huge. It has proved difficult for computer models to deliver robust cost estimates for scenarios that lie outside the range of recent human experience.

A rise in temperatures in excess of 2°C with respect to pre-industrial levels, for instance, has not been seen on the planet in the last 1 million years (perhaps much longer), though this is the envisaged increase consistent with the pledges made by 175 countries in Paris in 2015. So, one central element of the solution will be implementing a transition to a low carbon economy that will involve the use of cleaner fuels, including solar-photovoltaic and onshore-wind technologies, which have become increasingly competitive and which will have a number of other collateral benefits, such as preventing millions of deaths every year linked to air pollution.

There will also be a need to invest in energy infrastructure, to replace aging capacity, and meet growing global energy demand, but also to boost efficiency. More generally, it is estimated that over the next 20 years global investment in infrastructure will be in the region of $5-6 trillion per year, three quarters of which will be new infrastructure in the developing world. Since well over half of total greenhouse emissions stem from investment in and use of various infrastructures, there is an overwhelming need, going forward, for all new such investments to be clean and green.

Investment in conservation to redress some of the damage done to the environment through decades of neglect will also be key. Something like US$100-200 billion should be spent annually to protect topsoil in croplands, to stabilize water tables, to restore fisheries, and protect biological diversity. This sum of money is small in relation to the size of the global economy and it is certainly very small in relation to the trillions made available by governments in some of the largest countries to deal with the short-term effects of the last global financial crisis.