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Background on Booker Tate Booker Tate, a private limited company, provides operational and project management services to agro-industrial businesses throughout the world. Best known for its continuing role in the management of sugar producing companies, many of which have significant smallholder components, it has also provided management services to companies in the tea, coffee, oil palm, livestock, poultry and forestry sectors across a wide range of natural resource environments. The DFID Policy paper entitled 'Agriculture and poverty reduction: unlocking the potential' and related issues Booker Tate welcomes DFID's renewed commitment to agriculture, as stated in the Policy Paper, and shares its view that agriculture can play a fundamental role in the alleviation of poverty through employment creation, income generation and the provision of livelihoods. We endorse the view that support to agriculture in the developing world should move towards achievement of the Millennium Development Goals. The importance of agribusiness We note that the focus of the Policy Paper is on small farmer primary production rather than on the commercial agricultural sector. While assistance to small scale production will undoubtedly make an important contribution to economic development we would like to suggest that attention should also be given to the commercial sector. The production and sale of agricultural produce or the opportunity for wage earning in agricultural businesses provide an avenue for rural people to transfer from the subsistence to the cash earning economy and thus escape from persistent poverty. Moreover agribusiness continues to play a crucial role in generating income and employment throughout the development process. Agricultural businesses with processing units provide an assured market for the raw materials of primary producers, commonly under offtake agreements, and add value 'in country'. The model of a processing company, possibly with its own nucleus estate, contracting with smallholders/outgrowers and providing services to them has had considerable success throughout the developing world. The concentration of industry, agriculture, infrastructure, communications and community services in one location rapidly becomes a growth pole. The inter-sectoral linkages between a for example, a large scale cane sugar project with its requirements for fertilisers, fuel, lubricants, process chemicals, spare parts, replacement equipment and vehicles and other parts of the economy are strong. The large farming, factory and service populations need feeding and this market opportunity invariably stimulates agricultural production in surrounding areas. The wide range of ancillary services required by a cane sugar project stimulates the development of small local businesses. Meanwhile a substantial transfer of skills and knowledge from the project into the local economy is occurring as factory employees and cane farmers are trained and professionally developed. The result is that within a few years a cane sugar project can have a profound, positive impact on the incomes and welfare of poor rural people for miles around and on the wider regional economy in general. We have seen this happen many times. In summary, our experience has shown that commercial agricultural projects act as development platforms. They are centres of economic activity in sometimes remote areas or difficult environments and commonly have significant economic multiplier effects in the surrounding region. Large scale businesses are also often obliged to provide (at considerable cost) housing, social infrastructure and a range of community services (eg health care and education) in order to attract the calibre of staff required to live and work in such areas. They therefore facilitate social cohesion in addition to providing opportunities for economic advancement. However commercial agriculture in third world economies is commonly characterised by relatively modest financial rewards and an exposure to above average level of risks and this we believe has resulted in an investment gap in that sector. The investment gap Even in stable times private capital is not always attracted to emerging markets, especially at the poorer end of the GDP scale. As highlighted at a recent NEPAD conference: '(private) capital seeks opportunity, never need'. Investment in the higher return sectors in the developing world (such as power and telecommunications) is evident and in parallel public sector aid provision, commonly with a specific poverty alleviation focus, has achieved success. In addition to the broad based development finance institutions, which invest across a range of sectors, there are several emerging market funds specifically covering sectors such as infrastructure, empowerment and environment. However investors and lending agencies are commonly wary of the risk/reward profile inherent in agriculture in emerging economies. We note that in recent years there has been a decline in investment in commercial agriculture, notably in Africa. For example CDC Capital Partners recently decided to divest from agriculture as part of its change in investment strategy. As a result we believe that there may be investment opportunities in agriculture which are not being realised owing to the dearth of appropriately priced funding. To our knowledge there is no fund which understands and is committed to the challenges of agribusiness investment in the developing world and certainly not one with a UK base. There is thus a perceived need for a vehicle to harness financial resources and channel them into private sector, sustainable agricultural projects which meet criteria for (modest) investment returns and developmental, social, environmental, ethical, health and safety and corporate governance standards in emerging markets, particularly Africa. Such a fund would complement public sector/donor aid provision to the subsistence sector. A suggested role for DFID Criteria for participation Given what we perceive to be a shortage of relatively 'soft' investment funds for commercial agriculture projects with significant economic benefits we would like to propose that DFID might consider direct or indirect financial support for selected projects/businesses which: a) are technically feasible and generate a satisfactory commercial return, bearing in mind the typical relatively high risk/low reward profile of the agribusiness sector in emerging economies; b) offer good prospects for pro-poor economic development impact (eg local employment creation, outgrower development, promotion of local business participation in input supply and output marketing, etc ) achievable in a sustainable manner; c) engender economic empowerment; d) meet ethical, environmental, social and health and safety criteria according to DFID or similar standards; e) adhere to the principles of corporate social responsibility and adoption of international corporate governance standards; and f) contribute tangibly to local entrepreneurial development and capacity building. Possible intervention by DFID In the context of 'unlocking the potential', Booker Tate would like to suggest that DFID considers support along the following lines: · the provision of loan guarantees or the underwriting of debt for specific projects; · the commitment of equity or grant funds into an agribusiness investment fund thereby lowering the cost of investment capital, underwriting some of the risk and encouraging private sector investment in a project; · the contribution of grant or low cost funds towards the provision of social infrastructure for specific agricultural projects. Jonathan Inneseon to providing opportunities for eco Senior Economist Booker Tate Ltd Jonathan Innes Booker Tate Ltd Masters Court, Church Road Thame, Oxon, OX9 3FA United Kingdom Direct Line: +44 (0)1844 251051 Switchboard: +44 (0)1844 251000 Fax: +44 (0)1844 251020 ________________________________________________________________________ This e-mail has been scanned for all viruses by Star Internet. 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