Examination of Witnesses (Questions 260
- 276)
TUESDAY 25 APRIL 2006
PROFESSOR KEITH
PALMER, MR
MICHAEL PRAGNELL
AND DR
ANDREW BENNETT
Q260 Mr Davies: Probably less than
your sales in one state of the Mid-West or one province of France,
I should imagine.
Mr Pragnell: Certainly less than
one or two states in the mid-west of the United States, yes. But
the reason why we are there is that we have a long-term view,
speaking candidly. As long as we are washing our face—and
we are—then we believe that eventually there will be opportunities
for—
Q261 Mr Davies: How are we going
to get from "now"—because we basically agree about
the lack of market for your products and technologies now—to
"eventually"? What sort of timescale and what sort of—
Mr Pragnell: It starts by getting
agriculture on the public agenda, which is one of the reasons
we welcomed the opportunity to participate in the seminar at Number
11 Downing Street and we launched this book. It is getting recognition
that agriculture is not just about farming; it is a fundamental
stepping-stone in economic development, or can be, for all the
reasons we covered earlier. However, government has a role to
play. There are and have been issues in governance in many countries
in Africa, which I am sure many of the Committee are as familiar
with as we are.
Q262 Mr Davies: Governance?
Mr Pragnell: Governance. Without
a level playing-field and a predictable, legal and judicial system—and
there are issues around land tenure and, frankly, issues around
corruption. All of that is true. We believe that there will be
progress provided we are sensible—and our sales in Africa
are volatile—we do not see a steady growth in sales; sometimes
we see a dip in sales, as we did last year.
Q263 Mr Davies: Basically, we have
got to redesign Africa from the social and political point of
view in order to—
Mr Pragnell: More or less, if
you like.
Q264 Mr Davies: In the meantime,
what can donors do? You say that giving out seeds is not a very
clever thing to do, and giving out food also—we know about
the difficulties of doing that.
Mr Pragnell: Except under extreme
conditions.
Q265 Mr Davies: We all agree under
extreme emergency conditions, of course. There have been some
criticisms by Dr Bennett about investment in irrigation schemes
and maybe other forms of infrastructure and roads. What is your
message?
Dr Bennett: I did not criticise;
I counselled caution. Let us learn the lessons of history and
make sure we do not make mistakes again. We cannot redesign Africa.
Africans redesign it and that is why we should work with certain
organisations like NEPAD. Thirdly, but even more important, is
that there are a lot of people in Africa, and there will continue
to be more of them, and they will need to eat, trade and manage.
Our job is very much to support those processes. That requires
ongoing knowledge and intelligence and that is where I find, particularly
these days talking to people who are on the ground from the companies—know
what is going on. If you ask them what needs to be done, they
have some very good constructive practical ideas and I would like
to work with them on those.
Professor Palmer: Even though
there is not a single answer one has to allow, within the constraints—we
cannot wait to redesign the continent—there is a lot of
initiative and imagination in some of these countries in the private
sector. If you can identify well-motivated individuals who want
to take a leadership role and develop agriculture, we should find
mechanisms for supporting them. It takes a lot of time and it
is difficult, and the failure rate is very high. There is a role
for donors in providing what we sometimes call patient capital.
It does not earn the sorts of rates of return that Syngenta would
require on its investments, but would be targeted on building
infrastructure and all the services to make these businesses successful,
but the absolutely essential element is a local private sector
player that has the imagination and the leadership capability
to drive it forward. Once you find such a situation it will take
years before these will mature.
Mr Pragnell: Can I give two examples
of where we are seeing things that have been done now? Perhaps
surprisingly Rwanda is one such where the Minister of Education,
Science and Technology has within his purview agricultural and
environmental development as well. He of course is Rwandan. He
was educated outside Rwanda in Belgium and was a university professor
for several years but was invited back to come and do precisely
this job. The Rwandans have a very clear view, and a clear series
of very practical initiatives they are taking to rebuild their
rural economy, which will be of enormous benefit to the economy
of Rwanda overall. That would be one example of an African government
that is seizing the problem and setting about it with a series
of practical solutions. We are seeing something of the same thing
but in very different circumstances in Kenya, where we have taken
the opportunity to invest in horticultural development for the
development of exporting. So we are able to produce young plants,
as they are described, the tiny little things you see in pots,
year round under glass, employing about 500 people, so we are
providing employment. We are providing know-how. It is a form
of technology transfer, if you like. But we are also developing
the burgeoning horticultural industry for export markets. We tend
to focus on all things that have not worked and gone wrong, but
there are also examples, as we have seen, where things have gone
right.
Q266 Ann McKechin: Professor Palmer,
on a regular basis our Committee has debated land tenure and the
problems of land tenure as Quentin Davies mentioned, is how people
are able to use credit to extend their businesses or their smallholdings.
I am a little cynical in that my previous occupation was as a
property lawyer, and land tenure reform is a tortuous and long-term
proposal. There is also a question about whether or not the current
value of the land in many parts of sub-Saharan Africa will be
of any value to take credit from. You have been involved in initiatives
in terms of trying to provide credit in agribusiness in southern
Africa. Do you from your experience consider there are workable
alternatives to this rather than simply looking at land reform
as the answer in relation to credit?
Professor Palmer: The ultimate
solution where land tenure arrangements are such that you cannot
get credit—is to change the land tenure arrangements, but
as you suggest this would take generations. The land tenure arrangements
in Africa are traditional and go back longer than I do. My view
has been that you need to create in the interim, as it were, a
facilitation mechanism because farmers cannot buy the inputs they
need to grow crops, they cannot pay for infrastructure unless
they can get credit because they pay for it ultimately out of
the sale of product at the end of the season. At the moment there
is a huge dearth of available credit for those sorts of purposes.
The absence of land rights which you can secure credit on is one
reason, but only one of the reasons for that. The schemes that
I have been involved with are credit guarantee facilities where
lenders benefit not from collateral in land but in part on some
sort of guarantee facility—in some respects like the guarantee
schemes which have been available to American farmers for a very
long time and which have been made available in lots of countries
in the Asian area to facilitate the banking system providing working
capital. It is very, very important how you set such things up
because in the past in Africa they have had guarantee schemes
which have been used to channel resources inappropriately and
there has been a lot of corruption and a lot of very bad investments
were made because people were taking risk only because the risk
was being taken by the guarantee facility. I am very conscious
that if one takes the view that that sort of facility has a role
to play, which I strongly believe—and the devil is in the
detail—if you keep the devil out of the detail you have
a real possibility in Africa in particular to make progress because
there are some very well-researched studies that have been published
recently that show the absence of working capital is a critical
constraint on quite a lot of poor farmers.
Q267 Ann McKechin: It has got to
have business discipline and—
Professor Palmer: It has got to
have a thorough business case and involve the beneficial sharing
of risks, otherwise you have moral hazard problems, and it has
to be structured so that judgments about who should get it and
on what terms is taken by competent professionals not by governments.
In the past, governments were taking those decisions and those
decisions were not guided by business reality.
Q268 Chairman: Professor Palmer,
you talked about the need for infrastructure investment, but why
is it so difficult to prioritise that and difficult to get funding
for that? Everywhere we go, people say, "we need infrastructure;
we need roads and water" and yet it seems to be very difficult
to turn that into reality.
Professor Palmer: Talking about
infrastructure, it is a very big basket of things. People are
usually talking about town water systems and power stations. I
think the most compelling infrastructure investments we are involved
with are very small-scale; it is stringing electricity wires into
an area to provide power for small irrigation systems, which involve
small amounts of money. These are not businesses that can be privatised
in a sense; these are extremely valuable local initiatives where
we are trying to find local people who will invest in them. The
reason it is very difficult to get local private investors involved
is that they have great difficulty accessing money to invest anyway,
but the risks I mentioned earlier—if you build this infrastructure
and if the supply response on the land is not there, you lose
all your money. This is an inherently very risky investment until
it has matured and is generating results. The idea embedded in
Guarantco is for donors to take some of the early risks, structured
on sustainable business models, and then require people that benefit
later when their incomes have gone up and they can afford it,
to pay something back so that money can be reinvested in doing
more of that sort of thing.
Q269 Chairman: That says what is
required, but why have people not got the money? They do not have
the security. How do you crack that problem?
Professor Palmer: Through the
credit enhancement schemes that I have just mentioned. You have
the possibility of using donor resources to share some of the
risks of building a sustainable venture.
Q270 Chairman: Are you confident
you will have the funding?
Professor Palmer: We are doing
very well at the moment. The infrastructure ventures we are involved
in are showing real signs of some success, and I am pretty confident
that this can be made to stack up—if we get both the development
value and the commerciality.
Q271 Joan Ruddock: I was interested
at the fact that there would be actually donors because when we
were in Africa recently we heard both the EU and the World Bank
saying that they were looking at major infrastructure investment
in order to support agriculture, amongst other things, but certainly
support agriculture. I just wondered if, on the scale you are
talking about, those two institutions are relevant, and do you
get support?
Professor Palmer: They are very
relevant in a particular way.
Q272 Joan Ruddock: What kind of conditions
do they put on?
Professor Palmer: What they should
do, in my view, is not make big loans to governments; they should
be putting funds into these much more locally sensitive operations,
providing resources to people who can do things on a scale of
a $5 million project—it is a huge amount of money in Africa,
but does not get noticed in the World Bank. I do not think the
World Bank should be doing all of these things; I think they should
be funding it and finding more nimble channels to implement them.
Q273 Joan Ruddock: That is my impression
too, but I suspect that is not what they plan to do.
Professor Palmer: I cannot speak
for them.
Q274 Chairman: Wherever you go, if
you ask any small business about expansion or development, they
will say "access to funding". When you ask the financiers,
they say, "there is no shortage of money". They all
want bigger projects that are easier to manage. They cannot be
bothered with all this hand-holding, and it seems to me that in
Africa it is especially important. I have a little bee in my bonnet
about the role of the Highlands and Islands Development Board
in its early years twenty or forty years ago where it put up money
which produced a good return, but when challenged as to why they
need to exist, their argument was that actually the conventional
forces would not do it but the overall return was quite respectable.
Is that what you are trying to do?
Professor Palmer: It is what we
are trying to do. At the moment the development finance institutions,
not just the World Bank but everyone I have spoken to, say they
would like to have more exposure to agriculture, but none of them
are doing it. There is hardly any investment. All we are about
is trying to create the business environment in which you can
make these things work. It is too early to say it is definitely
going to work, but the intelligent use of donor money on a very
small scale can catalyse these other private investors coming
in, and development finance.
Q275 Chairman: I do not want to ask
you for a disproportionate response, but do you have any capacity
to give us a case study?
Professor Palmer: I attached as
an appendix to my evidence some 14 case studies because I think
sometimes these claims are unconvincing unless you have seen the
evidence. One particular one that we are very proud of is in Uganda
where there are some very poor farmers who are out-growers to
a palm oil project that is going forward there, and they did not
have access to a ferry. It is on an island and they did not have
access to a ferry that provided an adequate a service for transporting
the crops. The roads were substandard; the electricity did not
exist and there was no water into the houses. In less than 12
months we have put together a project that will benefit 5,000
out-growers. It will cost almost a trivial amount of money. That
is because although we are only spending a trivial amount of money,
we are bringing in other partners who will fund it once the structuring
of the project is put together. All the things we are trying to
do is catalysing and creating possibilities so that other people
will bring their money to the table.
Q276 Joan Ruddock: It raises such
worries in many people's minds immediately: I hope this is a sustainable
project environmentally.
Professor Palmer: Please rest
assured because we are spending public money, but we would anyway
have the highest environmental standards.
Chairman: Thank you very much indeed.
I am sorry about the time but it has been very useful.
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