Pol­icy co­nun­drum in al­lo­cat­ing fi­nan­cial re­sources

Pretoria News - - BUSINESS REPORT | FOCUS - Dr Thulasizwe Mkha­bela is an ex­pe­ri­enced agri­cul­tural econ­o­mist and is cur­rently the group ex­ec­u­tive: Im­pact & Part­ner­ships at the Agri­cul­tural Re­search Coun­cil.

AS THE GLOBAL pop­u­la­tion con­tin­ues to in­crease, de­mand for food will be ex­pected to al­most dou­ble at least un­til 2050.

The pop­u­la­tion, thus food de­mand, con­tin­ues to in­crease while the nat­u­ral re­sources are be­ing de­pleted and the land avail­able to pro­duce food from is fi­nite.

There is also the in­creas­ing com­pe­ti­tion for re­sources such as cap­i­tal and public in­vest­ment from other sec­tors. This com­pe­ti­tion is par­tic­u­larly pro­nounced in a coun­try such as South Africa.

The coun­try is con­tin­u­ally faced with a plethora of press­ing needs such as poverty, un­em­ploy­ment and in­equal­ity.

It presents pol­icy mak­ers with a co­nun­drum when it comes to the al­lo­ca­tion of the lim­ited fi­nan­cial re­sources at their dis­posal.

How­ever, as a coun­try, we should never lose sight of the ever-present food se­cu­rity chal­lenge com­pounded by the so-called triple chal­lenges faced by South Africa.

For­tu­nately, the triple chal­lenge and food se­cu­rity are not mu­tu­ally exclusive and can be ad­dressed con­cur­rently.

Food se­cu­rity is a com­plex phe­nom­e­non that has dif­fer­ent con­no­ta­tions to dif­fer­ent peo­ple.

While there are many def­i­ni­tions on it, the uni­ver­sally ac­cepted one is “a sit­u­a­tion that ex­ists when all peo­ple, at all times, have phys­i­cal, so­cial and eco­nomic ac­cess to suf­fi­cient, safe and nu­tri­tious food that meets their di­etary needs and food pref­er­ences for an ac­tive and healthy life”.

South Africa has a di­choto­mous food se­cu­rity sta­tus: while se­cure at na­tional level, there are still many house­holds that do not have food and face hunger.

Ac­cord­ing to Sta­tis­tics South Africa, 6.8 mil­lion peo­ple and ap­prox­i­mately 1.7m house­holds ex­pe­ri­enced hunger, in­di­cat­ing food in­se­cu­rity in 2017.

There is con­sen­sus that in­vest­ment in agri­cul­tural re­search and de­vel­op­ment (R&D) en­ables the sec­tor to im­prove pro­duc­tiv­ity, com­pet­i­tive­ness and sub­se­quently boosts the en­tire econ­omy.

How­ever, spend­ing on R&D has de­te­ri­o­rated over the past two decades due to low bud­get al­lo­ca­tion to state in­sti­tu­tions such as the Agri­cul­tural Re­search Coun­cil (ARC).

Em­pir­i­cal ev­i­dence shows that real spend­ing av­er­aged a 5.1 per­cent an­nual growth rate be­tween 1911 and 1950, ris­ing to an an­nual av­er­age of 7 per­cent from 1950 to 1971 and there­after it ceased to grow.

Ac­cord­ing to the De­part­ment of Sci­ence and Tech­nol­ogy (DST 2017), the coun­try’s gross ex­pen­di­ture on R&D was es­ti­mated at R32.3 bil­lion in 2017, where the public purse con­trib­uted 44.6 per­cent, pri­vate sec­tor funded 38.9 per­cent and the rest came from for­eign sources.

Of this spend­ing, the agri­cul­tural sec­tor ac­counted for 8 per­cent, which is con­sid­ered low for a coun­try faced with de­vel­op­men­tal is­sues such as low crop yields, in­creas­ing in­ci­dences of pests and dis­ease out­breaks, and the grow­ing in­equal­ity gap.

A re­cent study mea­sured the op­por­tu­nity cost of in­ad­e­quate public in­vest­ment in agri­cul­tural re­search and de­vel­op­ment on house­hold food se­cu­rity.

Op­por­tu­nity cost speaks to the ben­e­fits of in­creased food se­cu­rity fore­gone by not al­lo­cat­ing suf­fi­cient public fi­nances to re­search in agri­cul­ture.

Ad­mit­tedly, food se­cu­rity is a mul­ti­fac­eted phe­nom­e­non, in­clud­ing food avail­abil­ity and ac­cess.

Ac­cess is re­lated to af­ford­abil­ity, which in turn, is de­ter­mined largely by in­come and food prices, among other things.

To mea­sure the im­pli­ca­tions of the in­vest­ments three pol­icy sce­nar­ios were cre­ated:

(i) Op­por­tu­nity cost sce­nario of low­er­ing public spend­ing com­pared to the base­line (2011).

(ii) In­creas­ing R&D spend by 5 per­cent over the base­line pe­riod (2011).

(iii) In­creas­ing public spend by 12 per­cent above the 2011 base­line.

The bud­get al­lo­ca­tion to the ARC be­tween 1992 and 2017 was used to cal­cu­late changes in R&D spend.

The study found that in­creas­ing to­tal in­vest­ment by 12 per­cent above 2011 base­line over the next five years would re­duce food prices by up to 6.8 per­cent by 2022.

Fur­ther­more, the study found that low agri­cul­tural R&D spend­ing be­tween 2011 and 2017 ad­versely im­pacted house­hold ex­pen­di­ture.

Con­sumers paid R5.3bn more on food pur­chases be­tween 2011 and 2017 and this could in­crease to R12.4bn by 2022 rel­a­tive to the base­line if spend­ing is not in­creased.

The con­se­quence of es­ca­lat­ing food prices has ex­ac­er­bated food in­se­cu­rity in the coun­try.

These re­sults clearly but­tress the im­por­tance of in­vest­ing in R&D to pro­mote in­no­va­tions, thus re­duc­ing pres­sure of food price es­ca­la­tions.

South Africa should se­ri­ously con­sider in­creas­ing ex­pen­di­ture on R&D and fund in­sti­tu­tions such as the ARC ad­e­quately if the coun­try is to get out of the un­em­ploy­ment quag­mire it finds it­self in to­day and con­front the triple chal­lenge of un­em­ploy­ment, in­equal­ity and poverty head on.

DR THULASIZWE MKHA­BELA

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