Policy conundrum in allocating financial resources

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 is an experienced agricultural economist and is currently the group executive: Impact & Partnerships at the Agricultural Research Council.