Unpacking the linkages between agriculture and the extractive sector

Food Security19 Mar 2013Isabelle Ramdoo

Mining companies can contribute to the development of rural communities by encouraging and supporting local farmers to develop more productive activities, beyond their subsistence activities.

When one thinks of the link between mining and agriculture, what immediately comes to mind are the negative impacts that unbridled mining activities have on land, water, agriculture and people’s livelihoods. Experience has indeed often proved this right: where these two sectors co-exist, they look daggers at each other and are engaged in constant battles over the use of common resources and over the detrimental effects that mining activities have on the communities living around them.

In an attempt to best manage and mitigate the implications of mining on agriculture in a sustainable manner, policies are therefore designed in a mining vs agriculture framework. This is perfectly logical and necessary. However, it leaves the glass half empty: while addressing negative impacts makes the lives of the millions of small agricultural farmers a bit better, it does not automatically lift them out of poverty or provide them with better economic and socially beneficial opportunities.

More therefore needs to be done and where mining and agriculture are deemed to co-exist, policies should be structured with a mining and agriculture framework instead. In this case everyone could potentially win: companies will secure their social licence to operate, local communities will have better economic prospects and political elites will gain on both fronts.

Mining companies can contribute to the development of local communities perhaps by moving a step beyond traditional corporate social responsibility towards corporate economic responsibility activities. They can play a constructive role by providing complementary support to local communities in developing productive economic activities. These can take two main forms, namely:

  1. Supporting the development of linkages within the extractive sector, by providing services to the sector or by developing upstream and downstream industries to transform raw materials into higher value-added activities.
  2. Promoting linkages outside the extractive sector, notably in the field of agriculture, given its importance in many African resource-rich countries.

The need to set up a strong industrial base and hence foster industrial linkages is axiomatic and undisputable. But complementary to this, unpacking the linkages between agriculture and mining is equally important for self-evident reasons: today agriculture is the engine of growth in many African countries, which own a quarter of global arable land. Agriculture is estimated to contribute to 30% of gross domestic product on average and 60% of labour force employment. However, rural subsistence farming still make the bulk of today’s agricultural production: 85% of farmers grow on less than 2 hectares and employ 65% of total agricultural labour force.

Since the 2008 food price crisis evoked massive popular uprisings, it became increasingly clear to governments that they need to strengthen food security policies in order to maintain social peace and stay in power.

Beyond being a global public good, food security is a politically sensitive issue. It makes or breaks a government and it can glorify or destitute politicians. For sensibly different reasons, extractive resources are also politically sensitive: they are known to generate rent-seeking behaviours which, in turn, create, structure and entertain incentives for all those involved in the business. They have had a bearing on the (mis)management of resources and have often shaped governments’ relationship with citizens, in essence through the tax-accountability nexus.

Governments therefore have strong interests in making sure that policies in both sectors are designed in such a way that they generate positive outcomes and complement each other, rather than antagonise each other. This way, benefits from extractive resources will trickle down to the rest of the economy and act as a catalyst for broader economic transformation.

Governments, acting together with mining companies, should use the current windfall gains from the extractive sector to compensate and lift the agricultural sector to a higher level of development, notably by using financial resources from the extractive sector to incentivise agriculture projects. Support to value chain development and to local entrepreneurship in agribusiness is therefore key.

Extractive companies themselves can also play a lead role in supporting agricultural economic activities in areas where they operate. The purpose is not to turn miners into farmers but rather to encourage and support local farmers to develop more productive activities, beyond their subsistence activities. This can be a way to reduce risks of potential unrest and therefore to maintain their social license to operate in regions where agriculture is indeed a key sector, but where farmers struggle to provide for their own subsistence.

A number of such private initiatives exist. For instance, in Madagascar, Sherritt’s Ambatovy “buy locally, hire locally” policy is working towards supporting local entrepreneurship and the local economy in general. Similarly, Newmont Ghana Gold’s Ahfo Agribusiness Growth Initiative in Africa, and Cuncashca Agribusiness Development in Peru supported by Barrick Gold, have shown that companies’ support to farmers-based organisations can make a positive contribution to economic activities, productivity and job creation. Outside Africa, notably in Australia and Chile there are interesting experiences of mining companies that have successfully supported the local agricultural sector.

In their endeavour to work better with local communities, there are basically three ways in which extractive companies can support the creation of linkages with and for local farmers, namely:

  1. Supporting programmes to encourage value chain activities and proxy business in existing farming activities or encouraging the development of new, integrated activities from farm to fork.
  2. Pursing a breadbasket approach, when industries operate in regions that have high agricultural potential by virtue of their relatively good climate or soil endowments. They can support linkages between small farmers and the larger, market-oriented farming operations, encouraging small farmers to grow staple food and helping them to sell their surpluses on the local/national/regional markets.
  3. Developing spatial agricultural activities along infrastructure corridors, which serve first and foremost the needs of the extractive sector. This includes support to storage, warehousing and processing facilities around already existing major infrastructures and support to the development of clusters of activities or regional agricultural value chains, in and across countries that are serviced by these corridors.

Identifying and addressing the missing links between a prosperous extractive sector and other productive sectors, notably agriculture, is a priority if resource-rich African countries want to transform and reshape their economic landscapes away from the excessive dependency on few resources.

This will necessitate clear policy guidelines from governments, clear engagements from mining companies, as well as the capacity and willingness of local entrepreneurs to take up the challenge.