How can investors help the hungry?

Possible steps include financing small farmers and shunning commodity futures.

By G. Jeffrey MacDonald | Correspondent of The Christian Science Monitor

from the August 25, 2008 edition

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When skyrocketing food prices triggered riots in more than a dozen countries from Haiti to Egypt earlier this year, investors committed to pursuing social justice weren't sure what to do.

"It's hard to figure out who to blame for the food crisis," says Lloyd Kurtz, principal at Nelson Capital Management, a private money-management firm in Palo Alto, Calif., via e-mail from Malaysia. "Social investment has been most influential when there was an actor that could be identified – e.g., the tobacco companies, the South African apartheid regime, etc. But the causes of the global food crisis are multifaceted.… That's probably why you haven't seen a coherent response from the social-investment community."

But some social investors are trying to find ways to tackle a crisis that has pushed an estimated 130 million people into hunger. In June, the Interfaith Center on Corporate Responsibility launched an initiative to tackle food-related issues and propose investing guidelines for the 275 institutional investors in its membership. The project aims to encourage sustainable agriculture worldwide.

Meanwhile, socially responsible (SR) mutual funds are in fact-finding mode. Oxfam America, an antipoverty group, has recently been discussing the food crisis with SR fund staffers.

"A lot of [SR funds] are interested in the issue, but have not yet found the grounds on which they're going to engage different private sector actors who could have an influence, either positively or negatively, on the food crisis," says Rohit Mohani, senior campaigns adviser for Oxfam America.

Relief agencies have long emphasized the need for public-policy measures to alleviate hunger. But because the current crisis bears the private sector's fingerprints on several fronts, food-security experts are offering insights to help investors advance solutions – and avoid compounding problems.

"The mobilization of capital for agricultural growth, especially in the small-farm economy, definitely cannot come only from the public sector," says Joachim von Braun, director general of the International Food Policy Research Institute, a food-security think tank in Washington, D.C. "So the private sector has a very important role to play in order to mitigate and overcome the current food crisis."

To make a positive difference, some food-policy analysts say people need to consider how their investments affect four areas: commodity prices, indigenous farming, biofuel development, and funding and logistical assistance for feeding programs.

The problem with commodities

Multiple factors help explain why the world in the past 18 months saw such stunning developments as a doubling in wheat prices and tripling in rice prices, according to Olivier De Schutter, United Nations' special rapporteur on the right to food. He says climate change, for instance, and a crippling drought in Australia played roles. But speculation in commodity markets, driven in part by investors seeking havens from slumping stocks, has, in his view, contributed heavily to hunger by pushing food prices out of reach for tens of millions.

"This has been a serious factor aggravating the crisis," Mr. De Schutter says.

Concerned investors need to know, De Schutter says, that small farmers in developing nations are seldom the beneficiaries of spikes in agricultural commodity prices. He plans to report next month to the UN Human Rights Council that retailers and global agribusiness firms have benefited disproportionately from recent price hikes. For his part, Mr. von Braun urges social investors to shun commodity futures trading and instead provide "what small-farm agriculture really needs, [which] is long-term investment."

Reaching out to small farmers

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