How can investors help the hungry?

Possible steps include financing small farmers and shunning commodity futures.

from the August 25, 2008 edition

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Microfinance investing, through an agency such as Kiva.org or Accion International, can put capital in the hands of small farmers in developing nations. This approach helps poor nations feed themselves as they preserve their agricultural resources, says Monica Marshall, deputy director of private sector partnerships for the World Food Program, the food-aid agency of the United Nations. Accredited investors (those worth more than $1 million or earning more than $200,000 per year) have additional options, such as bankrolling farmer cooperatives in Africa and Latin America through Root Capital in Cambridge, Mass. Rates paid on capital vary in microfinance, but returns seldom outpace today's inflation rates.

Investors can also support indigenous farmers, von Braun says, by helping make drought-resistant seeds and effective fertilizers available at prices they can afford.

Using good-quality seeds, he says, is essential to boost crop yields by as much as 400 percent on a parcel of land. But such seed technology is routinely under patent and made available to international agribusinesses at premium prices.

"One issue here is whether relatively small farmers can now afford the higher cost that goes with this new technology being in the private domain," says Erik Thorbecke, a food economist at Cornell University and author of "The Impact of Globalization on the World's Poor." Seedmakers, he says, should perhaps emulate "pharmaceutical companies that charge very high fees for AIDS medicines or drugs but are willing to provide them at lower rates to the poor."

Making seeds available by donation, as Monsanto has done in Malawi, or at affordable prices may, in von Braun's view, offer a promising model. It's one, he says, for investors to consider encouraging among a variety of agricultural supply companies that aspire to grow their international markets.

In terms of investing in the production of biofuels, such as corn-based ethanol, the advice from food-security experts is to be wary.

"Ethically motivated investors should stay away from grain- and oilseed-based biofuels because these biofuels by now are the cause of about one-third of the overall increase in food prices," von Braun says. In select cases, he says, development of certain biofuels can be justified, but "the large-scale investment in Europe and North America has been extremely damaging to world food security."

Some social investors are already reflecting experts' advice in their practices. For instance, Trillium Asset Management, a private money-management firm with an SR focus, wasn't buying stock in ethanol producers even when they seemed to hold great promise in 2005 and 2006, and it's not buying their stock now. Even so, the firm isn't sure how it might put a dent in the global food crisis.

"Via the tools that we wield most effectively (screening, shareholder engagement, proxy voting), we haven't found one that would allow us to have a direct, broad impact on hunger alleviation," writes Shelley Alpern, director of social research and advocacy, in an e-mail.

Workers on the food-crisis front lines are nevertheless convinced that private-sector efforts can and should have an impact. Several companies have won kudos, for instance, by offering both logistical and financial support when agencies linked to the World Food Program jump into action. Ms. Marshall credits the Dutch shipping company TNT, for instance, with supplying not just donations but also planes, trucks, drivers, and logistical expertise when needed in executing particular feeding operations.

What social investors will do to tackle the food crisis remains an open question. But observers expect to see increasingly proactive measures in the years ahead.

"As an issue, [the food crisis] is kind of built for social investment," says David Wood, director of the Institute for Responsible Investment at Boston College. "It clearly has ethical implications for how we evaluate what business does, and it has important financial considerations for long-term returns.… We haven't seen as much activism on this as we will see. If one were to predict future trends, this will be a big one."

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