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
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."