World Development Report - 2008

Agriculture for development

by Dr. (Ms) S.J.M.N.G. Samarakoon

[email protected]
 

In the 21st century, agriculture continues to be a fundamental instrument for sustainable development and poverty reduction. The World Bank Team completed World Development Report (WDR) - to identify the importance of agriculture in poverty reduction and in growth; it admirably outlines the challenges that agriculture faces, and the World Bank is committed to actively taking up these challenges and moving this World Development Report forward into action with their partners.

This WDR addresses three main issues: What can agriculture do for development?; What are the effective instruments in using agriculture for development? And how can agriculture" for "development agendas best be implemented? Agriculture is vital for development.

The World Development Report (WDR) this year the 30th in the series is focusing on agriculture and development for the first time in 25 years. Major changes have occurred since then that make the role of agriculture and its priorities for development quite different. What has not changed, however, is the central role that agriculture can play to generate growth and to reduce world poverty, which is still overwhelmingly rural and will be so for the decades to come.

Agriculture vital

The main message for this report is that agriculture is vital for development, and what we need to bring is a smallholder-based productivity revolution to Africa in order to generate growth.

The World Bank also needs to reduce massive poverty and widening rural-urban income disparities in countries where growth has taken off. Doing this will require planning agriculture for development agendas for specific regions and countries and mobilising the needed skills, political commitments, and resources.

This WDR warns that the Millennium Development Goal of halving by 2015 the proportion of people living in extreme poverty and suffering from hunger will only be met in poor countries if much greater attention is given to agriculture as an instrument for development.

Today, three out of every four people in developing countries, 900 million individuals below the $ 1 per day poverty line, live in rural areas, most depend directly or indirectly on agriculture for livelihoods. For these people, agriculture is vitally important , and it would be an illusion to believe that they will simply be absorbed by growth taking place outside agriculture: the examples of China or India in the recent years show that this would indeed be extremely difficult.

WDR explains how success depends on improving local, national and global governance; and it explores links between agriculture and the management of natural resources and the environment, positing that while the environment cost of agricultural growth has been high, it can be reduced, and indeed, agriculture can provide critical environmental services.

More generally, this report is an important input into the overall development agenda for three major reasons.

First, it contributes to the central pillars of the Ban's strategy of poverty reduction, environmental sustainability, and better governance. The report gives special emphasis to Sub-Saharan Africa, and it also touches on new topics of interest, from bio-fuels to trade reforms to genetically modified organisms.

Second, the WDR extends ongoing research and other analytical work, based on micro data provided by household surveys in developing typologies of rural households and pathways out of poverty. It also synthesises evidence from evaluations of public policy interventions across many countries.

Finally, the report draws on the Bank's growing body of operational work, which includes regional and country studies on agriculture and rural development as well as lending.

Challenge for governments

In effect, agricultural development is a challenge for government in all countries, rich and poor, but this WDR describes examples across many different settings where smallholder farmers and rural workers, supported by good policies and institutions, have been able to move out of poverty, We see this as a major contribution to our understanding of development.

We start with a striking observation that there is a discrepancy between the 75 per cent of the world's poor that we find located in rural areas, most of whom derive their livelihoods from agriculture, and at the same time, only 4 per cent of overseas development assistance is going to agriculture, only 4 percent of pubic spending in Africa going to agriculture.

This has been in the making for some time. If you go back to 1990, the share of overseas development assistance going to agriculture was 12 percent.

So clearly there is a major discrepancy, and that's the main message of the WDR- how could this discrepancy, be remedied, how to go about it, what could be achieved differently in different parts of the world.

The Millennium Development Goals to be met require that agriculture be given a more prominent place in government and donor priorities.

However, this is not saying let's go back to business as usual as it was in the 1990s and before .It says we need to redefine the role of the state, the role of the market and the private sector, and the role of the civil society in order to do that, and that's the main challenge in a sense as to how this is going to be done differently in different parts of the world.

What can agriculture do for development? There are three dimensions "a trigger of growth important for Sub-Saharan Africa. It is a large sector.

It is very important source of food security and wage competitiveness, particularly in countries which are landlocked, where transportation costs are high, where there are high transaction costs to bring food into those domestic markets.

And finally, looking at comparative advantage, what is obvious that for a number of years to come, agriculture will be the main source of comparative advantage for those countries.

And the World Bank confirm that it can be done. Growth has accelerated in Africa. Countries such as China, India and Vietnam, that were previously in the agricultural- based category are now well advanced and are experiencing sustained economic growth, and Sub-Saharan Africa joining the process of accelerating agricultural growth.

It is important as a source of livelihood,and there, the figures are in a sense quite impressive ,with 2,5 billion people- half of humanity "in the developing countries depending on agriculture; 900 million extreme poor; and we see that rural poverty keeps on increasing, especially in Sub-Saharan Africa and South Asia. Growth coming out of agriculture is much more effective than growth coming from other sectors in terms of raising the income of the poor. And this is not surprising given where the poor are and what the poor are doing.

Finally, it is an important source of environmental services. It uses 80 per cent of freshwater resources, contributes 21 per cent of greenhouse gases, and yet again it can be done. The emission of greenhouse gases can be reduced; environmental services can be provided, and sustainable systems can be developed.

Agriculture operates in three distinct rural worlds. This WDR provides several new insights to guide more effective use of agriculture for development. It differentiates policies by three country types defined by their share of GDP in agriculture, and they make a distinction between agricultural based economies, transforming economies and urbanized economies. It lays out new opportunities to use agriculture for development which are linked essentially to the globalization process.

The WDR recognizes as agricultural "based countries, where the share of the poor on the horizontal axis is very large , ranging from 60 to 70 to 95 percent in China, and on the vertical axis, where the share that agriculture contributes to growth is also quite important. This group of countries has 417 million rural inhabitants, mainly in Sub- Saharan countries. Eighty-two percent of the rural Sub "Saharan population lives in agriculture "based countries. Using agriculture as the basis for economic growth in the agriculture - based countries requires a productivity revolution in smallholder farming.

Second, countries that we call the transforming countries, where certainly growth has accelerated in other sectors of the economy, but what we see is the rural population being left behind, rising rural/urban disparities, and major political tensions coming out of this.

Hence, we put a lot of emphasis on how to reduce those disparities, 2.2 billion rural people being affected by this. Ninety-eight percent of the rural population in South Asia is in transforming countries. Addressing income disparities in transforming countries requires a comprehensive approach that pursues multiple pathways out of poverty" shifting to high-value agriculture , decentralizing nonfarm economic activity to rural areas, and providing assistance to help move people out of agriculture.

Finally, what we call the urbanized countries, where agriculture is not so much a large sector in terms of economic growth. There are sub sectors of the agricultural sector which are quite important in terms of growth but where poverty is still 40, 30, 60 percent located in the rural areas. Included in this group of 255 million rural inhabitants are most countries in Latin America and the Caribbean.

Turning point

What are effective instruments in using agriculture for development? There are new opportunities, and in a sense, The World Bank is at a turning point in the possibility of using agriculture much more effectively than in the past in terms of support to development. There has been reduced taxation; there is a new agriculture of high-value crops; the importance of the livestock economy; nontraditional exports, and also, biofuel is coming into the picture in terms of providing very important sources of effective demand for agriculture.

Very important institutional and technological innovations, institutions, for example, in terms of finance ; for example, in terms of using IT for providing better ways of reducing transaction costs and giving access to financial service and insurance to smallholders; important new technological breakthroughs, for instance, for new rice for Africa that is a major source of increasing yields and drought resistance and is yet partially being diffused; new rules for the state, market, and civil society"this is one of the main points that the World Bank stress in the World Development Report "the state has to assume new functions.

The private sector and the market are assuming new functions as well, They are becoming very important actors in terms of how agriculture fits into development. Civil society, producers, and organisations having new roles, not only to service their members, but also to give voice to the rural population in policy discussions and international debate.

Then , finally the paid rise of the whole nonfarm economy ,providing an important source of complements in terms of source of income for the rural population, which can move on to the farm, to the rural nonfarm economy, but very importantly have diversified sources of income , where you keep a foot in the farm, and at the same time, you find employment in the rural nonfarm economy. That is quite important in terms of the skills that it takes to be employed in those sectors and the way to create those jobs with a focus on territorial development.

There are obviously major challenges-constraints on growth, trade barriers that are still there, water scarcity, land degradation, climate change. A very big challenge is how to make this growth be more pro-poor, participation of smallholders and the way in which the labour markets are going to deliver pathways out of poverty via levels of remuneration and types of employment which are not basically poverty traps, reproducing poverty all the time.

And finally, as important implementation bottlenecks, the WDR places a lot of emphasis on the issue of governance. We need better ways by which agriculture is going to be governed for the national level to the decentralized municipal levels to the way communities can manage their own affairs.

Genetically Modified Organisms (GMOs) have been under used. Research has not been directed at the needs of smallholders in terms of what GMOs can contribute.

Biofuels can be important, but they have to be used with caution. We need new technologies, we need greater efficiency, we need to reconcile the conflict between biofuels and food and food prices, and we need to reconcile the conflict between biofuels and expansion into marginal areas as it has impact on the environment.

Finally, we say basically that development and environment cannot be separated. They have to be managed jointly. The issue of climate change is a very serious issue. We see the impact already happening, yet we do not see enough action following in the wake of the impacts that witness.

How can agriculture "for development agendas best be implemented? A four- pronged approach:

1) more efficient markets; 2)smallholder competitiveness; 3) entry into the markets for smallholders currently in the subsistence economy, and 4) the importance of income diversification into labour markets of the rural nonfarm economies.

Safety nets

Here, what the World Bank proposes is a multi-pronged, multi-pathway approach to rural development and to agriculture, which is a key contributor, moving to more high-value activities on the farm, extending the green revolution to marginal areas; very importantly, the decentralization of economic activity, successfully done in China but not sufficiently done in other parts of those countries; investing massively in rural human capital in order to allow those populations to move on to employment in other sectors of the economy; and finally, as people move and people take chances, the very great importance of putting safety nets into place so that they can indeed take chances and redefine their livelihoods and not fall into poverty in case there are setbacks.

The green revolution of the 1970s and 1980s in Asia and Latin America saw cereal productions expand and famine averted. Then, agriculture was seen as a key development tool throughout the developing world and among development investors.

Upward trend assistance to agriculture Since then, the World Agencies have reversed the trend. The share of lending for agriculture and rural development is growing again and is currently 13 percent of all lending now.

The fiscal year just ended was the fourth straight year of increased World Bank commitments to the sector. Overall, loans and grants for the agriculture sector now stand at more than $3 billion per year.

Moreover, a significant portion of the Bank's agriculture lending, about 60 percent in Financial Year 2007, is going to those Regions that rely most on agriculture, with very high concentrations of rural poverty-that is, going to Sub-Saharan Africa and to South Asia.

How do we put these recommendations into action? In terms of making the WDR operational, the team needs to be thinking about their work on three different levels-the global level, local and regional, and institutional advances.

At the global level, the WDR stresses the importance of global public goods to allow agriculture to play its key role in sustainable growth, poverty alleviation, and environmental services.

The Bank does not operate in a development vacuum. Each Region of the Bank is actively involved with the key development stakeholders on how they will share and implement the WDR's messages. For instance, the Africa Region of the Bank is linking with the Comprehensive African Agriculture Development Program to engage in country roundtables on national agricultural programs.

Our Regions have pledged to increase the quantity and quality of impact of evaluation. For instance, East Asia and the South Asia Regions are increasing their impact assessment to develop ways to share lessons more systematically across projects and countries.

A major area will be supporting the role of public expenditure for agriculture. Clearly, more expenditure is needed, but also better expenditure on key public goods. For example, the South Asia Region has its upcoming work managing the rural transformation, and the Europe and Central Asia Region is working on food safety in Central Asia.

Integration

Fourth is to integrate. The Bank's Regions are working to find linkages across sectors that are needed to make agriculture more sustainable and more competitive.

In the Middle East and North Africa Regions, for example, we will be holding workshops on the Bank's Human Development Unit to develop cash transfer programs and rural vocational training. Latin America and the Caribbean Region are expanding their work on territorial development to embrace and enhance the nonfarm economy, linking infrastructure, private sector partnerships, and agricultural investments.

The writer is a Senior Lecturer in Economics of the Sabaragamuwa University, Belihuloya