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A Policy Agenda for Pro-Poor Agricultural Growth1 - Long Version
Andrew Dorward, Jonathan Kydd, Jamie Morrison, and Ian Urey2
Imperial College of Science, Technology and Medicine, Wye, Ashford, Kent, TN25 5AH, UK
March 2002
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[Download complete paper  - 1.3Mb ~ 7 min (71 pages)]
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Executive Summary
This working paper is an input to stimulate discussion in the DFID funded research project on ‘Institutions and Economic Policies for Pro-Poor Agricultural Growth’. The paper begins with a brief review of changes in poverty incidence over the last thirty years and notes that although there have been major advances in economic growth and in poverty reduction in some parts of the world (notably East and South East Asia), in South Asia and Sub Saharan Africa economic growth has been low and the incidence and numbers of poor people remain very high. In these regions poverty is predominantly a rural phenomenon and current projections for poverty reduction suggest that these regions are likely to continue to hold very large numbers of very poor people in the foreseeable future.
In considering how rural poverty may be attacked in Sub Saharan Africa and in South Asia, the paper examines the processes which were important in poverty reduction in East and South East Asia. Theoretical arguments and empirical evidence suggest that in poor agrarian economies both the processes of structural change within national economies and micro-economic relations within rural economies give agriculture a pre-eminent and unique role in economic development and in poverty reduction. Rural growth is seen to be most effective in simulating sustained poverty reduction where there are strong consumption linkages between the sector ‘driving’ growth and other sectors. As compared with non-farm activities, farm activities tend to possess a variety of features that can make them ‘linkage rich’ drivers of economic growth: high average budget shares; access to urban and export markets; lower requirements for scarce capital, knowledge, infrastructure and institutions; relatively high demands for unskilled labour; relatively low barriers to entry; and large numbers of agricultural labourers. Historically there are few examples of rapid and large scale reductions in severe poverty which have not been associated with significant increases in agricultural productivity. ‘Linkage rich’ development is also encouraged by more equitable distribution of income and by local consumption patterns favouring local rather than imported goods and services.
The paper then identifies three different patterns of agricultural growth in developing countries: extensive export based growth; intensive export based growth; and intensive cereal based growth. It is argued that the last has the strongest poverty reducing linkage characteristics and has been most effective in driving poverty reduction in the 20th century (in the Asian green revolutions). The conditions necessary for such growth to occur are discussed and include large (international or national) output markets, stable macroeconomic and sectoral policy, a conducive institutional environment, supportive context specific institutional arrangements, dynamic technological and market opportunities, access to seasonal crop finance, good physical infrastructure, appropriate technologies, and dynamic local institutions and processes supporting technological and institutional change.
However, reliance on pro-poor agricultural growth as the main weapon against rural poverty today may not work if today’s rural poor face more difficult conditions than those faced in the green revolution areas in the latter part of the 20th century. Agricultural led poverty reducing growth faces greater challenges in today’s poor rural areas, due to:
- less productive and more risky agro-ecological conditions;
- a more limited range of less productive and more risky technologies;
- lower stocks of and/or access to physical and financial capital, with increasing uncertainty and loss of assets as a result of HIV/AIDS;
- greater costs in developing, delivering and accessing services (for input or output markets, or research, extension, health or education services)
- greater competition in output markets
- poorer access to input and financial services
- more rapidly changing and hence less stable and more uncertain institutions
These features together increase risk and uncertainty and raise costs and/or lower returns to agricultural investment. Many of these difficulties are endogenous, the result of agro-ecological, locational, demographic and socio-economic conditions in these areas. An already difficult task has unfortunately been made harder by broader processes of change (for example HIV/AIDS and some aspects of globalisation and of the biotechnology revolution). However, it is argued that some of the difficulties faced in today’s poorer rural areas are the direct result of current policies supporting liberalisation and withdrawal of the state. These policies, implemented because government interventions in agricultural markets became both increasingly ineffective (indeed damaging) and fiscally unsustainable, have also removed from the policy toolkit critical tools for addressing problems of high transaction costs and risks inducing market failures. A review of the Asian green revolutions and the short lived maize based African green revolutions of the 80s and early 90s suggests that these tools were widely used and important in supporting sometimes short periods of critical market and technological development in the process of rural growth.
This leaves policy makers with a major challenge: external action to reduce transaction costs and raise the profitability of agricultural intensification is both more important in today’s poor rural areas (as compared with earlier green revolution areas) and more difficult and costly. New thinking is needed to develop policy measures that learn from both the failures and successes of past interventions. Such measures must deliver reduced transaction costs and increased profitability to farmers and traders where high transaction costs and low profits are constraining pro-poor market development. They must, however, also avoid the high fiscal costs, unsustainability, inefficiency and ineffectiveness of many of the market interventionist policies of the past.
It is possible that the conditions faced in many of today’s poorer areas are too difficult and challenging for agriculture to be a viable driver for pro-poor economic growth. However, before a conclusion is reached on where they will and will not work, it is important to either identify a viable alternative strategy for achieving such growth, or to recognise the social, economic and fiscal costs implicit in a strategy that fails to deliver growth to support the livelihoods of large numbers of poor people.
If pro-poor agricultural growth is to be promoted, some policy options are not controversial: the benefits of education, health, improved governance, communications infrastructure, and macro-economic stability are widely recognised, and their benefits spread beyond agriculture. There is less agreement about the benefits of agricultural research and extension, despite numerous studies showing high returns to investment in research and extension. Improvements in these areas, however, although perhaps sufficient for operation of already developed markets are not sufficient for the development of new markets in poor rural areas. To get markets going in poor rural areas, more specific interventions are needed to reduce farmers’ and traders’ transaction costs and increase their profits in rapid entry to new markets.
A number of pointers are put forward as regards policy development to address these issues:
- Policy analysis should recognise and address the problems of transaction costs and risks in inhibiting competitive private sector market activities at critical stages in agricultural transformations.
- Policy instruments should not be founded on the simplistic presumption that pure competition is always the most satisfactory way of ensuring market access by smallholder farmers to finance and inputs, and hence to output markets.
- Policy analysis should consider the costs, benefits and difficulties of market interventions together with those of welfare interventions: both face inherent problems of ‘state failure’ and they frequently compete for resources, but they are not often explicitly examined as alternative means of achieving the same goals.
- Much greater emphasis should be placed on targeted and time-bound institutional development, with emphasis on the development of market structures and systems that will encourage rapid withdrawal of state support as market systems become self sustainable.
- Policy formulation must be innovative and imaginative, learning from and building on historical and current institutional innovations, whether in national or local government policies and actions, or by farmers and traders.
- Pro-poor agricultural growth must not be seen as a solution on its own – it will only generate significant poverty reduction gains if it is complemented by growth in the non-farm sector, and policy must also support such non-farm growth.
This ambitious policy agenda demands support from an equally ambitious research agenda. Further work is needed to:
- investigate the importance and mechanisms of state actions to reduce transaction costs in the green revolutions of the 20th century
- explore the mix of necessary conditions for agricultural transformations in today’s poor rural areas, and changes needed to achieve these
- determine the costs and benefits and hence viability of agricultural growth strategies as means of reducing poverty in the difficult circumstances facing today’s poor rural areas, comparing them with other possible strategies for poverty reduction
- understand the critical transaction cost problems inhibiting agricultural and other market development and possible mechanisms for addressing these
- review former state interventions to identify critical elements of success and failure and match these with more recent experience of private sector involvement to develop new institutional models.
- develop, try out, and evaluate different innovative institutional arrangements addressing these problems
Footnote:
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This paper is written as part of a research project on Institutions and Economic Policies for Pro-poor Agricultural Growth funded by the Department for International Development of the United Kingdom (ESCOR Project R7989). The findings, interpretations and conclusions expressed in this paper are entirely those of the authors and should not be attributed to the Department for International Development, which does not guarantee their accuracy and can accept no responsibility for any consequences of their use. This paper has benefited from helpful comments from colleagues in the research project (see
http://www.wye.ac.uk/AgEcon/ADU/research/projects/ppag/index.html) and from Stephen Devereux, Karam Singh, Martin Greeley, Hemasiri Kotagama, and Stephen Carr.
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Email contact:
A.Dorward@ic.ac.uk
J.Kydd@ic.ac.uk
J.A.Morrison@ic.ac.uk
I.Urey@ic.ac.uk
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[Download complete paper - 1.3Mb ~ 7 min (71 pages)]
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