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V. New challenges in Agricultural and Rural Development Policy

Latin American agricultural and rural development policy is at a turning point that will require bold new initiatives to improve the production performance of agriculture, reduce rural poverty, and insure the political sustainability of economic growth. This will require transforming sectoral policies from the status of appendage of macro economic and political reforms in which it has fallen since the early 1980s to a pro-active set of interventions designed at restoring the specificity of agricultural policy while maintaining consistency with the macro reforms. Using as a guideline the trichotomy between market, state, and civil society, agricultural and rural policy, since the shock of the debt crisis, can be characterized as follows:

Macroeconomic reforms, driven by the need to address global economic crises, have profoundly enhanced the role of the market as a driving force, with adjustment policies pursuing the general implementation of free market-free trade policies. For individual producers, these reforms have redefined the rules of competitiveness in the context of rapid exposure to globalization, most often without explicit policies to manage transition strategies. This has typically benefited agriculture through enhanced price incentives, but has left agriculture, and particularly smallholders, with limited abilities to seize market opportunities, displaying low elasticities of supply response. Due to chronically low domestic savings rates, sustained growth has been sustained by foreign capital inflows and appreciated real exchange rates that have dampened price incentives for agriculture. Important market failures remain that need to be addressed through public interventions and civil institutions. The result has been weak production performance, increasing resistance to the reforms and hence incomplete implementation, and demands for new forms of protection.

· An extensive redefinition of the role of the state in relation to the market, with privatizations, descaling of the bureaucratic apparatus, loss of fiscal revenues, and evolution toward more regulatory functions as opposed to direct intervention in the economy. This has opened large institutional gaps in the support that government agencies were traditionally providing agriculture, smallholders in particular. Institutional reconstruction, with a rising role of the private sector, has been very partial at best, leaving a large majority of smallholders exposed to lack of access to financial services, insurance, information, and technical change and high transactions costs in accessing markets. At the same time, significant progress has been made toward more democratic forms of representation and decentralization of governance. This has opened many highly creative avenues for new partnerships between state and civil society in the definition of policy and the provision of public goods. Yet, extensive government failures remain with increasing levels of public sector corruption and rent seeking that distort policy making and the appropriation of public goods. In addition, in spite of regional trade agreement and specialized international conventions, government authority has failed to transgress national boundaries, leaving to the market and civil society the ability to globalize while losing control over these dimensions of their activities. Finally, in many instances, governments have been unable to secure the political sustainability of the reforms in progress, inducing powerful backlash that compromise the economic and political reforms pursued.

· The social side of the new growth model remains highly problematic. Ability for governments to manage these problems will be the acid test of success of the reforms. Rural poverty remains extensive, inequality is rising in both the rural and urban sectors, modernization of agriculture has been highly selective with increased opportunities for social differentiation as a consequence of deepening of the market reforms and descaling of state support, migration has increased the feminization and ethinicization of the rural poor, heterogeneity of income strategies has increased, the ability of governments to manage the social costs of transition has been weakened by shrinking public budgets, and social exclusion from the benefits of globalization and democratization have become more blatant and explosive. Yet, very important progress has been made in enabling civil society to play a greater role both in the direct management of economic and social affairs and in the ability to dialogue and influence governments. There has been an explosion in the number of producers, grassroots, and non-governmental organizations, and these have effectively developed national and international networks, enabling them to partake in the process of globalization. It is these organizations that allow to sustain a new partnership between the state and civil society that opens many new perspectives for policy design and policy implementation. It is also these organizations that open possibilities of defining responses to economic globalizations for local communities while preserving local culture, languages, identities, community relations, and attachment to place. It is also these organizations that have a major role as advocates of human rights, ethnic and minority representation, gender rights, and environmental protection. They are important to service the needs of informal sector activities and smallholders. At the same time, the economic and social potential of these organizations remains incipient compared to potential. They tend to be exclusive of the poorest, territorial, often ineffective in the pursuit of economic affairs, and still largely misunderstood by governments and some of the main international development agencies.

This perspective opens a vast array of opportunities for new departures toward a more effective agricultural and rural policy compatible with but not subordinate to macropolicy reforms. The fundamental directions for a pro-active approach to agricultural and rural development policy should seek:

For the market: completion of the reforms in progress with adequate management of political backlash created by both transitory poverty and social exclusion.

For the state: reconstruction of a developmental state and evolution toward global governance.

For civil society: promotion of civil institutions and reliance on active participation of these institutions for policy making and the co-production of public goods and services.

We conclude by identifying some of the aspects of this policy agenda:

· Regulatory framework: While promotion of FMFT policies is well advanced, definition and implementation of a regulatory framework to cope with market failures is still grossly incomplete. This requires provisions to enforce competitiveness, internalize externalities, and promote sustainability in resource use.

· Bureaucratic capability: An effective developmental state requires an effective civil service sector, in particular at the municipal level where decisions are increasingly decentralized.

· Enforcement of the rule of law: An interesting approach is that followed by NAFTA for the enforcement of labor and environmental laws. In this case, citizens and organized groups are entrusted the responsibility of identifying and exposing violations of the laws prevailing in any of the three member countries. With progress toward a LAFTA, reliance on civil society as a source of information and development of a set of institutions for appeals and sanctions can be an effective mechanism to promote the rule of law. Implementation depends on greater popular participation and effective instrumentalization of the process of appeals and sanctions.

· Reorganization of the administrative sector: Many issues that are high on a proactive development agenda fall outside the responsibilities of the traditional ministerial system. This is the case for rural development, the promotion and regulation of microenterprises, and environmental regulation. These issues are often handled by special coordinating committees. They, however, are typically short lived and weak both in analytical power, particularly economics, and implementation capacity.

· Institutional reconstruction: Key for this is to promote local organizations and to seek institutional solutions that capitalize on the superior ability of local organizations to control problems of moral hazard and adverse selection because of their informational advantages. These local organizations need to be linked to national and international organizations with greater access to deeper markets and diversified sources of risk.

· Attack rural poverty: This needs to be done as a multipronged problem that privileges the heterogeneous character of poverty and the multiplicity of available solutions to overcome poverty. This includes access to assets (broadly defined), enhancement of productivity in the use of these assets, promotion of effective linkages to markets and access to public goods and services, and a favorable context in terms of profitability and the investment climate.

· Reduce social exclusion: The greatest threat to sustainable growth is inability to incorporate in the new growth models large segments of the population. Important is to identify windows of opportunity for these populations that allow them to partake in the benefits of globalization while satisfying their particular objectives for attachment to community and to place.

· Rebuild the scientific, technical, and educational institutions: These have in many counties been severely atrophied by implementation of stabilization policies that have sought short run results at the cost of social investment. With the recovery of growth, reconstructing the institutions that deliver the most important sources of growth is an essential task for governments.

· Build countries' policy-making and project-designing capacities: Instead of solving policy problems through policy advice, more important is to put in place an effective participatory policy making process that can continuously address the needs for policy reforms. This requires focusing on the political economy of policy making, more specifically on identification of the stakeholders involved, the institutional mechanisms through which they relate, and the processes of policy dialogue and conflict resolution in the definition and implementation of policy. The same applies to projects. Effective rural development interventions requires construction of a project-making process that is demand-led and continuously adjusts the definition of such projects to the changing needs of organized grassroots participants.

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