139. Sustained and accelerated development of agriculture is the key to economic development and poverty reduction in the LDCs. The preceeding sections shown that they have considerable agricultural potential, but that it has not been realized for a number of reasons, including structural and technological constraints, inappropriate domestic policies and an unfavourable external economic environment. As a result, the growth of these economies has been slow, undernourishment has been increasing and the marginalization of these countries in the global economy has continued.
140. The challenges facing LDCs are numerous enough to strain their capacity to design and implement effective policies and institutions for agriculture. However, development is a cumulative process, with success in one area opening up opportunities in others. The focus of this section is on the identification of measures to alleviate the supply-side constraints, and to improve agricultural productivity and competitiveness in the framework of a strategy that is poverty-alleviating, balanced, sustainable and based on comparative advantage. The analysis draws on FAO's field experience, including its policy assistance work in the LDCs, together with new policy approaches for accelerated agricultural development based on the past 30 years of development experience.
141. In view of the critical importance of agriculture in the majority of the LDCs, it is important to understand how their agricultural growth can be accelerated, the priorities that are involved and the impact of faster growth on poverty levels.
142. Over the past three decades there have been wide variations in the nature and components of growth among different countries and between sub-sectors of agriculture within them. However, in a number of cases there has been rapid growth of the agricultural sector, with major effects on poverty reduction and national economic development, from which some useful and relevant lessons can be drawn. One important lesson is that it is necessary to establish priorities and a sequencing of activities. Governments can only do a certain amount at any given time. Most activities must be taken up by the private sector and through the operation of markets so as to free governments to concentrate on those areas where the private sector cannot be expected to come forward.
143. There is no unique set of physical conditions for rapid agricultural growth. Nor is there a single set of activities that will guarantee success. It is nevertheless possible to identify common patterns and themes from success stories:
144. The situation facing LDCs and their farmers today may be more difficult in a number of ways than that which was faced by developing countries that achieved sustained agricultural growth in the last three decades. As discussed in Sections I and II, the new and emerging challenges confronting them can be identified under three broad headings: overcoming their marginalization resulting from integration of markets due to globalization and liberalization; adapting to technological change; and coping with the new institutional environment.
145. Globalization of markets: The economies of LDCs now have to compete in a more fiercely competitive world market. The gradual removal of trade barriers, rising demand for higher quality products and higher standards, the continuous erosion of trade preferences and the costly compliance with the new trade rules are particular problems that hamper the competitiveness of producers in LDCs in both world and domestic markets. Because of globalization and liberalization, LDCs are also becoming more vulnerable to changes in world market conditions, on account of their small economic size and their increasing reliance on imports for food supplies. Their problems have been compounded by the long-term decline in real prices of their major primary commodity exports, despite some temporary increases experienced in the early 1990s.22 The consequent decline in the commodity terms of trade has reduced both the incentives to engage in the production of tradables and the gains and economic stimulus from such production.
146. Technological challenges: Keeping pace with the increasing domestic demand for food, meeting requirements for enhancing competitiveness and ultimately raising rural incomes, necessitate raising agricultural productivity. As discussed in Section I, most LDCs are at an early stage of agricultural technology and the potential to increase productivity is enormous. However, sustained agricultural growth in most cases requires more than the ingredients of the `green revolution'. In particular, it calls for substantial investment in irrigation and rural infrastructure, human development and institutions. New developments in biotechnology may pose further threats to export-based growth in LDCs if the new technologies associated with them result in a sharp increase in productivity in more advanced economies, thereby increasing production, pushing down prices, and giving them a competitive advantage over producers in LDCs.
147. The institutional environment: The institutional environment (both nationally and internationally) is also very different from the past. As noted in Section II, international trade is subject to WTO disciplines and takes place in a globalized context. The roles and modus operandi of the IMF and the World Bank have also changed, associated with liberalization and structural adjustment programmes in member countries. Perhaps the most important consequence has been the sweeping away of much of the public sectors'involvement in agricultural research and extension and in commodity and financial markets. Inefficient and ineffective as it often was, the role of state interventions in supporting agricultural growth in earlier success stories is now clearly recognized, and has resulted, for example, in arguments being put forward for a reassessment of the performance of state marketing boards in Africa. 23 However, current attitudes among donors and within LDCs do not favour efforts to involve the State in the search for innovative solutions to some of the institutional problems that it has successfully addressed in the past. Moreover, some donors and governments perceive previous unsuccessful attempts to stimulate agricultural development as evidence that policy support to agriculture is not an important priority in seeking broad-based, poverty-reducing economic growth, an attitude that is reflected in the reduced share of ODA going to agriculture.
148. Against all these difficulties there are also some new opportunities for agriculture in LDCs. New technologies are bringing down the cost of communications dramatically,which should benefit remote, more sparsely populated areas with poor roads. Biotechnology (with appropriate safeguards) offers opportunities for more rapid technological advances if there is sufficient investment in their application to the crops and problems to LDCs. In addition, globalized markets and the implementation of trade agreements should bring benefits for LDC exporters if they can be assisted in overcoming their supply and competitiveness contraints. Policy makers may be swinging back to a more balanced and nuanced understanding of the importance of agriculture and of the potential roles (and pitfalls) of state support.
149. This section outlines some general recommendations for both national policy actions and international actions for removing supply bottlenecks, boosting competitiveness and alleviating poverty and food insecurity in LDCs. The proposed policies may differ widely in their relevance to different countries, depending on the nature of their agricultural development problems, resource availability and economic conditions.
150. First, emphasis needs to be given to increasing the production of tradable products, which is an essential component of agricultural growth and normally the driving force behind it. This calls for an appropriate set of macro-economic policies appropriate to the country's specific economic conditions, adoption of a technology suited to current farm conditions, and a communications infrastructure and marketing and institutional arrangements that support farmers' access to seasonal and longer term capital and inputs and provide them with strong price incentives. Determining the most appropriate respective roles in this regard for government agencies, donors, civil organizations, and commercial entities requires an imaginative and innovative approach, with greater emphasis on policy support and sharing of best practice (as is done, for example, through the FAO South-South partnership programme).24
151. Technology, resource use, institutions, knowledge and markets need to be adapted to deal with bottlenecks or constraints affecting particular commodity systems, in order to respond to problems of natural resource exhaustion or degradation, and ensure that advantages of new opportunities are taken through diversification. Local technological research capacity may be important in this respect, but policies and institutions and the ability of farmers to access resources, as noted in the preceding paragraph, will also be critical. Again, a range of different types of actors may need to support processes of change, in which governments may play a critical institutional role. Land reform is a highly controversial form of institutional change that has not been given much attention in this paper - but that does not imply that land tenure systems may not be a serious impediment to growth in particular circumstances25.
152. Sustained agricultural growth may also be promoted by, in particular, linkages that promote production of what are non-tradable products in practice in most LDCs (crops, livestock and forestry products) for local consumption. This may be further enhanced by economies of scope in more widespread investment in infrastructure in rural areas and by farmers, on the basis of suitable institutional arrangements, using equipment acquired or developed for cash crop production to enhance production for local markets.
153. In order to meet the challenges of new problems facing LDC agriculture, policy makers need to give renewed emphasis to understanding and promoting processes supportive of agricultural research. In addition, tariff protection may be necessary to protect farmers in LDCs from some of the less benign effects of globalization and to raise incentives for domestic production. There are also strong arguments for strengthening the role of the State in promoting efficient and effective institutional arrangements to support farmers' access to seasonal finance and to input and output markets. Finally, there is need for continued attempts to reform international trade rules with a view to ensuring fuller participation of LDCs in world agricultural markets.
154. Meeting the new challenges facing agriculture and integrating LDCs more fully into the world economy will require a renewed focus on agricultural and rural development. With the support of their development partners, governments of LDCs may need to formulate or revise and effectively implement their agricultural development strategies. The basic elements and priorities of such strategies, include: further emphasis on macroeconomic and sectoral incentives; strengthening institutional capabilities; raising and sustaining productivity and competitiveness; diversifying production and trade; and improving access to foreign markets26.
155. This subsection briefly elaborates these priorities placing stress on the key measures needed to increase resources available to agriculture and use them more efficiently.
2.1 Macroeconomic and sectoral policies
156. The challenge facing LDCs is to establish a stable and efficient policy environment that encourages investment in enhancing the productivity of agriculture and contributes to bringing about the necessary structural changes. Many LDCs have adopted policies to deregulate agricultural markets, reduce price distortions, and allow a greater role for the private sector. Macro-economic policy is an important tool in support of agricultural growth. Stable prices (including foreign exchange and interest rates) are important to provide domestic and foreign investors with confidence and to allow farmers and traders to take informed, long-term decisions. At the same time realistic exchange rates, low tariffs and effective price systems are required to ensure that agricultural producers and consumers face price and other incentives that reflect the comparative advantages, opportunities and resource costs of society as a whole, and promote productive resource use and investment.
157. Such measures, although necessary, are not sufficient. Improved investment incentives also require policies that improve access to markets, ensure dissemination of information, set standards and provide an adequate legal and regulatory framework. Strong complementarity between public and private investment is also necessary to sustain agricultural growth, with governments investing in sectors having an important public good element such as research, extension, and infrastructure - particularly roads, education, norms and standards.
158. The least developed countries need to undertake policies and measures aimed at strengthening the ability of their institutions to operate efficiently. Weaknesses in the structure and capacities of rural and related institutions are one reason why economic policy reforms have failed to achieve the desired increase in aggregate agricultural output in many African LDCs. 27 Rapidly changing agricultural technology, specialisation, and trade require a complex set of institutions. Governments must diagnose these requirements and determine the respective roles of the public and private sector and how the two complement each other. Political, legal and economic institutions play a major role in determining both macro-economic and sectoral policies. Improved formulation and implementation of these policies often requires wide-ranging institutional changes.
159. For the agricultural sector growth requires the development of appropriate institutional arrangements for overcoming market constraints for agricultural products (for example, specific contractual arrangements between farmers and traders). In the context of declining real world prices for the main agricultural commodities exported by LDCs, improved mechanisms for the transmission of international prices to domestic producers is of key importance. The involvement of an increasingly competitive private sector in these various commodity markets has driven down margins and allowed greater returns to producers.
2.3 Enhancing productivity and competitiveness
160. The experience of countries with a similar agroecological base to that of LDCs - maize in Zimbabwe, rice in Vietnam, horticulture in Kenya, cocoa in Cote d'Ivoire and cotton and rice in Mali- demonstrates that there is much potential for raising agricultural productivity in LDCs also. These limited but promising areas of success in other countries can serve as a model for LDCs. Research has shown that not only the domestic terms of trade for agriculture, but also the content of capital input are key determinants of agricultural productivity and competitiveness. Important in this respect are rural infrastructure development; strengthening research and extension services; enhancing human capital in rural areas through health, education, and access to productive resources; and preserving the capacity of the natural resource and environment to sustain productivity achievements. While the main focus of the current reforms in LDCs has been on macroeconomic and price policies, it is the weaknesses in this area and require substantial increases in investment in agriculture, by both the public and the private sectors, if they are to be overcome.
161. To that end an appropriate and well-sequenced combination is needed of:
162. Sequential removal of constraints is critical. When the increase in production associated with a reform or change in circumstance reaches a plateau another reform/series of reforms is required to unleash further potential. Sustained growth is only possible if new constraints are alleviated by further reforms. There also needs to be a dynamic ability for technology, resource use, institutions, knowledge and markets to be adapted to deal with successive bottlenecks or constraints affecting particular commodity systems, to respond to problems of natural resource exhaustion or degradation, and to diversify to take advantage of new opportunities.
163. Policy makers need to give renewed emphasis to understanding and promoting processes supportive of agricultural growth and increased emphasis is needed on agricultural research to address the problems facing farmers in non-green revolution areas. There are strong arguments for seeking more nuanced role for the State in promoting efficient and effective institutional arrangements to support farmers' access to seasonal finance and to input and output markets. Finally, there is need for continued attempts to reform world trade rules that impede the fuller participation of LDCs in world markets.
2.4 Diversification of production and exports
164. Excessive dependence on a narrow range of products has a number of important consequences: it exposes farmers unduly to the vagaries of climate, pests and diseases and to price fluctuations; leads to fluctuations in farm income and government revenue; contributes to environmental degradation; may result in failure to take advantage of complementarities (e.g. between livestock and crops); and has negative effects on diet and health. In addition, adverse international terms of trade facing the primary agricultural commodity sector are a further constraint on growth of the sector.
165. There is a clear need to diversify the production and export base (both horizontally and vertically) from low value added to high value added products. The challenge is to initiate and sustain the momentum for diversification in order to realize the considerable potential that undoubtedly exists.
166. A plethora of measures at different levels will be necessary, the most important of which are: the maintenance of a stable and predictable macroeconomic and political environment; establishing a fair and open regulatory framework; improving the efficiency of financial institutions, strengthening research and extension for developing and adopting relevant technology; improving rural services; upgrading the marketing, transport and communication infrastructure; and development of human resources.
167. Areas and commodities on which the diversification programmes focus should be selected on the basis of potential viability as well as technical sustainability. A multidisciplinary and holistic approach needs to be adopted to all aspects of diversification and not only to production. Activities involved relate not only to on-farm production technologies but also to upstream and downstream constraints to production such as input supply, technical advisory services, storage, processing and marketing. While the focus of such programmes in LDCs may require a rapid increase in productivity, the approach should be holistic to ensure that all major issues affecting diversification are taken into account in an integrated manner.
168. The FAO Special Programme for Food Security (SPFS) has shown that many LDCs have great potential to diversify production and exports into tree crops, fisheries, small animal husbandry and agro-industries. Diversification of production could cover: i) introduction of aquaculture, artisanal fisheries development, small animals (poultry, sheep, goats, pigs etc.) and tree crops; intercropping of trees and field crops; ii) training in use of crop residues for animal feed; iii) introduction of low-cost methods of animal disease control; iv) support for post-production activities to promote income generation; and v) development of agro-industries.
169. On the trade side, diversification should be encouraged into newer and where possible higher-value export products. The trading partners of LDCs can contribute by maintaining preferential market access for such exports and where relevant by reducing tariff escalation on processed agricultural products with export potential.
2.5 Access to foreign markets
170. So far, the implementation of the Agreement on Agriculture has not led to significant improvements in market access for the LDCs, for reasons noted earlier in this paper, such as the persistence of tariff peaks and tariff escalation and the high SPS standards set in their main import markets. However, the major challenge facing agriculture in LDCs is the erosion of the non-regional trade preferences they have hitherto enjoyed. Many countries, both developed and developing, have expressed their intentions of according them more favourable treatment. The Quad countries, for example, have proposed to implement both tariff-free and quota-free treatment, consistent with domestic requirements and international agreements, under their respective preferential schemes, for essentially all products originating in LDCs.
171. A key interest of LDCs in the current negotiations on agriculture is to ensure that the negotiations result in tangible improvements in market access for their exports, especially those with a high growth potential. While they welcome the emerging consensus in WTO on duty-free and quota-free market access for their products, they consider that these commitments should be binding and be applicable to all their products. 28 They argue that any market access concession they obtain should be made predictable and not subject to autonomous changes.
172. Other developing countries, along with the OECD countries, could improve access of LDCs to their agricultural markets by, inter alia: i) lowering tariffs and reducing or abolishing export subsidies; ii) reducing tariff escalation; and iii) encouraging the flow of foreign direct investment in LDCs to improve technology and knowledge transfer.
2.6 Multilateral trade rules on agriculture
173. The WTO trading regime offers opportunities to LDCs but also poses challenges. If they are to develop fully their agricultural potential, they will need, as will the WTO members in general, to address the following issues:
Rule making in favour of LDCs: WTO rules should be supportive of the development of LDCs. In particular, they should be made compatible with their institutional, human capital and infrastructure requirements in order to permit them to benefit fully from the global trading system. The specific concerns of LDCs need to be reflected in the structure, framework and long-term objective of the Agreement on Agriculture.
Capacity building for trade: LDCs have neither the institutional capacity nor the haman resources to face all the challenges or take full advantage of the opportunities flowing from the multilateral trading system, and to participate fully as equal partners in new WTO negotiations on agriculture. Technical and financial assistance to build capacity is therefore essential, especially in the following areas:
2.7 External assistance
174. LDCs face a major domestic resource gap in generating the investments needed to achieve their developmental objectives in agriculture, including the target of halving the number of under-nourished people by 2015. External assistance is needed to accelerate agricultural productivity, which is dependent on the availability of sustainable alternative technologies and farming practices that will not further degrade the natural resource base.
175. Experience has shown that foreign aid has played a major role in almost all success stories of agricultural development. Its role was critical in the Green Revolution, and it has always been a key element in institutional development. If the donors' current goal of poverty reduction is to be met, external assistance to agriculture in LDCs will need to be restored to, and indeed exceed, its earlier levels.
176. In this regard, and in view of the importance of agriculture for poverty reduction and economic growth in LDCs, current initiatives to provide financial assistance to LDCs through targeted debt relief and other financial assistance could pay special attention to efforts to exploit their sustainable agricultural potential.
22 In 1999 the combined price index of soft commodities (i.e. all commodities other than minerals and metals and petroleum), deflated by the price index of manufactured exports of developed countries, was one half of the average for 1979-1981, which was about the same as the average for 1970. For tropical beverages and basic food, the decline was steeper. See the report by UNCTAD, "World commodity trends and prospects", distributed to the United Nations General Assembly under cover of A/55/332, August 2000, sect.II.
23 See, for example, Dorward, A, Kydd, J and C Poulton (1998), "Conclusions: New Institutional Economics, Policy Debates and the research Agenda" in Dorward A, Kydd J and Poulton C (eds), Smallholder Cash Crop Production under Market Liberalisation: A New Institutional Economics Perspective, CAB International, Wallingford; and Reardon, T, Barrett, C, Kelly, V and K. Savadogo (1999), "Policy reforms and sustainable agricultural intensification in Africa", Development Policy Review,. Vol. 17. pp. 375-395.
24 At the heart of this programme is an exchange of knowledge and experience among developing countries. In this scheme, the more advanced developing nations send experts and technicians to work directly with their counterparts and farmers in other developing countries.
25 Mellor (1995) observed that more equitable land tenure relations may contribute to growth by strengthening consumption linkages rather than by directly promoting agricultural productivity per se., although this observation runs counter to the conventional wisdom of an inverse relationship between farm size and efficiency in land-scarce traditional agriculture. In sub Saharan Africa there is often more concern about traditional land tenure systems inhibiting investment in land improvement and putting it more productive uses, but the evidence for this is mixed and it is probably not possible to reach any general conclusions. (Mellor, J.W. (ed), (1995), Agriculture on the Road to Industrialization. IFPRI/Johns Hopkins).
26 See the series of "National agricultural development strategies towards 2010" prepared by FAO in 1997 for a number of LDCs.
27 See Global Coalition for Africa: "Promoting agricultural productivity and competitiveness in Sub-Saharan Africa," Economic Committee Meeting, Nairobi, Kenya, April 1999.
28 OAU/AEC (2000), "Current developments on issues of interest to African countries in the context of post-Seattle WTO negotiations" (OAU/AEC/TD/MIN/2 (III)), Annex III.