ERC/04/6

Table of Contents

I. SUMMARY

II. Country Coverage

A. Introduction

B. Rural Poverty in the CEE/CIS Region in a Comparative Context

C. Assisting Countries to Address Rural Poverty

REFERENCES

I. SUMMARY

1. For most countries in Central and Eastern Europe (CEE), and the Commonwealth of Independent States (CIS), poverty is a major problem and one that the international community must not neglect. While, on average, poverty in the region is less than that in other regions, this average disguises the extent of poverty in some countries where it is as widespread as it is in many of the poorer countries in other regions. What is of particular cause for concern is that, in stark contrast to other regions, there have been substantial increases in poverty and inequality since the beginning of the 1990s in the CEE/CIS region. For many countries the poor are concentrated in rural areas, and rely on agriculture as a source of employment and income. Reversing the backward trend of increasing poverty will require focused efforts on development in rural areas.

II. COUNTRY COVERAGE

2. The survey covers: the Central and Eastern European Countries (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Serbia and Montenegro, Slovakia, Slovenia, and the Former Yugoslav Republic of Macedonia) and the CIS countries (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Republic of Moldova, the Russian Federation, Tajikistan, Turkmenistan Ukraine and Uzbekistan). These 27 countries are referred to collectively as the ‘CEE/CIS region or countries’. In general, they are often referred to as “countries in transition” in order to underline their transformation from centrally planned to market economies, which has had substantial implications for the performance of agriculture and food security. As the country coverage is very broad, comparisons are often made in groupings, or specific country examples are drawn on to elaborate on certain points or characteristics. Country-by-country coverage is not intended to be comprehensive, merely illustrative in nature.

A. INTRODUCTION

3. Since its inception, FAO has worked to promote agricultural development and improving nutrition in the pursuit of food security - defined as the access of all people at all times to the food they need for an active and healthy life. In the Central and East European and Commonwealth of Independent States countries, the primary reason for food insecurity is poverty.

4. The purpose of this paper is to describe the specific character of poverty in the CEE/CIS region of the world and to propose an approach to addressing the problem, particularly in the rural sector, in consultation with member governments. On average, the CEE/CIS region has a lower level of poverty than in other regions of the world. This is to be expected of a region in which 8 countries are members of the European Union. However, it is not often recognized that a number of countries of the Balkans, the South Caucasus and Central Asia are as poor as some of the poorer countries in other regions. A second specific to this region, the CEE/CIS region is the only region of the world where there has been a dramatic increase in poverty rates over the past decade. In most countries a sizeable portion of the population experienced a substantial drop in living standards in the 1990s. Thus, despite having a lower level of poverty overall when compared to other regions of the world using an internationally comparable poverty line, the subjective level of poverty (shaped by living standard expectations) in this region continues to be quite high. Third, though the region as a whole is less rural than many developing regions of the world—more rural than Latin America and about on the level of the Middle East and North Africa—a number of countries of the region are fully as rural as many of the poorer countries in other regions of the world. In the poorest countries of the region rural poverty is more severe than urban. A last distinguishing trait of poverty in the CEE/CIS region concerns non-material poverty. In even the poorest countries of the region, infrastructure services, such as access to clean water, transportation services, education, health, electricity and other services, are higher than in other developing areas of the world. This is to a great degree a positive legacy of the socialist system. However, government budgets are now insufficient to fund the upkeep of these systems, and they continue to decline as a result of neglect. Based on this description of poverty in the CEE/CIS region, the CEE/CIS region can be divided into five subregional groups of countries. Four of these five subregions have countries with rural poverty problems as severe as in a number of poor countries in other regions.

5. At the FAO Regional Conference for Europe held in Porto in July 2000 poverty reduction through support to sustainable rural livelihoods and food security was listed as one of four short and medium term priorities for the region through 2007. FAO works to alleviate rural poverty by assisting governments to improve the policy environment for private agriculture, forestry and fisheries. In addition, FAO assists farmers directly through the introduction of new and promising technologies, formation of farmer marketing associations, upgrading of irrigation facilities, advising on pest management, etc.

6. Beyond these actions, FAO advocates rural and agricultural growth as a means of overall growth and poverty reduction. In the CEE and CIS region agriculture has an incommensurately low share of resources under aid programmes. This may be short-sighted, because there is a well-established correlation between growth in agriculture and in the economy as a whole. Low agricultural growth may act as a significant constraint to overall growth and poverty alleviation in the economy. FAO is committed to addressing rural development and rural growth as an important means of poverty alleviation in rural and urban areas.

B. RURAL POVERTY IN THE CEE/CIS REGION IN A COMPARATIVE CONTEXT

7. While there are many definitions of poverty, it generally relates to a lack of ability to obtain specific commodities or consumption goods and a lack of capability to function in society. It can be defined not only in terms of income poverty, but also vulnerability, voicelessness and powerlessness, and low levels of education and health (World Bank, 2001). In this regard, there are multiple dimensions of the concept, including both material and non-material elements, and as a result a range of various measures of poverty (i.e., summary statistic on the economic welfare of the poor in a society) have been developed. Such measures are important for making poverty comparisons for an overall assessment of a country's progress in poverty alleviation, and/or the evaluation of specific policies or projects.

8. There is no universally accepted single measure of poverty, and there are many different measurement approaches that vary according to the emphasis placed on the individual's own judgment of well-being, versus a concept of welfare decided upon by somebody else. Two important measures of poverty are (1) the poverty headcount ratio, based on the national poverty line and (2) the 1 and 2 dollar per day international poverty lines. The poverty headcount ratio is the proportion of the national population whose incomes are below the official threshold (or thresholds) set by the national government—the national poverty line. Household income (or consumption) and its distribution are estimated from household surveys that collect data on household income, consumption and expenditure, including income in kind. This measure is specific to the country in which the data are collected and where the poverty line is established and is thus used to assess the level of development.

9. Because different countries have different definitions of poverty, consistent comparisons between countries can be difficult. National poverty lines tend to have greater purchasing power in rich countries, where more generous standards are used than in poor countries. For this reason, international poverty lines were developed. The population below $1 per day (typical of poverty lines in low-income economies) and population below $2 per day (typical of poverty lines in middle-income economies) are the percentages of the population living below those levels of consumption or income at 1993 prices, adjusted for purchasing power parity. International poverty lines attempt to hold the real value of the poverty line constant between countries. The indicator allows for comparing progress across countries in reducing the number of people living in poverty, and for monitoring trends at the global level.

1. How does overall poverty in CEE/CIS countries compare to poverty in other regions?

10. A comparison of poverty in the main regions of the developing and transition country world (using international poverty lines) show three outstanding trends: First, on average, poverty in the CEE/CIS region is lower than in other regions, particularly severe poverty (Table 1). Using the severe poverty threshold of one dollar per day, the incidence of poverty for the CEE/CIS region (4 percent) is slightly less than that of Middle East/North Africa, but substantially smaller than in other regions.¹ The poverty rate at the 2 dollar per day level (21 percent), though, is similar to that found in Middle East/North Africa (24 percent) and Latin America (26 percent). These three regions have a much smaller portion of their populations in poverty than the other regions - East Asia and the Pacific (48 percent), Sub Saharan Africa (77 percent) and South Asia. (78 percent).

11. Second, the gap between the CEE/CIS region and other regions is narrowing, because poverty is increasing in the CEE/CIS region and constant or decreasing in other regions. Over the past decade the $2 per day headcount index in the CEE/CIS region has been steadily increasing, while for other regions it remained constant or fell (Table 2). Since 1988 the headcount index has increased dramatically for Estonia, Moldova, the Russian Federation, Turkmenistan and Ukraine (Table 3). Measures of inequality² for countries of the region have also increased.

Table 1. Poverty rate and number of poor by region, 2000

Source: World Bank GPM, 2003

12. Third, there is substantial variation between countries within the CEE/CIS region. Some of the poorest countries are as poor as the poorest in other regions. Incomes vary significantly with measures of GDP per capita ranging from around 10-15,000 dollars per capita (Purchasing Power Parity (PPP), current international dollars) for some of the EU accession countries (Czech Republic, Estonia, Hungary, Poland, Slovenia), to as little as 1,500 dollars for some of the CIS countries (Moldova, Tajikistan, Uzbekistan). Removing the more developed countries in the region, the poorest countries are equally as poor as countries in other regions (Table 4). For instance, six of the poorer countries in the region have poverty rates that are over twice that of the regional average. These poverty rates are comparable to averages for other regions, including the average for all low and middle-income countries.

Table 2. Population living below $2.15 per day at 1993 PPP (headcount %)

Source: World Bank GPM, 2003; Chen and Ravallion, 2001

13. The UN’s Human Development Index (HDI) ranking is quite similar to the World Bank poverty rankings. Tajikistan, Kyrgyzstan, Uzbekistan, Albania, and Azerbaijan (with a year 2000 HDI ranking of 112, 102, 95 88, and 87 respectively) have lower HDI values than countries such as Colombia, Mauritius, the Philippines, Thailand and Venezuela (UNDP, 2002).

Table 3. CEE/CIS Poverty headcount and gini index

Source: World Bank GPM, 2003.

Table 4. Poverty in poor countries in CIS and other regions

Notes – Data are for the most recent survey year

Source: World Bank GPM, 2003.

2. Differences in the national and international poverty lines for CEE/CIS countries

14. With few exceptions, the prevalence of poverty using national poverty lines in the CEE/CIS region is quite high, substantially higher than the prevalence using the $1 and $2 measures (Table 5). The discrepancy between measures of poverty according to national poverty lines and international poverty lines is not unreasonable, since national poverty lines are based on what it means to be poor in that particular country, and the perceived minimum standard of living can be expected to be higher in richer countries. Moreover, particularly in the CIS countries, many people feel that poverty is quite high, because per capita income, government services and employment fell for nearly a decade. It is only natural that the poverty measure should reflect this perception of falling living standards.

Table 5. National Poverty Line versus International Poverty Line

Notes – Data are for the most recent survey year

Source: World Bank GPM, 2003; FAO, 2003

15. The percentage of undernourished people in the population further illustrates that poverty is a problem. Even for the countries with a smaller proportion below the national poverty line (Bulgaria and Georgia), there still exists significant numbers of undernourished people. Overall, poverty remains a critical problem in the region, and CEE/CIS countries should not be neglected in favour of other regions for which international poverty line data, averaged at the regional level, indicate that poverty is a more serious problem.

3. Rural versus urban poverty in CEE/CIS countries³

16. As a country develops, the agriculture sector becomes less important relative to other economic sectors in terms of employment and its contribution to GDP (Figure 1). This is because economic development brings higher incomes, and greater relative demand for non-food products and services. Associated with this reallocation of labour from the agriculture sector to the industrial and service sectors, is a relocation of people from rural to urban areas. On average, the proportion of population located in rural areas in CEE and CIS countries is less than that for other regions, because average per capita incomes are higher there (Table 6). The rural population as a proportion of total population is significantly smaller than that in the Asia regions and in sub-Saharan Africa, and is second only to Latin America.

Source: WB WDI, 2003.

17. There is a long-established strong statistical correlation between growth in agricultural production and growth of GDP. Few countries have achieved high overall growth and poverty reduction without undergoing solid growth in agriculture, as well as in the rural non-farm economy. Over the decade of the 1990s for the CEE/CIS region as a whole both GDP and agriculture fell by nearly 30%, while rural-urban migration was nil (Table 6). While there have been significant reductions in the proportion of people in rural areas for all other regions, the percentage in rural areas in CEE/CIS countries has remained stagnant. This stagnation does not reflect the region having reached a point of high overall development and stabilization of rural populations.⁴ It seems more a result of overall poor economic performance. For the CEE and CIS countries the stagnation in both GDP and agriculture over the decade of the 1990s most likely contributed to a lack of rural-urban migration.

Table 6. Rural population as a % of total (by Region)

Source: World Bank WDI, 2003

18. There is considerable diversity among CEE and CIS countries with respect to the proportion of people living in rural areas, and the relative poverty levels in rural and urban areas (Table 7). Countries with higher national poverty levels generally have a higher proportion of their population living in rural areas and typically have poverty rates in rural areas that are higher than in urban areas (as indicated by the difference between the rural and national poverty rates). That is, the poorer the country, the greater the proportion of people in rural areas, and the greater the likelihood that rural poverty is worse than urban poverty.

Table 7. Population concentration in rural areas and rural versus national poverty (by country)

Note: Poverty rates are from the most recent survey year

Proportion of population as rural for Georgia is 1999 data

Source: World Bank WDI, 2003 and World Bank GPM, 2003

4. Material versus non-material poverty

19. The discussion thus far has revolved around material poverty - that is, poverty related to income and/or consumption poverty. Yet a comprehensive understanding of poverty in the region can only be developed with an assessment of non-material poverty. Such non-material elements of poverty relate to health, education and literacy, social participation (exclusion/inclusion), insecurity, access to social infrastructure, freedom and political voice, and a general feeling of emotional well-being. The importance of these is reflected in the Millennium Development Goals (MDGs) which set goals not only for the reduction of material poverty, but also for primary education, maternal health, and gender equality.

20. The countries identified previously as having lower material poverty, also have less non-material poverty (Table 8). For instance, improved sanitation facilities and water sources for rural people are almost universal in Bulgaria, the Slovak Republic, and Slovenia, whereas they are much lower for the countries that have greater rates of material poverty (e.g. Azerbaijan, Georgia and Tajikistan). Romania stands out as a striking exception to this generalization. Non-material poverty is comparatively far higher there than material poverty indicators.

Table 8. Non-material Poverty in selected CEE/CIS countries

Source: World Bank GPM, 2003; World Bank WDI, 2003

21. Access to livelihood services such as clean water and sanitation systems in CEE and CIS countries is often, though not always, higher than the average for low and middle-income countries. This is partly a reflection of the large state investments made under the former socialist systems. While literacy is largely universal, many water and sanitation systems, particularly in rural areas, are in a state of decline as a result of neglect. Neglected infrastructure represents a major constraint to rural development. If information, transportation, sanitation, communication and irrigation systems are left to degenerate, the prospects for expansion of the rural non-farm economy remains severely limited. Thus, the public sector must focus on ensuring that these systems are appropriately supported and maintained. They must also prioritize public spending, targeting the areas and systems in greatest need first.

5. Subregional groups based on poverty in the region

22. Drawing from the observations thus far, countries can be classified according to levels of poverty, GDP per capita, the importance of agriculture in GDP and the portion of rural population. The five categories below help to further explain diversity and rural poverty in the region.

• Those countries with lower poverty rates tend to be those that are further along in the reform process, have populations that are concentrated in urban areas, and have an agriculture sector that is of relatively less importance to the domestic economy. The ten accession countries fall into this category. This sub-region boasts by far the highest per capita GDP (averaging $3,700 per capita (constant 1995 US dollars)), and while there is considerable variation ($1,600 to $12,000 per capita), the lowest levels are about the same as the highest in other sub-regions. The poverty rate is less than half that of the regional average, yet the sub-region, because of its overall size (i.e. with over 100 million people it is the second largest in terms of population) is home to about 10 percent of the region’s poor. Agriculture’s contribution to GDP is small relative to its contribution in other sub-regions; but at 7 percent, it is only 3 percent below the regional average. Nonetheless, employment in agriculture continues to remain high at 19 percent of total employment, and again, this is only slightly less than the region-wide average. Perhaps the fact that employment in agriculture is much greater than agriculture’s contribution to GDP indicates that there is major poverty reduction potential from boosting returns to labour (and thus wages) by improving institutions and access to capital in the agriculture sector, particularly the non-farm subsector.
• Serbia and Montenegro, Albania, Bosnia and Herzegovina, Macedonia (FYR), and Croatia are lower income countries that tend to be less advanced in the transition process. Urban migration has been high, yet a significant proportion of the population remains in rural areas (e.g. 41, 48, and 56 percent for Croatia, Serbia and Montenegro, and Albania respectively), and agriculture remains a significant contributor to GDP (at 10 percent, this is the same as the regional average). Aside from Serbia and Montenegro, these countries have relatively small populations, this sub-region being the second smallest after the Caucasus. Average GDP growth rates have been relatively high in the region over the past decade (almost 5 percent for Serbia and Montenegro, and over 20 percent for Bosnia), and future development initiatives must focus on ensuring that the poor participate in the benefits of growth. Agriculture will remain important in these countries, though its impact will increasingly be indirect through its linkages with industry (e.g. value adding, diversification to high value production to supply nearby export markets, and expansion of support/service industries).
• With over 197 million people, Belarus, Moldova, the Russian Federation and Ukraine, as a sub-group have by far the largest population - they also have the largest number of poor (over half of the poor in the entire region). The poverty rate of this subregion (30 percent) is considerably higher than the regional average (21 percent), yet it is significantly lower than that for the Central Asia group. The average annual rate of GDP growth over the past decade has been negative for all countries other than Belarus (which averaged 1.2 percent per annum), though for each, the average for the last five years has been considerably higher. What is interesting is that the poverty rate is considerably higher than might be expected given an average per capita GDP level of over $2,000. This could possibly be due to higher than average inequality measures for the region. Indeed, the gini index for the Russian Federation, Moldova, and Ukraine is 39, 34, and 33 respectively. A second notable feature of this group is that there is considerable variation within it - the poverty rate for Moldova is over 60 percent, yet that for Belarus is 2 percent. The countries in this group face similar political and economic challenges in the future as the transition process continues. Despite relatively low populations in rural areas (while Moldova is 58 percent rural, the Russian Federation, Belarus, and Ukraine are all about 30 percent), agriculture will remain an important avenue for poverty reduction as the sector employs 16 percent of the total labour force, and contributes 10 percent of total GDP. Rural development initiatives must take a broad approach that includes the strengthening of agriculture’s linkages to other sectors.
• The Caucasus countries (Armenia, Azerbaijan and Georgia) are among the poorest in the region. Per capita incomes range from about $ 1,500 for Armenia to about $ 500 for Azerbaijan. It is interesting that international ($2) poverty rates also vary significantly, but that Armenia with the highest GDP/capita, also has the highest poverty rate (49 percent) and Azerbaijan with the lowest GDP/capita has the lowest (9 percent). There is a discrepancy here in that national poverty line data shows that poverty rates are similar - about 50 percent - for the two countries. Overall, the poverty rate (using the international line) is a little less than the regional average. The contribution of agriculture to GDP in these countries is over twice the regional average (21 percent), while the portion of employment in agriculture is quite high. In Azerbaijan, for instance, 42 percent of employment is in agriculture. The percentage of people living in rural areas is also high (over 40 percent) with the exception of Armenia.
• The five Central Asia countries account for almost 60 million of the 400 million people in the region (about 15 percent). Further, they account for a correspondingly larger share of the poor people in CEE/CIS countries (208 million - or about 20 percent of the regional total). The proportion of people living in rural areas ranges from over 70 percent in Tajikistan, to 44 percent in Kazakhstan. Aside from Kazakhstan, which has the highest per capita GDP ($1,900) and the lowest poverty rate (15 percent), all countries in this sub-region have poverty rates considerably higher than the regional average (the average poverty rate for this sub-region is 37 percent, almost twice the regional average). In this respect, poverty in Central Asia is as prevalent as in other regions such as Latin America and East Asia and the Pacific. Agriculture is very important relative to other sub-regions of the CEE/CIS region, and relative to other sectors in the economy, contributing almost 30 percent of GDP and employing between 20 and 50 percent of the working population. The international community must not neglect such ‘isolated pockets’ (that in fact present major threats to meeting the MDGs) of concentrated poverty, which regional averages might hide, such as Central Asia.

C. ASSISTING COUNTRIES TO ADDRESS RURAL POVERTY

23. Agriculture remains a substantial part of most economies in CEE/CIS countries (particularly the poorer ones), and efforts toward poverty reduction must be commensurate in scope to the potential of agriculture and the rural non farm economy’s potential for poverty reduction given its growth and market linkages. Aid flows to agriculture, while having increased over the latter part of the 1990s remain below 4 percent of total flows. This reflects a major incongruity given that agriculture in the region contributes 10 percent to GDP and employs over 20 percent of the work force (these figures being substantially higher in the poor countries).

24. Members of the international development community are now orienting their development support according to the Millennium Development Goals that set out specific targets for the developing world, agreed in the Millennium Summit in New York, 2000. Achieving these goals, especially halving the share of the population living in poverty and suffering from hunger, depends heavily on agricultural sector growth and specific efforts to reduce rural poverty.

25. Poverty Reduction Strategy Papers (PRSPs) have become the framework for poverty reduction in the poor countries of the CEE/CIS region. They provide a blueprint for domestic policies and programmes to reduce poverty in these countries. They also provide a basis for coordinating development assistance. Because they are prepared by the countries themselves, and thus reflect the input of a wide range of domestic and external partnerships, the PRSPs translate development principles into a specific plan of action. FAO is committed to work through the Poverty Reduction Strategy Programme (PRSP) framework in the low income countries of the region to address rural development as an important means of poverty alleviation.

26. Poverty alleviation efforts of FAO in the region have concentrated on emergency assistance after conflicts and natural disasters, and on rehabilitation and development assistance. In the Balkan and Caucasus countries FAO has delivered short term assistance to internally displaced persons and refugees in cooperation with the World Bank and other UN agencies. These projects are usually aimed at supplying beneficiaries with agricultural inputs and training for the next crop year. The underlying logic is that it is better to supply farmers with inputs than food aid. FAO continues to work with these groups in projects to rehabilitate agricultural land and train them after conflict and natural disaster. In some countries this has meant land surveys through remote sensing, in others, rehabilitation of irrigation facilities and formation of water user groups. FAO also delivers assistance to farmer self-help organizations, such as marketing cooperatives, for training in producing new cash crops and finding new markets. FAO also builds capacity within government institutions for protecting borders, and detecting, and controlling plant and animal diseases. While these interventions are traditionally seen as agricultural assistance, they are simultaneously efforts toward alleviation of poverty in rural areas.

REFERENCES

Chen, S., and M. Ravallion, (2001). “How Did the World’s Poorest Fare in the 1990s?” Review of Income and Wealth, Series 47, Number 3, September 2001.

FAO (Food and Agriculture Organization of the United Nations). 2001. The State of Food Insecurity in the World 2002. FAO, Rome.

OECD (Organization for Economic Cooperation and Development). 2003. CRS Database. Accessible at http://www1.oecd.org/dac/htm/online.htm.

UNDP (United Nations Development Programme). 2002. The World Development Report; deepening democracy in a fragmented world. Oxford University Press, Oxford/New York.

World Bank (2003). The World Bank Group Global Poverty Monitoring Website: http://www.worldbank.org/research/povmonitor/ (World Bank GPM, 2003).

World Bank (2003). World Development Indicators. World Bank, Washington, D.C. (World Bank WDI, 2003).

World Bank (2002). World Development Report 2002: Building Institutions for Markets. Oxford University Press, New York.

World Bank (2001). World Development Report 2000/2001: Attacking Poverty. Oxford University Press, New York.

___________________________

¹ For the purpose of simplicity, the World Bank’s ‘East Europe and Central Asia’ classification is used as a proxy for the CEE/CIS region. The main difference between the two definitions is Turkey - the inclusion or exclusion of which is likely to have a somewhat neutral effect given that Turkey can be considered ‘not too different’ from the ‘average’ CEE/CIS country.

² The Gini index can be used to indicate inequality - if all people had equal incomes, the index would be zero, while if only one person had all the income the index would be 100.

³ Care must be taken in comparing the extent of rural poverty relative to urban poverty. Different poverty lines are sometimes used to assess the two due to factors such as different living costs, different economies of scale in consumption, different perceptions of the meaning of poverty, and differing preferences and relative prices. For instance, in the 1994 assessment of poverty in Armenia, two different poverty lines were used for assessing rural and urban poverty because of large differences between the two groups in terms of expenditure levels—that is, the lines differed to reflect differences in the cost of a given level of welfare. While the cost of living is typically higher in urban than in rural areas (and so the urban monetary poverty line is typically higher than the rural monetary poverty line) it is not always clear that the difference between the two poverty lines found in practice properly reflects the difference in the cost of living (for more information, see World Bank, 2002).

⁴ This is further supported by the proportions of people in rural areas being as low as 10 and 22 percent for the UK and US respectively.