1.8 Policies for agriculture and rural development in developing countries

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Policies for agriculture in an economy-wide context

It is now well accepted that policies for agriculture must be viewed as an important component and be an integral part of the wider policy environment. The initial approaches of the post-Second World War period emphasized, at best, benign neglect of agriculture, extraction of a surplus from it and preference for, often import-substitution-based, industrialization. Such approaches have often been proven counterproductive, though practices based on such perceptions persisted for a long time in several developing countries. It is now well recognized that agriculture's role must be upgraded in development strategies, notwithstanding the fact that in the process of development other sectors are bound to grow faster than agriculture.

The general policy thrust underpinning this study draws on the lessons of experience and current thinking, and may be summarized as follows:

1. Contrary to the earlier thinking mentioned above, it is now well accepted that in the developing countries with a high weight of agriculture in the total economy and employment, overall development is impeded if agriculture is neglected, starved of resources or discriminated against by the use of policies which affect adversely producer incentives; and that such neglect is not only socially unacceptable, seeing that the majority of the poor, and often of the total population, depend on agriculture, but also economically inefficient.

2. Farmers and agriculture do respond to incentives, and many of the successes and failures in getting agriculture moving can be explained by policies which permitted such incentives to manifest themselves or, on the contrary, affected them adversely, directly or indirectly. Incentives comprise not only better prices for outputs and lower ones for inputs but also the provision to agriculture of public goods such as infrastructure, education, research, etc.

3. Agriculture's performance is affected not only by policies specifically designed for it (e.g. price supports, taxes, subsidies) but also, and often more deeply, by policies affecting the overall macroeconomic environment (e.g. public sector deficits, inflation, interest rate, exchange rate) as well as policies for the other sectors (e.g. the rate of protection accorded to manufacturing if it makes more expensive the manufactured inputs and consumer goods purchased by agriculture). The lesson is that agriculture cannot prosper in an environment of high inflation, overvalued exchange rates and generally in conditions which turn incentives against it. The importance of the macroeconomic factors came in stark evidence in the aftermath of the 1970s, a period of external shocks, easy borrowing and build-up of foreign debt, which was followed by the emergence of strong macroeconomic disequilibria and ushered in the crisis decade of the 1980s. Policy responses to correct such imbalances (going under the generic name of structural adjustment) while restoring incentives to the sector may also have affected the sector negatively due to public spending cuts, less growth of the demand for agricultural produce and fewer opportunities for agricultural labour to move to other sectors. These reforms may not by themselves engineer resumption of growth but they are considered necessary as a step towards setting the economy on an even keel, in the absence of which strategies for long-term growth have a low probability of succeeding.

4. Certain types of public sector involvement in economic life can be counterproductive. The analysis of experiences here draws heavily on examples from agriculture, as government involvement particularly in marketing of agricultural produce was very diffuse in some countries. The issues related to the proper role of the public sector have still to be settled (and certainly they cannot be settled on dogmatic grounds) as the expected benefits from reforms to correct these perceived structural shortcomings and the often associated macroeconomic imbalances are in many cases slow in coming and of uncertain magnitude and duration. But some degree of consensus can be gleaned. It reaffirms and strengthens the case for an enhanced role of the public sector in agriculture in such areas as provision of infrastructure, education (including technical education for agriculture), research and technology development and transfer, etc.; with the proviso, of course, that success or failure depend greatly on the organizational and managerial capabilities of governments The case for this sort of public sector role is further strengthened by increasing evidence about the high rates of return to agricultural research and that what matters for development, together with, and perhaps more than, investment in physical assets, is investment in human capital and knowledge. In parallel, the consensus seems to lend support to the proposition that, in a general sense, governments should backstop rather than supplant the private sector in production and marketing by, mainly, creating the institutional framework and enforcing the rules for markets to work efficiently and for prices to play their vital role as incentives and disincentives for guiding such private sector activities.

In conclusion, it can be stated with confidence that the early post-war ideas of squeezing agriculture for the benefit of other sectors are dead and hopefully buried for good. This does not mean that agriculture's role as supplier of resources to the rest of the economy will cease. But it does mean that in many situations priority must be given to increasing agricultural productivity and the incomes of the rural people if markets for the domestic industry are to be expanded and if a surplus is to be created in agriculture and transferred, rather than extracted, to other sectors. Such transfers are seen primarily as spontaneous responses to the normal course of events whereby agriculture grows less rapidly than other sectors. In these conditions, other sectors offer generally higher rates of return and it is natural that resources are directed to them. Here again, the importance of public sector interventions to promote investment benefiting agriculture is emphasized, e.g. in research, education, infrastructure, etc., because the social rate of return on these investments can exceed by far the private rate of return. In the process of development and structural transformation, the initial conditions prevailing in some countries dictate that there is a strong case for priority to agriculture in development strategies to enable the sector to play its vital role in poverty alleviation and in backstopping overall economic growth.

Policies for, or affecting, international agricultural trade

A number of policy changes have been undertaken in recent years or are under consideration, at both the international and the national levels, which can have profound effects on international agricultural trade. All point to the direction of allowing an enhanced role for market forces to determine trade flows. The reforms in the ax-centrally planned economies of Europe belong in this category. Their potential trade effects were noted earlier. Here belongs also the reform of the European Community's Common Agricultural Policy (CAP), with potential trade effects also noted above. These effects of the CAP reform would be for the major temperate commodities in the direction of those that are expected to be forthcoming from the application of the provisions of the agricultural part of the Final Act of the recently concluded Uruguay Round of Multilateral Trade Negotiations.

The Agreement on Agriculture of the Uruguay Round, in combination with other recent policy reforms, will contribute to change the structure of protection towards measures which allow an enhanced role for market forces to determine production, consumption and trade outcomes. But, on balance, the Agreement represents only limited progress towards free trade in agriculture. Its value is to be seen more in terms of the discipline and transparency it implies for the policies which affect trade.

In parallel, the general thrust of policy reforms of the developing countries described in the preceding section is towards more open economies and structural adjustments which would create more favourable conditions for trade. However, some key problems faced by many developing countries in their agricultural trade relations are not being addressed with the same urgency, if at all. These include issues of, among others, the falling and volatile prices of major tropical export commodities or market access restrictions and subsidized export competition for some of their commodities on the part of developed countries. Finally, the concerns for the environment and the related policies have helped bring into the international trade policy debate the issues concerning the interactions between trade and the environment, as discussed earlier.

Issues of rural poverty and rural development

Over I billion people in the developing countries are poor, with a substantial majority of them living in rural areas. The development of agriculture may therefore play a direct role in rural poverty alleviation, since the majority of rural poor depend on agricultural activity for providing the main source of their income and employment. The projected growth rates of agricultural production presented earlier are generally above those of the population dependent on agriculture in all developing countries. The implicit growth rates of the average per caput incomes of the agricultural population are, however, modest, though they can be significant in those countries where the agricultural population is on the decline. Reductions in the incidence of rural poverty from agricultural growth depend not only on its rate per caput but also on its impact on distribution; and also on increasing opportunities for non-agricultural employment in rural areas in synergy with agricultural growth.

The impacts of agricultural growth on different socioeconomic categories of rural producers and labourers, as well as the mechanisms through which these impacts are mediated, depend on the nature of the growth processes and the structural factors underlying the social organization in rural areas. The evidence seems to suggest that while, on balance, agricultural growth can be expected to bring about reductions in rural poverty, some parts of the rural population may become worse-off economically. The structural characteristics of the rural economy at the inception of agricultural growth play a predominant role in the distribution of benefits from higher production.

Access to land is a major factor determining the poverty alleviation effects of agricultural growth as well as conditioning the growth process itself. The most recent attempt to take stock of progress in redistributive land reform was undertaken in 1991 for the quadrennial FAO report on progress under the Programme of Action of the World Conference on Agrarian Reform and Rural Development. The report concludes that progress has been limited. Yet the case for such reforms remains strong on both efficiency and equity grounds. It is further strengthened when linkages with the non-agricultural rural sector are considered, because a more equal distribution stimulates also rural non-farm employment. In general, the experience seems to suggest that political commitment and strong follow-up support from the public sector to beneficiaries of land reform are essential ingredients of successful land reform policies. Land reform will continue to be a relevant issue in the quest for rural poverty alleviation. This will be particularly so in countries with increasing agricultural population and poor non-agricultural growth prospects.

Beyond reforms affecting the distribution of land ownership, those of tenancy arrangements remain important. The lessons here are that past policies restricting sharecropping contracts were sometimes counterproductive. The tenancy reforms pursued in the reforming centrally planned economies of Asia are proving increasingly successful as they shift from socialized farming to household-based arrangements with adequate security of tenure. It is also increasingly accepted that most traditional land tenure systems in Africa can adapt well to changing circumstances and the policy emphasis should be on providing an appropriate legal and institutional environment.

Limited access to rural finance by the poor in agriculture has been a major limiting factor in agricultural development and poverty alleviation. The policy orientation favouring provision of formal finance through specialized credit institutions has often been unsuccessful and there is increasing recognition of the need for less formal arrangements to enhance access to credit of the poor, e.g. Rotating Savings and Credit Associations (ROSCAs).

Concerning marketing, the attempts to provide marketing services to agriculture, including to the poor, often together with other services, through parastatals have proven generally, though not always, inefficient. Such inefficiencies are among the reasons why reform of the role of the public sector in agricultural marketing figures prominently in structural adjustment programmes. There is a well-recognized role for government in marketing by providing infrastructure, the legal framework and enforcement of rules and generally supporting the functioning of markets. However, the policy thrust is for direct involvement of the state in marketing to be curtailed and for the private sector to be allowed and encouraged to be the main vehicle for this function. The key issue is how to move smoothly from one organizational form to another, because the poor will suffer most if major disruptions in services occur.

In the longer term, the growth of agriculture and the overall economy would tend to alleviate the rural poverty problem, particularly if agricultural and rural development is directed towards more egalitarian patterns by policies like the ones described above. However, in the immediate future, and for some countries for a long time, rural poverty will continue to be a major problem. Therefore direct interventions will continue to be needed. Rural public works have long been used for this purpose, particularly in emergency situations. They form the core of government anti-poverty strategies in South Asia and other countries. The experience is generally favourable, and anti-poverty impacts are highest under community participation and careful selection and targeting of beneficiaries.

Interventions in the food and nutrition area will continue to have a place in the total arsenal of anti-poverty policies. The lessons here are that attempting to reach the poor through general food subsidies is a very costly policy and, in general, tends to benefit the non-poor more than the poor. More targeted schemes are generally superior in achieving their objectives, though often more difficult to administer. They include ration schemes, food stamps and supplementary feeding programmes.

1.9 Emphasis on human resources development in developing countries

As noted many times in the preceding discussion, intensification of agriculture will continue to be, and more so than in the past, the mainstay of production growth in the future. It is now well recognized that what matters for a successful transition to more intensive agriculture, more than physical capital, in the capability of farmers to be energetic agents open to and eager to adopt profitable innovations in both technology and management practices.
Moreover, the need to shift agriculture to more sustainable technologies and practices will attach an even higher premium to those capabilities. Therefore, a major thrust in policies for agricultural development must be directed to human resources development (HRD), involving all aspects from basic education to technical one, including formal and informal approaches to creating and transferring skills. HRD includes also the upgrading of health and nutrition. These, as well as education, are objectives of development in their own right and not only means for making people more productive economically.

The required HRD effort in agriculture in the developing countries is considerable because the population economically active in agriculture will continue to grow, albeit slowly. Moreover, there is a huge backlog to absorb, given the prevalence of high illiteracy rates in the rural areas, as well as scarcity of trained extension personnel. It is estimated that there is one extension agent per 2500 people economically active in agriculture in the developing countries. The corresponding ratio is one to about 400 in the developed countries. In the latter, the private sector is also more active in providing extension services. Additionally, the proportion of females in the total extension activity of the developing countries is very low and out of all proportion to the relative importance of women in agriculture. There have been some encouraging trends in the developing countries, though not in all regions, as regards both the growth of the number of people involved in extension, and their quality, as more highly trained persons gradually replace those with fewer skills.

1.10 Concluding remarks

There emerges a mixed picture about the future of the world food and agriculture from the assessments of this study. Overall, the world appears set on a path of declining growth rates of agriculture as more and more countries reach medium-high or high levels of per caput food supplies and population growth slows down. The trend could be halted or even reversed for some time if the significant part of world population with still unsatisfied food consumption needs were to be in a position to demand and/or produce food at higher rates than estimated here for up to 2010.

There appear to be no unsurmountable resource and technology constraints at the global level that would stand in the way of increasing world food supplies by as much as required by the growth of effective demand. And, on balance, there is scope for such growth in production to be achieved while taking measures to shift agriculture on to a more sustainable production path. However, the need to accept trade-offs between agricultural growth and the environment will persist in many local situations which combine adverse agroecological and socioeconomic characteristics. The above global statements apply much less, or not at all, to marine capture fisheries. This latter sector provides perhaps the major example of global natural resource constraints which cannot apparently be relaxed through substitution by man-made resources and technology, at least not as far as one can tell on the basis of present knowledge. But substitution can and does take place at the consumption level, as more investment and technology produce substitutes of fish in consumption, albeit imperfect ones, e.g. poultry meat.

The findings of the study imply that many countries and population groups will not be able to benefit in per caput terms more than marginally from the further growth in world food production, nor from the potential for this growth to be even higher than projected here. Only a combination of faster, poverty reducing, development and public policy, both national and international, will ultimately improve access to food by the poor and eliminate chronic undernutrition. In the countries with high concentrations of poverty and high dependence on agriculture, success in this area will often require priority to be placed on agriculture for increasing incomes and food supplies locally. If local agricultural resource endowments are unfavourable, the task of bringing about development can prove very arduous indeed. It is in such contexts that one can speak of resource constraints being real obstacles to solving food and nutrition problems, even though resource constraints to increasing global food production may not be serious.

Finally, looking forward to the longer-term future beyond the year 2010, the concluding section of Chapter 3 attempts some speculative estimates of the agricultural growth requirements for up to 2025. They are meant to provide a framework for thinking about longer-term issues of world food-population balance. They are not projections of likely outcomes. It can be expected that the annual rate of growth of world food production required to sustain the growing population will tend to continue to decline. This is because the growth rate of world population will continue to fall, while the proportion of world population with relatively high levels of per caput food consumption will tend to increase, allowing little scope for further increases.

Eventually, world population growth could fall to zero and total population could stabilize. If by that time all people had satisfactory levels of food consumption, there would be little further pressure for increasing agricultural production. The key issue is whether the world can tread a sustainable path to such an eventual situation of a quasi steady-state agriculture.

One aspect of this issue has to do with the capability of the world's agricultural resources to underpin the growth of production to the notional steady-state level and maintain it at that level thereafter. It is not possible to give a straightforward answer to this question but the following considerations are relevant: (a) in a world without frontiers and with free movement of people and/or having conditions for greatly expanded food trade the binding character of natural resource constraints, if they exist, will be greatly diminished; and (b) there are many countries in which both food supplies and an overwhelming part of their economy depend on local agriculture. As already noted, if their agricultural resources are poor, it is entirely appropriate to speak of agricultural resource constraints standing in the way of achieving food security for all even if one knew for certain that the world as a whole had sufficient resources to grow in sustainable ways as much food as required to meet the needs of a much larger world population.

Resource constraints impinging on agriculture and food production are only part of the issue whether the world can tread a sustainable path to a situation free of food insecurity. For such a world must be virtually free of poverty. The issue then becomes one of sustainable paths to poverty elimination. This would require economic growth all round. If poverty is to be eliminated in the not too-distant future, economic growth must be rapid in the regions with high poverty concentrations. Pressures on the wider ecosystem would increase, e.g. generation of waste from greatly increased use of energy. If the wider ecosystem had only limited capacity to absorb the impact, it is possible that environmental constraints from this origin, rather than from the agricultural resources, would condition the pace at which the world can tread a sustainable path to food security for all.


1. These are net imports of all the developing countries, after projected exports from the net exporting developing countries of some 30 million tonnes (up from 17 million tonnes in 1988/90 and 14 million tonnes in 1969/71) have been deducted from the projected imports of the net importing countries of some 190 million tonnes (106 million tonnes in 1988/90 and 34 million tonnes in 1969/71).

2. It is noted that data on protected areas for 63 out of these 69 countries indicate that some 380 million ha are in this class, of which some 200 million ha are on land with agricultural potential but not in agricultural use.

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