IV. Mobilizing Public Resources for Agricultural Development

28. Resources at national level for agricultural development and the promotion of food security may be private or public, domestic or external. In countries with high incidence of undernutrition, private savings are likely to be limited by the low per caput incomes. For the same reason the tax base from which governments derive revenues is likely to be low. Although governments could often raise additional domestic resources through fiscal reforms, a number of countries will still have to rely on external resources to generate funds for agricultural development. Important adjustments are underway in many countries in the form and levels of public intervention to a generally shrinking resource base and to the new conditions of the international playing field. In what follows, the role of public expenditure towards the agricultural sector and the role of foreign finance for agricultural development and food security are examined.


29. The role of government in support of economic activities in general, and agriculture in particular, has been drastically revisited and often scaled down over a decade of structural reforms in most countries in the world. The tendency in the new development "paradigm" is for governments to concentrate the use of their resources towards delivering indispensable public goods and services, and to providing an environment where private initiative can flourish, instead of endeavouring to replace or compete with them. Yet, government expenditure remains an indispensable condition for economic and social development. Agricultural research and extension, public infrastructure and services, safety nets against transitory shocks, programmes to facilitate adjustment of particular sectors or regions to enable risk-taking innovations to ensure environmental sustainability and food security are examples of public functions that continue to be required from the public sector, often increasingly in a decentralised fashion and in partnership with the private sector and the civil society.

30. The forms of taxation used by governments also have an impact on the level of resources available to governments, while constituting an effective instrument for redistribution. Reforms in the tax systems should also be geared inter alia toward ensuring a friendly investment environment for both foreign and domestic private investment.

31. Time series data on government expenditures by sector are scarce however. The only comprehensive data source documenting government expenditures (Central, Local and State) on agriculture is the IMF19 . It must be noted immediately that a minority of countries report useable data, with long delays, as seen in the low and declining number of available observations in this source (Annex Tables 3,4,5). In terms of prevalence category, the paucity of observations in Category 2 (3 countries or less reported) does not warrant use of this category.

32. The first observation is that the share of expenditures on agriculture in total government expenditures is extremely dispersed, with the observations ranging from 0.015% to 23%, and the share being lower than 10% in 90% of the cases (Annex Table 7). These data are summarized by region and undernourishment prevalence category in Table 4.1. The share of expenditures on agriculture is not related in any simple way to the size of the agricultural sector, and depends inter alia to the overall importance given to economic functions in government budget. However, one would expect that countries where agriculture plays a dominant role would allocate a greater share of expenditures to this sector. This is examined below in relation to two principal indicators: the importance of agriculture labour in total employment, and the share of agriculture value added in the total GDP. In view of the importance of agricultural growth for alleviating food insecurity in countries with a high prevalence of undernourishment, the examination is also conducted with respect to undernourishment categories.

Table 4.1: Share of Government Expenditure for Agriculture in Total Expenditure by Developing Region and Undernourishment Prevalence Category (1990-1998)

REGION 1990 1991 1992 1993 1994 1995 1996 1997 1998
Latin America & Caribbean 3.2 4.6 3.9 4.2 3.9 3.4 2.7 3.3 1.9
Near East & North Africa 4.1 3.6 3.7 3.6 3.3 3.7 3.5 3.5 1.1
Africa South of Sahara 6.2 5.8 6.6 5.3 5.5 5.0 5.6 4.7 3.9
East & South East Asia 6.9 6.5 5.9 6.1 7.0 7.5 7.4 7.1 5.2
South Asia 8.4 10.0 10.4 10.5 11.2 11.2 8.8 6.3 5.4
PREVALENCE CAT.                  


5.5 5.1 4.8 4.3 4.3 5.2 4.9 4.3 n/a


2.5 2.0 1.9 1.9 2.0 n/a n/a n/a n/a


4.5 4.4 4.3 4.6 4.6 5.4 5.5 5.5 3.7


7.2 7.6 7.6 7.1 6.9 7.2 6.9 6.0 5.2


6.5 6.4 6.8 5.2 4.8 4.2 4.9 n/a n/a

Source: IMF, Government Financial Statistics 2000.

33. The data on government expenditures for agriculture in relation to agricultural GDP are presented in Table 4.2. Averages for groups of countries derived in the table are unweighted in order to reflect a picture of governments' policy stands in this respect. On a regional basis, Near East and North Africa and Africa South of the Sahara allocate a greater share than the other regions. By prevalence of undernourishment, the category with the highest prevalence is consistently allocating the lowest share to agriculture over the period reported.

Table 4.2: Government Expenditure as a Share of Agricultural GDP by Undernourishment Prevalence Category (1990-1998)

REGION 1990 1991 1992 1993 1994 1995 1996 1997 1998
Latin America & Caribbean 5.6 8.2 7.6 12.7 14.6 14.0 6.1 10.0 4.5
Near East & North Africa 19.2 11.2 19.1 17.9 16.7 16.6 13.9 26.2 n/a
Africa South of Sahara 14.1 15.5 16.9 13.1 14.4 16.8 20.9 24.6 23.4
East & South East Asia 14.1 11.5 11.1 10.1 9.5 11.2 11.4 12.6 6.7
South Asia 8.5 9.1 11.3 12.2 12.0 14.8 9.6 5.4 4.8
PREVALENCE CATEGORY                  
Category 1 9.0 9.3 8.8 9.4 10.8 11.3 10.5 10.7 n/a
Category 2* 38.2 7.9 36.0 29.9 24.3 n/a n/a n/a n/a
Category 3 6.32 5.69 6.41 10.50 13.27 13.73 10.51 12.67 7.62
Category 4 12.16 14.65 15.43 10.98 11.45 13.59 17.64 12.25 9.66
Category 5 5.18 4.39 4.57 6.44 4.50 4.77 4.07 n/a n/a

Source: IMF Government Financial Statistics, 2000* Years with very few observations ( less than 2) have been ommitted from the averages. For the second category, data are available for only three countries ( Egypt, Kuwait, Uruguay). If Kuwait whch displays an exceptionally high value, is excluded, then the average for the group oscillates around 6.5 for the years where there is information.

34. The resource constraints facing countries with high levels of undernourishment can be better illustrated by relating government expenditures for agriculture to the size of the agricultural labour force (Table 4.3). The table shows then an inverse relationship between prevalence of under-nourishment and government expenditure.20. The countries with the highest prevalence of undernourishment spend much less per agricultural worker compared to the countries with the lowest incidence. In this context, it is worth noting that the average expenditure per agricultural worker in the highest undernourishment prevalence category is at least 30 times lower that that of the category with the lowest prevalence (for years for which data are available).

Table 4.3: Govt Expenditures for Agriculture per Agricultural Worker by Developing Region and Undernourishment Prevalence Category (1990-1998) (constant $US)

  1990 1991 1992 1993 1994 1995 1996 1997 1998
Lat. Amer and Caribbean 667 709 623 415 493 958 397 503 677
Near East and N. Africa 1,598 553 1,101 1,062 1,133 1,473 1,132 863 388
Africa South of the Sahara 103 103 59 59 65 200 239 297 n/a
East and SE Asia* 244 250 259 286 414 463 482 540 n/a
South Asia 32 58 76 97 97 151 73 29 25
Category 1 421 483 515 527 668 817 880 870 n/a
Category 2 3,662 217 1,892 2,328 2,673 n/a n/a n/a n/a
Category 3 222 198 252 214 267 1,085 404 249 242
Category 4 73 77 88 92 94 295 165 96 42
Category 5 10 15 19 27 20 17 14 n/a n/a

Source: IMF, Government Financial Statistics Yearbook, 2000
* Singapore not included (expenditure per agricultural worker in the range of 8000 $).

35. In terms of developing regions, spending per agricultural worker is lowest in the regions with the highest incidence of under-nourishment namely South Asia and Africa South of the Sahara).

36. To what extent do the changes (over time and by country/category ) in the share of government expenditure in agriculture "track" differences in agriculture's importance in the economy? Share of government expenditures on agriculture in total expenditures compared to other indicators of the importance of agriculture in developing countries grouped by prevalence of undernourishment are given in Table 4.4. For the countries and years covered by the expenditures data, the shares of agriculture in GDP and in total exports increase with prevalence categories, bringing out the well-known fact that poorer countries are agriculture-based. The available data do not bring out strong evidence of a decline (overtime) of the share of agricultural in total GDP (possibly due to the short time period and sparse data) although some tendencies toward a decline can be observed (categories 1, 3 and 5 for some years).

37. Expenditure shares on agriculture are slightly higher in countries where undernourishment is high and where agriculture plays an important role. However, the expenditure shares for groups of countries reporting in each category are low compared to the shares of agriculture in economic and demographic indicators for those countries (Table 4.4). Bringing together the data on agriculture's shares in GDP and expenditure we can construct an "agricultural orientation index" which reflects the extent to which government expenditures on agriculture reflect (or not) the importance of agriculture in the overall economy. To construct the index, the share of agricultural expenditure in total government expenditure is divided by the share of agriculture in GDP.

Table 4.4: Share of expenditures on agriculture in total expenditures and other indicators of the importance of the agricultural sector in developing countries by prevalence of undernourishment category (1990-1993 and 1995-1998)

  Undernourishment Prevalence Categories

<2.5% undernourished


2.5-4% undernourished


5-19% undernourished


20-34% undernourished


>35% undernourished

  1990/93 1995/98 1990/93 1995/98 1990/93 1995/98 1990/93 1995/98 1990/93 1995/98
Share of Gov't Exp. on Agriculture in Total Exp.(%) 4.9 4.7 2.1 2.0 4.4 4.9 7.4 6.5 6.2 5
Share of Agriculture in GDP (%) 10.9 9.7 11.6 12.7 16.4 18.2 23.1 22.3 31.6 21
Share of Agricultural Exports in Total Exports (%) 10.7 9.0 11.2 8.7 11.7 10.7 18.2 15.0 42.2 43.5
Share of Rural Population in Total (%) 31.8 27.3 52.0 51.6 63.5 59.9 72.8 71.2 74.8 75.8

Source: FAO Statistics

The higher the index the closer is the agricultural expenditure share to the share of agriculture in GDP21. The index, and changes over time by prevalence category, are shown in Figure 4.1.

Figure 4.1: Agricultural Orientation Index1 by Undernourishment
Prevalence Categories (1990-1998)2

Y0006e12.gif (5657 bytes)

Undisplayed Graphic

1 Agricultural orientation index is calculated as:

2 Category 2 has been ommitted from this graph as data are available for only three countries ( Egypt, Kuwait, Uruguay) where Kuwait displays an exceptionally high value for government expenditures.


38. Figure 4.1 shows that the group in prevalence category 1 (very low prevalence of undernourishment) has the strongest agricultural orientation relative to the other groups with a tendency to increase in the late 1990s. On the other hand, for group 5 (the highest prevalence group) the share of government spending devoted to agriculture, is substantially below agriculture's importance in the economy and, for the time period covered, there are no signs of improvement. This in itself constitutes a worrisome trend given the dependency of that group of countries on agriculture for overall income and nutrition. It is worth noting that the agricultural orientation for that group is consistently lower than that of groups 1,3 and 4 for the period examined.

39. Although data are limited, the above analysis shows that in countries with very high incidence of undernourishment, public expenditure on agriculture does not reflect the importance of the sector in overall income and its potential contribution to the alleviation of undernourishment. Due to the scarcity of data, this paper can only address the amount of government expenditures but not the quality or effectiveness of these expenditures. Fan et. al.22, in a study on government spending in rural India, quantify the effectiveness of different types of government expenditures and conclude that government spending on productivity enhancing investments, such as agricultural research and development, irrigation, rural infrastructure (including roads and electricity) have large impacts on growth in agricultural productivity while at the same time reducing poverty. These results imply that government expenditures can be both poverty reducing and growth enhancing at the same time if effectively directed to the right channels.


40. In order to provide a complete picture on resources for promoting economic and social development and food security in low income, food deficit countries, the trends in external financial resources should also be investigated. Those could be either official or private. Table 4.5 provides a comprehensive picture of external resource flows and their composition for most of the 1990s.

41. The net flow of external financial resources to the developing countries has increased from 142 to 248 Bn.$ in the period between 1990-92 and 1999. At the same time, there has been a dramatic change in the composition of those resources between public and private. Thus, Official Development Finance (the overall net flows from official sources) has stagnated to around 80 Bn.$ (in current prices), while private flows expanded almost three-fold from 58 to 160 Bn.$ during the same period. A small residual component is made up of export credits.

42. As a result of the shift in the composition of external flows, Official Development Assistance has been reduced from 39% of net total external flows in 1990 to 20% in 1999.

 Table 4.5: Total Net Resource Flows from DAC Member Countries1 and Multilateral Agencies to Developing and Transition Countries (Current Bn.$)

  1990-92 1993 1994 1995 1996 1997 1998 19992
Total Net Resource Flows 141.7 165.7 225.5 265.1 353.7 321.4 230.8 248.0
Official development finance (ODF) 79.9 82.4 84.5 87.6 73.5 75.3 88.4 84.9
of which: ODA3(a) 55.4 55.5 59.6 59.1 55.8 47.7 49.7 51.3
of which: Bilateral 40.0 39.4 41.3 40.6 39.1 32.4 35.2 37.9
: Multilateral 15.5 16.1 18.3 18.4 16.7 15.3 14.5 13.4
Total export credits 3.7 -3.0 6.3 5.6 4.0 4.8 8.3 4.0
Private flows 58.2 86.3 134.7 172.0 276.2 241.3 134.0 159.2
of which : Direct investment (DAC) 26.8 41.6 52.1 59.6 68.9 102.3 119.8 131.8
Ref. Item:Total DAC net ODA4 56.8 56.5 59.2 58.9 55.6 48.5 52.1 56.4

1)Australia, Austria, Belgium, Canada, Denmanrk,Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg,Ntherlands, New Zealand, Norway, Portugal, Spain, Sweden, UK and the USA.

2) provisional

3) Excluding forgiveness of non-ODA debt for the years 1990 to 1992.

4) Includes bilateral ODA as above plus contributions to multilateral organisations in place of ODA disbursements from multilateral organisations shown above.

Source: Development Cooperation Report 2000, OECD, 2000.

43. The increase in foreign direct investment from DAC countries to developing countries (a change of 130% between 1990 and 1999) is an important development but a more detailed analysis of the destination of those flows world-wide shows that its distribution is not according to need (Box 4.1). For the countries more in need for resources for agriculture and food security, official sources and indeed official development assistance will continue to be the major source of external flows for the development of their agricultural sector.

Box 4.1: Private foreign direct investment

World-wide FDI inflows reached $865 billion in 1999, increasing 27% from 1998. Developing countries accounted for 24% of the FDI flows, with a total of $208, an increase of 16% over 1998. This increase, compared to the stagnation in 1998, is encouraging, but is still concentrated in a small number of countries.

Where FDI increased in the developing world, most of it went to countries in South, East and South East Asia where FDI flows increased by 11% to reach $93 billion in 1999. This increase was mainly in newly industrialised economies, while FDI in South Asia declined in 1999 by 13%. South, East and South East Asia accounted for 46% of all flows to developing countries and about 11% of world FDI. Latin America came in second with similar levels of FDI inflows. Africa has received only about 1 percent of total world FDI and 4% of FDI to developing countries. Thus allocation of Foreign Direct Investment is far from being distributed according to needs (Figure 4.2).

In the period, 1993-98, of the total FDI going to developing countries, out of the 20 countries that accounted for 72.3 % of FDI inflows, China represents 25.7% followed by Brazil and Mexico. The poorest countries where financial markets are underdeveloped, information available to potential investors is imperfect and the risks of longer-term investment are high have difficulties in attracting FDI.

Figure 4.2: Percent of FDI inflows to Developing Countries by region, 1999

Y0006e14.gif (4241 bytes)
Source: UNCTAD, World Investment Report, 2000


44. Table 4.6 shows that in countries where food insecurity is prevalent, so is the importance of external assistance to overall resource mobilisation and economic activity. For the countries with the highest prevalence of undernourishment, ratios of external resources to various measures of resource mobilisation and to GDP have fallen in the second half of the 1990's, however, external aid is still as high as 86% of gross domestic investment and 51% of government expenditures. For the group of countries in that category, external aid is an indispensable source of funding for development.

Table 4.6: Aid* as a Share of GDP, Government Expenditures And Domestic Investment by Undernourishment Prevalence Category (1990-1998)













Aid1 (% of central government expenditures)  
1990-19952 2.1 6.5 11.7 33.1 51.2
1995-1998 0.9 2.1 5.4 19.2 50.5
Aid (% of GNP)  
1990-1995 1.0 1.8 6.9 10.8 19.4
1995-1998 0.4 0.6 4.3 9.0 12.9
Aid (% of gross domestic investment)  
1990-1995 5.0 9.1 31.3 51.2 151.8
1995-1998 1.6 3.4 18.6 38.5 86.9

Source: FAO calculations based on World Bank data, World Development Indicators,2000.

1 Net official development assistance and net official aid (the actual international transfer by the donor of financial resources or of goods or services valued at the cost to the donor, less any repayments of loan principal during the same period)

2 Averages refer to simple group and period means

45. Table 4.7 shows that total commitments of official development assistance (ODA) from the major bilateral and multilateral donors to developing countries for agricultural development amounted to $12,316 million in 1998 (provisional data) in current prices. This is almost exactly the same level as was recorded in 1997 ($12 340 million) but still lower than the 1990 level. Moreover, the share of Agricultural and Rural Development (both the broad and the narrow definitions) in total ODA has been largely lower in the mid 1990s than in the beginning of the decade, while recovering in the last two years for which data are available.

Table 4.7: Total Official Development Assistance and ODA Towards Agriculture and Rural Development (million of 1995 US$)

Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1998 (current $US)
Total ODA Commitments 87,392 85,976 76,725 81,919 82,482 75,385 76,542 70,491 69,844 61,533
Commitments for Agriculture (narrow definition1) 11,061 9,987 10,580 8,568 10,277 7,245 9,325 9,333 8,337 7,345
Commitments for Agriculture (other components) 3,836 3,636 3,098 2,919 3,015 4,278 2,867 4,379 5,642 4,971
Total Commitments for Agriculture (broad definition) 14,897 13,622 13,678 11,487 13,292 11,522 12,193 13,711 13,980 12,316
Share of Ag (broad) to Total (percent) 17.04 15.84 17.82 14.02 16.12 15.28 15.93 19.45 20.02 20.01

1 Narrow definition includes the following sectors: Land and water; Research, training and extension; inputs; agricultural services; crop production; livestock; fisheries; forestry; others agriculture

2 Broad definition includes all the above plus Manufacturing of inputs; environment protection, agro-industries; rural development/infrastructure; regional and river development

46. When measured in constant 1995 prices, total commitments for agriculture, have increased since 1995, but still remain 8 percent below the level that opened the decade in 1990 ( Figure 4.2). The contributions made by bilateral donors, mainly countries in the Development Assistance Committee (DAC), remained about $4.3 billion in both 1997 and 1998. The increased levels of assistance in 1997 and 1998 over that of 1996 were represented entirely by increased levels of multilateral assistance, particularly from the International Development Association (IDA), while bilateral assistance was actually lower than in 1996 (Annex Table 8 and Figure 4.3 ).

Figure 4.3: Total Commitments to Agriculture by main Bilateral & Multilateral Donors
(million of 1995 US$)

Undisplayed Graphic

47. The share of concessional assistance in total commitments for agriculture is estimated at 65 percent in 1998, well below the shares of 1988(77 percent), and 1996(74 percent). The share of grants in total commitments has remained relatively stable throughout the 1990s and represented 28 percent in 1998.

48. During the 1990 to 1998 period, the share of total funds allocated to primary agriculture out of total ODA commitments to agriculture (broadly defined) has declined while the share to fisheries and forestry remained stable. There has been increasing attention to other areas, in particular environmental protection (from 5% in 1990 to 10% of total in 1998), rural development and infrastructure (from 14% to 25% ) and research, extension and training (from 6% to 14% of total) (Table 4.8).

Table 4.8: Total ODA Commitments to Agriculture (Broad Definition): Shares of Main Purpose Groups (Agriculture and Rural Development)

MAIN PURPOSE GROUPS 1990 1995 1998


Environment Protection 5 7 10
Land And Water 13 23 13
Research, Training And Extension 6 6 14
Inputs 2 4 2
Agricultural Services 11 4 6
Crop Production 8 3 2
Livestock 1 2 1
Fisheries 2 2 2
Forestry 6 3 3
Agriculture, Others 26 17 16
Manufacturing Of Inputs 2 1 0
Agro-Industries 3 1 1
Rural Development/Infrastructure 14 19 25
Regional And River Development 2 10 5

49. As for the geographic distribution of flows of external assistance to agriculture, there has been a declining trend throughout the 1990s in the share going to Africa. In 1998, the largest share of commitments went to Asia (46 percent), with Latin America and the Caribbean in second place (23 percent) and Africa third (21 percent). A smaller share went to Europe (2.5 percent) (Table 4.8 and Figure 4.4)

Figure 4.4: Total ODA to agriculture by main recipient groups in 1990 and 1998
(% of total $US)

Undisplayed Graphic Undisplayed Graphic

Table 4.9: Lending for Agriculture by Principal Financing Institutions

(loan approvals)

(all figures in current millions of US$ )

Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Total lending for agriculture (approvals)  
World Bank/IDA

(Fiscal Years)

3,656 3,707 3,894 3,267 3,868 2,752 2,577 3,547 3,052 2,528 1,125
AfDB/F (Calendar Years) 683 854 502 592 106 14 105 228 238 458  
AsDB " " 1,242 1,035 753 361 486 897 802 1,004 421 430  
IDB " " 319 570 735 77 210 552 580 156 122 100  
IFAD " " 308 276 324 336 349 392 408 398 413 433  
EBRD " "           256 268 398 204 222  
Grand Total 6,208 6,442 6,208 4,633 5,019 4,607 4,472 5,333 4,246 3,949 1,125
Agriculture as percentage of total lending
WB/IDA 18% 16% 18% 14% 19% 12% 12% 19% 11% 9% 7%
AfDB 21% 25% 17% 24% 7% 2% 13% 13% 14% 27%  
AsDB 31% 21% 15% 7% 13% 16% 14% 11% 7% 9%  
IDB 8% 11% 12% 1% 4% 7% 8% 3% 1% 1%  
EBRD           7% 8% 16% 7% 10%  

IFAD is of course 100% agriculture

Peak lending years in bold.

Source: Annual Reports; for 1998 figures (other than WB) from e-mails/telephoned information from financing institutions (Annual Reports for these other institutions usually only published April/May each year)

N.B. As of FY 98, WB reclassified figures used.

50. Table 4.9 presents data on external resource flows to agriculture in the form of loans by principal international and regional financing institutions. Total lending to agriculture in terms of total loans has declined substantially between 1990 and 1997. The share of agriculture in total lending 23has also declined during the same period. World Bank lending for agriculture has declined from $3,656 million in 1990 to $1,125 million in 2000. While lending to agriculture represented 18% of total lending of the World Bank in 1990, in 2000, this figure was reduced to 7%. Except for IFAD, where all lending is to agriculture and EBRD where the shares of lending to agriculture vary substantially, all financing institutions have reduced lending to agriculture
( Table 4.9).

51. As domestic resources are scarce and levels of domestic investment needed exceed what most countries can finance out of their own savings, most countries heavily depend on external assistance, a dependency augmented by the heavy debt burden faced by them. Until countries with high incidence of under-nourishment are able increase their incomes to the level where they can generate sufficient savings to meet their needs, external transfers will play an important role in the fight toward eliminating food insecurity. Most low-income, food deficit countries will need to draw on some measure of official finance for many years to come.



52. The World Food Summit, had called for a drastic departure from the pre-existing trends and policies that had led to the persistence of high levels of under-nourishment. The Rome Declaration is clear on this point:

"We consider it intolerable that more than 800 million people throughout the world, and particularly in developing countries, do not have enough food to meet their basic nutritional needs. This situation is unacceptable. The problems of hunger and food insecurity have global dimensions and are likely to persist, and even increase dramatically in some regions, unless urgent, determined and concerted action is taken, given the anticipated increase in the world's population and the stress on natural resources. We are determined to make efforts to mobilise and optimise the allocation and utilisation of, technical and financial resources from all sources, including external debt relief for developing countries, to reinforce national actions to implement sustainable food security policies."

53. It is enlightening to compare the observed slow growth of resources for agricultural development and food security with an estimate, uncertain as it may be, of investment levels required to reach the World Food Summit target. This estimate, conducted initially by FAO in preparation for the World Food Summit, has been re-actualised subsequent to the Summit and provided for information to the CFS at its 25th session in 1999.As shown in the table 5.1, the needed total annual gross investment in agriculture of the developing countries, including primary agriculture as well as storage, processing and support infrastructure, has been estimated at US$ 180.4 billion for the period up to 2015 in the FAO study.

Table 5.1: Investment needs to reach the WFS target * (billions of 1995 $US)

Primary Agriculture Net 14.3 6.3 2.5 3.8 27.0
  Gross 53.3 19.4 12.0 8.6 93.3
Storage & Processing Net 10.4 4.2 1.5 2.4 18.5
  Gross 26.4 10.7 3.9 6.1 47.1
Support & Infrastructure           40.0
Total Gross           180.4

Source: FAO Document CFS: 99/Inf.7 , 1999

* Gross Investment

54. The same study, using a comparable estimate of actual investment in primary agriculture during the decade 1986-95 showed that a continuation of these annual investment rates until 2015 would be clearly insufficient to achieve the WFS target (Table 5.2). The expected shortfall was 12 percent for the average of all developing regions, varying from 38 percent in Sub-Saharan Africa to zero in North Africa and the Near East. Comparisons for storage, processing, support and infrastructure could not be undertaken due to the absence of statistics on actual investment levels.

Table 5.2: Past Investment and future needs in Developing Countries - (Primary Agriculture) (billions of 1995 US$ )

Annual Average Investment net 1986-1995 16.0 3.8 4.0 1.7 25.4
  gross 1986-1995 34.2 11.4 11.4 3.4 60.4
past gross investment as a % of future requirements business-as-usual 94 87 103 82 94
  WFS target 88 86 101 62 88

Source: FAO Document CFS: 99/Inf.7 , 1999

55. t is important to underline again that the largest share of investment in primary production is undertaken at farm level, and therefore depends above all on a conducive climate for private investment, i.e. on sound policies for sustainable agricultural and rural development. On the other hand, public investment plays the major role in providing essential public goods without which private initiative cannot flourish: knowledge generation, information, education and infrastructure. For many LIFDCs, provision of these public goods cannot be achieved in the foreseeable future without resorting to external assistance. Recipient countries and donor institutions, bilateral or multilateral, need to allocate resources as required into these areas if the objective of food security is to be achieved.

56. It is in pursuit of this objective that FAO, over five years, has already mobilised $230 million for the Special Programme for Food Security (SPFS) that is operational in several countries around the world. The major aim of the SPFS is to improve food security through rapid increases in productivity and food production, reducing year-to-year variability of production and improving access to food on an economically and environmentally sustainable basis. The programme, to be effective and achieve its goals in around 80 LIFDCs requires an annual financing of about $1.4 billion, of which $500 million from the FAO SPFS Trust Fund, $67 million from the recipient countries, $134 million from bilateral donors, and $670 million from multilateral financing institutions, which is equivalent to about $17 million per country.

57. The widening resource deficit is all the more amplified when one considers the need to also attend to the transitional needs of the poor and food insecure on the road to development. These will be discussed in the following section


58. Quite understandably, for poverty and food insecurity alleviation, more attention is paid to investments which can sustainably improve the capacity of people to better their living conditions. As an example, the importance of the agricultural sector and of rural poverty has led many countries to pursue strategies focused on reducing chronic food insecurity through increasing the productivity of small farmers. Such strategies require that financial resources and institutional capacity be available, that the rural poor can access productive land and affordable inputs, and that the non-farming poor can express their unsatisfied food needs in terms of effective demand. In most LIFDCs, however, the feasible scale of such a strategy is constrained by lack of resources, domestic and external, and institutional capacity.

59. Since adequate nutrition, health and elementary education are prerequisites for inclusive economic growth, ensuring the broadest possible access to essential food needs, safe water, primary health care and primary education may well be an indispensable use of scarce resources to reach the WFS target. Therefore, direct interventions aimed at reducing current malnutrition and at creating conditions for healthy living should accompany policies (including public investment priorities) aiming at overall and agricultural development. Indeed, the 20/20 target agreed at the World Summit on Social Development (20% of national budgets and 20% of international assistance directed towards social goals) is premised on these twin requirements.

60. This twin-track approach to addressing food insecurity (both humanitarian and developmental goals) has been recognised as necessary in the technical documentation prepared by FAO for the WFS, as well as in the World Bank's paper on Rural Development: From Vision to Action and IFPRI's "2020 Vision for Food Agriculture and the Environment". Translating it into reality in all LIFDCs, however, will require the mobilisation of resources as well as institutional capacities that far exceed those currently committed to addressing food insecurity.

61. Resources needed to improve the multi-dimensional health and nutrition conditions of the populations in those countries are of course difficult to quantify. The cost of providing the food required for those under-nourished to become fed at a minimally adequate level has been notionally estimated25 at around 13$ per head per year - for 800 million persons, this means 10 Bn.$ per year, but the cost would decline to only 5 Bn.$ with the WFS target met. UN system agencies26 have calculated the cost of ensuring sound nutrition and health in the developing countries at 70 to 80 Bn.$ per year - on top of the 136 Bn.$ currently spent -. With the constraints on the domestic public budgets of the poorest developing countries, and the necessity that their fragile macroeconomy not be handicapped by the full cost of such effort, the case for increased and sustained international assistance cannot be overstated. While the fruitful outcome of foreign assistance depends on its appropriate orientation and utilisation by both donors and recipients, no improvement can substitute the lack of resources beyond a certain point. Thus new forms of resource mobilisation must all be explored.

62. The costs to be incurred in attaining the WFS target for reducing under-nutrition depend very much on the strategy adopted. Sustainable improvements in food security can result from, but also contribute to, broad-based economic growth. However, the magnitude of the number of the under-nourished - even if it were to be reduced from 800 to some 400 hundred million in the span of fifteen years - calls also for direct, targeted measures aimed at reducing their current undernourishment, in addition to policies and programmes which will improve their future condition. It is essential, in considering the costs and benefits of such measures, to also take into account the economic benefits resulting from their implementation, in addition to their humanitarian justification.

63. Poor health and malnutrition impair physical and mental capacities, and therefore the ability for productive work. This has been amply demonstrated at individual level27. Recent research conducted over the economic performance of a hundred countries over three decades in relation with their food insecurity status suggests that the economic losses incurred by the national economy when a large share of its labour force is handicapped by poor nutritional status are indeed significant - reaching magnitudes of the order of one point of growth in GNP per annum. Such are the conditions prevailing in countries with 30% or more of their population under-nourished, which FAO has estimated to have an aggregate of 600 million inhabitants. Indeed, since the mid-eighties the economic growth rate (per caput GDP) has been negative or nil in all countries with more than 50% of their population under-nourished, and in a majority of those with 20% to 50% under-nourished. Only in the group with less than 20% under-nourished did a majority of developing countries experience positive growth per caput28. Despite the fact that the cause-effect relationships are difficult to disentangle ( from growth to nutrition and from nutrition to growth) these findings nevertheless suggest that fighting hunger is a growth-promoting economic investment, not only a human rights obligation.


64. Despite the solemn commitment made at the World Food Summit, of a continuous effort to eradicate hunger in all countries with an immediate view of halving the number of undernourished before 2015, there are no signs of a significant change in the rate of reduction of undernourishment, which remains far too slow. Indeed, current projections for 2015 still leave the expected number of undernourished at that date at 580 million people, and the WFS target of a reduction to 400 million would not be achieved before 2030. It must be added immediately that this is only an intermediate target: the ultimate aim is to eradicate hunger in all countries.

65. The urgency of remedial action cannot be overemphasised. It is indispensable that resource mobilisation for agriculture ( a crucial sector for food security in the developing countries) moves towards the desirable change. Financial resources are only one element of the necessary actions to promote food security, and sustainable agricultural development is one of several indispensable components of a strategy to alleviate poverty, in particular food insecurity; yet the importance of mobilising resources for agriculture, especially in the countries where the sector forms the basis for the livelihood of the great majority of the poor, justifies that changes in the resource allocation towards the sector be considered as a forewarning of positive changes taking place.

66. In this respect, the information and analyses presented in the paper do not provide any evidence that enough changes to a new path have taken place, even though available data to monitor the situation are appallingly scarce. Investment in agriculture in developing countries seems to continue at the same pace which resulted in the insufficient progress observed since the beginning of the 1990's. Low productivity of agriculture in poor countries is associated with their low capital stock per worker and this backwardness in capital stock per worker and productivity has been steadily augmenting. Countries with low savings and investment capacity remain dependent on official development assistance as the main external finance source, but there is no shift in ODA trends to herald any response to this pressing need. The allocation by governments and donors of public resources towards agriculture remains well below the share of agriculture in income and employment generation. Yet, 70% of the poor and food insecure in developing countries depend on agriculture, fisheries or forestry, directly or indirectly, for improved livelihood.

67. It is not only a humanitarian, but also an economic reasoning, which should lead to greater efforts towards alleviating the plight of the poor and food insecure. As a matter of fact, and in addition to developmental efforts, immediate food assistance to the hungry, in case of emergencies due to climatic or conflict conditions, has individual and collective economic rewards as it enables them to better contribute, in the short and long term, to economic growth and prosperity of the national community.

68. The message should be clear: there can be no hope to meet the Summit target if the political will to direct sufficient resources to food and agriculture that will push up and distribute productivity gains, employment generation and access to food in particular in the rural areas, and to better conditions of life for the destitute, is not manifested through the allocation of public resouces. Many countries are badly starved of investable resources. International assistance for them, starting with the lasting solution of the debt problem, would be a tangible sign that the Summit commitment is being honoured. All efforts should continue to the effect that policies followed at the national and international level create the incentive environment for farmers'and other private investment to flourish in a climate of peace, democracy and stability towards an inclusive human, social and economic development.



19 IMF, Government Financial Statistics, 2000. 59 countries are documented in the IMF source at least one year over the period 1990-1998 and 52 countries maximum report in any given year , and 20 in 1998.

20 Again, prevalence group 2 is excluded due to the prevalence of one country for which data dominate the simple average.

21 It should be noted here that the "orientation "ratio is valid for comparisons among countries or country groups and does not indicate the relative treatment of agriculture ( in terms of government expenditures) relative to other sectors. in one country. Not all budget allocations go to functional categories of activities.

22 Fan, S., P Hazell, and S.Throat. Linkages between government spending, growth, and poverty in rural India, IFFPRI Research Report No. 110, 1999, IFFPRI, Washington D. C.

23 The reduction in total lending for "traditional " developing countries will be more pronounced if by the WB and EBRD to transition countries are excluded.

24 This secion is taken from the CFS: 99/Inf.7, Agricultural Investment for Food Security: Situation and resource requirements to reach the World Food Summit objectives.

25 WFS TBD # 13"Food Assistance and Food Security", FAO 1996. This estimate is based on the assumption, even if un-realistic, that food can be perfectly targeted.

26 World Bank, UNICEF, UNESCO quoted in "Ending Malnutrition by 2020: An Agenda for Change in the Millenium", Final report of the ACC/SCN Commission on the Nutrition Challenges of the 21st Century.

27 E. g a recent review of available research, "Health, Nutrition and Economic Development" - Strauss and Thomas, J. of Economic Literature, vol XXXVI - June 1998.

28 "The State of Food and Agriculture 1998", FAO 1998.


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