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Explore the unique features of agriculture in driving economic growth, reducing poverty, and promoting environmental sustainability. Learn about agriculture's contributions as an economic activity, provider of livelihoods, and environmental services.
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ECN 3204 ECONOMICS OF AGRICULTUREFOOD SYSTEM SEDEF AKGÜNGÖR Professor Dokuz Eylül University Faculty of Business CLASS NOTES on: WORLD DEVELOPMENT REPORT 2008 (Summary)
What can agriculture do for development? • Agriculture has features that make it a unique instrument for development:Agriculture can work in concert with other sectors to produce faster growth, reduce poverty, and sustain the environment. • Agriculture contributes to development in many ways: Agriculture contributes to development as an economic activity, as a livelihood, and as a provider of environmental services, making the sector a unique • instrument for development.
What can agriculture do for development? As an economic activity: Agriculture can be a source of growth for the national economy, a provider of investment opportunities for the private sector, and a prime driver of agriculture-related industries and the rural nonfarm economy. As a livelihood: Agriculture is a source of livelihoods for an estimated 86 percent of rural people. As a provider of environmental services: In using (and frequently misusing) natural resources, agriculture can create good and bad environmental outcomes. It is by far the largest user of water, contributing to water scarcity.
What can agriculture do for development? • Agriculture’s contributions differ in the three rural worlds: • Agriculture-based countries:Agriculture is a major source of growth, accounting for 32 percent of GDP growth on average. • Transforming countries:Agriculture is no longer a major source of economic growth, contributing on average only 7 percent to GDP growth, but poverty remains overwhelmingly rural (82 percent of all poor). • Urbanized countries:Agriculture contributes directly even less to economic • growth, 5 percent on average, and poverty is mostly urban.
What can agriculture do for development? • Countries follow evolutionary paths that can move them from one country type to another: China and India moved from the agriculture-based to the transforming • group over the past 20 years, while Indonesia gravitated toward the urbanized (Figure 2) .
What can agriculture do for development? • Agriculture has a strong record in development! • Agriculture has special powers in reducing poverty. • Agriculture can be the lead sector for overall growth in the agriculture-based countries. • Agriculture can be the lead sector for overall growth in the agriculture-based countries.
What can agriculture do for development? Yet agriculture has been vastly underused for development! • Parallel to these successes are numerous failures to use agriculture for development. • Rapid population growth, declining farm size, falling soil fertility, and missed opportunities for income diversification and migration create distress! • Policies that excessively tax agriculture and under-invest in agriculturereflecting a political economy in which urban interests have the upper • hand.
What can agriculture do for development? • New opportunities are emerging! • The world of agriculture has changed dramatically since the 1982 World Development Report on agriculture. • Dynamic new markets, far-reaching technological and institutional innovations and new roles for the state, the private sector, and civil society all characterize the new context for agriculture.
What can agriculture do for development? • New opportunities are emerging! • The emerging new agriculture is led by private entrepreneurs in extensive value chains linking producers to consumers and • including many entrepreneurial smallholders supported by their organizations. • An emerging vision of agriculture for development redefines the roles of producers, the private sector, and the state.
What can agriculture do for development? What are effective instruments in using agriculture for development? • Increase access to assets: Household assets are major determinants of the ability to participate in agricultural markets. • LAND:Land markets, particularly rental markets, can raise productivity, help households diversify their incomes, and facilitate exit from agriculture. • WATER: Access to water and irrigation is a major determinant of landproductivity. • EDUCATION: Education is often the most valuable asset for rural people to pursue opportunities in the new agriculture. • HEALTH: Widespread illness and death from HIV/AIDS and malaria can greatly reduce agricultural productivity and devastate livelihoods.
What can agriculture do for development? What are effective instruments in using agriculture for development? • Make smallholder farming more productive and sustainable. • Improving the productivity, profitability, and sustainability of smallholder farming can have policy aims such as: • • Improve price incentives and increase the quality and quantity of public investment, • • Make product markets work better, • • Improve access to financial services and reduce exposure to uninsured risks, • • Enhance the performance of producer organizations, • • Promote innovation through science and technology, • Make agriculture more sustainable and a provider of environmentalservices.
What can agriculture do for development? What are effective instruments in using agriculture for development? • Moving beyond farming: A dynamic rural economy and skills to participate in it. Creating rural employment:The rural labor market offers employ • ment possibilities for the rural population in the new agriculture and the rural • nonfarm sector. • Providing safety nets. Providing social assistance to the chronic and transitory • poor can increase both efficiency and welfare.
What can agriculture do for development? How can agriculture-for-development agendas best be implemented? • Defining an agriculture-for-development agenda: • Opening and widening pathways out of povertythrough smallholder farming, wage employment inagriculture, wage or self-employment in the rural nonfarm economy, and migration out of rural areas—or some combination thereof.
What can agriculture do for development? How can agriculture-for-development agendas best be implemented? In using agriculture for development, a country should formulate an agenda with the following characteristics: • Established preconditions • Comprehensive • Differentiated • Sustainable • Feasible.
What can agriculture do for development? How can agriculture-for-development agendas best be implemented? • In agriculture-based countries: Throughachieving growth and food security.
What can agriculture do for development? How can agriculture-for-development agendas best be implemented? • In transforming countries:Through reducing rural-urban income disparities and ruralpoverty.
What can agriculture do for development? What are effective instruments in using agriculture for development? • In urbanized countries:Through linking smallholders to modern food markets and providing good jobs. • For smallholders in urbanized countries, being competitive in supplying supermarkets is a major challenge that requires meeting strict standards and achieving scale in delivery.
What can agriculture do for development? How can agriculture-for-development agendas best be implemented? • Implementing an agriculture-for-development agenda presents two challenges: 1- Managing the political economy of agricultural policies to overcomepolicy biases, underinvestment, and misinvestment. • 2- Strengthening governance for the implementation of agricultural policies, particularly in the agriculture-based and transforming countries for which governance gets low scores (Figure 12).
What can agriculture do for development? How can agriculture-for-development agendas best be implemented? • The future offers more promise for agriculture for development! • The prospects are brighter today than they were in 1982. • The anti-agriculture bias in macroeconomic policies has been reduced thanks to broader economic reforms. • There is also evidence the political economy has been changing in favor of agriculture and rural development.
What can agriculture do for development? How can agriculture-for-development agendas best be implemented? • Yet these improved conditions alone are not enough. • Smallholders must have their voices heard in political affairs, and policy makers and donors must seize the new opportunities. What we need are: • New roles for the state • Strengthening civil society and democracy • A mix of centralized and decentralized services • Improving donor effectiveness • Reforming global institutions.
What can agriculture do for development? What now? Toward implementation: • If the world is committed to reducing poverty and achieving sustainable growth, the powers of agriculture for development must • be unleashed! IT REQUIRES: • Broad consultations at the country level to customize agendas • and defi ne implementation strategies. • Having agriculture work in concert with other sectors and with actors at local, national, and global levels. • Building the capacity of smallholders and their • organizations, private agribusiness, and the • state. • Institutions to help agriculture serve development and technologies • for sustainable natural resource use. • Mobilizing political support, skills, and resources.
Growth and Poverty Reduction in Agriculture’s Three Worlds • Three out of four poor people in developing countries -883 million people- lived in rural areas in 2002. • Most depend on agriculture for their livelihoods, directly or • Indirectly. • So a more dynamic and inclusive agriculture could dramatically reduce rural • poverty, helping to meet the Millennium Development Goal on poverty and hunger.
Growth and Poverty Reduction in Agriculture’s Three Worlds • There are many success stories of agriculture as an engine of growth early in the development process and of agriculture as a major force for poverty reduction. • Most recently, China’s rapid growth in agriculturehas been largely responsible for the decline in rural poverty from 53 percent in 1981 to 8 percent in 2001. • Agriculture has also offered attractive business opportunities, such as high-value products for domestic markets and international markets.
Growth and Poverty Reduction in Agriculture’s Three Worlds • Parallel to these successes are numerous failures in getting agriculture moving. • Most striking is the still-unsatisfactory performance of agriculture in Sub-Saharan Africa, especially when contrasted with the • green revolution in South Asia (Figure 1.1). • Food security remains challenging for most countries in Africa, • given low agricultural growth, rapid population growth, weak foreign exchange earnings, and high transaction costs in linking domestic and international markets.
Growth and Poverty Reduction in Agriculture’s Three Worlds The Structural Transformation • The process of economic development is one of continuous redefinition of the roles of agriculture, manufacturing, and services. • Patterns of structural transformation have been observed historically • in most developed countries and are currently taking place in developing countries that experience growth. • In most Sub-Saharan countries over the last 40 years, the share of labor in agriculture has declined dramatically despite almost no growth in per capita • GDP, as illustrated by Nigeria (figure 1.2).
Growth and Poverty Reduction in Agriculture’s Three Worlds Agriculture’s essential but declining contribution to growth as countries develop: • Many poor countries still display high agricultural shares in GDP andemployment (an average of 34 and 64 percent, respectively, • in Sub-Saharan Africa). • The large share of agriculture in poorer economies suggests that strong growth in agriculture is critical for fostering overall economic growth. • As GDP per capita rises, agriculture’s share declines, and so does itscontribution to economic growth.
Growth and Poverty Reduction in Agriculture’s Three Worlds Agriculture’s power for poverty reduction: • The large and persistent gap between agriculture’s shares in GDP and employment suggests that poverty is concentrated in agriculture and rural areas. • As nonagricultural growth accelerates, many of the rural poor remain poor and rural-urban income disparities widen. • For example, in East Asia, the ratio of rural-to-urban poverty increased from about 2:1 to more than 3.5:1 between 1993 and 2002, despite a substantial decline in absolute poverty.
Growth and Poverty Reduction in Agriculture’s Three Worlds Agriculture’s power for poverty reduction: • 81 percent of the worldwide reduction in rural poverty during the 1993–2002 period can be ascribed to improved conditions in rural areas. • The comparative advantage of agricultural growth in reducing poverty is also supported by econometric studies. • However, as countries get richer, the superiority of growth originating in agriculture in providing benefits for the poor appears to decline.
Growth and Poverty Reduction in Agriculture’s Three Worlds • The Three Worlds of Agriculture for Development • Countries are classified in this report as agriculture-based, transforming, or urbanized, based on the share of aggregate growth originating in agriculture and the share of aggregate poverty ($2.15 a day) in the rural sector. • Three clusters of structurally different economies emerge, each with distinct • challenges for agricultural policy making.
Growth and Poverty Reduction in Agriculture’s Three Worlds In the agriculture-based economies (most of them in Sub-Saharan Africa); • Agriculture contributes significantly to growth, and the poor are concentrated in rural areas. The key policy challenge is to help agriculture play its role as an engine of growth and poverty reduction. • The key policy challenge is to help agriculture play its role as an engine of growth and poverty reduction.
Growth and Poverty Reduction in Agriculture’s Three Worlds • In transforming economies (mostly in Asia and North Africa and the Middle East); • Agriculture contributes less to growth, but poverty remains overwhelmingly rural. • The rising urban-rural income gap accompanied by unfulfilled expectations creates political tensions. • Growth in agriculture and the rural nonfarm economy is needed to reduce rural poverty and narrow the urban-rural divide.
Growth and Poverty Reduction in Agriculture’s Three Worlds • In urbanized economies (mostly in Eastern Europe and Latin America); • Agriculture contributes only a little to growth. • Poverty is no longer primarily a rural phenomenon. • Agriculture acts like any other competitive tradable sector, and predominates in some locations. • In these economies, agriculture can reduce the remaining rural poverty by • including the rural poor as direct producers and by creating good jobs for them.
Growth and Poverty Reduction in Agriculture’s Three Worlds • The three country types capture the major distinguishing features in the role of agriculture for growth and poverty reduction across countries. • Even so, substantial variations remain among and within the countries in each type.
