Agriculture’s Power for Poverty Reduction
Three out of four poor people in developing countries—890 million people—lived in rural areas in 2002. Even with rapid urbanization, the developing world is expected to remain predominantly rural in most regions until about 2020, and the majority of the poor are projected to continue to live in rural areas until 2040 (Ravallion, Chen, and Sangraula, 2007). This reflects a large and persistent gap between the share of agriculture in GDP and the share of agriculture in the labor force due to the slow movement of labor out of agriculture.
The persistent concentration of absolute and relative poverty in rural areas even with rapid economic growth, illustrates the difficulty of redistributing income generated outside of agriculture and the deep inertia in people’s occupational transformation as economies restructure. Migrating out of agriculture to urban areas is often hampered by lack of information, cost, skill gaps, aging, and family and social ties.
There is now overwhelming evidence that growth in the rural economy is essential for reducing poverty in most developing countries. From a simple decomposition analysis, 81 percent of the worldwide reduction in rural poverty during the 1993–2002 period can be ascribed to improved conditions in rural areas; migration accounted for only 19 percent of the reduction (World Bank, 2007). Cross-country econometric evidence indicates that GDP growth generated in agriculture is particularly effective in benefiting the poor. Among 42 developing countries over 1981–2003, one percent GDP growth originating in agriculture increased the expenditures of the five poorest deciles on average by 3.7 percent, far more than the 0.9 percent induced by one percent GDP growth originating in the rest of the economy (Ligon and Sadoulet, 2007). Similarly, Bravo- Ortega and Lederman (2005) find that an increase in overall GDP coming from agricultural labor productivity is on average 2.9 times more effective in raising the incomes of the poorest quintile in developing countries than an equivalent increase in GDP coming from nonagricultural labor productivity.
Similar results hold for the agricultural growth-poverty linkages at the country level. In China, where land is relatively equally distributed, the reduction in poverty was almost four times higher from GDP growth originating in agriculture than from GDP growth originating in industry or services (Ravallion and Chen, 2007). Rapid agricultural development also contributed substantially to the dramatic poverty reduction in Vietnam over the past 15 years and is likely to remain an important pathway out of poverty for many of Vietnam’s poor (van de Walle and Cratty, 2004). But in some countries rural poverty did not decline, despite rapid agricultural growth–for example, in Bolivia, Peru, and Brazil where growth was concentrated in an export-oriented sector of large capital intensive farms.
Some of the impact of agricultural productivity growth on poverty reduction is obtained directly through raising farm incomes, but much of it is indirect through employment and food prices. Econometric studies of India for 1958–94, where many of the rural poor are landless, report price and wage effects of food crop productivity to be more important in reducing rural poverty in the long run than direct effects on farm profits, which dominated in the short run (Datt and Ravallion, 1998). Although lower food prices reduce farm incomes, the experience from the Green Revolution in Asia was that total factor productivity rose faster than the decline in food prices, leading to a win-win for poor producers and consumers (Lipton, 2005). In addition to the urban poor and the rural landless, more than half of poor farm households are typically net food buyers who benefit by lower food prices. When a food crisis hits, a majority of poor smallholders are in fact hurt by rising prices, a somewhat counterintuitive outcome.
With rising incomes, growth is increasingly driven by the rapidly expanding demand for livestock products and high-value crops, which are also more labor intensive. The poverty impact of growth in the agricultural sector will thus depend increasingly on the poor connecting to these new growth processes, either as smallholders or as laborers in large farms. Vertically integrated supply chains and supermarkets pose particular challenges for them, although recent evidence from China suggests that small and poor farmers can take an active part in the rapidly expanding horticulture economy (Wang et al., 2006). A similar pro-poor pattern holds for India’s dynamic dairy industry. Success stories in smallholder competitiveness in high value activities typically depend on membership in effective producer organizations that can address the challenges of economies of scale in marketing and processing.
Agricultural productivity growth also contributes to poverty reduction by stimulating rural nonfarm growth, especially where infrastructure and the investment climate are already in place (Barnes and Binswanger, 1986; Hazell and Haggblade, 1991). In India and Indonesia, growth in rural services was estimated to contribute at least as much as growth in agriculture toward reducing poverty.
Agriculture As a Trigger of Economic Growth
Agriculture’s central role in growth is the major contribution of the more recent literature onstructural transformation discussed above. A key question is whether agriculture continues to be an effective engine for growth especially in late developing countries, mostly in Africa, in light of the rapidly changing context and the potential to import food. We argue that the answer is yes both in terms of the importance of domestic food production as well as the comparative advantage of agriculture in export-led growth in the early stages of development.
Many staples in Africa are nontradable, either due to local preferences (e.g., banana plantain in Central Africa) or high transactions costs (e.g., cassava). In addition, in many countries, because of frequent shortages of foreign exchange for importing substitute cereals, food production has to keep up with domestic demand in order to maintain affordable food prices which are critical to overall growth. Even in countries of Asia that have experienced a Green Revolution, increasing yields for staple crops remains critical for growth. Staple crops are still the largest agricultural sub-sector (slightly more than a third of agricultural output in China and India, and slightly more than half in Vietnam).
Many of these countries have rice as the major staple, and given their size relative to world markets, they need to continue to produce most of their food domestically to secure low-cost food essential for growth. In addition, agriculture is often the lead export sector and foreign exchange earner since it is the sector with strong comparative advantage in the early stages of development. Most African countries are relatively rich in natural resources, but poor in skilled labor, suggesting comparative advantage for unprocessed primary products. This is re-enforced by a weak business investment climate in terms of infrastructure (roads, electricity, communications) and institutions (legal, financial, regulatory) that constrain private investment in the formal manufacturing and service industries. In some countries, a combination of natural resources, human capital endowments, and an improving business environment point to comparative advantage in processed primary commodities, as a potential entry point for building a competitive manufacturing sector.
Although globalization and new dynamic producers have increased competition in traditional agricultural exports, recent successes such as coffee in Vietnam and cocoa in Ghana suggest that agricultural exports can be a major sources of growth. In Ghana, increased productivity in cocoa has been a major driver of its successful agricultural growth and poverty reduction since 1995.
African countries, such as Senegal, Kenya, and Ethiopia, are also increasingly successful in rapidly growing exports markets for horticultural products and flowers. Even if there is general agreement on the importance of agriculture in economic growth in the early stages, it is sometimes argued that rapid agricultural growth will be difficult in Africa because of an inherently unfavorable agro-ecological base, degraded soils, low population density, poorly functioning markets, and competition from the rest of the world (Maxwell, Urey, and Ashley, 2001). Yet agriculture has been the most dynamic sector in Africa with growth rates of 3.7 percent annually exceeding the growth in the nonagricultural sector over the 1993-2005 period. Over the long term in most countries agriculture is likely to grow more slowly than nonagricultural sectors, given Engel’s Law according to which, as incomes rise, the proportion spent on food falls. However, globalization can also help relax this constraint by providing access to deeper markets with highly elastic demands for products such as fresh horticultural and organic produce and animal and fish products.
Agricultural Development and Economic Growth
I start with the big question: the role of agriculture in the broader process of economic growth and development. This macro perspective introduces key linkages between the agricultural sector and the rest of the economy, often via the rural non-farm economy, and pursues the dynamic evolution of structural transformation. The economic and demographic pathways inherent in this transformation present strategic challenges and opportunities to development policymakers, which leads as well to a discussion of the political economy of agricultural policy design and implementation during the structural transformation. And the tremendous heterogeneity of countries’ experience of productivity growth and the pace of agricultural development (Mundlak 2000, chapter 3) binds these issues closely to associated questions of global poverty and food insecurity (Dercon 2009, chapter 9).
Agricultural development as an analytical topic, with economics as an organizing framework, dates to the rapid emergence of Western Europe from the late 18th century. Economic historians have documented the critical role of agriculture in the development of virtually all the now-rich countries in the world, an experience drawn upon by W. Arthur Lewis when he wrote: “industrial and agrarian revolutions always go together, and … economies in which agriculture is stagnant do not show industrial development” (Lewis 1954, p. 433).
A. Inter-sectoral Linkages and Agriculture in the Macro economy
These insights by Lewis stimulated three lines of thought about the role of agriculture in economic development. First, the direct outgrowth of Lewis’ analysis of dual economies was formal two-sector modeling (Ranis and Fei 1961, chapter 4; Jorgenson 1961, chapter 5), with its focus on structural changes. Hayami and Ruttan (1985) explain how the dual economy literature marked an important break, introducing a “dynamic dualism” to replace prior, “static dualism” approaches that had mostly followed a descriptive, sociological and structural approach. Hayami and Ruttan concluded that neither modeling approach significantly advanced the understanding of how agricultural modernization actually takes place, although they acknowledged that the models help explain why it is necessary if overall economic growth is to take place. “The very simplicity of the models, a major source of their insight into the fundamental process of development, however, has led to substantial underestimation of the difficulties that face poor countries in achieving such a transformation” (Hayami and Ruttan 1985, p. 30).
Second, the macro perspective and the importance of two-way linkages between rural and urban economies were stressed by Johnston and Mellor (1961, chapter 6). Johnston later became increasingly concerned about the size distribution of farms and the “uni-modal” lessons from East Asia for Africa and Latin America (Johnston and Kilby 1975; Johnston and Clark 1982). Mellor continued his focus on South Asia and the difficulties for the agricultural sector on its road to industrialization (Mellor 1966, 1976, 1986). Both saw higher productivity on small farms as the key ingredient to rapid poverty reduction and a healthy structural transformation.
Third, T.W. Schultz (1964) stressed the need for an “agrarian revolution,” or higher productivity through technical change in agriculture. He emphasized the importance of human capital, especially the education of rural workers, in facilitating productivity growth, and governments’ failure to provide appropriate policy environments (Schultz 1975, chapter 7, 1978).
Masterfully synthesizing the main lessons from nearly five decades of such analysis, Staatz and Eicher (1998, p.31, chapter 2) explain:
By the end of the 1990s, development thinking had come nearly full circle. In the 1950s and 1960s, many development economists analyzed how the agricultural and nonagricultural sectors interacted during the process of economic growth, using simple two-sector models. This abstract theorizing was sharply criticized by dependency theorists, among others, who argued that such work abstracted from the institutional and structural barriers to broad-based growth in most low-income countries. During the 1970s and 1980s, the focus of research shifted to developing a more detailed theoretical and empirical understanding of the rural economy. But the emphasis on structural adjustment in the 1980s forced reexamination of agriculture’s relationship to the macroeconomy. By the late 1990s, economists were again focusing on how the rural economy was linked to the broader world market, but they demonstrated a renewed recognition of how important institutions are in determining a country’s pattern of growth and the distribution of the benefits of that growth.
In the ensuing decade, the profession finally got agriculture back on the broader development agenda. A key breakthrough was the publication by the World Bank (2007) of the World Development Report 2008: Agriculture for Development. Coordinated and drafted by Derek Byerlee and Alain de Janvry, this WDR was the first in a quarter century to focus specifically on agriculture. Its publication late in 2007, just as the world food crisis was heating up, looked prescient. Still, none of the major donor agencies have figured out how to gear up quickly to
support more spending on agricultural development, partly because there remains deep uncertainty over what to do and how to do it.
From a macro perspective, this uncertainty stems from two dimensions of the agricultural development process that remain poorly understood: (1) the dynamic role of the rural non-farm economy and how it mediates the linkages between the farm sector and the macroeconomy during the structural transformation; and (2) the political economy of agricultural policy and how that too evolves. Both topics have received substantial research attention almost from the beginnings of the field, but the research began to show new empirical depth and policy impact by the end of the 2000s (Haggblade, Hammer and Hazell 1991, chapter 10; Haggblade, Hazell, and Reardon 2007; Timmer 2009).
Formal two-sector models typically assumed the smooth functioning of the linkages that placed the fate of urban workers and farmers in each other’s hands. The actors who mediate these linkages in a real economy, and how their role and structure change over the course of economic development, only became a topic of serious analysis in the 1970s. Then a veritable cottage industry sprang up to conceptualize and measure the “multipliers” implied by market-mediated linkages between agriculture and industry. Haggblade, Hazell, and Reardon (2007) nicely synthesize this literature, stressing the crucial and changing role of the rural non-farm economy.
The rural non-farm sector provides the bridge between commodity-based agriculture and livelihoods earned in the modern industrial and service sectors in urban centers. Most rural households earn a large share of their incomes from non-farm sources, and often this sector is the “ladder” from underemployment at farm tasks to regular wage employment in the local economy, and from there to jobs in the formal sector (Delgado, Hopkins and Kelly 1998; Mellor 2000; Barrett, Reardon and Webb 2001, chapter 15). The firms and activities in the rural non-farm sector mediate many of the two-way linkages between agriculture and the macroeconomy that are at the core of the development process. These linkages can be summarized in three categories (Timmer 2002, chapter 8).
The “Lewis linkages” between agriculture and economic growth provide the non-agricultural sector with labor and capital freed up by higher productivity in the agricultural sector. These linkages work primarily through factor markets, but there is no suggestion that these markets work perfectly in the dualistic setting analyzed by Lewis (1954). Chenery and Syrquin (1975) argue that a major source of economic growth is the transfer of low-productivity labor from the rural to the urban sector. If labor markets worked perfectly, there would be few productivity gains from this structural transfer, a point emphasized first by Jorgenson (1961, chapter 5) and later by Syrquin (2006).
The indirect “Johnston-Mellor linkages” allow input-output interactions between the two sectors so that agriculture can contribute to economic development. These linkages are based on the agricultural sector supplying raw materials to industry, food for industrial workers, markets for industrial output, and the exports to earn foreign exchange needed to import capital goods (Johnston and Mellor 1961, chapter 6). As with the Lewis linkages, it is difficult to see any significant role for policy or economic growth unless some of the markets that serve these linkages operate imperfectly. Resource allocations must be out of equilibrium and face constraints not immediately reflected in market prices if increases in agricultural output are to stimulate the rest of the economy at a rate that causes the “contribution” from agriculture to exceed the market value of the output, i.e., the agricultural income multiplier is greater than one (Timmer1995).
Writing in the mid-1960s, Mosher (1966) assumed that “getting agriculture moving” would have a high priority in national plans because of its “obvious” importance in feeding people and providing a spur to industrialization. That assumption has held only in parts of East and Southeast Asia, and has been badly off the mark in much of Africa and Latin America. Indeed, the widespread lack of progress in both agricultural productivity growth and poverty reduction has prompted serious scholars to question whether agricultural growth really is crucial as an engine for growth (Dercon 2009, chapter 9). One key obstacle in Africa and Latin America has been that a historically prolonged and deep urban bias led to a distorted pattern of investment. Too much public and private capital was invested in urban areas and too little in rural areas, especially in more remote, “less favored areas” (Fan and Hazell 2001, chapter 14). Too much capital was held as liquid and non-productive investments that rural households use to manage risk. Too little capital was invested in raising rural productivity.
Such distortions resulted in strikingly different marginal productivities of capital in urban and rural areas (Lipton 1977; Timmer 1993; Fan and Hazell 2001, chapter 14). New growth strategies — such as those pursued in Indonesia after 1966, China after 1978, and Vietnam after 1989 — altered investment priorities in favor of rural growth and benefited from this disequilibrium in rates of return, at least initially. For example, in Indonesia from the mid-1960s to the mid-1990s, real value added per farm worker increased by nearly half, whereas it had apparently declined from 1900 through the mid-1960s. In China, the increase from 1978 to 1994 was nearly 70 percent, whereas this measure had dropped by 20 percent between 1935 and 1978 (Prasada Rao, Maddison and Lee 2002). A switch in investment strategy and improved rates of return on capital increase factor productivity (and farm income) by improving efficiency in resourceallocation.
The contribution of agricultural growth to productivity growth in the non-agricultural economy stems from several other sources as well: greater efficiency in decision making as rural enterprises claim a larger share of output; higher productivity of industrial capital as urban bias is reduced; higher productivity of labor as nutritional standards are improved; and a link between agricultural profitability (as distinct from agricultural productivity) and household investments in rural human capital, which raises labor productivity as well as facilitates rural-urban migration. These mechanisms capitalize on the efficiency of rural household decision making, the low opportunity cost of their labor, the opportunity for on-farm investment without financial intermediaries, and the potential to earn high rates of return on public investments that correct for urban bias. In combination, these mechanisms translate faster agricultural growth into measurably faster economic growth in aggregate, after controlling for the direct contribution of the agricultural sector to growth in GDP itself (Timmer 2002, chapter 8).
This structural transformation is the defining characteristic of the development process, both cause and effect of economic growth (Syrquin 2006). Four relentless and interrelated processes define the structural transformation: a declining share of agriculture in GDP and employment; rural-to-urban migration that stimulates urbanization; the rise of a modern industrial and service economy; and a demographic transition from high birth and death rates common in backward rural areas to lower ones associated with better health standards in urban areas (Timmer 2002, chapter 8, 2009). The final outcome of the structural transformation is an economy in which capital and labor productivity in agriculture is equalized with other sectors through well-functioning labor and capital markets.
As Chairman Mao crudely but correctly put it, “the only way out for agriculture is industry”. Unless the non-agricultural economy grows, there is little long-run hope for agriculture. At the same time, the historical record is very clear on the key role that agriculture plays in stimulating the non-agricultural economy (Timmer 2002, chapter 8). This bidirectional feedback has sparked a long-contested literature on the role of agriculture in economic development (Johnston and Mellor 1961, chapter 6; Hayami and Ruttan 1985; Mundlak 2000, chapter 3).
Part of the controversy stems from the structural transformation, a general equilibrium process not easily understood from within the agricultural sector. Over long historical periods, agriculture’s role seems to evolve through four basic stages (Timmer 1988): the early “Mosher” stage when “getting agriculture moving” is the main policy objective (Mosher 1966); the “Johnston-Mellor” stage when agriculture contributes to economic growth through a variety of linkages (Johnston and Mellor 1961, chapter 6); the “Schultz” stage when rising agricultural incomes fall behind those in a rapidly growing non-farm economy, inducing political tensions (Schultz 1978); and the “Johnson” stage where labor and financial markets fully integrate the agricultural economy into the rest of the economy (Johnson 1997, chapter 12; Gardner 2002). Efforts to “skip” the early stages and jump directly to a modern industrial economy have generally courted disaster.
In the early stages there is typically a substantial gap between the share of the labor force employed in agriculture and the share of GDP generated by that work force. This gap narrows over time as incomes rise; the convergence reflects better integrated labor and financial markets. But this structural gap often widens during periods of rapid growth, as is evident in the history of OECD economies (Timmer 2009). When overall GDP grows rapidly, the share of agriculture in GDP falls much faster than the share of agricultural labor in the overall labor force. The turning point in the gap generated by these differential processes, after which labor productivity in the two sectors begins to converge, has also been moving “to the right” over time, requiring progressively higher per capita incomes before the convergence process begins.
B. The Political Economy of Agricultural Development
This lag inevitably presents political problems as farm incomes visibly fall behind incomes earned in the rest of the economy. The long-run answer is faster integration of farm labor into the non-farm economy, including the rural, non-farm economy. But such integration takes a long time. It was not fully achieved in the United States until the 1980s (Gardner 2002), and the productivity gap appears increasingly difficult to bridge through economic growth alone (Timmer 2009). Lagging real agricultural earnings growth fosters deep political tensions over the course of the structural transformation, and those tensions grow with the lag. The standard government response to these tensions has been to protect the agricultural sector from international competition and ultimately to provide direct income subsidies to farmers (Lindert 1991).
Modern political economy has its roots deep in agriculture. Explaining the evolution of agricultural policy has long been difficult for models that use democratic institutions, median voters, or other forms of representative governance. Two aspects of agricultural policy are especially puzzling: the “development paradox,” whereby the sector is discriminated against when a large share of the population works in agriculture but is protected when the number of farmers becomes much smaller; and the “trade paradox,” whereby both agricultural imports and exports are taxed. Such strategies neglect economic laws of comparative advantage based on factor endowments and typically lead to higher prices and greater inefficiency and environmental damages than does reasonably free international trade in agricultural goods (Anderson 1986, Stiglitz 1987, chapter 33; Krueger et al. 1988, chapter 13, 1991; Johnson 1997, chapter 12). Neither of these patterns makes sense in a democratic society where rational voters elect officials who defend their interests.
Consequently, policy analysts and political theorists have long tried to understand whose interests officials defend and why. Olson (1965), Bates (1981), Anderson (1986), Lindert (1991) and Kreuger, Schiff and Valdes (1991) documented trends in historical biases and offered explanations based in “positive” political economy that explains public policy formation based on the assumed self-interested rationality of policymakers. Bates (1998, pp. 238-9) explains:
“I have moved away from a form of analysis which views policy as the result of efforts to maximize the social welfare. I have moved instead to a set of approaches that looks at public policy as a solution to political problems. The general theme … is that politicians are rational actors, but they are solving problems that do not take a purely economic form. What appear as economic costs may offer political benefits: noncompetitive rents or inefficient projects, for example, may be politically attractive in that they offer tools for building loyal organizations. What economists may evaluate as bad policy, then, is not necessarily the result of poor training, obduracy, or other deficiencies on the part of policy makers. Rather, policy makers may simply be solving a different problem than are economists. As policy analysts, it behooves us to represent explicitly the political problem as perceived by the policy maker and to use our analytic techniques to solve it, both in order to offer better explanations of government behavior and to advocate better policy more effectively.”
So what drives the decisions of these self-interested policymakers? DeGorter and Swinnen (2002) provide a long list of factors found empirically to influence agricultural policies over time and across space. They identify four key elements that political economy models of agricultural policy have considered: individual preferences of the citizenry, collective action by lobby groups, preferences of politicians, and political institutions. In the end, deGorter and Swinnen (2002) conclude that the extensive empirical work on agricultural policies needs to be better integrated into political economy theory.
The difficulty with this integration, however, is that the current theory is built almost exclusively on neo-classical foundations that have dubious assumptions about how individuals behave in the face of uncertainty and economic change. Two of the most pervasive policy tendencies have been for governments to stabilize their staple food prices and to provide price protection to a sector with lagging incomes. Both tendencies are hard to explain within the neo-classical paradigm (Barrett 1999), but are obvious political choices from a behavioral perspective if most individuals base welfare judgments on “reference points”, and so dislike instability (Timmer 2009). Similarly, if individuals judge incomes based on relative standing, then lagging incomes generate direct political pressures for assistance.
Africa: Involving Local Farmers Is Key to Success of Foreign Investment
International investments that give local farmers an active role and leave them in control of their land have the most positive effects on local economies and social development, according to a new FAO report published today.
The report, Trends and Impacts of Foreign Investment in Developing Country Agriculture, emphasizes that investment projects that combine the strengths of the investor (capital, management and marketing expertise, and technology) with those of local farmers (labour, land, local knowledge) are most successful.
Business models that leave farmers in control of their land give them an incentive to invest in land improvements and also favor sustainable development. The publication offers a number of case studies on the impact of foreign investment in Africa and Asia, including large-scale land deals often referred to as land grabbing.
“While a number of studies document the negative impacts of large-scale land acquisition in developing countries, there is much less evidence of its benefits to the host country, especially in the short-term and at local level,” says the report. “For investments involving large-scale land acquisition in countries where land rights are unclear and insecure, the disadvantages often outweigh the few benefits to the local community,” it notes.
The report advises that “acquisition of already-utilized land to establish new large farms should be avoided and other forms of investment should be considered.”
Jobs creation in doubt
In large-scale land investments the main type of benefit appears to lie in employment generation, but there are questions as to the net gains and sustainability of the jobs created. “In several projects the number of jobs was lower than what was initially announced … and in some projects even low-skilled worker jobs were mainly taken up by non-locals”.
Foreign investment in agricultural land in developing countries has increased markedly over the past decade, according to the report. The lands acquired tend to be among the best available, with good soil quality and irrigation.
But since a majority of foreign investment projects aim at export markets or the production of biofuels, “they may pose a threat to food security in low-income food-deficit countries, especially if they replace food crops that were destined for the local market.”
Potential adverse impacts include: the displacement of smallholders; the loss of grazing land for pastoralists; the loss of income and livelihoods for rural people; and degradation of natural resources such as land, water and biodiversity.
Alternatives to land acquisition include contract farming deals, outgrower schemes giving farmers a share of the capital, and joint ventures between investing companies and farmer cooperatives. Inclusive business models require effective local organizations that also represent groups who are often marginalized such as women, young people, landless farmers and migrant workers.
National laws and institutions are key
National laws and institutions governing agricultural investment and land tenure are critical in determining whether such investments have positive or negative effects, the report says.
Countries can obtain guidance from some international agreements such as the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security adopted in May 2012 by the Committee on World Food Security (CFS).
Highly pertinent too are the Voluntary Principles for Responsible Agricultural Investment that respect rights, livelihoods and resources jointly proposed by FAO, IFAD, UNCTAD and the World Bank. In addition, the CFS is about to start consultations for the development and broader ownership of principles for responsible agricultural investment that enhance food security and nutrition.
While agricultural investment is the most important and effective strategy for poverty reduction in rural areas, “the challenge for policy makers, development agencies and local communities is to maximize the benefits of foreign agricultural investment while minimizing its risks,” the report says.
Foreign direct investment on the rise
FAO estimates that investment to the tune of more than $80 billion a year is needed to keep pace with population and income growth, and feed more than 9 billion people in 2050.
Although Foreign Direct Investment has risen significantly, especially in Asia and Latin America over the past decade, only a small share goes to agriculture – less than five percent in sub-Saharan Africa. This represents an opportunity, however, given the high potential for growth, particularly in the light of currently high international food prices.
“It is important that any international investment should bring development benefits to the receiving country…if those investments are to be ‘win-win’ rather than ‘neo-colonialism’”, stresses David Hallam, Director of FAO’s Trade and Markets Division in a foreword to the report.
A new era of opportunity for agricultural research
Advances in bio science and ecology, coupled with progress in the development and application of information and communication technologies (ICTs), are transforming both the processes and products of agricultural research. And the influence of these changes goes beyond the lab and the field, affecting innovation systems as well as agricultural technology development. The last decade has seen huge gains in our knowledge of how plants and animals grow and synthesize useful products, and in our ability to use this information. Genome sequences of major crop species are now available or close to completion, while functional genomics is providing critical information on the role of genes and their products. Genetic markers are enabling scientists to detect previously hidden genetic variability, and genetic engineering is expanding the ways in which micro organisms, plants and animals can be used for human and environmental benefit.
By priming the efficiency and effectiveness of the research process, these advances are enabling researchers to improve plant breeding methods, construct safer and more effective pest control strategies, and develop plants with improved agronomic traits and nutritional characteristics. They provide the basis for breaking through present yield barriers, allowing the delivery of important social, economic and environmental benefits. While progress in applying these advances to the productivity of livestock and fish is slower than it is for plants, impressive gains in knowledge have been made here too. Just as biology is shifting the perceptions as to what is possible, so ICTs are scaling up those possibilities by dramatically boosting the capacity to access and use new knowledge.
More and more rural people are connecting to the internet, using it to gain market information, understand the threats posed by weather, pests and diseases, and enhance their access to and use of technology. Ever-greater quantities of data can be manipulated on ever-increasing scales. Researchers are just one of many groups benefiting from ICTs, which are re defining the strategies for communicating – and thus innovating – worldwide. On the ecological front, such approaches as integrated pest management and conservation agriculture are increasingly being adopted by farmers, as much for economic as for environmental reasons. Moving beyond an individual farm perspective to the landscape level is allowing researchers and farmers to further their understanding of how living organisms and their surroundings interact with each other. This is in turn fostering a more productive, environmentally benign agriculture that conserves or even enhances biodiversity.
These and other advances open up previously denied territories, increasing the efficiency and efficacy of research and empowering rural populations to use the results of research. They are not enough by themselves, however; they must be harnessed by relevant institutions and promoted through a conducive policy environment if the opportunities they provide are to be fully exploited.
Two further factors enhance the opportunities for agricultural research over the next decade.
The first is the so-called rehabilitation of agriculture – the growing realization of its importance not only for future food supplies but also for sustainable development. This is a welcome change, following two decades of neglect. The second is the change in the nature of aid in recent years: it has increased in amount, is available from more sources, and is better coordinated and aligned with pro poor development objectives. At the same time, donors demand more accountability and impact than ever before.
Agriculture in the 21st century: challenged as never before
The recent food and financial crises suggest a grim future for food and nutrition security in developing countries. In 2007–2008, the prices of nearly every agricultural commodity rose sharply. Staples such as rice, on which around half the world’s population depends, more than doubled in price in the space of a few months. Although prices receded in late 2008, they stabilized above pre-spike levels and in 2010–2011 began to climb again. As recent experience has shown, high, volatile food prices can inflict extensive misery, spark civil unrest and destabilize governments – often for long periods. Unless immediate action is taken by planners, policymakers and researchers, increased volatility and risk, along with their attendant problems, will remain lasting features of the world food system. Poor people spend 50–70 percent of their income on food. Because wages for unskilled labor tend to lag behind food inflation, the poor have little capacity to adapt as prices rise.
Moreover, even before the recent food crisis, the poorest of the poor were being left behind. Programs are needed to address production and productivity through policy and institutional Innovations, improved markets and value chains, and better technology for small-scale producers.
The natural resources on which agriculture depends are already under very severe stress. Global economic and population growth have combined to increase the demand for water, arable land and forest products, including fuel wood and timber. Urbanization intensifies these problems, as it drives up the effective demand for food while consuming agricultural land and increasing the competition for water. Deforestation and land use change are already undermining the provision of environmental goods and services, reducing the resilience of ecosystems and incurring the loss of potentially useful biodiversity. Loss of genetic diversity threatens to undermine future efforts to improve crops, trees, livestock and fish. Climate variability and change will further threaten agriculture by increasing the risk of droughts and floods, affecting temperatures and crop growing seasons, altering the distribution of pests and diseases, and triggering rises in sea level as well as changes in the ability of the oceans to support life. Many of the world’s is henries are near collapse.
It is no exaggeration to say that large segments of the global population are now threatened by the depletion or degradation of natural resources. In sub-Saharan Africa, food insecurity persists and is even worsening in some countries, where it is strongly linked with unproductive rain fed agriculture, declining soil fertility, lack of investment and poorly integrated markets. Despite several decades of increasing productivity in South Asia, yields have now reached a plateau or begun declining, accompanied by serious soil degradation problems and increasing shortages of water. The same is true of parts of Latin America, where degradation associated with deforestation is also a serious problem. The dry areas of North Africa and South, West and Central Asia confront serious water scarcity, which is likely to be exacerbated by climate change. In almost all regions, competition for access to productive resources has been recognized as an increasing source of conflict, actual or potential.
To combat these problems, better adaptation of crops and livestock to drought, heat and other stresses is needed, but this alone will not sufficient. Broader changes in land management also need to be promoted: new policies and institutions must be put in place that recognize the importance of forests and agro-forests in maintaining biodiversity, minimizing soil erosion and soil fertility decline, and protecting water quality and supply; new techniques for cultivating cropland in ways that conserve soil and water resources must be more widely disseminated; and production systems will need further diversification to enhance food security and create alternative livelihoods, especially in the dry lands. In addition, to secure impact, research must consider all stages ‘from farm to fork’, encompassing food systems as a whole rather than just agricultural systems.
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