Agricultural Development
Overview
1.
The role of agriculture for growth and poverty reduction in different contexts
2.
Public goods in the rural economy
3.
Public expenditure on agriculture: Key issues
4.
Transformation in
Agriculture:Institutional, Structure,
Technology
Model of Agricultural Development
1.
The resource exploitation model
2.
The conservation model
3.
The location model
4.
The diffusion model
5.
The high-pay off input model
6.
The induced innovation model
1. The Role of Agriculture for Growth and Poverty Reduction in
Different Contexts
Historical roles of agriculture
Direct and indirect promoter of growth
Vehicle for poverty reduction
Agriculture at different stages of development
Agriculture-
based Transforming Urbanizing countries countries countries Population
Rural (million) 520 2010 250
Share of population in rural areas (%) 71 68 31 Agriculture
Share of ag in GDP (%) 34 20 11
Share of ag in GDP growth (%) 34 9 8
Agricultural growth 3 3 2
Non-Agricultural growth 3 7 3
Poverty is mostly a rural phenomenon
Rural areas have lower levels of social services, such as health, education, and
sanitation, and less physical infrastructure, such as roads, energy, communications.
Main links of agriculture to poverty reduction and growth
Direct effects on farmers’ incomes Increase employment in agriculture
Reduced prices of food staples
Growth multiplier effects on the non-farm economy
2. Public Goods in the Rural Economy
Main Public Goods in the Rural Economy
Agricultural Research Agricultural Extension
Irrigation and Drainage Infrastructure Rural Infrastructure
Veterinary Services (some)
Land Administration
Agricultural Research
Organization and management of public
research often deficient and not cost effective (e.g., “disconnect” between priority needs and research focus.)
Successful experiences in increasing the cost effectiveness of research systems (e.g.,
“competitive grants”, partnership with private sector and NGOs).
Agricultural Extension
Agricultural extension systems have some generic weaknesses which make them prone to low effectiveness (e.g., weak accountability to clients).
Significant item of public spending in many irrigation-dependent countries.
Market failures related to water management, justify public sector involvement at various levels.
Cost recovery is politically unpopular, implying a large public subsidy; the role of user groups Lack of water pricing leads to wasteful use, and inefficient cropping patterns.
Irrigation and
Drainage Infrastructure
Rural Infrastructure
Major impact on the performance of the agricultural sector (rural roads, energy and communications).
Some opportunities for private sector participation, in operating the service delivery component.
For energy and communications, user charges are feasible, but are often subsidized.
Subsidization and overstaffing in specialized agencies leads to deficits and dependence on fiscal transfers.
Veterinary Services (some)
Regulatory functions due to the risks to human health, and livestock epidemics.
Land Administration
Provision of ownership certification, keeping cadasters and land records, has strong public good elements
Functions are handled by specialized ministries, or autonomous public agencies.
Good land administration enhances security of tenure, and access to credit (land collateral).
3. Public Expenditure on Agriculture:
Key Issues
Distribution of public expenditure by sector, 2004
0%
20%
40%
60%
80%
100%
Africa Asia LAC
Other Defense
Social security Infrastructure Health
Education Agriculture
Agriculture Orientation Index (%)
share of agricultural spending in total
government spending / share of agricultural value added in GDP
0.20 0.40 0.60 0.80 1.00
Africa Asia LAC
Key issues
1.
Underinvestment
2.
Mis-investment
3.
Off budget/donors
Key issues
1. Underinvestment:
Increasing the level of public
expenditure on agriculture
Underinvestment in agriculture
Ag value added (% of tot GDP)
Ag spending (% of tot spending)
Country type 2004 2004
Agriculture based (14)
33 4.6
Transforming (11)
17 4.8
Urbanized (12)
10 3.2
Sources: IMF data
Share of ODA in total agricultural spending
In several African countries, ODA
commitment contributes more than 80% of agricultural spending (e.g. Mozambique, Niger, Rwanda), and more than 50% in
Ghana, Tanzania and Uganda (WDR 2008)
Key issues
2. Mis-investment:
Improving the quality of public expenditure on agriculture
–Subsidies to private vs. public goods –Capital vs current (O&M) spending –Who benefits?
Mis-investment in agriculture
Large amount of resources devoted to private goods (input/output subsidies) and services
• Indonesia: subsidies accounted for 43% of fiscal support for agriculture in 2006
• Zambia: 80% of poverty reduction
programs (which accounted for 42% of total agricultural sector budget 2001-06) devoted to Fertilizer Support Program (FSP) and FRA.
Subsidies to Inputs and Outputs
Input subsidies are perceived as conducive to increased productivity.
Output subsidies are intended to promote production of
“strategic commodities”, or social objectives.
Administered through specialized credit programs, or interventions in input and output markets.
Causes inefficiencies.
Income effects are often concentrated among larger farmers.
Share of public investment and
subsidies in agricultural GDP, India
0 1 2 3 4 5 6 7 8 9
1975-79 1980-84 1985-89 1990-94 1995-00 2000-02
Percent AgGDP
Subsidies Public Inv
The cost to agricultural growth of subsidizing private rather than public goods is high.
Without increasing the overall level of
expenditure, re-allocating 10% of subsidy expenditure to the provision of public goods
increases per capita agricultural incomes by 5%
for 15 countries in LAC (Lopez and Galinato, 2007)
Forgone opportunities
Forgone Opportunities in Maharashtra, India
Wrong composition: capital vs. current spending (composition of current spending favours wages rather than spending on operation and
maintenance (O&M))
• The effectiveness of agricultural services can be adversely affected if wage share of total recurrent budget is excessive
• Scarcity in O&M spending particularly severe in irrigation, resulting in poor service delivery:
• e.g.: Turkey: 24% rural spending in irrigation (recurrent share is 44%, O&M only 2% of recurrent spending)
Mis-investment in agriculture
Share of current spending in agricultural public expenditure
Current (% of tot ag
spending)
O&M
(% of current spending)
Ethiopia (2002-06) 39 34
Kenya (2002-03) 77 18
Turkey (2003) 94 32
Vietnam (1997-02) 22 25
Laos (2002-04) 6 38
Credit subsidies
Typically administered through state- owned banks
Benefits often going to larger landowners Frequently low repayment rate
Losses of state banks are eventually covered by the public budget.
Marketing organizations and cooperatives
A combination of monopoly privileges, lack of budget constraints, political interference, and public sector personnel policies, leads to
overstaffing, non-business-like decision making, and losses in marketing organizations.
Agricultural cooperatives are nominally private (farmer-owned) entities. Often not bottom-up
organizations, but promoted and supported by the state, and act as a state tool for administering
agricultural policies.
