___----___' - strategy Ive g 224530 .2A~~~~~~~~~~Jl 2002 . .V - SA ~ ~ - Uw-~~~~7 Ir ~ ~ ~ ~ I : ~' Rural Development Strategy Regional Development Strategy Reaching the Rural Poor A Rural Development Strategy for the Latin America and Caribbean Region _ The World Bank Rural Development Family The World Bank First printing: July 2002 ŠThe International Bank for Reconstruction and Development Rural Development Department 1818 H Street, N.W. Washington, DC 20433 This paper is a contribution to the draft rural development strategy for the World Bank, which is currently pending approval by the Board of Executive Directors. The findings, interpretations, and conclusions are the author's own and should not be attributed to the World Bank, its management, its Board of Executive Directors, or the countries they represent. Some of the numbers quoted are estimates or approximations, and may be revised at a later stage. The Latin America and Caribbean Region would like to dedicate this report to the memory of Thomas B. Wiens, LCSES Sector Manager, who passed away on July 14, 2000. His contributions and professional commitment to this initiative as well as his passion for rural development issues will continue to remain present among us for a long time. Contents Abbreviations and Acronyms ............................................................................ vi Acknowledgments ............................................................................ vii Foreword ....... ...................... ............................................... viii Executive Summary ............................................................................. ix 1. Introduction .............................................................................1 2. What Happened? ........ ...................................................................4 3. W hy Such M eager Results? ............................................................................9 4. Taking Stock - Why is Rural Development Still Important? ............................................................................ 13 5. How Does the Bank Propose to Improve the Region? ........................................................................... 18 6. Implementation Arrangements-Achieving Synergy ........................................................................... 26 References ............................................................................ 153 Appendixes Appendix I The Vision of Rural Well-Being of the Rural Family ......................................................................... 32 Appendix 2 Basic Statistics on Poverty, Social Indicators, Inequity, Population and Economic Structure ............. 33 Appendix 3 The Rural Portfolio in the Latin America & the Caribbean Region ..................................................... 49 Appendix 4 Rural Development in Action - Best Practices and Concrete Examples ................ ............................. 56 Appendix 5 Gender Dimensions of Rural Development: A Diagnostic ............................................... .................. 72 Appendix 6 Latin America and the Caribbean Region Farming Systems Study ..................................................... 89 Appendix 7 The Role of Rural Finance ........................................................................... 102 Appendix 8 Natural Resource Management: Selected Issues and Findings .......................................................... 19 Appendix 9 Best Practices and Strategies for Interventions to Promote Rural Non-farm Employment in Latin America ....... .................................................................... 129 List of Tables Table 1.1: Population in LCR: Selected estimates ............................................................................2 Table 1.2 Poverty in LCR: Selected estimates ............................................................................2 Table 1.3: Selected measures of income and asset inequality . ...........................................................................3 Table 1.4: Rural and urban social and economic indicators in LCR: selected estimates ...................................................3 Table 6.1 Framework for Regional Action Plan for Rural Development ..................................................................... 31 Table A2.1 Percentage of poor from urban and rural population ........................................................................... 33 Table A2.2: Urban-Rural Poverty in LAC ........................................................................... 33 Table A2.3 Rural Poverty in Latin America & the Caribbean 1986-1998 .............................................................. 34 Table A2.4 Poverty in urban areas in Latin America & the Caribbean 1986-1998 .................. ............................... 34 iii Table A2.5 Number of poor in rural and urban areas in Latin America & the Caribbean region (population in millions) .............................................................................. 34 Table A2.6 Access to electricity, water, and telephone by country, 1986-96 ...................... ................................... 37 Table A2.7 Population projection for Latin America and the Caribbean Region ......................................................... 42 Table A2.8 Projected total, urban & rural population by sub-region ........................................................................... 43 Table A2.9 Projected total population by region, sub-region and country, 2000-2030 .................................................. 43 Table A2.10 Projected rural population by region, sub-region and country, 2000-2030 ................................................ 44 Table A2.1 I Projected urban population by region, sub-region and country, 2000-2030 .............................................. 44 Table A2.12 Average annual rate of change of the rural population by sub-region & country ....................................... 45 Table A2.13 Agricultural value added as percent of GDP for selected countries .......................................................... 45 Table A2.14 Share of agricultural export from total GDP of Latin America & the Caribbean region in 1995 ................. 46 Table A2.15: Share of agricultural exports' from total exports2 ............................................................................ 46 Table A2.18 Non-agricultural income or rural non-farm income (RNFI) in total rural income ...................................... 47 Table A2.17 Share of agriculture from GDP of Latin America & the Caribbean region ................ ............................... 47 Table A2.19 Trends in rural non-farm employment in Latin America & the Caribbean ................................................ 48 Table A3.1 Latin America & the Caribbean human development portfolio in fiscal year 2001 ..................................... 50 Table A3.2 Finance, Private Sector, and Infrastructure Activities in Latin America & the Caribbean for fiscal year 2001 50 TableA3.3 LCSER share from total LAC lending commitment .............................................................................. 50 Table A3.4 LCSER projects approved'during fiscal years 1995-2000 ........................................................................ 51 Table A3.5 Projects under supervision in LCSER ......................... ..................................................... 52 Table A3.6 LCSER pipeline projects, fiscal years 2001-2003 .............................................................................. 54 Table A5. 1: Labor Force Participation, by Sex in Select Countries, 1997, 1998 .................................................... 74 Table A5.3. Gender division of labor among indigenous in Guatemala and Panama .................................................... 75 Table A5.4. Rural Unemployment in Select Countries, 1987-1998 ........................................................................ 78 Table A5.5: Percentage of Production Unit Members Working Off-Farmn, by Gender .............. ............................. 80 Table A5.6. Land Ownership and Titling Statistics by Sex from Select Countries, 1992-96 ............ ....................... 82 Table A5.7 Differences in Rural/Urban Global Fertility Rates, Last Available Year (Children per Woman) .................. 85 Table A5.8: Homicide Rates per 100,000 Population in Latin America and the Caribbean .................................... 86 Table A6.1 Comparative Performance and Importance of LAC Crop Production ...................... .................................. 90 Table A6.2: Key Poverty Related Characteristics of Farming Systems in Latin America & the Caribbean ............. 92 Table A6.3 Key Characteristics and Potentials of Farming Systems in Latin America & the Caribbean ................. 93 Table A7.1 Summary of actions to be carried out under the strategy .................................................................... 115 Table A9.1 Basic characteristics of intervention studies .............................................................................. 132 Table A9.2 Basic characteristics of completed intervention studies ...........................................................................1 34 Table A9.3 Main actions in the commissioned-study interventions ........................................................................... 136 Table A9.4 Main actions in the competed-study interventions .............................................................................. 1 38 Table A9.5 Summary of principles and processes with illustrations .......................................................................... 151 iv List of Boxes Box l.l:What We Mean by "Rural" in this Action Plan . ................................................................................2 Box A4.1 Public/private partnerships in research and extension projects ............................. ................................. 57 Box A4.2 The case of small-scale indigenous farmers of Guatemala: integration in the snow peas, broccoli export business ............................................................................... 58 Box A4.3 Irrigation and drainage sector project, Mexico ................................................................................ 60 Box A5.2: Progressing on Gender Equality in Land Titling in Colombia .............................................................. 83 Box A9.1 Municipal Councils coordinating with regional governm ent to create enabling conditions for RNFE .... 141 Box A9.2 Building rural economic organizations as basic to the project .............................................................. 142 Box A9.3 Identification of target market options ................................................................................1 143 Box A9.4 Building production and marketing skills ............................................................................... 144 Box A9.5 Combining farmn sector and RNFE promotion ............................................................................... 145 Box A9.6 Interventions helping organizations to have access to equipment and plant .......................................... 146 Box A9.7 Adjusting RNF production to the requirements of the market ...............................................................1 46 Box A9.8 Helping RNF producers know the markets: in Brazil and Honduras ..................................................... 148 Box A9.9 Business linkages to promote rural non-farm enterprises ......................................................................1 48 Box A9.10 Intervention expenditure per job created ...........................................................................1... 149 Box A9.11 Intervention innovations in making participants gradually independent ..............................................1 50 List of Figures Figure 2.1 Poverty in Latin America & the Caribbean .................................. ............................................4 Figure 2.2a Income inequality, 1986 and 1996 .............................................................................5 Figure 2.2b Land inequality, around 1980 .............................................................................5 Figure 2.3 School enrollment in Latin America & the Caribbean, rural vs. urban .......................... ................................7 Figure 2.4 Rural efficiency and population .............................................................................8 Figure 6.1 Satisfactory country assistance strategies, Latin America & the Caribbean vs. World Bank Average ............. 27 Figure A2.1 High incidence of extreme poverty is a rural phenomena ........................................................................ 35 Figure A2.2 Incidence of poverty-national, rural and urban ............................................................................ 35 Figure A2.3 Trends of extreme poverty in Latin America & the Caribbean ........................................ ........................ 36 Figure A2.4 Total fertility rate (TFR) ............................................................................ 39 Figure A2.5 Working last week among 6 to 11 years old ............ ................................................................ 39 Figure A2.6 Enrollment among 12 to 14 years old . ................................... .................................... 40 Figure A2.7 Enrollment among 15 to 17 years old ............................................................................ 40 Figure A2.8 Income inequality in 1986 and 1996 ............................................................................ 41 Figure A2.9 Land Inequality around 1980 ............................................................................ 41 Figure A2.10 Trends in population and poverty in rural and urban areas .................................................................... 42 v Abbreviations and Acronyms AAA Analytic and Advisory Activities CAS Country Assistance Strategy CMU Country Management Unit ESSD Environmentally and Socially Sustainable Development ESW Economic and Sector Work FAO Food and Agriculture Organization of the United Nations GDP Gross Domestic Product GEF Global Environmental Facility LCR Latin America and the Caribbean Region LCI Colombia, Mexico, Venezuela, Country Management Unit LCSES Environmentally and Socially Sustainable Development Sector Unit of LCR LCSFP Finance Private Sector and Infrastructure LCSHD Human Development Sector Unit in LCR LEN Lending NAFTA North Atlantic Free Trade Agreement NRM Natural Resources Management OECD Organization for Economic Cooperation and Development PREM Poverty Reduction and Economic Management PRSP Poverty Reduction Strategy Paper QAG Quality Assurance Group RDV Rural Development Department RNFE Rural Non-Farm Employment SPN Supervision vi Acknowledgments This document is one in the series of regional development strategies developed for the 2001 update of the World Bank's Rural Development Strategy, Reaching the Rural Poor. The report is the result of a team effort which benefited from an array of precious contributions. The report's authors are Isabelle Tsakok and Adolfo Brizzi with the valuable contribution of Luis Coirolo. Samuel Taffesse provided research assistance throughout this effort and was responsible for Appendix 2, the statistical backbone of the report, and Appendix 3 on the portfolio. Dorothy Jenkins was responsible for processing the document. The task was managed by Mark Cackler and led by an intersectoral Regional Steering Group. We want to thank the Regional Steering Group and specifically its chairman Olivier Lafourcade (Director, LCI Country Management Unit) for the strong guidance and input received. The members of the Group are Ana-Maria Arriagada (Sector Manager, HD), Adolfo Brizzi (Sector leader, LC 1), Mark Cackler (Sector Manager, ESSD), Luis Coirolo (Lead Specialist, ESSD), Maria Correia (Sector Manager, PREM-Gender), Jeffrey Gutman (Sector Manager, FPSI-Transport and Urban), Norman Hicks (Sector Manager, PREM-Poverty), John Redwood (Director, ESSD) and Isabelle Tsakok (Senior Economist, ESSD). Many people, inside and outside the World Bank, contributed to this report. A panel headed by Csaba Csaki, (Senior Advisor for Rural Strategy and Policy) comprising Rural Development Department (RDV) and Development Economics (DEC) staff provided useful comments on several drafts of the regional strategy. We would like to thank colleagues of the region's ESSD Department, in particular Matthew McMahon, Cora Melania Shaw, Steven Schonberger, Jorge Uquillas, Robert Kirmse, Elsie Garfield, Josd Simas, Nadim Khouri, Maurizio Guadagni; colleagues of the Poverty Reduction and Economic Management Department, in particular Quentin Wodon and Mohamed 1. Ajwad (poverty estimates, and social and economic indicators); the Inter-American Development Bank, in particular Ruben Echeverria (LCR agriculture strategy); the Food and Agriculture Organization, in particular Aidan Gulliver and John Dixon (farming systems), and the participants in the regional consultation organized by the International Center for Rural Development (CIDER, the rural branch of the Inter-American Institute for Cooperation on Agriculture, IICA) in Panama City April 3-4, 2001. . The Region is grateful to the Government the Netherlands for the financial assistance they provided for various studies conducted for the Strategy and for the regional consultation. vii Foreword This report is the contribution of the Latin America and Caribbean Region to the preparation of a new World Bank strategy and action plan for rural development. It recognizes that Latin America cannot succeed in its efforts to reduce poverty without the contribution of the rural sector. That contribution will need to be broad-based and involve the participation of all sectors in coordinated and country-driven efforts. In the search for the right balance among the different elements of a complex agenda, the report stresses the importance of three fundamental enabling factors for the development of the sector environment: a supportive macroeconomic and trade environment, a new institutional set up for the sector and good governance, and a credible regulatory framework. It then describes six key lines of actions: i) competitiveness and growth; ii) the proper functioning of factor and goods markets; iii) the use of a regional approach to rural development; iv) the sustainable use of natural resources; v) the development of human and social capital; and vi) the strengthening of risk management and safety nets. All six elements are needed for the revitalization of the rural agenda and for the achievement of a higher impact on poverty reduction. Fortunately we have a strong basis to build on in Latin America, by scaling up what has been proven to work and by developing the missing links so as to integrate the rural sector better with the rest of the economy and offer enhanced opportunities to the rural poor. We are particularly proud in the region of having carried out the preparation of this document in the same way we would like to see it implemented: through a well-coordinated inter-sectoral effort, building on the particular strength of each network while also grounding the effort in the context of specific country circumstances. In this respect, we are particularly grateful to the authors and to the Regional Steering Group for the guidance they provided. David de Ferranti Kevin Cleaver Vice President Director Latin America and Caribbean Region Rural Development Department Environmentally and Socially Sustainable Development Network viii Executive Summary Regional Context and Key Issues Latin America and the Caribbean, a middle-income region well endowed in natural resources. LCR is the wealthiest of the developing regions with an average per capita GNP of US$3,940 in 1998. At the regional level, it is also the least dependent on agriculture-an average of only 8 percent of GDP in 1998. However, this average ratio hides a great variation that ranges from 5 percent in Mexico, 8 percent in Brazil, 15 percent, in Colombia and 24 percent in Nicaragua. The region is also well endowed in natural resources. It has abundant tropical and temperate natural forests, with more than half the world's tropical forests, major biodiversity reserves and around a third of the world's fresh water. An urbanized region with high inequity and poverty. LCR is a highly urbanized region. Of its estimated 519 million inhabitants for the year 2000, 391 are urban and 128 are rural. About one-third of the population is poor and about one-sixth extremely poor. Poverty incidence in 1998 is lower than in 1992 but it is only back to the level of 1986.' Projections for the year 2020 show that while the urbanization trend will continue and the share of the rural population will decline, the absolute numbers of people living in rural areas will remain roughly the same. Moreover, serious problems of equity exist and are particularly evident with respect to land distribution. LCR possesses the world's highest GINI (inequity) coefficients. For example, it is over 0.9 in Peru, Paraguay and Venezuela and close to those levels in Colombia and Brazil2. Market liberalizing reforms characterize the region. During the 1990s, most countries in the region made a radical departure from heavy state intervention in prices and markets towards private sector-led models of development, reducing barriers to competition in domestic markets, and accelerating the process of trade integration with the global economy. Several countries, however, lagged in these reforms, e.g., Venezuela, Ecuador, Haiti, and Jamaica. The region as a whole benefited, as evidenced by the return of macro economic stability and the decline in the average public deficits. Growth resumed, but for many it was sluggish, not sustained and with recurrent crises (Argentina, Brazil, Mexico). Growth of per capita GDP was below 1.5 percent per year in the 1990s and was accompanied by increasing inequality.3 The elasticity of poverty reduction to growth in LCR is I percent and in the developing world, 2 percent. Agriculture and the rural sector will remain important for economic, social and political reasons. The high rate of urbanization notwithstanding, the strategic importance of agriculture and the rural sector remains. There are four major reasons. * Contribution to employment and to GDP. Despite their modest contribution to GDP, primary agriculture accounts for a large share of the labor market: 20 percent in Mexico, 57 percent in Central America. However, when agriculture is broadly defined to include agro-industry, its share of GDP is much higher. For example, in Argentina, Chile, Brazil and Mexico (which together account for more than 70 percent of AGDP of LCR), agriculture accounts for around 40 percent of GDP (1996). Opportunities offered by the sector are still large and untapped. * Impact on the environment. Any growth at the cost of natural resource degradation is a short-lived victory. If nothing else, degradation weakens the resource base, exacerbates the destructive impact of natural calamities and worsens the vulnerability of the poor. Agriculture is one of the sectors where the importance of integrating environmental and economic policies is most obvious. I Poverty in Latin America: Trends (1986-1998) and Determinants, Quentin Wodon, Rodrigo Castro-Fernandez, Kihoon Lee, Gladys Lopez-Acevedo, Corinne Siaens, Carlos Sobrado, Jean-Philippe Tre. World Bank, April 2001; 2 Unpublished data prepared by Klaus Deininger, World Bank. Data varies from 1960s to 1990s. 3 Source: Poverty and policy in Latin America and the Caribbean, by Quentin Wodon, with contributions from Robert Ayres, Matias Barenstein, Norman Hicks, Kiboon Lee, William Maloney, Pia Peeters, Corinne Siaens, and Schlomo Yitzhaki, World Bank Technical Paper no. 467, World Bank, Washington, D.C., 2000; Table 2.1-2.4. ix * The rural sector contributes to the development of the other sectors of the economy. High-productivity agricultural transformation has fuelled the growth of most high-income industrialized countries. Urban demand for processed foods is rising and so is the demand for processed goods of higher quality. Moreover, the quality of urban development will be determined by a successful transformation of the rural sector. * Higher incidence of poverty in rural LCR.. Rural areas have the highest incidence of poverty (63 percent). Social and economic indicators in rural areas are low and much worse when compared to urban areas. In addition, rural poverty disproportionately afflicts some groups. In high rural-urban migration areas, the elderly, women and children are left behind. There is also a close relationship between rural poverty and ethnicity. The majority of the indigenous peoples (80 percent of some 19-34 million), found mainly in rural Mexico, Peru, Colombia, Bolivia, Ecuador and Guatemala, are poor.4 Destabilizing factors (violence, drugs, unrest) often find their origins in rural areas. This situation can become socially and politically unsustainable. Lessons Learned Macro reforms were necessary but insufficient to remove the structural impediments constraining the rural poor. While the macro reforms helped put in place a policy framework more conducive to growth and private sector involvement, they were not complemented by "second generation" reforms. These are measures to improve the competitive functioning of factor and goods markets and reduce the high inequalities and the deep-seated structural problems that severely limited access of the rural poor to economic assets, markets, services, technology and infrastructure. The macro reforms did not reverse the long history of un-egalitarian development. The rural sector remained relatively disconnected from the rest of the economy and many structural distortions and regional disparities were left untouched as the micro agenda was overlooked. In terms of its contribution to rural poverty, the structure of growth is as important as growth figures per se. In many cases agricultural growth was concentrated in the commercial sector and did not trickle down. Sectoral policies and programs may skew incentives. Some countries implemented explicit or implicit taxation policies towards the sector through overvalued exchange rates regimes, industrial protection or taxation of export commodities (with strong comparative advantage) and protection of import-substituting food (with little comparative advantage). These protection and taxation patterns were highly inefficient. In a number of countries the incentive framework for agriculture remained relatively unfriendly with negative protection rates and negative real prices to producers for most crops, e.g., Mexico. The use of subsidies to address poverty also had perverse effects. Subsidized directed credit through parastatals was highly inefficient in terms of its fiscal cost, delinquency rates and outreach capacity. It also crowded out and inhibited the development of local self-sustained savings and loan initiatives. Subsidies for investment and equipment are difficult to target and bear the risk of concentrating on medium and large commercial farmers. This also drives up land prices, induces concentration of land and makes access to land by the poor more difficult. Moreover, productivity improvements should be more closely associated with competitiveness as subsidies may skew the incentive structure of the various crops. Need to find the right balance. This rural Action Plan argues that LCR cannot succeed in its poverty alleviation efforts without the contribution of the rural sector. However, finding the right balance is still a challenge. The development community has gone from one extreme to another, searching for the appropriate instruments and approaches to translate a holistic vision into effective actions. Too often, implementation capacity fell short of conceptual sophistication or poor policies kept good projects from bearing fruit. Integration through a territorial, decentralized approach. While the integrated rural development projects of the 1970s were right about integration, they were wrong about the way they were carried out. These projects were implemented top-down, with no participation, no decentralization and in an adverse policy environment. Much can be recovered from the concept of integrated rural development in the new context of decentralization, 4 Source: Rural Poverty in Latin America and the Caribbean, By Alberto Valdes and Tom Wiens, May 30, 1996, Paper delivered at the Annual Bank Conference on Development in Latin America and the Caribbean; pp 7. s Sources: Rural Poverty in Latin America, edited by Ramon Lopez, Professor, Department of Agricultural and Resource Economics, University of Maryland, and Alberto Valdes, Agricultural Advisor, World Bank, Washington DC, Macmillan Press Ltd, Great Britain, 2000, St. Martin's Press, LLC, United States, 2000, pp 2. Beyond Trade-offs: Market reform and equitable growth in Latin America, Nancy Birdsall, Carol Graham, Richard H. Sabot, editors, Inter-American Development Bank, Brookings Institution Press, 1998, pp 3. x differentiation, democratization and better policy framework that characterize most LCR countries today. There is a compelling need to address equity issues in the context of a rural development strategy repositioned in the context of its "rural space." Under this approach, agriculture, off-farm activities, employment opportunities, social cohesiveness, municipal development and access to markets and services are seen as equally important elements of a strategy that blurs traditional divides among sectors and among rural and urban approaches. Need to build bridges beyond the community level. Community participation approaches helped build social capital and proved to be an effective mechanism for delivering micro-projects and productive investments. However, to ensure institutional sustainability, there is a need to link these community-driven projects to local governments. Such an approach should also build bridges with the rest of the economy, promoting producers' organizations and providing the critical linkage to integrated supply chains, where the private sector would play an increasing role in the development of the family farms sector. Need a culturally- and gender-sensitive approach. It is clear that the pervasiveness of poverty rates among ethnic minorities and the increasing role of women in rural society raise the issue of social inclusion and access to productive factors and assets. Government programs should devise approaches more adapted to cultural preferences and gender needs. Objectives and Strategies Main objectives. The overarching objective of the proposed regional action plan is to reduce rural poverty and promote broad-based growth in the context of the sustainable management of natural resources. Strategic thrusts. The strategy revision process emphasizes the holistic nature of rural development, as opposed to focus on a single sector-agriculture, and the urgency to go beyond vision into action. The strategy is to build on successful experiences and scale up what is working well, strengthen the missing links and work better together across networks so as to better balance the different elements of a complex package and achieve synergy. A rural development strategy has to include several differentiated elements directed at different population groups while acknowledging that an adequate overall macro and policy framework is essential. In addition, the strategy must convey the message that while the rural sector confronts many challenges, it also presents many opportunities that make it potentially attractive to investors and to rural dwellers, if the right mix of policies, institutions and support programs can be put in place. Better addressing the rural-urban dynamics. While an important preoccupation of policy makers is to maintain rural-urban migration at manageable levels, this migration will continue. More training and education opportunities for the rural poor are important for facilitating their absorption into other sectors of the economy. However, outright promotion of migration as a rural poverty alleviation strategy is not viable, because it would exclude from a rural modernization process a large smallholder sector with growth and employment potential. Moreover, in a number of cases the worsening of urban poverty shows that urbanization can be seen as a solution to poverty only if it is the result of real access to better opportunities. For the millions who continue to remain in rural areas, the improvement in living conditions will depend on improvements on several fronts. These include intensifying smallholder agriculture and increasing productivity; providing infrastructure and services; improving access to assets such as land, education and financial services, and to markets; ensuring the sustainable management of the natural resource base on which they base their livelihoods, and providing better risk management tools. Integration through regional development and a new "institutionality." A "rural space" approach based on regional development will provide the underlying vehicle to pursue sectoral integration. This requires improving the absorptive capacity of secondary towns in the context of increasing urban-rural integration and interaction. It also calls for investments in basic infrastructure, promotion of new off-farm opportunities, better integration with the labor markets, continued emphasis on community-driven development, municipal strengthening and the building of social and human capital. It also allows for better integration of environmental issues in an effort to build consensus around possible "win-win" opportunities. In this context, a new "institutionality" will need to be built around the concept of increased participation of the local actors, farmers' organizations, civil society, local governments and the private sector. This means a revision of roles where beneficiaries of government programs become clients and take leadership of regional planning and priority setting, guide and negotiate local development processes and create the conditions for greater accountability and better governance. Productivity, competitiveness and increased private sector involvement are key engines of growth. Agricultural productivity, competitiveness and access to technology and markets will remain critical for many producers xi regardless of their size. However, in many cases the smallholder sector working for the domestic market should be subject to more attention and support in view of its potential and untapped contribution to growth and employment. Conditions for increased private sector involvement will need to be studied and barriers removed through private- public partnership. Social safety nets for the severely marginalized There is a group of rural poor who will remain marginally productive and unable to benefit from the rural non-farm economy or to migrate. Members of this group are typically older and female heads of households and farms in poorly endowed areas. For this group, social safety nets and risk management combined with the promotion of income-generating activities, both off-farm and on-farm, are critical to assure basic, decent living standards. The Action Plan Enablingfactors and lines of actions. The proposed Action Plan contemplates a series of priorities organized along a two-pronged approach. The enabling factors may be considered as critical underlying elements in the implementation effectiveness of the strategy in any country. The priority lines of actions describe the possible applications subject to country circumstances. Enabling factors Maintain a supportive macroeconomic and trade environment. This advocates a more pro-active role in the discussion of macroeconomic and policy issues that affect the rural sector. It also supports renewed engagement in economic and sector work to provide better underpinning and understanding of the factors that determine rural poverty, the incentive framework, the functioning of land, labor and financial markets, the decentralization process for the sector, etc. Promote a new "institutionality" for the sector and good governance. The combination of increased decentralization and the development of local democracy are key elements to progressively create the conditions for greater participation and accountability at the local level. The main debate around the issue of how to better articulate the social demand for services with the institutional supply calls for a rethinking of the respective roles of the public sector (both central and sub-national governments), civil society, interest groups, private sector, etc... Develop a credible regulatory framework. This includes a number of elements conducive to more effective private sector participation and better functioning markets. It includes: a) establishing better-integrated price and market information systems; b) developing appropriate regulatory frameworks and enforcement capacity as critical factors for secure transactions, inventory-based financing, crop insurance, non-bank financial institutions, contract farming and "collateralization" of assets; and c) facilitating the development of commodity quality standards based on industry participation and needs, and the development of food safety norms. Lines of actions Raise productivity and competitiveness as the engine of agricultural growth. This proposes to pursue public/private partnerships for the delivery of public goods and services (such as agricultural research and extension, animal and plant health control), facilitate access to adapted technology and equipment, while improving quality and cost- effectiveness. It also promotes more efficient cropping patterns and better vertical integration in the supply and marketing chain. It argues in favor of basing future irrigation projects towards a decentralized, integrated approach to sustainable management and use of water resources. Pursue a systematic approach to improve the competitive functioning of markets. This addresses three essential markets. Land regularization and administration are to increase access to land and promote more efficient functioning of land markets. Rural financial services are in need of urgent revival and rethinking in terms of both the efficiency of existing public or semi-public credit delivery mechanisms and the importance of the non-bank sector through "mutualistic" savings and loan approaches. Product and storage markets should be made more competitive and efficient through the development of farmers' organizations, higher value transformation activities, better information system and inventory financing mechanisms. Foster a "rural space" approach and regional development. It proposes a more integrated approach that blurs the traditional urban-rural divide and repositions rural development in the framework of a territorial approach. This approach will foster better integration with the supply chain, labor and financial markets, the provision of basic xii infrastructure and services, and sustainable natural resources management, and will go a long way in rendering rural areas more attractive to migrants and to the private sector. Community-driven development would be scaled-up as an effective vehicle for building social capital, and delivering basic services and small infrastructure. However, the key links with local governments will be strengthened including more emphasis on building municipal capacities in the context of increasing decentralization. Manage natural resources in a sustainable way. This is a key issue for the long-term sustainability of development programs but one that presents considerable trade-offs between short-term benefits and long-term social costs. A number of experiences exist in LCR that have developed win-win situations and instruments capable of better integrating productive, management, and conservation concerns. These initiatives are still relatively scattered and will need to be scaled-up so as to demonstrate their potential in ensuring a more sustainable use of the resource base. The Global Environment Facility should continue to play an instrumental role in facilitating better mainstreaming between conservation and development. Build human and social capital. Expanding the delivery of basic education and health services are powerful tools for poverty reduction in a region with high rural-urban migration. Education should be seen as a priority for the rural population, and especially education for girls. It improves employment opportunities, prepare future migrants to access better jobs, and helps families plan better their own future. Development programs need to promote social inclusion, build social capital and respect cultural diversity and preferences of minority and ethnic groups which shoulder a disproportionate burden of rural poverty. Strengthen risk management and safety nets. Finally, a series of relatively new activities and instruments would be developed and expanded to reduce the vulnerability of poor people both to economic shocks and natural disasters. This covers a range of tools like early warning systems, prevention activities, price hedging tools, and crop insurance schemes. Also social security, safety nets and income support programs can be very effective instruments to reach the poor and they should be developed according to local circumstances. Implementation Internal World Bank implementation issues and instruments Cross-network participation. A major departure from the past is the development of systematic partnerships between the Rural and other networks: The Environmentally and Socially Sustainable Development (ESSD) network and the Poverty Reduction and Economic Management (PREM) network would work jointly to ensure that the impact of the macro policies are supportive of rural development. They will develop decentralization strategies and better understanding of the analytical underpinnings of poverty and of the incentive framework for the sector. PREM would continue to focus on promoting macro stability, adequate trade policies, competitive exchange rate regime, more supportive public expenditure programs and the removal of distorting government policies in rural markets. * ESSD and the Human Development (HD) network would work jointly to elaborate more consistent programs to address social sector issues, participation of minorities and indigenous peoples' development. They would also promote the inclusion of culturally-consistent components in the health and education programs. They would work together to ensure consistency of implementation of Social Funds and Rural Investment Funds and strengthening of safety nets in rural areas. * ESSD and the Finance and Private Sector and Infrastructure (FPSI) network would develop joint strategies and programs on how best to help governments in the development of rural-urban linkages and delivery of public goods and basic infrastructure services in rural areas, especially at the level of municipalities. They would also develop rural finance approaches that are consistent with the specificity of the rural sector and with the overall financial sector policies and regulatory frameworks. A holistic approach wilh a country focus. The Action Plan recognizes that only a multi-sectoral approach can work and offers the strategic directions and actions to be undertaken. However, it recommends a selective implementation at the country level in view of the Bank's added value, ongoing dialogue and local circumstances. It is not a "one-size-fits-all" approach. Country Directors and Sector Leaders will be instrumental in ensuring adequacy and adaptation of the Action Plan so that it is consistent with the country policies and development agendas. The comparative strength of each network and family in each country context would determine leadership for the various initiatives and operations, but in most cases this will mean stronger inter-sectoral teams. This in turn xiii requires the key involvement of Sector Directors and Sector Managers who would revisit the strategic skill-mix required for implementation of the Action Plan, guide the constitution of teams with adequate skills and promote the review of the current budgetary process which hinders cross-network partnerships and support. The high cost of safeguard policies may be a deterrent. While it is acknowledged that good compliance with safeguard policies is simply better-quality business, it needs to be recognized that projects in the rural sector present a high level of compliance requirements which imply more resources and time to prepare. This may act as a disincentive if transaction costs become excessive. It is also important to recognize the higher level of risk that staff confronts and to remove possible biases against innovation and risk-taking. Instruments for cross-network integration. Country Assistance Strategies (CAS), Poverty Reduction Strategy Papers (PRSP) and poverty assessments will be the ideal strategic instruments to ensure that rural issues are fully incorporated and internalized. With respect to lending instruments, investment projects will continue to play an important role, especially for specific poverty-targeted approaches and innovative interventions, which require strong implementation support and field supervision. More effective integration can be pursued through the use of lending instruments along thematic lines that require blurring the "silos" and sectoral frontiers. New instruments to explore are programmatic loans. By their nature (quick disbursing) they will require an adequate policy environment for the particular subsector to be financed and solid institutions with sound procedures and implementation rules in place. Donor Coordination Promoting partnership is good business. It is generally felt that the strategic thrust of this rural development strategy for LCR countries is widely shared among donors. The Bank should continue to explore and develop regular channels for communication and consultations with other potential partners, to ensure consistency of strategies and to explore co-financing possibilities. Partnerships should be sought on a country basis with the objective of learning and transferring experiences and developing common ground in approaches among partners. Better consistency among donors will enhance the chances to leverage the establishment of a "rural constituency" within governments and pursue a coherent dialogue for increased effectiveness. Implementation approaches Strengthening client ownership. Without client ownership this strategy and Action Plan are moot. Moreover, it must be acknowledged that, in most situations, development efforts take the form of progressive quantum leaps that require considerable dialogue and buy-in from various constituencies in the country. In some countries there is already a high degree of convergence with the proposed Action Plan and most of it may already be under implementation; in others, agreement and interest may be only partial. This strategy and Action Plan should be seen as a contribution to the ongoing discussion on LCR rural development issues and the way forward. Many of the elements of the proposed Action Plan are already under implementation in one country or another, and the document essentially tries to coalesce and build on what seem to be best practices and innovative, successful approaches. Countries in LCR could seize this opportunity to provide momentum to their rural development agenda and, as a priority, look towards implementation with a sense of urgency. The Bank could contribute to a partnership that would offer renewed commitment and support for action on the ground. In addition, it could contribute enhanced implementation capacity and more accurate and specific analytical work to deepen the reciprocal understanding around rural development issues. Performance indicators and monitoring Monitoring and evaluation indicators need to be country-specific. In all operations and on a country basis, the Bank will develop simple but effective monitoring and evaluation systems adapted from International Development Goals (IDG) on which international consensus already exists. While we should maintain flexibility in implementation and admit that trial and error will still be necessary as part of the learning process, a minimum set of robust indicators that are reliable, user-friendly and cost-effective will be developed. Indicators should be built on the basis of the level of progress achieved by each country and the nature of the different programs being supported, so as to increase their relevance and realism. Internally, key indicators to be monitored in order to measure effectiveness in the implementation of the strategy would be: * treatment of rural issues in CAS/PRSPs as regularly evaluated by RDV; * reversal of the present negative trend in lending; xiv * revival in the preparation of sector work through the inclusion in work programs of key studies and analytical work in all countries; * quality of the portfolio in termns of: * quality at entry and effectiveness of supervision as evaluated by QAG * meeting the regional indicators with respect to risks, realism and pro-activity * delivery and quality of the work program; and * cross-sectoriality of task teams in terms of participation of other sector staff in project/ESW preparation and supervision. xv 1. Introduction Context and approach. This Regional Action Plan for Rural Development is an input to the Bank-wide revision of Vision to Action. The central objective of the regional Action Plan is to reduce rural poverty and promote broad- based growth in the context of the sustainable management of natural resources. The approach emphasizes the holistic nature of rural development, as opposed to focus on a single sector-agriculture, and the urgency to go beyond vision into action. It proposes a differentiated rural development strategy directed at different population groups. It conveys the message that while the rural sector confronts many challenges, it also presents many opportunities that make it potentially attractive to investors and to rural dwellers if the right mix of policies, institutions and support programs can be put in place. Appendix I presents what the Bank Rural Network described as the holistic vision of rural well-being in the "Vision to Action" paper. Purpose and focus. At the regional level, the purpose of this paper is to make the case that the region cannot succeed in its poverty reduction efforts without renewed focus on rural development issues and the establishment of a framework for revitalizing the Bank's work in this sector. The regional document is action-oriented, specifies strategic priorities for the region and strengthens new cross-network partnerships and synergies. It is expected to have "buy-in" from regional management, especially from Country Management Units (CMU), and from stakeholders in client countries. It outlines changes required in the Bank's operational procedures and organization. It is expected that this regional strategy will serve to guide country-level discussions to forge consensus on country priorities and sector strategies. Similarly, monitoring systems and outcome indicators would need to be defined at the country level to make them more relevant to specific circumstances. A strategic opportunity for the region and the Bank This paper shows that in aggregate terms, poverty and inequality have remained at very high levels and that despite progress made after the mid-90s, the region is only back to the poverty levels observed in 1986. This occurred while major macro and trade reforms were undertaken and despite the region's rich natural resource endowment. The region is at a crossroads. Globalization, urbanization, decentralization and democratization present tremendous challenges and opportunities to the region. At this critical juncture, the Bank can help the region seize this strategic opportunity by building on valuable lessons of rural development learned at great cost and by developing internal and external partnerships. A holistic but differentiated rural development strategy and Action Plan can make the difference in making rural areas attractive over time to rural inhabitants and to private investment and generate dynamic rural growth, employment and sustainable poverty reduction. A roadmap of the paper. The paper is organized along the following sections: * Section one sets the context and asks what happened in these past fifteen years. It recognizes that macro stability and the opening to global trade are necessary but not sufficient conditions for reducing old structural barriers in the capacity of the rural poor to access opportunities and for reducing inequalities. These reforms could not effectively deal on their own with the complex and differentiated nature of rural economies in LCR. * Section two asks why the performance was meager and puts forward critical missing components of past approach. It suggests that what was missing was a micro agenda focused on reducing the sharp inequalities in access to services and opportunities, ownership of assets, and on improving the competitive and efficient functioning of factor and goods markets. * Section three takes stock and asks why rural development is still of strategic relevance today. It assesses past experiences and looks at today's main challenges and opportunities in LCR. It then argues that rural development is a critical element of a poverty reduction and growth strategy. * Section four argues that the Bank can help the region do better and proposes a number of strategic thrusts and an Action Plan. This Rural Action Plan builds on hard-earned lessons of generations of experience in rural development and focuses on how best to address the major causes of widespread rural poverty in LCR, and how to remove the barriers to sustainable growth. * Section five focuses on implementation arrangements and on how to achieve synergy. It presents some concrete proposals on how to build cross-network partnerships, client ownership and synergism. What we mean by "rural" and the basic statistics underlying this paper are presented in box 1.1, and tables 1.1-1.4 below on LCR. Table 1.1: Population in LCR: Selected estimates Item Units 1986 1996 2000 2020 2030 Total million 407 486 519 665 726 population Box 1.1 What We Mean by "Rural" in this Action Urban million 281 360 391 540 604 Plan % 69 74 75 81 83 The term "rural" is obvious to the layperson, million 126 126 128 126 121 but its administrative/operational definition varies Rural % 31 26 25 19 17 by country, and within the Bank. For example, census criteria take varying levels of cut-off points Source. See Appendix 2. All figures rounded. between rural and urban. In Mexico the cut-off point is a locality with more or less than 2,500 inhabitants. In other countries the cut-off point may vary between 5,000 to 10,000. Throughout the Bank, there is no consistent definition of Table1.2 PovertyinLCR:Selectedestimates "rural," as the Bank accepts each country's in millions and in percentages definition. Year 1986 1992 1998 However, beyond the census definition, the Poor 136 182 174 concept of "rural" has been taking a broader form that in many cases blurs the traditional urban-rural Extreme Poor 59 91 81 divide. The concept of "rural" expands over an Urban Poor 72 104 103 entire territory or a region. In that respect a Rural Poor 65 78 71 common element of this concept is that "rural" is a Extreme Urban Poor 27 44 42 multi-dimensional concept which tries to capture Extreme Rural Poor 32 48 40 the idea of all activities in the rural space including agriculture, agro-business, . rural Poor 34 40 35 education, infrastructure in villages and secondary Extreme Poor 15 20 16 towns, financial services, municipal development, Urban Poor as a percent 25 32 28 etc. As a consequence, interventions at macro and of Urban Population sectoral levels with a major impact on rural factor Rural Poor as a Percent 51 61 56 and output markets are also relevant to this Action of Rural Population Plan. This broad view of "rural" is consistent with Rural Ulation the holistic approach of the Vision to Action, and of Extreme Urban Poor as 10 13 11 the Comprehensive Development Framework. It percent of Urban is also in line with the concept of the "Nueva Population Ruralidad' put forward by IICA in its recent Extreme Rural Poor as a 25 37 31 strategy paper. Therefore, the plan encompasses Percent of Rural activities well beyond those normally handled by Population the "rural family" and calls for concerted actions Source: Poverty in Latin America: Trends (1986-98) and from the various networks, as we will see in determinants, by Quentin Wodon, Rodrigo Castro-Femandez, Sections Four and Five. Kihoon Lee, Gladys Lopez-Acevedo, Corrinne Siaens, Carlos Sobrado, and Jean-Philippe Tre, World Bank, April 11, 2001. See-Appendix 2 for more details. All figures rounded. Poverty level: Poor is below $2.0/day; extreme poor is below $1.0/day 2 Table 1.3: Selected measures of income and asset inequality Income Inequality: Income Inequality: Asset Inequality: Gini Countries Gini coefficient 1986 Gini coefficient 1996 index for land distribution 1980-90s Argentina 0.50 0.53 0.85 Brazil 0.59 0.61 0.85 Colombia 0.57 0.56 0.77 Honduras 0.59 0.55 0.78 Mexico 0.47 0.52 0.62 Venezuela 0.50 0.50 0.90 See Appendix 2. Table 1.4: Rural and urban social and economic indicators in LCR: selected estimates Item Unit Rural Urban Infant mortality Per 1000 live births 57.2 43.5 Child mortality Per 1000 live births 73.9 52.5 Total fertility No. of births/woman 4.4 2.8 Adolescent fertility No. of births/1000 124.1 90.7 women age 15-19 Using modem contraception Percent of women 55.7 66.9 Immunization % of children 12-23 54.6 70.3 months School enrollment % of 6-1 1 yrs old 88.0 95.4 School enrollment % of 12-14 yrs old 78.3 92.7 School enrollment % of 15-17 yrs old 47.1 75.1 Access to electricity Wtd aver. %, 1996 69.9 98.2 Access to pot. Water Wtd aver. %, 1996 51.8 92.4 Sources: Poverty, Urban-Rural Differentials, and Migration in Latin America, by Quentin Wodon, Ishan Ajwad, V. Malkin, C. Siaens, and G. Gonzalez Konig (2000); and Infrastructure reform and the poor, by Quentin Wodon and Ishan Ajwad (2000). 3 2. What Happened? Meager payoffs. Poverty and inequality remain pervasive and despite progress made after the mid-1990s, the region is only back to the poverty levels observed in 1986. An urbanized region with high levels of poverty Figure 2.1 Poverty in Latin America & the Caribbean 70 60 c 50 40,' 0 w~ 40 0 30 0. 0 20 10 1986 1989 1992 1995 1998 - Rural poverty -5-Total poverty A Urban poverty )- Extreme Poverty LCR is a highly urbanized region. Of its estimated 519 million inhabitants for the year 2000, 391 are urban and 128 are rural. Projections for the year 2020 show that while the urbanization trend will continue and the share of the rural population will decline, the absolute numbers of people living in rural areas will remain roughly the same. Since 1986, rural and urban poverty has increased in terms of incidence and of absolute numbers. In 1998 about one-third of the population was poor and one-sixth was extremely poor. This represents 174 million poor people, of which 81 million live in extreme poverty (figure 2.1). However, this trend needs to be divided in two phases. While poverty has increased from 1986 until about 1992, the share of the population in poverty has started to decrease since the mid-1990s, and it is now back to its level of the mid-1980s. But due to population growth, the number of the poor has increased over the past fifteen years. Poverty incidence rose from around 34 percent in 1986 to 35 percent in 1998. Rural poverty is high, at 56 percent, and urban poverty at 28 percent; extreme poverty is at 31 and 11 percent, respectively (see table 1.2). The concentration of rural poverty for some groups or regions makes a further worsening of rural poverty politically dangerous in terms of: (a) ethnicity, e.g., indigenous peoples, and Afro-Latin Americans; (b) some sub-regions, e.g., Northeast Brazil, Southern Mexico; and (c) gender in some countries, e.g., female-headed households in marginal areas. 4 Figure 2.2a Income inequality, 1986 and 1996 0.65 = 0.6 4) E0. 0- i !-r_: 0.45 04- Argentina Brazil Colombia Honduras Mexico Venezuela Figure 2.2b Land inequality, around 1980 1 0.91 087 076 0.31 X 1 3 3 l i i °Ir , O Q , , co M o o 04 to 0 C o E E N 0 C (D U co CD 0 2 c 0) High and rising inequality has been a root cause of poverty. LCR is characterized by high inequality (figure 2.2). Income inequality in major countries has risen from 1986 to 1996. For example, Gini coefficients for Brazil rose from 0.59 to 0.61 over that period; for Mexico, from 0.47 to 0.52; and for Chile, from 0.44-0.58.6 The Gini index for land concentration is even higher, e.g., 0.8 for Brazil, 0.9 for Peru, in comparison to 0.3 in the Republic of Korea, and 0.4 in Taiwan, Republic of China. Indeed, the seven countries with the most severe land concentrations are all in LCR. Inequality over centuries is responsible for the concentration of poor people in marginal, risk-prone areas. Inequality also has other perverse effects: High inequality limits the elasticity of poverty reduction to growth. The elasticity of poverty reduction to growth in LCR has been estimated at one percent and in the developing world, two percent. In Brazil, where inequality is one of the highest, it is less than the low LCR average, at about 0.7 percent.7 One major reason for this lower elasticity is that the structure of demand is import-intensive, which favors imports instead of domestic production in which smallholders can compete. 6 Poverty and policy in Latin America and the Caribbean, by Quentin Wodon, with contributions from Robert Ayres, Matias Barenstein, Norman Hicks, Kiboon Lee, William Maloney, Pia Peeters, Corinne Siaens, and Schlomo Yitzhaki, World Bank Technical Paper no. 467, World Bank, Washington, D.C., 2000; Table 2.1-2.4. The estimate for Chile is considered suspect because of the narrow data base. 7 Source: Country Assistance Strategy for The Federative Republic of Brazil, World Bank, March 6, 2000; pp 6. 5 * High inequality may have limited growth itself The negative relationship between inequality and growth has been amply demonstrated, contrary to the assertion of the Kuznets "U-shaped" curve (1955).8 Annual per capita GDP growth in the 1990s in the region fell far short of the 4 percent average in East Asia.9 In these East Asian economies, land reform had redistributed land ownership rights and imposed ceilings of only a few hectares. Governments also undertook a series of other measures to level the playing field and promote the competitiveness of small farms as well as intensive investments in human capital.'° Although East Asia was hit by the 1997 financial crisis, its recovery since 1999 has been strong (GDP growth of 5-6.5 percent in 1999)." In Latin America, past land reform efforts did not succeed in reducing high inequality in land distribution, and price policies favored large farns. * High inequalities in access to basic services undermine human capital development. Key aspects of human capital development reflect the above disparities. Despite achievements in education-85 percent of primary school- age children are enrolled-education is not fulfilling its potential to improve social mobility. The rural poor and indigenous peoples are at an extreme disadvantage relative to other groups. Even for those who have access, however, the quality and relevance of schooling have a long way to go. The gap in school performance and competitiveness between the LCR region and OECD countries is also growing.'2 Improving coverage and quality of basic health services especially in remote areas where indigenous peoples predominate has been a dominant goal of the health system. The ongoing Mexico Health Project exemplifies the difficulties and the significant progress possible.'3 The poor, rural and urban, also suffer from widespread malnutrition. An estimated 60 million people in LCR suffer from food insecurity; 6 million of these being children (mid-1990s). In cities, unbalanced diets mainly among poor adults have increased their vulnerability to chronic diseases related to diets.'4 At the macro level: a decade of wide-ranging reforms with occasional major economic crises. During the second half of the 1980s and the beginning of the 1990s, most countries in the region made a radical departure from heavy state intervention in prices and markets towards private sector-led models of development. They reduced barriers to foreign competition in domestic markets and accelerated the process of integration with the global economy. Substantial trade liberalization was a hallmark of these economy-wide reforms. The weighted average rate of tariff and para-tariff charges for LCR fell from 40 percent in the 1980s to around 15 percent in the 1990s, comparable to the levels prevailing in the East Asian Newly Industrializing Countries.'5 For most countries, the average annual rate of inflation (excluding Brazil) also fell from about 300 percent (1980- 1990) to about 31 percent in 1991-96.I6 These were major achievements. Yet growth remained mediocre as GDP/capita growth was well below 2 percent per annum. These aggregate figures hide important variability. Where significant economic growth could be sustained (Chile), important gains could be achieved towards poverty reduction. On the other hand, some of the 8 The "U-shaped curve" asserts that in the early stages of development, growth and capital accumulation are entirely consistent with rising inequality. Sources: Beyond trade-offs: Market reform and equitable growth in Latin America, by Nancy Birdsall, Carol Graham, Richard H. Sabot, editors, Inter-American Development Bank, Brookings Institution Press, 1998. Chapter six on Inequality-reducing growth in agriculture: a market-friendly policy agenda, by Michael R. Carter and Jonathan Coles, pp 147-178; pp 153-154 on the Kuznets curve. 9 Source: Securing our future in a global economy, by David de Ferranti, Guillermo E. Perry. Indermit S. Gill, and Luis Serven. World Bank Latin American and Caribbean Studies, the World Bank,2000, pp 2, Fig 1.1. '° Source: Rural Asia: Beyond the Green Revolution, Asian Development Bank, 2000, chapter 2. Source: East Asia: Recovery and Beyond, the World Bank, Washington, D.C., 2000; Executive Summary, pp 3. 12 Source: Educational change in Latin America and the Caribbean, the World Bank, Latin America and the Caribbean, Social and Human Development, 2000; Executive summary, pp10-1 1. 13 Source: Health extension services in Mexico: current strategies and programs, by the Secretaria de Salud, English Edition 2000. 14 Source: A 2020 vision for food, agriculture, and the environment in Latin America, edited by James L. Garrett, International Food Policy Research Institute, October 1995, pp 1, 6. 15 Source: The Long March: A reform agenda for Latin America and the Caribbean in the next decade, by Shahid Javed Burki, and Guillermo Perry, World Bank Latin American and Caribbean Series, 1997, Fig. 2.2. 16 Source: The Long March: A reform agenda for Latin America and the Caribbean in the next decade, by Shahid Javed Burki, and Guillermo Perry, World Bank Latin American and Caribbean Series, 1997, Table 1.1, pp 3. 6 large countries were not exempt from major economic crises. such as Brazil and Argentina in the late 1980s and 1990s, and Mexico in 1994, which caused a major surge in poverty and affected regional figures. At the sectoral level: a dualistic response. Agricultural growth averaged 3 percent per annum during the 1990s but the growth was concentrated and exclusive.' In agriculture, the gainers of macro reforms and trade liberalization have been producers driven by export markets, especially of non-traditional exports of fruits and vegetables. In many cases such growth did not trickle down or was not sufficiently sustained to have an impact on poverty and even less on inequality, Import-competing commodities did not fare well and were therefore subject to protectionist measures in a number of countries. This is a politically sensitive issue as direct protection tried to shield smallholders producing basic food crops but it maintained inefficient cropping patterns with little comparative advantage. Moreover, by inducing higher prices it mostly affected the net food consumers, including most of the rural poor. Most smallholders are trapped in low-productivity agriculture that cannot generate enough surplus to enable them to invest and take risks. Since agriculture alone cannot sustain a decent livelihood for most, and in the context of limited access to basic services, infrastructure, and opportunities, migration has become the valve to escape poverty. Rural areas are severely disadvantaged in Figure 2.3 School enrollment in Latin America & the Caribbean, other aspects as welL In terms of economic rural vs. urban and social indicators, rural areas are worse than urban areas. However, rates of urban poverty, income disparities and violence are l l some of the highest in the world.'8 The l access to basic services and infrastructure is much more limited in rural areas. For Age example, the LCR weighted average for 15-17 infant mortality rates is 57.2/1000 live births _ in rural versus 43.5/1000 urban; for child mortality rate (children age one to five), the rates are 73.9/1000 rural versus 52.5/1000 urban. Rural education is deficient relative Age to urban education-in LCR countries, 21% 12-14 fewer rural children attend school than do urban children.19 This says nothing of : 77 education quality. Teachers who live outside poor rural communities travel during Pc an school the week to teach and are often absent. School enrollment is much lower for rural Rural *Urban areas in all age categories (Figure 2.3). Child labor in the 6-11 age category is 7.4 percent rural versus 1.4 percent urban. LCR's (12 countries) weighted access to electricity in 1996 was 69.9 percent rural versus 98.2 urban; for potable water, the respective rates were 51.8 percent rural versus 92.4 urban. High inequity is a major cause of rural poverty and high rural-urban migration. See Tables 1.2 - 1.4 and Appendix 2 for more detailed statistics on poverty, inequality and comparative social and economic indicators. Migration is a valve to escape extreme poverty but it exacerbates urban poverty. Low labor productivity and lack of basic services will continue to represent a strong "push factor" in many rural areas. Since 75 percent of the LCR population is now urban, the absolute number of poor is larger in urban areas than in rural areas; but the incidence of poverty is much higher in rural areas (see table 1.2). It is fair to say that a person migrating from rural to urban areas faces a lower probability of being poor at his place of destination than at his place of origin. However, while urbanization contributes to poverty reduction over time, there are limits in the short term to the capacity of large 17Source: Agricultural strategy for Latin America and the Caribbean, Inter-American Development Bank, December 2000. The data also appears in FAOSTAT, and is used by IFPRI. 1 Source: Urban sector strategy paper of LCSFP, FY 2000. (dated January 6, 2000), Section B. 19 Children age 12-14 and 15-17, weighted for country but not for number of children in the two age groups. 7 towns to absorb an increasing inflow of uneducated people. An estimated 20-25 percent of the region's population lives in slums.20 The urban poor may have better access than the rural poor to basic infrastructure and services, but their well-being is undermined by rising crime and violence. The worsening of urban poverty shows that urbanization per se cannot be seen as a solution to poverty if it is not the result of real access to better opportunities. More analysis should be done on the cost effectiveness of public intervention in urban and rural areas in terms of delivering basic services. While there may be economies of scale due to higher population densities in towns, expectations are lower in rural areas. A regional approach to rural development may, however, also achieve economies of scale while maintaining a focus on rural areas, promoting local opportunities and employment and preserving existing social capital. Low labor productivity in much of smallholder agriculture. Although many LCR countries grow similar agricultural products, efficiency varies widely among countries. Since agricultural exports are a significant part of total exports, efficiency is a key factor in international competitiveness. Agricultural output per rural population (Ap.) is an imperfect measure of agricultural efficiency-countries that are more dependent on large labor forces in agriculture might appear to have inefficient production (figure 2.4). Even these imperfections are insufficient to explain the difference between $280 Ap. in Honduras and $3,550 Ap. in Argentina. The wide divergence between the contribution of agriculture to employment and its contribution to GDP is evidence of low labor productivity. For the region as a whole, the share of AGDP (primary agriculture excluding agro-industry) is below 10.0 percent (1996). There are, however, wide differences: in the larger, more urbanized economies, the share is around 5-8 percent as in Argentina, Brazil and Mexico, while in the smaller and poorer economies, it is around 24-37 percent as in Honduras, Nicaragua, Guyana and Haiti. In all cases, the participation of agriculture in GDP is much lower than its contribution to employment. For example, in Mexico, the sector contributes to 20 percent of the total labor force, but only 5.0 percent to GDP (1999); in Central America-57 percent of labor force versus 12-20 percent of GDP, and Paraguay-45 percent of employment versus 27 percent of GDP. This productivity gap reveals low returns to primary factors and modest investment levels. Figure 2.4 Rural efficiency and population 4000 70 60 - 9;C 3000 50 In ik ~~~~~~~~~~~~0 - 2 2000 -- 0 0 :30 CL ~~~~~~~~~~~~~~~~~~~~~20 O .5 1000 a. o C 10 . 0 _ OV (V 0 V I *- IV * 0° ( co . N = 0 ( 0 E Z) X a *- a.> X . C n 0 C 0 ~~~~~~. c 0*co co X EV = m m o E E .2 X E EE 0 E~~= E 06 0 _ Agricultural output per rural individual + Percent rural population 20 Source: Urban sector strategy paper of LCSFP, FY 2000. (dated January 6, 2000), para 32-33 8 3. Why Such Meager Results? The broad reforms left many structural distortions and regional disparities untouched. Sorely missing was the micro agenda for improving the competitive functioning of factor and goods markets, and for reducing the high inequalities. The private sector's perception of the risk of operating in rural areas remained high. Macro stabilization and trade liberalization were necessary but not sufficient. The focus of the macro reforms was right on restoring fiscal and monetary discipline that greatly contributed to reduced inflation rates and fiscal deficits. Reduction of trade tariffs promoted the integration of LCR economies in world markets, competitiveness and growth, e.g., the spectacular growth in non-traditional horticultural exports. In general, these reforms helped put in place a policy framework more conducive to growth and private sector involvement. These are positive developments. However, a stable environment proved to be necessary but not sufficient, as the rural sector remained relatively disconnected from the rest of the economy and the macro and micro agendas followed parallel tracks. In terms of its contribution to rural poverty, the structure of growth is as important as growth figures per se. In many cases agricultural growth was concentrated in the commercial sector and did not trickle down. By their very nature, macro reforms could not address the heterogeneity of the rural sector, the long history of in-egalitarian development and the deep-seated structural problems that inhibit efficient and broad-based supply response from millions of smallholders and rural entrepreneurs.2' Recent LCR experience shows that the positive impact of macro and trade reforms on promoting high and equitable growth largely benefiting the poor is limited when not accompanied by micro reforms. Such "second generation" reforms should strive at improving the efficiency and capacity of the local economy and institutional structures, fostering the competitive functioning of local markets, inducing a change of behaviors and facilitating access of the rural poor to economic assets, services, technology and infrastructure. Macro reform and sectoral policies did not always generate a supportive environment for agriculture. In some countries, for example Mexico and Argentina, macro reform did not bring stability or a supportive environment for agriculture until much later. Until 1994, Mexican agriculture suffered from high inflation and overvalued exchange rates, which acted as a deterrent to supply response. Moreover, in some cases, trade liberalization reduced protection at a time when world commodity prices were at historic lows, e.g., corn, wheat and coffee, and when many producers of import substitutes were (and are still) not competitive in domestic urban markets. Some countries also implemented explicit or implicit taxation policies towards the sector, through exchange rate regimes, industrial protection or direct measures such as taxation of export commodities (with strong comparative advantage) and direct protection of import-substituting food (with little comparative advantage). These protection and taxation patterns were highly inefficient. In a number of countries the incentive framework for agriculture remained relatively unfriendly, with negative protection rates and negative real prices to producers for most crops. In the context of a liberalized and open environment, these elements point to an implicit taxation of agriculture that may be generated by inefficient marketing channels, high transaction costs, unaccounted margins and concentration. There is a need for more analytical work that would enhance knowledge of the supply response determinants of the rural sector and the macro-micro linkages which, by nature, need to be adapted to each country's specific historical and structural factors. Government programs and subsidies may have skewed incentives. Many governments used subsidy programs to address poverty and compensate for taxation. Some programs had perverse effects. Subsidized directed credit through parastatals not only was highly inefficient in terms of its fiscal cost, delinquency rates and outreach capacity, but it crowded out and inhibited the development of local self-sustained savings and loan initiatives. Subsidies for investment and equipment are difficult to target and bear the risk of concentrating towards medium and large commercial farmers. This also drives land prices above the capitalized value of farm profits, induces 21 Source: Sources: Rural Poverty in Latin America, edited by Ramon Lopez, Professor, Department of Agricultural and Resource Economics, University of Maryland, and Alberto Valdes, Agricultural Advisor, World Bank, Washington DC, Macmillan Press Ltd, Great Britain, 2000, St. Martin's Press, LLC, United States, 2000, pp 2. Beyond Trade-offs: Market reform and equitable growth in Latin America, Nancy Birdsall, Carol Graham, Richard H. Sabot, editors, Inter-American Development Bank, Brookings Institution Press, 1998, pp 3. 9 concentration of land ownership and makes access to land by the poor more difficult (Colombia). Moreover, measures to improve productivity should be more closely associated with competitiveness factors as subsidies may skew the incentive system of the various crops and drive the supply response towards the signals provided by the subsidies rather than the markets. Access to international markets remains limited Market access to rich countries for the goods and services from developing countries remained protected, especially in agricultural commodities. World trade in agriculture grew by only 1.8 percent per year between 1985-1994 while trade in manufactures expanded by 5.8 percent during the same period.22 As long as the markets of developed countries remain closed or distorted, the agricultural growth required to lift people out of poverty in developing countries will be severely constrained. LCR countries would benefit by promoting a more active agenda aimed at removing barriers and distortions in developed countries' agricultural markets, through multilateral trade negotiations. High inequality prevents access to economic assets The rural poor have limited access to potentially lucrative economic assets, as well as to services, infrastructure and markets. Factor and goods markets remain segmented, shallow and non-competitive, such as land and finance. For example, land markets are not efficient, as shown by the high Gini coefficients. Rigidities in formal labor markets undermine employment growth and push the poor into less lucrative, informal labor markets. The development of rural finance is undermined by the high perception of risks of the rural economy and of the poor. With market orientation and fiscal retrenchment, government withdrawal left a void in the delivery cf public goods and services in rural areas. This vacuum was filled by private intermediaries who, while providing a critical link with the markets for small dispersed farmers, also established monopolistic practices and rents. The high inequalities characteristic of LCR hinder the poor's efforts at market integration. The high human cost of this negative impact is stark among indigenous peoples and Afro-Latin Americans who are the poor among the poor. Many have been forced to live on the fringes of growing cities and in remote, risk-prone rural areas. Poverty is much higher and more severe among these groups in, for example, Bolivia, Guatemala, Mexico, Peru, Brazil and along the Pacific coast of Colombia.23 Community participation approaches helped build social capital and deliver micro-projects but need to build bridges beyond the community There have been projects in many sectors, e.g., soil and natural resource management, delivery of basic services, land reform and land administration, education, health and infrastructure, designed on the participatory, community empowerment principles which are considered best practice throughout the Bank. While these projects have largely been successful on their own merits, there is a need to ensure institutional sustainability and to better link these community-driven projects to local governments, decentralization strategies and the rest of the economy. This approach would also need to promote producers' organizations and provide the critical linkages to the markets and integrated supply chains, where the private sector would play an increasing role in the development of the family farms sector. There are few examples of such development, e.g., the organization of indigenous peoples producing broccoli and snow peas in the Guatemalan Altiplano. But these cases are too rare. Weak property rights undermine the security andfungibility of assets. Poverty considerations and strategies would benefit if they were looked at not only from the perspective of available income but also of available assets. It would focus policy makers on the importance of property rights and a credible regulatory framework that would make smallholders' assets more secure and fungible. A significant proportion of small and medium landowners lacks legal titles to their land. Land tenure insecurity in turn reduces the collateral value of their land, limits their access to finance, and is a major contributor to low productivity and inefficiencies. Property rights and an adequate regulatory framework are the basis of functioning markets. Poor farmers' small and dispersed plots ranging from one to five hectares without a legally recognized title, do not permit them to consolidate holdings or to capitalize their values, nor do they provide the required security to invest in them. The same could be said for crop inventories, as property rights could protect not only ownership but also transactions, and allow farmers to sell their crop at the best moment (including future crops). Secure assets can represent an important element in reducing vulnerability and as part of a risk management strategy. Constraints to productivity on womenfarmers are worse. With migration, women are becoming more important in farming although national statistics underestimate their participation. However, the constraints on them are worse 22 Source: World Development Report 2000/2001: Attacking poverty. Oxford University Press for the World Bank; pp 180. 23 Source: Las poblaciones indigenasy lapobreza en America Latina Estudio empirico, (get specific rcfcrences). 10 than on men. See Appendix 5 on gender dimensions to development. There are several reasons that undermine women's on-farm productivity. Poor access to land and land tenure insecurity is a widespread problem but the insecurity for women is worse, as noted above. Gender discrimination (or bias in favor of heads of households, generally males) in the first wave of land reforms (in the 60s and 70s) has resulted in many women not receiving titles. Inflexible gender roles lead to inefficient labor allocation. Their access to extension is often poorer. Female illiteracy rates are higher than those among men, for example among indigenous peoples. Fertility rates for rural women are much higher than for urban women. This saddles them with a high dependency ratio. See table 1.4 comparing selected rural and urban indicators of well-being. The vulnerability of rural women is further exacerbated by domestic violence, higher levels of which tend to be associated with lower socioeconomic levels, higher unemployment and underemployment. Youth -at risk a dramatic example of the vicious circle of poverty and close rural-urban links. The typical profile of youth -at risk (generally age 12 to 24) is well known: poor quality of education and high rates of attrition from school; lack of employment opportunities except in poorly paid, exploitative settings; poor reproductive health and high rates of teenage pregnancy; unstable home environments, poor parenting, lack of supervision and guidance; and high levels of crime, violence, including domestic violence and abuse.24 A subset of this complex problem, youth violence, has increased dramatically. For example, Mexico City had no gangs in the 1960s, although they did exist in rural areas. By the 1990s, Mexico City and other major provincial, centers were plagued with them. They imported the Los Angeles-style cholo Latino gang.25 Adolescents (age 10-19) represent some 22 percent of the population in the region, varying from 17 percent in Uruguay to 26 percent in El Salvador.26 In comparison, it is nearly 14 percent in North America. The roots of this problem are complex, but poverty, drugs, rapid urbanization and migration (including return of illegal migrants from the United States) are core causes. The manifestation of these youth problems varies between rural and urban, and between gender. In rural Brazil, for example, a major problem for such youth is child labor in agriculture and mining (95 percent of boys in this risk category), and in domestic work (81 percent of the young girls who work).27 Youth violence, whether rural and urban, typically forces women to be "invisible" in public places, curtailing their access to various opportunities such as education, employment and community participation. The severe and growing problem of youth -at risk is a somber reminder of the urgency of breaking the vicious circle of poverty, rural and urban. The perception of risk by the private sector remains high. The development of the rural sector cannot happen without a much stronger involvement of the private sector. Therefore, the perception of potential and risks associated with the rural sector is a key factor in the incentive to invest. A more positive attitude towards the sector has been undermined so far by: (i) high transaction costs, both in terms of physical access and the cost of doing business generated by the local bureaucracy; (ii) deficient functioning of the legal system and of property rights that would permit secure transactions and better use of collateral; (iii) low level of education and technical assistance; (iv) low level of organization which limits the potential for economies of scale, quality and standards of production; and (v) government intervention which distorts market price signals. There is thus an important area of public intervention that could address the externalities and the barriers that prevent stronger private sector involvement and partnership. The Rural Non-Farm Employment (RNFE), an important sector, is also dualistic. The sharp inequalities of the farm sector are repeated in RNFE. The average Latin American share of the rural income coming from the non-farm economy is 40 percent (similar to averages in Asia and Africa) and represents about 35 percent of rural employment.28 However, the participation of the rich and poor differs markedly. The rich are relatively less dependent on RNFE but earn more; the poor are relatively more dependent than the rich, but they earn less-the so- 24 Source: Youth-at-risk in Jamaica: a Note, by Lorraine Blank, December 2000, pp L. 25 Youth Gangs and Violence in Latin America and the Caribbean: A Literature Survey, by Dennis Rogers, Latin America and Caribbean region, LCR Sustainable Development Working Paper No. 4, 19817, August 1999; pp I I. 26 Sources: Youth Violence in Latin America and the Caribbean: Costs, causes, and interventions, by Caroline Moser and Bemice van Bronkhorst, LCR Sustainable Development Working Paper no. 3, 19816, August 1999; pp 1. 27 Source: Gender Note on Child Labor and Street Children in Brazil, draft, by Emily Gustafsson-Wright and linin-Hnin Pyne, March 2001, World Bank, LCR Human Development; pp 6-8. 28 Source: Rural nonfarm employment and incomes in Latin America: Ovcrview and policy implications, by Tom Reardon (Michigan State University), Julio Berdegue and German Escobar (Intemational Farming Systems Research network (RIMISP), forthcoming in World Development, 29 (3), March 3001, pp 2, 10. II called "micro-paradox." The rich are more specialized as they have education and access to infrastructure and dynamic markets. The poor are more diversified but are locked in "refuge RNFE activities" characterized by low productivity and low return typical of stagnant markets. This "micro-paradox" finds its parallel in the "meso- paradox." This simply means resource-rich areas earn more from RNFE but they depend less on it. Well-endowed areas are doubly favored: from the supply side, they have the necessary infrastructure, and from the demand side, they have access to dynamic local and more distant markets. Resource-poor areas are doubly disfavored: they do not have access to the marketing infrastructure, and do not have local dynamic demand either. An important poverty subgroup with a high incidence of illiteracy-rural women-exemplifies the "micro-paradox." The RNFE is very important for them. However, given rigid gender roles in rural areas, their low asset base and the social constraints they face, women workers tend to be concentrated in low-paid RNFE. To the extent that women tend to be left behind in high out-migration areas, their case also exemplifies the "meso-paradox." However, the basic issue is not gender per se but the lack of assets that is in turn highly correlated with gender and ethnicity. High vulnerability to shocks among the poor constrains their productivity. Worldwide evidence clearly shows that poor people are least able to protect themselves against shocks, market-induced and natural. When calamity strikes, they are forced to resort to coping mechanisms that undermine their struggle out of poverty. In LCR, macro and trade reforms without adequate transition programs (or safety nets) intensified their vulnerability. Such high vulnerability completes the vicious circle they are trapped in. The high level of risk and the limited options available to poor farmers to cope with income and consumption variability have induced them into low-risk/low-return investment strategies that limit their economic opportunities and contribute to keeping them in a poverty trap. Natural calamities inflict tragedies on them. The loss of their few available assets takes away years of development programs. Add to this already difficult situation the prediction that with climate change, the frequency and severity of natural disasters will increase in LCR. See Appendix 6 FAO farming systems study. 12 4. Taking Stock - Why is Rural Development Still Important? LCR is at a crossroads. The rural economy will remain of strategic importance for years to come despite its declining share. But the irreversible forces of globalization and urbanization need to be harnessed to promote inclusive growth and access to opportunities through a balanced and holistic approach What Have we Learned in Rural Development? Need to find the right balance. This rural Action Plan argues that LCR cannot succeed in its poverty alleviation efforts without the contribution of the rural sector. However, finding the right balance is still a challenge. The development community has gone from one extreme to another, searching for the appropriate instruments and approaches to translate a holistic vision into effective actions. Too often, implementation capacity fell short of conceptual sophistication or poor policies kept good projects from bearing fruit. It suggests that the approach must be holistic but the balance between macro and micro and among different elements of the complex development agenda is critical. Sound governance through a competent and respected economic technocracy is also essential to deliver results on the ground. The 1970s. Back in the 1970s, practitioners recognized the complexity of the process; the need for integration among many things and at many levels, in particular policies, and the delivery of public goods and services in different sectors; and the need for strong coordination at the center and for decentralization in implementation.29 While Integrated Rural Development Projects were right about integration, they were wrong about the way they were implemented. IRDPs were implemented top-down, with no participation, no decentralization and in an adverse policy environment. However, there is much that we can recover from the concept of integrated rural development in the new context of decentralization, differentiation, democratization and better policy framework that characterizes most of LCR countries today. The 1980s and part of the 1990s. In the 1980s and part of the 1990s, a leaner but less integrated approach was undertaken in LCR. The focus was on rectifying the macro policies with the expectation that it would spur higher growth and its benefits would have trickled down and addressed rural poverty issues. A stable macro environment proved, however, to be necessary but not sufficient, as the rural sector remained relatively disconnected from the rest of the economy. It was not sufficient because by their nature, the reforms did not address the extreme heterogeneity of the rural sector and its regional variations. Moreover, market-driven reforms were not likely to have the same impact on small-scale producers of domestically consumed and subsistence commodities as on commercial agriculture. In addition, the reforms did not (and probably could not) resolve decades of structural and cultural limitations in the capacity of small and poor farmers to access production factors and markets. Moreover, local interventions and micro-projects may have been managed with an excessive local focus and possibly overlooking the importance of building bridges with the rest of the economy. The new millennium. The Bank's Comprehensive Development Framework (CDF 1998) recognizes the same complexity and the need to address it squarely. The current World Development Report (the WDR 2000/2001) categorizes the challenges in three complementary and mutually supportive areas: (a) promoting opportunity; (b) facilitating empowerment; and (c) enhancing security. The good news is that the potential for synergism is substantial. Experience shows that with a holistic approach, the whole is greater than the sum of its parts. So, although rural development is an old subject, a fundamental issue will be to find the right balance and develop the instruments to translate the holistic vision into effective actions and achieve synergy in a highly differentiated and dynamic context. How best to integrate the delivery of a complex package through adequate devolution of decision- making, is still a concern. Sustained, broad-based rural transformation approach must be holistic but the balance between macro and micro and among different elements of the complex set is possible, despite many pitfalls. While continual trial and error 29 Source: The Assault on Poverty: Problems of rural development, education and health. Published for the World Bank by the Johns Hopkins University Press, Baltimore and London, 1975; pp 3, 6, 30, 31, 35. 13 seems inevitable, some countries in East Asia have succeeded in achieving high, sustained, broad-based growth. Since 1975, they have succeeded in lifting some 370 million of people out of poverty, nearly twice the total number of poor in LCR (some 188 million in 1996). They combined equity with sustained high growth. They applied a holistic, market- and export-oriented strategy, supporting smaliholder agriculture, enforcing an equitable land distribution, and building the human capital assets of the rural and urban poor. They combined a holistic vision with solid implementation capacity. In sum, rural development can make the strategic difference. The stark contrast between the rich naturai resource endowment of rural areas, the opportunities provided by the macro and trade framework and the reality of much of rural life should be a call to action. That very contrast is also grounds for optimism if the existing opportunities can be harnessed and the existing development potential can be tapped. The region and the Bank have a unique opportunity. The response to the challenges of globalization, urbanization, democratization and decentralization will trace the development path of the region for decades to come. A rural strategy anchored in worldwide lessons of experience in rural development can make the strategic difference between a shared and sustainable or an exclusive and socially destabilizing growth path. Challenges and Opportunities The challenges and opportunities of globalization. The challenge is to access the expanding markets of a globalizing world economy to fuel competitive and broad-based rural growth in the region in a socially and environmentally sustainable way. Globalization can be a bonanza to the competitive but it intensifies the need to integrate the rural poor, since speed of adjustment is at a premium. It opens up possibilities of direct trading with final consumers, eliminating unnecessary intermediaries and reducing transaction costs. Heretofore unknown "e-trading" opportunities may provide new avenues of work. Market expansion will increase the elasticity of supply response but will also require a considerable effort of technical assistance, incentive schemes and information, as the barrier to entry, no matter how small, may be perceived as insurmountable. Competitiveness may force production patterns to be reviewed, including those for commercial farmers who may have engaged in productive activities in response to distorted market signals or public investments. The challenge and opportunities of urbanization. The challenge is to integrate the rural poor, leaving agriculture in a way that not only benefits the migrants themselves but also the secondary towns and cities to which they migrate. Rural-urban migration can exacerbate urban sprawl in areas already struggling with growing slums and violence. It can, however, be managed in a win-win fashion that facilitates the transition from agriculture in a way that relieves pressure from degrading soils, builds human and social capital and benefits the local economies in which migrants settle (and not necessarily the large towns). The growing connections with the off-farm economy will also eventually have beneficial effects by eroding differential returns to labor and capital across sectors. Migration flows and non-farm employment will likely continue to expand in the years ahead; it should not be resisted but rather be better understood and accompanied. The time has come to more effectively link urban and rural policies in a context where agriculture, services and infrastructure strive to create the conditions for a more integrated approach to local development. It also makes it possible to more effective address marketing issues, and more effectively integrate labor markets, and pursue economies of scale and private sector development. In the end, reducing rural poverty will also benefit urban poverty, but addressing poverty should not be exclusive to one approach or the other. The challenges and opportunities of democratization and decentralization. To face these challenges and opportunities, LCR has a strong basis to build on. The region is witnessing an increasing trend towards democratization and decentralization. The pace and form of the decentralization process is likely to be one of the most important factors in determining opportunities and limitations for regional developmene90. This trend means that civil society will intensify pressures on the public body to pursue greater accountability and more egalitarian and inclusive policies. This will also profoundly modify the traditional roles of the public administration at its different sub-national levels and will force institutions to redefine themselves. In many countries the driving force of decentralization has been the political pressure to respond to an increasing number of local powers and the forging of new relationships with states/departments, municipalities and civil society, in an attempt to move away 30 Source: Mexico - Institutional Coordination for Regional Sustainable Development. Raffaello Cervigni, the World Bank, April 2000 14 from traditional top-down patronage. This also imposes the compelling need for more effective coordination among government programs and increased transparency through more participatory approaches and better information. The challenges and opportunities of a highly differentiated sector that requires adapted policies and programs. At the risk of over-simplifying, the sector may be divided into three distinct sub-groups, but with considerable osmosis among them: * Commercialfarmers and rural entrepreneurs. They still represent a minority. They are technologically advanced and competitive. They benefited from past reforms and are mostly driven by export markets. A number of them are engaged in contract farming and are able to access services and financing directly through private sector partners. They derive most of their income from agricultural activities or agro-processing; they represent the engine of agricultural growth and generate demand for wage labor. Their success shows the substantial productivity potential that exists in agriculture. These are not necessarily large farmers, which shows that the possibility to access output markets, factor markets, technology and credit may be more important than being large or small. However, the small-farm family sector may still offer the greatest potential in terms of employment and productivity increases. * Smallholders of low productivity in a state of transition. They mostly produce for the local market or for subsistence. Their productivity level has not kept pace with the other sectors of the economy. Many see migration as a possible opportunity, not necessarily because they have no production potential, but because poor policies and little attention by public programs have left them without access to key markets (land, financial services, produce), basic infrastructure and education. This is also the group that has experienced increasing participation in the non-farm sector, services and transformation. Those who live in areas of substantial agriculture and RNF potential may be made more productive by enabling them to access better technology, diversify into higher-value crops or into activities facing expanding demand. Agricultural productivity, combined with a better functioning of markets, will be the key challenge for this group. It is a group in transition that will represent the key to the sector's future. * The severely marginalized These are the landless farm workers and those who live in areas of low agricultural potential (risk-prone or marginal agriculture, often high-altitude, forested and watershed areas). This group also has limited off-farm opportunities, is often a net food consumer and in most cases represents the extreme poor. While their agricultural productivity can be improved through better techniques for their specific cropping patterns (mostly non-tradable, coffee and small livestock), natural resource, market and infrastructure limitations require greater reliance on social safety nets as part of a survival strategy. Subsistence farming characterizes the economic base of about 50 million people, about 30 million of whom are indigenous, living in high altitudes, hillsides, and sub-humid drought-prone lands. The improvement of the well-being of indigenous peoples and Afro-Latin Americans must take into account their strong communal traditions and cultural values. Why is Rural Development of Strategic Importance? Agriculture and the rural sector will remain of strategic importance for economic, social and political reasons. The high rate of urbanization notwithstanding, the strategic importance of agriculture and the rural sector remains. While the rural sector confronts many challenges, it also presents many opportunities that make it potentially attractive to investors and to rural dwellers, if the right mix of policies, institutions and support programs can be put in place. Agricultural growth and rural employment (both farm and non-farm) will remain of central importance to LCR economies. The contribution of agriculture remains important. Despite their modest contribution to GDP, primary agriculture accounts for a large share of the labor market: 20 percent in Mexico, 57 percent in Central America. However, when agriculture is broadly defined to include agro-industry, its share of GDP is much higher. For example, in Argentina, Chile, Brazil and Mexico (which together account for more than 70 percent of AGDP of LCR), agriculture in the broad sense accounts for around 40 percent of GDP (1996). Opportunities offered by the sector are still large and untapped. According to the International Food and Policy Research Institute (IFPR1), agro- industry in LCR can generate increases in activities three to four times higher than AGDP.31 See Appendix 2 on taxonomy showing the relative importance of agriculture, the rural non-farm and the rural-urban population balance in selected countries. Moreover, agriculture is a major contributor to exports and still has a great potential to expand 31 Source: A 2020 Vision for Food and Agriculture and the Environment in Latin America IFPRI 1995. Washington D.C. 15 if international markets of developed countries could be made less distorted and closed. In the 1990s, primary agricultural exports as a percentage of total exports averaged 25 in Argentina (58 percent if one includes the processed portion as well), 17 in Chile, and 10 in Brazil. In Mexico, agricultural exports to the United States in the six years following NAFTA increased by 70 percent. Finally, recent ERS-USDA projections to 2010 point to strong international trade growth for most agricultural products. In the short term, low prices are stimulating a picking-up of the demand, the reduction of world crop inventories and a recovery of agricultural commodity prices over the medium and long term. Rural transformation is fundamental for successful industrialization. Worldwide experience shows that high- productivity agricultural transformation has fuelled the growth of most of today's high-income industrialized countries. Urban demand for processed foods is rising. Continued high urbanization in LCR means a growing market for processed food for daily consumption, higher-value crops linked to agro-processing and downstream marketing. The rural economy has a substantial reservoir of productivity to be tapped and could greatly contribute to the development of other sectors. However, trade liberalization, while it facilitates exports, also intensifies competition from imports; hence, the urgency of removing barriers to high productivity and competitiveness, promoting investments, and private sector involvement. Higher incidence of poverty in rural LCR. The share of the rural population is projected to fall from 25 percent (2000) to 19 percent (2020), but the absolute numbers are expected to remain roughly similar: from 128 to 126 million respectively. See table 1.1 on population estimates for LCR. Rural areas have the highest incidence of poverty (63 percent). Social and economic indicators in rural areas are low and much worse when compared to urban areas. Moreover, rural poverty disproportionately afflicts some groups. In high rural-urban migration areas, the elderly, women and children are left behind. There is also a close relationship between rural poverty and ethnicity. The majority of indigenous peoples (80 percent of some 19-34 million), found mainly in rural Mexico, Peru, Colombia, Bolivia, Ecuador and Guatemala, are poor.32 Destabilizing factors (violence, drugs, unrest) often find their origins in rural areas and there is a danger of increasing dualism in agriculture. This situation can become socially and politically unsustainable and can unleash destabilizing forces on a region already prone to political instability and violence. Ignoring this fact will only increase downstream problems in the medium term. Rural development has an important role to play in promoting the sustainable use of natural resources. The competitiveness for the region will have to continue to draw upon the rich natural resource base, as export figures show. Moreover, LCR has about 21 percent of the world's total of potential arable land, 12 percent of its cultivated land, 46 percent of tropical forests rich in biodiversity, 31 percent of the world's fresh water and 48 percent of the developing world's total annual renewable water resources. It has a diverse and complex range of farming systems, a total of fifteen. See Appendix 6 on the FAO farming systems study. However, environmental degradation is high and is compounded by poverty which exacerbates enormous economic and social costs. Environmental (or natural resource) degradation is a problem throughout agriculture including better-endowed areas as well, e.g., soil degradation in the Cerrados in Brazil33. However, the case of risk-prone areas dramatizes the vicious circle between poverty and environmental degradation, e.g., Northeast Brazil, Yucatan Peninsula, Mesoamerican hillsides from Central Mexico to Panama and the Central Andean Altiplano. The main linkage is through deforestation and soil degradation. There is a high correlation between rural poverty and soil erosion as most of the rural poor live in erosion-prone lands. High population growth in these marginal areas forces the poor to diminish the fallow period and pushes the agricultural frontier into forest areas and reserves. They do so for lack of natural resource management and soil-improving technologies, thus triggering further soil degradation which then reduces land productivity and further deepens poverty; hence the vicious circle. The high social costs of widespread rural poverty-the case of illicit drugs. The high profitability of illicit drugs acts as a powerful magnet to too many rural poor. An important supply comes from areas dominated by indigenous peoples in the Andean countries of Bolivia, Colombia, Peru and some parts of Mexico. The illicit drug industry represents 5-6 percent of the three Andean countries' GDP (1996). Export earnings represent about 70 percent of legal exports. The rate of return for the supplier is 2-5 times higher than that of traditional crops, and eradication has 32 Source: Rural Poverty in Latin America and the Caribbean, By Alberto Valdes and Tom Wiens, May 30, 1996, Paper delivered at the Annual Bank Conference on Development in Latin America and the Caribbean; pp 7. 33 Source: The FAO Farming Systems Study, chapter on Latin America and the Caribbean, section 6.1 on the Frontier Tropical Savannah System, draft November 2000. An estimated 40 million ha of the Cerrados have been severely degraded because of poor land management. 16 proved to be an elusive goal.34 However, this phenomenon has severe drawbacks as many farmers live under permanent threats and insecurity while drug lords or the guerilla capture the profits. Besides, many are displaced, adding to social unrest, poverty and humanitarian issues. Thus, while drugs are certainly not the panacea for poor farmers, the poor have turned to cultivating illicit drugs because of the lack of alternative opportunities and the prevalence of institutional vacuums in many of these areas. To society at large, the scourge of drugs is a somber reminder of the disintegrating impact that widespread and unrelenting rural poverty can have on society at large. The case of illicit drugs in a region already prone to high instability and violence, where trust in officialdom is low, shows that rural poverty can undermine the social fabric far beyond rural areas. 34 Source: Illegal drugs in the Andean countries: Impact and policy options, report no. 154004-LCR, Country Department III, Latin America and the Caribbean region, the World Bank, January 22, 1966, confidential draft, Executive summary, pp viii, 7-9. 1 7 5. How Does the Bank Propose to Improve the Region? The Bank's objective is to help countries in LCR reduce rural poverty. For this, it proposes a strategy and an Action Plan to revitalize rural areas with a view to promoting rural well-being, including welfare and employment, both on- and off-farm. This revitalization will be achieved through increased agricultural productivity, more competitive and efficient factor and output markets, better access to assets, services and infrastructure in the context of the "rural space, " social and human capital development, sustainable use of natural resources and improved risk management in the face of economic and natural shocks. Objectives The objective is to reduce rural poverty and promote broad-based growth in the context of the sustainable management of natural resources. Helping LCR meet these challenges is a unique opportunity for the Bank to fulfill its corporate mission. Rural poverty and inequality will remain one of the most pervasive and challenging development issues for a region on its way to development. Reducing poverty and promoting sustainable growth is one of the most compelling public goods that govemments ought to deliver. In helping govemments fulfill this essential role, the Bank would help trace a path for other, now less developed countries during the coming decades. Strategic Thrust The thrust of the strategy emphasizes the holistic nature of rural development, as opposed to focus on a single sector- agriculture. The strategy is to build on successful experiences and scale up what is working well, strengthen the missing links and work better together across networks so as to better balance the different elements of a complex package. The different components of the Action Plan are complementary and mutually reinforcing, and must be implemented in a coordinated and integrated way. The implementation strategy also recognizes the wide variations and disparities among LCR countries and the need to include differentiated approaches directed at different population groups. Finally, it stresses the urgency to go beyond vision into action. An adequate overall macro and policy framework will remain essentiaL This is critical for dynamic rural development and agricultural growth. A stable macroeconomic framework and a competitive exchange-rate and trade regime determine the incentive structure within which the sector operates. It is important that price signals send the "right" messages and that govemment intervention does not crowd out private sector involvement or distort the allocation of production factors. Govemments should pay more attention to the subsidy instruments that they use so that these are better targeted and induce beneficiaries to change their behavior, facilitate increased productivity and competitiveness or address extemalities. This means a greater focus on and analysis of the incentive framework for the sector and the functioning of markets. Need to better address rural-urban dynamics. While an important preoccupation of policy makers is to maintain rural-urban migration at manageable levels, this migration will continue. More training and education opportunities for the rural poor are important to facilitate their absorption into other sectors of the economy. There is a close synergism between agricultural and rural non-farm growth. We need to recognize that agriculture and off-farm activities are mutually dependent and complement each other in the income sources of the vast majority of smallholders. Broadening the access base and ownership, combined with increasing urbanization, can generate opportunities for higher income and employment and fuel growth and transformation. However, outright promotion of migration as a rural poverty alleviation strategy is not viable because it would exclude from a rural modemization process a large smallholder sector with growth and employment potential. For the millions who continue to remain in rural areas, the improvement of living conditions will depend on improvements on several fronts. These include intensifying smallholder agriculture and increasing productivity; providing infrastructure and services; improving access to assets such as land, education and financial services, and to markets; ensuring the sustainable management of the natural resource base on which they base their livelihoods, and providing better risk management tools. Fostering integration through regional development and shaping a new "institutionality. " A "rural space" approach based on regional development will provide the underlying vehicle to pursue sectoral integration. This requires improving the absorptive capacity of secondary towns in the context of increasing urban-rural integration and 18 interaction. It also calls for investments in basic infrastructure, promotion of new off-farm opportunities, better integration with labor markets, continued emphasis on community-driven development, municipal strengthening and the building of social and human capital. It also allows for better integration of environmental issues in an effort to build consensus around possible "win-win" opportunities. In this context, a new "institutionality" will need to be built around the concept of increased participation by local actors, farmers' organizations, civil society, local governments and the private sector. This means a revision of roles where beneficiaries of government programs become clients and take leadership of regional planning and priority-setting, guide and negotiate local development processes and create the conditions for greater accountability and better governance. Need to build bridges beyond the community level. Community participation approaches helped build social capital and proved to be an effective mechanism for delivering micro-projects and productive investments. However, to ensure institutional sustainability, there is a need to link these community-driven projects to local governments and integrate them better with existing national decentralization strategies. This approach should also build bridges with the rest of the economy, promoting producers' organizations and providing the critical linkage to integrated supply chains, where the private sector would play an increasing role in the development of the family farms sector. Productivity, competitiveness and increased private sector involvement are key engines of growth. Agricultural productivity, competitiveness, access to technology and markets will remain critical for many producers regardless of their size. However, in many cases the smallholder sector working for the domestic market should be subject to more attention and support in view of its potential and untapped contribution to growth and employment. Agricultural growth in LCR has not been sufficiently sustained or broad-based to contribute to any significant poverty reduction, and has essentially been generated by the export-driven commercial sector. Conditions for increased private sector involvement will need to be studied and barriers removed through private-public partnership. Need to better address the sustainability issue. Productivity growth, together with rural non-farm employment, could be the engine of poverty reduction, but it needs to be achieved through sustainable natural resource management. Any growth at the cost of natural resource degradation is a short-lived victory. If nothing else, degradation weakens the resource base, exacerbates the destructive impact of natural calamities, and worsens the vulnerability of the poor. Agriculture is one of the sectors where the importance of integrating environmental and economic policies is most obvious. Production-linked support policies, or subsidies directed to reduce agricultural production costs, can lead to excessive pressure being placed on scarce resources (water, forest, land) and to skewing the incentive against the most optimal and sustainable use of these resources. However, agriculture is also the sector where the trade-offs between poverty and environmental issues are the most difficult to solve in the short term, and may require well-thought-through transitional or mitigation measures. Need to build social and human capital through a culturally- and gender-sensitive approach Education and capacity building should be seen as a priority for the rural population. The high rate of migration emphasizes the critical need to better equip the poor so that their skills become an asset in accessing better employment opportunities in increasingly urbanized economies. Governments should also realize that they may be made much more effective if they can work in the context of a dynamic, organized and developed civil society. It is also clear that the pervasiveness of poverty rates among ethnic minorities and the increasing role of women in rural society raise the issue of social inclusion and equal access to productive factors and assets. Government programs should devise approaches more adapted to cultural preferences and gender needs. The role of young people also needs to be recognized much more pro-actively as the engine of the future transformation of the rural sector. They represent a dynamic force to introduce new technology and establish networks and knowledge, and a development potential that should not be lost or left in the same poverty pattern as those of the previous generations. Social safety nets and risk managementfor the severely marginalized It is critical to improve the ability of the poor to manage risks. LCR faces high volatility with respect to national income and expenditure, and high vulnerability with respect to natural disasters. Moreover, its increasing integration in globalized markets makes it particularly exposed to commodity price volatility. Time and again, worldwide experience has shown that the poor have little protection against market-induced shocks and natural calamities.35 Moreover, there is a group of rural poor who will remain marginally productive and will not be able to benefit from the rural non-farm economy or to migrate. 35 Source: Securing our future in a global economy, by David de Ferranti, Guillermo E. Perry. Indermit S. Gill, and Luis Serven. World Bank Latin American and Caribbean Studies, the World Bank, 2000, Chapter Two, T able 2.1 19 Members of this group are typically older and female heads of households and farms in poorly-endowed areas. For this group, social safety nets and risk management tools combined with the promotion of income generating activities, both off-farm and on-farm, are critical to assure basic, decent living standards. The Action Plan Enabling factors and lines of action. The Action Plan proposes to build on and scale up what works or can be improved. It also provides new elements of a holistic approach that provides better linkages between the macro and micro levels, and between design and implementation capacity. The proposed Action Plan contemplates a series of priorities organized along a two-pronged approach. Three enabling factors may be considered as critical underlying elements in the strategy's implementation effectiveness in any country. Six priority lines of action describe the possible applications subject to country circumstances. Table 5 indicates possible levels of priorities in the various countries or subregions. Appendixes 4 and 9 also present practical cases of existing projects, best practices and experiences that can provide the platform for scaling up what works well, building the links with other sectors or new elements worth developing along the lines of the proposed strategy and Action Plan. Enabling Factors Maintain a supportive macroeconomic and trade environment. The macro agenda is necessary for rural growth and transformation. The Plan advocates a more pro-active approach of the rural network in the discussion of policy issues and programs that affect the sector and increased collaboration with PREM. Of key importance is the integration of rural issues in major country-level initiatives, e.g., CASs, PRSPs, and poverty assessments. Stronger analytical underpinnings is also needed for our operations and for the policy dialogue. The Bank should undertake more analytical and sector work to provide a better understanding of the factors that determine rural poverty, the incentive framework for the sector, the functioning of labor and financial markets, the land reform agenda, the marketing of products, the decentralization processes for the sector, etc. Promote a new "Institutionality" for the sector and good governance. The combination of increased decentralization and the development of local democracy are key elements to progressively create the conditions for greater participation and accountability at the local level. This will enhance the effectiveness of government programs, increase ownership and make corruption more difficult. The debate around the issue of how to better articulate the social demand for services with the institutional supply, calls for a rethinking of the respective roles of the public sector (both central and sub-national governments), civil society, interest groups, private sector, etc. As the balance of power and the division of responsibility among (and within) levels of government changes, so does the nature of institutional structures and coordinating problems. A new "institutionality" for rural development is needed to address the new territorial approach and generate better accountability of government programs. But it is also needed to generate local leadership based on cultural values, social structures, traditional models, political realities, etc. This will help create the conditions for a better definition of local goals, differentiated policies, institutional strengthening, local democracy and the means required to access government programs or attract the private sector. The establishment of plural and inclusive fora for regional development planning, such as the Regional Councils in Mexico, could be seen as a response to the need for mobilizing and coordinating public and private resources required to address local development needs36 in the search for a new "institutionality." Develop a credible regulatory framework. This includes a number of elements conducive to more effective private sector participation and better functioning markets. The perception by the private sector that the judicial system works and that there is a set of viable and enforceable "rules of the game" will gerierate more trust in the sector and reduce the impression of risk. This includes: (a) establishing better-integrated price and market information systems; (b) developing appropriate regulatory frameworks, tools and enforcement capacity as critical factors for secure transactions, inventory-based financing (warehouse receipt systems), crop insurance, non-bank financial institutions, contract farming, and "collateralization" of assets; and (c) facilitating the development of commodity quality standards based on industry participation and needs, and the development of food safety norms. 36 Source: Mexico - Institutional Coordination for Regional Sustainable Development. Raffaello Cervigni, the World Bank, April 2000 20 Lines ofAction Raise productivity and competitiveness as the engine of agricultural growth. Agriculture, as the productive sector per se, will remain the main activity for large segments of the rural population and the engine of agricultural growth. Agricultural growth will represent a key element of a poverty reduction strategy and will need to be generated through factor productivity increases. Broad-based growth also requires leveling the playing field to improve the access of the poor to services, infrastructure, markets and technology. Possible types of intervention are: * Public/private alliances in technology generation and transfer. The Bank will adapt important design principles successfully implemented in recent years (e.g., Colombia, Venezuela, Ecuador, Peru, Nicaragua) to promote the interface between the public and private sectors for more effective delivery of technology generation and transfer. Competitive grant systems for technology generation and-transfer are implemented on a demand- driven basis by locally-run networks and institutions and have proven to be effective tools in better assisting smallholder agriculture and women's needs. These promote participation, links and better access to information among various actors: central governments, state governments, municipalities, private sector, firms and farmers. Competitive strategic alliances are also generated with international private partners and research organizations, thereby ensuring access to the latest knowledge for the sector (biotechnology). These systems have proven to be able to leverage considerable additional financing from the implementing agencies, thereby activating unused capacity in the system. * Smallholder/private business alliances in the production-marketing chain. Governments should encourage productive alliances with the private sector through mechanisms that facilitate small farmers' integration in the supply chain, their access to land, and organizational capacity (Colombia). Contract farming has been expanding lately and is an important tool in modernizing agriculture. It provides the crucial linkage among input suppliers, credit providers, crop purchasers, insurance and farmers. It helps farmers reduce risk and facilitates access to capital and technology by young farmers who want to enter the business. Now more than ever, smallholders must be integrated in a chain within which scale and market power are being increasingly concentrated at the retail end-supermarkets. The Bank will identify changes in the regulatory and incentive framework that promotes such alliances. * Integrated water resource management for competitive agriculture. While past interventions in irrigation programs have largely been successful in increasing productivity, the thrust of the next generation of irrigation programs should be in terms of supporting an integrated approach to sustainable management and use of water resources. Such an integrated approach would improve the efficiency of water use through increasing yields per unit of water used and through conversion to higher-value crops. This would require increased attention to agricultural competitiveness and more efficient cropping patterns; increased decentralization of water management to local users in the context of watersheds (water users' associations and river basin councils); the further development of water markets; and the modernization of off-farm and on-farm irrigation systems. The Bank will draw upon its worldwide experience and expertise to assist governments and stakeholders in designing and financing such an integrated approach. Pursue a systematic approach to improve the competitive functioning of factor and goods markets. Efficient and competitive markets are the lifeline of any well-functioning market economy. They provide the critical links through which resources flow in response to constantly evolving market signals. Their functioning largely determines whether growth is efficient and broad-based. For this to happen, factor markets (land, financial services, labor) and output markets must function competitively and efficiently. Their development is critical for agriculture in its transformation from subsistence to commercial. In LCR, rigidities, weak or non-existing property rights, monopolies and other forms of market collusion abound. These undermine the struggle of millions out of subsistence systems and poverty. * Land The Bank will build on a number of positive experiences in both land administration and land reform throughout LCR (e.g., Central America, Argentina, Brazil and Paraguay). In general, land regularization, certification, titling and registry have allowed greater tenure security and improved land market transactions. Even in very sensitive areas (Northeast Brazil, Afro-Colombian communities), the market-assisted approach has performed better than traditional approaches in terms of facilitating access to target groups, and created more transparency on the quality and prices of land transferred. In addition, land regularization projects generate basic spatial information essential for any kind of economic development plans, e.g., siting of roads and public services. In so doing (and to the extent that they are constantly updated), they benefit not only the efficient operation of land markets but also the process of development. Land programs can be effective not only for the 21 inclusion of the poor in the productive process but also as an effective tool to boost the competitiveness of the family farms sector. Moreover, recognition by credit institutions of property rights as loan collateral can facilitate access to financial services. Furthermore, access to land is not necessarily limited to ownership. Land markets should be developed so as to offer different tenure regimes including rental and long-term contracts. * Ruralfinance. Success in rural finance interventions has been elusive but new elements bring encouraging signs that governments should build on and expand. The demise of the directed credit approach, the inefficiency of public banks and the absence of the formal private commercial sector (despite macro and financial sector reforms), makes rural financial services a strongly missing market. This restricts the economic opportunities of small enterprises, prevents access to the inputs so badly needed to evolve along the technological curve, and hampers movements towards more lucrative off-farmn activities. The only sector that somehow managed to survive and proved resilient to financial crises and government withdrawal is that of non-bank savings and loan institutions. There is an urgent need to build on the few micro-finance operations in the portfolio (e.g., Brazil, Mexico and Argentina). They are trying to find new solutions to the development of mechanisms to reduce the transaction costs of financial services, improve the financial sustainability of non-bank financial intermediaries and expand outreach to low-income rural communities. The Bank can finance technical assistance and capacity building programs that seemed the most appropriate instruments to strengthen local institutions on the basis of "mutualistic" approaches, maintaining financial discipline based on savings and loans and access by the poorest groups. Given the pivotal importance of rural finance for poverty reduction, the Bank needs to engage client countries in a more pro-active dialogue and action. See Appendix 7 on a rural finance strategy. * Product markets. In many areas, especially where there is not a sufficient critical mass of production that can promote competition among buyers, or where there is not a sufficient level of producer organization, marketing has organized itself along oligopolistic lines. Moreover, deficient storage systems and the absence of well- functioning warehouse receipt systems weaken farmers' bargaining capacity and oblige them to sell when prices are lowest. Poor areas and domestic marketing channels are the most affected. The Bank can help identify the mechanisms and regulations that could revive the competitive and efficient market functioning. It can also promote local commercial organizations, micro-enterprise development, farmers' associations, transfonnation activities that can add value to primary production, cooperative organizations for services, and the development of systems for inventory financing. It can also help establish integrated price and market information systems. By making this information more accessible to all strata of society (producers, operators, consumers, investors and policy makers), it would contribute to a critical public good element in the functioning of markets. Furthermore, by facilitating the development of commodity quality standards based on industry participation and needs, and the development of food safety norms, the Bank can also facilitate the modernization of the sector and the access to markets. Finally, it can develop projects that would take advantage of the possibilities offered by "e-trade," opening up new ways for producers' organizations and municipalities to access new market opportunities and bypass the grip of intermediaries. Foster a "rural space" approach and regional development beyond agriculture. Community-driven development would be pursued as an important platform for enhanced participation, social capital and local micro-project development. However, its concept would be expanded so as to build better integration with municipal development, markets, micro-enterprises, natural resources management, alternative opportunities, access to services and private sector development. Non farm employment would be promoted as a vehicle to broaden approaches beyond the supply side only or the local market. (Appendix 9 documents best practices and case studies in non farm employment creation in LCR). This means repositioning rural development in a regional context where the "rural space" would be the underlying factor for broad-based rural transformation and for the development and strengthening of local institutions. An increasingly convincing argument points to the need to focus development efforts in the context of a territorial approach that derives from the increasing trend towards decentralization, democratization, municipal autonomy and local participation processes. It will require effective cross-sectoral participation and a strong demand-driven approach since priorities will be defined locally according to social values, agro-ecological conditions and the regional economy. This will provide the guiding thread that will ensure better consistency, economies of scale and synergy of future interventions. * Community-empowermentprinciple wvorks. A hallmark of many projects in LCR (e.g., Northeast Brazil, Mexico, El Salvador, Guatemala, Honduras, Bolivia, Peru) is that they are built on the community-empowerment principle which, according to evaluations and anecdotal evidence, works both in terms of process and product. These community-driven development projects seek to better target funds to beneficiary groups and more cost- effective use of the resources in ways that are considered of local priority. They build human and social capital 22 and facilitate the establishment of structures maintained and operated by the beneficiary communities. They also have political recognition and support which are essential for their sustainability and replication elsewhere. Central and/or state governments and donors provide the crucial enabling environment in the sense that they promote the strengthening of local institutional structures. While local responsibility is promoted, fair and transparent "rules of the game" are put in place which are accepted by the local communities and applied in a consistent fashion. In short, the approach strengthens local governance and makes the delivery of productive projects, small infrastructure and services more effective. The Bank intends to draw upon this rich experience to promote participatory development. * Promote municipal and regional development. This approach inevitably associates urban centers and rural areas in the context of a continuum of mutually reinforcing and fully integrated activities and markets. This perspective makes it possible to look at broad-based rural development strategies from a new angle. This angle is based not only on agriculture but also on off-farm activities; not only on production but also on marketing; not only on productivity but also on income and total welfare; and not only on dispersed groups and communities but also on the existence of ethnically cohesive populations. In this respect, public works in small and medium municipalities, rural water supply, rural roads, local infrastructure and services, can go a long way in rendering rural areas more attractive. In so doing, they would contribute to rural development, creating an environment conducive to local employment, facilitating the diversification of the rural sector outside agriculture, and reorienting population movements for the benefit of the local economy (Mexico, Brazil). It also means a stronger emphasis on building municipal capacities and institutional strengthening programs. Regional development-as opposed to micro-project scale-would provide a new vision to build on and scale up community development programs. It would provide the critical link with municipalities, the economies of scale necessary to attract the private sector, the connections of rural areas with the rest of the economy, and thus help extract the poor from poverty. To realize the promise of regional development, the Bank needs to build internal and external cross-network partnerships including ones at the different levels of government. Manage natural resources in a sustainable way. Finding win-win combinations for conservation and development is at the heart of sustainable NRM. It means that more attention ought to be devoted to the generation and dissemination of alternative technologies and approaches to conventional agriculture that can demonstrate their viability and prove that they can be financially attractive. Environmental mainstreaming into agricultural policies needs to be pursued with the full participation of the main actors-the producers-and will require ownership on their part. Producers are well aware of the serious threats that soil erosion, degradation of landscapes, and pollution pose to their standard of living and to the sustainability of their activities. However, in many cases the lack of access to better alternatives and opportunities and the weakness of property rights leave no choice but short-term approaches to a survival strategy. This will require the elaboration of more differentiated approaches combining elements of policy, technology, education and access to alternative options, according to local circumstances. * Strengthen natural resource management, particularly in risk-prone areas. This topic is critical for sustainable development, but it presents particularly acute trade-offs for the rural poor in risk-prone areas. A recurrent one is the potential trade-off between short-term private benefits and long-term social costs. Therein lies the main challenge of promoting NRM and rural poverty reduction at the same time. NRM is conflict management par excellence. Finding win-win combinations for conservation and development is at the heart of sustainable NRM because survival is at stake. Here too, the Bank can draw upon a number of project-level successes that have developed win-win solutions for soil conservation and yield increases for small farmers organized by micro- catchments such as those in Brazil (Parana and Santa Catarina), Chile (Secano), Mexico (Oaxaca), Bolivia, Colombia, or through forest communities, e.g. Brazil (Minas Gerais) and Mexico (Oaxaca). But the Bank should do much more. A continuing concern is how best to upscale impact by mainstreaming conservation into development. The search is on for instruments capable of better integrating cross-sectoral issues and multi-level interventions. There is also the need for determining relative priorities in packaging interventions in soils, water and watersheds, flora and fauna in protected and non-protected areas. The Bank can work with governments and other partners in developing land conservation programs, management agreements through regional development approaches, and initial conversion subsidies to support the shift towards environmentally-friendly techniques or organic farming. Appendixes 4 and 8 on selected issues in natural resource management present key findings from a review of the sector, including the rationale for Bank involvement in forestry in LCR. * Global Environment Facility (GEF) plays an important role. GEF projects can play an instrumental role in facilitating better mainstreaming between conservation and development. In the context of scarce resources it 23 will also be important to use GEF resources in a way that creates the greatest leverage and impact, through increased blending with Bank loans and partnership with other players. Build human and social capital. LCR governments should consider investments in this area as powerful means to poverty reduction in a region with high rural-urban migration. Evidence from developed countries shows that a critical factor in reducing income disparities between the urban and rural sectors has been a flexible and dynamic labor market, associated with access to education. Education has been shown to be an important escape route from poverty and is fundamental for opening doors to a better life. At the same time, building social capital at the community and regional levels can be a powerful instrument to increase the organizational capacity, social cohesiveness and intensity of interactions in rural areas. Moreover, rural poor, who tend to live far from and have little access to hospitals and health centers, receive relatively low-quality care. This is key to a dynamic sector that can participate more actively in the economic life of a country. Expanding the delivery of basic education and health services. Education should be viewed as a priority for the rural population, especially education for girls. The Bank should focus on developing synergistic cross-network partnerships among the different sector units operating in rural areas to promote human capital development. It should build on the community-managed school approach pioneered by the EDUCO project in El Salvador (also extending to Guatemala and Honduras) that has yielded substantial results in terms of improved attendance and retention of teachers and students alike, increased enrollments and attainment of higher educational standards. The Bank should also promote an important complement to education, namely assistance to reduce infant and child malnutrition and high dependency ratios, particularly among certain groups and regions. A combination of lower fertility and better job options for women can help reduce fertility rates and improve their children's health and education prospects. * Promoting social inclusion while respecting cultural diversity of certain groups. Indigenous peoples and Afro- Latin Americans shoulder a disproportionate burden of rural poverty. Governments should develop inclusive approaches to assist them. The Bank can draw upon the region's community empowerment approach that is well suited to working with these communities. Important activities have been the promotion of communal land titling (Colombia), integration of agro-forestry with NRM (Peru), and development of non-timber eco-products, eco-markets, eco-tourism, organic coffee (Mexico, Panama, El Salvador). Some projects combine several of the above objectives and are more specifically targeted to indigenous peoples' development (Ecuador, Argentina). In LCSHD, efforts would be pursued to reach indigenous peoples through bilingual education programs. The strengthening of social capital and targeted interventions which are more adapted to the cultural preferences and values of ethnic groups, will continue to be an important line of action for the Bank. Given the severity of poverty in these communities, and given the typically long gestation for benefits to materialize, a major challenge for the social inclusion agenda is scaling up impact through cross-network partnerships. Developing an integrated approach to reduce risk factors for youth -at risk Better schooling and better job opportunities are at the heart of the complex problems facing youth at risk. The task of job creation and job preparation needs to be integrated. For sustainable creation of jobs that are meaningful for youth, a conducive policy framework is essential for a broad-based, labor-intensive growth strategy. This is already a core component of the proposed strategy. This must then be complemented by coherent and cost-effective human capital formation programs. Furthermore, a more dynamic and productive agriculture, better integrated in a more attractive regional context, is likely to retain the youth that the sector so urgently needs. Strengthening risk management and safety nets. To enable the rural poor to better withstand market-induced shocks, a more diversified income and stronger asset base are essential, together with the development of better risk management methods. Given the region's high propensity for natural disasters, the poor also need to be assisted to better manage natural calamity risks so as to avoid increased hardship, distress sales of household assets, forced migration, etc. The devastation of Hurricane Mitch or of the El Nino phenomenon may be the primary impetus for current disaster insurance and prevention in Honduras. However, the probability of future disasters in Honduras is no higher than the probability for any other country in the region. Analytical and project assistance in Mexico, Nicaragua and the Caribbean region has recognized the real danger of natural catastrophes and the importance of disaster planning in all danger-prone countries, and is implementing better instruments for mitigation and rehabilitation. For the severely marginalized in risk-prone areas, social safety nets are essential instruments. Many rural dwellers will not be able to reap the benefits of the progress on the "macro" front, in growth or diversification opportunities in the farm and non-farm sector. This includes many of the poorest, the elderly, widows and 24 smallholders in marginal areas without much productive potential. Differentiated policies will be needed among which we may highlight the substantial impact that safety-net programs could have. * Develop better risk management tools. Governments' role in strengthening risk management is critical. Better instruments could be developed and implemented in the area of risk mapping and monitoring, early warning systems, prevention, price hedging tools, financing instruments and crop insurance (weather-based index). The Bank is supporting the governments of Argentina, Mexico and Nicaragua in developing broadly accessible risk management instruments to reduce exposure to co-variant risks. The development of micro-finance schemes based on savings and credit schemes can go a long way in smoothing income variability, facing emergencies and reducing the high vulnerability of the poor. * Strengthen safety nets. Social security, public pensions (Brazil) and income support programs (Mexico's PROCAMPO and PROGRESA) can have high pay-offs and be very effective instruments in reaching a large number of the poorest. They not only reduce vulnerability and poverty but they can have a multiplier effect on investment. However, their targeting mechanisms should not be to the detriment of traditional solidarity mechanisms within poor communities. In general, it will be critical to adjust public programs to cultural preferences and community structures, especially in indigenous areas. The Bank can draw upon its international experience to help governments and other stakeholders design and finance cost-effective and responsive social safety nets. What's old and what's new in the Action Plan What is old: building on delivery mechanisms that work. The Plan builds on and improves what works and has succeeded in an effort to expand it and scale it up. The mechanisms of delivery based on community empowerment principles and on public-private partnership in technology generation and transfer have functioned well and should be pursued. There are many natural resource management initiatives that can provide a wealth of experiences on which to build. They remain, however, relatively scattered and would need to develop a critical mass of technological packages that can expand win-win situations in a more systematic way. Land administration projects have developed successful instruments to facilitate access to assets and improve security. A number of poverty reduction projects are key ingredients to rural development agendas and have promoted social capital together with access to productive investments and basic infrastructure (See Appendix 4). Many of these activities will continue to be pursued but the relative priorities among different priorities, how they are packaged, and how the Bank would organize itself to generate synergism, need to be reconsidered. What is new: a vertical (policies and markets) and a horizontal (territorial) integration effort. The Plan also brings new approaches to revitalize the rural agenda and achieve higher impact on poverty reduction. In particular, it seeks to better integrate the rural sector to the rest of the economy and take advantage of better opportunities. It seeks better understanding of the incentive framework, and complementarity between the macro agenda and rural issues in an effort to ensure that the macro and sectoral frameworks are supportive of rural development. In this respect, the Plan places emphasis on increasing productivity as a key element to growth and better incomes. It also proposes to use community-driven development as a platform to seek better integration with municipal plans, regional priorities and urban opportunities through a "rural space" approach. A new "institutionality" will need to be promoted, much more attuned and responsive to local circumstances, participatory and accountable. The Plan seeks to much more squarely promote better access to technology and functioning markets, and especially the labor markets, the supply/product chains and financial services. It insists on building social and human capital as a fundamental asset for the poor. Finally it seeks to develop new instruments that would reduce vulnerability stemming from the lack of assets, economic shocks and calamities. Consistency with the framework in the World Development Report 2001. The proposed strategy and Action Plan is fully consistent with the approach to reducing poverty in the World Development Report 2000/2001 on all fronts. It shares the recognition that a holistic strategy is necessary to tackle poverty effectively and should better promote: (a) opportunities (growth, equality in access and market development, public-private partnerships); (b) empowerment (decentralization, community empowerment); and (c) security (better risk management and social safety nets). 25 6. Implementation Arrangements-Achieving Synergy Implementation of the Action Plan needs to get started by focusing on a number of internal and external priorities; it must be adapted to prevailing country circumstances and be shared by our clients. It needs strengthened cross-sectoral collaboration within the Bank, and better coordination with the donor community. Getting started The status of the present rural portfolio highlights five interesting features. (See Appendix 3). One, the rural portfolio is multi-sectoral. The many sectors that operate in rural space highlight the challenge of coordination to achieve synergism. Two, LCSES lending, which channels the bulk of the "rural" lending in LCR, has been declining and erratic over the past decade. Bank-wide, the entire "rural" Bank lending also experienced a sharp decline since the 1970s. This reduction in lending represents a major challenge for the Bank's ability to accelerate rural poverty reduction. Three, community-driven projects are an important feature of the regional portfolio. These are projects in which the funds are either allocated directly to communities or with strong community participation in the preparation and implementation of priority actions. Four, the way rural issues are integrated in the Country Assistance Strategies and Poverty Reduction Strategy Papers has been very uneven across countries. This should represent an area of improvement in the way country-specific rural development strategies are to be developed if the Region wants to make a dent in rural poverty reduction. Five, while there are important opportunities for higher impact through the scaling up and expansion of existing successful initiatives, there are also important gaps with respect to the new agenda proposed in the Action Plan. This would require a revisiting of the focus and skill mix in the region. Priority areas of internal action. In the short term it is proposed that internal action be prioritized in the following areas: * Maintain the quality of the portfolio and pursue the targets for pro-activity and realism indexes established by the region. * Play a more active role in the discussions leading to the preparation of the CAS, PRSP, and main AAA with an impact on the sector, in each country. This will require a more institutional approach to internal review mechanisms, quality control, and integration of the rural perspective in country discussions and development agendas. Evaluation of the CASs in the region, carried out by RDV, points to very uneven quality and weaknesses in several key areas (Figure 6.1). In several CASs the rural sector is overlooked in the name of selectivity. Key elements are often missing on the impact of the macroeconomic and sectoral policy reforms on the rural poor as well as on the rural-urban linkages. Food security analysis and key links with natural resources management are weak. Many also ignore potential rural alliances and partnerships with other donors. The proper integration of rural issues in the CAS depends highly on the effectiveness of the participation of sector staff and the functioning of country teams. It may have been given too little institutional priority which may explain the declining and erratic lending trend and the scarcity of sector work. One of the key challenges of the proposed Action Plan is to fully integrate rural issues in the CAS process and to strengthen the strategic case for more attention to addressing rural poverty. * Plan for a revival of the Bank contribution to Analytic and Advisory Activities (AAA) and related workshops in the region in key areas of assistance to the revision, preparation and analysis of policy issues, sector strategies, rural poverty aspects, institutional development and evaluations of past interventions. When deemed necessary, intersectoral steering groups on thematic issues would be established to develop joint approaches and implementation arrangements. This will be key to upgrade the knowledge and understanding of country and sector issues. * In a region where the approach to rural development is highly cross-cutting, the capacity to work across "silos" is extremely important. This will require a review of the internal mechanisms for budget allocation so as to overcome the key institutional obstacles to more effective intersectoral teamwork and other incentive- generating mechanisms to improve the way country teams function and effectively bring together sector and macro staff 26 Figure 6.1 Satisfactory country assistance strategies, Latin America & the Caribbean vs. World Bank Average percentage 100 - 80 - 60- 40 20 J 0 Policy & Poverty Shared Food Natural Building Regulation Reduction Growth Security Resources Alliances 2 Latin America & the Caribbean World Bank Priority Areas of Operational Involvement and Scaling-up In the short term it is proposed that operational action be prioritized, scaling up a number of initiatives that have already proven their effectiveness or that represent key missing elements for the improvement of past development agendas. The CAS for each country would have to define the extent and scope of involvement in each priority area. Appendixes 4 and 9 describe a number of best practices and examples that can be used as references for the design principles in each of this Plan's proposed lines of action. Strengthen our contribution to agricultural productivity and efficiency. Examples from Central America, Colombia, Venezuela and Mexico can provide an important basis on which to build for the improvement of key markets and access to critical assets and technology. This means stronger involvement in land administration, rural finance, farmers' organizations, and private-public partnership. The development of better technology and improved cultivation techniques in poor areas with productive potential could further increase rural income and diminish the rural/urban wealth gap. Public/private research and implementation partnerships have already increased agricultural competitiveness and quality in a variety of countries. Expandfinancing for regional development in the context of a "rural space" approach. Examples from Brazil, Mexico, Nicaragua and Colombia can help scale up and improve community-based projects that can offer better opportunities for increased productivity both on-farm and off-farm. It also means improving access to basic services and enhancing institutional development, municipal capacity building, governance and social capital at the local level. A main priority in rural development is to diversify development beyond subsistence agriculture. Future pipelines could include projects aimed at developing non-agricultural rural growth opportunities (see Appendix 9). Although Argentina plans a broad-based diversification platform, farmers in Colombia will have little reason to avoid lucrative narcotics agriculture without support to transition to other forms of income. Future support to broad- based rural development in LCR countries would help integrate urban/rural opportunities and reduce the income gap. Several countries plan to develop rural infrastructure (particularly roads); pursuing such plans in other countries would lay a strong foundation for diversification, productivity increase and growth of rural economies. Developing a framework to facilitate job-finding, training and housing for rural migrants would decrease both urban and rural poverty, and prevent birth into rural poverty from being a curse on lifelong poverty. Further develop the integration between rural development and natural resources management, i.e., watershed management, land conservation, and sustainable use of resources. Preserving natural resources for future generations while allowing eco-tourism, biomedical research and eco-friendly products to provide diverse sources of income are compatible and worthwhile goals. The Meso-american Biological Corridor, a targeted area for sustainable development, encompasses 30% of Central American territory and exemplifies cooperative natural 27 resource management. In the past, logging trees and building pastures have been the most expedient sources of income from such areas. The ECO-O.K. program has branded coffee, an otherwise generic commodity, by certifying its environmental friendliness. Branding an agricultural product by recognizing its environmental sustainability can allow the product to sell for a higher price on foreign markets. Improving health and education. Given that the rural poor have fewer care options available, and that for various reasons (insufficient nutrition, reluctance to invest in preventive care, manual labor, stress) they suffer disproportionately from frequent illness, effective health care for the rural poor should be a priority.37 Lending could focus on: strengthening the institutional capacity of public health departments; ensuring rural access to effective health care; developing funding and/or health insurance programs for the poor; educating the rural poor about available care options, and emphasizing cost-effective prevention over post-illness treatment. Creating incentives for families to send their children to school by offering the family attendance benefits diminishes truancy among poor rural children and increases educational demand. Developing similar incentives for teachers to work through the entire week - by attendance-based payment or community groups that monitor teacher attendance - augments education supply. Mexico's PROGRESA and CONAFE and El Salvador's EDUCO programs have harnessed such tools for educational improvement. Pursuing educational development in rural areas opens up new opportunities, improves agricultural efficiency, and promotes rural economic diversification. Internal Implementation Arrangements and Issues A daunting task ahead This Action Plan embodies a change of paradigm, from piecemeal attacks on poverty to a holistic approach. Rural development has become much more integrated than before. The combined effect of decentralization and democratization means that sectoral policies and programs need to give way to local planning and priorities, which, by nature, require stronger focus on inter-sectoral coordination and complementarity among the various sectors and donors. For these synergies to be captured, the Bank must also upgrade the way it does business. The main challenge of the Action Plan is institutional, not conceptual. A holistic approach with a country focus. The Action Plan recognizes that only a multi-sectoral approach can work. It provides a comprehensive diagnostic and offers the strategic directions and actions to be undertaken; however, it recommends a selective implementation at the country level in view of the Bank's added value, ongoing dialogue and local circumstances. It is not a "one-size-fits-all" approach. The next step will be to translate this overall framework into country-level strategies and operations, and to work across networks and closely with clients. CAS, PRSPs and Poverty Assessments will be the ideal instruments by which to ensure that rural issues are fully incorporated and internalized. Country Directors and Sector Leaders will be instrumental in ensuring adequacy and adaptation of the Action Plan so that it is consistent with country policies and development agendas. The comparative strength of each network and family in each country context would determine leadership for the various initiatives and operations, but in most cases this will mean stronger inter-sectoral teams. This in turn requires the key involvement of Sector Directors and Sector Managers who would arrange for the constitution of teams with adequate skill mix, and review the current budgetary process which hinders cross-network partnerships and support. Cross-network participation. A major departure from the past is developing systematic partnerships between the Rural Network and other networks. The main areas of cross-network partnerships are: * The Environmentally and Socially Sustainable Development (ESSD) network and the Poverty Reduction and Economic Management (PREM) network would work jointly to ensure that the impact of the macro policies would be supportive of rural development. PREM would continue to focus on promoting macro stability, adequate trade policies, competitive exchange rate regime, more supportive public expenditure programs and the removal of distorting government policies in rural markets. In addition, they would develop decentralization strategies and better understanding of the analytical underpinnings of poverty and of the incentive framework for the sector. * ESSD and the Human Development (HD) network would work jointly to elaborate more consistent programs in addressing social sector issues, participation of minorities and indigenous peoples' development. They would also promote the inclusion of culturally-consistent components in the health and education programs. They 37 Source: Country Assistance Strategy of the World Bank Group for the Dominican Republic, report no. 19393-DO, June 9, 1999; 12. 28 would work together to ensure consistency of implementation of Social Funds and Rural Investment Funds and strengthening of safety nets in rural areas. * ESSD and the Finance and Private Sector and Infrastructure (FPSI) network would develop joint strategies and programs on how best to help governments in the development of rural-urban linkages, and to deliver public goods and basic infrastructure services in rural areas, especially at the level of municipalities. They would also develop rural finance approaches that are consistent with the specificity of the rural sector and with the overall financial sector policies and regulatory frameworks. Major skill gaps in the rural network to implement priorities of the Action Plan. A thorough inventory of current staff skills and their suitability for implementing the Action Plan is still to be carried out. A preliminary identification of missing skills highlights the importance of staff being able to perform policy work, to integrate across networks, and to put together programmatic-type instruments. These skills will also be needed for more effective participation in the discussion of the CAS, Poverty Assessment, and PRSP. On the technical side, the region will need to strengthen its skills in the areas of rural finance, agricultural productivity, municipal development, marketing and agro-business and risk management. The high cost of safeguard policies may be a deterrent. While it is acknowledged that good compliance with safeguard policies is simply better-quality business, it needs to be recognized that projects in the rural sector present a higher level of compliance requirements which imply more resources and time to prepare. This may act as a disincentive if transaction costs become excessive. It is also important to recognize the higher level of risk that staff confronts and to remove possible biases against innovation and risk-taking. Lending instruments. With respect to lending instruments, investment projects will continue to play an important role, especially for specific poverty-targeted approaches and innovative interventions, which require strong implementation support and field supervision. More effective integration can be pursued through the use of lending instruments along thematic lines that require blurring the "silos" and sectoral frontiers. New instruments to explore are programmatic loans. By their nature (quick-disbursing), they will require an adequate policy environment for the particular subsector to be financed, and solid institutions with sound procedures and implementation rules in place. External Implementation Arrangements and Issues Nurturing client ownership. Without client ownership this strategy and Action Plan are moot. Moreover, it must be acknowledged that, in most situations, development efforts take the form of progressive, quantum leaps that require considerable dialogue and buy-in from various constituencies. LCR presents a diverse mosaic of rural policies and programs, and while some general trends may be detected, endorsement and implementation of this Action Plan may take different forms. In some countries there is already a high degree of convergence with the proposed Action Plan and most of it may already be under implementation; in others agreement and interest may be only partial. This strategy and Action Plan should be seen as a contribution to the ongoing discussion on rural development issues in LCR and the way forward. After all, it could be argued that most of what this document proposes is already under implementation in one country or another in LCR. This Action Plan essentially tries to coalesce and build on what seem to be best practices and innovative, successful approaches. In that respect, the Bank could expand cross- fertilization efforts among Latin American countries through study tours, field visits and international workshops. Countries in LCR could seize this opportunity to provide momentum to the rural development agenda and, as a priority, look forward to implementation with a sense of urgency. The Bank could considerably contribute to a partnership. It would offer, among other things, renewed commitment and support for action on the ground, enhanced implementation capacity, and more accurate and specific analytical work to deepen the reciprocal understanding around rural development issues and the potential for success and for improvement of the Action Plan. Promoting partnership is good business. It is generally felt that the strategic thrust of this rural development strategy for LCR countries is widely shared among donors. The Bank should continue to explore and develop regular channels for communication and consultations with other potential partners, to ensure consistency of strategies and to explore co-financing possibilities. Future Bank funding can be influenced not only by client requests, but also by partner involvement. The IDB has a long history of investment, with nearly US$1.3 billion in rural development- 29 targeted lending between 1963 1997.38 In March 2000, six international organizations co-founded the Interagency Group for Rural Development in Latin American and the Caribbean, which seeks to develop coordinated strategies and complementary projects on rural development.39 Many institutions fighting rural poverty in LCR countries have institutional knowledge and local experience. Developing projects that complement existing international efforts, and combining the Bank's knowledge with the experience of other organizations, maximize project effectiveness. Partnerships should be sought on a country basis with the objective of learning and transferring experiences and developing common ground in approaches among partners. Better consistency among donors will enhance the chances to leverage the establishment of a "rural constituency" within governments and to pursue a coherent dialogue for increased effectiveness. Monitoring and Evaluation Country priorities. Table 6.1 suggests areas of priority focus in the various LCR countries or sub-regions that could possibly guide the application of the above strategic framework to a very heterogeneous region. How best to balance these strategic priorities and selection criteria will have to be determined within the context of a given CAS and, if applicable, PRSP. Government receptivity, stakeholder interest, macroeconomic stability, the status of public expenditure, and the strengths and weaknesses of governance structures, would be key factors in shaping the proposed Action Plan for any country. This framework for the regional Action Plan would then become a major input into these important processes and products. Monitoring and evaluation indicators. In all operations, the Bank will develop simple but effective monitoring and evaluation systems adapted from International Development Goals (IDG) on which international consensus already exists. While we should maintain flexibility in implementation and admit that trial and error will still be necessary as part of the learning process, a minimum set of robust indicators that are reliable, user-friendly and cost-effective will be developed with respect to impact assessment. Key internal indicators to be monitored in order to measure effectiveness in the implementation strategy would be: * treatment of rural issues in CAS/PRSPs as regularly evaluated by RDV; * reversal of the present negative trend in lending; * revival in the preparation of sector work through the inclusion in work programs of key studies and analytical work in all countries; * quality of the portfolio in terms of: quality at entry and effectiveness of supervision as evaluated by QAG meeting the regional indicators with respect to risks, realism and pro-activity delivery and quality of the work program; and cross-sectoriality of task teams in terms of participation of other sector staff in project/ESW preparation and supervision. 3s Source: Rural Poverty Reduction, report no. ENV-122, E, S. Inter-American Development Bank, June 1998. 39 Participants are: the Inter-American Institute for Cooperation on Agriculture, the United nations Food and Agriculture Organization, the Economic Commission for Latin America and the Caribbean, the International Fund for Agricultural Development, the German Agency for Technical Cooperation and the Inter-American Development Bank. 30 Table 6.1 Framework for Regional Action Plan for Rural Development Enabling Environment & Lines of Actions Sub-regions & Countries Enabling Environment Policies (Including Labor Markets) M M H M H M L L L M M H M Institutions M H H M M M M M H M M H M Governance M H M H H M M M M M M H M Lines Of Action Broad-Based Agricultural Growth Public-Private Partnerships In M H M M L M L L L L L L L Technology Generation & Transfer Supply Chain/Marketing H M M M L L M M M L L L L Irrigation M L L M Mt L L M H M M M M Effcient & Competitive Markets Output H M M H H M L L M L L M L Land M Ft M H H H L L L L L H L Rural Finance H H M H M H L L M L L H M Regional Development Community-Driven Development M H H H H H L L H M M H M Municipal Development H H H H L2 H M H FI H M L L Rural Infrastructure M M L H H H M M M M L M M Sustainable Nat. Res. Management Sustainable Use Of Natural M H M H H M M M M M M M L Resources Watershed Management H M M H H H M M M H H L L Forestry M L L H H H L M 1. M M M L Investment In Human Capital Health, Nutrition M M M H L M M M M L L H L Basic & Secondary & Bilingual H H M H M3 H H H H L L M L Education Inclusive Approach. Gender, H H M H M4 H L H M M H M M Youth, Ethnic Minorities Mgt. Of Economic & Natural Risks Vulnerable Target Groups And M H M M M L H H H M L L L Areas Risk-Management Options H M M M M L M L L M L L L Social Safety Nets M H M 1-1 H M M M M M L M L Notes H: high-priority areas for short-term intervention on which government should focus. M: Areas of intervention of medium priority; and L: items of lower priority or that have already been addressed H for OECS: M: for Haiti and Dominican Republic; H for Trinidad & Tobago, Jamaica, and Guyana; H for Jamaica and St. Lucia 31 Appendix 1 The Vision of Rural Well-Being of the Rural Family These are extracts from From Vision to Action: A Sector Strategy, 1997. The approach taken in this action plan is based on this vision. The Vision of Rural Well-Being * Rural growth is widely shared, with private and competitive agriculture and agribusiness as the main engine of growth. * Family farms and non-farm enterprises provide ample remunerative employment opportunities to men and women. * Rural people manage the soils, water, forests, grasslands, and fisheries in a sustainable manner. * Rural people are linked to well-functioning markets for products, inputs, and finance. * Rural people have access to medical care, clean water and sanitation, educational opportunities, and sufficient nutritious foods. * Essential legal frameworks, public investment, productive and social services are provided and financed in a pluralistic, decentralized and participatory manner. Strategic Check List for Rural Development * Macroeconomic and sectoral policies are stable. The foreign exchange, trade, and taxation regimes do not discriminate against agriculture, but are very similar for the rural and urban sectors. * The growth of private agriculture is encouraged by minimizing distortions among input and output markets and by market development for agricultural and agro-industrial products, both at home and abroad. * Public investment and expenditure programs for economic and social infrastructure, health, nutrition and education do not discriminate against rural populations or the rural poor. * Large farms and large agro-industrial firms do not receive special privileges and are not able to reduce competition in output, input, land or credit markets. * The agrarian structure is dominated by efficient and technologically sophisticated family operators who rely primarily on their own family's labor. The rights and needs of women farmers and wage-laborers are explicitly recognized. * Access to and security of land and water rights is actively promoted. Restricting land rentals hurts the poor. Where land distribution is highly unequal, land reform is needed. Decentralized, participatory, and market- assisted approaches to land reform can achieve this much faster than expropriation by land reform parastatals. * Private and public sectors complement each other in generating and disseminating knowledge, and technologies. Public sector financing is particularly important for areas of limited interest to the private sector, such as strategic research, smallholder extension, and diffusion of sustainable production systems and techniques. * Rural development programs mobilize the skills, talents and labor of the rural population, through private sector involvement. * Rural development programs are designed so that the rural poor and other vulnerable groups are fully involved in the identification, design, implementation of the programs. Otherwise rural elites will appropriate most of the benefits. 32 Appendix 2 Basic Statistics on Poverty, Social Indicators, Inequity, Population and Economic Structure This Appendix presents the basic statistics concerning poverty, population projections, and a taxonomy of economies in the region with respect to the relative importance of agriculture and the rural non-farm sectors in selected national economies. Jointly these statistics quantify poverty, urban and rural, shows why rural poverty is a major problem to be addressed and why it is likely to remain so for years, and the different economic structures within which rural poverty is found. Poverty Table A2.1 Percentage of poor from urban and rural population poplation in millions Total Urban extreme Rural Percentage Urban Population Tof Urlurban extremepoor! Of poor! Ruralpoor! Year Total number of poor/urban rural Pop. Poor from Urban Pop. Rural Pop. (%) poor Pop. (%) ~~(%/) total Pop. (%/) 1986 408.3 136.2 9.7 24.8 33.4 25.4 50.8 1989 431.9 161.2 12.8 31.0 37.3 30.3 54.2 1992 455.7 182.3 13.3 37.4 40.0 31.7 61.4 1995 479.3 175.9 11.3 32.9 36.7 29.2 57.6 1998 501.3 173.5 11.1 31.0 34.6 27.5 55.6 Sources: Wodon, Quentin, Rodrigo Castro-Fernandez, Kihoon lee, Gladys Lopez-Acevedo, Corrinne Siaens, Carlos Sobrado, and Jean-Philippe. 2001. Poverty in Latin America: Trends (1986-1998) and Determinants. Tre, World Bank, April 11, 2001.(Mimeographed.) Table A2.2: Urban-Rural Poverty in LAC percentage Year Total Poor Urban poorfrom Rural poorfrom (millions) total poor total poor 1986 136.2 52.3 47.7 1989 161.2 57.1 42.9 1992 182.3 57.0 43.0 1995 175.9 58.3 41.8 1998 173.5 59.2 40.9 Source: Computed from ibid. 33 Table A2.3 Rural Poverty in Latin America & the Caribbean 1986- 1998 Indicator Units 1986 1989 1992 1995 1998 Total Poor in LAC millions 136.2161.2182.3175.9 173.5 LAC extreme poor millions 58.8 78.6 91.4 81.7 80.9 Rural poor millions 65.0 69.2 78.4 73.5 70.9 Rural poor as % of total LAC poor percentage 47.7 42.9 43.0 41.8 40.9 Total number of rural extreme poor millions 31.7 39.6 47.7 42.0 39.5 Rural extreme poor as % of LAC extreme poor percentage 53.9 50.4 52.2 51.4 48.8 Rural population millions 127.8127.6127.7127.6 127.5 Rural poor as % of Rural population percentage 50.9 54.2 61.4 57.6 55.6 Rural extreme poor as % of Rural population percentage 24.8 31.0 37.4 32.9 31.0 Source: Computed from ibid. Table A2.4 Poverty in urban areas in Latin America & the Caribbean 1986-1998 Indicators Unit 1986 1989 1992 1995 1998 Total number of poor in Latin America& the Caribbean millions 136.2161.2182.3 175.9 173.5 Total number of extreme poor in Latin America & the Caribbean millions 58.8 78.6 91.4 81.7 80.9 Urban poor (in millions) millions 71.2 92 103.9102.5102.7 Urban poor as % of total LAC poor percentage 52.3 57.1 57 58.3 59.2 Total number of urban extreme poor (in millions) millions 27.1 39 43.7 39.8 41.4 Urban extreme poor as % of LAC extreme poor percentage 46.1 49.6 47.8 48.7 51.2 Urban population in millions millions 280.5304.3327.9351.7373.8 Urban poor as % of urban population percentage 25.4 30.2 31.7 29.1 27.5 Urban extreme poor as % of urban population percentage 9.7 12.8 13.3 11.3 11.1 Source: Ibid.. Table A2.5 Number of poor in rural and urban areas in Latin America & the Caribbean region (population in millions) Indicator Unit 1986 1989 1992 1995 1998 Urban headcount percentage 25.4 30.2 31.9 29.2 27.5 Total urban population millions 280.5 304.3 327.9 351.7 373.8 Total urban poor millions 71.2 92.0 103.9 102.5 102.7 Rural headcount percentage 50.8 54.2 61.4 57.6 55.6 Total rural population millions 127.8 127.6 127.7 127.6 127.5 Total rural poor millions 65 69.2 78.4 73.5 70.9 Source: Computed from ibid. 34 Figure A2.1 High incidence of extreme poverty is a rural phenomena 40.0% Rural ext./ rural Pop. 0.0% I--_ 0 z , Total ext. poor/ Total Pop. 1986 , 1989 1 ~ Urban ext./ urban pop. 1992 1995 1 1998 U Urban ext./ * Total ext. ° Rural ext./ urban pop. poor/ Total Pop. rural Pop. Figure A2.2 Incidence of poverty-national, rural and urban * Urban poor! Urban Pop. l Poor from total 6,0.0%. Pop. 50.0YO- / //- 0 BL l~ | | -I 1 ° Rural poor/ 40/0% / _ t * 1 _ Y Rural Pop. 40.0% 10.0 0.0% , I Rural poor/ Rural Pop. 1986 1986 r - .Poor from total Pop. 1989 -- : Y., 1992 5 *- -- 0 Urban poor/ Urban Pop. 1995 1998 35 Figure A2.3 Trends of extreme poverty in Latin America & the Caribbean 2.75 - 2.5 - 2.25- O 2 - .. _ o 1.75 - 1.5 - 1.25 1.2 1986 1989 1992 1995 1998 Year +- Urban population U Urban extreme poor -L' Rural population --- Rural extreme poor 36 Social Indicators: Rural vs. Urban Table A2.6 Access to electricity, water, and telephone by country, 1986-96 Expanded National Urban Rural PCGDP in sample Countryl 1995 US$ size(Millio Year ns) % of pop. Survey Electricity Water Phone Electricity Water Phone Electricity Water Phone GDP pop. Bolivia 1996 66.5 60.5 93.9 83.4 25.0 25.7 921.3 4.6 60.3 Brazil 1986 81.1 67.7 95.8 82.8 41.7 27.3 4278.5 135.6 98.3 1989 85.1 70.8 96.9 83.6 51.2 33.7 4333.1 144.1 99.0 1995 90.7 78.3 20.5 98.4 88.6 25.1 61.6 39.5 3.3 4417.5 152.4 95.7 1996 91.9 81.6 23.6 98.7 91.3 28.6 67.2 46.5 5.2 4480.3 154.4 95.7 Chile 1992 87.7 86.1 94.3 97.5 59.1 36.5 3502.1 13.5 98.0 1998 96.8 90.2 14.3 99.6 99.3 16.4 80.7 37.1 2.0 4419.2 14.5 100.5 Columbia 1995 94.6 84.2 39.5 99.7 97.8 62.3 87.2 65.0 6.9 2407.2 20.2 54.9 1996 91.7 81.7 39.9 98.9 97.9 60.4 80.6 56.8 8.3 2410.2 23.4 62.4 El Salvador 1995 74.3 44.5 14.1 94.7 66.9 25.4 49.8 17.4 0.4 3.2 54.9 1996 75.7 47.8 16.7 94.9 69.2 30.1 52.4 21.9 0.4 3.2 54.6 Guatemala 1989 50.1 53.1 88.0 80.0 27.7 37.2 5.8 65.2 1999 61.2 61.2 90.3 88.8 42.3 43.2 10.5 94.8 Honduras 1989 41.6 66.6 89.6 88.6 18.3 55.9 700.1 4.5 90.2 Table A2.6 Access to electricity, water, and telephone by country, 1986-96 Expanded PCGDP in sample Country National Urban Rural 1995 US$ size(Millio % Year ns) % fpop. Survey Electricity Water Plhone Electricity Water Phone Electricity Water Plhone GDP pop. 1992 55.5 87.0 88.4 92.5 31.6 83.1 699.1 5.0 91.7 1995 53.3 86.2 28.1 698.3 5.3 91.8 1996 59.3 87.3 94.8 96.7 31.7 80.0 703.6 5.6 91.0 Mexico 1984 87.3 79.3 15.8 95.2 89.1 23.4 73.7 62.6 2.8 3758.4 76.0 104.0 1989 89.2 78.1 18.2 97.2 90.9 27.9 76.1 57.5 2.6 3924.3 78.7 96.3 1992 91.3 77.5 21.5 97.2 88.0 29.5 75.5 49.6 0.4 4212.8 84.1 96.9 1994 93.5 79.6 25.8 97.6 89.6 35.2 82.4 52.6 0.6 4323.4 89.4 99.3 1996 93.1 83.1 26.5 97.5 92.1 35.7 81.5 59.1 2.0 4118.0 92.6 99.4 Republica Boliviarana de Venezuela 1986 95.2 90.6 99.4 97.0 78.7 65.5 3496.1 17.9 101.7 1989 97.1 91.5 99.5 96.6 84.7 65.6 3245.7 19.4 101.8 1992 97.9 93.1 99.6 97.6 88.7 68.5 3725.4 20.4 99.6 1995 99.5 93.0 99.6 97.7 95.1 71.3 3537.2 21.9 100.0 1996 98.5 92.1 99.5 97.0 94.1 72.3 3449.4 22.3 100.0 Source: Wodon, Quentin. 2000. Regional study - Concept paper: "Public Spending And The Poor In LAC". Mimeograph. Figure A2.4 Total fertility rate (TFR) Figure A2.5 Working last week among 6 to 11 years old lodicator tby Conntry and SetOr Rnral and IJrban Shares (CoIndicator by CountrY and Sector Rural and Urban Shares Indicator by Coo.try and Sect" Rural and Ut-bm Shares ~~(Countries ranked by inicreasing GDP per capita) (Countries ranked by icra2sing GDP per capita) (rEstuiates for Latin Ameica) (Estirmates for Latin America) Haltl 1994/1_ P 5 7 Nicaragua 199 83 Nieragu n 1 9.°7 4 8 / , 6 3% Bolivia 1999 36 Honduras 199 Gr ialn199 I 6 7 637' Guatealada 1999 64 Dom Re,o 19i _ 4.1 1123RuralCIUrbanl Peru 199 66 4 Rural 0 Urban Penl 1996 _ 5 o Panama 199 8> 6 7 Pnrg 99 _ 62Rural, Urban and Total Pepulatien Colombia 19 Rural, Urban and Total Population Colombia 4 6 (Estimates ror Latin America) Brazil 1998 13.6 (Estimates for Latn America) Urban 2,892 7 Mexico 199 Urban 5860 Rural 16496 Rural 1,0315 LAC (Urnvaighte _j}l 5 oa A UIsihe ua , 31. LAC (Un.e,h 5.1 Total 4,54243 LAC (Unweighted) 64 Total ,617.5 LC 4L2,000 4000 6,000 , 4 1,000 2,000 3,000 0 2 4 6 8 Thousands 0 5 10 15 Thousands |RNatimisaftalOU>id . ETO;al 0IRurA Ur,ba[ I National laRural I] Urban M Total ei Rural OlUrban Note: TFR = The average number of births a woman could expect to have during her lifetime if Note: Figure represents the proportion of individuals in the corresponding age bracket who held a she followed observed levels of fertility for her age group at every age. job at the time of the interview Source: Country-level data from Gwatkin and others (2000). GDP per capita ranking based on Sources: Own estimates based on household surveys. GDP per capita ranking based on Purchasing Power Parity comparisons from the World Bank. Own estimates for Latin America Purchasing Power Parity comparisons from the World Bank. Own estimates for Latin America and the Caribbean (LAC) using demographic and geographic information from Demographic and the Caribbean (LAC) using demographic and geographic information from Demographic Bulletin N" 63, January 1999, CEPAL. Weighted average for LAC based on country Bulletin N" 63, January 1999, CEPAL. Weighted average for LAC based on country population population weights. weights. Wodon, Quentin. 2000. Addendum to the Concept Paper for the Regional study on Public Spending and the Poor. 39 Figure A2.6 Enrollment among 12 to 14 years old Figure A2.7 Enrollment among 15 to 17 years old Rural and Urban Shares Indicator by Country and Sector Rural and Urban Shares Indicator by Country and Sector (Estimates for Latin America) (Countries ranked by increasing GDP per capita) (Estimates for Latin America) (Countnes ranked by increasing GDP p er capita) 186 Nicamagua1998 786 35% Nica7agua99s 677 _ 916% Bobvla 1999 " -''' ' .''"' '''>''9 ^Y v,59 3 R Honduras 1999 687 HO ju1 40 6 9 Guatemata 1898199"'- 6 uenai 19.19 G . 918 76.5% / ~~~~~~~~~~~~~El Satvado 1997 ~ 207281 4%- El SaluoJdor 1997 oi a e07 [~~~DU~6 Peru 1997 . . . . . 37................ Rural O Urban| . .~~~~~~~~909 Panm19 ,, ...... ,.,7 eS-^f .... Paniama 1997 """"'''''''"""''''''"s' ee 6Pn 7P 2 2. m8 Rural, Urban and Total Population Colombia 1999 67 Rural, Urban and Total Population Colomnbia 1"99 ~ (Estimates fo Latin Amenica) 70zl 987 (Estimates for Latin Amenica) BranzMexico 1 999 54 063 3Urban 116,8 12.1 Maxico 1996 -3 Chile 1998 75l Rural m9 6,s27 6 Chile 1998 ,,,,,,,,,,,,,,,,,,_ 844 Rural 3838.9 i 6LAC (UeighToa ed) 6 Total 20,670.3 LAC ,,, ,g |d) 7 Total LAC Weighted) 677 . LAC (Weighted) ,8 10,000 20,000 30,000 40,000 - 10,000 20,000 30,000 0 20 40 60 80 100 120 Thousands 0 20 40 60 80 100 Thousands I Nabonal 13 Rural [Urban National 2 Rural j] Urban *Nabonal 0Rural OUrban *Nabonal MRural OUrban Source: Own estimates based on household surveys. GDP per capita ranking based on Note: Figure represents proportion of individuals in the corresponding age bracket who Purchasing Power Parity comparisons from the World Bank. Latin America and the Caribbean attend school (LAC) demographic and geographic information from Demographic Bulletin ND 63, January Sources Own estimates based on household surveys. GDP per capita ranking based on 1999, CEPAL. Weighted average for LAC based on country population weights. Purchasing Power Parity World Bank Latin America and the Caribbean (LAC) demographic and geographic information from Demographic Bulletin N° 63 January 1999, CEPAL. Weighted average for LAC based on country population. Wodon, Quentin. 2000. Addendum to the Concept Paper for the Regional study on Public Spending and the Poor. Inequality Figure A2.8 Income inequality in 1986 and 1996 0.65 - 0.6- EO.55 o .2 0.45 - _ 0.4 Argentina Brazil Colombia Honduras Mexico Venezuela Figure A2.9 Land inequality around 1980 1 0.91 0.8- a) 0 .7 1 . ..6_ __ _ _ 0 . - I _ _ _ _ _ _ _ _ 0.43111__III.. *l-I Population This summary table shows the highly urbanized nature of the region but the near constancy in absolute numbers in the size of the rural population. 41 Table A2.7 Population projection for Latin America and the Caribbean Region (in thousands) Indicator 2000 2005 2010 2015 2020 2025 2030 Total Population 519,141 557,649 595,036 631,115 665,092 696,657 725,535 Rural Population 127,803 127,587 127,102 126,414 125,504 123,655 121,062 % of total 24.6 22.9 21.4 20.0 18.9 17.7 16.7 Urban Population 391,339 430,065 467,935 504,700 539,586 573,002 604,478 % of total 75.4 77.1 78.6 80.0 81.1 82.3 83.3 Source: FAO. 2000. http://apps.fao.org/lim500/nph-wrap.pl?Population.LTS&Domain=SUA&Language=english Note that 75:25 urban:rural population split in year 2000 becomes 81:19 in 2020. In this 20-year period, the absolute numbers of rural however remains roughly similar at around 126 million from 127.8 million to 125.5 million. Figure A2.10 Trends in population and poverty in rural and urban areas 3.00- 2.50- 0 0 2.00 _ 1.50 m 1986 1989 1992 1995 1996 Year _Ehm Rural Pop. = Rural poor ='- =a1 Urban Pop. _ Urban poor Note that projections from two different sources (CEPAL, UN) yield approximately similar numbers. The rural/urban breakdown in population numbers by country and by sub-regional groupings shows that, among other things: (a) Central America which is now more rural and poorer will continue to be more rural; (b) the decrease in Mexico's rural population at 3.6 percent diverge from the 7.6 percent regional average. The absolute numbers of rural peoples in Mexico will remain roughly similar: from 25.3 million (2000) to 24.4 million (2030); (c) Brazil is different: the absolute numbers of rural will decrease from 31 to 25 million. 42 Table A2.8 Projected total, urban & rural population by sub-region 2000 2005 2010 2015 2020 2025 2030 Change Total Population Latin America and the Caribbean 519,143 557,652 595,037 631,115 665,093 696,658 725,536 40% Caribbean 38,139 40,073 41,983 43,853 45,618 47,287 48,737 28% Central America 135,222 146,909 158,112 168,858 179,052 188,504 197,204 46% South America 345,782 370,670 394,942 418,405 440,423 460,866 479,595 39% Rural Population Latin America and the Caribbean 128,275 128,100 127,628 126,931 125,971 124,126 121,534 -5.3% Caribbean 14,121 14,100 14,011 13,861 13,639 13,358 12,996 -8.0% Central America 44,296 46,406 47,848 48,634 48,758 48,310 47,522 7.3% South America 69,857 67,594 65,769 64,437 63,574 62,458 61,016 -12.7% Urban Population Latin America and the Caribbean 390,868 429,552 467,408 504,184 539,122 572,532 604,002 54.5% Caribbean 24,018 25,973 27,973 29,992 31,978 33,929 35,742 48.8% Central America 90,926 100,503 110,263 120,224 130,294 140,195 149,682 64.6% South America 275,925 303,076 329,172 353,968 376,850 398,408 418,579 51.7% Source: United Nations Population Division, Department of Economic and Social Affairs: World Population Prospects. The 1999 Revision. Table A2.9 Projected total population by region, sub-region and country, 2000-2030 (in thousands) Country/Region 2000 2005 2010 2015 2020 2025 2030 Change Latin America and the Caribbean 519,143 557,652 595,037 631,115 665,093 696,658 725,536 40% Caribbean 38,139 40,073 41,983 43,853 45,618 47,287 48,737 28% Central America 135,222 146,909 158,112 168,858 179,052 188,504 197,204 46% Belice 241 267 294 318 344 370 396 64% Costa Rica 4,023 4,453 4,857 5,232 5,592 5,929 6,238 55% El Salvador 6,276 6,875 7,441 7,977 8,534 9,062 9,554 52% Guatemala 11,385 12,951 14,631 16,385 18,123 19,816 21,441 88% Honduras 6,485 7,346 8,203 9,044 9,865 10,656 11,392 76% Mexico 98,881 106,147 112,891 119,178 124,976 130,196 134,912 36% Nicaragua 5,074 5,800 6,529 7,271 7,997 8,696 9,353 84% Panama 2,856 3,067 3,266 3,451 3,622 3,779 3,918 37% South America 345,782 370,670 394,942 418,405 440,423 460,866 479,595 39% Argentina 37,032 39,302 41,474 43,498 45,347 47,160 48,896 32% Bolivia 8,329 9,275 10,229 11,219 12,193 13,131 14,000 68% Brazil 170,115 180,638 190,875 200,697/ 209,734 217,930 225,161 32% Chile 15,211 16,136 17,010 17,912 18,774 19,548 20,240 33% Colombia 42,321 46,039 49,665 53,183 56,569 59,758 62,695 48% Ecuador 12,646 13,798 14,899 15,936 16,904 17,796 18,641 47% Peru 25,662 27,804 29,885 31,876 33,757 35,518 37,201 45% 43 Table A2.10 Projected rural population by region, sub-region and country, 2000-2030 (in thousands) 2000 2005 2010 2015 2020 2025 2030 Change Latin America and the Caribbean 128,275 128,100 127,628 126,931 125,971 124,126 121,534 -5.3% Caribbean 14,121 14,100 14,011 13,861 13,639 13,358 12,996 -8.0% Central America 44,296 46,406 47,848 48,634 48,758 48,310 47,522 7.3% Belize 110 113 115 114 115 115 115 4.5% Costa Rica 2,099 2,258 2,372 2,438 2,463 2,444 2,405 14.6% El Salvador 3,349 3,533 3,649 3,700 3,708 3,685 3,632 8.5% Guatemala 6,870 7,605 8,273 8,821 9,178 9,423 9,557 39.1% Honduras 3,065 3,134 3,182 3,228 3,288 3,316 3,309 8.0% Mexico 25,328 26,038 26,345 26,292 25,907 25,217 24,424 -3.6% Nicaragua 2,226 2,431 2,595 2,720 2,794 2,837 2,849 28.0% Panama 1,249 1,294 1,318 1,321 1,305 1,272 1,231 -1.4% South America 69,857 67,594 65,769 64,437 63,574 62,458 61,016 -12.7% Argentina 3,733 3,504 3,334 3,217 3,150 3,077 2,998 -19.7% Bolivia 3,126 3,222 3,294 3,358 3,407 3,425 3,409 9.1% Brazil 31,846 29,747 28,181 27,133 26,553 25,847 25,026 -21.4% Chile 2,181 2,128 2,072 2,025 1,979 1,932 1,877 -13.9% Colombia 11,048 11,123 11,130 11,090 11,022 10,882 10,674 -3.4% Ecuador 4,384 4,195 4,015 3,862 3,750 3,688 3,609 -17.7% Peru 6,988 7,068 7,088 7,055 6,979 6,861 6,717 -3.9% Table A2.11 Projected urban population by region, sub-region and country, 2000-2030 (in thousands) 2000 2005 2010 2015 2020 2025 2030 Change Latin America and 390,868 429,552 467,408 504,184 539,122 572,532 604,002 54.5% the Caribbean Caribbean 24,018 25,973 27,973 29,992 31,978 33,929 35,742 48.8% Central America 90,926 100,503 110,263 120,224 130,294 140,195 149,682 64.6% Belize 131 154 180 204 229 255 281 114.5% Costa Rica 1,925 2,195 2,485 2,794 3,129 3,484 3,833 99.1% El Salvador 2,927 3,342 3,792 4,278 4,826 5,377 5,922 102.3% Guatemala 4,515 5,347 6,358 7,564 8,945 10,394 11,884 163.2% Honduras 3,420 4,213 5,021 5,817 6,577 7,340 8,083 136.3% Mexico 73,553 80,110 86,546 92,887 99,069 104,979 110,488 50.2% Nicaragua 2,848 3,369 3,934 4,552 5,203 5,859 6,504 128.4% Panama 1,606 1,773 1,948 2,130 2,317 2,507 2,687 67.3% South America 275,925 303,076 329,172 353,968 376,850 398,408 418,579 51.7% Argentina 33,299 35,798 38,140 40,281 42,197 44,083 45,898 37.8% Bolivia 5,203 6,053 6,936 7,861 8,787 9,707 10,591 103.6% Brazil 138,269 150,891 162,694 173,564 183,181 192,083 200,135 44.7% Chile 13,031 14,008 14,938 15,887 16,795 17,616 18,363 40.9% Colombia 31,274 34,916 38,535 42,093 45,547 48,876 52,021 66.3% Ecuador 8,262 9,603 10,884 12,074 13,154 14,108 15,032 81.9% Peru 18,674 20,736 22,798 24,821 26,778 28,657 30,485 63.2% Note the annual rate of change of the rural population is negative for the whole region except for Nicaragua (at 0.08) and Guatemala (0.28), the very countries where the projected percentage population growth is well above the 44 regional (40) and sub-regional average (46). Thus for Nicaragua, the population growth from 2000 to 2030 is 84 percent, for Guatemala it is 88 percent. These are some of the more rural, and poorer countries today. Their rural populations are projected to grow by 28 percent, and 39 percent respectively, well above the sub-regional average of 7.3 percent. For the Central America sub-region as a whole, the rural population will grow by 7.3 percent, while it will decrease by 12.7 percent for South America, and by 5.3 percent for LAC. Urban population is projected to increase by nearly 55 percent from year 2000 to 2030. This high growth combined with the negative rural growth clearly shows that the blurring of rural/urban divide will continue. Table A2.12 Average annual rate of change of the rural population by sub-region & country 2000-2005 2005-2010 2010-2015 2015-2020 2020-2025 2025-2030 Latin America and the Caribbean -0.03 -0.07 -0.11 -0.15 -0.30 -0.42 Caribbean -0.03 -0.13 -0.22 -0.32 -0.42 -0.55 Central America 0.93 0.61 0.33 0.05 -0.18 -0.33 Belize 0.46 0.33 -0.04 0.05 0.11 -0.04 Costa Rica 1.46 0.98 0.55 0.20 -0.15 -0.32 El Salvador 1.07 0.65 0.28 0.04 -0.12 -0.29 Guatemala 2.03 1.68 1.28 0.79 0.53 0.28 Honduras 0.44 0.30 0.29 0.37 0.17 -0.04 Mexico 0.55 0.23 -0.04 -0.29 -0.54 -0.64 Nicaragua 1.77 1.30 0.94 0.54 0.31 0.08 Panama 0.70 0.37 0.05 -0.25 -0.52 -0.65 South America -0.66 -0.55 -0.41 -0.27 -0.35 -0.47 Argentina -1.26 -1.00 -0.72 -0.42 -0.46 -0.52 Bolivia 0.61 0.44 0.38 0.29 0.11 -0.09 Brazil -1.36 -1.08 -0.76 -0.43 -0.54 -0.65 Chile -0.48 -0.53 -0.47 -0.46 -0.48 -0.58 Colombia 0.14 0.01 -0.07 -0.12 -0.26 -0.39 Ecuador -0.88 -0.88 -0.78 -0.59 -0.33 -0.43 Peru 0.23 0.06 -0.09 -0.22 -0.34 -0.42 Taxonomy of the Region: Agriculture and the Rural Non-Farm Economy This section should be read in conjunction with the population figures in the next section to show the different agrarian and population structures of these economies. Table A2.13 Agricultural value added as percent of GDP for selected countries Country 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Trinidad & Tobago 2.3 2.3 2.2 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 Mexico 5.0 5.5 5.0 4.9 4.8 4.7 4.6 4.5 4.4 4.4 4.3 Venezuela 5.2 4.2 4.5 5.0 5.1 5.1 5.1 5.1 5.1 5.1 5.1 Argentina 5.7 6.0 5.6 5.7 6.4 6.6 6.7 6.8 6.9 6.9 6.9 Brazil 9.0 8.3 7.9 8.4 8.6 8.3 8.3 8.3 8.3 8.2 8.2 St. Lucia 10.2 10.3 8.6 8.1 8.2 8.2 8.2 8.2 8.1 8.2 8.4 Chile 9.2 9.0 8.4 8.4 9.1 8.9 8.9 8.9 8.9 9.0 9.0 Uruguay 9.5 8.9 8.5 8.5 9.1 9.0 8.9 8.9 9.0 9.1 9.1 Jamaica 9.1 8.3 8.0 8.0 8.2 8.4 8.6 8.8 9.1 9.3 9.5 El Salvador 13.4 12.9 13.3 12.1 10.4 10.4 10.4 10.4 10.4 10.3 10.2 Dominican Republic 12.7 12.9 12.4 11.6 11.5 11.2 11.0 10.9 10.8 10.7 10.6 Ecuador 11.9 11.9 12.1 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 Bolivia 16.3 16.2 17.1 15.4 15.7 15.4 15.0 14.4 14.0 13.7 13.3 Colombia 15.3 14.0 14.1 14.5 15.5 15.5 15.7 15.8 15.7 15.5 15.5 Honduras 21.5 22.3 23.3 20.3 18.2 17.3 16.8 16.5 16.4 16.4 16.3 45 Table A2.13 Agricultural value added as percent of GDP for selected countries Country 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Guyana 41.2 38.9 35.4 34.7 23.7 21.6 21.4 21.4 21.6 22.0 22.5 Belize 20.3 20.8 19.6 18.7 14.4 14.6 15.9 17.2 18.7 20.8 22.8 Nicaragua 33.3 34.0 33.9 34.1 25.8 24.3 23.9 23.8 24.2 24.7 25.1 Source: FAO. 2000. Ibid. Table A2.14 Share of agricultural export from total GDP of Latin America & the Caribbean region in 1995 billion US$ 1995 constant market prices Indicator 1990 1991 1992 1993 1994 1995 1996 1997 Total Agricultural Products Exports 30.7 30.4 32.0 31.5 33.6 37.1 36.9 43.2 GDP 1456.5 1520.9 1571.8 1637.3 1722.9 1740.6 1804.3 1897.4 ShareofAgriculture 2.1% 2.0% 2.0% 1.9% 1.9% 2.1% 2.0% 2.3% Source: Computed based on data from SIMA Table A2.15: Share of agricultural exports' from total exports2 (value share in %) Country 1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 Nicaragua 47.2 40.3 30.1 39.0 35.6 38.7 53.7 50.3 42.6 41.7 57.3 Ecuador 18.5 25.8 39.5 50.7 45.0 41.3 48.8 45.8 42.9 51.5 56.1 Guatemala 44.2 55.3 23.0 21.7 24.5 42.9 38.8 42.3 40.9 39.8 37.7 Costa Rica 48.8 61.1 38.6 41.3 32.5 34.5 41.9 43.6 42.6 39.7 33.1 Colombia 67.8 59.3 31.1 32.0 32.3 29.5 35.5 29.0 25.7 29.6 28.5 Argentina 36.3 43.3 27.3 29.5 30.0 26.4 24.8 24.1 25.4 22.3 23.7 Chile- 7.8 14.8 17.3 18.0 18.2 19.6 17.5 15.3 16.7 15.7 18.2 El Salvador 26.2 52.3 5.0 5.9 8.3 32.6 25.4 27.4 23.1 24.3 16.1 Paraguay 40.5 54.8 47.2 44.0 17.7 14.0 12.8 11.6 14.5 16.4 15.3 Uruguay 13.5 19.5 14.8 14.6 13.2 13.9 13.7 16.9 13.0 15.7 14.0 Honduras 55.9 60.5 37.6 35.9 48.5 48.1 38.3 37.7 31.2 32.0 14.0 Brazil 6.9 18.2 11.0 10.8 9.6 9.1 11.6 9.6 10.0 13.5 12.3 Bolivia 3.6 2.9 14.6 11.9 7.7 7.4 10.8 11.8 13.5 14.9 11.1 Peru 7.1 10.0 7.3 8.1 6.1 6.6 9.3 10.4 9.0 11.2 10.2 Mexico 8.4 6.4 6.0 6.2 5.2 5.5 5.1 5.8 4.3 4.0 3.7 Venezuela 0.2 3.1 1.1 1.1 1.1 1.3 1.3 0.9 0.9 1.0 1.3 Total 13.5 17.4 12.5 13.2 12.3 11.9 13.0 12.3 11.3 11.9 11.4 Source: CEPAL. 1999. Statistical Yearbook for Latin America and the Caribbean. 1. Agriculture includes hunting, forestry and fishing. 2. Value of exports FOB of goods. Figure for Mexico includes goods for processing (maquila) from 1992 onwards. Table A2.16 Economic importance of the agricultural sector in Latin America & the Caribbean region 1975-1996 (Gross agricultural product (% of total GDP) 46 Valuefor 1996 Country 1975 1980 1985 1990 1996 (US$ millions) Latin America & the Caribbean 11.3 7.7 8.4 8.3 8.0 146,695 Haiti 45.2 32.9 32.8 33.2 36.6 785 Nicaragua 23.4 28.4 30.2 31.0 33.7 672 Paraguay 34.7 25.0 26.9 27.8 26.9 2,594 Guatemala 28.0 24.8 25.9 25.9 24.1 3,798 Honduras 29.3 19.4 19.6 20.0 19.8 811 Colombia 25.2 17.4 16.5 16.2 14.2 12,174 Ecuador 23.0 10.5 10.9 13.4 13.0 2,471 Uruguay 15.2 11.5 13.2 11.3 12.1 2,314 Mexico 9.6 8.3 8.6 7.8 7.4 24,823 Brazil 8.3 6.2 7.1 6.8 7.2 55,898 Source: Quiroz, J. A. 2000. Agriculture and the Macroeconomy in Latin America During the Nineties, http://www.iadb.org/. The relative importance of agriculture varies from I to 25 percent of GDP in the region, with shares in major countries like Argentina, Brazil, Chile and Mexico below 9 percent in 2000. This sharp variation among countries is not apparent at aggregate levels. Also, note that agriculture here refers to primary agriculture, not to agro-business upstream and downstream and not to the rural non-farm economy which is listed separately. Note that even for large countries where agriculture as a percentage of GDP is below 9 percent, agricultural exports as a share of total exports is significant (and therefore important as a factor in the competitiveness of the country); e.g., Brazil at 12 percent, Chile at 18 percent , and Argentina at 23 percent. Again, the relative importance of agricultural exports does not show at an aggregate level. Table A2.18 Non-agricultural income or rural non- Table A2.17 Share of agriculture from GDP of Latin farm income (RNFI) in total rural income America & the Caribbean region Year Share Agriculture (value added) and GDP (at market prices) Country of of RNFI Source constant 1995 Million US $ survey (M) Brazil 1997 39 Da Silva and Del Agriculture Grossi, 1999 Year Agriculture GDP share in % Chile 1997 41 Berdegue et al., 1999 19 1,5 . ,5,1. Colombia 1997 50 Echeverri, 1999 1990 116,653.0 1,451,219.0 8 Costa Rica 1989 59 Weller, 1997 1991 119,575.0 1,515,335.0 7.9 Ecuador 1995 41 Elvers and 1992 122,525.0 1,566,137.0 7.8 Lanjousw, 2000 El Salvador 1995 38 Lanjouw, 1998 1993 123,003.0 1,631,422.0 7.5 Haiti 1996 68 Wiens and 1994 124,677.0 1,716,729.0 7.3 Sobrado, 1998 1995 129,412.0 1,734,121.0 7.5 Honduras 1990 38 Weller, 1997 Mexico 1997 55 De Janvry and 1996 132,939.0 1,797,576.0 7.4 Sadoulet, 1999 1997 134,436.0 1,890,385.0 7.1 Nicaragua 1998 42 Corral and Reardon 1998 136,900.0 1,929,823.0 7.1 Panama 1997 50 Wiens, et. al. 1999 Peru 1997 50 Escobal et. al. 1998 1999 137,954.0 1,920,510.0 7.2 Source: Berdegue, J. A. et. al. 2000. Empleo e Ingreso Rural no Source: Computed from SIMA. Agricola en America Latina y el Caribe. 47 Table A2.19 Trends in rural non-farm employment in Latin America & the Caribbean '000 County Year RNFE Year RNFE household household Bolivia 1976 227 1988 257 Brazil 1970 1582 1980 2630 Chile 1970 193 1982 193 Colombia 1964 310 1973 476 Costa Rica 1973 131 1984 194 Cuba 1970 355 1981 405 Ecuador 1974 294 1990 537 El Salvador 1971 88 1975 128 Guatemala 1964 129 1973 173 Haiti 1971 291 1982 356 Honduras 1974 81 1988 180 Mexico 1970 909 1980 1365 Nicaragua 1950 21 1971 51 Panama 1970 55 1980 91 Paraguay 1972 88 1982 136 Peru 1972 245 1981 297 Uruguay 1975 63 1985 49 Venezuela 1971 276 1981 347 Total 5338 7865 Source: Berdegue, J. A. et. al. Ibid. p. 6. These are partial indicators of the importance of the RNFE. The RNFE is not measured as a sector in the national income accounts. Consequently, its role is underestimated in the national income accounts. 48 Appendix 3 The Rural Portfolio in the Latin America & the Caribbean Region Introduction The purpose of this Appendix is to learn from the rural portfolio in LCR and to identify strengths and weaknesses in the implementation of rural development lending operations. The review of the portfolio highlights five aspects of interest in the formulation of a rural development strategy. * One, is the multi-sectoral nature of the "rural" agenda. The many sectors that operate in rural space highlight the challenge of coordination to achieve synergism. * Two, is the fact that the lending is sharply declining and erratic in LCSER, via which the bulk of the lending for "rural" in LCR is channeled. The entire "rural" Bank lending also experienced a sharp decline since the 1970s. * Three, is the importance of community-driven projects in the portfolio. These are projects in which the funds are either allocated directly to communities to decide how to spend for development, or with strong community participation in the preparation and implementation of priority actions. * Four, the way rural issues are integrated in the Country Assistance Strategy documents has been very uneven across countries. * Five, while there are important opportunities for higher impact through scaling up and expansion of existing successful initiatives, there are important gaps with respect to the new agenda proposed in the Action Plan. This would require a revisiting of the focus and skill-mix. Major components of the project portfolios in "rural". The above "rural" portfolios contain three categories of interventions to assist the rural poor. In descending order in terms of their relative share in the LCSER lending commitment portfolio, these are (a) "focused actions"; (b) "inclusive actions"; and (c) "enabling actions".40 The first is focused on the rights, interests and needs of poor people. The second are broad-based actions that improve opportunities and services generally. The third support the policies that shape the enabling context for poverty reduction and elimination. In the LCSER portfolio of 43 projects, direct poverty reduction projects in the first two categories are the majority. Here fall most of the community-based and poverty alleviation projects, land/soil management projects; and interventions at the regional or micro-catchment levels. Other projects address issues of land administration and land reform; natural resource management-soils, watersheds; and of technology transfer to small farmers. HD also focuses on the first two categories; e.g., targeted transfers, delivery of primary education and health services, and small infrastructure. The same is true of FP; e.g., rural water supply and sanitation, and rural roads, involving local communities, municipalities and central governments. A multi-sectoral approach to lending "Rural" lending operations are channeled throughfive management units. The budget allocated to "rural" is channeled through LCSES (made up of ER, EN, and EO), and to LCSHD, and LCSFP, as the following table shows. The multi-sectoral nature emphasizes the need for coordination/collaboration to achieve synergism in rural development. LCSHD portfolio. The HD portfolio currently consists of 85 projects under supervision: 43 projects in Education, 29 projects in Health, and 13 projects in Social Protection. Of these projects, approximately 52 are fully or partially targeted to rural areas, accounting for about 61 percent of the total HD projects, and about $1,410.76 million of loan proceeds, or 22 percent of total HD lending. 40 These are categories used in the RDV portfolio analysis. 49 Table A3.1 Latin America & the Caribbean human development portfolio in fiscal year 2001 Social Protection Health Education Total Total number of human development projects 13 29 43 85 Total amount of human development lending 735.1 2,504 3,297.2 6,536.3 portfolio (US$ million) # of projects targeted to rural areas 10 17 25 52 Total loan amount targeted to rural (US$ 625.3 832.8 1,157.9 2,616 million) Loan amount targeted to rural -adjusted 324.3 491.75 594.71 1,410.76 Note: The figures above do not include lending in peri-urban areas. LCSFP portfolio. With a total of 197 activities programmed for FY01, LCSFP's portfolio of projects spreads over six different sector clusters: Energy, Finance, Private Sector Development, Transport, Urban, and Water. Four of these clusters include activities with a significant focus on rural issues, for a total of 18 activities (9.1 percent of total) including three sector work pieces (AAA), the preparation of seven new lending operations (LEN), and eight projects under supervision (SPN). Table A3.2 below presents the number of LCSFP's FY01 activities counted by cluster and by type. It also shows the distribution of activities with a significant rural focus. Table A3.2 Finance, Private Sector, and Infrastructure Activities in LCSFP's involvement in rural issues is Latin America & the Caribbean for fiscal year 2001 small but increasing, with a much greater Analytic share of new lending preparation activities than of project supervision activities. Cluster Advisory Lending Supervision Total However, there are only three sector work Activities activities that are being funded in FY01. Overall, about 13 percent of LCSFP's Energy 2 2 14 18 budget for FY01 is allocated to these Finance 12 4 11 27 activities. PSD 10 4 18 32 LCSER declining and erratic lending. Transport 2 1 I 41 54 Table A3.3 shows a declining and erratic Urban 8 3 19 30 lending situation and the difficulties of Water 4 11 21 36 planning medium to long term action for Totals 38 35 124 197 rural development. The share (out of total ... . .. ~~~~~~~~~LCR lending commitments) of rural Activities with a Significant Rural Focus lending cSeRhs f rom Number: 3 7 8 1 8 ~~~~~~~lending through LCSER has fallen from Number: 3 7 8 18 15 percent in FY95 to 3.3 in FY00 (with Percent of Total: 7.8 20.0 6.5 9.1 erratic year-to-year swings). From FY95 to 2000, commitments in LCSER have fallen by 87 percent, from US $914 million to US $144 million (the corresponding figures for LCR are US $6,062 to US $4,317 million respectively, a 28.8 percent fall). TableA3.3 LCSER share from total LAC lending commitment US$ million Fiscal LCSER Changefromprevious LAC Changefromprevious LCSER share in % Year year (%o) year (°) 1995 914 6,062 15.0 1996 262 -71.3 4,440 -26.8 5.9 1997 742 183.2 4,565 2.8 16.3 1998 317 -57.3 6,042 32.4 5.2 1999 551 73.8 7,737 28.1 7.1 2000 144 -73.9 4,317 -44.2 3.3 Source: World Bank Business Warehouse. 50 LCSER Portfolio. Table A3.4, A3.5 and A3.6 provide a detail picture of the lending and portfolio situation in LCSER41. Unfortunately the categorization that the system provides does not permnit to properly classify the projects according to their strategic thrust. Therefore these tables provide a snapshot of the existing projects in the portfolio and lending but cannot be used to weigh their importance according to the different categories of projects. In particular the categories "agricultural adjustment" and "other agriculture" do not reflect the real nature of the projects listed. Project categorization is certainly an area that would merit more in the future attention so as to allow better analysis of the portfolio. Table A3.4 LCSER projects approved during fiscal years 1995-2000 in US$ million IBRD IDA IBRD/IDA Fiscalyear Country Proj ID Project name Commitment Commitment Commitment Amount Amount Amount Agriculture Adjustment $785.40 $ - $785.00 1997 Argentina P006010 Provincial Agricultural Development I $ 125.00 $ 125.00 1997 Brazil P006475 Land Reform Pilot $90.00 $90.00 1997 Peru P042442 Sierra Natural Res. $51.00 $51.00 1998 Argentina P006041 Small Farrner Development $75.00 $75.00 1999 Mexico P048505 Agricultural Product $ 444.40 $ 444.00 Agricultural Extension $ 39.00 $ 39.00 1995 Venezuela P008222 Agricultural Extension $39.00 $39.00 Irrigation & Drainage $200.60 $2.70 $203.00 1995 Dominican P007020 Irrig Land & Watersh $28.00 $28.00 Republic 1995 Mexico P007607 Rainfed Areas Development $85.00 $85.00 1996 St. Lucia P039455 Wtrshed & Environ Mt $ 2.60 $ 2.70 $ 5.00 1997 Peru P008037 Irrigation Rehabilitation $85.00 $85.00 Livestock $ 44.00 $ 44.00 1999 Brazil P055388 Animal&Plant Dis. Co $44.00 $44.00 Annual Crops $ 15.00 $ 15.00 1996 Chile P006676 Secano Ag Dev 1 $15.00 $15.00 Research $141.60 $142.00 1995 Colombia P006880 Agriculture Technolo $51.00 $51.00 1997 Brazil P043873 Ag Tech Dev. $60.00 $60.00 1997 Ecuador P007131 Ag Research $21.00 $21.00 2000 Peru P047690 Res. & Extension $ 9.60 $10.00 Forestry $121.00 $9.00 $130.00 1996 Argentina P006040 Forestry/Dv $16.00 $16.00 1999 Nicaragua P052080 Forestry $ 9.00 $ 9.00 Other Agriculture $874.00 $ 53.60 $928.00 1995 Brazil P035717 Rural Poverty Alleviation - Bahia $ 105.00 $ 105.00 1995 Brazil P038884 Rural Poverty Alleviation -Ceara $70.00 $70.00 1995 Brazil P038885 Rural Poverty Alleviation - Sergipe $36.00 $36.00 41The Latin America and Caribbean Region, Environmentally and Socially Sustainable Development department (ESSD -- LCSES) is organized under three management units; i.e., LCSER (responsible for rural projects), LCSEO (responsible for social projects) and LCSEN (responsible for environment sector projects). Accordingly, the list of projects under LCSER does not include other rural projects managed by the other two units and therefore underestimates the total rural portfolio of the Region. 51 Table A3.4 LCSER projects approved during fiscal years 1995-2000 in US$ million IBRD IDA IBRD/IDA Fiscalyear Country Proj ID Project name Commitment Commitment Commitment Amount Amount Amount 1996 Brazil P037828 Rural Poverty Alleviation - Pr $175.00 $175.00 1997 Brazil P043871 Rural Poverty Alleviation - Piaui $30.00 $30.00 1997 Brazil P042566 R.Poverty(Pe) $ 39.00 $ 39.00 1997 Brazil P038896 ur Poverty Alleviation - Rio Grande $24.00 $24.00 Do Norte 1997 Brazil P043868 Rgs Land Mgt/Poverty $ 100.00 $ 100.00 1997 Mexico P007732 Rural Fin. Mkts T.A. $30.00 $30.00 1997 Nicaragua P007790 Rural Municipalities $ 30.00 $30.00 1998 Brazil P051701 Maranhao R.Poverty $80.00 $80.00 1998 Brazil P042565 Paraiba R.Poverty $60.00 $60.00 1998 Mexico P007711 Rural Dev. Marg.Area $47.00 $47.00 1999 Guatemala P054462 Land Fund $23.00 $23.00 2000 Mexico P057530 Rural Dev.Marg.Arii $55.00 $55.00 2000 Nicaragua P064915 Ag Techn & Rural Edu $ 23.60 $24.00 Business Environment $500.00 $500.00 1995 Mexico P007702 Second Decentraliz. $ 500.00 $ 500.00 Other Finance $ 50.00 $ 50.00 2000 Brazil P050776 NE Microfinance Development $50.00 $50.00 Natural Resources Management $163.50 $ 34.00 $148.00 1996 El P007174 Land Administrat. $50.00 Salvador 1997 Honduras P007398 Rural Land Mgmt $ 34.00 $34.00 1997 Panama P007847 Rural Pov & Nat Res $22.50 $23.00 1998 Brazil P006474 Br Land Mgt 3 (Sao Paulo) $55.00 $55.00 1999 Guatemala P049616 Land Administrat. $31.00 $31.00 2000 Colombia P057326 Sierra Nevada Sust. Devel. $ 5.00 $ 5.00 Total Commitment For Approved Projects $ 2,829.10 $ 99.30 S 2,929.00 Source: Business Warehouse, December 12, 2000 Table A3.5 Projects under supervision in LCSER in US$ million Country, by Sector Project ID Project Name Net Commitment Agriculture Adjustment $ 785.4 Argentina P006010 Prov Ag Devt I $ 125.0 Argentina P006041 Small Farmer Dv. $ 75.0 Brazil P006475 Land Rfm Pilot $ 90.0 Mexico P048505 Agricultural Product $ 444.4 Peru P042442 Sierra Natural Res. $ 51.0 Agricultural Extension S 79.0 52 Table A3.5 Projects under supervision in LCSER in US$ million Country, by Sector Project ID Project Name Net Commitment El Salvador P007167 Ag Sctr Reform & Inv - Prisa $ 40.0 Venezuela P008222 Ag Ext $ 39.0 Fisheries & Aquaculture $ 5.0 Argentina P057459 Sustainable Fisheries Management Project $ 5.0 Irrigation & Drainage $ 343.7 Dominican Repub P007020 Irrig Land & Watersh $ 27.7 Ecuador P007105 Irrig Ta $ 20.0 Mexico P007701 On-Farm & Minor Irri $ 170.0 Peru P008037 lrrig. Rehab $ 85.0 Uruguay P008173 lrrg Nat Res Mgmt $ 41.0 Livestock $ 44.0 Brazil P055388 Animal&Plant Dis. Co $ 44.0 Research $ 141.6 Brazil P043873 Ag Tech Dev. $ 60.0 Colombia P006880 Agriculture Technolo $ 51.0 Ecuador P007131 Ag Research $ 21.0 Peru P047690 Res. & Extension $ 9.6 Forestry $ 25.0 Argentina P006040 Forestry/Dv $ 16.0 Nicaragua P052080 Forestry $ 9.0 Other Agriculture $ 905.6 Brazil P043871 (Piaui)R.Poverty $ 30.0 Brazil P037828 Br (Pr)R.Poverty $ 175.0 Brazil P051701 Maranhao R.Poverty $ 80.0 Brazil P042565 Paraiba R.Poverty $ 60.0 Brazil P042566 R.Poverty(Pe) $ 39.0 Brazil P038896 R.Poverty(Rgn) $ 24.0 Brazil P043868 Rgs Land Mgt/Poverty $ 100.0 Brazil P035717 Rural Pov. (Bahia) $ 105.0 Brazil P038884 Rural Pov.- Ceara $ 70.0 Brazil P038885 Rural Pov.-Sergipe $ 36.0 Guatemala P054462 Land Fund $ 23.0 Honduras P055991 Access To Land Pilot Project $ 8.0 Mexico P007711 Rural Dev. Marg.Area $ 47.0 Mexico P057530 Rural Dev.Marg.Arii $ 55.0 Nicaragua P064915 Ag Techn & Rural Edu $ 23.6 Nicaragua P007790 Rural Municipalities $ 30.0 Other Finance $ 50.0 Brazil P050776 Ne Microfinance Development $ 50.0 Rural Roads $ 84.0 53 Table A3.5 Projects under supervision in LCSER in US$ million Country, by Sector Project ID Project Name Net Commitment Ecuador P007115 Rural Dev $ 84.0 Natural Resource Management $ 286.5 Brazil P006474 Br Land Mgt 3 (Sao Paulo) $ 55.0 Colombia P057326 Sierra Nevada Sustainable Development $ 5.0 Colombia P006868 Natural Resource Man $ 39.0 El Salvador P007174 Land Administration $ 50.0 Guatemala P049616 Land Administration $ 31.0 Honduras P007398 Rural Land Mgmt $ 34.0 Panama P007847 Rural Pov & Nat Res $ 22.5 Paraguay P007918 Ntl Res Mgmt I $ 50.0 Other Environment $ 202.1 Brazil P050772 Land-Based Poverty Alleviation I $ 202.1 Mexico P060718 Alternative Energy $ - Total commitment for LCSER projects under supervision $2,951.9 Source: Business Warehouse, Supervision projects detail, December 12, 2000 Table A3.6 LCSER pipeline projects, fiscal years 2001-2003 commitment in US$ million IBRD IDA IBRDI Fiscal Country Project ID Project name Sector Sector Descrip. Commit commit A year A mt Commit Amt Amt Amt 2001 Argentina P057459 Sustainable AF Fisheries & 5 5 Fisheries Mgt. Aquacult 2001 Honduras P055991 Access to land AY Other Agriculture 8 8 2001 Chile P057479 Water Resources VM Natural Res Mgmt 25 25 Mgt. 2001 Brazil P050772 Land-Based Poverty AY Other Agriculture 202.1 202.1 alleviat. 2001 Brazil P050875 CE 2nd Rur.Poverty AY Other Agriculture 30 30 2001 Brazil P050880 PE 2nd Rur Poverty AY Other Agriculture 37 37 2001 Brazil P057649 BA 2nd Rur. Poverty AY Other Agriculture 54 54 Sub-total 2001 353.1 8 361.1 2002 Nicaragua P072632 Forestry 11 AT Forestry 2002 Mexico P070520 Rural Devel. AY Other Agriculture 75 75 Marginal Areas III 2002 Guatemala P064883 Western Altiplano VM Natural Res Mgmt 30.4 30.4 Natur. Res. Mgt 2002 Nicaragua P056018 Land VM Natural Res Mgmt 30 30 Administration 2002 El Salvador P035746 Rural Develop. VM Natural Res Mgmt 50 50 54 Table A3.6 LCSER pipeline projects, fiscal years 2001-2003 commitment in US$ million Fiscal J~~~~~~~ ~~~~~~~~~~BRD IDA IBDI Fisc,al Country Project ID Project name Sector Sector Descrip. Commit Commit IDA year Amt Amt Commit Amt 2002 Mexico P060686 Municipal Develop. VY Other Environment 400 400 in Rural areas 2002 Panama P050595 Land VM Natural Res Mgmt 47.9 47.9 Administration 2002 Panama P035754 Rur. Poverty VV Environment Adj. 40 40 2002 Mexico P070108 Rural Microfinance FS Financial Sect. Dev. 40 40 Capacity Building 2002 Bolivia P055233 PARTIC. RURAL IL Small Scale Enterp. 30 30 INV II 2002 Ecuador P039437 Rur Poverty SY Other Social Protect 37.9 37.9 2002 Brazil P050881 Rur Poverty AY Other Agriculture 50 50 2002 Uruguay P070653 Rur. Develop. XX UNIDENTIFIED 30 30 Sub-total 2002 801.2 60 861.2 2003 Mexico P035752 IRRIGATION & Al Irrigation & Drainag 280 280 MODERN. 2003 Paraguay P007919 SUST.RURAL INV. AA Agriculture Adj. 20 20 PROJ 2003 Brazil P050777 LAND-BASED AY Other Agriculture 225 225 POVERTY 2 2003 Ecuador P037051 WATER RES. VM Natural Res Mgmt 25 25 MGMT. 2003 Nicaragua P055823 RURAL BD Decentralization 46 46 MUNICIPAL. II 2003 Argentina P070628 AR-Rural Poor XX UNIDENTIFIED 75 75 2003 Brazil P057650 BR PROAGUA 2 WY Other Water, Sani. 200 200 Sub-total 2003 825 46 871 Total LCSER commitment for current and pipeline 1979.3 114 2093.3 55 Appendix 4 Rural Development in Action - Best Practices and Concrete Examples On the "How" of the Action Plan This section presents some examples and experiences of how to translate strategic priorities into actions. It lists a number of projects and experiences in the Latin American and Caribbean Region (LCR) portfolios in agriculture (LCSER), natural resources (LCSEN), social development (LCSEO), human development (LCSHD) and infrastructure (LCSFP). It does not pretend to be comprehensive but just to indicate the basic feature of some of the relevant operations that could be used as reference for scaling up, adjusting, expanding or replicating future projects. They are presented according to the six Lines of Action of the Action Plan 1. Raise productivity as the engine of agricultural growth Public/private alliances for more effective delivery of technology generation and transfer. Cases from Colombia, Venezuela and Ecuador. An important design principle in the LCSER portfolio is the competitive grant system for improving public-private partnerships in technology generation and transfer and better assist smallholders. Smallholder/private business alliances in the production-marketing chain. This is an example of a successful smallholder cum private business alliances in a conducive incentive and institutional environment generated by Guatemalan government. The case was developed by the FAO Farming Systems Study, Appendix 5 (December 2000). Overview. The following case study documents an example of substantial and sustained growth in farm family incomes that has occurred within a part of the Mesoamerican hillside maize-beans system as a result of diversification of small-scale producers into export horticulture. The case is particularly interesting because the beneficiary population is largely indigenous, many not even speaking Spanish, and because their domination of the U.S. market for snow peas has been achieved entirely on the basis of micro-level production by over 20,000 family production units. Key actors. This impressive position has been reached without any external coordination or support from Government or development agencies. Rather it was made possible by the activities of the private sector who were, in turn, responding to newly emerging international market opportunities. However, the effectiveness of the private sector actions, and hence the success of the small-scale producers, was greatly enhanced by the concurrent emergence of the Guatemala Non-Traditional Exporters' Association (GEXPRONT), and the existence of a series of national governments generally supportive of the needs of an emerging export sector. Thus major gains for poor, indigenous farming families resulted, in part at least, from an effective environment for business development. 56 Box A4.1 Public/private partnerships in research and extension projects Since the mid 1990s the Bank and its partners have undertaken a wide range of institutional reforms in the region in the area of agricultural research and agricultural extension. Such reforms are being carried out in the Venezuela Agricultural Extension Project, Colombia Agricultural Technology Development Project and the Ecuador Agricultural Research Project and the Brazil Agricultural Technology Development. This work is now being further expanded in Peru and Nicaragua. The underlying principles of these projects are (a) diversification in execution and funding; (b) allocation of funding on a competitive basis; (c) demand driven funding; (d) empowerment of local communities; and (e) increased private sector implementation. In the case of Colombia, research and technology transfer projects in smallholder agriculture are generated on a demand driven basis by locally run networks and are then subjected to regional peer reviews panels which approve about 17 percent of all projects submitted. The result has been that the quality of projects has increased considerably and that the system is much more competitive as a result. Of the total financing about 46 percent has come from cofinanciers other than the state, thereby diversifying funding and relieving the strain on government budget resources and increasing the sustainability of the model. The number of providers of services has also increased i.e. universities, NGOs, farmers groups etc thereby taking advantage of idle capacity in the system. In the case of Venezuela a municipal extension service for small farmers has been installed where financing is shared with Central government, state governments, municipalities and farmers. A private company or NGO is contracted to implement the extension services at the municipal level. An association (ACE) comprised of farmers and municipal authorities oversee the service at the local level. The project is now working in 115 municipalities and is receiving support from all levels of government and society. Local priorities are dealt with on a demand basis and in this way the most excluded parts of society are dealt with adequately. The participation of women is now at 30 percent of total. In Ecuador a competitive fund is used to assign resources for research on a set of national priorities. The results have been very exciting in that many institutions are participating in the implementation and financing of research. It is estimated that the project funds are leveraging a further 40 percent of funding from the implementing agencies thereby activating unused capacity in the system. A competitive strategic alliance program is also being financed which allows Ecuadoran institutions establish alliances with international partners in research and education, thereby ensuring access to the latest knowledge for the sector. This work needs to be further strengthened in the future to ensure the sustainability of these reforms and to modernize the delivery of information to the rural communities. So assisted, they can survive and better still, thrive in a globalized economy and continue to contribute to the growth of the overall economy. 57 Box A4.2 The case of small-scale indigenous farmers of Guatemala: integration in the snow peas, broccoli export business There is no doubt of the enormous impact that the development of snow peas and broccoli exports has had on small-scale indigenous farmers of the Guatemalan altiplano. From 1980 to 1993, the Guatemalan share of the OECD market for fresh, frozen and processed vegetables quintupled, from 0.09 percent to 0.45 percent,42 even while the commercial-scale production of these products was declining to nothing. By 1995, Guatemalan supplied one third of U.S. imports of snow peas; for a value of US$55 million per annum. By 1996, it was estimated that 21,500 indigenous families were involved in direct production of these two crops, generating estimated gross farm incomes in excess of US$30 millions. This equates to US$1,500 per family. A further US$ 28 million was calculated to accrue annually to the wholesaling, processing, packing and export sector within Guatemala, some of which would have benefited rural inhabitants engaged in collection, packing and transport activities. In fact, a study undertaken in 1994 estimated an indirect labor multiplier of 0.26 in relation to non-traditional agricultural activities in Guatemala,43 suggesting that as many as 27,000 families may have derived employment from these activities, without counting those occupied in producing mini- vegetables, raspberries and other later arrivals. With a conservative family size estimate of 6 persons, these two non-traditional crops may have contributed to poverty reduction for over 160,000 rural poor in Guatemala. Further more, these numbers do not take into account providers of good and services in rural areas, who were able to establish business in response to rising rural demand. Key Contributing Factors While it would be unfair to downplay the initiative and drive of the indigenous producers and small-scale enterprises that drove the snow pea/broccoli system to its success in Guatemala, it is argued that the impact was in fact a result of the interaction of a number of factors. Within the production and marketing system itself, the low costs of entry into either production or export of snow peas resulted in a system that was broadly competitive. There were no apparent advantages of scale such as were seen in broccoli freezing (perhaps contributing to the much lower returns for this crop). As a result, as much as 47 percent of the final market price was captured by the growers, a high proportion for a perishable export crop. Part of the credit for this achievement must go to the Four Pines Cooperative, which was an early pioneer in promoting snow peas, broccoli and mini-vegetables. As important was the role played by AGEXPRONT in creating (and in relation to Government, promoting) a framework within which such competitive behaviour could flourish. Marketing support such as the annual Agritrade Fair and the "recruitment" of overseas Foreign Ministry commercial attaches as trouble shooters in destination markets, provided new entrants to the export business with market facilities that would otherwise have been very costly to develop. Similarly, the development of the Ventanilla Unica, and the management of freight handling at the Guatemala International Airport reduced transaction costs for new entrants44. Unusually for an exporters' trade association, however, AGEXPRONT took a leading role in promoting enterprise-producer linkages, seeing it as a key to increasing product availability, and hence turnover, for its member businesses. From an early point, AGEXPRONT encouraged exporters in the same product line (melons, mangoes, snowpeas, broccoli, cut flowers, etc.), to work together in sub-commissions directed at identifying and alleviating common obstacles to the continued development of that product. It was this strategy that directly led to the establishment of the USAID financed shared-cost field research programs, and subsequently the privately funded extension services, as exporters agreed on a common need to deal with low yields, chemical contamination issues or other problems. In 1997 AGEXPRONT created its newest sub-commission; for exporters of environmentally friendly products and services. The relationship between the private sector and the Government of Guatemala has also been crucial for the rapid development of the non-traditional export sector, and hence ultimately for income generation among small- scale producers. The general thrust of Government activity has been supportive of small-scale enterprises. In the longer term, the willingness of MAGA to utilise AGEXPRONT as an executive arm for channeling and managing public sector funds has shown that international funding is not the only way for such private sector bodies to access the financing they need to continue their activities. 58 Briefreirospective. Over a period of approximately 16 years, from 1974-1990, a number of key changes occurred in Guatemala that combined to profoundly affect the lives of over 150,000 poor inhabitants of the Guatemalan rural highlands. In broad terns these changes can be grouped into three categories: * The emergence of small-scale producers and small to medium-scale enterprises as key players in the creation of a major export trade for snow peas and broccoli; c The formnation of the trade association GEXPRONT, and its role in facilitating the growth of the non-traditional agricultural export sector; and * The recognition by the Government of Guatemala of the importance of exports in driving economic growth, and its adoption of export-friendly policies. Integrated water resource management for a competitive agriculture--The case of Mexico Through the Irrigation and Drainage Sector program (1991-2000), the Bank approached the government's full irrigation, drainage and flood control program within a time-slice operation (box A4.3). This provided much broader scope for a dialogue and agreement on irrigation policy issues including investment selection criteria, environmental safeguards, procurement and auditing, rules and M&E procedures. This sector loan was conceived as the first phase of a broader irrigation and investment program for the sustainable development of water and soil productivity in the Irrigation Districts (IDs). The sector project supported the transition from an engineering-driven, centrally-managed irrigation investment program relying mainly on Government grants, to a more decentralized system based on transparent investment selection criteria and greater participation of beneficiaries and users in decision making and cost recovery. The strategy vas also in line with the Bank's policy, stressing the need for decentralization as an important element of an integrated approach to water resource management and private sector development. The institutional reform process for improved irrigation management and cost recovery was instrumental to ensure that the legal requirements for cost recovery were implemented. The sectoral time-slice approach based on the early definition of clear investment selection criteria and methodology and strong institutional building and strengthening, has also proved to be adequate. Implementation experience and results. Project outcome is considered highly satisfactory. Mexico has undertaken a radical program of decentralization and private sector promotion in irrigation involving substantial policy changes, restructuring of agencies, and transfer of management responsibilities to autonomous Water Users Organizations (WUOs). Going beyond the original targets of transferring the 21 best prepared IDs foreseen at appraisal (1.97 million ha), the project transferred operations and maintenance (O&M) functions for 72 IDs (3.28 million ha) to 431 WUOs, and an additional 8 IDs are in the process of being transferred. Funding for O&M is ensured through water fees paid by users, who increased their share in O&M costs from 20 percent to an average of 90 percent, almost reaching self-sufficiency and significantly improving water use efficiency. To supplement this project, the government, with Bank financing, launched in 1994 an On-Farm and Minor Irrigation Networks Project (OFMINP) to enhance farm-level productivity and water conservation, as well as a program to register and assign water rights to users. The combination of the two programs may become a model for many development countries that embark on the revision of their irrigation sector and are sending officials to Mexico to learn from this experience. Higher water use efficiency andproduction growth. Before the project, irrigated agricultural production declined at an average rate of 0.4 percent per annum (1982-1989), while since the transfer program was in operation the trend was reversed and production grew at a rate of 4.8 percent per annum (1992-1998). The reduced risk associated with availability of water for irrigation no longer depending on central government budgets and timely transfers, strongly stimulated a modernization process through production investments and technology improvements. Higher efficiency resulted from improvement and installation of better structures, and the adoption of innovative technologies. Investments are now increasingly decided and selected by the WUOs following transparent criteria, procured competitively and implemented efficiently. It is estimated that O&M costs are about 30 to 40 percent lower under the new WUOs' responsibility and better management. Government role. The inability of govemments to provide the required funding for the irrigation sector from the public budget, results in a situation where public infrastructure cannot be maintained and is unsustainable over time. Strong political will is required to charge the full O&M cost to users of irrigation facilities, while devising acceptable transfer mechanisms. It is important to mitigate the traditional bias that government irrigation agencies have in favor of infrastructure development as they tend to overlook or ignore broader sector policies and resources allocation issues such as economic and agronomic aspects that affect the overall performance. 59 Box A4.3 Irrigation and drainage sector project, Mexico The project included drainage as a component of a sector work which had the broad objective of providing adequate level of investment in irrigation on the basis of rigorous and technical criteria; gradual decentralization of funding and management of O&M and transfer the management to WUA. The great challenges that the project went through include among others: promoting government commitment promoting awareness and interest among farmers developing legal and regulatory framework empowering the user groups building capacity within the farming community to manage and administer water districts HR development within the professional staff to match the new institutional and technological changes. On the drainage side the biggest challenges was to build capacity for: assessment and diagnosis of the drainage problems introducing appropriate technologies for construction of subsurface drainage and channel maintenance. developing capacity to design and build subsurface drainage systems. By the end of the project, 60,000 hectares were provided with subsurface drainage (potential needs is estimated to be 550,000 ha) through this and under other projects influenced by the Bank project, important achievements were as following: A capacity was developed among the private sector to design and install subsurface drainage systems using machinery and materials with world standards. Typical costs for agricultural piped drainage are more affordable (about US$ 700/ha) Remote sensing was developed and used to map salinity on a regional scale. Pilot areas were implemented to test technology, carry out research and disseminate information. Research was carried out to use biological control of aquatic weeds in open drain channels. Training was provided at all levels including farmers (65 HL professionals were trained). A financial mechanism was developed to encourage farmers to invest in drainage at the farm level (50% of the cost was provided by the government as matching grants). Currently three companies have PE drainage pipe on regular production lines. Full recovery of O&M costs. Monitoring system is installed to observe water table levels & regional movement of ground 2. Pursue a systematic approach to improve the competitive functioning of market While a number of successful examples exist on land administration (most of Central America), there are only few but successful cases of rural finance operations. There are almost no cases addressing the issues of product marketing, farmers' organizations, and private sector promotion. However, the recent Colombia Productive Partnership project, promoting contract farming with the private sector and integration in the supply chain promises to provide valuable lessons in that respect. Land Administration, the Case of El Salvador Following the civil war in El Salvador, a critical issue for rebuilding the country and consolidating peace has been security of land tenure. The project is a direct result of the peace process. Its key objectives are first to register all properties in El Salvador, urban and rural, private and public; and second, to strengthen the land registry and national cadastre, to keep the information updated and the maintenance self-financing. Main accomplishments to date. The project has had major accomplishments both in terms of process and product. These include: * Broad participation. Active participation by civil society to ensure quality of regularization work. 60 * Partnerships. Use of the private sector and NGOs for land regularization instead of force account for field work (unlike the Thailand projects). * Ease and efficiency of registration. Establishment of a unified land registry and cadastre system under a single institutional authority (CNR). Land registration average turn-around time reduced from 6 months to 48 hours. * Greater access. Internet access to land records provides easy access to records. * Stronger institution. Institutional and technical strengthening of CNR that has now embarked on an ISO 9000 certification process. * Extensive regularization. Regularization of Sonsonate Department (14 municipalities, about 115,000 properties), ongoing regularization of Ahuachapan and Santa Ana departments (about 200,000 properties). Why is this project important? The importance of the project rests on the following factors: * Security. It provides security of land tenure, especially to the most vulnerable groups who had no practical access to land registration in the past (including women). * Economic. It reduces transactions costs in the land markets and allows leveraging of land assets as collateral, also deepening the access by the poor of the financial sector. * Institutional. It has developed one of the most advanced and efficient institutional framework in the world. The CNR integrates the Property Registry, the National Cadastre, and the Geographical Institute under the same umbrella. This allows the sustainable, efficient and secured management and maintenance of a parcel-based registry. * Knowledge sharing. It is the learning laboratory for the region. The Salvadorans have been very generous in letting other Central American countries (Honduras, Panama, Guatemala, Nicaragua, Costa Rica) visit the project team and sites, and are discussing with them arrangements for technical assistance for systems development. El Salvador now enjoys international prominence as a leader in this area. This has already been recognized by Bentley, a US-based software company, that nominated the project for two of their Proactive Engineering Success Awards: Best Deployment of EEM Technology and Best Enterprise-wide Collaboration for innovation and application development in integrated systems. Market-Assisted Land Reform in Brazil In this approach, beneficiaries negotiate the purchase of farms directly with the owners, within the context of the Rural Poverty Alleviation Project in the state of Ceara. This approach proved promising, and the Government asked the Bank to develop a free-standing Land Reform Program. The pilot project is called Projeto Cedula da Terra Results from the various evaluation studies conducted, as well as Bank supervision, reveal that the Cedula da Terra project is achieving its objective of expediting land access to the rural poor. As detailed below, land quality is adequate, land prices are lower than under more traditional approaches, self-selection is quite satisfactory and newly acquired farms show favorable expectations for financial and economic viability. Equally important, conservative estimates indicate that beneficiaries should be able to generate sufficient earnings to service their debt obligations and significantly raise both incomes and living standards. Projeto Cedula da Terra combines a community-based approach to land acquisition with a matching grant mechanism to finance complementary on-land investments to increase land productivity and small-holder incomes. With the stated objective of resettling 15,000 families in three years, Projeto Cedula da Terra is about to be completed. It has benefited some 23,000 families with about 617,000 hectares at a per hectare cost of about R$193 and per family cost of about R$4,759, both significantly below the costs of the Government's traditional approach The main reasons given for its success are: * Community-based approach. The community-based approach has proven cost-effective and non-conflictive. Community associations take the initiative by selecting and negotiating the land purchase and deciding priorities for productive investments. Funds are being directly channeled to the respective community associations. The pilot experience shows that reliance on community initiative leads to higher sustainability through self-selection of beneficiaries and effective selection of lands to be purchased. 61 * Decentralization. Effective decentralized implementation of rural development projects in the Northeast under the Rural Poverty Alleviation Projects (RPAP) and the Land Reform and Poverty Alleviation Pilot project has been successful. This success establishes a model institutional framework for a decentralized, community- based approach to land reform, administered jointly by State agencies and the financial institutions. * Access to Investments. Rather than suffering from delays in public provision of support services, community associations have immediate access to financing for joint investments to make their newly acquired lands productive. A lump-sum amount, based on a per family ceiling and incorporating the price of acquired lands, is available for infrastructure and productive investment subprojects. * Piloting and thorough evaluation. While important lessons have been learnt from the pilot, thorough evaluation will continue and adjustments will be made as problems are detected. Supporting the Development of Rural Micro-Finance Services (Argentina and Mexico) As general financial sector reform has not been sufficient to achieve the objectives of increasing access to sustainable financial services in rural areas, the Bank has been working increasingly in LCR to address those constraints which are of particular importance for provision of rural financial services. These constraints are associated with transaction costs and covariance risks. Micro-finance has proven to be an effective mechanism to reduce transaction costs associated with providing financial services to small businesses and low-income individuals. Application of micro-finance "technology" can substantially reduce the transactions costs incurred by suppliers and consumers of rural financial services. Several programs have been able to reach large numbers of clients with small-value lending and savings services while maintaining high quality portfolios, and even achieving profitability. They have undertaken careful training of loan officers in the evaluation and servicing of clients; shared information gathering costs with clients through utilization of solidarity groups, and acknowledged that the most important repayment incentive is continued and rapid access to credit. In Mexico the development of a "savings kit" for the establishment of community savings and loan funds has boosted diffusion of a methodology that proved to meet the expectations and the needs of poor rural communities and groups through a wealth generation approach. Developing "social intermediation" in rural communities. While introduction of micro-finance services focuses on strengthening the supplier's ability to take measures to reduce transactions costs, assistance to communities in organizing themselves to manage village funds can reduce the costs to the consumers of financial services by providing an interface between financial institutions and individual communities. The best-known application of this approach is in the village banking programs supported by FINCA, Freedom from Hunger and CARE. Support of pilot programs to develop risk management instruments: Improved rural finance requires the development of cost-effective instruments which allow producers, intermediaries and others subject to mitigate their exposure to covariance risk. The covariance risk associated with lending to farms and agriculturally related industries is perceived as a significant impediment by financial institutions to expanding lending services to rural areas. In the absence of formal insurance mechanisms, borrowing from public banks is used by rural entrepreneurs as a de facto insurance mechanism. Public banks will generally provide rescheduling of debt or even debt forgiveness in cases of severe crop losses due to weather, with the government treasury covering the resulting bank losses. Potential borrowers are therefore likely to utilize a public bank irrespective of its lower quality service. Insurance products permit separation of the insurance function from the lending function, providing private lenders with the opportunity to compete on a level playing field with public banks. Development of rural information systems. Information in credit histories can be complemented by aggregated production information to assist lenders in calculating the risk of potential loans. Standard credit information systems are limited to individual client repayment history and, in some cases, salary histories, and are used to develop credit-scoring models that predict the probability that a potential borrower will default on their repayments. Potential lenders can complement this information with aggregated production and price data to predict the expected cash flow of non-salaried, rural producers. 3. Foster a rural space" approach in regional development We present several successful cases of community-driven development projects. Some combine both community approaches, municipal strengthening and regional (territorial) development. 62 Community-Driven Projects in Northeast Brazil-the Rural Poverty Alleviation Program (RPAP) This program grew out of the Northeast Rural Development program (1985) when the latter was reformulated in 1993, following the lines of a small pilot project component. This program is reducing poverty not just by delivering services, but by changing the way services are prioritized, targeted, and delivered. The investment is used as a catalyst for community participation. Community associations identify and prioritize their most basic needs, their choices limited only by a short negative list of subprojects that do not conform to World Bank rules. These projects deliver high-quality, rural infrastructure to the poor at 40 percent lower cost than investments of similar quality delivered by public agencies. The communities prepare, implement, operate and maintain the subprojects, creating a sense of ownership and fostering sustainability. The outcomes of these projects have led the Northeast State Governors, a diverse group of personalities representing a diversity of political parties, to come out in unequivocal support of the program's approach and its continuance. Key Design Principles. This approach worked because there was a political commitment to decentralization. In Brazil, under the 1988 Constitution, most of the responsibility and resources for implementing development programs were decentralized from the Federal Government to the States, municipalities, and local communities. Within this enabling political and institutional environment, the projects combined the following principles: * Political support by key political figures was vital in the early planning stages and allowed the then highly innovative decentralized approach to be piloted. Fiscal and investment-decision making was decentralized. The pilot approach subsequently permitted experimentation, and also was essential for developing, through demonstrated track record, broad-based political support for scaling it up. * The state must provide budget to support the State Technical Unit. This increases the political ownership of the process, and ensures long-term sustainability of this central over-sight institution. The STU is also located in an agency of state government with technical capacity and which tends to be unbiased, e.g., planning department. * Community manages resources: a hundred percent of funds for an approved subproject are disbursed directly to the communities. This ensures community groups are intrinsically involved, and are responsible for every stage of the project. * All members of an association can vote. In addition, all adults of a community have the right to participate in an association. While no gender quotas were enforced, a significant portion of association membership and leadership is female. * A few simple 'rules of the game' were widely disseminated, then consistently and transparently enforced. Poverty targeting was simple, and explicit, and easily monitorable. By using objective criteria, the rules foster transparency, and minimize political interference. More specific program rules can vary across states and are subject to negotiation. These rules are incorporated in a detailed Operational Manual that is readily available to the project MCs and the communities. * Enhanced participation in financing by beneficiaries. This fosters a willingness to share responsibility for the operation, maintenance of project investments. * 'Bypass' mechanisms were designed into the projects so that dissatisfied communities could appeal to higher levels (but not without penalty if claims not justified) * Flexibility in program design allowed the institutional arrangements to evolve and adapt to local needs/demands. It also allows different arrangements to co-exist in neighboring municipalities according to capacity/needs. For example, the progression from PAC to FUMAC occurred in response to demand from community associations. These know FUMAC councils are an available mechanism for decision making, and have an annual budget ceiling. FUMAC functioning is facilitated by the Mayors who recognize the success of the program, and want to be more involved as they perceive the mechanism is beneficial to their Municipality. * Institutional sustainability is achieved by involving local authorities, with different ways of doing things, through the 80/20 percent division of Municipal Council membership. More than 30 percent of municipalities are using the project-sponsored approach in their day-to-day functioning in the allocation of other funds. * Minimal bureaucracy is a key program feature, reducing administrative costs, keeping overheads low (typically seven percent-5 percent technical assistance, 2 percent operating expenses--which includes STU project supervision expenses, but not salaries, which are paid by the state). 63 Basic Rural Services: Bolivia: Rural Water Supply and Sanitation The project's goal is to help reduce poverty in rural areas by enhancing productivity through improved health conditions, and through a more efficient use of the time saved collecting water. Specifically, it included three main objectives. First, it sought to increase the coverage and sustainable use of water and sanitation services. Second, it aimed at assisting the water and sanitation units at the Departmental level (UNASBAs) to provide technical assistance to municipal governments and local communities. And, third, it wanted to strengthen the capacity of the sector unit at central government level (DIGESBA). To achieve these objectives, it consisted of a rural water and sanitation infrastructure component, and an institutional capacity building program. Under the first component, about 600 water systems (about 370,000 beneficiaries) will be constructed by the closing date, December 2000. Why it has been considered best practice. From the beginning, the project adopted design elements that have been identified as best practice from international experience and which were tested under a pilot project executed by the World Bank-UNDP Water Program (1991-1993). These elements are: * Adequate institutional sector framework The sector organization consists of a small unit (DIGESBA) at the central level (within the Ministry of Housing and Basic Services) which is responsible for policy formnulation, sector planning and resource mobilization. At the departmental level, the DIGESBA is represented by a small unit (UNASBA) whose role is promote the central Government policies and provide financing for designing projects. The Municipalities are responsible for the provision of water and receive substantial amounts of central funds to use in investment projects. Communities contribute labor and in some cases cash (where the communities have not been able to mobilize the cash, the municipalities have in effect stepped in to provide the funds. However these communities have a debt to repay in terms of labor in some other municipal project). * Joint financing by project, municipality and local community. The financial policy of the project includes a subsidy ceiling of $70 per capita, leaving for the community and the municipality to finance the cost of any service level whose cost is above the ceiling. * Decentralization to the municipalities. Under the project, water supply projects were identified and discussed as part of the municipal operating plans. * Substantial municipal involvement. Municipalities contributed up to 25 percent of the investment costs. Municipalities are also responsible for the long-term technical assistance to the communities. * Community responsibility for 0 & M The communities, through their water committees and operators, are responsible for the day to day operations of the systems. * Educational support to communities. The communities and water committees receive technical assistance in operational aspects of the systems and hygiene education to maximize the benefits of the use of the new water systems. Basic Operational Principles. The project design is based on three fundamental principles. These are: * Community participates. Community participation is the primary design principle to increase likelihood of sustainability and economic efficiency. * Investments are of high priority to the community. The project ensured that the proposed investments are a high priority for the community through reliance on five-year municipal development plans which are prepared by the municipalities in collaboration with the Organizaciones territoriales de base and the Comites de Vigilancia. * Communities and municipalities contribute financially to the maximum. Least-cost and demand-driven investments are ensured by defining low per capita investment grants and by maximizing the financial contribution of municipalities and communities to the project. The Mexico Rural Development in Marginal Areas project, APL I and II; and the Decentralization and Regional Development project. These two projects complements each other well in the context of an approach to regional development. The Rural Development project establishes new participatory mechanisms and institutions for addressing local priority needs at the regional level and promotes on-farm and off-farm income-generating activities, community development, and building social capital. The Decentralization and Regional Development project on the other hand invests in municipal development both from the point of view of basic infrastructure development and institutional strengthening. 64 The Rural Development in Marginal Areas Program seeks to improve the well-being and the income of smallholders in a number of targeted marginal areas, which are among the poorest of the country, through sustainable increases in productivity and better food security. The program seeks to improve the productive capacity of participating farmers through a community-based approach by: (a) facilitating the introduction of sustainable agricultural production systems, diversification through improved access to financial resources and agricultural services, and off-farm activities; (b) fostering community socio-economic development, organization, and participation; (c) enhancing the provision of effective technical support services and training to farmers and producers organizations; and (d) promoting an effective decentralized decision-making system fostering institutional coordination at the regional level. The development of regional councils is the most distinctive aspect of this program. The project would promote the participation of indigenous people, as they represent about 67 percent of this target population, and women, as they play a key role in both agriculture and in family nutrition. At the regional and local level, the project developed implementation arrangements that strengthen ownership and accountability at the community level and stimulate beneficiaries and civil society participation and involvement. At the level of each of the regions covered by the project, a Regional Sustainable Development Council (CRDS) was established representing the members of communities and "ejidos", producer organizations, the State Government, and the relevant public institutions operating in the area. The CRDS have responsibility for the promotion, analysis, and selection of sub-projects submitted by producers groups and communities. The CRDS are assisted by a small technical unit to carry out the technical, economic, and social evaluation of the proposals, and make recommendations. The CRDSs also promoted inter-institutional coordination, foster synergy and complementarity of the programs already operating in the region. Financing for productive investments operates under a matching grant scheme with an up-front contribution of the beneficiaries of not less than 30 percent of project costs. Moreover, for these activities, a cost recovery mechanism for the remaining 70 percent is being promoted at the community level to foster sustainability, generation of resources at the local level, and better accountability. Funds are recuperated by the beneficiary groups through their community organizations with the help of specialized assistance (NGOs, existing savings and loan schemes, consultants) which, in many instances, are already involved in the management of capitalization funds or informal micro-financing schemes. The incentive system for repayment into this revolving funds scheme builds on the concept of community/group responsibility and participation, including social peer pressure. Funds would keep revolving at the community level according to internal priorities and mechanisms as defined by the comm unity/group. The Decentralization and Regional Development project aims at improving the decentralized delivery of basic social infrastructure in rural municipalities, by supporting local small scale investments and institutional development activities, while strengthening capacities at the three levels of government to coordinate joint investments and municipal development programs. the Project proposes a comprehensive and coordinated approach aimed at building physical, social and organizational capital. Physical capital (infrastructure) is needed for improving the access of poor marginal communities to services they lack and to improve the leverage of poor municipalities to attract economic opportunities. Social capital is needed to guarantee a participative approach both in the identification of works to invest in an in the implementation stages, while organizational capital in the Ayuntamientos is needed to consolidate a more efficient management of resources, especially the formation of human capital. This translates on a combination of: (i) investing on selected infrastructure works (water, paving, rural electrification, schools, nurseries); (ii) the creation of an incentives mechanism to foster the use of better managerial practices, and (iii) institutional development programs focusing on the "professionalization" of municipal government staff. The development of rural municipalities through investment in social infrastructure and capacity building for improving management practices improved the quality of life in those municipalities as well as local governance. The project had a positive effect in reducing migration to the big cities or outside the country while rendering rural areas more attractive and developing the local economy. Municipal social infrastructure has become a key factor for attracting private enterprises and reducing the transaction cost of doing business in rural areas. The project builds heavily on participation of community groups and NGOs as valid stakeholders, both during preparation and implementation of the works. It strengthens community practices in planning, executing, controlling the execution of sub-projects, delivering the corresponding services, and maintenance, thereby contributing to improving municipal accountability and sustainability. The project strategy rely on the use of an incentive 65 mechanism based on establishing and monitoring a model of good management including a monitoring process aimed at tracking compliance with agreed parameters. Colombia - Magdalena Medio LIL - A Successful Experience in a Conflict Environment This is a pioneering project for both the Bank and the Government of Colombia: promotion of a community-based, participatory approach to development and peace in one of the most conflictive regions of the country. The Government delegated the implementation to a Consortium composed of a well-respected NGO and the Catholic Diocese of Barracabermeja, the main city in the region. The counterpart funding is provided by the national petroleum company (ECOPETROL). Accomplishments. The development objective of the LIL was to develop the operational capacity of the Consortium, citizen's network (informal network of community members and organizations) and other partners to work together towards collectively defined objectives to reduce poverty and increase peaceful coexistence in the Magdalena Medio region. The project's two components were: capacity building for program management, and development & implementation of sub-projects (ranging from investments in education and health, to productive projects in rural areas). The LIL has achieved its development objectives. The participatory, community oriented methodology for promoting development in the midst of conflict has proven effective at creating a longer term vision of a better future for the region, strengthening the region's human and social capital, mobilizing resources and attention for the previously neglected region, and starting a community-led process of improving basic services and investment which can be scaled up as the program progresses. The two project components have yielded tangible results which are being documented in the ICR under preparation. The capacity of the Consortium has been substantially increased, as evidenced by its ability to operate in the increasingly complex situation in the region, and to mobilize and effectively use 14 million pesos during the two years of the LIL (of which loan and counterpart funds accounted for 68%). The most striking achievement is the increase in human and social capital: the citizens network now includes 172 organizations involving 8,640 persons who have internalized the vision and goals of the program. In the sub-project component, 67 project initiatives have been supported with a strong emphasis on building the capacity of the organizations promoting them. Lessons. The participatory, operational model for promoting development piloted under the LIL functioned well in the complex, conflictive environment of the region. The model is characterized by the following basic elements: * It is sustained by a change agent (the Consortium) which enjoys high credibility among all the stakeholders. * It is based on community and individual participation in the making of decisions about the community's development, and establishes specific mechanisms for this participation (e.g. the 'nucleos' of the citizen's network and the project initiatives). * It is based on a methodology that takes into account the capacity and 'initial state' of the citizens, and from this base initiates the learning and capacity building of community organizations so that they are able to take charge of their own development. Further, it recognizes and supports existing organizations and previous experiences in these communities. * The change agent (Consortium) operates in a decentralized manner. * The change agent's staff (Consortium) acts consistently in accord with defined values of respect, transparency, autonomy, and defense of the public interest. One of the lessons in applying this approach was that increasing the capacity of individuals and communities to take charge of their own development, particularly in a conflictive climate, takes more time than originally expected particularly to develop their ability to prepare and implement specific investment projects which translate into increased incomes and better standards of living. A key lesson of the project has been the need for flexibility and continuous learning when promoting a participatory approach in such a complex environment, and to expect substantial variation in the rate of implementation and development depending on the varied conditions in different parts of the region. Furthermore, the operational model which proved successful under the LIL is not a cookie-cutter approach that can simply be copied elsewhere. There are a number of critical ingredients in the way the project and larger program of which it is a part are carried out such as the commitment and dedication of the Consortium's staff which are not easy to reproduce. 66 4. Manage natural resources in a sustainable way Central America: win-win program for sustainable resource management and eco-market niche development for small-holders The Mesoamerican Biological Corridor (MBC). This is a unique and innovative project. In a region once divided by civil wars, eight nations have joined forces to create a place where environmental conservation, economic opportunity and rural development go hand in hand as the basis of sustainability. Known as the Mesoamerican Biological Corridor (MBC), this stretch of land encompasses nearly 30 percent of Central American territory. It links ecosystems, indigenous communities, and private lands in the longest continuous multinational sustainable development project in the world. The MBC is one of the most crucial areas for biodiversity protection on the planet - a biodiversity "hot spot." The Corridor was initiated through a 1997 agreement among the seven Central American heads of state. The member countries of the Central American Commission for Environment and Development (CCAD)-the environmental arm of the Central American Integration System (SICA)-along with Mexico, have worked with international organizations, multilateral banks, regional organizations, civil society, and bilateral donors to strengthen and support this unique approach to sustainable development. Integration of environmental and economic objectives is a fundamental underpinning of the MBC. Through the sustainable use of natural resources, the Corridor offers many opportunities to increase foreign investment, create jobs, generate economic revenues, and fight poverty. The Corridor's vast natural resources provide critical environmental services, including hydrological regulation, aquifer recharge, carbon sequestration, soil conservation, erosion control, biodiversity conservation, and reduced vulnerability to natural disasters. Today, Corridor countries are learning to place a monetary value on water basins, mangrove forests, and the role of conservation efforts in protecting coasts and other vulnerable areas against natural disasters. Based on this new recognition of the economic value of natural resources, businesses, communities, individuals, and governments throughout the region are beginning to focus on new approaches to growth that focus on sustainable development. Increased global demand for eco-friendly products offers a unique opportunity for Corridor businesses and communities to establish themselves as leaders in new market niches. To this end, Corridor countries seek to leverage the demand for environmentally friendly products into increased export opportunities for shaded coffee, ornamental plants, organic produce, certified wood, and other products from Mesoamerica. These environmentally sustainable activities help strengthen the region's economic position, while also preserving vital natural resources. A number of projects aimed at integrating the region's economic and environmental goals are already underway in the Corridor. The positive impact of these environmentally friendly economic activities is helping to spur other sustainable development projects in the region. Below are just a few examples of successful projects underway in the Corridor. Banano Mejor: Environmental Certification Program. Initiated in 1991, this program establishes a comprehensive set of environmental and social guidelines for the banana industry, which is notorious for environmental degradation and poor working conditions. Banana farms involved with the Banano Mejor program, however, work to prevent deforestation and soil erosion, ensure worker safety, and use minimal pesticides. As a result of the program, river and beach pollution has decreased dramatically. Banano Mejor bananas are marketed with special labeling indicating their "eco-friendly" status, which can engender an economic premium or enable market entry. Some program participants have also developed new, environmentally friendly products, such as banana-based paper products, that help open new niche markets. The project was begun in Costa Rica and, through the integration efforts of the Corridor, has expanded into Panama, with plans underway for its adoption in Guatemala and Honduras. ECO-O.K: Coffee Certification Program. Shaded coffee farms are host to an abundance of biodiversity and provide a key habitat for a variety of songbirds. Sun plantations, on the other hand, destroy much of this important habitat. The ECO-O.K. coffee certification program was designed in response to concern about habitat loss in the region when many coffee farmers shifted from traditional shaded plantations to larger, more commercial sun plantations. The program, which began in Guatemala, certifies shade grown coffee with an "ECO-O.K." seal of approval and helps producers conserve the natural habitat. The special certification also allows producers to charge a premium in specialty niche markets for environmentally friendly products. Through the Corridor, the program has 67 expanded into El Salvador. Programs like ECO-O.K. are showing coffee producers within the Corridor that they can protect biodiversity while still generating a substantial profit. The devastation inflicted by Hurricane Mitch (1998) provides perhaps the most vivid example of the degree of human misery caused by natural disasters. Years of deforestation and poor land use in the region magnified the effects of this human and environmental tragedy. Conversely, in areas where environmental degradation was not as severe, the hurricane's effects were less destructive. The value of regional cooperation was made apparent in the wake of Mitch and helped accelerate cooperative efforts in the region. Through a range of disaster mitigation projects, the Corridor provides a vital lifeline for the people of Central America, a particularly important point in light of the region's climatic history. This is true for the poor, who are often at the mercy of devastating natural disasters. Extensive reforestation efforts help prevent the heavy erosion and mudslides that can prove deadly for Corridor communities, as Hurricane Mitch tragically demonstrated, and is having a tangible impact on preserving human life. Other Corridor projects, such as protecting mangroves, conserving coastal forests, preventing wild fires, and maintaining healthy marine ecosystems, help protect key resources that are essential to the livelihood of many people in the region. Manage natural resources in a sustainable way: The land management projects in Brazil, in the States of Parana, Santa Catarina, Sao Paolo, and Rio Grande do Sul The Government noted that the main focus of the Parana project was to address the serious environmental problems affecting the rural areas by reversing the process of soil and water degradation with the objective of establishing sustainable production systems. Project results from the Borrowers ex-ante, mid-term and ex-post evaluations indicate significant reduction in soil erosion in benefited micro-catchments due mainly to farmers' better understanding and adoption of project induced conservation practices. These measures provided substantial productivity gains and humanization of farmers' "field works." The projects reversed the States' declining agricultural productivity trends due to severe land degradation at a time when society was increasingly more sensitive to agricultural-induced environmental degradation. Ex post evaluations, though complicated by drought, show dramatic results: * Productivity of the main crops - maize, wheat and soyabeans - is estimated to exceed without project productivity by 20 to 35 percent. * Soil loss was reduced by between 10 and 50 percent. * Runoff water in streams contained less suspended solids, coliform bacteria and pesticide residues, thus lowering silting and water treatment costs in downstream areas, and reducing the incidence of water borne diseases and pesticide poisoning. * Maintenance costs for rural roads were reduced by up to 80 percent; better all-weather access stimulated both commercial and social activities. • Improved land management practices, capable collectively of increasing water retention on crop land, improving soil structure, raising fertility and reducing erosion, were adopted on some 400,000 ha in 534 assisted micro-catchments (103 percent of the appraisal target). * About 106,000 farm families were reached with one form or another of project assistance - 131 percent of the appraisal target and equal to about 35 percent of all farmers in the State. Spontaneous adoption of improved practices occurred on a further 480,000 ha in non-project micro-catchments. The projects successfully promoted innovative participatory approaches, to upgrade land management practices among farmers and rural communities. These have accelerated the introduction of improvements that reduce cash costs and labor requirements, give early increases in farm productivity, and improve the chances for farmers of staying in business and on their land in an increasingly unfavorable trading environment. Two other states (Sao Paulo and Rio Grande do Sul) are already implementing micro-catchment development strategies under two state Bank-financed projects based on lessons learned from Parana (an earlier successful Land management project) and Santa Catarina projects. This strategy is also becoming a reference for the national water basin development strategy being prepared by the Federal Ministry of the Environment and for the State of Rio de Janeiro Micro-catchment Development Program now being prepared by the Secretary of Agriculture of Rio de Janeiro. 68 5. Build human and social capital Community-managed schools in basic rural education The EDUCO project in El Salvador pioneered the model of community-managed schools. This model has been adopted in several other countries, including Guatemala, and Honduras. The basic principle of the community managed schools model separates provision and financing of basic education. Financing remains the responsibility of the public sector, but provision of services is transferred directly to community associations. In practice this implies that a large part of the resources of these projects and government's education budget is transferred directly to community associations (comprising parents) to pay for all school inputs, including teachers. They are responsible for the hire/fire teachers, who under the model, are not public servants but private sector workers subject to the regulations of the Labor Code that regulate private sector workers (including their social security provisions). Positive results on the ground. Results to-date in El Salvador, Guatemala, and Honduras are encouraging. These show considerable increase in social capital. Important indicators are: increased number of enrollments, an enormous ability of communities to organize associations to manage schools, the capacity of parent associations to manage resources and teachers, increased teachers' and children's attendance. The benefits to children are substantial. There was increased retention of children in school (and therefore higher educational attainment measured by years of schooling), mobilization of additional resources for children's education (for infrastructure improvements, school feeding, literacy programs, etc.). 6. Strengthen risk management and safety nets Mexico PROGRESA (This program is not being financed by the Bank but it is considered a best 45 practice example of a safety net program) Begun in 1997, PROGRESA provides integrated support for education, health, and nutrition to poor households living in poor rural areas. Conditional on good attendance, the program provides upper primary and lower secondary school stipends and subsidies for school supplies. It also provides free basic healthcare, health education, a cash transfer for nutrition, and nutritional supplements for pregnant and breast-feeding women and for children under age 5. The program reaches 2.6 million families. Evaluations suggest a 22 percent decrease in morbidity for children below age 2, a 21 percent increase in female enrollment in lower secondary schools, an 18 percent increase in attendance at health clinics, and an increase in schooling of one year among the target population. The advantage of behavior-conditioned programs like PROGRESA is that they are tied to such benefits as school assistance and obtaining heathcare, and hence provide a two-pronged approach to risk reduction, providing income support for today's poor families while reducing the intergenerational transmission of income risk by raising human capital accumulation among the future workforce. A negative income tax, on the other hand, relies on a well- functioning and broad-based tax system, but can efficiently provide an automatic subsidy to families whose income falls below a certain target level, with benefits tapering off as income rises PROGRESA is a good program with some areas for improvement as follows. * Supply-side. By raising the demand for schooling and healthcare, PROGRESA is generating tensions on the supply side. To avoid these tensions, close coordination with the Education and Health sector ministries is needed. More generally, there remains an uncertainty as to the relative impact of demand and supply-side programs on improving education and health outcomes among the rural poor. * Transfers, targeting, and community participation. PROGRESA's average income transfer is 253 pesos per month, which represents 22 percent of the beneficiaries' average total income. However, families with many children in school can receive up to 600 pesos per month, which may be an expensive way to achieve the program's objectives. The program's targeting is well done overall, but in villages where most of the population is poor, it may be better not to use means-testing to avoid tensions between beneficiaries and non- beneficiaries. In some areas, the individual-based logic of PROGRESA may not mesh well with traditional communal values. Nicaragua Rainfall Risk Management Project, and Mexico Crop Insurance Study Natural calamity risk management is a fairly new area of development assistance. The Nicaragua Rainfall Risk Management project (May 2000) is a good project example of such assistance. The Mexico Crop Insurance Study (April 2001) is a good example of analytical assistance to strengthen the system of crop insurance and to help low 69 income and poor small-holders manage risks better. Recent studies (e.g., the World Bank's World Development Report on Poverty 2000/2001) show that the poor are hurt both directly by natural catastrophes and indirectly through the long-term effects on inefficient investment and lower growth. Insurance against catastrophic natural shocks reduces istress on government budgets, makes possible timely relief to the poor, prevents depreciation of the public infrastructure, and promotes more efficient allocation of resources. Nicaragua Rainfall Risk Management Project. This project would limit the country's vulnerability to the consequences of natural disasters. The Nicaraguan economy has been vulnerable to significant natural risk. Besides creating unexpected fiscal liabilities, disasters also result in increased imports, particularly of food grains under drought conditions and also of capital equipment for infrastructure rebuilding following sudden onset disasters, such as hurricanes and earthquakes. Protection of the poor, the effective functioning of factor markets, sustainable agricultural growth, and efficient resource use through private sector development are key elements of the Bank's strategy in Nicaragua, as articulated in the most recent Bank Country Assistance Strategy. By transferring Nicaraguan natural hazard risk to international capital markets and by stimulating the domestic development of insurance instruments, the proposed project would thus contribute to the main objectives of the Bank strategy. Estimates show that the repeat of a 1994-intensity drought would cost about US$60 million, about one-tenth of agricultural GDP; the costs would fall most severely on the poorest. Rapid onset disasters, such as those caused by excessive rainfall, floods, and earthquakes have major macroeconomic costs, also with a disproportionate impact on the poor. The unprecedented losses to production and public infrastructure in the wake of Hurricane Mitch in October 1998 represent the most recent example of the impact of flooding. The total costs of the disaster were estimated at between US$500 million and US$1.5 billion. Agricultural sector losses were estimated at between US$100-150 million. Managua's earthquake in 1972 caused huge damage to public property, businesses, and home dwellings. The primary goal of this project is to establish market-based insurance to protect the Government of Nicaragua (GON) from fiscal risks due to catastrophic natural disasters. By thus transferring risks to international financial markets, the project will support GON's efforts to prepare for disasters rather than just reacting to them. Since the successful placement of insurance could trigger payments to GON, the project, although relying principally on ongoing GON and Bank initiatives, would help further develop a transparent framework for disaster relief and reconstruction. Also, using the infrastructure and pricing benchmarks created by GON's insurance contract, the project will identify approaches to stimulate the increased private use of insurance against the income shocks caused by natural hazards. The project will primarily focus on risks arising from extreme rainfall events: droughts and floods. But it will also seek to provide insurance against other catastrophic risks, e.g., from earthquakes. This project will contribute to the Government's objective of more control over financing of disasters and to transparency in the delivery of relief and reconstruction. To gain greater control over the financing of disaster relief and reconstruction, the National Congress has recently approved a Disaster Relief Law (Ley Creadora del Sistema Nacional para la Prevenci6n, Mitigaci6n y Atencion de Desastres) under which a National Disaster Fund and the guidelines for the effective deployment of available funding will be established. Especially prone to disaster is agriculture, which contributes over one-third of Nicaragua's GDP and productive employment and over three- quarters of the country's exports. With only 8 percent of the cropland irrigated, drought has been a constant threat, with one of the most severe droughts in the past 30 years experienced in 1994, followed by a less serious but extensive drought in 1997/98. Droughts do not have a major macroeconomic effect in Nicaragua, but, as in 1994, they target the poor through extensive crop failure among the vast numbers of small producers of basic grains, such as maize, beans, and even the drought-resistant sorghum. Mexico: Weather-based Index Insurance. The Mexican national insurance system for the rural sector is undergoing important changes. Proposals call for the removal of AGROSEMEX, the state agricultural insurance company, as a direct provider of insurance to farmers and converting it into a re-insurance company. The government also wishes to develop new insurance products, expand the insurance coverage, particularly to small farmers, and develop ways to re-insure catastrophic risk in the agricultural sector. Weather-based index insurance is a relatively new insurance instrument whose payouts are based on the occurrence of a weather event, rather than on actual crop losses. The key advantage to this kind of insurance is that the weather or "trigger" event (e.g. a rainfall shortage) can be independently verified, and therefore not subject to the possibilities of manipulation which are present when insurance pay-outs are linked to actual farm losses. And since the contracts and indemnity payments are the same for all buyers per unit of insurance, the usual problems of moral hazard and adverse selection associated with public crop insurance are lessened. Besides, the insurance would be easy to administer, since there are no individual 70 contracts to write, no on-farm inspections and no individual loss assessments. This can help make the insurance affordable to a broad range of people, including agricultural traders, shopkeepers and landless workers whose incomes are also affected by the insured events. Results from a feasibility analysis indicate that there is a good potential to develop such insurance for certain regions in Mexico. The correlation between yields and rainfall levels for 40 percent of the planted areas in four states ranges between 60-80 percent. The analysis also showed that rainfall contracts could reduce yield risk by at least 23 percent for 40 percent of the planted area in these four states. Since traditional crop insurance is neither the most appropriate nor an affordable means for resource poor small farmers a weather-based index insurance should be considered to test whether such savings can be achieved in practice. 71 Appendix 5 Gender Dimensions of Rural Development: A Diagnostic Introduction and Summary This appendix describes gender issues in the rural context. It focuses on the productive sphere-both agricultural and non-agricultural-as well as key inputs to raising productivity such as land, improved technology and financial services.46 Gender issues in reproduction, education and literacy and violence are raised to the extent that these affect to women's and men's production and productivity decisions and opportunities in varying degrees. Gender roles in agriculture and non-agricultural production vary widely by country, region, and ethnicity. They are also dynamic and relational, with the roles of women being influenced by men and vice versa. The Appendix shows that to improve the lives of the rural poor, rural development (RD) programs need to take into account these gender roles and how these intersect with the reproductive and community spheres. The reason is that these roles dictate men's and women's opportunities and constraints, contributing to and benefiting from the economic, social and political development of rural areas. Region and ethnic-specific variations in roles not withstanding, a broad generalization can be made about men's and women's dominant societal roles in the region. In rural societies in particular, the pattern continues to be that women are responsible for domestic and childcare responsibilities and that men will provide the primary source of household income. Women also work in productive activities but for those who are wives, this is for the most part secondary to their domestic responsibilities. Single mothers, in contrast, are a special group in that they need to juggle both domestic and reproductive activities. Husbands who are in conjugal households may help or even play a dominant role in domestic chores such as fuel and water collection, but housework remains almost the exclusive domain of women.47 The area of reproductive health services - and in particular culture-specific family planning - should therefore be one of the key rural development investment strategies. Such a strategy would have direct payoffs for women by facilitating their participation in productive activities. Indeed, lessons from Bank projects in countries as diverse as Ecuador and Argentina indicate that it is insufficient to promote women's productive projects without considering their childcare and corollary domestic burdens. Women, but also men, are vocal about this critical need. Offering safe and culturally sensitive family planning services also has important secondary effects on men by reducing the dependency ratio and required income levels to sustain the family. To increase men's and women's productivity and earnings, another integral part of the rural development strategy should be to promote both the agricultural and non-agricultural sector. The former continues to be a major source of employment for men whereas the non-farm sector is especially important for women given the household and care giving constraints they face. However, there is still scope for improving opportunities for women in agriculture. The sector is critical to many female farmers, as the increase in female farmers due to male migration. Moreover, women face additional constraints vis-a-vis their male counterparts in accessing key inputs of agricultural production such as land, credit and improved technology. A rural development strategy that invests in both rural women and men is justified in terms of equity given the rising number of female household heads. It is also justified on efficiency grounds given that empirical studies worldwide have shown that women typically spend a high proportion of their income on food and health care for children, as well as goods for general household consumption. In contrast, men retain discretionary control over a higher proportion of their own incomes for personal expenditures. Continuing to improve equal distribution of land by gender through mechanisms such as joint land titling and giving preference to female household heads would be another key aspect of the rural development strategy. Land is a critical asset for male and female farmers in terms of increasing agricultural productivity but it is also a key determinant of poverty. Land affects an individual's ability to bargain over the allocation of labor, income and other inputs and, as such, influences household welfare. Land is also an important source of income security during old age. 72 Lastly, while short term strategies should focus on the immediate and acute needs of the rural population - which for men tends to be in the productive area andfor women in the dual reproductive-productive sphere - long term measures need to focus on the equality or "sharing" of gender roles. Inflexible roles can lead to the inefficient allocation of labor and resources. Gender roles have been identified as a fundamental source of male- female structural barriers to economic parity which influence men's and women's work, productivity, and earnings (Blau, 1998). For men, gender can lead to destructive and dysfunctional behavior such as violence, alcohol and substance abuse and depression (Pyne, 2000, Barker 1998). While a long-term endeavor, the education system (and in particular the reduction of sexual stereotypes), the media and development projects broadly can influence gender roles in society and eventually have a positive impact on profitability and growth. Programs now exist for example, in rural Peru and Mexico, to break down negative male stereotypes and increase male roles in fathering. The Appendix is organized in the following way. The first section describes the rural labor force broadly, followed by discussions on the agriculture labor market, the non-farm sector, the micro-enterprise sector and rural unemployment. The second section describes gender-specific barriers and constraints including those related to land, agricultural technology and financial services, fertility levels, time use, education and violence. 73 The Rural Labor Force While female labor force participation in the region has Table A5.1: Labor Force Participation, by increased overall, official statistics indicate that rural women's Sex in Select Countries, 1997, 1998 participation is much less that of rural males and that of their Male Female female urban counterparts. As shown in Table A5.1, male Country rra l urban participation is 24-38 percent for rural women, compared to 79- rural urban rural urban 87 percent for rural men and 44-56 percent for urban women, Colombia 81 80 38 56 the latter being almost double that of rural women. Pagan and Chile 79 77 24 44 Sanchez (1998) found that compared to working men, El SaIvd 87 77 30 1 employed women were more likely to be single, to be heads of alvador 5 households, and to belong to households with fewer children. Nicaragua 85 73 28 46 The latter demonstrates a sex division of labor among couples Sources: Colombia(1998 Departamento which assigns to women childcare and domestic responsibilities Administrativo Nacional de Estadistica Household and to men the role of family provider. According to their Survey); Chile (1998 Encuestade Caracterizaci6n analysis, levels of education for economically active men and Socioecon6micaNacional); women were comparable. El Salvador (1997 Multi Purpose Household Survey); (Nicaragua (1998 LSMS) Disaggregating the labor force by agricultural and non- agricultural production reveals interesting gender differences. In the three countries for which data are shown in Table A5.2, employed men are predominantly engaged in agriculture whereas women workers are concentrated more in non-agricultural work and less so in agriculture. The proportion of working men in agriculture ranges from about 58 to 78 percent compared to about 19 to 38 percent for women. In Chile, the proportion of men employed in agriculture has decreased over the last decade and increased or remained stable in El Salvador and Colombia over the same period. The proportion of women workers in agriculture has remained stable or increased over the last decade according to official information for the three countries. Table A5.2: Proportion of Male and Female Rural EAP Engaged in Agricultural and Non-Agricultural Activities in Select Countries, 1987-1998 Female EAP Male EAP Total EAP Country Year agric non-ag agric non-ag agric non-ag 1987 36.5 63.5 77.9 22.1 71.6 28.4 Chile 1992 38.3 61.7 72.9 27.1 66.5 33.5 1998 37.4 62.6 67.3 32.7 67.3 32.7 1995 23.3 76.7 69.9 30.1 57.7 42.3 El Salvador 1996 23.0 77.0 72.3 27.7 59.5 40.5 1997 21.7 78.3 70.0 30.0 57.6 42.4 1988 21.3 78.7 64.1 35.9 52.1 47.9 Colombia 1995 18.5 81.5 58.3 41.7 54.2 45.8 1998 27.4 72.6 70.4 29.6 55.0 45.0 Sources: Colombia (1998 Departamento Administrativo Nacional de Estadistica Household Survey); Chile (1998 Encuesta de Caracterizaci6n Socioeconomica Nacional); El Salvador(1997 Multi Purpose Household Survey) IICA/IDB studies carried out throughout the Region, however, suggest that official statistics fail to consider a significant proportion of women's on-farrn work. Problems in measuring women's labor in agriculture include biases among census-takers that only men are farmers; information based on self-declarations (most women consider it to be higher status to be a housewife than a farmer); and women's perceptions that their agricultural labor to be an extension of their domestic duties. But even though women's agricultural work is likely underestimated, the non-farm sector is likely to provide greater opportunities for women than on-farm work because the latter presents less barriers to entry and may be more 74 compatible with women's domestic responsibilities. Chiriboga et al (1995) report that in Central America, women's involvement in agriculture is lowest in countries where plots are located further from the rural home, as in the case of Honduras. These findings are consistent with worldwide trends that rural women tend to concentrate their work around the homestead because of their domestic and reproductive roles (Saito and Spurling, 1992). Gender participation in agriculture can also be strongly differentiated by region and ethnicity, as is the case of Ecuador. Evidence there suggests that the gender division of labor is significantly more restrictive among the mestizo in the coastal areas than among the inhabitants of inland areas. Agricultural labor Division of Labor. As in other parts of the world, farning systems in the region are heterogeneous and dynamic with male and female roles in agriculture varying significantly by region, country and ethnicity. Broadly, however, cultural ideals in the region continue to categorize housework as the main role of women and field work as men's domain, however, in practice men and women often work side by side and share agricultural responsibilities (Quisumbing, 1994). And cultural factors such as the relative importance of Hispanic versus Indian traditions; social class, i.e. whether income of wages; labor market conditions; and the degree of market integration of the peasant economy are factors affecting the division of division of labor (Ashby, 1985, cited in Quisumbing, 1994). For example, when men work off-farm, women have higher rates of participation in traditionally male tasks. In Guatemala, while women account for only nine percent of labor in maize, they contribute a quarter of family labor input to growing traditional and export vegetables (Quisumbing, 1994). In Peru, women's share of labor input across all crops is 25 percent (Deere and Le6n, 1982). In Nicaragua, men are less active in the crops where women's contributions are greatest, that is, vegetables, sesame, and small livestock production, while women are less active in the areas where men are most active, that is, in sugar cane, banana and fruit production (World Bank, 1997b). According to indigenous profiles prepared by the World Bank for Guatemala and Panama, both men and women are involved in agriculture tasks among the Manyans, Cunas and Emberras and Wounaans (see Table A5.3). In terms of livestock, only among the Mayas do both men and women participate; men are responsible for this task among the other Cunas and Emberras and Wounaans groups. For all groups, women are the sole caretakers of domestic animals. A look at Ecuador demonstrates the extent of regional and ethnic variations within a country. Studies of indigenous small farmer households in the Ecuadorian Sierra indicate extremely high levels of both men's and women's participation in all phases of agricultural production and natural resource management (Hamilton 1998). Over 90 percent of women in one indigenous highland community report that they participate equally with their husbands in the planting, cultivation (including pesticide and fertilizer spraying), and harvest of crops, as well as the care of livestock, on average contributing about 47 hours a week (ibid.). The only task to which women generally do not contribute their labor is plowing. In contrast, due in part to a stronger "domestic ideology" that confines women to home-based activities, women's role in agricultural production in the Costa is more commercially oriented. It is concentrated in post-harvest processing such as shucking corn and drying rice and cacao (Phillips 1989) as well as income generating activities such as raising chickens and pigs for market. But as previously mentioned, systems are dynamic and are influenced by a range of factors - even environmental degradation. A World Neighbors/ Intemational Center for Research on Women (ICRW) case study in Honduras found that whether driven by environmental degradation (measured in terms of the soil quality available for corn production) and/or opportunities to earn income for essential household expenses, as men shift labor to off-farm wage work, women increase their involvement in growing corn (Casey and Paolisso, 1996). Table A5.3. Gender division of labor among indigenous in Guatemala and Panama Indigenous A *mt- ffnd. Seasonal Tetil Ollters Canastas, group & cultu;e Livestock onimaes Pottey Crafts AgrTc. i huipiles, moles & Family Workc chacaras Guatemala Maya Men x X x Women x X X x x x X 75 Table A5.3. Gender division of labor among indigenous in Guatemala and Panama Indigenous Agri- D * Seasonal T tl Others Canastas, group & culture Livestock aCrimas Pottey Cafts Agric. s chacaras Family anmlWoteyoric chuipies, oe Panama Emberra! Wounaan Men x Women x X X X Kunas Men x X Women x X X Source: Tornqvist (2000), constructed from World Bank indigenous profiles. Box A5.1: Agriculture Decision-Making Decision-Making. According to surveys conducted by IICA/IDB in the Ecuadorian Sierra throughout the region, both men and women are involved in decision Women in the Sierra of Ecuador making related to most areas of farm production. On average, report that decision-making, as well as women surveyed indicated that they alone make 31 percent of labor, is egalitarian in nature: more than 80 production decisions, whereas men make 25 percent of decisions on percent of a Sierran sample considered that their own and 45 percent of decisions are shared (Kleysen, 1996). they had equal control over land use, Three decision-making patterns emerged from the survey results. financial management, and product use First, in a set of countries, about half of the decisions were shared decisions within their households. Seventy and the remainder were divided between men alone and women percent of the same sample said that they alone - this was the case in Central America and Andean countries participated equally in technology (Box A5.1). Second, decision-making is more of a shared activity selection. "In contrast with the between men and women (56 percent), with men tending to make a expectations of many development much larger percentage of decisions alone (31 percent) than women professionals, women are equal partners in (13 percent) - Paraguay, Uruguay and Brazil exhibited these decisions regarding agricultural technology patterns. Third, about half of the decisions were shared (42 percent) on farms of all sizes and among market- and women alone made the largest proportion of the decisions (47 oriented producers using higher levels percent) with men making only 12 percent of decisions (ibid.). technology, independent of whether their husbands are absent from the farm" Non-agricultural labor (Hamilton 1998: 180). In rural areas of Latin America and the Caribbean, the non- Source: World Bank, 2000 agricultural sector employs a large segment of the work force and is particularly important for women. Hazell and Hagblade (1993) estimate that 79 percent of women in the rural wage-labor force in Latin America are employed in non-agricultural activities (cited in Lanjouw, 1998). Over the last decade, the sector has accounted for about 63-82 percent of the female EAP compared to 28-48 percent of the male EAP in Chile, El Salvador and Colombia (see Table A5.2). In Mexico, gender disparities in employment rates are highest in regions with large agricultural sectors and lowest in regions with more diversified off-farm employment opportunities (Katz and Correia, forthcoming).48 In Ecuador, where 40 percent of rural incomes come from non-agricultural sources (both wage labor and home enterprises), the sector is also more important for women than men: 37 percent of the male labor force (outside of home enterprises) has either a primary or secondary occupation in the non-farm sector but the proportion is almost 50 percent for women (Lanjouw, 1998). The sectors in which men and women participate also vary. In the case of non-agriculture wage-labor in Ecuador, the most important sector for women is commerce, which accounts for two-fifths of women and only one-fifth of men who are employed in this sector. In contrast, men's principle activities are in construction, manufacturing, fishing and transport. The non agriculture sector can have important equity and social welfare benefits and can contribute to household eamings, employment creation, and overall economic growth. According to Lanjouw (1996), even low productivity 76 non agricultural activities - which are common particularly among rural women than men - may serve to reduce aggregate income inequality, offset season agricultural unemployment, and offer economic security to those who are unable to participate the agricultural labor force. In addition, given the rigid delineation of gender roles in rural areas, the non agriculture sector is in most cases more compatible with women's domestic responsibilities. One of the major changes in the Colombian rural economy over the past decades has been the increase in non- agricultural activities. As of 1993, commerce and services accounted for 11.2 and 14.7 percent of rural employment, respectively (Jaramillo 1998). And as in Ecuador, men and women are likely to be concentrated in different types, of activities in the non-agriculture sector. While men have benefited disproportionately from the expansion of rural manufacturing, women have taken advantage of opportunities in marketing, food service, and other non-agricultural sectors. The proportion of women deriving income from such jobs increased from 26 percent in 1988 to 34 percent in 1995 (ibid.). In her analysis of off-farm employment patterns among ejido residents in Mexico, and the variations in such patterns among men and women of different generations in the context of institutional and macroeconomic reform, Katz (forthcoming) makes a number of conclusions: * First, she finds that wage income opportunities, and the availability of jobs in non-agriculture, are quite unevenly distributed among the major rural regions of Mexico with important consequences on the gender composition of the labor force. This is because labor market competition and sectoral allocation - which may be influenced by employer discrimination and/or preferences of potential employers - differentially affect the ability of men and women to obtain off-farm jobs. Based on her analysis, Katz also finds that women are more likely to obtain skilled or semi-skilled jobs, while men are filling unskilled positions. * Second, while women's overall labor force participation rates remain low in ejido communities, the younger generation is beginning to catch up with their male counterparts - and actually significantly exceeding their duration of off-farm employment in a given year. However, since the majority of these women are still single, it is unclear whether they will continue to work once they marry and form households of their own - in other words, whether daughters' high off-farm employment rates continue, represent a truly generational or a short- term lifecycle phenomenon. * A third major finding concerns the relationship between farm-based assets and income and the decision to participate in the wage labor market. All household members are less likely to work off-farm - and to work for shorter time periods - if they have relatively large livestock holdings. However, this inverse relationship is especially strong for male household heads. Together, these results suggest the existence of some degree of private appropriation of farm-based income and assets among the ejido population, which in turn influences individuals' labor supply decisions. Self Employment. In the case of Mexico, self-employment among women increased substantially in the first half of the last decade, especially in non-agricultural sectors (Parker, 1995, cited in Pagan and Sanchez, 1998). From 1991 to 1995, women accounted for 68 percent of the rise in non-agricultural self-employment (Pagan and Sanchez, 1998). In more rural areas, female non-agricultural self-employment increased by almost 90 percent during the same period (ibid.). This phenomenon is not unique to Mexico, as recent trends in the U.S., Canada, and Argentina show similar female self-employment growth patterns (Devine, 1994; Cohen, 1996; cited in Pagan and Sanchez, 1998). During the early 1990s, the number of women joining the workforce in Mexico increased dramatically (Brown, Pagan and Rodriguez, 1997) while men's decreased slightly. However, gender differences have decreased in self-employment in particular, both in rural and less urban areas. Looking specifically at Puebla, Guanajuato, and Veracruz (Mexico), Pagan and Sanchez (1998), find that while 29 percent of rural women and 87 percent of rural men are employed, men's and women's self-employment rate are very similar (30 percent of working rural men compared to 29 percent of working rural women). Their analysis of the data find that most of the labor force differential is due to supply side factors such as preferences, time constraints, and work opportunities, as well as demand side factors such as exclusionary practices by male-dominated trade unions, employer preferences, or statistical discrimination.49 Demand factors can, in turn, influence labor supply decisions by affecting the inter- temporal return to the labor force, female perceptions on the value of being employed and, ultimately, the decision to join the workforce, the sectoral choice, and investments in schooling. Given high unemployment rates for rural females (see below), the World Bank's 1996 Review of Colombia's Agricultural and Rural Development Strategy placed a great deal on the non agriculture sector and micro-enterprise development. The Review argues that because they typically require less travel away from the home, small businesses potentially offer more practical employment opportunities to women with dependents than itinerant farm 77 work (World Bank, 1996a). Specifically, the report suggests that public policy and investment be geared towards creating an "enabling environment" for such women-run rural small businesses, including the reform of rural financial markets to facilitate capitalization (World Bank, forthcoming). Pagan and Sanchez (1998) make the following recommendations after studying the rural non-agriculture micro- enterprise sector in Mexico from a gender perspective. First, provide broad-based formal and informal education and training programs to aid potentially successful entrepreneurs - and women in particular - to obtain basic business and literacy skills, expand individual choices, improve responses to market opportunities, and increase productivity. Second, provide services to entrepreneurs to help them manage their businesses more effectively, increase access to information and technology, and manage risk. Third, work towards improving the gender business environment so that entrepreneurs can enforce contracts and have lower costs of accessing professional services, output and input markets, information, training and technology. The latter in particular, will have the effect of increasing competition and reducing the potential of gender-based discrimination in access and opportunities in the micro-enterprise sector. In addition, Lanjouw (1998) recommends improving infrastructure that would facilitate women's commercial activities. Lastly, financial services need to be tailored to both the needs of both male and female entrepreneurs, taking into account the sectors and locales in which they operate and different sizes of operations. Household expenditures by income earned A number of studies conducted in the 1980s suggest that women and men spend income under their control in systematically different ways (Guyer, 1980, Dwyer and Bruce, 1988). Women typically spend a high proportion of their income on food and health care for children, as well as goods for general household consumption. In contrast, men retain discretionary control over a higher proportion of their own incomes for personal expenditures. These findings were subsequently confirmed by more recent studies that provide quantitative measures of the different effects of men's and women's incomes. Many of these studies have already attempted to control for unobservable household and community factors and the endogeneity of women's labor income. The evidence shows that women's income has a greater effect on household food security and preschooler nutrition than men's income. In Guatemala, the average yearly profits from non-traditional agriculture export crops would increase household food expenditures by twice as much if they were controlled by women rather than their husbands (Katz, 1992). In Brazil, the effect of women's unearned income on child survival probabilities is almost 20 times higher than that of men's unearned income (Thomas, 1994). Rural unemployment As demonstrated in Table A5.4, significant gender gaps Table A5.4. Rural Unemployment in Select exist in unemployment for two of the countries for Countries, 1987-1998 which data are shown. Gaps are smaller in El Salvador and unlike in Chile and Colombia, favor women: the Country Year Female Male male rate of unemployment is as much as triple the 1987 11.2 6.4 female rate in El Salvador. In Chile, female rates are Chile 1992 6.0 2.5 consistently about double the male rates. But the 1998 13.1 7.3 biggest gaps are in Colombia and these favor men. El 1995 5.8 8.7 Female unemployment rates in Colombia are between Salvador 1996 6.0 7.7 3.0 and 4.5 times higher than rates for men. The 1997 3.1 9.8 situation is even worse among younger female workers. 1988 9.6 3.0 For example, the comparable unemployment rate for Colombia 1995 14.2 3.2 women under 25 years old was 25 percent, and for rural 1998 14.5 4.8 men only two percent (1998 statistics). In Nicaragua, Sources: Colombia (1998 Departamento Administrativo according to the 1998 LSMS, rural women also have a Nacional de Estadistica Household Survey); Chile (1998 higher unemployment rate (14 percent) than rural men Encuesta de Caracterizaci6n Socioeconomica Nacional); El (8 percent) (Ilahi, 1999). Salvador (1997 Multi Purpose Household Survey) Household labor Household time-intensive chores, such as water and wood collection and childcare, can alter time use patterns and labor allocation within the household and affect productivity and earnings. In many developing countries of the 78 world, these tasks are relegated to women but recent studies suggest other time use patterns in Latin America. Using LSMS 1994 and 1997 data for Peru, Ilahi (1999a) examines the relationship between household infrastructure and time use and finds a weak link. According to his analysis, infrastructure variables do not have an effect on the total time household members spend in housework. Interestingly, women in households using firewood, or without in- house water supply do not have significantly higher work burdens than women who do not. In terms of the composition of work, women in rural households with fuelwood or coal as the source of energy tends to devote a smaller share (about 10 percent) of their time to self-employment activities. They also allocate a greater share to housework compared to their counterparts who use modem fuels. In terms of water, Ilahi's (1999a) results suggest that it is the men who respond to changes in provision of piped water services. In households that do not have in-house water, men have a lower propensity to participate in wage work and they tend to allocate a greater share of their time to self-employment activities, such as agriculture. This suggests that there may be complementarities between farm work and water collection, which men are able to make use of. After controlling for source of water supply, an additional hour of public water supply at home allows men to increase the share of self-employment activities by reducing their time in housework, though the latter effect is below the 10 percent level of significance. The results for women are all insignificant. Again this suggests that as far as water infrastructure is concerned, men would benefit more from the provision of in-house water supply. Results from Peru are consistent with findings of a rural water and fuel-wood survey (1994) carried out in El Salvador. This survey found that all household members participate in water collection for household consumption, but that men largely bore a greater share of the responsibility because they were able to collect water on their way from their field work (World Bank, 1 996a). In Nicaragua, a time use module included in the 1998 LSMS found that men spend a lot more time than women in fuelwood collection activities but that women predominate in water collection (llahi, 1999b). As a corollary, analysis of the data found that access to modem fuels such as gas or kerosene lowers the work of men but not of women (ibid.). In-house access to tap water significantly lowers the work time of adult women (ibid.). Housework continues to be a female responsibility in Latin America. In Nicaragua, llahi (1999b) also identified a sharp division of labor by gender based on time use survey included in the 1998 LSMS. Women do most of housework (5.5 hours per day) compared to men who on average contribute 1.5 hours per day. Ilahi's (I 999a) time use study for Peru using LSMS panel data demonstrates a stark contrast in the amount of time men and women dedicate to housework. Housework accounts for on average 70 percent of the work effort of women but only 25-35 percent of the work performed by men. He also found the following: * Overall work burdens were higher in rural (58 hours per week for women and 50 hours per week for men) than in urban (49 hours per week for women and 43 hours per week for men) areas. * Female heads in rural areas tend to spend a lower proportion of their time in housework and are more likely to participate in self-employment activities. The same is not true for male heads in rural areas. * Education has little effect on time use in rural areas, predictably because labor markets that reward education do not exist in rural areas. * The presence of elderly women allows working age women in the household to increase their time in self- employment activities in both rural and urban areas. For men, elderly women in the household lower the tendency of rural working age males to do housework. According to Ilahi (1999a), there are two competing views about why time use patterns differ by gender in developing countries. On the one hand some argue that social roles and norms dictate a segregation of activities by gender. Women are predominantly found doing household chores and men in income generating activities, because those are largely the roles society prescribes for them. On the other hand, economist and behavioral scientists have contested that men and women in developing countries respond to economic incentives and constraints to alter their time use. An extreme position in this regard is that work activities are divided along the lines of comparative advantage, with men being better at market work and women at housework. However a more tempered neo- classical view argues that male-female time use responds to economic changes as much as other behavioral factors such as consumption. 79 Migration According to IICA/IDB data compiled for Costa Rica, Honduras and Guatemala, men are more likely than women to leave rural areas to seek permanent work (see Table A5.5). The proportion is 30 and 20 percent for men in Honduras and Guatemala respectively compared to 20 and 8 percent for women (Chiriboga, et al 1995). Guatemala displays no gender differences in terms of absences due to temporary work but gender gaps do exist for both Costa Rica and Honduras (ibid.). Migration patterns are more similar for men and women in Ecuador, where rural-to-urban migration continues to be high by Latin American standards and contributed to 42 percent of total urban growth during the 1980s (United Nations 1996). Nationally, Ecuadorian women made up 56 percent of all rural-urban migrants in the 1960s and 50 percent in the 1970s (Singelmann 1993). In the particular case of the Sierra region, unequal land distribution and small average farm size, combined with a highly imperfect capital market and limited off-farm employment opportunities (especially for women), has led poor rural families to use both temporary and permanent migration as part of their "survival strategies."50 Table A5.5: Percentage of Production Unit In the case of Ecuador, evidence from the 1970s suggests Members Working Off-Farm, by Gender that the forces driving women from the rural Sierra into the cities were quite different from those influencing male Temporary Permanent migration during the immediate post-oil boom period. A Country Work Work study based on ILO data from 1977-78 found that rural Men Women Men Women Sierran women migrating for economic reasons (i.e. in Costa Rica 27 16 11 9 search of work) were on average younger, less educated, Honduras 27 13 30 20 and more likely to be single than their male counterparts Guatemala 17 1 7 20 8 (Bilsborrow et al. 1987). Moreover, the likelihood of female migration was found to be positively associated Source: lICA/IDB survey (Chiriboga et al, 1995) with (non gender-disaggregated and possibly male biased) off-farm rural employment opportunities, and not significantly affected by either household farm size or distance to Quito - results exactly the opposite of those found for male economic migrants (ibid.). Bravo-Ureta et al. (1996), combining data from the 1974 and 1982 censuses, likewise demonstrate significant gender differences in the effects of macro-structural variables on internal migration in Ecuador during this same period. Women are found to respond more strongly than men to the degree of urbanization and extent of agrarian reform activities, and less strongly to origin-destination gaps in literacy rates, population densities and mean income levels. Land For women and men in rural households, access to land is a key determinant of poverty and is a crucial asset for production and collateral. In terms of gender, land ownership and access is also a determinant of an individuals' ability to bargain over the allocation of labor, income and other inputs into household welfare (Doss, 1996). Finally land is important as a source of income security during old age, both directly (as the basis for agricultural production and/or rental income) and indirectly (insofar as adult children are more likely to assist their elderly parents if they can expect an inheritance transfer). Household Effects. A growing body of theoretical and empirical literature on intra-household resource allocation shows that individual access to income and assets affects the allocation of labor and expenditures and other important household decisions such as nutrition, health care and fertility. See Lundberg and Pollak 1993; McElroy and Homey 1981; Ott 1995; Schultz 1990; Thomas 1990. In the particular case of rural households, land is crucial in determining individuals' "fall back positions" or "threat points," which in turn influence their ability to bargain over the allocation of labor, income and other inputs into household welfare, as well as their participation in extra- household institutions. Land market reform that reallocates property rights between men and women is therefore likely to have wider implications for the rural household economy, the well-being of household members and women's role in the larger community. The distribution of property rights in land among household members takes on special significance during times of transition in household composition brought on by death, divorce, migration and other lifecycle events. For women, their ability to retain land rights if they are abandoned or widowed, or during their husbands' migratory absence, is 80 key to their capacity to generate income. This is so, either directly (as the basis for agricultural production and/or rental income) or indirectly (insofar as adult children are more likely to assist their elderly mothers if they can expect an inheritance transfer). In Mexico, for example, the migration of men from the ejidos has left women in charge of agricultural production, transactions and dealings with Government authorities to an unprecedented extent. However, insofar as women remain users but not owners of their husband's land, they are constrained in their abilities to access the credit market and important Government services (Katz 1998). Enhanced property rights may strengthen women's participation in community-level social and political institutions. Again in Mexico, of 79 surveyed ejidos in which women have any representation on the governing bodies, the average proportion of female ejidatarios was significantly higher than on the 204 ejidos where women were absent from the leadership (ibid). This is important in its own right, and also because greater gender equity in the composition of local institutions can influence the resource allocation and norm-setting activities of these groups. Gender and Land Reforms in LAC. Perhaps the most useful summary of gender and the Latin American experience with land reform and "counter-reform" is Deere and Le6n (1998). They review outcomes in eight countries (Chile, Colombia, Costa Rica, El Salvador, Honduras, Mdxico, Nicaragua, and Peru) that have undergone significant redistributions of agrarian property and are now carrying out some combination of privatization and titling. They argue that the agrarian reforms of the 1960s and 70s were characterized by significant male bias in the distribution of land. Typically, only heads of household were designated as beneficiaries, and this was exacerbated by the preference given to former permanent agricultural workers (who were disproportionately male) and inheritance laws favoring male heirs. As a result, women constituted between 4 and 15 percent of agrarian reform beneficiaries in the eight countries. It should be noted here that the issue may not be one of 'male bias' but rather a bias towards household heads, who are perceived or reported to be male. A Fundaci6n Arias study of land tenure in El Salvador found that of 137 female and 1,035 male self declared household heads who had solicited land, 65 percent of female heads and 82 percent of male heads had benefited from the first round of agrarian reform. By the third round, among those having received titles no gender differences in household headship were apparent (Fundacion Arias, 1992). Nonetheless, to varying degrees, the new legislation supporting the "counter-reforms" is a significant improvement over the original agrarian laws in terms of gender. In most countries, household heads are no longer the sole designated beneficiaries and provisions for joint titling exist in countries such as Colombia, Costa Rica, Honduras, and Nicaragua. In Colombia, priority is given to female household heads and victims of social violence in the allocation of land. In El Salvador, women constituted 33 percent of all FMLN ex-combatants and sympathizers to receive land as part of the Peace Accords (data as of March 1996). In Nicaragua, pressure from the women's commission of the national peasant association (UNAG) coupled with a successful training program for government functionaries and beneficiaries led to women making up 21 percent of all PNCTR (Programa Nacional de Catastro, Titulaci6n y Regularizaci6n de la Propiedad). Women received 40 percent of all individual titles and 21 percent were joint titles. In Costa Rica, opposition on the part of male peasant organizations led to the reversal of a historic legal provision establishing titling in women's names when couples are in consensual unions, which had increased women's participation in state-sponsored land redistribution programs to 39 percent in 1990. Finally, a World Bank financed project in Chile granted titles to female household heads by inter alia simplifying legal procedures (Quisumbing 1994). More recent data compiled by Deere and Le6n, which are provided in Table A5.6, indicate that the most gender equal reforms took place in Chile, where about 45 percent of plots and 40 percent of farms were titled to women. Ecuador's rural development project PRONADER - which the World Bank has financed - granted the highest number of joint titles, about 70 percent. The biggest gap is in Mexico, where women are 21 percent of beneficiaries of certified ejido land, compared to 79 percent for men. These improved outcomes indicate that Governments, national women's NGOs, and international financial organizations (including the World Bank) have made significant efforts to improve the gender balance in property rights and ownership. But very little empirical evidence exists to show the relevance of gender in affecting the results of these programs or the effectiveness of Government programs in reducing gender gaps. Since the current generation of land registration, titling and purchase programs are all at different stages of planning and implementation, the timing is propitious for such work to take place. 81 Table A5.6. Land Ownership and Titling Statistics by Sex from Select Countries, 1992-96 Country Year Unit Women Men Couples! Other Total Joint Colombia 1996 titling Number 2,107 (30%) 3,193 (45%) 1,753 - 7,158 public lands (25%) (100%) Ave. Size (ha) 13.5 17.4 18.5 - 16.5 1997 titling Number 1,472 (31%) 2,320 (49%) 975 (20%) - 4,767 public lands (100%) Ave. Size (ha) 18.2 22.6 28.9 - 22.5 Ecuador 1992-96 Titles Issued by 1,596 (13%) 1,135 (17%) 8,685 - 12,416 PRONADER (70%) (o00%) Ave. Size (ha) 1.19 0.81 1.21 - 1.15 1996 Sierra (n=75) 23% 50% 57% - 100% Coast (n=75) 6% 66% 28% - 100% Brasil 1996 Santa Catarina 6% 42% 46% 6% 100% (n=50) Parana (n=50) 6% 67% 15% 13% 100% Chile 1993-96 Land Title Plots 359 (45%) 432 (55%) - - 791 ( 100%) Land Title Farms 272 (40%) 411 (60%) - - 683 (100%) Mexico Certified Ejidatarios 168,702 745,909 - - 914,611 ejido land as (17.5%) (82.5%) (100%) of Jan 1997 Posesionarios 26,254 93,089 - - 119,343 (22.0%) (78.0%) (100%) Avencindados 114,440 269,412 - - 383,852 (29.8%) (70.2%) (100%) Total 309,396 1,108,410 - - 1,417,806 (20.8%) (79.2%) (100%) Source: Constructed from Deere and Le6n (2000) Agricultural Technology The literature on gender and agriculture points to women's lack of access to agricultural technology and extension services (Saito and Spurling, 1992, Quisumbing et al. 1998, Kleysen, 1966). This is the case in El Salvador, where women comprised about 12-13 percent of the recipients of government provided agricultural technology from 1995- 98 (CENTA, 2000). This is a low figure if one compares this figure with the IDB/IICA estimated proportion of the agriculture EAP for that country, which is 26 percent. Information from other countries, however, suggests that extension provided to women may be in line with their participation levels in the sector. In Nicaragua, for example, the proportion of female beneficiaries increased from 16 to 26 percent, the latter being close to the IDB/IICA estimated female proportion of the agriculture EAP (28 percent). Official data indicate that women had greater access to the "massive" technical assistance, which is provided for free to small farmers by government agency extension workers, than the paid services. In Ecuador, 35 percent of those who received agricultural extension through the Bank-financed PRONADER Project were women, a project that had as an explicit objective to increase women's participation in rural development. In Venezuela, between 30-35 percent of the Bank-financed Agricultural Extension Project (PREA), which finances private extension services, were women. Based on IDB/IICA data compiled from throughout the region, Kleysen (1996) indicates that Barbados is the country with the largest proportion of women having received training and technical assistance, followed by Colombia and Venezuela.5' 82 Box A5.2: Progressing on Gender Equality in Land Titling in Colombia Since 1988, under Agrarian Law 30, agrarian reform adjudications and titles have been required to be made in the name of couples (joint titling) who are either legally married or together in consensual unions (ibid.). Special provisions were also make for female household heads with regard to priority access to national lands and inclusion in agrarian reform communal enterprises, and peasant women's organizations were for the first time granted participation in regional and national agrarian reform committees. However, despite these gender progressive policy measures, evidence suggests that resistance from both local Instituto Nacional Colombiano de Reforma Agraria (INCORA) authorities and some male dominated national peasant organizations limited their implementation (ibid.). More meaningful change began in 1994, after Colombia's civil code was reformed to fully recognize the rights of consensual unions; INCORA added women displaced by social violence to their roster of priority beneficiaries; and Agrarian Law 160 reaffirmed mandatory joint titling under all agrarian reform programs. Equally as important for gender outcomes, the agrarian reform process itself was significantly overhauled in 1994, establishing a fund for land purchase grants which was administered in a much more decentralized way than had previously been the case (Deininger 1999). Under the new system, which has proceeded on the two parallel tracts of direct government purchase and a "market assisted" pilot program, potential beneficiaries are awarded "points" based on their level of education, agricultural experience, other income sources, and access to government services. All else equal, female household heads and displaced women are to be given priority in the allocation of land. In addition, in all of the pilot municipios, alternative programs have been initiated to address the needs of those who do not qualify for land, such as chicken hatcheries and other microenterprises for female household heads (ibid.). Impressively, out of more than 17,000 beneficiaries during the first four years of land adjudication under Agrarian Law I160, 57 percent were couples receiving joint titles to newly acquired land, and another 13 percent were women receiving individual titles. The record is even better for the market assisted pilot program, which allocated 68 percent of farms to couples and 12 percent to women. For the years where plot size is available, it appears that individual women beneficiaries are receiving as much or even slightly more land on average than individual men and couples. This record speaks extremely well of Colombia's efforts to achieve gender parity in the redistribution of this critical economic resource. Alongside these innovative agrarian reform efforts, in 1995, the Colombian government, with support from the IDB, launched a new land titling program, the Programa Presidencial para la Formalizaci6n de la Propiedad y Modernizaci6n de la Titulaci6n Predial, commonly known as "Titular." Initial results from this program, which has focused on the regularization of squatters' rights on national lands, indicates that 20-25 percent of properties were jointly titled during the first two years (see Table 5.6). An even greater proportion - thirty percent - were titled to women individually, evidence that INCORA has been complying with its mandate to give priority to "unprotected" women who have been displaced by the violence (Deere and Le6n 2000). While, the average size of plots titled to women was somewhat smaller than those titled to men, jointly titled farms were significantly larger than individually titled farms. Source: World Bank, forthcoming. Among Bank-financed projects in the Region, it is now common for agricultural technology programs to have components or activities to reach women farmers (e.g. Ecuador Rural Development Project, Argentina Small Farmers Project, El Salvador PRISA, Honduras PAAR, Nicaragua ATLT Project, Venezuela Agricultural Extension Project, to mention a few). The quality of the extension services provided to women, however, may be an issue. A recent Bank report on gender in PREA in Venezuela, indicates that extension for women tends to be in the traditional female areas that have limited market viability and is provided by non technical demostradoras del hogar (Meza, 2000). In the dry and poor Northeast of Brazil, a rural development project is supporting cooperatives that commercialize traditional feminine crafts which according to a consultant's report are marginal at best and do not provide women a way out of poverty (Beneria, 1999). Other supply-side limitations to women's participation in agriculture extension include the following. First, extension systems tend to focus on single crops (which are produced by men) rather than the broad spectrum of women's crops. Second, extension agents tend to be overloaded and underpaid which means that they are likely to target those groups that are easier to organize and more vocal in their demands (i.e. men) rather than identifying the potential or latent demand of different groups and tailoring services according to their characteristics. Third, extension workers tend to favor land owners (who are more often men) (Agarwal, 1994) or household heads who is 83 perceived to be or are identified to be male. Fourth, agricultural technology tends to be inefficiently transferred between household members (Saito and Spurling, 1992). Fifth, extension programs tend to target women is isolation, thereby causing possible suspicion and mistrust among husbands and other members of the community and may conflict with local custom in indigenous areas. In Ecuador, after problems arising from organizing women's-only groups, PRONADER began to integrate women into mixed groups, which according to project staff was much more effective. On the demand-side, experience from extension projects in countries such as Argentina, Venezuela and Ecuador indicate that women's time and mobility tends to be constrained by their dual domestic-productive roles. Women tend to be more home-bound and have fewer social interactions thus limiting their access to information. They become functionally illiterate to a greater extent than men because they have less social exposure. In addition, they have more limited mobility given that they often need the permission of their husbands to organize and participate in agricultural extension and training activities. Experiences from World Bank and other projects suggests that these obstacles can be overcome by integrating men into gender-related projects and understanding the underlying causes of men's actions and behavior, which like women's are dictated by gender norms. For example, project staff of FASBASE, a health and nutrition project, in Ecuador learned that rural men opposed their wives participation in projects because they were being ridiculed or ostracized by their male peers in the community; the project subsequently began to involve the men themselves. In the El Salvador PRISA project, men began to support their wives farming activities after extension agents made a concerted effort to include them. Rural Financial Markets While men and women both lack access to formal credit, the literature points to greater constraints for women. For example, collateral requirements (usually land) and transaction costs-transportation costs, paperwork, time spent waiting-tend to limit women more than men, as does the nature of women's productive activities and micro- enterprises, the latter tending to be smaller and less productive. Women's lower functional literacy combined with their lower social mobility and lack of familiarity with loan procedures may constrain their interaction with banks and moneylenders. Country-specific information from the region, however, suggests that vis-a-vis men, women may have greater access to informal sources of credit. Data from the Guarantee Fund for Small Enterprises in El Salvador from September of 1994, indicates that 55 percent of those receiving credit were men and 45 percent were women (World Bank, 1996a). An informal finance survey suggests larger gender gaps in rural El Salvador - seven percent of female respondents of the survey and 12 percent of the male respondents claimed having received formal credit (ibid.). Both men and women received informal credit, however, and in some cases women were favored. The same finance survey indicates that 56 percent of rural female respondents and 54 percent of rural male respondents received an informal loan over the previous 10 year period (ibid.). Some of the more well established NGOs showed a preference for female borrowers, with participation cited as 65 to 80 percent depending on the NGO (ibid.). Similarly, in Nicaragua according to a FIDEG study, men received almost the same proportion of loans (men 51 percent and women 49 percent) (World Bank, 1997b). Men were favored slightly in terms of formal credit, receiving 54 percent of all loans and both men and women received almost equal numbers of informal loans (ibid). Based on IDB/IICA data collected throughout the region, Kleysen (1998) concludes that for all countries with the exception of Venezuela, rural women had better access to private sources of credit, NGOs, community banks, and other mechanisms, than to state Banks. Kleysen also notes demand for credit among women is another constraint. In only four of the 18 countries examined in the IDB/IICA survey did women account for more than 35 percent of those who had applied for credit. In Bolivia and Peru the proportion was only six percent, due most likely to lower levels of education and language constraints among indigenous women. The Reproductive Sphere Rural women have higher fertility rates than their urban counterparts, the difference being more than two children in most countries (see Table A5.7). For women, this means less time to spend on productive activities; for men more dependents means increased pressure cover family expenses and survival strategies such as migration. Fertility in urban areas ranges from a low of 2.1 in Uruguay to 4.3 in Bolivia. In rural areas, fertility levels range from a low of 2.8 (also in Uruguay) to a high of 7.0 in Honduras. The biggest urban rural differences are in Peru, Honduras and Mexico and the smallest are in Uruguay, Chile and Costa Rica. To some extent the gap is due to less access to 84 family planning. For example, only 60 percent of women in Ecuador say they have heard of or seen family planning messages. However, this proportion declines to 54 percent for women living in rural areas. The problem of access to family planning and its link to productivity is true even in a country as developed as Argentina, where reportedly access to family planning is more of a constraint for the rural population (Correia, 1999). Potential female beneficiaries of the Argentina Rural Farmers Project reported to the Task Manager that before they could think about improving their productivity, they needed to control their fertility. Table A5.7 Differences in Rural/Urban Global Fertility Rates, Last Available Year (Children per Woman) Urban-Rural Country Year Urban Rural Total Difference Bolivia 1992 4.2 6.3 5.0 2.1 Brazil 1991 2.8 5.2 3.7 2.4 Colombia 1990 2.5 3.8 2.9 1.3 Costa Rica 1985 3.0 4.1 - 1.1 Chile 1992 2.3 3.1 2.4 0.8 Dominican Rep. 1991 2.8 4.4 3.3 1.6 Ecuador 1987 3.5 5.5 4.3 2.0 El Salvador 1985 3.3 5.9 4.4 2.6 Guatemala 1987 4.1 6.5 5.6 2.4 Honduras 1988 4.1 7.0 5.5 2.9 Mexico 1987 3.0 5.9 4.0 2.9 Nicaragua 1992 3.6 6.4 - 2.8 Panama 1976 3.2 5.4 4.1 2.2 Paraguay 1990 3.6 6.1 4.7 2.5 Peru 1992 2.8 6.2 3.5 3.4 Uruguay 1985 2.1 2.8 2.5 0.7 Venezuela 1977-81 3.7 6.1 4.3 2.4 Source: FLACSO, 1995 Education While the gender gap in education has been closing throughout the region, illiteracy tends to be greater among rural women than men although regional variations exist. And rural indigenous women tend to be more monolingual than indigenous men. For example in Ecuador, national illiteracy rates are 12 and eight percent for women and men respectively according to LSMS-98 data, and substantially higher in rural areas (21 percent for women and 15 percent for men). In terms of regional differences in Ecuador, the largest gaps are in the Sierra region where more than a quarter of women do not know how to read or write compared to 14 percent for men. In the Costa region, men - who have one of the highest illiteracy rates in the country - are at a disadvantage compared to women in both urban and rural areas. Gender gaps in functional illiteracy are smaller. Amongst the indigenous, 65 percent of women are functionally illiterate compared to 52 percent of men. While indigenous populations are more likely to be uneducated generally, indigenous women in particular are at a disadvantage in most countries. In the case of Ecuador, 53 percent of indigenous women are illiterate compared to 35 percent of men. In Guatemala, indigenous men have an average of 1.9 years of schooling, double the average of 0.9 year for indigenous women. In indigenous areas of Panama, less than two thirds of those over age nine can read and write but illiteracy is particularly high among indigenous women. 85 Rural Violence Using homicide rates as the measure, Latin America and the Table A5.8: Homicide Rates per Caribbean is the most violent region in the World (World Bank, 100,000 Population in Latin America 1997a). At 150 per 100,000 inhabitants, El Salvador and Guatemala and the Caribbean have the highest homicide rates in the Region (see table A5.8). In Late 80s/Early Colombia the corresponding rate was 89.5 in the late 80s and early Country 90s 90s. Throughout the Americas, homicide rates are highest among young men aged 15-24 (PAHO, 1993, cited in Barker, 1998). Most El Salvador 150.0 violence is perpetuated by young males against other young men Guatemala 150.0 (World Bank, 1997, Pollack, 1998) and involves labor conflicts, Colombia 89.5 crime, and street and gang violence (van Bronkhorst, 1999). As was Jamaica 35.0 previously discussed, mortality rates linked to external factors - Brazil 19.7 including traffic accidents, homicide and suicide - vary by gender. In El Salvador, for example, among homicide victims over age 15, male Nicaragua 17.8 death rates (200 per 100,000 inhabitants) are ten times those of Sources: PAHO, 1997, cited in World Bank females (Cruz, 1999). This is consistent with trends in the rest of the 1997a region: in Latin America, North America and the Caribbean, young men's mortality rates range from two to seven times higher than young women's (Barker, 1998). While women are also victims of crime, they are more likely to experience domestic and sexual aggression (van Bronkhorst, 1999) and their injuries are less likely to result in death. In addition to young males, violence is associated with lower socio-economic levels, unemployment or underemployment, lower education, and alcohol and drug abuse (Morrison and Loreto Biehl, 1999). Moreover, having experienced or witnessed chronic abuse as a child, significantly increases the likelihood of being violent as an adult (Huesmann et al., 1984, cited in Morrison and Loreto Biehl, 1999). Traditional stereotypes - transmitted through school, the popular media, and the home - reinforce aggression, physical prowess, and risk taking among boys and sociability and relationship building among girls. Actions related to violence, both economic and social violence - which includes domestic aggression - should focus on prevention. According to Morrison and Loreto Biehl (1999), experience has demonstrated that the education system, community level programs, and the media are important vehicles for addressing and reducing the incidence of violence. For example, the education system has the potential to modify cultural values that promote violent behavior. Possible actions include: (a) retraining teachers to ensure they do not promote violent behavior among boys and submission among girls; (b) eliminating gender stereotypes in textbooks and other pedagogical materials; and (c) developing innovative programs to teach children nonviolent resolution skills and promote civic values. Schools are also an ideal vehicle for identifying at-risk children and families who need special attention. Community level programs can be used to provide informal education programs, teach citizens about legal sanctions against violence, establish violence prevention strategies, and provide social services for victims of violence. And lastly, media can be used to promote nonviolence and counteract the media's role in reinforcing violence. Mass media education campaigns represent a potentially effective response by providing nonviolent role models and by promoting nonviolent responses. Radio and television are being used in war torn areas such as Barundi and the Baltics to produce and disseminate positive images of interpersonal interactions (male-female and adult-child) and promote convivencia. These could be applicable to violent countries such as Colombia, El Salvador, and Guatemala. In terms of sanctioning violence, ensuring that men and women are aware of laws on violence and that women have access to legal services are other important measures to addressing violence, and domestic violence in particular. References Agarwal, Bina. 1997. "'Bargaining' and Gender Relations: Within and Beyond the Household." Feminist Economics 3(1): 1-51. Barker, Gary. 1998. 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The social and economic factors associated with violent crime in El Salvador. The World Bank: Washington D.C. Correia, Maria. 1999. Las Relaciones de Genero en la Arzentina. Un Panorama Sectorial. The World Bank: Buenos Aires, Argentina. Deere, Carmnen Diana and Magdalena Le6n. 1998. "Mujeres, Derechos a la Tierra y Contrareformas en America Latina." Debate Agrario 27: 129-153. Deere, Carmen Diana and Magdalena Le6n. 2000. Gender. Propertv and Empowerment: Land, State and Market in Latin America. Manuscript. Deininger, Klaus. 1999. "Making Negotiated Land Reform Work: Initial Experience from Colombia, Brazil and South Africa." World Development 27(4): 651-672. Doss, Cheryl, 1996. "Women's Bargaining Power in Household Economic Decisions: Evidence from Ghana." Staff Paper P96-11, Department of Applied Economics, University of Minnesota. FLACSO, 1995. Latin American Women Compared Figures. Santiago de Chile: FLACSO. Folbre, Nancy. 1997. "Gender Coalitions: Extrafamily Influences on Intrafamily Inequality," in Lawrence Haddad, John Hoddinott and Harold Alderman (eds.) Intrahousehold Resource Allocation in Developing Countries: Methods. Models and Policies. Baltimore, MD: Johns Hopkins University Press. Hamilton, Sarah, 1998. The Two-Headed Household: Gender and Rural Development in the Ecuadorian Andes. Pittsburgh: University of Pittsburgh Press. Hazell, P. and S. Hagblade, 1993. "Farm-Nonfarm Growth Linkages and the Welfare of the Poor." In Lipton and van der Gaap (eds), Including the Poor: Washington D.C.: The World Bank. Jaramillo, Carlos Felipe. 1998. Liberalization, Crisis and Change in Colombian Agriculture. Boulder, CO: Westview Press. Ilahi, Nadeem. 1999a. An Analysis of Labor Markets and Time Use in Nicaragua. Unpublished manuscript. The World Bank: Washington, D.C. Ilahi, Nadeem. 1999b. Gender and the Allocation of Adult Time: Evidence from the Peru LSMS Panel Data. Unpublished Manuscript. The World Bank: Washington, D.C. Jones, Christine W. 1983. Mobilization of Women's Laborfor Cash Crop Production: A Game Theoretic Approach. Ph.D. dissertation, Department of Economics, Harvard University. Katz, Elizabeth. 1997. "The Intra-Household Economics of Voice and Exit." 1997. Feminist Economics 3(3): 25-46. Katz, Elizabeth. 1998. "Gender and Ejido Reform." Background paper prepared for Economic Adjustment and Institutional Reform: Mexico's Ejido Sector Responds. Washington, D.C.: The World Bank. Katz. Elizabeth and Maria Correia. Forthcoming. Gender and the Mexican Economy. The World Bank: Washington, D.C. Kleysen, B. (Editor). 1996. Women Small Farmers in the Caribbean. Program for the Analysis of Agricultural Policies vis-a-vis Women Food Producers in the Andean Region, the Southern Cone and the Caribbean. San Jose, Costa Rica: IDB/IICA. Lanjouw, Peter. 1998. Ecuador's Rural Nonfarm Sector as a Route Out of Poverty. Policy Research Working Paper 1904. Washington D.C.: The World Bank. Lundberg, Shelly and Robert A. Pollak. 1993. "Separate Spheres Bargaining and the Marriage Market." Journal of Political Economy 101(6): 988-1010. McElroy, Marjorie B. and Mary Jean Horney. 1981. "Nash-Bargained Household Decisions: Toward a Generalization of the Theory of Demand." International Economic Review 22(2): 333-349. 87 Meier, V. 1999. "Cut-flower Production in Colombia - A Major Development Success Story for Women?" Environment and Planning A 31: 273-289. Meza, Ronald. 2000. Informe Sobre la lncorporaci6n de Genero en el Programa de Extensi6n Agricola (PREA). Back-to-Office Report. The World Bank: Washington, D.C. Morrison, A. and Maria Loreto Biehl (Editors). 1999. Too Close to Home: Domestic Violence in the Americas. Washington, D.C.: Inter-American Development Bank. Ospina, Rosa Ines. 1998. "Mujeres Rurales en la Agenda del Estado." In Gdnero. Equidad y Desarrollo. Bogota: Departamento Nacional de Planeaci6n, TM Editores. Ott, Notburga. 1995. "Fertility and Division of Work in the Family: A Game Theoretic Model of Household Decisions," in Edith Kuiper and Jolande Sap (eds.) Out of the Margin: Feminist Perspectives on Economics, pp.80-99. London and New York: Routledge. Pagan, Jose A.. 1998. "Gender Differences in Labor Market Decisions in Rural Guatemala". Unpublished Manuscript. Washington D.C.: The World Bank. Pagan, Jose A. and Susana M. Sanchez. 1998. Gender Differences in Labor Market Decisions: Evidence from Rural Mexico. Unpublished Manuscript. Washington D.C.: The World Bank. Paterson, Robert Edward. 1985. Modelling the Division of Labour and Assets within Peasant Households. M.S. Thesis, Wadham College. Perez, Edelmira and Maria Adelaida Farah. 1998. "Genero y Desarrollo Rural: De lo Invisible a lo Visible." In Gdnero. Equidad v Desarrollo. Bogota: Departamento Nacional de Planeaci6n, TM Editores. Quisimbing, Agnes, R. 1994. Improving Women's Agricultural Productivity as Farmers and Workers. 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Washington, D.C.: The World Bank. 88 Appendix 6 Latin America and the Caribbean Region Farming Systems Study Introduction: Major Farming Systems in Latin America & the Caribbean This is an extract of the December 2000 FAO Farming Systems Study.52 It characterises fifteen farming systems, their agronomic potential and drawbacks, their contribution to the livelihood and economy of the region, their poverty profile and the major issues that need to be addressed to reduce poverty in these systems. It amply shows the rich natural resource endowment of the region, and its great diversity. It concludes with key priorities for consideration to reduce rural poverty extensive in selected farming systems. Characteristics of the Region Stretching from latitude 290 North on the Mexican border to 560 South at the tip of Tierra del Fuego, Latin America and the Caribbean (LAC - as defined by the World Bank) covers some 20.5 million km2 and encompasses 42 countries with a total estimated population in 2000 of 519 million53. The size of the region, and its enormous variation in ecological conditions, combined with its relatively low population density (25 persons/kM2) and high rates of urbanisation (75%) have permitted the development and preservation of an extremely high level of biodiversity. According to UNEP54, 5 of the 10 richest countries in the world in terms of biodiversity are in LAC, and the region contains 40% of the plant and animal species of the world's tropical forests and 36% of the main cultivated food and industrial species. The largest unfragmented tropical forest in the world is found in the Amazon basin, and overall, the region possesses 28% of the world's forest area- lOm km2 in 1994. LAC possessed some 160m ha of agricultural land55 in 1999, comprising 14% of the developing world total - an increase of 47% since 1961, but still only 18% of the estimated potential for the region56. An estimated 18.3m ha of this area in under irrigation. There is a further 600m ha in grazing and pastureland. Part of this abundance stems from the region's relatively favourable agro-ecological conditions; 40% of the developing world's humid areas are to be found in LAC, in contrast to only 4.2% of the arid and semi-arid lands. Humid and sub-humid lands account for over 90% of the LAC land area. This abundance is further demonstrated when water resources are considered. LAC accounts for 48% of the total renewable water resources in the developing world. Based upon irrigated area and water use efficiency, it is estimated that no more than 1% of the available water in LAC is currently utilised57, serving an estimated 18.2m ha of irrigated land within the region in 1999. More than moisture is needed to ensure agricultural productivity, and there are severe soil limitations associated with many humid tropical regions.58 In addition, the extensive mountain and slope lands found within the region (almost 2 million kM2, or less than 10% of the total land area) estimated to have a slopes of 30% or more) limit agricultural activity or result in increased risks of erosion, while the poor management of arid and semi-arid soils can also have devastating effects.59 A 1988 study by FAO estimated that only 3.4% of all lands in LAC were without any significant restrictions for agricultural use.60 Despite a relatively low cropping intensity of only 64%, LAC is globally important in a number of crops, and for these crops often achieves yields significantly above the developing world average (Table A6.1 below).61 With an average per capita GNP of US $3,940 in 1998, LAC is the wealthiest of the developing regions of the world, and also the least dependent on agriculture; only 8% of GDP in 1998, and as growth in agricultural value added (averaging 2.6% per annum in the period 1990-98) is lower than for industry or services, that share is likely to continue declining. Furthermore, FAO nutritional data indicates that the average LAC diet contains 2791 calories, 6% higher than the average for all developing countries and 120% of the required minimum daily allowance62. The ECLAC per capita food index rose by 15% from 1980-976'. 89 Table A6.1 Comparative Performance and Importance of LAC Crop Production Crop Area Yield Production LAC (000 ha) % ofADC LAC (t/ha) % ofADC LAC (t 000) % ofADC Maize 29,083 30 2.5 96 73,972 29 Rice 5,618 23 3.2 126 18,109 30 Wheat 8,661 8 2.4 92 20,464 7 Sugar Cane 8,403 46 62.8 104 527,860 47 Banana 1,205 33 19.7 132 23,771 43 Citrus 1,999 27 17.4 198 34,734 52 Soybean 18,941 51 2.2 129 40,810 64 Sunflower 3,312 43 1.8 138 5,876 59 Cacao 1,583 26 0.4 80 592 21 Coffee 5,603 53 0.6 120 3,380 58 ADC: All developing countries. Source: FAOSTAT, 1998. Nevertheless, serious problems of equity exist. Not only do the wealthy control one of the highest proportions of resources of any region in the world 64, but there is also a strong urban bias. According to 1997 estimates by CEPAL65, 54% of rural households in the region were classified as poor, against only 30% from urban areas. Extreme poverty affected 31% of rural households but only 10% or urban ones. In total 47 million rural inhabitants were classified as in extreme poverty, and 78.2 million as in poverty. Internationally comparable poverty data are still largely unavailable, but vary extensively for those countries studied within the region - from less than 2% of the population with an income of under US$1/day in Uruguay (1989 data), 66 to 40% in Guatemala and Honduras . Equity problems are particularly evident in respect of land distribution, with LAC historically possessing some of the highest GINI (inequity) coefficients in the world, reaching over 0.9 in Peru, Paraguay and Venezuela and close to those levels in Colombia and Brazil.67 Only pre-reform Eastern Europe had higher levels as a result of state ownership of land. In the period 1995-97, LAC had an annual net trade deficit in cereals of 16m tonnes, equivalent to a self-sufficiency ratio of 90%. LAC also has a net deficit in dairy products of 6.3 m tonnes per year, but it is the only region in the developing world with a trade surplus in livestock products; 0.9m t/annum in this period, in comparison with an overall developing world deficit of 0.4m t. Major Regional Farming Systems Due to its enormous latitudinal range, varied topography, and rich biodiversity, Latin America and the Caribbean has the most diverse and complex range of farming systems of any region in the world.68 Fifteen major systems have been defined for the purposes of this study, divided into four principal agro-ecological categories. Several of these systems have clearly identifiable, although not geographically separate, sub-systems. Even this number, however, could easily be expanded: in the Andean cordillera alone, at least 6 separate systems could be defined. The 15 major farming systems are described and characterised in Appendix 6.1 and presented graphically in the opening Map. Dispersed Tropical Forest System - Centred on the Amazonian basin and covering approximately 6m km2 or 30% of the total land area of LAC, this system comprises scattered indigenous and low-input settler agricultural activity, interspersed with extensive beef and occasional plantation farming, especially towards the margin of the area. Cultivated area is well under 5% with negligible irrigation. Population density is very low; around 3 person/km2. Coastal Tropical Export Plantation System - This system covers 1.85 million km2, and has an estimated agricultural population of 21 million. There are an estimated 18m ha of cultivated land of which 15% is irrigated. It occupies some of the richest agricultural lands in the region, but also includes mangrove swamps and isolated areas of tropical forest. It contains two major sub-systems: (a) small-scale family farms in coastal areas with mixed agriculture, in-shore fishing and frequent off-farm employment (e.g. tourism); and (b) export oriented commercial plantations, often internationally owned, with intensive large-scale production and significant poverty among labourers. 90 Intensive Mixed Tropical System - Centred on East-Central Brazil, this intensive mixed agricultural system represents the heartland of Brazilian agriculture, and occupies an estimated 0.82m km2 with an agricultural population of some II million inhabitants. There are some 10m ha of cultivated land, of about 10% is irrigated. Coffee, horticulture and fruit are important products. Poverty levels are relatively low in this system. "Campos" Tropical Moist Savanna System - The Campos represent a gradation in moisture and often soil quality from the intensive system described above. Covering just over Im km2 in S. Brazil and N. Uruguay, the system has an estimated rural population of about 4 million, and is strongly oriented to livestock and rice production. There are an estimated 12m ha of cultivated land, of which just under 20% is irrigated. Poverty is low to moderate. Frontier Tropical Savanna System - Covering the enormous Cerrados area of Central Western Brazil and the Llanos of E. Colombia, Venezuela and Guyana, this system encompasses 2.3m km2 and an agricultural population of approximately 7m. There are an estimated 25m ha of cultivated land, about 8% of which is irrigated. Only recently being intensively developed, this frontier system offers enormous potential for future agricultural growth in livestock, cereals and soya among other crops. Poverty is relatively low to moderate for immigrants. Mediterranean and Temperate Mixed System - Although it covers a relatively small area, 0.33m kM2, this system accounts for a significant proportion of the commercial agriculture in Chile and is also important in Argentina. Cultivated are is 2.8m ha, of which more than 20% is irrigated. The rural population in this system is estimated at 3-4 million. Wheat, olives, horticulture, fruits and livestock are all important. Poverty is generally low. Pampas Temperate Grasslands System - Covering some l.lm km2 in Central and Eastern Argentina and Uruguay, this low population zone (of some I million rural inhabitants) was originally largely devoted to livestock and later, wheat, for export. More recently, soybean and sunflower have made important gains. There are now estimated to be 14m ha of cultivation, but only about 5% is irrigated. Further intensification is expected. Poverty is low. "Gran Chaco" Frontier Tropical Drylands System - Stretching from North-Central Argentina, through Paraguay and into Eastern Bolivia, this system of 0.7 million kM2 has only recently been economically developed and still has a rural population of less than I million. Total cultivated area is estimated at less than 7m ha, and only just over 1% is irrigated. Unlike the Cerrados and Llanos areas, however, the growth potential of the Gran Chaco is severely limited by soils and moisture. Significant poverty is found among the small colonists. Established Tropical Drylands System - Due to its location near the coast of North East Brazil and in the Yucatan peninsula of Mexico, this large system of 1.3 million km2 has a well established economic and productive structure, but faces many of the same agro-ecological limitations as the Gran Chaco. The almost 14m ha of cultivated land has less than 5% irrigation. It is a system with severe and chronic poverty among small-scale producers, mixed with large-scale extensive ranches. Land degradation is a serious problem for the 12-13m agricultural population. Dry Cool Temperate Grassland System - As the Pampas extend southwards, they become drier and cooler, merging eventually into the very sparsely populated plains of Patagonia (approximately 0.25m agricultural population), covering some 0.6 million km , where sheep and cattle ranching is the only widespread agricultural activity. Cultivated area is less than 5% of total, and there is no reported irrigation in the system. Poverty is low to moderate. Dispersed Irrigation-Based Arid Mixed System - This farming system is the most fragmented geographically within the region covering 1.65 million km2, principally across Northern and Central Mexico and coastal and inland valley areas of Peru and Chile. The 6.5m ha of cultivate land is more than 80% irrigated, allowing intensification of production, generally commercially oriented, and supporting an agricultural population of over 12 million. Mesoamerican Hillside Maize & Beans System - Stretching from Central Mexico to the Panama Canal (0.65m kM2) and with an estimated agricultural population of about 17 million - with a substantial indigenous component - this system is culturally based upon the production of maize and beans for subsistence. Although there are more than 2.4m ha of irrigation within the system, the historical loss of better valley lands has led to widespread and severe poverty and serious land degradation in many areas. Northern Andean Highlands Mixed System - Covering 0.43 million km2 and with an agricultural population of II million, this system contains two distinct sub-systems, generally differentiated by altitude: (a) the well developed intermontane valleys and lower slopes - the heart of Andean coffee production; and (b) the highlands and upper valleys where temperate crops, maize and pigs predominate and where the traditional indigenous culture is strongly established. Poverty is generally moderate in the lower areas, but severe at higher altitudes. 91 Central Andean High Altitude and Altiplano System - Again divided into two distinct sub-systems, the Central Andean system covers 1.1 million km2 and a total agricultural population of 7 million. Through most of Peru, the system occupies the steep valleys of the high Sierra. From Southern Peru into Northern Chile and Argentina, the altiplano is the predominant landform. Throughout the zone the key characteristics are production at an altitude of more than 3,200m. and a very strong indigenous culture. The temperate crops of the Northern Andes are present but sheep and camelidae are also very important. There is approximately 1.2m ha of irrigated land. Poverty is very severe in this system. Southern Andes Cool Temperate Livestock and Forestry System - At the Southern end of the Andes, lower temperatures combined with continued high altitudes render cultivation generally sub-marginal. The rural population of less than I million are largely dependent upon livestock grazing, forestry and tourism for income over the 0.55 million km2 area. Poverty, is low to moderate, reflecting the low population densities. Table A6.2: Key Poverty Related Characteristics of Farming Systems in Latin America & the Caribbean Land area Rural Potentialfor Potentialfor Farming Systemts La area population Poverty poverty agricultural (% Of region) (% of region) reduction growth Dispersed Tropical 32-33 3 Low/Moderate Moderate Moderate/High Forest Production Lowland & Coastal 8- 1Low/SevereMoeaeodrt Tropical Production 89(highly variable)' Moderate Moderate Intensive Mixed 3-4 12 Low Low Moderate Tropical (except labourers) Campos Tropical 3-4 3 Low/Moderate Moderate Moderate/High Moist Savannah Frontier Tropical 12-13 6 Low/Moderate Low High Savannah (esp. smallholders) (within system)2 Mediterranean & 1-2 3 Low Low Low Temperate Mixed Pampas Temperate 5-6 1 Low Low Moderate Grassland Gran Chaco frontier 3-4 Municipal councils Municipal councils and regional government apparatus > Regional bodies coordination in Parana, Brazil > National bodies b) Build rural economic > Professional associations Horticultural processing cooperatives in organizations > cooperatives Venezuela c) Choose specific RNFE > local Construction, processed foods, and markets based on "growth > urban metalware for rural towns, Honduras motors" > foreign d) Develop access to assets > Market knowledge > Building carpentry and metalworking needed to meet RNFE market > Production skills skills in Honduras requirements > Management skills > Coordinating food processing regulations > Access to finance in Parana Brazil > Regulations/standards > infrastructure 2. Chain-level Specific Actions a) improve access to raw > link with farm sector Forming sheet metal buying cooperative for materials and equipment interventions metalworkers in Honduras > collectively buy inputs > facilitate investment by private firms b) improve RNF production > training > training food processors in better > technology design techniques in Parana Brazil > adapt production design to > training agrotourism groups in better market requirements service in Chile c) improve marketing of RNF > strategic market information > link ceramics artisans to international products > create business linkages trade shows and firms > develop brands and labels > take cheese producers on market tours in Honduras > link trout producers to trout processing and exporting firms in Peru 3. Promote Market-Sustainability of RNF activities Promoted by Interventions a) gradually de-subsidize require co-payment and investment require co-investment by community groups in Colombia b) create public goods pilot milk processing plants to train producers in Peru First, the best-strategy intervention involves a vision that the outcome of the intervention leads to multipliers from RNF activity that spurs local economic development (LED) in the zone. LED is growth which is inclusive of the poor, that is based on mutually reinforcing linkages between diverse economic activities that give employment to local people, and that derives its sustainability from dynamic sources of demand. This vision also embraces non- local sources of demand for local RNF products, and non-local sources of the inputs required for the production of those goods and services. Second, the best-strategy intervention includes a mix of public and private investments and actions to promote market-sustainable RNF activity in which the poor participate. There is a vision that intervention-design should pay 151 attention to the overall enabling environment (such as policies and infrastructure and social-capital based organizations). Third, the best-strategy intervention squarely faces the marketing challenge, as a priority. The cost, as well as the benefit of going beyond the local market and linking RNF strategies to demand spurred by growth motors, is that one has a "tiger by the tail." The dynamic markets are more competitive and far more demanding than the traditional local rural markets. A high rate of failure is probably unavoidable, and projects should be prepared for a relatively long period of learning and adjustment. An "adaptive management" approach is required for this sort of project, as opposed to one in which decision-makers aim at delivering fixed, pre-established "optimum" solutions. For the same reason, these projects are social- and human-capital intensive. Fourth, crucial to meeting the market challenge is to take a supply-chain perspective in promoting RNF activities, starting from an understanding of the requirements of the market, and working backwards to the improvements needed all along the supply chain to be able to meet those requirements. Explicit strategies of quality assurance, strategic market information, labels and packaging, contracts and organization are needed. These are big challenges for development projects as they are far from using the traditional skill sets of local governments, extension agents, and project managers. They thus require additions to budget, training and search for new kinds of personnel, and flexible and innovative project planning and management. This perspective is part of a growing consensus of the weakness of traditional RNF projects that focused on micro enterprise, in manufactures, on supply side interventions, targeting only the local market. That approach was not necessarily bad two decades ago, but the context has changed in the past decade, with policy reform, improvements in rural infrastructure, and globalization. These latter have spelled the de facto de-protection of rural areas in LAC and the vast increase in competition in the nonfarm economy. Rural nonfarm firms now have to compete with urban and foreign manufactures, and conform to cost and quality requirements of the new markets. The context has also changed with the rapid rise in importance in the RNF economy of the service sector and of wage employment as rural towns have developed. The means that the rural world where interventions take place today is vastly different from the one of just a decade ago. Fifth, the new projects recognize as fundamental that the new competitive context requires a range of new assets for the participants, with major additions to organizational and social capital, managerial skills, to human capital, to financial, and to physical capital. A major challenge is that the whole set is needed as they are complements, not substitutes. One can do the training and see failure due to bad roads, or provide the necessary credit but not meet the contract obligations due to the weak functioning of the local economic organizations, or produce excellent goods but fail to extract a profit due to poor management and marketing skills. These are costly commitments for projects. The projects studied undertook many innovative ways to leverage their resources by tapping into municipal and state governments, national training and technical assistance agencies, other projects, and the resources of the communities in which they work. Such savvy networking for the purpose of leveraging diverse "hard" and "soft" resources, together with "adaptive management", must be the wave of the future. Sixth, the rural non-farm sector is largely uncharted territory for the world of rural development projects. The projects studied are innovative and bold, but recent in origin. Moreover, there tends to be a lack of institutional support at the national government level for rural non-farm employment initiatives; that is because this category of initiative "falls between the cracks" between, for example, the Ministry of Industry or of Tourism and the Ministry of Agriculture or of Rural Development. It is beyond the scope of this document to analyze alternatives for the creation of an institutional "home" for rural non-farm policies and programs in national or regional governments. The interventions studied here did show, however, that important policy and program actors are in fact the regional and municipal governments, whose preoccupation with development of their local areas seems to tend to encourage or at least provide a propitious setting for inter-sectoral action. Finally, many of the practices that we identified as innovative and useful are also largely unevaluated in a rigorous cost-benefit way. Our case studies were necessarily limited by time and budget, and were thus mainly qualitative, and did not permit systematic study of potential counter-factual scenarios (what would have happened in the absence of the interventions). In particular, the projects are heavy on subsidies; it appears to cost a lot to create new RNF jobs, perhaps more than farm sector jobs. But the demand for RNF products is growing faster than that of farm products as Engel's Law predicts, and this means that moving into the RNF promotion area for projects will require either more efficiency or more budget or both, and certainly a keen eye to building economic sustainability of the private activity initially promoted by the public projects. 152 References List of Commissioned Studies Del Grossi, M. E. and Da Silva, J.G. 2001. Fabrica do Agricultor. IAPAR., UNICAMP. Parana, Brasil. Escobal, J. 2001. Proyecto PAR-Huancayo. Procesamiento de Trucha. GRADE. Peru. Faiguenbaum, S. 2001. El programa de turismo rural de INDAP. RIMISP. Chile. Gomes Da Silva, A.; Del Grossi, M.E.and Da Silva, J.G. 2001. 0 P6lo de Confeccao do municipio de Ceara- Mirim no Rio Grande do Norte, Nordeste do Brasil. Universidade Federal do Rio Grande do Norte - UFRN, Instituto Agron6mico do Parand - IAPAR,. Instituto de Economia UNICAMP. Brasil. Mendoza Zazueta, J.A.2001. Proyecto ISMAM e ISM4M MAPLE. Fideicomiso de Riesgo Compartido, SAGARPA. Mexico. Zelaya, C.A.,and Reardon, T. 2001. La incorporacion del fomento del empleo rural no agricola en los proyectos de desarrollo: El caso del proyecto Lempira Sur (FAO) en Honduras. FAO Honduras, Michigan State University. Honduras. List of Competed Studies Ascafio, J. 2001. Ceramica en Chulucanas. ADEX-USAID-MSP. Peru. Baldasso, N.A. 2001 0 caso do municipio de Rolante. EMATERIRS. Brasil. Catacora, J.and Montes A. 2001. El desarrollo de la agroindustria lactea: una alternativa viable para la generaci6n de empleo rural no agricola. CEDER. Peru. Escurra Paredes, M.F. Formaci6n de microempresas lacteas rurales. Habilitaci6n de planta lactea comunitaria. Secretaria de Planificaci6n de la Gobernaci6n de Presidente Hayes. Paraguay. Machuca Vilches, N. 2001. Elaboraci6n de diferentes tipo de queso ecol6gicos y de buena calidad para el almacenamientoy la comercializaci6n. . Centro IDEAS, Cajamarca. Peru. Mendoza, G. 2001. Programa de generaci6n de empleo urbanb y rural, Colombia, y el Instituto Interamericano de Cooperaci6n para la Agricultura, IICA. . Colombia. Reyes, A. 2001. Producci6n, procesamiento y comercializaci6n de productos de origen agricola. Fundaci6n Polar. Venezuela. Verardi Fialo, M.A. 2001. Turismo rural e o emprego rural nfo agricola: o caso da Rota Colonial de Dois Irmfos. Rio Grande do Sul. Brasil. Other References Berdegue, J.A. 2001. Cooperating to Compete. Associative Peasant Business Firms in Chile. Ph.D. Thesis. Wageningen University and Research Centre. Department of Social Sciences. Wageningen, The Netherlands. Harper, M. and G. Finnegan. 1998. Value for Money: Impact of Small Enterprise Development, London: Intermediate Technology Publications. Levitsky, J. (2000) Business Development Services. Washington: World Bank. Reardon, T., J. Berdegue, and G. Escobar. 2001. "Rural Nonfarm Employment and Incomes in Latin America: overview of issues, patterns, and determinants," World Development, 29(3), March. Webster, L. 1990. "Fifteen years of World Bank Lending for Small and Medium Enterprises." Small Enterprise Development, vol.1, no. 1. 153 The World Bank Mission To fight poverty with passion and professionalism for lasting results. To help people help themselves and their environment by providing resources, sharing knowledge, building capacity, and forging partnerships in the public and private sectors. To be an excellent institution that is able to attract, excite, and nurture committed staff with exceptional skills who know how to listen and learn. 1818 H Street N.W Washington, D.C. 20433, U.S.A. Telephone: (202) 477-1234 Facsimile: (202) 477-6391 Telex: MCI 64145 Worldbank MCI 248423 Worldbank Internet: www.worldbank.org- E-mail: books(@)worldbank.org LS --l-'. [Ew r Vst