41456 world development report 2008 Overview Agriculture for Development world development report 2008 Agriculture for Development Overview The World Bank Washington, DC © 2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved. 1 2 3 4 10 09 08 07 This document summarizes the World Development Report 2008. It is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www. copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street, NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Cover design by Chris Lester of Rock Creek Strategic Marketing and Bill Pragluski of Critical Stages. Typesetting by Precision Graphics. Cover photos by World Bank staff members, clockwise from top left: milk thermometer, Lillian Foo; wheat threshing, Alexander Rowland; Holstein cow, Lillian Foo; supermarket beans, Lillian Foo; Andean woman and baby at market, Curt Carnemark/World Bank Photo Library; cotton plant, Arne Hoel. ISBN: 978-0-8213-7297-5 Contents of the World Development Report 2008 Overview Part I What can agriculture do for development? 1 Growth and poverty reduction in agriculture's three worlds focus A: Declining rural poverty has been a key factor in aggregate poverty reduction 2 Agriculture's performance, diversity, and uncertainties focus B: Biofuels: the promise and the risks 3 Rural households and their pathways out of poverty focus C: What are the links between agricultural production and food security? Part II What are effective instruments for using agriculture for development? 4 Reforming trade, price, and subsidy policies 5 Bringing agriculture to the market focus D: Agribusiness for development 6 Supporting smallholder competitiveness through institutional innovations 7 Innovating through science and technology focus E: Capturing the benefits of genetically modified organisms for the poor iii iv WORLD DEVELOPMENT REPORT 2008 8 Making agricultural systems more environmentally sustainable focus F: Adaptation to and mitigation of climate change in agriculture 9 Moving beyond the farm focus G: Education and skills for rural development focus H: The two-way links between agriculture and health Part III How can agriculture-for-development agendas best be implemented? 10 Emerging national agendas for agriculture's three worlds 11 Strengthening governance, from local to global Bibliographic Note Endnotes References Selected Indicators Index Foreword Agriculture is a vital development tool for achieving the Millennium Development Goal that calls for halving by 2015 the share of people suffering from extreme poverty and hun- ger. That is the overall message of this year's World Development Report (WDR), the 30th in the series. Three out of every four poor people in developing countries live in rural areas, and most of them depend directly or indirectly on agriculture for their livelihoods. This Report provides guidance to governments and the international community on designing and implementing agriculture-for-development agendas that can make a difference in the lives of hundreds of millions of rural poor. The Report highlights two major regional challenges. In much of Sub-Saharan Africa, agriculture is a strong option for spurring growth, overcoming poverty, and enhancing food security. Agricultural productivity growth is vital for stimulating growth in other parts of the economy. But accelerated growth requires a sharp productivity increase in smallholder farming combined with more effective support to the millions coping as subsistence farm- ers, many of them in remote areas. Recent improved performance holds promise, and this Report identifies many emerging successes that can be scaled up. In Asia, overcoming widespread poverty requires confronting widening rural-urban income disparities. Asia's fast-growing economies remain home to over 600 million rural people living in extreme poverty, and despite massive rural-urban migration, rural poverty will remain dominant for several more decades. For this reason, the WDR focuses on ways to generate rural jobs by diversifying into labor-intensive, high-value agriculture linked to a dynamic rural, nonfarm sector. In all regions, with rising land and water scarcity and the added pressures of a globalizing world, the future of agriculture is intrinsically tied to better stewardship of natural resources. With the right incentives and investments, agriculture's environmental footprint can be lightened, and environmental services harnessed to protect watersheds and biodiversity. Today, rapidly expanding domestic and global markets; institutional innovations in markets, finance, and collective action; and revolutions in biotechnology and information technology all offer exciting opportunities to use agriculture to promote development. But seizing these opportunities will require the political will to move forward with reforms that improve the governance of agriculture. Ultimately, success will also depend on concerted action by the international develop- ment community to confront the challenges ahead. We must level the playing field in inter- national trade; provide global public goods, such as technologies for tropical food staples; help developing countries address climate change; and overcome looming health pandem- ics for plants, animals, and humans. At stake are the livelihoods of 900 million rural poor, who also deserve to share the benefits of a sustainable and inclusive globalization. Robert B. Zoellick President World Bank Group v Acknowledgments This Report has been prepared by a core team led by Derek Byerlee and Alain de Janvry and comprising Elisabeth Sadoulet, Robert Townsend, and Irina Klytchnikova. The team was assisted by Harold Alderman, Beatriz Avalos-Sartorio, Julio Berdegué, Regina Birner, Lynn Brown, Michael Carter, Luc Christiaensen, Marie-Helene Collion, Klaus Deininger, Peter Hazell, Karen Macours, Michael Morris, Paula Savanti, and Dina Umali-Deininger, all of whom drafted parts of the Report. The team was assisted as well by Noora Aberman, Jorge Aguero, Shahrooz Badkoubei, Sarah Baird, Leandre Bassole, Benjamin Davis, Nango Dem- bele, Ashok Gulati, Corinna Hawkes, Tidiane Kinda, Melissa Klink, Alex McCalla, Claudio Montenegro, Stefano Pagiola, Eija Pehu, Catherine Ragasa, Antti Seelaff, and John Staatz. The work was conducted under the general guidance of François Bourguignon in collab- oration with the Sustainable Development Network. Bruce Ross-Larson was the principal editor. Extensive and excellent advice was received from Kym Anderson, Hans Binswanger, Karen Mcconnell Brooks, Mark Cackler, Manuel Chiriboga, Kevin Cleaver, Christopher Delgado, Shantayanan Devarajan, Josue Dione, Gershon Feder, Alan Harold Gelb, Ravi Kanbur, Jeffrey Lewis, Were Omamo, Keijiro Otsuka, Rajul Pandya-Lorch, Prabhu Pingali, Pierre Rondot, Kostas Stamoulis, Erik Thorbecke, C. Peter Timmer, Joachim von Braun, staff of the Agriculture and Rural Development Department and of the Sustainable Devel- opment Network of the World Bank, staff of RIMISP (Latin American Center for Rural Development), and many others to whom the team is grateful without implication. Numer- ous others inside and outside the World Bank provided helpful comments and inputs. The Development Data Group contributed to the data appendix and was responsible for the Selected World Development Indicators. The team also acknowledges the generous support of the multidonor programmatic trust fund, the Canadian International Development Agency, Ford Foundation, France's Ministry of Foreign Affairs, Global Donor Platform for Rural Development, International Development Research Centre, International Fund for Agricultural Development, InWEnt (Capacity Building International), Japan's Ministry of Finance, Knowledge for Change Pro- gram, Science Council of the Consultative Group on International Agricultural Research, Swedish International Development Cooperation Agency, Swiss Agency for Development and Cooperation, UK Department for International Development, United States Agency for International Development, and The William and Flora Hewlett Foundation. The team benefited greatly from a wide range of consultations. Meetings and regional workshops were held locally and in Australia, Canada, France, Germany, India, Italy, Japan, Kenya, Mali, Norway, Sweden, and the United Kingdom; and discussions of the draft Report were conducted online. The team wishes to thank the participants in these workshops, videoconferences, and discussions, which included academics, researchers, government officials, and staff of nongovernmental, civil society, and private sector organizations. Rebecca Sugui served as senior executive assistant to the team, Ofelia Valladolid as pro- gram assistant, and Jason Victor and Maria Hazel Macadangdang as team assistants. Evan- geline Santo Domingo served as resource management assistant. vi Overview An African woman bent under the sun, continuing to reduce poverty and hunger weeding sorghum in an arid field with a for several decades thereafter. Agricul- hoe, a child strapped on her back--a vivid ture alone will not be enough to massively image of rural poverty. For her large fam- reduce poverty, but it has proven to be ily and millions like her, the meager bounty uniquely powerful for that task. With the of subsistence farming is the only chance last World Development Report on agri- to survive. But others, women and men, culture completed 25 years ago, it is time have pursued different options to escape to place agriculture afresh at the center of poverty. Some smallholders join producer the development agenda, taking account of organizations and contract with export- the vastly different context of opportunities ers and supermarkets to sell the vegetables and challenges that has emerged.2 they produce under irrigation. Some work Agriculture operates in three distinct as laborers for larger farmers who meet the worlds--one agriculture-based, one trans- scale economies required to supply mod- forming, one urbanized. And in each the ern food markets. Still others, move into agriculture-for-development agenda differs the rural nonfarm economy, starting small in pursuing sustainable growth and reduc- enterprises selling processed foods. ing poverty. While the worlds of agriculture are vast, In the agriculture-based countries, varied, and rapidly changing, with the right which include most of Sub-Saharan Africa, policies and supportive investments at local, agriculture and its associated industries are national, and global levels, today's agricul- essential to growth and to reducing mass ture offers new opportunities to hundreds poverty and food insecurity. Using agricul- of millions of rural poor to move out of ture as the basis for economic growth in the poverty. Pathways out of poverty open to agriculture-based countries requires a pro- them by agriculture include smallholder ductivity revolution in smallholder farming. farming and animal husbandry, employ- Given Sub-Saharan Africa's unique agricul- ment in the "new agriculture" of high-value ture and institutions, that revolution will products, and entrepreneurship and jobs in have to be different from the Asian green the emerging rural, nonfarm economy. revolution. How to implement it after many In the 21st century, agriculture continues years of limited success remains a difficult to be a fundamental instrument for sustain- challenge. But conditions have changed, able development and poverty reduction. and there are many local successes and new Three of every four poor people in develop- opportunities on which to build. ing countries live in rural areas--2.1 billion In transforming countries, which living on less than $2 a day and 880 million include most of South and East Asia and on less than $1 a day--and most depend the Middle East and North Africa, rapidly on agriculture for their livelihoods.1 Given rising rural-urban income disparities and where they are and what they do best, pro- continuing extreme rural poverty are major moting agriculture is imperative for meet- sources of social and political tensions. The ing the Millennium Development Goal of problem cannot be sustainably addressed halving poverty and hunger by 2015 and through agricultural protection that raises 1 2 WORLD DEVELOPMENT REPORT 2008 the price of food (because a large number of on a complex agenda of interrelated agree- poor people are net food buyers) or through ments and international public goods. Civil subsidies. Addressing income disparities in society empowerment, particularly of pro- transforming countries requires a compre- ducer organizations, is essential to improv- hensive approach that pursues multiple ing governance at all levels. pathways out of poverty--shifting to high- This Report addresses three main value agriculture, decentralizing nonfarm questions: economic activity to rural areas, and pro- · What can agriculture do for develop- viding assistance to help move people out of ment? Agriculture has served as a basis agriculture. Doing this calls for innovative for growth and reduced poverty in many policy initiatives and strong political com- countries, but more countries could ben- mitment. But it can benefit 600 million of efit if governments and donors were to the world's rural poor. reverse years of policy neglect and rem- In urbanized countries, which include edy their underinvestment and misin- most of Latin America and much of Europe vestment in agriculture. and Central Asia, agriculture can help reduce the remaining rural poverty if small- · What are effective instruments in using holders become direct suppliers in modern agriculture for development? Top pri- food markets, good jobs are created in agri- orities are to increase the assets of poor culture and agroindustry, and markets for households, make smallholders--and environmental services are introduced. agriculture in general--more produc- With rising resource scarcity and mount- tive, and create opportunities in the ing externalities, agricultural development rural nonfarm economy that the rural and environmental protection have become poor can seize. closely intertwined. Agriculture's large envi- · How can agriculture-for-development ronmental footprint can be reduced, farm- agendas best be implemented? By design- ing systems made less vulnerable to climate ing policies and decision processes most change, and agriculture harnessed to deliver suited to each country's economic and more environmental services. The solution social conditions, by mobilizing politi- is not to slow agricultural development--it cal support, and by improving the gov- is to seek more sustainable production sys- ernance of agriculture. tems. The first step in this is to get the incen- tives right by strengthening property rights What can agriculture do and removing subsidies that encourage for development? the degradation of natural resources. Also Agriculture has features that imperative is adapting to climate change, make it a unique instrument which will hit poor farmers the hardest-- for development and hit them unfairly because they have Agriculture can work in concert with other contributed little to its causes. sectors to produce faster growth, reduce Agriculture thus offers great promise for poverty, and sustain the environment. In growth, poverty reduction, and environ- this Report, agriculture consists of crops, mental services, but realizing this promise livestock, agroforestry, and aquaculture. It also requires the visible hand of the state-- does not include forestry and commercial providing core public goods, improving capture fisheries because they require vastly the investment climate, regulating natural different analyses. But interactions between resource management, and securing desir- agriculture and forestry are considered in able social outcomes. To pursue agriculture- the discussions of deforestation, climate for-development agendas, local, national, change, and environmental services. and global governance for agriculture need to be improved. The state will need greater Agriculture contributes to development in capacity to coordinate across sectors and many ways. Agriculture contributes to to form partnerships with private and civil development as an economic activity, as a society actors. Global actors need to deliver livelihood, and as a provider of environ- Overview 3 mental services, making the sector a unique · As a livelihood. Agriculture is a source instrument for development. of livelihoods for an estimated 86 per- · As an economic activity. Agriculture cent of rural people. It provides jobs for can be a source of growth for the national 1.3 billion smallholders and landless economy,a provider of investment oppor- workers, "farm-financed social welfare" tunities for the private sector, and a prime when there are urban shocks, and a foun- driver of agriculture-related industries dation for viable rural communities. Of and the rural nonfarm economy. Two- the developing world's 5.5 billion people, thirds of the world's agricultural value 3 billion live in rural areas, nearly half of added is created in developing countries. humanity. Of these rural inhabitants an In agriculture-based countries, it gener- estimated 2.5 billion are in households ates on average 29 percent of the gross involved in agriculture, and 1.5 billion domestic product (GDP) and employs are in smallholder households.3 65 percent of the labor force. The indus- The recent decline in the $1-a-day tries and services linked to agriculture in poverty rate in developing countries-- value chains often account for more than from 28 percent in 1993 to 22 percent 30 percent of GDP in transforming and in 2002--has been mainly the result of urbanized countries. falling rural poverty (from 37 percent to Agricultural production is important 29 percent) while the urban poverty rate for food security because it is a source remained nearly constant (at 13 percent). of income for the majority of the rural More than 80 percent of the decline in poor. It is particularly critical in a dozen rural poverty is attributable to better countries of Sub-Saharan Africa, with a conditions in rural areas rather than to combined population of about 200 mil- out-migration of the poor. So, contrary lion and with highly variable domestic to common perceptions, migration to production, limited tradability of food cities has not been the main instrument staples, and foreign exchange constraints for rural (and world) poverty reduction. in meeting their food needs through But the large decline in the number of imports. These countries are exposed rural poor (from 1,036 million in 1993 to to recurrent food emergencies and the 883 million in 2003) has been confined uncertainties of food aid, and for them, to East Asia and the Pacific (figure 1). In increasing and stabilizing domestic pro- South Asia and Sub-Saharan Africa, the duction is essential for food security. number of rural poor has continued to Figure 1 The number of poor has been rising in South Asia and Sub-Saharan Africa from 1993 to 2002 ($1-a-day poverty line) Rural poverty Urban poverty Millions of people Millions of people below $1-a-day poverty line below $1-a-day poverty line 500 500 400 1993 2002 400 1993 2002 300 300 200 200 100 100 0 0 Sub- South East Asia Middle East Europe & Latin Sub- South East Asia Middle East Europe & Latin Saharan Asia & Pacific & North Central America & Saharan Asia & Pacific & North Central America & Africa Africa Asia Caribbean Africa Africa Asia Caribbean Source: Ravallion, Chen, and Sangraula 2007. 4 WORLD DEVELOPMENT REPORT 2008 rise and will likely exceed the number of This group of countries has 417 million urban poor until 2040. In these regions, a rural inhabitants, mainly in Sub-Saharan high priority is to mobilize agriculture for countries. Eighty-two percent of the rural poverty reduction. Sub-Saharan population lives in agricul- · As a provider of environmental services. ture-based countries. In using (and frequently misusing) nat- · Transforming countries--Agriculture ural resources, agriculture can create is no longer a major source of economic good and bad environmental outcomes. growth, contributing on average only It is by far the largest user of water, con- 7 percent to GDP growth, but poverty tributing to water scarcity. It is a major remains overwhelmingly rural (82 per- player in underground water depletion, cent of all poor). This group, typified agrochemical pollution, soil exhaustion, by China, India, Indonesia, Morocco, and global climate change, accounting and Romania, has more than 2.2 billion for up to 30 percent of greenhouse gas rural inhabitants. Ninety-eight percent emissions. But it is also a major pro- of the rural population in South Asia, 96 vider of environmental services, gener- percent in East Asia and the Pacific, and ally unrecognized and unremunerated, 92 percent in the Middle East and North sequestering carbon, managing water- Africa are in transforming countries. sheds, and preserving biodiversity. With · Urbanized countries--Agriculture con- rising resource scarcity, climate change, tributes directly even less to economic and concern about environmental costs, growth, 5 percent on average, and pov- business as usual in the way agriculture erty is mostly urban. Even so, rural areas uses natural resources is not an option. still have 45 percent of the poor, and agri- Making the farming systems of the rural business and the food industry and ser- poor less vulnerable to climate change is vices account for as much as one third of imperative. Managing the connections GDP. Included in this group of 255 mil- among agriculture, natural resource lion rural inhabitants are most countries conservation, and the environment must in Latin America and the Caribbean and be an integral part of using agriculture many in Europe and Central Asia. Eighty- for development. eight percent of the rural populations in both regions are in urbanized countries. Agriculture's contributions differ in the Countries follow evolutionary paths three rural worlds. The way agricul- that can move them from one country type ture works for development varies across to another. China and India moved from countries depending on how they rely on the agriculture-based to the transforming agriculture as a source of growth and an group over the past 20 years, while Indo- instrument for poverty reduction. The nesia gravitated toward the urbanized (fig- contribution of agriculture to growth and ure 2). In addition, countries have sharp poverty reduction can be seen by categoriz- subnational geographical disparities--for ing countries according to the share of agri- example, many transforming and urban- culture in aggregate growth over the past 15 ized countries have agriculture-based years, and the current share of total poverty regions (such as Bihar in India and Chiapas in rural areas, using the $2-a-day poverty in Mexico). line (figure 2). This perspective produces Classifying regions within countries three types of countries--three distinct according to their agricultural potential rural worlds (table 1): and access to markets shows that 61 per- · Agriculture-based countries--Agricul- cent of the rural population in developing ture is a major source of growth, account- countries lives in favored areas--irrigated, ing for 32 percent of GDP growth on humid, and semihumid areas with little average--mainly because agriculture moisture stress, and with medium to good is a large share of GDP--and most of market access (less than five hours from a the poor are in rural areas (70 percent). market town of 5,000 or more). But two- Overview 5 Figure 2 Agriculture's contribution to growth and the rural share in poverty distinguish three types of countries: agriculture-based, transforming, and urbanized Agriculture's contribution to growth, 1990­2005, % 80 Actual poverty data Agriculture-based Predicted poverty data countries Poverty data over time 60 INDIA 40 (1965­94) 20 CHINA (1981­2001) BRAZIL INDONESIA 0 (1970­96) (1970­96) Transforming countries Urbanized countries ­20 0.0 0.2 0.4 0.6 0.8 1.0 Rural poor/total poor, 2002 Source: WDR 2008 team. Note: Arrows show paths for Brazil, China, India, and Indonesia. Table 1 Characteristics of three country types, 2005 Agriculture- Transforming Urbanized based countries countries countries Rural population (millions), 2005 417 2,220 255 Share of population rural (%), 2005 68 63 26 GDP per capita (2000 US$), 2005 379 1,068 3,489 Share of agriculture in GDP (%), 2005 29 13 6 Annual agricultural GDP growth, 1993­2005 (%) 4.0 2.9 2.2 Annual nonagricultural GDP growth, 1993­2005 (%) 3.5 7.0 2.7 Number of rural poor (millions), 2002 170 583 32 Rural poverty rate, 2002 (%) 51 28 13 Source: Ravallion, Chen, and Sangraula 2007; World Bank 2006y. Note: Poverty line is $1.08 a day, in 1993 purchasing power parity dollars. thirds of the rural population in Sub-Saha- Heterogeneitydefinestheruralworld. Eco- ran Africa lives in less-favored areas defined nomic and social heterogeneity is a defining as arid and semiarid or with poor market characteristic of rural areas. Large commer- access. In five countries with detailed pov- cial farmers coexist with smallholders. This erty maps, the poverty rate is higher in less- diversity permeates the smallholder popu- favored areas, but most of the poor live in lation as well. Commercial smallholders favored areas. So using agriculture to reduce deliver surpluses to food markets and share poverty requires not only investing in less- in the benefits of expanding markets for the favored areas to combat extreme poverty, new agriculture of high-value activities. But but also targeting the large number of poor many others are in subsistence farming, in favored areas. mainly due to low asset endowments and 6 WORLD DEVELOPMENT REPORT 2008 unfavorable contexts. Consuming most poverty as GDP growth originating outside of the food they produce, they participate agriculture (figure 3). For China, aggregate in markets as buyers of food and as sellers growth originating in agriculture is esti- of labor. Membership in these categories mated to have been 3.5 times more effective is affected not only by asset positions, but in reducing poverty than growth outside also by gender, ethnicity, and social status, agriculture--and for Latin America 2.7 as they imply differing abilities to use the times more. Rapid agricultural growth-- same assets and resources in responding to in India following technological innova- opportunities. tions (the diffusion of high yielding vari- Heterogeneity is found in the rural labor eties) and in China following institutional market where there are many low-skill, innovations (the household responsibility poorly remunerated agricultural jobs and a system and market liberalization)--was small number of high-skill jobs that offer accompanied by major declines in rural workers pathways out of poverty. It is found poverty. More recently, in Ghana, rural in the rural nonfarm economy where low- households accounted for a large share of a productivity self- and wage-employment steep decline in poverty induced in part by coexists with employment in dynamic agricultural growth. enterprises. And it is found in the outcomes of migration, which lifts some of the rural Agriculture can be the lead sector for poor out of poverty but takes others to overall growth in the agriculture-based urban slums and continued poverty. countries. Agriculture has a well-estab- This pervasive heterogeneity in agricul- lished record as an instrument for poverty ture and rural society has deep implications reduction. But can it also be the leading for public policy in using agriculture for sector of a growth strategy for the agricul- development. A particular policy reform is ture-based countries? Besides the sheer size likely to have gainers and losers. Trade lib- of the sector, two arguments, applied to the eralization that raises the price of food hurts agriculture-based countries of Sub-Saharan net buyers (the largest group of rural poor Africa, support the view that it can. in countries like Bolivia and Bangladesh) The first is that in many of these coun- and benefits net sellers (the largest group tries, food remains imperfectly tradable of rural poor in Cambodia and Vietnam). because of high transaction costs and the Policies have to be differentiated according prevalence of staple foods that are only to the status and context of households, tak- lightly traded, such as roots and tubers and ing particular account of prevailing gender local cereals. So, many of these countries norms. Differentiated policies are designed not necessarily to favor one group over the other but to serve all households more cost- Figure 3 GDP growth originating in agriculture benefits the poorest half of the population effectively, tailoring policies to their condi- substantially more tions and needs, particularly to the poorest. Balancing attention to the favored and less- Expenditure gains induced by 1% GDP growth, % 8 favored subsectors, regions, and households Agriculture is one of the toughest policy dilemmas fac- 6 Nonagriculture ing poor countries with severe resource constraints. 4 2 Agriculture has a strong record in development 0 Agriculture has special powers in reducing ­2 poverty. Agricultural growth has special Lowest 2 3 4 5 6 7 8 9 Highest powers in reducing poverty across all coun- Expenditure deciles try types. Cross-country estimates show Source: Ligon and Sadoulet 2007. that GDP growth originating in agricul- Note: Based on data from 42 countries during the period 1981­2003. Gains are significantly different for the lower half of ture is at least twice as effective in reducing expenditure deciles. Overview 7 must largely feed themselves. Agricultural Yet agriculture has been vastly underused productivity determines the price of food, for development. Parallel to these suc- which in turn determines wage costs and cesses are numerous failures to use agricul- competitiveness of the tradable sectors. ture for development. Many agriculture- Productivity of food staples is thus key to based countries still display anemic per growth. capita agricultural growth and little struc- The second is that comparative advan- tural transformation (a declining share of tage in the tradable subsectors will still lie agriculture in GDP and a rising share of in primary activities (agriculture and min- industry and services as GDP per capita ing) and agroprocessing for many years, rises). The same applies to vast areas within because of resource endowments and the countries of all types. Rapid population difficult investment climate for manufac- growth, declining farm size, falling soil fer- tures. Most economies depend on a diverse tility, and missed opportunities for income portfolio of unprocessed and processed pri- diversification and migration create distress mary-based exports (including tourism) to as the powers of agriculture for development generate foreign exchange. Growth in both remain fallow. Policies that excessively tax the nontradable and tradable sectors of agriculture and underinvest in agriculture agriculture also induces strong growth in are to blame, reflecting a political economy other sectors of the economy through mul- in which urban interests have the upper tiplier effects. hand. Compared with successful transform- That is why, for many years to come, the ing countries when they still had a high growth strategy for most agriculture-based share of agriculture in GDP, the agriculture- economies has to be anchored on getting based countries have very low public spend- agriculture moving. Success stories of agri- ing in agriculture as a share of their agricul- culture as the basis for growth at the begin- turalGDP(4percentintheagriculture-based ning of the development process abound. countries in 2004 compared with 10 percent Agricultural growth was the precursor to in 1980 in the transforming countries, fig- the industrial revolutions that spread across ure 4). The pressures of recurrent food cri- the temperate world from England in the ses also tilt public budgets and donor priori- mid-18th century to Japan in the late-19th ties toward direct provision of food rather century. More recently, rapid agricultural than investments in growth and achieving growth in China, India, and Vietnam was food security through rising incomes. the precursor to the rise of industry. Just as Where women are the majority of small- for poverty, the special powers of agricul- holder farmers, failure to release their full ture as the basis for early growth are well potential in agriculture is a contributing established. factor to low growth and food insecurity. Figure 4 Public spending on agriculture is lowest in the agriculture-based countries, while their share of agriculture in GDP is highest Agricultural GDP/GDP Public spending on agriculture/agricultural GDP Percent Percent 35 35 30 29 29 1980 2000 30 1980 2000 25 24 25 20 20 16 17 15 14 15 12 10 11 10 10 10 5 5 4 4 0 0 Agriculture-based Transforming Urbanized Agriculture-based Transforming Urbanized Source: Fan, forthcoming. 8 WORLD DEVELOPMENT REPORT 2008 Underuse of agriculture for development agriculture of staple crops and traditional is not confined to the agriculture-based export commodities also finds new markets countries. In transforming countries with as it becomes more differentiated to meet rapid growth in nonagricultural sectors, changing consumer demands and new uses the reallocation of labor out of agriculture is (for example, biofuels) and benefits from typically lagging, leaving large numbers of regional market integration. However, agri- poor people in rural areas and widening the culture faces large uncertainties that are rural-urban income gap. The farm popula- difficult to predict and call for caution in tion demands subsidies and protection. But managing the global food supply (box 1). weak fiscal capacity to sustain transfers large An emerging vision of agriculture for enough to reduce the income gap and con- development redefines the roles of produc- tinuing urban demands for low food prices ers, the private sector, and the state. Produc- create a policy dilemma.4 The opportunity tion is mainly by smallholders, who often cost of subsidies (which are three times pub- remain the most efficient producers, in par- lic investments in agriculture in India) is ticular when supported by their organiza- reduced public goods for growth and social tions. But when these organizations cannot services in rural areas. Raising incomes in capture economies of scale in production agriculture and the rural nonfarm economy and marketing, labor-intensive commercial must be part of the solution. farming can be a better form of production, and efficient and fair labor markets are the New opportunities are emerging. The key instrument to reducing rural poverty. world of agriculture has changed dramati- The private sector drives the organization cally since the 1982 World Development of value chains that bring the market to Report on agriculture. Dynamic new mar- smallholders and commercial farms. The kets, far-reaching technological and insti- state--through enhanced capacity and new tutional innovations, and new roles for the forms of governance--corrects market fail- state, the private sector, and civil society all ures, regulates competition, and engages characterize the new context for agricul- strategically in public-private partnerships ture. The emerging new agriculture is led to promote competitiveness in the agribusi- by private entrepreneurs in extensive value ness sector and support the greater inclu- chains linking producers to consumers and sion of smallholders and rural workers. In including many entrepreneurial smallhold- this emerging vision, agriculture assumes a ers supported by their organizations. The prominent role in the development agenda. What are effective instruments in using agriculture B O X 1 What is the future for the global food supply? for development? Agriculture has been largely successful in percent from 2000 to 2030. Added to this Agriculture can be the main source of meeting the world's effective demand for is the burgeoning demand for agricultural food. Yet more than 800 million people feedstocks for biofuels, which have already growth for the agriculture-based coun- remain food insecure, and agriculture has pushed up world food prices. tries and can reduce poverty and improve left a huge environmental footprint. And Managing the aggregate response of the environment in all three country types, the future is increasingly uncertain. agriculture to rising demand will require albeit in different ways. This requires Models predict that food prices in good policy and sustained investments, global markets may reverse their long- not business as usual. Sharply increased improving the asset position of the rural term downward trend, creating rising investment is especially urgent in Sub- poor, making smallholder farming more uncertainties about global food security. Saharan Africa, where food imports are competitive and sustainable, diversifying Climate change, environmental degrada- predicted to more than double by 2030 income sources toward the labor market and tion, rising competition for land and water, under a business-as-usual scenario, the higher energy prices, and doubts about impact of climate change is expected to the rural nonfarm economy, and facilitating future adoption rates for new technologies be large with little capacity to cope, and successful migration out of agriculture. all present huge challenges and risks that progress continues to be slow in raising make predictions difficult. per capita food availability. Increase access to assets To meet projected demand, cereal Household assets are major determinants production will have to increase by nearly 50 percent and meat production by 85 Source: Rosegrant and others 2007. of the ability to participate in agricultural markets, secure livelihoods in subsistence Overview 9 farming, compete as entrepreneurs in the women's rights. Redistributing underuti- rural nonfarm economy, and find employ- lized large estates to settle smallholders can ment in skilled occupations. Three core work if complemented by reforms to secure assets are land, water, and human capital. the competitiveness of beneficiaries-- Yet the assets of the rural poor are often something that has been difficult to achieve. squeezed by population growth, environ- Targeted subsidies to facilitate market- mental degradation, expropriation by dom- based land reform are used in Brazil and inant interests, and social biases in policies South Africa, and lessons must be derived and in the allocation of public goods. from these pioneering experiences for Nowhere is the lack of assets greater than potential wider application. in Sub-Saharan Africa, where farm sizes in many of the more densely populated areas Water. Access to water and irrigation is are unsustainably small and falling, land is a major determinant of land productivity severely degraded, investment in irrigation and the stability of yields. Irrigated land is negligible, and poor health and educa- productivity is more than double that tion limit productivity and access to better of rainfed land. In Sub-Saharan Africa, options. Population pressure together with only 4 percent of the area in production is declining farm size and water scarcity are under irrigation, compared with 39 per- also major challenges in many parts of Asia. cent in South Asia and 29 percent in East Enhancing assets requires significant public Asia. With climate change leading to rising investments in irrigation, health, and edu- uncertainties in rainfed agriculture and cation. In others cases, it is more a matter of reduced glacial runoff, investment in water institutional development, such as enhanc- storage will be increasingly critical. Even ing the security of property rights and the with growing water scarcity and rising costs quality of land administration. Increasing of large-scale irrigation schemes, there are assets may also call for affirmative action many opportunities to enhance produc- to equalize chances for disadvantaged or tivity by revamping existing schemes and excluded groups, such as women and eth- expanding small-scale schemes and water nic minorities. harvesting. Land. Land markets, particularly rental Education. While land and water are crit- markets, can raise productivity, help house- ical assets in rural areas, education is often holds diversify their incomes, and facilitate the most valuable asset for rural people to exit from agriculture. As farmers age, as pursue opportunities in the new agriculture, rural economies diversify, and as migration obtain skilled jobs, start businesses in the accelerates, well-functioning land markets rural nonfarm economy, and migrate suc- are needed to transfer land to the most pro- cessfully. Yet education levels in rural areas ductive users and to facilitate participation tend to be dismally low worldwide: an aver- in the rural nonfarm sector and migration age of four years for rural adult males and out of agriculture. But in many countries, less than three years for rural adult females insecure property rights, poor contract in Sub-Saharan Africa, South Asia, and the enforcement, and stringent legal restric- Middle East and North Africa. Improving tions limit the performance of land mar- basic rural education has been slower than kets, creating large inefficiencies in both in urban areas. Where demand for educa- land and labor reallocation and reinforc- tion is lagging among rural households, it ing existing inequalities in access to land. can be enhanced through cash transfers (as Safety nets and access to credit are needed in Bangladesh, Brazil, and Mexico) con- to minimize distress land sales when farm- ditional on school attendance. However, ers are exposed to shocks. increasingly it is the quality of rural educa- Land reform can promote smallholder tion that requires the most improvement, entry into the market, reduce inequalities with education conceived broadly to include in land distribution, increase efficiency, vocational training that can provide tech- and be organized in ways that recognize nical and business skills that are useful in 10 WORLD DEVELOPMENT REPORT 2008 the new agriculture and the rural nonfarm · Make agriculture more sustainable and economy. a provider of environmental services (chapter 8) Health. Widespread illness and death from HIV/AIDS and malaria can greatly Improve price incentives and increase reduce agricultural productivity and dev- the quality and quantity of pub- astate livelihoods. The majority of people lic investment. Recent reforms have affected by HIV work in farming, and there improved price incentives for agricultural is tremendous scope for agricultural policy producers in developing countries, reduc- to be more HIV-responsive in supporting ing but not eliminating historical policy adjustments to labor shocks and the trans- biases against agriculture. Between 1980­ mission of knowledge to orphans. In rural 84 and 2000­04 net agricultural taxation Zambia, population declines have been declined on average from 28 percent to 10 especially severe for young rural adults: 19 percent in agriculture-based countries, percent of people 15­24 years old in 1990, from 15 percent to 4 percent in transform- the most productive age, are estimated to ing countries, and from marginally nega- have died by 2000. But agriculture also tive protection to net protection of 9 per- poses threats to the health of the rural cent in urbanized countries. However, a low poor. Irrigation can increase the incidence level of net taxation hides a combination of of malaria, and pesticide poisoning is esti- protection of importables and taxation of mated to cause 355,000 deaths annually. exportables (especially in the agriculture- Zoonotic diseases such as avian influenza based and transforming countries), which that arise from the proximity of humans can both be high (figure 5). Hence, consid- and animals pose growing threats to human erable room remains for further efficiency health. Better coordination of the agricul- gains through reforms in developing coun- ture and health agendas can yield big divi- tries' own trade policies. Liberalization of dends for productivity and welfare. imports of food staples can also be pro- poor because often the largest number of Make smallholder farming more poor, including smallholders, are net food productive and sustainable buyers. But many poor net sellers (some- Improving the productivity, profitability, times the largest group of poor) will lose, and sustainability of smallholder farming and programs tailored to country-specific is the main pathway out of poverty in using circumstances will be needed to ease the agriculture for development. What will transition to new market realities. this take? A broad array of policy instru- In sharp contrast, there has been relatively ments, many of which apply differently to little progress in the overall decline in pro- commercial smallholders and to those in ducer support in member countries of the subsistence farming, can be used to achieve Organisation for Economic Co-operation the following: and Development (OECD). Producer sup- port declined from 37 percent of gross value · Improve price incentives and increase the of farm receipts in 1986­88 to 30 percent in quality and quantity of public investment 2003­05. There has been a shift away from (chapter 4) support directly linked to product prices to · Make product markets work better other less-distorting forms such as cash (chapters 5 and 6) transfers "decoupled" from production, par- · Improve access to financial services ticularly in the European Union (EU). But and reduce exposure to uninsured risks such transfers are not always neutral for pro- (chapter 6) duction because they reduce aversion to risk · Enhance the performance of producer (wealth effect), reduce the variability in farm organizations (chapter 6) income (insurance effect), and allow banks · Promote innovation through science to make loans to farmers that they otherwise and technology (chapter 7) would not. Overview 11 Figure 5 Developing countries are taxing agricultural exportables less Exportables Importables Nominal rate of assistance, % Nominal rate of assistance, % 30 30 1980­84 2000­04 1980­84 2000­04 26 23 20 20 14 13 10 11 10 10 2 0 0 ­10 ­10 ­13 ­14 ­20 ­19 ­20 ­30 ­29 ­30 ­40 ­40 ­46 ­50 ­50 Agriculture-based Transforming Urbanized Agriculture-based Transforming Urbanized Source: Anderson, forthcoming. Note: The nominal rate of assistance is a measure of domestic output prices relative to border prices, which also takes into account domestic input subsidies. The estimated welfare impacts of full The political economy will determine trade liberalization are relatively large. By the pace and extent of further trade, price, removing their current level of protection, and public spending reforms. Membership industrial countries would induce annual in the World Trade Organization (WTO) welfare gains for developing countries esti- can help induce reform, and local media mated to be five times the current annual can expose taxpayer costs and unequal flow of aid to agriculture. But this impact incidence of gains. In some cases, bar- is heterogeneous across products and coun- gained compromises and compensation tries. With full trade liberalization, inter- schemes for the losers can be effective--as national agricultural commodity prices in Japan's rice policy reforms, the EU's are estimated to increase on average by 5.5 sugar reforms, and Mexico's 1990s reforms percent, while those of cotton are expected for food staples. Linking domestic agricul- to increase by 21 percent and oilseeds by 15 tural reforms to a broader set of economy- percent. This raises particular concerns for wide reforms can increase the likelihood of food-importing countries with tight for- success, as in many developing countries eign exchange constraints such as Burundi, in the 1980s and 1990s, but these reforms Rwanda, and Niger. Poor countries that tend to remain incomplete for agriculture. export cotton or oilseeds, such as Chad, Other subsidy reforms, such as free electri- Sudan, Burkina Faso, Mali, and Benin, stand cal power to Indian farmers, remain dead- to gain. Among the big expected gainers are locked in clientelistic bargains at high effi- Brazil, Thailand, and Vietnam. ciency and environmental costs. The Doha Round of trade negotiations The response to better price incentives must urgently be concluded, particularly depends on public investments in market to eliminate distortions, such as U.S. cot- infrastructure, institutions, and support ton subsidies, which are detrimental to services. But the quality of public spend- the poorest countries. Complementary ing is often low and needs improvement. policies and programs (including aid-for- In some countries, nonstrategic subsidies trade) are needed to compensate losers amount to as much as half of the public (transfer programs) and to facilitate rapid budget for agriculture. To mobilize politi- and equitable adjustments by smallhold- cal support for better use of public expendi- ers to emerging comparative advantages tures in agriculture, an initial step is greater (investments in public goods and institu- public disclosure and transparency of bud- tional reforms). get allocation, and analysis of impacts. 12 WORLD DEVELOPMENT REPORT 2008 Make product and input markets work this has been done, production and quality better. With major structural changes in have improved--as for cotton in Zambia, agricultural markets and the entry of pow- where production tripled. Critically impor- erful new actors, a key issue for development tant, too, is to increase the productivity of is enhancing the participation of small- exports, as exemplified by the recent suc- holders and ensuring the poverty-reducing cessful Ghana experience with cocoa. Qual- impacts of agricultural growth. Options ity improvements and fair trade can open differ across the spectrum of markets. new opportunities for more remunerative markets for some smallholders. Food staples markets. Reducing transac- tion costs and risks in food staples markets High-value markets. The participation of can promote faster growth and benefit the smallholders can also be enhanced in high- poor. Beyond investments in infrastructure, value markets, both global and domes- promising innovations include commodity tic, including the supermarket revolution exchanges, market information systems unfolding in many countries. High-value based on rural radio and short messaging markets for domestic consumption are systems, warehouse receipts, and market- the fastest-growing agricultural markets based risk management tools. in most developing countries, expanding A particularly thorny issue in food mar- up to 6­7 percent a year, led by livestock kets is how to manage price volatility for products and horticulture (figure 6). Fresh politically sensitive food staples in countries and processed fruits and vegetables, fish where they account for a large share of con- and fish products, meat, nuts, spices, and sumer spending. If the food staple is trad- floriculture now account for 43 percent of able, insurance through exchange-traded agrofood exports from developing coun- futures contracts can sometimes manage tries, worth about $138 billion in 2004. As price risks, as for countries or traders in incomes rise, supermarkets become more southern Africa that use the South African dominant in the domestic retail sales of commodity exchange. Risk management agricultural products--reaching 60 percent can also be enhanced by more open bor- in some Latin American countries. ders and private trade, as in the successful The poverty impacts of this growth management of flood-induced rice short- depend on how the rural population partic- ages in Bangladesh in 1998. But most food ipates in high-value markets, either directly staples in agriculture-based countries are as producers (as in Bangladesh) or through only partially tradable, and many countries the labor market (as in Chile). Enhancing subject to frequent climatic shocks man- smallholder participation needs market age public grain reserves to reduce price infrastructure, upgrading farmers' techni- instability--with mixed success. High risks cal capacity, risk management instruments, of price volatility remain for both farmers and collective action through producer and consumers in many agriculture-based organizations. Addressing the stringent san- countries and effective safety nets will con- itary and phytosanitary standards in global tinue to be important until incomes rise or markets is an even bigger challenge. Doing market performance improves. it well depends on joint public and private efforts in policy (food safety legislation), Traditional bulk exports. The long down- research (risk assessment, good practices), ward trend in world market prices of such infrastructure (export processing facilities), traditional exports as coffee and cotton and oversight (disease surveillance). threatens the livelihoods of millions of pro- ducers. Reduced taxation and greater liber- Input markets. Especially for seed and fer- alization of export markets has improved tilizer, market failures continue to be perva- incomes in many settings. But these liber- sive in Sub-Saharan Africa because of high alized markets require a new role for gov- transaction costs, risks, and economies of ernment, particularly in regulating fair and scale. As a result, low fertilizer use is one of efficient operations in marketing. Where the major constraints on increasing agricul- Overview 13 Figure 6 Domestic consumption and exports of high-value products in developing countries are growing rapidly Domestic consumption Exports Index, 1980 = 100 Index, 1980 = 100 350 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 1980 1985 1990 1995 2000 2005 1980 1985 1990 1995 2000 2005 Meat Horticulture Cereals Meat Horticulture Oilseeds Tradtional exports Source: http://faostat.fao.org, accessed June 2007, and http://comtrade.un.org. tural productivity in Sub-Saharan Africa. to agriculture through public programs or The renewed interest in fertilizer subsidies state banks has left huge gaps in financial needs to focus on sustainable solutions to services, still largely unfilled despite numer- market failures. "Market-smart" approaches ous institutional innovations. to jump-starting agricultural input markets include targeted vouchers to enable farmers Rural finance. The microfinance revolu- to purchase inputs and stimulate demand tion, providing access to credit without for- in private markets, and matching grants to mal collateral, has opened access to loans for underwrite selected start-up costs of entry millions of poor people, especially women, of private distributors to input markets. but it has not reached most agricultural Like any subsidies, input subsidies must activities, except in high-turnover activities be used with caution because they have such as small livestock and horticulture. high opportunity costs for productive pub- However, the range of financial products lic goods and social expenditures and they available to the rural poor has broadened risk political capture and irreversibility. But to include savings, money transfers, insur- through the judicious use of subsidies, it is ance services, and leasing options. With possible to underwrite risks of early adop- the rise of integrated supply chains and tion of new technologies and achieve econ- contract farming, financial intermediation omies of scale in markets to reduce input through interlinked agents is becoming prices. Subsidies need to be part of a com- more common. Information technologies prehensive strategy to improve productivity are reducing transaction costs and making and must have credible exit options. loans less costly in rural areas, for example, using agricultural credit cards to purchase Improve access to financial services and inputs or cellular phones to complete bank- reduce exposure to uninsured risks. Finan- ing transactions. Credit reporting bureaus cial constraints in agriculture remain per- covering microfinance institutions and the vasive, and they are costly and inequitably lower tier of commercial banks also help distributed, severely limiting smallholders' smallholders capitalize on the reputations ability to compete. Financial constraints they establish as microfinance borrowers to originate in the lack of asset ownership to access larger and more commercial loans. serve as collateral (wealth rationing) and in Many of these innovations are still at the the reticence to put assets at risk as collat- pilot stage, requiring evaluation and scaling eral when they are vital to livelihoods (risk up to make a real difference for smallholder rationing). The demise of special credit lines competitiveness. 14 WORLD DEVELOPMENT REPORT 2008 Managing risk. Exposure to uninsured landless and women, and they produce 22 risks--the result of natural disasters, health percent of India's total milk supply. shocks, demographic changes, price vola- In spite of many successes, producer tility, and policy changes--has high effi- organizations' effectiveness is frequently ciency and welfare costs for rural house- constrained by legal restrictions, low man- holds. To manage exposure to these risks, agerial capacity, elite capture, exclusion of farmers have to forgo activities with higher the poor, and failure to be recognized as full expected incomes. Selling assets to sur- partners by the state. Donors and govern- vive shocks can have high long-term costs ments can assist by facilitating the right to because decapitalization (distress sales of organize, training leaders, and empowering land and livestock) creates irreversibilities weaker members, in particular women and or slow recovery in the ownership of agri- young farmers. However, providing this cultural assets. In addition, child educa- assistance without creating dependency tion and health can suffer long-term con- remains a challenge. sequences when children are taken out of school in response to shocks or are exposed Promote innovation through science and to early periods of malnutrition, leading to technology. Driven by rapidly growing intergenerational transfers of poverty. private investment in research and devel- In spite of multiple initiatives, little prog- opment (R&D), the knowledge divide ress has been made in reducing uninsured between industrial and developing coun- risks in smallholder agriculture. State- tries is widening. Including both public managed insurance schemes have proven and private sources, developing countries largely ineffective. Index-based insurance invest only a ninth of what industrial coun- for drought risk, now being scaled up by tries put into agriculture R&D as a share of private initiatives in India and elsewhere, agricultural GDP. can reduce risks to borrowers and lenders To narrow this divide, sharply increased and unlock agricultural finance. However, investments in R&D must be at the top of these initiatives are unlikely to reach a crit- the policy agenda. Many international and ical mass unless there is some element of national investments in R&D have paid off subsidy, at the very least to cover start-up handsomely, with an average internal rate costs. of return of 43 percent in 700 R&D proj- ects evaluated in developing countries in Enhance the performance of producer all regions. But global and national failures organizations. Collective action by pro- of markets and governance lead to serious ducer organizations can reduce transac- underinvestment in R&D and in innova- tion costs in markets, achieve some mar- tion systems more generally, particularly ket power, and increase representation in in the agriculture-based countries. While national and international policy forums. investment in agricultural R&D tripled in For smallholders, producer organizations China and India over the past 20 years, it are essential to achieve competitiveness. increased by barely a fifth in Sub-Saharan They have expanded remarkably rapidly Africa (declining in about half of the coun- in number and membership, often in an tries there).5 African countries are addi- attempt to fill the void left by the state's tionally disadvantaged by the fact that the withdrawal from marketing, input pro- specificity of their agroecological features vision, and credit, and to take advantage leaves them less able than other regions of democratic openings allowing greater to benefit from international technology civil society participation in governance. transfers and the small size of many of Between 1982 and 2002 the percentage of these countries prevents them from captur- villages with producer organizations rose ing economies of scale in agricultural R&D. from 8 to 65 percent in Senegal and from 21 Low investments in R&D and low interna- to 91 percent in Burkina Faso. The Indian tional transfers of technology have gone Dairy Cooperatives Network has 12.3 mil- hand in hand with stagnant cereal yields in lion individual members, many of them Sub-Saharan Africa, resulting in a widening Overview 15 yield gap with the rest of the world (figure and biological control more than pesti- 7). For these countries, sharply increased cides. Because most of these technologies investment and regional cooperation in are location specific, their development R&D are urgent. and adoption require more decentralized Low spending is only part of the prob- and participatory approaches, combined lem. Many public research organizations with collective action by farmers and face serious leadership, management, and communities. financial constraints that require urgent Revolutionary advances in biotech- attention. But higher-value markets open nology offer potentially large benefits to new opportunities for the private sector poor producers and poor consumers. But to foster innovation along the value chain. today's investments in biotechnology, con- Grasping them often requires partner- centrated in the private sector and driven ships among the public sector, private sec- by commercial interests, have had limited tor, farmers, and civil society in financing, impacts on smallholder productivity in the developing, and adapting innovation. With developing world--the exception is Bt cot- a wider range of institutional options now ton in China and India. Low public invest- available, more evaluation is needed of what ment in biotechnology and slow progress works well in what contexts. in regulating possible environmental and A further challenge is to narrow the food safety risks have restrained the devel- income and productivity gaps between opment of genetically modified organisms favored and less-favored regions. Better (GMOs) that could help the poor. The technologies for soil, water, and livestock potential benefits of these technologies will management and more sustainable and be missed unless the international develop- resilient agricultural systems, including ment community sharply increases its sup- varieties more tolerant of pests, diseases, port to interested countries. and drought, are needed for the latter regions. Approaches that exploit biologi- Make agriculture more sustainable--and a cal and ecological processes can minimize provider of environmental services. The the use of external inputs, especially agri- environmental footprint of agriculture has cultural chemicals. Examples include con- been large, but there are many opportuni- servation tillage, improved fallows, green ties for reducing it. Since the 1992 Earth manure cover crops, soil conservation, Summit in Rio, it is generally accepted that and pest control that relies on biodiversity the environmental agenda is inseparable from the broader agenda of agriculture for development. And the future of agriculture Figure 7 The yield gap for cereals between Sub- Saharan Africa and other regions has widened is intrinsically tied to better stewardship of the natural resource base on which it Yield, tons per hectare 6 depends. Both intensive and extensive agriculture 5 face environmental problems--but of dif- ferent kinds. Agricultural intensification 4 has generated environmental problems 3 from reduced biodiversity, mismanaged irrigation water, agrochemical pollution, 2 and health costs and deaths from pesticide poisoning. The livestock revolution has its 1 own costs, especially in densely populated 0 and periurban areas, through animal waste 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 and the spread of animal diseases such as Developed countries South Asia avian influenza. Many less-favored areas East Asia & Pacific Sub-Saharan Africa suffer from deforestation, soil erosion, Latin America & Caribbean desertification, and degradation of pas- Source: http://faostat.fao.org, accessed June 2007. tures and watersheds. In the East African 16 WORLD DEVELOPMENT REPORT 2008 highlands, soil erosion can result in pro- ening property rights (as with agroforestry ductivity losses as high as 2­3 percent a parklands in Niger) and providing long- year, in addition to creating offsite effects term incentives for natural resource man- such as the siltation of reservoirs. agement with off-farm benefits (such as The answer is not to slow agricultural matching grants for soil conservation) are development, but to seek more sustain- necessary in both intensive and extensive able production systems and to enhance farming areas. Inappropriate incentives agriculture's provision of environmental that encourage mining resources--such services. Many promising technological as subsidies to water intensive crops that and institutional innovations can make cause groundwater overpumping--must agriculture more sustainable with mini- be reduced. mum tradeoffs on growth and poverty Reforms are often politically difficult. reduction. Water management strategies Better water measurement through tech- in irrigated areas must improve water nology (remote sensing), better quality of productivity, meeting demands of all irrigation services, and greater accountabil- users (including the environment), and ity to water users can generate political sup- reduce water pollution and the unsus- port for otherwise stalled reforms. tainable mining of groundwater. These Payments for environmental services strategies depend on removing incentives can help overcome market failures in man- for wasteful water usage, devolving water aging environmental externalities. Water- management to local user groups, invest- shed and forest protection create envi- ing in better technologies, and regulating ronmental services (clean drinking water, externalities more effectively. Decentral- stable water flows to irrigation systems, ized governance in irrigation manage- carbon sequestration, and protection of ment has a higher chance of success if legal biodiversity) for which providers should be frameworks clearly define the roles and compensated through payments from ben- rights of user groups and if the capacity of eficiaries of these services. Interest has been groups to manage irrigation collectively is growing, particularly in Latin America. In increased. Nicaragua, payments induced a reduction Better technologies and better ways of in the area of degraded pasture and annual managing modern farm inputs can also crops by more than 50 percent in favor of make rainfed farming more sustainable. silvopastoralism, half of it by poor farmers. One of agriculture's major success stories Environmental certification of products in the past two decades is conservation (or also allows consumers to pay for sustainable zero) tillage. This approach has worked in environmental management, as practiced commercial agriculture in Latin America, under fair trade or shade-grown coffee. among smallholders in South Asia's rice- wheat systems, and in Ghana. In less-favored The urgency of dealing with climate change. regions, community-based approaches to Poor people who depend on agriculture are natural resource management, such as the most vulnerable to climate change. Increas- watershed management program in Eastern ing crop failures and livestock deaths are Anatolia of Turkey, offer significant prom- already imposing high economic losses ise. As survey data from 20 countries show, and undermining food security in parts of women's active engagement in community Sub-Saharan Africa, and they will get far organizations improves the effectiveness more severe as global warming continues. of natural resources management and the More frequent droughts and increasing ability to resolve conflicts. water scarcity may devastate large parts of Getting incentives right is the first step the tropics and undermine irrigation and toward sustainable resource management. drinking water in entire communities of Widespread adoption of more sustainable already poor and vulnerable people. The approaches is often hindered by inappro- international community must urgently priate pricing and subsidy policies and the scale up its support to climate-proof the failure to manage externalities. Strength- farming systems of the poor, particularly Overview 17 in Sub-Saharan Africa, the Himalayan Figure 8 Agriculture and deforestation are heavy contributors to greenhouse gas regions, and the Andes. Based on the pol- emissions luter-pays principle, it is the responsibility % of total GHG emissions of the richer countries to compensate the 63% poor for costs of adaptation. So far, global 60 Developed countries Developing countries commitments to existing adaptation funds have been grossly inadequate. 40 Developing-country agriculture and 15% 20 deforestation are also major sources of 11% 7% 4% greenhouse gas emissions: they contribute 0 an estimated 22 percent and up to 30 per- Energy Agriculture Deforestation Industrial Waste cent of total emissions, more than half of (excluding land processes use change) which is from deforestation largely caused by agricultural encroachment (13 million Source: WDR 2008 team, based on data from the United Nations Framework Convention on Climate Change, www.unfccc.int. hectares of annual deforestation globally) (figure 8).6 Carbon-trading schemes-- especially if their coverage is extended to provide financing for avoided deforestation efficient producers with current technolo- and soil carbon sequestration (for example, gies. Policy decisions on biofuels need to conservation tillage)--offer significant devise regulations or certification systems untapped potential to reduce emissions to mitigate the potentially large environ- from land-use change in agriculture. Some mental footprint of biofuels production. improvements in land and livestock man- Increased public and private investment agement practices (for example, conserva- in research is important to develop more tion tillage and agroforestry) are often win- efficient and sustainable production pro- win situations: after the initial investments, cesses based on feedstocks other than food they can result in more productive and sus- staples. tainable farming systems. Moving beyond farming: Biofuels--an opportunity and a challenge. a dynamic rural economy and Promising new opportunities for mitigating skills to participate in it climate change and creating large new mar- Creating rural employment. With rapid kets for agriculture have emerged through rural population growth and slow expan- the production of biofuels, stimulated by sion in agricultural employment, creating high energy prices. But few of the current jobs in rural areas is a huge and insuffi- biofuels programs are economically viable, ciently recognized challenge. Between 45 and many pose social (rising food prices) and 60 percent of the rural labor force is and environmental (deforestation) risks. engaged in the agricultural labor market To date, production in industrial countries and the rural nonfarm economy in Asia has developed behind high protective tar- and Latin America. Only in Sub-Saharan iffs on biofuels and with large subsidies. Africa is self-employment in agriculture These policies hurt developing countries still by far the dominant activity for the that are, or could become, efficient produc- rural labor force, especially for women. ers in profitable new export markets. Poor But with rapidly growing rural populations consumers also pay higher prices for food and declining farm sizes, the rural employ- staples as grain prices rise in world markets ment problem will need to be addressed directly due to the diversion of grain to bio- there as well. fuels or indirectly due to land conversion The rural labor market offers employ- away from food production. ment possibilities for the rural popula- Brazil is the world's largest and most tion in the new agriculture and the rural efficient producer of biofuels, based on its nonfarm sector. But opportunities are bet- low-cost production of sugarcane. But few ter for those with skills, and women with other developing countries are likely to be lower education levels are at a disadvantage. 18 WORLD DEVELOPMENT REPORT 2008 Migration can be a climb up the income fers, also have an insurance function in ladder for well-prepared, skilled workers, or protecting the most vulnerable against it can be a simple displacement of poverty shocks. These programs have to be orga- to the urban environment for others. nized so that they do not undermine the The policy priority is to create more local labor market and food economy and jobs in both agriculture and the rural non- do not create work disincentives for ben- farm economy. The basic ingredients of a eficiaries, but do reach those most in need dynamic rural nonfarm economy are a rap- "just in time." With the shift in emphasis idly growing agriculture and a good invest- of governments and donor programs over ment climate. Linking the local economy the past two decades toward transfers as to broader markets by reducing transaction an instrument for poverty reduction and costs, investing in infrastructure, and pro- the greater attention to impact evaluation, viding business services and market intel- much has been learned about how to bet- ligence are critical. Agro-based clusters-- ter target and calibrate these programs for firms in a geographic area coordinating to greater effectiveness. compete in servicing dynamic markets-- have been effective, with well-documented How can agriculture-for- experiences for nontraditional exports in development agendas best the San Francisco Valley of Brazil and for be implemented? dairy production in Peru and Ecuador. The real challenge is to assist the tran- Pursuing an agriculture-for-development sition of the rural population into higher- agenda for a country implies defining what paying jobs. Labor regulations are needed to do and how to do it. What to do requires that help incorporate a larger share of a policy framework anchored on the behav- rural workers into the formal market and ior of agents--producers and their organi- eliminate discrimination between men zations, the private sector in value chains, and women. Education, skills, and entre- and the state. How to do it requires effective preneurship can be fostered--by providing governance to muster political support and incentives for parents to better educate their implementation capacity, again based on children, improving the quality of schools, the behavior of agents--the state, civil soci- and providing educational opportunities ety, the private sector, donors, and global relevant to emerging job markets. institutions. Providing safety nets. Providing social Defining an agriculture-for- assistance to the chronic and transitory development agenda poor can increase both efficiency and wel- Opening and widening pathways out of fare. Efficiency gains come from reducing poverty. Rural households pursue port- the cost of risk management and the risk folios of farm and nonfarm activities that of asset decapitalization in response to allow them to capitalize on the different shocks. Welfare gains come from support- skills of individual members and to diversify ing the chronic poor with food aid or cash risks. Pathways out of poverty can be through transfers. In Brazil, South Africa, and most smallholder farming, wage employment in countries in Europe and Central Asia, rural agriculture, wage or self-employment in the noncontributory pension funds protect the rural nonfarm economy, and migration out aged, facilitate earlier land transfers to the of rural areas--or some combination thereof. younger generation, and relieve those who Gender differences in access to assets and work from the financial burden of support- mobility constraints are important determi- ing the elderly. These policies have been nants of available pathways. shown to have important spillover effects Making agriculture more effective in on the health and education of the pension- supporting sustainable growth and reduc- ers' grandchildren. ing poverty starts with a favorable socio- Safety nets, such as guaranteed work- political climate, adequate governance, fare programs and food aid or cash trans- and sound macroeconomic fundamentals. Overview 19 It then requires defining an agenda for each Figure 9 The four policy objectives of the agriculture-for-development agenda form a country type, based on a combination of policy diamond four policy objectives--forming a policy Preconditions diamond (figure 9): Macroeconomic fundamentals Governance · Objective 1. Improve access to markets Sociopolitical context and establish efficient value chains 1 · Objective 2. Enhance smallholder com- Improve petitiveness and facilitate market entry Demand for market access; Demand for agricultural establish efficient agricultural and · Objective 3. Improve livelihoods in sub- products value chains nonfarm products sistence farming and low-skill rural occupations 4 · Objective 4. Increase employment in agri- 2 Pathways out Increase employment in Enhance smallholder culture and the rural nonfarm economy, of poverty agriculture and the rural competitiveness; Farming, labor, nonfarm economy; and enhance skills facilitate market entry Income migration Income effects effects enhance skills In using agriculture for development, a country should formulate an agenda with the following characteristics: 3 Transition Transition Improve livelihoods to market to market · Established preconditions. Without social in subsistence agriculture and peace, adequate governance, and sound low-skill rural macro fundamentals, few parts of an occupations agricultural agenda can be effectively Source: WDR 2008 team. implemented. This basic premise was all too often missing in agriculture-based countries until the mid-1990s, particu- countries account for over 80 percent of the larly in Sub-Saharan Africa. rural population in the agriculture-based · Comprehensive. The agenda combines countries. For them, with both limited trad- the four objectives of the policy diamond, ability of food and comparative advantage depending on country context, and spec- in primary subsectors, agricultural produc- ifies indicators that help in monitoring tivity gains must be the basis for national and evaluating progress toward each pol- economic growth and the instrument for icy objective. mass poverty reduction and food security. · Differentiated. Agendas differ by country This poses a huge challenge to governments type, reflecting differences in priorities and the international community, but there and structural conditions across the three is little alternative to success in this under- agricultural worlds. The agendas must be taking, and there are new opportunities further customized to country specifics that provide a basis for optimism. through national agricultural strategies As macroeconomic conditions and com- with wide stakeholder participation. modity prices improved in Sub-Saharan · Sustainable. The agendas must be envi- Africa starting in the mid-1990s (figure ronmentally sustainable both to reduce 10), agricultural growth accelerated from the environmental footprint of agricul- 2.3 percent per year in the 1980s to 3.8 per- ture as well as to sustain future agricul- cent between 2001 and 2005. Rural poverty tural growth. started to decline where growth occurred-- · but rapid population growth is absorbing Feasible. To be implemented and have much of the gain, reducing per capita agri- significant impact, policies and pro- cultural growth to 1.5 percent. Faster growth grams must meet the conditions of polit- and poverty reduction are now achievable, ical feasibility, administrative capacity, but they will require commitments, skills, and financial affordability. and resources. Agriculture-based countries: achieving Diverse local conditions in Sub-Saharan growth and food security. Sub-Saharan Africa produce a wide range of farming 20 WORLD DEVELOPMENT REPORT 2008 Figure 10 Agricultural growth in Sub-Saharan Africa has increased as macroeconomic conditions improved Macroeconomic score Agriculture growth rate, % per year 10 6 5 8 4 6 3 2 4 1 2 1984­95 0 1995­2005 0 ­1 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 ­0.2 0 0.2 0.4 0.6 Average annual change in macroeconomic score Source: WDR 2008 team, based on data from International Country Risk Guide, http://www.icrgonline.com. Note: Macroeconomic score is the average of the budget balance score, inflation score, and exchange rate stability. Each point represents a country. systems and reliance on many types of food water management are needed to enhance staples, implying a path to productivity the resilience of farming systems, especially growth that differs considerably from that for people in subsistence farming in remote in Asia.7 Although diversity complicates and risky environments. And it requires the development of new technologies, it capitalizing on agricultural growth to acti- offers a broad range of opportunities for vate the rural nonfarm economy in produc- innovation. Dependence on the timing and ing nontradable goods and services. The amount of rainfall increases vulnerability agenda must recognize the often-dominant to weather shocks and limits the ability to role of women as farmers, agroprocessors, use known yield-enhancing technologies. and traders in local markets. But the untapped potential for storing The Sub-Saharan context implies four water and using it more efficiently is enor- distinct features of an agriculture-for- mous. Small and landlocked countries act- development agenda. First, a multisectoral ing alone cannot achieve economies of approachmustcapturethesynergiesbetween scale in product markets and in research technologies (seeds, fertilizer, livestock and training, which makes regional inte- breeds), sustainable water and soil manage- gration important. Low population density ment, institutional services (extension, that increases the cost of providing infra- insurance, financial services), and human structure services and loss of human capital development (education, health)-- resources because of HIV/AIDS impose all linked with market development. Second, additional constraints. agricultural development actions must be The agenda for Sub-Saharan Africa is to decentralized to tailor them to local condi- enhance growth by improving smallholder tions. These include community-driven competitiveness in medium and higher approaches with women, who account for potential areas, where returns on invest- the majority of farmers in the region, playing ment are highest, while simultaneously a leading role. Third, the agendas must be ensuring livelihoods and food security of coordinated across countries to provide an subsistence farmers. Getting agriculture expanded market and achieve economies of moving requires improving access to mar- scale in such services as R&D. Fourth, the kets and developing modern market chains. agendas must give priority to conservation It requires a smallholder-based productivity of natural resources and adaptation to cli- revolution centered on food staples but also mate change to sustain growth. including traditional and nontraditional This agenda will require macroeco- exports. Long-term investments in soil and nomic stability, policies to improve pro- Overview 21 ducer incentives and trade, and sharply Continuing demographic pressures imply increased public investment--especially in rapidly declining farm sizes, becoming infrastructure, roads, and communications so minute that they can compromise sur- to improve market access, and in R&D to vival if off-farm income opportunities are address Africa's distinct crops and agro- not available. Competition over access to ecologies, as proposed by the New Partner- water is acute, with rising urban demands ship for Africa's Development. and deteriorating quality from runoffs. As The recent surge in growth of Sub- nonfarm incomes rise, pressures to address Saharan agriculture has been induced by rural-urban income disparities through improved price incentives from macro and subsidies would compete for fiscal expendi- sectoral reforms and higher commodity tures, at a high opportunity cost for public prices. As the easy gains from price reforms goods and rural basic needs. On the other have been captured in many countries, hand, addressing those disparities through future growth will have to rely more on import protection would elevate food costs increased productivity. The increased will- for the large masses of poor consumers who ingness of governments, the private sector, are net food buyers. and donors to invest in Sub-Saharan agri- Because of demographic pressures and culture opens a window of opportunity that land constraints, the agenda for trans- should not be missed. forming countries must jointly mobilize all pathways out of poverty: farming, Transforming countries: reducing rural- employment in agriculture and the rural urban income disparities and rural poverty. nonfarm economy, and migration. Pros- In transforming countries, with 600 million pects are good for promoting rural incomes rural poor and 2.2 billion rural inhabitants, and avoiding the subsidy-protection trap, nonagricultural sectors have been the fast- if the political will can be mustered. Rap- est growing in the world. The main focus idly expanding markets for high-value of agriculture for development is to narrow products--especially horticulture, poul- rural-urban income disparities and reduce try, fish, and dairy--offer an opportunity rural poverty while avoiding the subsidy and to diversify farming systems and develop a protection traps, challenges poorly addressed competitive and labor-intensive small- thus far (figure 11). With growing political holder sector. Export markets for nontradi- attention to widening income disparities, tional products are also accessible because there are strong pressures to better use the transforming countries have a comparative powers of agriculture for development.8 advantage in labor- and management- In these countries, agriculture is almost intensive activities. Many countries have exclusively in the hands of smallholders. high levels of poverty in less-favored regions Figure 11 The urban-rural income disparity has increased in most of the transforming countries Ratio of urban to rural median income 4 Initial year End year 3 2 1 0 Guatemala Thailand Cambodia China Vietnam Indonesia Bangladesh India Pakistan 1989­2002 1990­2002 1997­2004 1985­2001 1992­2001 1993­2002 1991­2000 1989­99 1999­2001 Source: WDR 2008 team, based on nationally representative household surveys. 22 WORLD DEVELOPMENT REPORT 2008 that require better infrastructure and tech- of poverty with good agricultural poten- nologies adapted to these regions. tial. For regions without such potential, the To confront rural unemployment, a transition out of agriculture and the provi- complementary policy objective is promot- sion of environmental services offer better ing a dynamic rural nonfarm sector in sec- prospects. But support to the agricultural ondary towns, linked to both agriculture component of the livelihoods of subsis- and the urban economy. China has brought tence farmers will remain an imperative industry to rural towns, diversifying rural for many years. incomes, an approach that could be emu- lated in other transforming countries. In Implementing an agriculture-for- all transforming countries, the transfer of development agenda labor to the dynamic sectors of the econ- The agriculture-for-development agenda omy must be accelerated by massive invest- presents two challenges for implementa- ments in skills for this generation and the tion. One is managing the political econ- next. The momentous changes this restruc- omy of agricultural policies to overcome turing implies must be insured by effective policy biases, underinvestment, and mis- safety-net programs to allow households investment. The other is strengthening to assume risks in moving to their best governance for the implementation of agri- options. Successfully meeting the dispar- cultural policies, particularly in the agri- ity problem in transforming countries can culture-based and transforming countries make a huge dent in world poverty. for which governance gets low scores (fig- ure 12). Urbanized countries: linking smallhold- Insufficient attention to these political ers to modern food markets and providing economy and governance challenges was a good jobs. The broad goal is to capitalize major reason several key recommendations on rapid expansion of modern domestic of the 1982 World Development Report on food markets and booming agricultural agriculture were not fully implemented, subsectors to sharply reduce the remaining particularly those for trade liberalization, rural poverty, still stubbornly high. The increased investments in infrastructure urbanized countries, with 32 million rural and R&D in Africa, and better delivery poor--representing 39 percent of all their of health and education services to rural poor--are experiencing the supermarket populations. revolution in food retailing. For smallhold- ers, being competitive in supplying super- The future offers more promise for agricul- markets is a major challenge that requires ture for development. The prospects are meeting strict standards and achieving scale brighter today than they were in 1982. The in delivery, for which effective producer anti-agriculture bias in macroeconomic organizations are essential.9 Exceptionally policies has been reduced thanks to broader high land inequality in Latin America also economic reforms. Agriculture is likely to constrains smallholder participation. benefit from other general governance Increasing the access of smallholders reforms that are now high on the agenda, to assets, particularly land, and increas- such as decentralization and public sector ing their voice in unequal societies can management reforms. But reforms specific enhance the size and competitiveness of to using agriculture for development are yet the smallholder sector. Beyond farming, to be widely implemented. territorial approaches are being pursued There is also evidence that the politi- to promote local employment through cal economy has been changing in favor of interlinked farming and rural agroindus- agriculture and rural development. Both try, and these experiences need to be bet- rural civil society organizations and the pri- ter understood for wider application. Agri- vate sector in agriculture value chains are cultural growth is especially important to stronger than they were in 1982. Democra- improve well-being in geographic pockets tization and the rise of participatory policy Overview 23 Figure 12 Agriculture-based and transforming countries get low scores for governance Governance score 2.0 1.5 1.0 0.5 0 ­0.5 ­1.0 Voice and Political Government Regulatory Rule of law Control of accountability stability effectiveness quality corruption Agriculture-based countries Urbanized countries Transforming countries Developed countries Source: Kaufmann, Kraay, and Mastruzzi 2006. making have increased the possibilities for reforms to redefine their roles and develop smallholder farmers and the rural poor to new capacities. New models are starting to raise their political voice. The private agri- emerge. Uganda pioneered contracting out business sector has become more vibrant, agricultural advisory services, giving pro- especially in the transforming and urban- ducer organizations a say in awarding the ized countries. New, powerful actors have contracts. entered agricultural value chains, and they have an economic interest in a dynamic and Strengthening civil society and democracy. prosperous agricultural sector and a voice in The "third sector"--communities, pro- political affairs. Yet these improved condi- ducer and other stakeholder organiza- tions alone do not guarantee the more suc- tions, and nongovernmental organizations cessful use of agriculture for development-- (NGOs)--can improve representation of smallholders must have their voices heard the rural poor and, in so doing, governance. in political affairs, and policy makers and Producer organizations can give political donors must seize the new opportunities. voice to smallholders and hold policy mak- ers and implementing agencies account- New roles for the state. Market failures able by participating in agricultural policy are pervasive, especially in the agricul- making, monitoring the budget, and engag- ture-based countries, and there is a need ing in policy implementation. In Senegal, for public policy to secure desirable social the Conseil National de Concertation et de outcomes. The state has a role in mar- Coopération des Ruraux, an umbrella orga- ket development--providing core public nization of producer organizations, is active goods, improving the investment climate in the development and implementation of for the private sector--and in better natu- national agricultural strategies and poli- ral resources management by introducing cies. Freedom of association, a free press, incentives and assigning property rights. and investment in the social capital of rural Strengthening the capacity of the state in organizations, including women's organiza- its new roles of coordinating across sectors tions, are important for such demand-side and partnering with the private sector and strategies of improving governance. civil society is urgently needed for imple- menting the agriculture-for-development A mix of centralized and decentralized agendas. In most countries, ministries services. By bringing government closer of agriculture are in need of far-reaching to rural people, decentralization holds the 24 WORLD DEVELOPMENT REPORT 2008 potential to deal with the localized and Reforming global institutions. The agri- heterogeneous aspects of agriculture, espe- culture-for-development agenda cannot be cially for extension. But not all agricultural realized without more and better interna- services should be decentralized, as some tional commitments. And the overarching such as scientific research and animal dis- global tasks of the 21st century--ending ease surveillance have important economies hunger and poverty, sustaining the envi- of scale. Decentralized institutions need to ronment, providing security, and managing address local elite capture and social exclu- global health--will not be accomplished sion, often prevalent in agrarian societies. without agriculture. The global agricul- In India, the reservation of seats for women tural agenda has a multiplicity of dimen- in local councils has helped better target sions: establishing fair rules for interna- public investments to gender-specific needs. tional trade, agreeing on product standards Elsewhere corruption has been reduced by and intellectual property rights, providing grassroots monitoring systems, government new technologies for the benefit of the poor, audits with results diffused by the media, avoiding such negative externalities as live- and use of information and communica- stock diseases, conserving the world's bio- tion technologies to keep records and share diversity, and mitigating and adapting to information. climate change. Community-driven development (CDD) With their narrow sectoral focus, the can harness the potential of rural communi- global institutions created for agriculture ties--their local knowledge, creativity, and in the 20th century, despite their many social capital. Decentralization and CDD achievements, are inadequately prepared typically contribute to the agriculture-for- to address today's interrelated and multi- development agenda in a sequenced way, sectoral agendas. Institutional reforms and focusing on basic services and public goods innovations are needed to facilitate greater first, and engaging in income-generating coordination across international agencies activities once the most basic needs have and with the new actors in the global arena, been met. Territorial development can help including civil society, the business sector, manage economic projects with a broader and philanthropy. scale than the CDD approach. Implementing the global agenda requires a mix of institutional arrangements. Spe- Improving donor effectiveness. In the cialized institutions, such as the Consul- agriculture-based countries, donors are tative Group on International Agricul- extraordinarily influential. In 24 Sub- tural Research, the Food and Agriculture Saharan countries, donor contributions Organization of the United Nations, and represent at least 28 percent of agricultural the International Fund for Agricultural development spending--and more than Development, can provide long-term sup- 80 percent in some countries. Country- port and commitment by improving their led agricultural strategies and the broader efficiency and cross-agency coordination. poverty reduction strategies provide a Cross-sectoral, issue-specific networks can framework for donors to align their sup- react quickly to emergencies, such as con- port to the agricultural sector and with trolling avian influenza, and seize emerg- each other, using the government's public ing opportunities, such as biofortification expenditure and procurement systems as through nutrient-enhanced crops. In other mechanisms for program implementation. cases, mainstreaming global priorities, At the regional level, the Comprehensive such as adaptation to climate change, into Africa Agricultural Development Program increased donor aid to agriculture may work provides priorities for coordinating donor best. Delivering on the international agenda investments. Although these national and is a matter not only of self-interest, which regional efforts provide the institutional extends broadly in a global world, but also frameworks for donor support to agricul- of equity and justice between the developed ture, progress in implementation has been and developing worlds and between present slow. and future generations. Overview 25 What now? Toward implementation requires mobilizing political support, skills, If the world is committed to reducing pov- and resources. erty and achieving sustainable growth, the There is growing recognition among powers of agriculture for development must governments and donors that agriculture be unleashed. But there are no magic bullets. must be a prominent part of the devel- Using agriculture for development is a com- opment agenda, whether for delivering plex process. It requires broad consultations growth in the agriculture-based countries at the country level to customize agendas or for reducing rural poverty and address- and define implementation strategies. It also ing the environmental agenda everywhere. requires having agriculture work in concert Today's improved opportunities and greater with other sectors and with actors at local, willingness to invest in agriculture provide national, and global levels. It requires build- optimism that agriculture-for-development ing the capacity of smallholders and their agendas can move forward. The window of organizations, private agribusiness, and the opportunity that this offers should not be state. It requires institutions to help agricul- missed because success will provide high ture serve development and technologies payoffs toward the Millennium Develop- for sustainable natural resource use. And it ment Goals and beyond. Notes Pardey, Philip G., Nienke M. Beintema, Steven Dehmer, and Stan- ley Wood. 2006. Agricultural Research: A Growing Global Divide? 1. The latest world rural poverty figures are for 2002. Food Policy Report 17. Washington, DC: International Food 2. World Bank 1982. Policy Research Institute. 3. For much of the developing world, smallholders are defined as operating a farm of 2 hectares or less. Ravallion, Martin, Shaohua Chen, and Prem Sangraula. 2007. 4. Hayami 2005. "New Evidence on the Urbanization of Global Poverty." Back- 5. Pardey and others 2006. ground paper prepared for the World Development Report 2008. 6. The best estimate of the contribution of emissions from land- Reardon, Thomas, and Julio A. Berdegué. 2006. "The Retail-Led use change (mainly from deforestation) is 20 percent, with a likely Transformation of Agrifood Systems and Its Implications for range from 10 percent to 30 percent (Watson and others 2000). Development Policies." Background paper prepared for the 7. Staatz and Dembele 2007. World Development Report 2008. 8. Vyas 2007. Rosegrant, Mark W., Siwa Msangi, Timothy Sulser, and Clau- 9. Reardon and Berdegué 2006. dia Ringler. 2007. "Future Scenarios for Agriculture: Plausible Futures to 2030 and Key Trends in Agricultural Growth." Back- References ground paper prepared for the World Development Report 2008. Anderson, Kym, ed. Forthcoming. Distortions to Agricultural Incen- Staatz, John, and Niama Nango Dembele. 2007. "Agriculture for tives: A Global Perspective. London and Washington, DC: Pal- Development in Sub-Saharan Africa." Background paper pre- grave Macmillan and World Bank. pared for the World Development Report 2008. Fan, Shenggen, ed. Forthcoming. Public Expenditures, Growth, and Vyas, Vijay Shanker. 2007. "Marginalized Sections of Indian Agri- Poverty in Developing Countries: Issues, Methods and Findings. culture: The Forgotten Millions." Institute of Development Baltimore: Johns Hopkins University Press. Studies, Jaipur, Rajasthan, India. Hayami, Yujiro. 2005. "An Emerging Agriculture Problem in Watson, Robert T., Ian R. Noble, Bert Bolin, N. H. Ravindranath, High-Performing Asian Economies." Paper presented at the 5th David J. Verardo, and David J. Dokken. 2000. IPCC Special Conference of the Asian Society of Agricultural Economists Report on Land Use, Land-Use Change and Forestry. Geneva: (Presidential Address), Zahedan, Iran, August 29. Intergovernmental Panel on Climate Change (IPCC). Available Kaufmann, Daniel, Aart Kraay, and Massimo Mastruzzi. 2006. online at http://www.grida.no/climate/ipcc/land_use/index.htm. Governance Matters V: Aggregate and Individual Governance World Bank. 1982. World Development Report 1982: Agriculture Indicators for 1996­2005. Washington, DC: World Bank. and Economic Development. New York: Oxford University Press. Ligon, Ethan, and Elisabeth Sadoulet. 2007. "Estimating the Effects ------. 2006. World Development Indicators. Washington, DC: of Aggregate Agricultural Growth on the Distribution of Expen- World Bank. ditures." Background paper prepared for the World Development Report 2008. I n the 21st century, agriculture continues to be a fundamental instrument for sustainable development and poverty reduction. Three of every four poor people in developing countries live in rural areas--2.1 billion living on less than $2 a day and 880 million on less than $1 a day--and most depend on agriculture for their livelihoods. Given where they are and what they do best, promoting agriculture is imperative for meeting the Millennium Development Goal of halving poverty and hunger by 2015 and reducing poverty and hunger for several decades thereafter. Agriculture alone will not be enough to massively reduce poverty, but it is an essential component of effective development strategies for most developing countries. With the last World Development Report on agriculture completed 25 years ago, it is necessary to redefine how agriculture can be used for development, taking account of the vastly different context of opportunities and challenges that has emerged. To do this, the Report--Agriculture for Development-- addresses three main questions: · What can agriculture do for development? Agriculture has effectively served as a basis for growth and reduced poverty in many countries, but many more countries could benefit if governments and donors were to reverse years of policy neglect and remedy their underinvestment and misinvestment in agriculture. · What are effective instruments in using agriculture for development? They include increasing the assets of poor households, making smallholders--and agriculture in general--more productive, and creating opportunities in the rural nonfarm economy that the rural poor can seize. · How can agriculture-for-development agendas best be implemented? By designing policies and decision-making processes suited to each country's economic and social conditions, mobilizing political support, and improving the governance of agriculture. This year's Report marks the 30th year the World Bank has been publishing the World Development Report. ISBN 978-0-8213-7297-5 SKU 17297