Department for International Development
Better Livelihoods for Poor People: The Role of Agriculture
Foreword by the Secretary of State
In the year 2000 some 149 countries signed up to the Millennium Development Goals the foremost of which is the elimination of extreme poverty and hunger. That year we produced our Target Strategy Paper on Halving World Poverty by 2015: economic growth, equity and security, which set out our approach to increasing the economic well-being of poor people. In May this year we published Eliminating Hunger, our strategy for achieving the Millennium Development Goal on hunger. In it we show how hunger is inextricably linked to poverty and vulnerability. Measures to reduce poverty, empower people and create an environment within which markets can work fairly are essential to improve access to food.
This paper on Agriculture looks at a subject that can play an important part in tackling poverty and hunger. This is because three quarters of the world’s poorest people (the 1.2 billion living on less than a dollar a day) live in rural areas with their livelihoods one way or another dependent on agriculture. Agriculture provides more than food. It contributes to economic growth, to better livelihoods and to provision of environmental services important to poor people in urban and rural areas.
This paper focuses on agriculture’s role in poverty elimination and providing better livelihoods for poor people. It asks what lessons we have learned and what are the challenges. It suggests roles for the international community and development agencies, including DFID. And it outlines our ideas on areas where we still need to find answers - working in partnership with countries and others committed to doing so.
This paper is not a strategy. Agriculture is too diverse a subject to be amenable to such an approach. Rather it is an area where developing countries should take the lead in the context of their own poverty reduction, rural development and sectoral strategies. These will vary from country to country and region to region. Poor people themselves must play a major role in determining the response in any one place. It will require imagination on the part of policymakers because agriculture is one area where we have a wealth of experience of what does not work in terms of state intervention. But there is a lot of good experience, too, of what works. The challenge is to incorporate this into mainstream policies and approaches.
But poor countries continue to be foiled in their attempts to develop agriculture. Agriculture still suffers from a wide range of distortions and influences that limit its contribution to poverty reduction. We need to have coherent action at all levels. Making agriculture work for poor people requires far more than action in developing countries themselves. Wealthy countries have a responsibility to set their houses in order by tackling the effects of agricultural protection and subsidies. The effects of reforms are not always predictable. This should not deter us. In the longer term it must be right to tackle the myriad of distortions and barriers that limit opportunities for poor producers to benefit from new and expanding markets. If some groups are likely to lose out in the process of change which will bring major benefits to the poor, we must work together to help the losers manage change and develop alternative livelihoods.
Ensuring that agriculture plays its full role in helping achieve the Millennium Development Goals is a long-term challenge. The summits this year, notably the World Summit on Sustainable Development, provide an opportunity for agreement on what is important and to reconfirm our commitment to action. But it is to the follow-up, both in developing countries, with international organisations and in processes such as the post-Doha negotiations, that our efforts need to be directed.
Secretary of State for International Development
Consultative Group on International Agricultural Research
Department for International Development, UK
Food and Agriculture Organisation of the United Nations
Gross National Product
Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome
Millennium Development Goal
New Partnership for African Development
Organisation for Economic Cooperation and Development
Official Development Assistance
Office International des Epizooties
Poverty Reduction Strategy
Poverty Reduction Strategy Paper
World Food Summit
World Summit on Sustainable Development
World Trade Organisation
Three quarters of the world’s poorest people -- the 1.2 billion who live on less than one dollar a day -- live in rural areas. One way or another their livelihoods depend on agriculture. Poor people have limited assets -- human, social, physical, financial and natural -- and if economic growth is to benefit them it must raise the returns to those few assets they hold.
Agriculture has performed well in the past in benefiting the poor. All recorded rapid reductions in widespread poverty started with livelihoods being enhanced through agricultural transformation. Agricultural growth can and does reduce poverty and inequality, making specific contributions as measured by progress towards achieving the Millennium Development Goals (MDGs). Agriculture has ensured that global food production has more than kept pace with human population growth.
However the picture is not universally positive. Per capita productivity and food production have declined in sub-Saharan Africa over the past 20 years, and growth has slowed down in Asia. There are concerns about the future. Poor people engaged in agriculture face many challenges such as access to land, finance and markets and increasing competition for resources such as water.
Through poverty reduction strategy (PRS) processes, developing countries are setting ambitious targets for growth. Agriculture is seen as important but many PRS papers do not tell us how to make it perform better in contributing to pro-poor growth. How can agriculture best deliver this?
A range of factors combines to impede the realisation of the rights of the poor. Too often there is discrimination in law, regulation and custom that excludes the poorest from markets, from financial services, from land and from technical information. Public services are often ineffective and there are insufficient incentives for the private sector to service the poor. The rules for international trade in agricultural produce remain largely inimical to the interests of developing countries. Subsidies provided by wealthy countries to their producers result in overproduction and depression of world prices. Along with other trade barriers, this clearly limits opportunity in developing countries.
In this document we propose that DFID and other development agencies should adopt a new role: one that emphasises realising rights through creating opportunities for the poor, especially women. The crucial challenge is to ensure that agricultural growth takes place and small-scale farmers, entrepreneurs and workers on low incomes participate fully in it. We must tackle this at all levels. A specific challenge is to incorporate the lessons of good practice we have learned at the micro-level into mainstream policy and action.
At developing country level the priority for agricultural development is to create a policy and institutional environment that provides opportunities for poor people to derive a better livelihood from agriculture. This is likely to include the reform of policies, institutions and laws to improve poor people’s access to land, markets and services. It means creating a climate that encourages private sector investment in agriculture and agricultural services. This includes technology, knowledge and skills development. It may require revitalisation of a whole range of services and it may require reconfiguration of existing public institutions to accommodate a different role for government. It means empowering poor people to influence policy and exercise more effective demand on service deliverers.
At international level it means engaging in international negotiating processes and with international norm-setting organisations. Strengthening developing country capacity to negotiate effectively at this level is important. We need to invest in global public goods such as international agricultural research, encouraging public-private partnerships and greater demand-responsiveness.
Many of the global distortions in agriculture emanate from domestic policy in developed countries. Stronger action is needed to ensure that agricultural and trade policy, formal and informal, is consistent with development objectives and supportive of pro-poor outcomes. This must be taken up and prioritised in post-Doha discussions aimed at reforming OECD domestic support and export subsidies arrangements
Finally, there are still questions as to whether, in a market-led environment, the various threads ‘hang together’ sufficiently to deliver maximum benefit in terms of better livelihoods, sustainable development and poverty reduction. These questions are not going to be answered by policy research by development agencies or the international community. Development of new ideas can only happen on the ground, supported by regional and international lesson learning. DFID therefore proposes to work with partners, under the leadership of governments committed to poverty reduction, to tackle the issues raised in this paper.
1. This paper’s aim is to stimulate discussion within and outside DFID. Its purpose is to demonstrate that there is a case for taking specific interest in agriculture as part of the agenda to tackle poverty and to suggest how DFID might contribute to this.
2. DFID is re-defining its approach to agriculture because:
3. We show that agricultural growth can and does reduce poverty and inequality. We outline the several ways in which agriculture can do this, making specific contributions to eradicating poverty as measured by progress towards achieving the Millennium Development Goals (MDGs). We identify opportunities and challenges to developing agriculture in a managed and sustainable way. And we look at the roles of governments and the international community in supporting agriculture and we propose that DFID and other development agencies should adopt a new role: one that emphasises realising rights through creating opportunities for the poor, especially women. This involves reshaping the political economy and reforming policy and regulatory environments for agriculture, both nationally and internationally.
Why agriculture matters – its role in poverty reduction
Setting the context
4. Over 1.2 billion people continue to live in absolute poverty below the level of one dollar a day. Double that number survive on less than two dollars a day. These figures define a world characterised by persistent inequality and poverty, co-existing with increasing affluence and progress. The causes of poverty are complex. Concerted action is needed to address it and to provide opportunities for the millions facing lives of desperation and uncertainty. There is growing recognition, supported by strong empirical evidence, that agriculture has a major part to play in these efforts.
5. Agriculture plays four fundamental roles in poverty eradication:
6. We take agriculture to mean the production, processing and marketing of crops and livestock from producer to consumer. Agriculture as defined is a major part of overall natural resource-based activity2. Agricultural enterprises range from large, capital-intensive production and processing units to small-scale activities forming only part of poor people’s livelihood strategies. In contrast to industrialised economies the majority of agricultural products in developing countries are grown, processed and marketed by small family-operated enterprises. Poor farmers may own land and animals or they may rent or share them. They may use common or public land such as forest and roadside verges.
Agriculture as a source of pro-poor growth
7. In order to reduce poverty, economies must grow substantially faster than population. Agriculture remains a sizeable part of most developing countries’ economies. In Africa, it employs about two thirds of the labour force and accounts for 37 per cent of GNP and one half of exports3. In South Asia, despite rapid urbanisation and economic diversification, agriculture continues to provide employment for over 60 per cent of the population and generate 27 per cent of GNP. Although less in relative terms than the 43 per cent a quarter of a century ago, it remains a significant source of wealth and an important influence on overall economic performance.
8. Reflecting this -- and the lack of alternatives (see Box 1) -- agriculture remains the most likely source of significant economic growth in many developing countries. Historical experience suggests that agricultural growth and increases in agricultural productivity may be a prerequisite to broad-based sustained economic growth and development. This was certainly the case in virtually all the world’s developed countries. More contemporary experience demonstrates that, with few exceptions, overall economic growth has been most rapid in countries that have experienced significant agricultural growth. Rapid agricultural growth, supported by the public infrastructure investments made to promote it, has provided a powerful motor for growth in rural non-farm economies. Where agriculture and public rural investment have been stagnant -- as in resource poor areas of Asia and sub-Saharan Africa -- this has been much more limited.
A study commissioned by DFID on growth in sub-Saharan Africa focused on four sectors: manufacturing, agriculture, tourism and mining. It found that:
Source: Fafchamps et al, 2001
9. A number of reasons help to explain agriculture’s particular importance to growth and development:
10. Agricultural growth benefits the poorest. Strong agricultural growth has been a feature of countries that have successfully reduced poverty such as India, Bangladesh, Indonesia and China8. A recent study covering 58 developing countries concluded that a one per cent increase in agricultural productivity was associated with a reduction by between 0.6 and 1.2 per cent in the proportion of people living on less than $1 a day9. The relationship holds for sub-Saharan Africa. No equivalent relationship, on this scale, was found for manufacturing and services, in either rural or urban areas.
11. The extent to which the poor benefit from agricultural growth is however dependent upon a number of factors. These include:
12. Agricultural growth is not a panacea. Its relative importance declines as economies grow. As poor people’s livelihood strategies diversify -- for whatever reason -- agriculture becomes just one of the opportunities open to them, but this is often because higher agricultural productivity has stimulated broader development. The rural ‘non-farm’ economy is providing more and more employment, household income security, alternatives to migration and potential for reducing poverty and inequality12.
Agriculture and the livelihoods of the poor
Despite rapid urbanisation, an estimated 70 to 75 per cent of the world’s poorest people (the 1.2 billion living on less than $1 per day) live in rural areas with their livelihoods largely dependent on agriculture. Urbanisation will continue but it is unlikely that urban-based development alone will absorb sufficient numbers of people to achieve the MDG target of halving the proportion of people living on less than $1 per day by 2015. It has not done so to date and there is growing recognition that poverty must be tackled where it occurs. This includes rural areas where agriculture continues to provide the primary basis for livelihoods.
14. In many countries, it is stagnation in the rural economy that continues to drive poor people into towns. In India this accounts for 30 per cent of urban growth. Unmanaged increases in urban populations adversely impact on economic development and urban poverty; they become a focus of intense competition and conflict over land. Poor people living in under-serviced informal settlements bear the brunt of these conflicts.
15. However the distinction between rural and urban is seldom a clear one. More and more people seasonally migrate or commute between rural and urban areas, for example as farmer for one half of the year and textile worker for the other. Furthermore, urban people retain strong links with rural areas and view giving up agriculture as risky. Agriculture is a source of income to urban dwellers and conversely benefits from remittances from urban areas. In Southeast Asia industrial wages have fuelled farm mechanisation and other forms of intensification13.
16. Livelihoods strategies of poor people are complex. A livelihoods perspective provides further insight into the ways in which agricultural growth can reduce poverty and vulnerability:
Recent livelihood studies in the poorest region of Bangladesh -- the Northwest -- have found that:
These findings highlight the importance of stimulating agricultural growth that generates new employment opportunities.
Source: DFID/CARE Livelihoods Monitoring Project; and Chars studies
17. In the longer-term, it is likely that many of the rural poor will exploit alternative non-agricultural livelihood opportunities19. This in no way reduces agriculture’s importance in helping to achieve the MDGs. A dynamic agricultural sector enables successful livelihood diversification and urbanisation. Strong agricultural growth enables people to make choices about their livelihood strategies from a position of strength rather than weakness or desperation.
Agriculture and environmental services
18. Sustainable agriculture provides environmental services that are important to society in urban and rural areas, locally and globally. Agriculture is also the most important user of environmental services, including water, forests, pastures and nutrients, and its sustainability depends on their availability. The way in which land is used can have significant implications for urban water supply and tourism. Well managed, agriculture can conserve soil and water resources, preserve trees and biodiversity and contribute to the locking up of carbon. Poorly managed it can lead to environmental degradation and pollution, deplete natural resources and compromise biological and food safety.
19. Irrigated agriculture is a major user of water. Over 80 per cent of water resources in South Asia are now used in agriculture. But with urbanisation and industrialisation agriculture faces increasing competition: water availability is progressively constraining agriculture’s contribution to economic growth (see Box 3). Water use efficiency in irrigation is generally very low and there are major concerns regarding resource depletion. In many countries groundwater is being drawn down at an alarming rate -- encouraged by highly subsidised or free electricity. Improving efficiency of water use in agriculture requires sustainable operation and maintenance and development of more productive and water efficient farming practices. Exploitation of groundwater may lead to unforeseen problems, such as the current epidemic of arsenic poisoning from contaminated drinking water in Bangladesh.
Irrigation greatly increases productivity and has been associated with growth in local economies and with increased livelihood opportunities. In South Asia, for example, the expansion of irrigation was an important factor behind the rapid rise in agricultural growth. Water availability is a major constraint to agriculture, and is likely to be particularly acute in sub-Saharan Africa. Here only one per cent of the arable area is irrigated (Pinstrup-Andersen et al, 1997). Contrast this with South Asia, where approximately one third of cropland is irrigated and produces two thirds of the region’s crops by value (IFAD 2001).
20. Agricultural intensification is usually portrayed either as an opportunity or as a threat to the environment. This polarisation is too simple. Rather, intensification involves a series of trade-offs, which may have different effects20.
21. Badly managed agriculture has in some places led to serious environmental degradation and reduction in the quality of life. In irrigated rice increased use of pesticides has contaminated ground and surface-water, damaged inland fisheries and affected human health. A study of rice farmers in the Philippines found the health costs of pesticide use completely outweighed the benefits21. Conversely, appropriate agricultural management practices can help reduce the incidence of disease. For example, in southern China crop rotation and intermittent wet-dry irrigation interrupts the life cycle of the mosquito leading to a significant reduction in the incidence of malaria.
22. Intensification can certainly increase environmental stress, threatening agriculture’s long-term sustainability. But it may provide incentives to conserve natural resources. Farmers in Machakos, Kenya readily adopted soil conservation practices and reversed environmental degradation when market developments made agriculture profitable22. Environmental degradation is usually driven by poverty; environmental conservation is usually driven by the economic benefits that farmers perceive.
23. Potential trade-offs between economic, equity and environmental policy objectives can be avoided. Small-scale producers adopting diversified farming systems can usually be more environmentally friendly and productive than large-scale, intensive operations. More sustainable production systems can reduce the expansion of cultivation into environmentally sensitive areas such as high forest, wetland or marginal and fragile lands. Opportunities for tackling environmental stresses are most likely to occur where farmers have clear economic incentives for changing management practices.
How has agriculture performed?
24. Globally, agriculture has seen remarkable performance over the past half century23. The spectre of population growth outstripping agriculture’s ability to meet human needs has not materialised. Food prices have progressively declined in real terms24. However, this positive global picture masks major regional differences. Chronic hunger and grinding rural poverty persist. In large measure this can be explained by regional divergence in agricultural performance. Whilst for developing countries as a whole per capita agricultural production increased by about 40 per cent between 1980 and 2001, in sub-Saharan Africa it fell by about five per cent25. Growth of agricultural output and employment has slowed sharply between 1970s and the late 1990s in Asia and Africa but often, especially for the poor, without much expansion in alternative livelihood options.
25. The implications of agricultural stagnation in Africa are serious and diverse. Africa is the only continent where the number of hungry people has increased and is projected to increase further. Investment overall has stagnated26.
26. Poor performance has also led to disenchantment amongst development agencies about the ability of agriculture to contribute to development and poverty eradication. With the exception of the major successes in Asia27, much public investment in agriculture has yielded indifferent results. The proportion of ODA directed towards agriculture and rural development has fallen by almost two thirds between 1988 and 1998.
27. Understanding the reasons for past disappointment is critical if adverse trends are to be reversed, particularly in Africa where the need is greatest and the challenges most difficult. While conflict and natural factors such as drought have undoubtedly played a part, a legacy of poor national policies, combined with the impact of rich country agricultural and trade policies, have also been highly influential.
Reversing the trend -- what have we learned?
28. Development is an evolutionary, not a linear process. The past few decades have seen some trends accelerate e.g. globalisation and technological change, whilst others e.g. the policy and institutional environment in many developing and developed countries, have not kept pace with these changes. The experiences of a few decades ago may no longer be relevant. We must learn from and be able to respond to changing circumstances.
29. From what we have learned and continue to learn it is possible to reach several important conclusions. Agriculture’s contribution to economic growth and poverty reduction is greatest in low-income countries where it is an important activity for poor people, and can provide an initial route out of mass poverty. This is still the case in many parts of sub-Saharan Africa and South Asia. However local, regional and global consumer demands are changing the landscape for agricultural producers.
30. Global trends favour large-scale agriculture28. However, in many countries small and medium-scale enterprises remain more productive than larger farmers and small farms continue to predominate29. Experience has shown that smaller farms can compete and they must be given every opportunity to do so (see Box 4). Only by doing this will agriculture’s full potential for growth and poverty reduction be realised. It is where we must focus our attention.
31. Agriculture is predominantly a private sector activity and like all economic activities subject to external influences. It is, however, subject to a particularly wide range of distortions and influences that have limited its potential contribution to poverty reduction. It is also a sector demonstrating strong institutional linkages from the local to the national and the international level. It has multiple connections to economic growth, environment, equity and poverty. Improving agricultural performance, therefore, needs consistency and coherence of policy and action. The institutional linkages of the sector mean that action to address shortcomings will be required at local, national and international levels.
The long-term scenario painted by the OECD’s West Africa Long Term Perspective Study report (1998) predicts major changes to the agricultural sector over the next 20 years. Overall, it is viewed likely that a small number of larger, commercial farm operators will emerge, able to invest in new technology, sell into world markets and compete with imports from elsewhere. In drier, lower potential areas, patterns of farming and levels of productivity will change less markedly, with increasing diversification into a range of off-farm sources of income, including migration.
The World Bank’s recent report -- African Poverty at the Millennium, confirms this view: "there must be real doubts about the long-term sustainability of smallholder agriculture in the face of globalisation and liberalisation. This has huge implications for the rural poor: Africa’s agricultural future is almost certainly bound up with accelerated commercialisation and development of larger farms, with greater use of modern know-how and lower unit costs" (World Bank, 2001)
However, everyone does not accept such a vision as inevitable. Past experience has shown the enormous dynamism and flexibility of the west African smallholder. The ‘traditional’ small farmer has been remarkably adaptable and able to exploit new economic opportunities, despite the threats caused by dumping of cheap rice and frozen beef, which have disrupted their markets. The challenge is to find ways of ensuring smallholders face a more level playing field when it comes to accessing markets, inputs, advice, credit and so on.
Source: Ndiogou Fall, IIED Drylands and Sahel programme.
Focusing on demand
32. Previous approaches to agricultural development have focused on increasing agricultural production with little consideration of markets and consumer demand. Experience has shown that productivity increases and investment in value-adding enterprises only take place when driven by market forces. Small-scale producers are strongly market orientated (see Box 5); the challenge is to strengthen their capacity to seize new market opportunities for products for which they have a particular competitive advantage, such as labour-intensive horticultural and livestock goods30.
Poorer households in Embu District, Kenya, cannot meet food needs because of their small land holdings. Instead, they tend to specialise in the production of high value commodities that they trade for staple foods produced more cheaply elsewhere. A livelihoods study found that:
Source: Thorne and Tanner, 2001
33. But there is another aspect to demand. Whilst the performance of mainstream agricultural programmes has often been disappointing, there are many examples of good practice as to how to support policy processes; how to build capacity; how to deliver relevant and effective services; how to improve access to finance and markets; and how to make agricultural research relevant to poor people (see Box 6). Through these examples we have learned that we must give much more attention to strengthening people’s ability to demand and have influence over services, as well as strategies that strengthen the supply of services.
Two recent examples of international agricultural research programmes to which DFID contributes are:
Source: CIP Annual Report 2000; DFID ‘Impact Assessments’, 2001
The policy framework in developing countries
34. Agriculture can become a powerful engine for growth and poverty reduction in many low-income countries. The key challenge is to create an environment that enables poor people, particularly those working in small and medium sized farm enterprises, to respond to opportunities presented by growing markets, not least international markets through globalisation.
35. Experience shows that the creation of an appropriate enabling environment to encourage private investment and the provision of services that support agriculture will require the removal of policy and institutional distortions through:
36. Delivering against this agenda requires an understanding of the social, political, institutional, economic and environmental factors that shape the livelihoods of poor people highly dependent on agriculture. These factors often combine to impede the realisation of better livelihoods. Too often there is discrimination in law, regulation and custom that excludes the poorest, especially women, from financial services, from land, from membership organisations that increase market bargaining power and from technical information.
The policy framework at international level
37. The "rules of the game" for international trade in agricultural produce remain largely inimical to the interests of developing countries. The stark reality is that in 2001 the EC spent more than six times as much supporting EU agriculture and fisheries as on development assistance (€40.1 billion on agricultural support and €6.3 billion on development assistance)33. This, along with tariff and other non-tariff barriers, clearly limits opportunity in developing countries34.
38. Agricultural subsidies in rich countries reduce production costs or artificially raise the price their producers receive and lead to overproduction or over-exploitation35. The use of export subsidies or refunds to finance disposal of agricultural surpluses on international markets further depresses world prices. Whilst this may benefit some consumers the overall distortion of domestic markets impacts negatively on poverty and food security in many poor countries (see Box 7). Reducing subsidies is very important and some developed countries are now making proposals for reforming their agriculture support36.
39. The impact of trade barriers is enormous. It has been estimated that developing country gains from global liberalisation would be in the order of $50-60 billion annually37. Tariffs imposed by high-income countries on many agricultural goods from developing countries -- especially meat, sugar and dairy products -- are almost five times those on manufactured goods38. High, complex tariffs together with increasingly stringent formal and informal product and performance standards limit poor countries’ access to international markets39. They discourage diversification into higher value products and retard the emergence of domestic agro-processing industries. The weak surveillance capacity of poor countries renders them vulnerable to unfair or illegal trade practices such as exceeding agreed fishing quotas.
"Just about all processed food ingredients used in Kenya are imported. This is because one can get quality goods for a lower price by importing subsidised products in bulk. There is no market for local people. They cannot compete with international subsidies. It’s the subsidies that are keeping them poor".
"Here in Indonesia US companies are dumping chicken legs onto local markets, causing lots of damage to an already beleaguered poultry industry, and damaging small producers as well. Students are protesting. Export is hindered by rules which they cannot comply with, but there seems to be no means of stopping subsidised imports".
Source: Comments on the Agriculture Consultation Draft, DFID 2002.
40. Price volatility and long run price decline are characteristics of many tropical primary agricultural commodity markets40. Depressed cocoa prices have been a recent problem for West African countries although the situation has recently improved. The present crisis in coffee, and the hardship this has brought upon poor producers, has captured international attention. The main cause of low commodity prices is oversupply. There are no demonstrably effective mechanisms to manage supply. But it is a concern that so little added value in marketing chains is captured by poor producers and poor countries.
41. According to the World Bank, global public goods have represented a growing proportion of investment by the international community, accounting for about US$2 billion annually by the late 1990s. Funding for health, the environment and peace have grown significantly while that for knowledge generation and dissemination, including agriculture, have stagnated. The CGIAR budget in 2000 was US$331 million. Demands for funding of global public goods are set to rise41 and we must ensure that levels of funding for agricultural global public goods are appropriate and used with maximum effect for the benefit of poor people. This may mean reforming the way in which we do research. Part of the answer will be to find ways of encouraging greater private investment in research. Private funding dwarfs public investment but is directed mainly at the needs of the OECD countries42. There are, however, signs of increased private investment in agricultural technology in countries such as China, India, Malaysia and Thailand.
What are the challenges?
42. The crucial challenge we face is to ensure that agricultural growth takes place and small-scale farmers, entrepreneurs and workers on low incomes participate fully in it. This will require improvements in governance and markets and increases in productivity at the farm level. Opportunities are often restricted by insecure or limited access to land, a lack of voice and vulnerability. A specific challenge is to incorporate the lessons of good practice learnt at micro-level into mainstream policy and action.
43. There are no explicit contradictions between the roles of agriculture in promoting broad economic growth, improving the agriculture-dependent livelihoods of poor people and as a provider of environmental services. However, addressing priorities may involve hard choices for governments.
44. Equitable access to assets: The perspective of poor people is that income poverty is closely related to asset poverty: the poor are those with few assets (human, social, physical, financial and natural). They benefit from growth whenever it raises the returns to the few assets they hold. The distribution of land and the policy and legal processes by which poor people, especially women, gain access to and maintain security over land are vital43. The same can be said for other common property resources such as water, forests and rangelands. Too often the rights and entitlements of poor people have been eroded. Ensuring they can benefit fully from growth in the sector will require effective mechanisms for the transparent allocation of rights to land and other natural resources.
45. Strengthening the voice of the poor: Living in poverty means not being listened to and being unable to influence policies, express demand on public services or pay for privately delivered services. Past attempts to tackle rural poverty have concentrated on improving the supply of services, with large sums and much effort being invested in rural public services. In some cases this has been accompanied by significant organisational change. Services are better delivered than they once were. But focusing on supply is not enough. Lack of effective demand continues to undermine the efficiency, effectiveness and relevance of public services. A number of countries are starting seriously to tackle this, for example Uganda under its Programme for the Modernisation of Agriculture, which has created a ‘market’ for public services by giving communities the financial resources to purchase the services they want from the suppliers they prefer. More ideas are needed as to how to involve poor people in policy making and determining what sort of services they get. In several countries the performance of farmers’ organisations gives cause for optimism.
46. Making trade work for the poor: Poor agricultural producers and workers are strongly dependent on domestic markets for their livelihoods. This is where demand for agricultural products is greatest. Local trade opportunities are strongly affected by weak infrastructure, absence of processing, storage and marketing facilities, perverse transport and market taxes44 and distortions created through the importation of artificially cheap agricultural products from OECD countries. Although liberalisation and deregulation have removed some of the internal impediments to trade, considerable challenges remain in removing unfair competition posed by OECD imports, and in improving the access of small-scale producers to processing and marketing chains (see Box 8). Agricultural products also account for a significant part of many developing countries’ trade, both imports (especially food) and exports. Compared to other sectors international agricultural trade remains heavily distorted and the effects of radical reforms are likely to be far reaching. Whilst opening up trade offers many opportunities, other trends, such as ever increasing standards applied in market chains, risk making life more difficult for small producers in future45. International commodity markets pose a particular challenge and there are no quick or easy fixes.
47. Reducing risk: Agriculture is subject to risks that are often unpredictable and outside the control of people practising it. Examples of such risk include weather, commodity price fluctuations, changes in consumer demand, and the occurrence of new pests and diseases. High levels of risk contribute to the vulnerability of poor people (see Box 9). Much behaviour by both small-scale enterprises and households can be understood as responses to living in a high-risk environment. Strategies that diversify livelihoods and improve access to new technologies46, financial services such as crop insurance and advisory and animal health services can help poor people manage risk. Recent advances in drought early warning systems can also enable government and farmers to manage risk.
High transportation costs are a particular barrier to trade: for one third of all African countries transportation costs account for more than 25 per cent of the total value of exports; for Uganda they exceed 70 per cent (von Braun et al, 2002). Reducing transportation costs through improved infrastructure and reduced movement controls can make a difference to farm-gate prices several times the magnitude of that achieved by, for example, trade liberalisation (Byerlee & Morris, 1993).
Other factors that reduce the effectiveness of markets include:
Arrangements that can overcome some of these barriers include the establishment of:
There are areas where farmers are isolated from markets, where the non-farm economy is not well developed, where risks are high and where subsistence agriculture remains the key livelihood. Here there may be scope to use support to agriculture (primarily through helping to manage risk through, for example, the development of pest/disease resistant crop varieties) as a means of providing a safety net. In such areas investment in agricultural development may be more cost effective in poverty reduction than large-scale expenditure on formal safety nets, even where the challenges to agricultural development are great.
48. Promoting private investment in agriculture: In spite of agriculture’s good global performance countries whose economies are more agriculturally based have lost global market share and have seen their agricultural trade balances deteriorate. Whilst agricultural trade has expanded, real international commodity prices have fallen. The situation is most acute in sub-Saharan Africa. Compared to other regions, productivity, profitability and investment are stagnant. Private investment is essential for the processing and marketing of agricultural products, the supply of agricultural inputs and the provision of services. Improving the environment for private investment is of critical importance, requiring a combination of regulatory reform, new institutional arrangements to overcome market failures, the promotion of pro-poor investments and complementary physical investments.
49. Agriculture is dependent for its growth on public goods to complement the efforts of the private sector. Public expenditure on merit ‘private’ goods such as education, health care and advisory services (including business advisory services) are also essential. Getting a better understanding of what are the most effective elements of public spending is important. Policy reform, institution building and expenditure on infrastructure are all important to growth of smallholder agriculture. However, with tightly constrained public sector resources, priorities must be set and effectiveness maximised by rethinking the way in which services are delivered47.
50. Improving productivity: Small-scale agriculture is labour intensive, a resource that is becoming increasingly scarce in many places, exacerbated in some areas by the HIV/AIDS pandemic. Productivity increases are needed to allow farmers to respond to new opportunities and market demand. Levels of productivity are low and there are huge opportunities for improving it through application of technology that allows small farmers to take maximum advantage of their particular asset endowments. Small scale producers have, for example, been able to increase yields by 93 per cent through the adoption of improved management practices48. But maintaining and increasing productivity in the medium term, particularly in the face of wider trends, will require investment in knowledge and technology systems now. It will require a re-orientation of international, national and local research and development activities around the needs of small-scale producers. It will require a greater emphasis on niche products that small producers have a particular advantage in supplying, on output marketing systems and sustainable agriculture, including soil fertility and more efficient water use and management (see Box 10).
In sub-Saharan Africa the success of agricultural growth strategies will depend critically on measures to maintain soil fertility and prevent land degradation. The Green Revolution in Asia, based on plant breeding for a single crop (rice) for an irrigated ecosystem, cannot be replicated in Africa, where food staples are more diverse and dryland ecosystems less productive. Consequently, Africa’s Green Revolution has failed to materialise. Re-capitalising Africa’s soils will require innovative use of organic matter technologies to substitute for expensive inorganic nitrogen. Low external-input agriculture based solely on organic nitrogen may only be feasible for high-value horticulture. Improving nitrogen supply through a mix of organic and inorganic sources seems the most appropriate strategy.
Scoones and Toulmin, 1999
51. Sustainability: Agricultural practices are closely linked to the environment. Systems that allow intensification using mainly locally available resources (‘sustainable agriculture’) play an important role in poverty reduction. But policies have often favoured systems that make greater use of external inputs such as chemicals, artificial fertilizers and mechanisation. Sustainability must be seen in its widest context. It is not just a matter of the ecology of agricultural systems themselves but the impact these systems have on the lives and opportunities of others, particularly poor consumers and producers. Sustainability of one system cannot be at the expense of sustainability in others. For example measures to promote environmentally sustainable agriculture in developed countries may still have the potential to impact negatively on opportunities for poor producers in developing countries. All countries need to promote policy measures that will enable farmers to make use of their natural advantages. The use of market-based instruments, such as organic labelling, should also be promoted.
52. Longer-term influences: While human population increases against a relatively static land area (and already largely exploited marine resources), a number of other trends are important. Environmental change (including climate change), urbanisation and HIV/AIDS, will affect future productive capacity:
While new technology and management practices can significantly reduce these risks, these trends pose significant long-term challenges that must be addressed in a holistic manner at national, regional and global levels.
A role for donors and the international community
53. Agriculture’s institutional landscape offers key points of engagement for governments and the international community.
At national level in developing countries
54. The priority for agricultural development is to create a policy and institutional environment that empowers poor people to derive a better livelihood from agriculture. This is likely to include the reform of policies, institutions and laws to improve the realisation of poor people’s rights to land, markets and services. It means creating a climate that encourages private sector investment in agriculture and agricultural services. This includes technology, knowledge and skills development. It may require revitalisation of a whole range of services from standard setting to information such as weather forecasting. It may also require a reconfiguration of existing public institutions to accommodate a different role for government. This needs real political commitment -- there are some hard decisions -- and many countries remain ambivalent about the tougher aspects of civil service reform, decentralisation49 and increasing the influence of poor people on how resources are used.
55. Many stakeholders, including major private sector players, have an interest in agriculture. Few areas of policy are uncontested. Donors can play an important role by supporting national and regional policy processes, and helping build capacity to explore and pilot new approaches involving government, civil society and the private sector. This should include strengthening national capacity, including that of civil society, to engage in international agendas such as agricultural trade, intellectual property rights and bio-safety regimes.
56. Many donors, including DFID, are increasingly transferring ODA in ways that have the best effect on outputs as measured by progress towards the MDGs. This requires close engagement with recipient countries, usually based on a Poverty Reduction Strategy -- or equivalent statement of commitment -- backed by a sound medium term expenditure framework and improved public sector financial management. An expanding proportion of financial aid is therefore being disbursed through national budgets, thereby helping build the capacity and accountability of local systems, increasingly in the form of direct budget support.
57. Compared to health, education, water or transport, agriculture is not one of the big ‘public spenders’: it typically accounts for 5-10 per cent of discretionary public spending. In many cases this is still tied to outmoded and ineffective service delivery structures50 that do not respond to farmers’ requirements. Convincing arguments can be made for public investment in infrastructure services to improve productivity and market access; and in research and knowledge transfer to assure the next generation of technology, but such investment needs to be accompanied by new approaches to the delivery of publicly financed services51. Agricultural development may require less not more state sectoral involvement. Public funding, including donor resource transfers, is important, but it must stimulate and complement rather than displace private sector activity and be consistent with countries’ macroeconomic and fiscal policies.
58. Social capital building is important for more effective management of natural resources. Of equal, if not greater, importance is the need to strengthen civil society so that the poor or their representatives can play a more active role in policy and institutional reform processes at national and local levels and engage on more equal terms with service providers and marketing chains. Focusing on strengthening the rights and voice of poor people requires influence at a political level and engagement in broader issues of governance.
At international level
59. We need to engage in international negotiating processes such as WTO (see Box 11) and with international norm setting organisations such as the FAO to ensure a poverty perspective is taken. Strengthening developing country capacity to negotiate effectively within international fora is also an important part of our work, and an area where we see a strong role for the UN organisations. We will also continue to champion the Doha commitments within the EU and with others.
Addressing the external dimensions of developed countries’ agricultural and trade policies is fundamental to economic development and poverty eradication in the developing world. This is recognised in the Doha Ministerial Declaration, which reconfirms the long-term objective agreed in the WTO Agreement to establish a fair and market oriented system through a programme of fundamental reforms. This includes strengthened rules and specific commitments on government support and protection for agriculture with the aim of correcting and preventing restrictions and distortions in world agricultural markets. Without prejudicing the outcome, member governments committed themselves at Doha to comprehensive negotiations aimed at:
It was further agreed that negotiations -- which will end by 1 January 2005 -- should recognise the need for special and differential treatment for developing countries to enable them to take account of their development needs, including food security and rural development. Doha reconfirms the importance of agricultural trade liberalisation to the developing world and provides the framework for negotiations to take this forward.
60. Agricultural growth relies on the continual generation of new technology to maintain and improve production. As with major human health issues this is dependent on global public goods such as plant genetic research that require capital and human investment at international level52. International research takes time if its products and technologies are to be appropriate, safe and affordable. It may be especially costly where cutting edge science is employed. We are identifying new ways in which we can improve the focus and efficiency of our investments in research, through the establishment of public/private sector partnerships that bring together complementary skills, ideas and resources, and outcome-based funding arrangements that encourage the efficient delivery of appropriate technologies to poor people53.
61. The use of natural resources for agriculture is a potential cause of regional conflict. Three thousand of the world’s river basins are shared by two or more countries and more than 20 countries depend on the flow of water from other nations. Water -- much of it for agriculture -- is an important dimension of the ongoing Middle East conflict and there are fears of further serious disputes between Iraq, Turkey and Syria. Major programmes of irrigation development may add to regional tensions. The development of water sharing agreements has the potential for very significant contribution to peace and economic development.
At developed country level
62. Many of the global distortions in agriculture emanate from domestic policy in developed countries. Stronger action is needed to ensure that agricultural and trade policy, formal and informal, is consistent with development objectives and supportive of pro-poor outcomes. This must be taken up and prioritised in post-Doha discussions aimed at reforming OECD domestic support and export subsidies arrangements.
How can DFID help reduce poverty through agriculture?
63. Many of the conditions required for agricultural development are not unique to agriculture. Poverty reduction through agriculture requires a supportive macro-economic and investment environment; improved access by poor people to infrastructure, education, health and financial services; secure property rights; and fair and transparent systems of governance. These are areas where DFID is already engaged.
64. But to maximise benefit to poor people additional actions are required to allow agriculture to play its part. These include:
At regional and country programme level
At central programme level
After the Summits
65. Agriculture has been debated at a series of events and fora this year: the WFS:fyl; the NEPAD process; the WSSD; and other regional technical events.
66. Experience has taught us a great deal about how agriculture can best help to eradicate poverty through contributing to the MDGs. This year’s international conferences offer an important opportunity to take this forward. But there are still questions as to whether, in a market-led environment, the various threads ‘hang together’ sufficiently to deliver maximum benefit in terms of greater realisation of rights of the poor, improved livelihoods, sustainable development and poverty reduction. These issues may be harder to deal with where they appear to challenge conventional wisdom about market failure, the role of the state and the role of agriculture in livelihood security.
67. Questions that need addressing include:
68. We will encourage thinking, research and debate on these and related issues. This will require more than policy research by central departments or the international community. Development of new ideas needs to happen on the ground and be supported by regional and international lesson learning. For example countries may wish to experiment with, pilot and eventually replicate at scale new initiatives on service delivery; on information and technology; on marketing; on private sector development that links small, medium and larger businesses; on tackling vulnerability; on addressing sustainability; and increasing poor people’s voice. Such support would complement resource transfer that increasingly is being channelled through national systems.
69. DFID therefore proposes to work with its partners, under the leadership of governments committed to poverty reduction to tackle the issues raised in this paper. We do not intend to ‘pick’ countries from the centre. They will emerge from ongoing dialogue at country level between governments, DFID and other donor partners. Countries where we are already engaged in agricultural and rural reform processes include Bangladesh, Cambodia, Ghana, India, Kenya, Malawi, Mozambique, Nepal, Nigeria, South Africa, Tanzania and Uganda.
70. Progress will depend on coordinated action by a wide range of stakeholders. Some bold testing of ideas will be necessary. Country-level work will need to be backed by regional and international level action. Owing to the strength of its country and international relationships, DFID is well equipped to help develop this process.
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1 | Forty per cent of people in developing countries live in cities today. By 2020 this will have risen to 52 per cent, mostly in Asia and Africa (Cities in a Globalising World, UN Habitat 2001). Rural areas will contain over half the world’s dollar-poor until the year 2035.
2 | Other linked areas include forestry, fisheries and wildlife; these bring in a wider set of issues not dealt with in detail here.
3 | World Development Report 2000; World Bank, Washington DC.
4 | Dev, S. Mahendra, 1998. Regional disparities in agricultural labor productivity and rural poverty. Indian Economic Review 23(2): 167-205.
5 | See Irz, X., et al 2001. De Janvry & Sadoulet (2002) have shown similar effects for Africa, Asia and Latin America. They estimate that a 10% improvement in total factor productivity would raise the incomes of the urban unskilled by 6.2%, the landless by 7.2% and small farmers by 5% in Asia.
6 | Hunger and food security are discussed fully in DFID’s paper on the subject Eliminating Hunger, published May 2002.
7 | World Bank suggests that broad progress on equitable agricultural trade could increase poor countries’ GDP by an extra $1.5 trillion by 2015 and lift an extra 320 million out of poverty (Economist - Feb 2-8, 2002, p75)
8 | See Human Development Report, 1997. UNDP: New York.
9 | See Thirtle et al, 2002. Correlative association does not imply causality. The relationship is, however, supported by a large body of empirical evidence.
10 | See Mellor, 2000.
11 | See Quan, J. 2000.
12 | See Lanjouw, Jean O. and Peter Lanjouw, 1995; van de Walle, 1993; Hazell and Haggblade, 1993; Adams, 1994, 1999; Reardon and Taylor 1996.
13 | See Rigg, J, 1997. Southeast Asia. Routledge. London.
14 | Many rural (and urban) poor people who do not own land are able to use common or public property, for example keeping dairy cows on roadsides, or goats around vegetable markets.
15 | See Renkow, 2002.
16 | In Burkina Faso and Ghana the statistical category food crop farmers represent both largest and poorest groups amongst the poor (Burkina Faso PRSP 2001; Ghana PRS 2002).
17 | See De Janvry & Sadoulet, 2002.
18 | See Singh, 1990.
19 | Research findings from Nigeria, Ethiopia, Tanzania, Congo-Brazzaville, Malawi, Zimbabwe and South Africa provide comparative data on changing economic and social patterns in a wide variety of rural contexts (see Bryceson D, 2000).
20 | See Moorehead and Woolmer, 2001.
21 | See Pingali et al, 1997.
22 | See Tiffen, Mortimore, and Gichuki, 1994.
23 | China has quadrupled the value of its output, overtaking the United States as the world’s largest producer. India has tripled the value of its output. There have also been specific success stories: Kenya, for example, earned US$100m from exports of flowers in 2000.
24 | It has been estimated that rice prices would be 40 per cent higher were it not for the increased production for which international research, in particular, was critical.
25 | The picture in Africa is not universally dismal -- there are examples of successful agricultural growth in some parts of Africa, much of which has been driven by access to attractive markets (See Wiggins S., 2000).
26 | Gross capital formation in agriculture in SSA fell from 21.9% of GDP in 1980 to 16.5% in 2000.
27 | These successes were due to a combination of area expansion; mechanisation; investment in irrigation; fertiliser; and high yielding varieties. There has been much debate over specific poverty impacts but it is indisputable that these developments have allowed countries to meet rising food demands.
28 | These is not because large-scale production is more efficient but because large-scale producers are usually able to acquire preferential access to knowledge and capital, and are better able to meet the costs of compliance with rising food safety standards.
29 | Around 50 per cent of the rural small farm population cultivates less than 0.15 hectares per capita in densely populated countries such as Rwanda and Ethiopia, and less than 0.3 hectares per capita in supposedly land abundant countries such as Zambia and Mozambique. See Jayne et al, 2001.
30 | Poor people are particularly well adapted to rear livestock that can be fed from common property resources. Demand for livestock products is predicted to double by 2020 as urban incomes rise.
31 | Providing privatisation policies promote competition, and do not simply replace a public monopoly with a private monopoly.
32 | The incidence of child labour is on average twice as high in rural as in urban areas and the vast majority of child workers are engaged in agricultural and related activities. See ILO 2002.
33 | See European Commission, 2002.
34 | The impact of trade reform on poverty is complex and is likely to create both winners and losers. Predictive models agree that on balance trade reforms will result in a net gain to developing countries (see Von Braun et al, 2002).
35 | According to Wilfrid Legg, "although there has been some shift away from policy measures most closely linked to production, 72 per cent of support to farmers (PSE) is (in OECD countries) still provided through policies that keep producer prices above those on the world market -- down from 82 per cent in the mid-1980s" (EuroChoices, Spring 2001, p. 31). According to an Economist report, the European Commission has reported that EU countries’ fishing fleets are subsidised to the tune of Euro1.1 billion ($1 billion) each year (The Economist. Too much vigour in Vigo. 30 March - 5 April 2002).
36 | For example, the EC’s Mid-Term Review of the Common Agricultural Policy of July 2002 outlines proposals including decoupling of payments for production, reducing the value of direct support to farmers and redirecting payments to environmental and rural development concerns. Whilst the value of payments will not be substantially reduced the nature of support proposed should make the regime less trade distorting.
37 | See von Braun, J., Wobst, P. and Grote, U. 2002.
38 | Agricultural tariffs and subsidies cause annual losses of $19.8 billion for developing countries - equivalent to about 40 per cent of oda in 1998. World Development Report, 2000.World Bank.
39 | For example, the setting of Maximum Residue Levels and Maximum aflatoxin levels in the EU in response to consumer concerns could have serious consequences for developing countries unless support is provided to producers to enable them to meet new certification requirements.
40 | The underlying annual decline in real price for the following commodities in the period 1950-2000 has been: cocoa (2.2%); rubber (3.4%); robusta coffee (2.5%) (See LMC, 2002).
41 | The report of the Commission on Macroeconomics and Health recommends spending $3 billion per year by 2007 on research and development for the diseases of the poor.
42 | The life sciences industry spends about $7 billion annually.
43 | See DFID 2002. Better livelihoods for poor people: The role of Land Policy. In preparation.
44 | In Africa transport from the coast to the interior accounts for half or more of the wharf price of internationally traded grains (Byerlee & Morris, 1993)
45 | As assurance schemes become more common there is a risk that many companies will find it easiest to exclude smallholders from the supply chain.
46 | Development of new technologies such as drought and disease tolerant crop varieties help to reduce risk. Integrated Pest Management for example has helped stabilise yield fluctuations caused by pests and diseases (Lenne, 2000).
47 | Publicly financed services do not have to be delivered by the public sector. The private sector can be used to deliver public services either on contract to government, or through government vouchers distributed to the clients of the services.
48 | Research funded by DFID with Essex University.
49 | Decentralisation is the basis for local self-government and has the potential to contribute to more efficient delivery of public services. Where it works it can increase representativeness and accountability and bridge the gap between the state and civic groups. See Matovu G., 2002.
50 | Agricultural extension systems in various countries are described as failing, moribund, in disarray or barely functioning. See FAO, 2001.
51 | Public services do not necessarily serve the poor well: the poorest farmers tend to receive the poorest service. New approaches to service delivery that empower poor people as consumers of services (through, for example, the use of vouchers or payment on delivery of results) can greatly improve the quality and impact of publicly financed services.
52 | International level research should complement national and regional level research by focusing on global research issues that require a level of funding and human resources that can only be provided on an international scale.
53 | Such arrangements need to be low cost, minimise risk and carry small trade offs.
54 | See OPM, 2002. This study commissioned by DFID suggests that developing countries have a case for concessions on grounds of S&DT, but indicates that proposals submitted to date are weak.
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