2

7. Antipoverty Policies, Rural Development, & Agricultural

Transformation

• What policies are most effective in reducing poverty and inequality in LDCs?

3

What policies are most effective reducing LDC poverty and

inequality?

• Capital & credit, including group lending for microenterprises (such as Grameen Bank of Bangladesh)

• Education, training, & human capital for poor

• Good-paying employment

• Health & nutritional programs

4

Policies to reduce poverty & inequality

• Population programs (smaller family size)

• Research & technology to expand food, increase wages & small farmer income

• Migration to urban areas

• Progressive taxes

• Transfers & subsidies to old, very young, ill, disabled, unemployed, low income

5

Policies to reduce poverty & inequality

• Emphasis on target group

• Workfare

• Adjustment programs with safety nets for poor, minorities, rural & working people, women, & children

6

Policies to reduce poverty & inequality (Ch. 7)

• Major approach – emphasize rural development & rural income distribution, including increasing productivity & income of rural poor

• LDC rural poor need increased access to productive resources & technology

• 3.3 b (63% of 5.3 billion) people & 500-700 million poor live in rural areas

• 70% of $1/day are rural poor• 20-25% of LDC rural are poor

7

Policies to increase rural income & reduce rural poverty

• Agrarian reform & land redistribution

• Secure property & use rights

• Improve farm implement; don’t use tractors & combines

• Government administered credit

• Research & technology dependent on available resources

8

Policies to improve rural income & reduce rural poverty

• Extension services

• Access to water & other inputs

• Transport

• Marketing & storage

• Price & exchange rate policies

9

10

Policies to improve rural income & reduce rural poverty

• Improving rural services

• Rural industry

11

Agriculture’s role in transforming economy

• Producing domestic & export surpluses

• Agriculture benefits industry through taxation, foreign exchange abundance, outflows of capital & labor, & falling farm prices

• Meiji Japan is example

12

Major rural groups in poverty

• Not uniform rural poverty• Small landholders (less than 3 hectares or 7 acres)

(52% of LDC rural poor IFAD; 24% landless households) (especially sub-Saharan Africa)

• Near landless• Agricultural laborers (especially Latin America)• Women 12% rural poor (overlap with others)• No more than 3 hectares cropland per agricultural

workers

13

Nonfarm rural income

• Incomes of farm households highly correlated with % of nonfarm income (urban wages, remittances, etc.)

14

Nonagriculture/agriculture income ratios

• 19th-c Europe 2:1

• Asia & Latin America: 4:1

• Sub-Saharan Africa: 8:1

15

TABLE 7-1. Agricultural Output per Agricultural Worker – World and Regions, 1964–66 to 2000–02(1979–81 world 100)

AGRICULTURAL OUTPUT PER AGRICULTURAL WORKER

gion 1964–66 1969–71 1974–76 1979–81 1984–86 1989–91 1991–93 1996–98 2000–02

velopedountries 568 756 965 1277 1590 1920 2075 2096 2288

th America 2152 2678 3041 3521 4200 4997 5486 6090 6410

stern Europe 325 437 550 717 919 1121 1583 1648 1714

eaniaeveloped 3009 3483 3563 3764 4322 4700 5078 5156 5167

an and Asiaeveloped 107 146 190 261 348 424 448 465 515

nsitionalconomies 177 239 289 321 420 513 507 420 463

stern Europe 191 230 308 392 498 563 529 461 509

mer Sovietnion 193 279 319 327 435 552 573 348 375

velopingountries 45 48 51 55 61 67 70 83 90

ica 53 56 56 53 54 59 59 77 85

in America 202 221 243 278 290 328 335 394 469

aeveloping 35 38 40 44 51 57 60 76 82

eaniaeveloping 76 81 85 95 102 106 106 112 122

rld 82 90 95 100 107 113 114 117 127

Note: The values of the world and regional aggregates of agricultural production are computed by using internationalcommodity prices, which assigns a single “price” to each commodity. The values obtained are expressed ininternational dollars (as explained in Chapter 2) at the 1979–81 average prices.

Sources: Naiken 1994; FAO 2003a; World Bank 2003f:38–57, 123–131.

16

Agricultural productivity in DCs & LDCs

• Growth in food productivity per capita: Table 7-1 (next slide)

• LDC agricultural productivity 1/25 of DCs’

• LDCs’ low levels of capital & technology

17

18

Evolution of LDC Agriculture

• Evolution commonly occurs in 3 stages: (1) peasant farming, mostly subsistence; (2) mixed farming; and (3) commercial farming.

• Peasants are rural cultivators running households whose main concern is survival.

• Commercial farmers runs a profit-oriented business enterprise.

19

Multinational Corporations (MNCs) & Contract Farming

• Contract farming has increased with globalization.

• Market concentration has increased in DCs & LDCs.

• Example: Philip Morris, Nestle, Sara Lee, P&G, & Tchibo 69% of world market shares in coffee roasting & processing.

20

Sub-Saharan Africa’s food deficits & insecurity

• Sub-Saharan Africa –0.4% p.a. change 1963-96

• Daily calorie consumption per capita, 1997-99 – Burundi, Congo DR, Ethiopia, Eritrea (< 1800); Angola, Mozambique, Tanzania, Kenya, Zambia, CAR, Madagascar (<2000); 18 countries (< 2200), roughly FAO’s daily requirement

21

Poor sub-Saharan African agricultural policies

• Roots precolonial & colonial (pp. 231-232)

• Predatory rule

• Poor resource endowment & land quality

• Increasing transport costs

• Little specialization & economies of scale

• Lack of competitive markets

22

Poor sub-Saharan African agricultural policies (cond)

• Absence of credit markets

• Short growing season for rainfed farming

• High risk of drought

• Endemic livestock diseases

• High malaria, TB, & AIDS incidence

• No Green Revolution

23

Food in India & China

• Which has better growth? (China since post-1979 reforms)

• Which has lower malnutrition? China• Which has a lower famine rate? India• Sen – entitlement: The set of alternative

commodity bundles that a person can command in a society using the totality of rights and opportunities that he or she possesses.

24

25

Agricultural growth & policies

• Food production is enough to feed everyone on earth adequately if distribution were more equal (American Association for the Advancement of Science or Abelson 1975).

• Table 7-2 indicates LDC food deficits (disaggregated by region) for 1997 & 2000.

26

TABLE 7-2. Cereals Consumption and Deficits, 1997 and 2020 (million metric tons and percentages)

19972020

Region/Country

Cereals Consumption (m.m.t)

Cereals Deficit (Cereals Consumption Minus Production) (m.m.t)

Cereals Deficit / Cereals Consumption (%)

Cereals Consumption (m.m.t)

Cereals Deficit (Cereals Consumption Minus Production) (m.m.t)

Cereals Deficit / Cereals Consumption (%)

Developed Countries 725 (104) (14.3) 822 (202) (24.6)

United States 244 (94) (38.5) 305 (119) (39.0)

European Union 15 173 (31) (17.9) 183 (30) (16.4)

Former Soviet Union 131 7 5.3 136 (8) (5.9)

Other 177 14 7.9 198 (45) (22.7)

Developing Countries 1,118 104 9.3 1,674 202 12.1

Latin America 138 14 10.1 211 4 1.9

Sub-Saharan Africa 83 14 16.9 156 27 17.3

West Asia/North Africa 129 45 34.9 196 74 37.8

South Asia 238 3 1.3 353 22 6.2

Southeast & East Asia 530 28 5.3 758 75 9.9

World 1,843 0 0 2,496 0 0

Note: () indicates surplus.Source: Rosegrant, Paisner, Meijer, and Witcover. 2001:184.

27

Income elasticities of demand for food in LDCs

• Table 7-2 (next slide)

28

TABLE 7-3. Income Elasticities in Developing Countries for Selected Commoditiesa

ItemIncome elasticity

Rice 0.01–0.30

Wheat 0.04–0.98

Vegetables 0.10–0.92

Vegetable oils 0.50–1.81

Beverages 0.74

Cocoa 0.75

Fish 0.61–1.50

Shrimp 1.25

Pork 0.50–0.97

Beef 0.75–1.85

Eggs 0.80–1.20

Poultry 0.40–2.20

Milk 1.50–2.50

Fruit 1.22–2.50

Sugar 1.50–2.00

Manufactures 0.74–3.38

a/ The percentage increase in quantity demanded as a result of a 1-percent increase in income. Source: World Bank 1994f:39.

29

Urban bias

• Lipton: The most significant class conflicts are between rural and urban classes.

• Governments tend to allocate most of its resources to cities, an urban bias.

• Urban dwellers are more powerful, politically organized, and articulate.

30

Forms of urban bias

• 1. Increasing industrial prices relative to farm-good prices (Schiff & Valdes (1998) label this lowering of agriculture’s terms of trade “the plundering of agriculture in developing countries.”

• 2. Concentrating investment in industry.• 3. Tax incentives & subsidies to pioneering firms in industry but not

agriculture.• 4. Setting below-market prices for foreign currency, which reduces

domestic currency receipts from agricultural exports (the dominant exports of many low-income economies).

• Tariff & quota protection for industry, increasing prices for farmers’ inputs.

• Spending more for education, training, nutrition, medical care, and transport in urban areas than in rural areas.

In recent years, reforms have reduced urban biases in some LDCs.

31

Seasonal poverty & hunger

• Many LDC rural households are subject to a “poverty trap,” in which selling labor and obtaining credit at high interest rates to ensure survival through the pre-harvest hungry season result in less income and high interest payments in future years.

32

Vulnerability of rural poor

• Rural LDC people, who face poor infrastructure, inequitable policies, high disease rates, inadequate support systems, and market failure, are highly vulnerable.

• “One slip could send them deeper into poverty” (World Bank 2001f:138).

• For example, in rural Ethiopia, three-fourths of households suffered a harvest failure at least once over a 20-year period, contributing to significant fluctuations in farm income.

33

Agricultural biotechnology

• Biotechnology: “The application of biology to human use.” (Burke 1999).

• From 1996 to 2003, genetically modified crops increased 40-fold to 7 million farmers in 18 countries growing 69 million hectares (167 acres), about 18% of the world’s food-crop cultivation. Included are enhanced insect resistance, herbicide tolerance, virus resistant genes, and other quality improvements in crops.

• LDC needs are critical enough that many economists would rather err on the side of adopting technologies to expand food production.