Kit Nicholson Kigali, Rwanda, 4-5 December 2014

Budget EfficiencyAgriculture Sector Dialogue Phase III

Kit Nicholson

Kigali, Rwanda, 4-5 December 2014

Types of Efficiency

Technical

Efficiency

Outputs of programmes divided by the

resources used (ie cost effectiveness)

Allocative

Efficiency

Whether resources are used to support

activities giving the best returns (ie technical

efficiency, plus the value of benefits)

Internal

Efficiency

Consistency between the departments or

programmes of the agriculture budget

Budget Efficiencies 2

Techniques for Measuring Efficiency

Cost Effectiveness (ie unit costs)

Cost Benefit Analysis (ie IRR, BCR, NPV …)

Thematic Impact Assessments (eg RIA, PSIA, EIA,

CCIA, HIA…)

Multi-Criteria Analysis, to add non-quantitative

benefits, usually through participatory consultation –

especially useful in identifying and responding to risks

Applied differently for appraisal, monitoring and

evaluation


Technical Efficiency

Monitoring Spending & Activities

• Basic Starting point is that evidence is collected• Expenditure by activity collected and reported to programme

managers (often late and incomplete – eg Burkina Faso PROFIL)

• Long delays in implementation (eg BF micro-projects)

• Simple budget software can be useful, but data needs to be

entered to make the system work

• Budget monitoring needs to be used – there needs to be a

demand from the centre• If underspends, over-runs and unbudgeted expenses occur (eg

PROFIL) then management needs to respond

• Needs procedures, transparency, competence and commitment

• Does decentralisation make governance more difficult?


Technical EfficiencyIndicators of Cost Effectiveness

ExtensionNumber of new farmer adopters per extension worker

Area of land cultivated using new techniques per extension worker

ResearchCost per new varieties developed/adapted

Cost per farmer adopting new varieties

Livestock

Head of livestock vaccinated per veterinary worker

Number of farmers adopting breeding practices per veterinary worker

Volume of medication sold by private veterinary services

IrrigationCost per hectare of land irrigated

Proportion of irrigated land maintained

MarketsCost per farmer reached by market information systems

Cost per farmer reached by new traders

Rural

Finance

Overhead cost per farmer accessing rural financial services

Default rate

Rural

Roads

Cost per km of road constructed

Cost per km of road rehabilitated

Cost per km of road maintained


Technical EfficiencyExample of Research

• Research

• Long history of research data in CGIAR, including IFPRI, ISNAR, ISP (1984-2000) and ASTI (2000->)

• Diffusion of Improved Varieties in Africa (DIVA) measures researchers per million tons of product (eg

ET/KN/SA/SU are high, NG is low and cassava is low)

• DIVA also measures varietal release (eg about 0.4-1.0 varieties per year for most crops and countries

• Technical Centre for Agriculture and Rural Cooperation promoting systems innovation, with 39 indicators

• ASTI data on expenditure


Technical EfficiencyExample of Irrigation

• Inocencio, Kikuchi et al (2007) reviewed 314 projects in

Africa, Asian and Latin America to test the suggestion

that irrigation is less efficient in Africa. They found that

unit costs were not higher, but that failure rates were

higher, largely because of a lack of markets for high

value crops

• You (2008) looked at unit costs and found average

costs of between 500 to 6000 $/ha, depending on the

extent to which hydropower covered some costs and

the level of modern infrastructure required


Technical EfficiencyOverheads - Definitions

Clearly

overheads

Expenditure in ministry headquarters, including on

administration and management of all programmes

Expenditure in central project management units

Formulation of, and advocacy for, agricultural policy

Monitoring and evaluation

Grey area Sub-national management of extension and livestock services

Pure agricultural research

Capacity building for farm groups

Management of rural financial institutions

Clearly not

overheads

On farm extension advice and adaptive research

Support for input supply, either subsidised or not

Veterinary services provided directly to farmers, subsidised or

not

Loans and savings services to farmers

Subsidised purchasing of products


Technical EfficiencyOverheads - Examples

• Not easy to find examples

• MoA ministers office, human resources, admin, budget, planning

departments typically 5% - 10% of total MoA budget

• Protracted Relief Programme in Zimbabwe - 34% on overheads

(defined as central/district management + advocacy and M&E)

• Chars Livelihoods Programme in Bangladesh – 20% on overheads

• EU LEADER rural development – 45% on overheads

• Google of WB/AfDB project documents suggest project

management usually 5% to 15%, but this is only central project

management. Depends partly on size.


Overheads - Examples ofProject Central Management Costs

Burkina Faso PROFIL


Allocative Efficiency

Allocative EfficiencyExtension& Research: Factors

• Cost effectiveness (eg cost per extension worker, #

contacts per extension worker …)

• Attractiveness of new techniques• Affects dissemination and drop-out rates

• Private sector engagement

• Benefits: per farmer x # farmers = aggregate benefits

• Complexity of new techniques• Need for collaboration (eg common goods like IPM, water

use …)

• Institutional capacity required

• Regulatory uncertainty affecting techniques (eg expectations

for state responsibility for seeds, rural credit, irrigation

maintenance …)


Allocative EfficiencyExtension & Research: Returns

• Alston, Marra et al (1998) reviewed 294 evaluations. IRRs of 88% for research, 79% for extension and 45% for both combined (perhaps because each separately claims all benefits, without recognising the need for the other). No difference between developed and developing countries

• Evenson (1994) reviewed 57 evaluations. 25 had IRRs >50%, 4 had IRRs 25%-50%, 4 had IRRs 5%-25%. Developing countries (7 in Africa) did as well as developed.

• Evaluations of Conservation Agriculture (including extension and farmer investment) show BCRs of 1.5 to 2.2, with yields increasing by 20% to 120%.

• CGIAR review of research evaluations selected 15 evaluations, 3 of which in Africa and 6 global. BCRs varied from 1.9 with very conservative assumptions to over 9 with big successes.


Livestock: Factors

• Availability and usefulness of local traditions and extent to which these need to be adjusted

• Responsibilities within households (eg difference between cattle and small ruminants …)

• Institutional rights over grazing

• Vulnerability to climate variability

• Balance between objectives of savings/protection and incomes

• Markets for products


Livestock: Returns

• An evaluation of the pan African Rinderpest Campaign

(Tambi, Maina et al 2006) suggested it gave a BCR of

1.8

• An evaluation of bovine pleuropneumonia programme

in 12 SSA countries gave BCRs ranging from 1.6

(Ghana) to 2.6 (Kenya).

• An evaluation of the Protracted Relief Programme in

Zimbabwe (IODParc 2013) found that local support for

livestock health/breeding gave a BCR of 2.7 to 5.6,

depending on how long benefits are sustained


Irrigation: Factors

• Underlying profitability of irrigation• Highly specific to site (and groundwater potential)

• Often marginal for staple crops if full costs need to be covered

• High profits from horticulture, but often depend on volatile markets

• Water supply• Relative importance of wet season protection .v. dry season crop -

depends on climate change and rainfall variability/seasonality

• Reliability of water supply in dry years, when it is needed most

• Upstream-downstream problems

• Potential importance of water use efficiency, but expensive

• Difficulty of changing traditions• Especially if government has historically covered all maintenance

• Difficult to introduce water charges, if water has been free

• Bigger schemes: water sharing, hydropower, environment


Irrigation: Returns

• Malawi Smallholder Irrigation and Value Addition Project (funded by GAFSP) had an IRR of 58% at appraisal.

• A review of 149 irrigation projects in SSA concluded that 70% would be profitable (You 2008). The key factor is the access to market for high value crops.

• Large rehab BCRs 2.0 (CM/SU/ET) to 5.0 (CI/TZ/NG)• Large new schemes BCRS <2.0, except RW/SU/TZ/CI/NR• Small schemes BCRs 1.0-2.0, except SA/NR/NM

• Global review of WB (Rice 1997 Asia) gave IRRs of 26-35% at appraisal, 8-12% at PCR and 3.6-7% at evaluation (but 6% of the loss was from price)

• 208 WB Irrigation Schemes worldwide (Jones 1995) found 67% satisfactory – appraisal IRR 29% evaluation IRR 25%


Market Promotion: Factors

• Quality of market information (MZ, ZA and ET)• Data reliability

• Credibility amongst recipients (reliability and independence)

• Accessibility

• Timeliness

• Risks to emergence of vertical linkages, which can be

positive or exploitative

• Often under-financed (eg Tanzania ASDP)

• New technology options, but can ‘dazzle’?


Market Promotion: Returns

• Review of 4 case studies in MZ, ZA and ET (Kizito

2011) found that farmers with market information were

34% more likely to sell products and got prices that

were 12% higher. This led to BCRs for the project of

6.0.

• Esoko operates in 16 African countries and evaluations

of their work suggest farmers get prices that are 10%

higher.


Subsidies: Factors

• Efficiency/timeliness of management (eg late vouchers …)

• Relative importance of social objectives• Value of benefits to vulnerable farmers .v. other farmers

• Risks of leakage to commercial farming

• Institutional supervision of targeting and costs of enforcing

targeting

• Risks of promoting uneconomic use of inputs• Eg focus on staple crops (Tanzania ASDP)

• Eg extensive farming often more efficient if land is available

• Eg environmental costs of excessive fertiliser use

• Implications of market price behaviour• Vulnerability to volatile local and world prices

• Existence and cultural acceptance of substitutes to reduce volatility

• Possible risks of preventing private sector emergence

• Fiscal sustainability and costs of inconsistency/uncertainty


Subsidies: Returns

• Very controversial and studies do not reach firm conclusions• Some focus on targeting and benefit incidence

• But it is the long term production response that is more useful

• Baltzer and Hansen (2012) looked at input subsidies in MW,

ZA, TZ and GH.• In MW, there was some evidence that benefits were higher than

costs.

• In ZA, extra production cost 325 $/t, compared with import parity

prices of 295-406 $/t, so likely to be positive.

• They found no clear evidence of impact on production in TZ and

GH.

• Based on 1 year returns, not taking into account change in

behaviour. Also, could have had some targeted benefits for poor

farmers (though targeting is costly)


Rural Roads: Factors

• Density of demand for use, including both agricultural

and wider usage

• Existence of vehicle fleets to use roads

• Vulnerability to damage (esp flood risk)

• Availability of material for construction options (eg

laterite)

• Responsibilities for financing maintenance and risk that

communities ‘play chicken’ with government


Rural Roads: Returns

• Long tradition of using CBA for road evaluation, but

rarely used in practice

• Stifel, Minten et al (2012) found IRRs of 12% to 34% for

rural roads in Ethiopia

• ILO has done evaluations of benefits of labour intensive

roads, but this is mostly on cost effectiveness

• More recent trends interested in multi-criteria

assessments


Wider Benefits

• Use of more varied Impact Assessment (IA) techniques• Regulatory IA refers to any IA that is regulated

• Povery and Social IA was used to try to strengthen the evidence

base behind PRSP policies. The approach was quite quantitative.

• Environmental IA is widely used to identify environmental impact.

Sometimes this includes valuation, but it is more often linked to

regulatory requirements (eg endangered species, water quality …)

• Climate Change IA is just starting

• MCA, participatory techniques and beneficiary impact

assessment

• Useful for identifying problems and improving designs, but

difficult for allocative efficiency

• Evaluations suggest the need to use a variety of methods

and triangulate


Internal Efficiency

Internal Efficiency

• Differences in allocations to departments should reflect needs

• But assessment of needs can be subjective and needs to be based on consultation (eg Tanzania ASDP needs assessment suggests higher priorities for markets and post-harvest)

• Differences in definitions of department roles between countries

• Agricultural Sector Plans should define needs and show how to shift resources

• How long does it take to change allocations between departments?

• Some sector development plans allows districts autonomy to identify local priorities (eg Tanzania ASDP 75% local)

• Focusing on poorer areas often reduces returns


Differences in Allocations


IRDPs as a Way of Achieving Balance (ie Internal Efficiency)

• Based on the philosophy that you have to make

progress on all fronts, but an evaluation of 6 IRDPs in

Africa (Morris, Spens et al 2003) showed results were

below expectations because:

• Poor macroeconomic conditions

• Skills development took longer than 3 to 5 years

• Over-optimism about level of improvements

• Inadequate attention to farm labour constraints

• Unrealistic assumptions on sustainability of extension

• Over-complex projects

• Livelihood programmes – are they reinventing IRDPs?


Using Efficiency in Budgeting

Examples of How Efficiency is Used in the Budget

• Project/Policy Design and Appraisal• More to optimise design that accept/reject• IRRs having to be more than 10%, especially common with donors, but also in

some budget systems (not often done, except big projects)

• Monitoring, Evaluation and Management• Can be very quantitative• Comparing actual with appraisal/targets and linking to risks• Monitoring to pick up lessons to improve management • Evaluation to pick up lessons to improve future design

• Budget Negotiation• Building confidence/reputation (MoA, MoF, donors) in management ability• Culture of competition between departments can be healthy• Targets in Output Based Budgeting, but not often linked with efficiency

• Strategies and Advocacy• Should be more widespread, but not often included• Should be basis for Budget Circular (incl. CBA, PSIA, BIA,EIA, CCIA) • Can be linked to estimating national impact and so to advocacy


Using Efficiency in National and SectoralStrategies for Budget Influence

• A ‘hardline’ MTBF/OBB view of the world requires all analysis of fiscal implications of policy to take place within the budget process.

• So strategies just give general statements of objectives/aspirations and budget submissions are checked to see which strategic targets they hit.

• But …• This doesn’t work well for cross-cutting, secondary and long term

policy objectives, like environment, social inclusion and climate change• Strategies end up being all-encompassing, with no prioritisation

• So, policies should consider fiscal implications of strategies, within realistic scenarios for ceilings

• They should also look at aggregate benefits from sector policy, based on the efficiency of proposed expenditure


Top 5 Dialogue Points

1. If efficiency is mostly useful for policy/programme managers, how do we make sure it is taken into account in budget negotiations?

2. What is the relative role of quantitative CBA-style analysis and can it be extended to PSIA, EIA, CCIA etc? Does it help with MoF?

3. Could stronger quantitative analysis help persuade donors to use budget support in agriculture? What quality control would be needed?

4. Are there way of providing more authoritative analysis of the efficiency of subsidies?

5. Is the level of overhead costs a useful indicators and can it be defined in a rigorous way?


Documents

Kit Nicholson Kigali, Rwanda, 4-5 December 2014