Impacts Of Agricultural Investments On Growth And Poverty A Review Of Literature

Agricultural development is crucial in developing countries, and particularly in the poorest countries where it accounts for large shares of employment and income and whose poverty is due simply to having a large share of the workforce in low-productivity agriculture. Raising productivity in agriculture is critically important for development, as is smoothly moving workers out of agriculture into more productive employment in other sectors. Raising agricultural productivity helps both to raise incomes and to reduce poverty-both by raising the incomes of poor people working in agriculture and by lowering the prices of foods that make up a disproportionately large share of the expenditures of poor people. In small and open economies, the in-crease in profitability of agriculture following improvements in productivity might tend to retain or even attract workers into agriculture. By contrast, at a global level, or at national level when policy focusses on self-sufficiency, improvements in agricultural productivity will free up labor for employment in other sectors. Incomes are generally much higher in non-agricultural work in developing countries-more than double those in agriculture after careful adjustment for key differences. This raises the possibility of a double dividend from structural transformation as workers move into higher-productivity activities. A key question for development policy is whether it is enough to simply evaluate the gains from higher productivity within agriculture, or whether potential benefits from structural change be included as well. This paper examines the arguments on this question. It concludes that these dividends may be substantial-but whether they are or not depends on the source of the initial differences in productivity and on the direction of movement when agricultural productivity rises. If it results from policy barriers such as restrictions on the transfer of farmland or requirements for residence permits in urban areas, there are likely to be substantial welfare gains when labor moves out of agriculture. They may also be substantial if urban wages are artificially high and attract substantial numbers of job-waiters into unemployment. However, these gains may be illusory if the income gaps arise primarily from differences in skills or from reluctance to move created by asset fixity.

Some agricultural investments are commodity-specific, meaning that they increase the productivity of production, processing, or marketing of a single agricultural commodity or a set of closely-related commodities. Examples include investment in cassava breeding, expanding cotton ginning capacity, irrigation for rice production, expansion of cold storage capacity for horticultural exports, or road investment to a region whose main product is maize. Traditional cost-benefit analysis estimates the effect of in-vestments on net income assuming that the investment is not large enough to influence market prices. However, a different approach is needed when the investment affects market prices and/or there is an interest in other outcomes such as poverty reduction. This report describes an approach to estimating the impact of commodity-specific agricultural investments on income, poverty, and other measures of welfare. This approach can be extended to identify the optimal allocation of an investment budget across commodities subject to a given objective function. For example, it could be used to allocate agricultural research funds across commodities to maximize income, poverty reduction, or a weighted average of the two.

"New forces are at work in the agricultural sector: the growth of markets and private entrepreneurship, the changing global demand for food and other agricultural products, the rise of multinationals, and the expansion of integrated food chains. To realize the potential benefits, the public sector has a crucial role to play through policy initiatives to support agriculture, reduce poverty, and ensure broad rural development alignment with these forces." "Building on the foundation of the Agriculture Investment Sourcebook (World Book 2005), Agricultural Growth for the Poor: An Agenda for Development explores ways in which the public sector can work with the private sector to facilitate growth and ensure equitable benefit distribution. It describes the key policy and institutional issues involved in promoting private sector investment in agriculture and accelerating growth to benefit the poor. It identifies priorities for public investment in specific agricultural settings at different stages of economic growth and offers practical approaches for enhancing the impact of such investment. Finally, it summarizes lessons learned about successful support of agricultural development and discusses areas in which additional progress is required." "Policymakers and international development organizations will find Agricultural Growth for the Poor an invaluable resource for analyzing the prospects for agriculture in the changing global environment and developing an agenda for pro-poor development."--BOOK JACKET.

The relative contribution of a sector to poverty reduction is shown to depend on its direct and indirect growth effects as well as its participation effect. The paper assesses how these effects compare between agriculture and non-agriculture by reviewing the literature and by analyzing cross-country national accounts and poverty data from household surveys. Special attention is given to Sub-Saharan Africa. While the direct growth effect of agriculture on poverty reduction is likely to be smaller than that of non-agriculture (though not because of inherently inferior productivity growth), the indirect growth effect of agriculture (through its linkages with nonagriculture) appears substantial and at least as large as the reverse feedback effect. The poor participate much more in growth in the agricultural sector, especially in low-income countries, resulting in much larger poverty reduction impact. Together, these findings support the overall premise that enhancing agricultural productivity is the critical entry-point in designing effective poverty reduction strategies, including in Sub-Saharan Africa. Yet, to maximize the poverty reducing effects, the right agricultural technology and investments must be pursued, underscoring the need for much more country specific analysis of the structure and institutional organization of the rural economy in designing poverty reduction strategies.

This book provides a blueprint for the allocation of public expenditures “in” and “for” agriculture at the dis-aggregated state level and suggests a reorientation in favour of disadvantaged regions where the marginal returns on additional investments would be higher. It provides insights into the inter-linkages between public expenditures, private investment, rural poverty, and agriculture productivity from a regional perspective to reflect upon spatial differences in the welfare effects of various investments, subsidies, and policies. The book focuses on agricultural growth and rural poverty reduction through public and private investments, non-farm employment, and other pathways to the formulation of appropriate policies at the dis-aggregated state level. It presents new evidence based on advanced econometric tools for analysing and understanding the relationship between public and private investments in agriculture and input subsidies (fertilizer, power, irrigation, and credit) together with their impacts at the dis-aggregated state level. The book also deliberates on an income based direct support system for farmers as an alternative to the existing input price subsidy regime. Accordingly, the book offers valuable insights not only for researchers working on poverty alleviation, rural economy, and agricultural growth, but also for policymakers.

This analysis explores the relationship between agricultural R&D investments and rural poverty reduction, and the prevalence of undernourishment in sub-Saharan Africa (SSA). It uses a panel data set of internationally comparable poverty dis-aggregated by urban and rural areas, country level undernourishment, and ASTI data on R&D investments and derived indicators. The study uses agricultural R&D knowledge stocks (KS) to account for the lagged effects of research through depreciation and gestation period of investments, and applies causal mediation analysis to assess the impact of KS on poverty and hunger and measure the relative contribution of KS-induced agricultural productivity growth on those outcomes. Evidence suggests that, while SSA growth in KS has been relatively slow, it helped reduce rural poverty and undernourishment – the percentage point reduction in rural extreme and moderate poverty of a 1% annual increase in KS is 0.218 and 0.146 percentage points per year, respectively. Mediation analysis indicates that a fifth of the KS effect on extreme rural poverty, and a quarter of the KS effect on moderate rural poverty, can be attributed to KS driven gains in agricultural labor productivity. Likewise, KS growth reduces undernourishment – a 1% annual increase in KS leads to a drop of 0.132 percentage points per year in the prevalence of undernourishment, with about 40% of that effect mediated through gains in agricultural land productivity. These results indicate that KS supports poverty and hunger reduction through benefits on-farm and beyond it. They also suggest that there is room for strengthening the role of R&D KS productivity enhancing innovations. Given the current low levels of investments in R&D and resulting KS, increasing its levels will be critical, but that alone is not sufficient. Policy makers will have to rethink the way the innovations from R&D get scaled up and pay attention to the necessary complementary policies and investments that enable a sustainable pathway leading to greater productivity growth and development impacts.

This report assesses the impact of the International Food Policy Research Institute’s (IFPRI) Global Research Program on Priorities for Public Investment in Agriculture and Rural Areas (“GRP-3”). Initiated in 1998, the stated objectives of the research program were (1) to increase public investment for rural areas and the agricultural sector given that there is an underspending in the sector and (2) to better target and improve efficiency of public resources to achieve these growth and poverty reduction goals, as well as other development goals. GRP-3 evolved out of research on the impacts of alternative types of public spending on income and poverty outcomes in India and China that was conducted by staff of IFPRI’s Environment and Production Technology Division (later the Development Strategy and Governance Division). Those studies indicated that public investments in infrastructure—in particular, investments in roads, agricultural research and development (R&D), and education—yielded sizeable marginal benefits in terms of poverty alleviation and income generation in rural areas. This line of research was later expanded to encompass a number of countries in Africa and, to a lesser extent, Southeast Asia and the Middle East. A second major (and ongoing) thrust of the program is to support African governments in establishing public investment priorities and strategies for promoting rural economic growth and poverty alleviation. Major activities undertaken include providing analytical and institutional support to the Comprehensive Africa Agriculture Development Programme (CAADP) and evaluations of individual publicly-funded programs in several African countries. GRP-3 has generated an impressive array of published outputs. The great bulk of these emerged from the research conducted in India and China. A much smaller number of published outputs have been generated by the (more recently conducted) research in Africa; however, a substantial number of papers, book manuscripts, and monographs are in various stages of the publication process. Other important program outputs include a variety of public expenditure databases suitable for assessing the nature and effects of individual countries’ spending priorities. GRP-3 research has had substantial influence on public expenditure priorities in India and China. Most notably, published research in India played a key role in the institution of the Rural Roads Program that directed huge sums toward construction of roads connecting large numbers of previously unserved villages. Quantitative assessment of the positive impacts from these road investments indicates that IFPRI research can reasonably take substantial credit for lifting tens of thousands of individuals out of poverty and increasing agricultural GDP by billions of rupees. Additionally, in both China and India, GRP-3 research has influenced recent policy conversations that have led to increased spending on agricultural R&D and education. Overall, the program has substantially met its stated objectives in Asia. GRP-3 research in Africa has yet to fully meet the program’s objectives, in large part because the policymaking process in the countries where IFPRI has been active are still not far enough advanced for the research outputs to have translated into actual policies. Still, some important outcomes have emerged: The work IFPRI has conducted in support of CAADP has successfully shepherded 19 countries through the Compact process. However, the Compacts are intermediate products; it remains to be seen the extent to which governments follow through on the plans contained within them. IFPRI’s compilations of disparate public expenditure data in a large number of countries represent a useful local public good for use by research and practitioner communities outside of IFPRI. In addition, IFPRI’s role in guiding the formation and operation of a regional strategic assessment and knowledge support system (ReSAKSS) has boosted, if not created, institutional capacity for future monitoring and evaluation activities. Research on the impact of public investments in the agricultural sector has been useful to the donor community by providing empirical backstopping for ongoing policy dialogues with governments. However, the difficult—and often contentious—political environment in which those dialogues occur has meant that policy outcomes are still materializing (and far from certain).

A first step in evaluating the effects of agricultural investments in developing countries to recognize that policy makers will almost certainly have multiple objectives. Even policy makers like those at the Millennium Challenge Corporation, with a strong focus on ensuring that interventions contribute to growth, also have a keen interest in poverty reduction and other goals such as enhancing gender equity. This presence of multiple goals has profound impacts on the choice of policies and mean it is likely that more than one policy instrument will be needed to best achieve those goals. Once the goals of policy have been identified, the next step is to identify possible policy instruments to help in achieving these goals. These potential policy instruments will likely include some policy reforms like adjustments to trade policies that are relatively easy to implement, whose impacts are relatively easy to analyze and whose implications for fiscal revenues may be slight. They may also include re-forms to the ways that policies are identified and implemented, such as moves from centralized policy making to community driven development, designed to align policies more strongly with needs in the communities affected. They are also likely to include investment projects with substantial revenue requirements that seek to rectify market failures in areas such as the provision of public goods or the internalization of externalities. Constraints Analyses are an important part of the MCC approach to identifying and evaluating interventions using the Hausmann, Rodrik and Velasco growth diagnostic approach (HRV). This seeks to identify areas in which substantial progress can be made at limited cost by identifying key omissions in cur-rent policies. Their famous, and useful, analogy to a barrel with a short stave whose lengthening can increase the water level in the barrel at minimum cost helps grasp the essence of this approach. It deals with situations where inefficiencies in past policy making, and/or changes in circumstances mean that disproportionately large benefits are obtainable at low cost.