Transcript ROBERT L. THOMPSON - farmdoc: Farm Decision Outreach

Rural Development and
Poverty Alleviation
Robert L. Thompson
Gardner Professor of Agricultural Policy
University of Illinois
October 19, 2005
Outline
• Millennium Development Goals
• The Rurality of Poverty in Low Income Countries
• The World Bank
– What it is and isn’t
– Drop in agricultural and rural development lending
– Rural strategy review and update
• Limits to agriculture’s potential contribution to
poverty alleviation
• Why we need to get agriculture back on the
development agenda
• Outcome of the World Bank’s new rural strategy
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Millennium Development Goals
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Eradicate extreme poverty and hunger
Achieve universal primary education
Promote gender equality & empower women
Reduce child mortality
Improve maternal health
Combat HIV/AIDS, malaria & other diseases
Ensure environmental sustainability
Develop global partnership for development
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Extent of Poverty and Hunger
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Projected Population Growth
(U.N. medium projections)
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Region
World
High Income
Low Income
Africa
Asia
Latin America
2004
6,378
1,206
5,172
869
3,871
551
2050
8,919
1,220
7,699
1,803
5,222
767
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Population Density, 2050
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One and Two Dollar a Day Poverty
Country
Pop’n (mill) % < $1/day % < $2/day
China
1299
16.6
46.7
India
1065
34.7
79.9
Indonesia
239
7.5
52.4
Brazil
184
8.2
22.4
Pakistan
159
13.4
65.6
Russia
144
6.1
23.8
Bangladesh
141
36.0
82.8
Nigeria
126
70.2
90.8
Mexico
105
9.9
26.3
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Source: World Bank. World Development Indicators database
One Dollar Per Day Poverty
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Two Dollars Per Day Poverty
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Poverty Is the Root of Household
Food Insecurity and Hunger
• 840 million people suffer under-nutrition or hunger.
• 1.25 billion people live on less than $1 per day; 70% of
them are rural, and most of these depend on farming,
forestry or fishing for their meager incomes
• 3 billion (half of the world’s population) live on less than
$2 per day.
• Hunger is due mainly to poverty except in times of war,
natural disaster or politically-imposed famine.
• The rich in no country go hungry.
• To solve the hunger problem, the poverty problem must
be solved.
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Avoid Exaggerated Expectations of Ag
Dev Solving Rural Poverty Problem
• Productivity growth in agriculture is necessary, but not
sufficient, to solve the problem of rural poverty
• Small-scale farming has limited potential in reducing
rural poverty.
• You cannot grow enough on one acre to feed a family
and generate enough cash income to escape poverty.
• No country has solved the problem of rural poverty in
agriculture alone.
• Rural-urban migration is normal and essential; the
number of farmers must fall, and size of small farms
must grow.
• All presently rich countries created non-farm rural
employment so that most farm families earn most of their
income off the farm.
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Dynamics of Food Demand
• 1.25 billion people live on less than $1 per day, of whom
840 million suffer under-nutrition or hunger
• 3 billion (almost half of the world’s population) live on
less than $2 per day.
• By $2 per day, most hunger (calorie) problem is solved
• Between $2 and $9 per day people eat more animal
protein, fruits, vegetables & edible oils, causing rapid
growth in raw ag commodity demand
• After $10 per day, people buy more processing, services,
packaging, variety, and luxury forms, but not more raw
ag commodities
• How many presently low income consumers are lifted
out of poverty will be the most important determinant of
the future size of world food and ag product demand
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World Food Demand Likely to
Double by 2050
• Population growth creates need; income growth creates
effective demand. Taken together, world food demand
could double by 2050.
• How many hundreds of millions of presently low income
people are lifted out of their poverty will be the most
important determinant of the future size of global food and
agricultural product consumption.
• This will depend heavily on
– how “pro-poor” a development strategy each LDC follows,
including the majority of the poor who live in rural areas
– how open high income countries are to import goods in which
LDCs have a comparative advantage
– how positive an investment climate an LDC maintains – for both
local and international investors
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The World Bank
• International Bank for Reconstruction and
Development (IBRD)
• International Development Association
(IDA)
• International Finance Corporation (IFC)
• Multilateral Investment Guarantee Agency
(MIGA)
• International Center for the Settlement of
Investment Disputes (ICSID)
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World Bank Operation
• Operates like a commercial bank (It has to
get repaid with interest; interest mark-up
pays for operating budget)
• What it lends it gets by selling bonds in
internat’l. financial markets (AAA rating)
• Its stockholders are national governments,
who provided basic capitalization
• Board of directors votes weighted by stock
ownership (U.S. = largest stockholder)
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Drop in Ag & Rural Dev Lending
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Low international commodity prices
Competition from “hotter” sectors
Greater perceived risk for rural lending
Skills & resources of WB staff
Higher cost projects in time of tightening
WB budget
• Lack of rural political clout in LDCs (WB’s
local counterpart = Ministry of Finance)
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Long-Run Rural Dev Goals
• Poverty reduction – 70% rural
• Ag dev – necessary, but not sufficient
• Allow each country’s agricultural sector to
contribute as much as possible to national
development as consistent with economic
efficiency and environmental sustainability
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Food supply
National Economic Growth (GDP)
Foreign exchange earnings
Employment
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Three Levels of Food Security
• Individual/household food insecurity
– Extent
– Caused mainly by poverty
– Rurality of Poverty
• National Food Security
– Potential for self-sufficiency that is economically efficient and
environmentally sustainable
– To import food a country has to be able to sell the goods in
which it has a comparative advantage
• Global Food Security
– Land and water constraints
– Potential for research to relax the physical constraints
– Essential that public policy not impede new technology
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Global Food Security:
Challenge of Doubling World
Food Production
by 2050
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The Land Constraint
• There is at most 12% more arable land available
that isn’t presently forested or subject to erosion
or desertification – and degradation of many
soils continues.
• The area of land in farm production could be
doubled…
• But only by massive destruction of forests and
loss of wildlife habitat, biodiversity and carbon
sequestration capacity
• The only environmentally sustainable alternative
is to double productivity on the fertile, nonerodible soils already in crop production.
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Growing Demands on Forests, Too
• The same forces of population and income
growth that increase demand for food also
increase demand for things made out of
wood, e.g. paper, furniture, building
materials; poles.
• In rich countries, growing demand for
environmental amenities and preservation
of (especially old-growth) forested areas.
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Water A Growing Constraint
• Farmers use 70% of the fresh water used in the
world. They are both the largest users and the
largest wasters of water.
• Water is priced at zero to most farmers,
signaling that it is much more abundant than in
reality. Anything priced at zero will be wasted.
• With rapid urbanization, cities are likely to outbid
agriculture for available water.
• The world’s farmers need to double food
production using less water than today.
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Need to Relax Physical Constraints
• The physical environment – soils, climatic
conditions (averages as well as variances) and
topography – constrain what can be grown
where.
• Investments in agricultural research and
irrigation can relax some physical constraints
and expand productive potential.
• Public policy then determines whether it is
profitable for farmers to adopt a new technology.
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Prophets of Doom Underestimated
Power of Technological Change
• Argued population growth would increase food
demand faster than agricultural production could
grow
• Public and private sector investments in
agricultural research have increased productivity
faster than demand growth
• Where adaptive research investments have
been made, surplus, not scarcity, has prevailed
• 150 year downward trend in real price of grains
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National or Regional Food Security
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Growing World Agricultural Trade
• The world’s arable land is not distributed around in the
world in the same proportions as are population and
poverty. (No way Asia can be self-sufficient)
• Underperformance of LDCs’ agriculture reduces its
contribution to their national food supply.
• With population growth and urbanization in LDCs, a
larger fraction of world food production is expected to
move through world trade.
• Broad-based economic development in LDCs will
accentuate this via growing commercial trade.
• Greater trading opportunities will accelerate the rate of
national economic growth.
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The World’s Arable Land (left)
Is Distributed Very Differently
than Its Population (right)
OECD Countries
26%
Africa
11%
OECD Countries
14%
East Asia and the
Pacific
14%
South Asia
22%
South Asia
15%
Middle East and
North Africa
4%
Africa
11%
Europe and
Central Asia
20%
Latin America
and Caribbean
10%
Middle East and
North Africa
5%
Latin America
and Caribbean
9%
East Asia and the
Pacific
31%
Europe and
Central Asia
8%
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The Global Trading Environment
Hurts LDC Agriculture
• OECD protectionist barriers to LDC goods
reduces their foreign exchange earning capacity
and economic growth.
• Continuing large agricultural production and
export subsidies in rich countries depress world
market prices below long term trend; binding
quotas increase variance around that trend
• Food aid is most available in years of OECD
surplus, not LDC deficit.
• LDCs haven’t gotten much out of past
international agricultural trade agreements.
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OECD Producer Support Estimates,
2004, in Percent
Switzerland
Japan
European Union
Canada
United States
Mexico
Australia
New Zealand
30 Countries Overall
68
56
33
21
18
17
4
3
30
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Source: OECD Agriculture Directorate
Average Producer Support in OECD
Countries, 2004, in Percent
Rice
75
Sugar
Milk
Beef & Veal
Wheat
Corn
Oilseeds
Pork
Overall
58
36
34
33
31
27
21
30
30
Source: OECD Agriculture Directorate
Effects of Producer Supports
• Distort what gets produced where and, in
turn, ag trade flows
• Depress world market prices below longterm trend
• Reduce price and/or income risk to one
country’s farmers while increasing price
volatility in world market
• Largest producers and farm land owners
get most of the benefits
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OECD Policies Depress Commodity
Prices Below Long Term Trend
Rice
33 - 50 %
Sugar
20 – 40 %
Dairy Products
20 – 40 %
Cotton
10 – 20 %
Peanuts
10 – 20 %
Source: World Bank. Global Economic Prospects 2002, Chap. 2.
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The Agricultural Sector in Most
Developing Countries
Underperforms Relative to Its
Potential
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Constraints to LDC Agricultural
Development
• Difficult physical environments – soils, climatic
conditions (averages as well as variances) and
topography – limit what can be grown where
(made worse in the Tropics by global warming).
• Under-investment in public agricultural research,
which could relax physical constraints and
expand productive potential.
• Local and international public policy undermines
potential profitability for farmers to adopt new
technologies.
• Underperformance of agriculture in most LDCs
slows national economic growth.
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LDCs’ Own Policies Also Impede
Their Agricultural Development
• Corruption and/or macroeconomic instability
• Lack of definition or enforcement of property
rights and contract sanctity
• Underinvestment in public goods, such as rural
infrastructure and ag research (Green Box)
• Cheap food policies to keep urban consumers
quiescent – often reinforced by food aid or
subsidized exports from OECD
• Lack of technology adapted to local agroecological conditions (soils, climate; slope)
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Key Outcomes Developing
Countries Need In Doha Round
• A more open trading environment that can
stimulate faster economic growth
• Market access for goods in which developing
countries have a comparative advantage
• Eliminate import barriers and domestic and
export subsidies which depress world market
prices and increase their variance
• Foreign aid and international lending for
investment in necessary infrastructure,
technology, know-how, etc. and to facilitate
adjustment.
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The Private Sector Could Help
(“Doing Well by Doing Good”)
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Foreign direct investment and tech transfer to LDCs
Raise internal food safety standards in LDCs
Create marketing opportunities for LDC small-holders
Be advocates in OECD countries for food and
agricultural trade liberalization
• Be advocates for LDC development strategies that lift
the maximum number of people out of poverty
• Advocate public investment in enabling environment in
LDCs, including from ODA and World Bank
• Stop implicitly affirming the anti-trade, anti-business,
anti-growth and anti-science agendas of transnational
NGOs which purport to speak for LDCs and the poor.
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