Transcript Agriculture, Pro-poor Growth and Rural Development

World Development Report 2008
Agriculture for Development
Sussex
23-24 January 2007
1
Need to better understand the political economy
of agricultural policy and investment

Opposition to agricultural reforms in the OECD
countries

Continued taxation of agriculture in developing
countries (variation across crops)

Anti-agricultural bias in public expenditures

The trend toward subsidies at the expense of core
public good investments
2
Agricultural policies shifted from taxation to subsidization
Low-income
stage
Political
objective
Political
economy
Policy
choice
Middle-income
stage
Industrialization based
on extraction of
agricultural surplus (tomid 1980s); cheap food,
food self-sufficiency
High-income
stage
Achieving
farmer/urban worker
income parity
Large but dispersed &
unorganized farmer
population, small but
concentrated &
organized (and vocal)
urban population
Large but more
organized farmer
population with
growing income
disparities with urban
populations
Small but organized
(and vocal) farmer
population, large but
unorganized urban
population
High budget share of
food
High budget share of
food
Low budget share of
food
Tax export agriculture
Increasing use of
income transfers
through subsidies
and protection
Subsidize agriculture
Subsidize import
competing food
crops and nonagriculture
Tax nonagriculture
3
Lobby group model
• Lobby group models predict correlation between
agricultural protection and per capita income

Richer countries have fewer farmers

Lower organization costs/less free-riding

Has been used to explain past policies
• Gardner – US farm policy
• Bates – Africa
• Kruger – developing countries

But some observations don’t fit – high taxes on smaller
number of large scale producers
4
Political-voter model
• Politicians provide transfers to their
constituency in return for political support
(maximize total political support subject to
government budget constraint)

Incentive to choose policies that concentrate the
benefits and disperse the costs (e.g. tax outputs
and target input subsidies)
5
Interaction between lobby groups and
politicians
• Maximize a policy preference function with
relative weights on the welfare of each
interest group
• …dependent on whether states are
autonomous or submissive (distinguish
between de jure vs. de facto power)
6
Form of instrument matters
• Economically inefficient instruments can be
politically efficient



Direct price support over income transfers because
self-sufficiency appeals to a nationalistic sentiment
of voters
Input subsidies over agricultural research given
time horizon differences
Compensate blocking coalitions from vetoing
efficiency-enhancing government policies
7
What does the literature tell us?
(de Gorter and Swinnen)
Reforms needed on:
• Subsidize information and organization of less
influential groups
• Constitutional constraints on budgetary processes
• Institutional reforms to overcome credibility and
time-inconsistency problems
8
How can OECD agricultural tariffs and
subsidies be reduced?
US Farm Household Income Impacts of Full Agricultural Reforms
Income
Decile
1
2
3
4
5
6
7
8
9
95
100
Rice
-5.1
-5.1
-6.6
-6.6
-16.6
-7.7
-14.9
-17.1
-17.8
-18.9
-18.8
Cotton
-8.3
-8.3
-7.0
-8.1
-7.6
-5.0
-6.7
-5.1
-8.9
-6.8
-12.7
Sugar
-1.0
-1.0
-2.6
-4.8
-4.8
-4.8
-2.0
-2.0
-3.7
-6.5
-6.5
Dairy
-2.4
-2.0
-2.9
-2.1
-2.6
-2.7
-3.7
-2.9
-4.3
-3.6
-4.0
Source: Hertel, Keeney, Ivanic and Winters, 2006
9
How can high taxation levels be reduced?
1980-84
2000-04
0.2
Zim
b ab
we
mb
ia
Za
nza
nia
Ta
n
Su
da
biq
ue
Mo
za m
on
ero
Ca
m
Eth
io p
ia
Gh
an a
ire
d'Iv
o
Co
te
Ug
an d
a
ny a
Ke
dag
as c
ar
-0.2
Ma
eria
0
Nig
Nominal Rates of Assistance, 2000-04
0.4
-0.4
-0.6
-0.8
Note: Nominal Rates of Assistance = [Domestic Price—Border Price]/Border Price.
Source: Agricultural Distortions Research Project (2006).
10
How can public spending be improved?
Food Security Pack
and EDRP (11%)
Food Reserve
Agency (15%)
Irrigation Investment
(3%)
Infrastructure (2%)
Personal
Emoluments (20%)
Fertilizer Support
Program (37%)
Operational Funds
(11%)
Public budget allocation to the agriculture sector, 2004/5, Zambia
11
Case Studies
12