Transcript A short history of agricultural development thinking…

Agriculture and
Development
By
Aleksandra Olszewska
Emanuel Ules
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Agenda
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6.
Facts
Why is agriculture so important for
Developing Countries?
A short history of agricultural development
thinking…
CAP
Threats for Agricultural Development
World Development Report 2008
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Agriculture and
Development – some
facts
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Per capita Dietary Energy Supply
Source: FAO
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The Candy Question
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What is the percentage of labour force
employed in agriculture in Sub-Saharan Africa?
 65%
Source: World Bank
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Why is Agriculture so Important?
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accounts for about a third of overall economic growth
in developing countries
Agriculture can be the engine of overall growth in these
countries
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poverty alleviation is positively related to overall economic
development
agricultural growth in developing countries has stronger
effects on poverty alleviation than growth in other sectors
Important source of income
Rural poverty has also started to decline many countries
over the period from 1990 to 2005
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Why is agriculture so important –
Continuation
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food provision
raw materials supply
balance of payments (as imports increase,
agricultural goods make up a large share of
exports in poor countries)
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A short history of agricultural
development thinking…
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‘50s & ’60s: protective tariffs, exchange rate controls and
selective investment incentives
'70s: "growth with equity”, research and investments in
rural infrastructure
‘80s & ’90s: GATT/WTO, Washington Consensus - trade
barriers, transportation costs and communication costs fell
Current decade: community-driven development
Easterly (2005): “Spending $ 2.3 trillion (measured in
today's dollars) in aid over the past five decades has left the
most aid-intensive regions, like Africa, wallowing in
continued stagnation; it's fair to say this approach has not
been a great success”
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Why is agriculture different to other
sectors?
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land fertility depends on past exploitation >> current
activity affects future production (maximise
intertemporal utility )
incomplete contracts
(cannot account for land fertility)
dependence on natural and
environmental factors
production patters (long plant growing
and animal rearing cycles) >> quick
adjustments in production difficult or impossible
unforeseen events can disrupt the agricultural activity
of whole regions
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Barriers to trade >> development
the example of CAP
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Started in 1962 – price floors - to keep agricultural
prices high and stable
For most of CAP’s existence prices were 50-100%
higher than world prices.
Initially – the EU was a net importer of farm products
– manipulating imports so that D and S met at high
price levels (import tariffs)
Unfair – owners of large farms gain most, price floors
reward output regardless of the farm size
(European Commission estimated that in 1994 20% of
farmers received 80% of benefits)
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Candy Question II
1987 – over ½ of the budget went to 0,4
…%
of population
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CAP’s share in expenditure
Percentage of CAP
expenditure in EU budget
Percentage of CAP
expenditure in EU GDP
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CAP problems
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supply (green revolution, EU became a net exporter)
average farming income still lower than for an average worker
industrialisation (pollution,
animal welfare, nostalgia)
How they tried to solve
the excess supply…
 1992 McSharry reforms: lower price floors almost to the world
price levels and compensate a fall in producer surplus by cash
payments conditional on limiting production
(paying for not producing?)
 BUT cash payments made to land owners not farmers (the British
queen gets over €1,5 millon, Nestle €30 million)
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So why do we keep the CAP?
Initially:
 average incomes rose so the share spent on food
fell
 own food supply
 empathy for farmers
Today:
 volatile markets
 public goods
 sustainable rural environment
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Threats for Agricultural
Development
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Macroeconomic policies designed in the past did not
favour agricultural sector (especially exchange rate
policies)
Financial services in rural areas are often poorly
developed
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characterized by low repayment rates, poor targeting and low
operational and managerial efficiency
Lack of infrastructure and technology
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Just 4% of the budget of Sub Saharan countries is devoted
for agricultural improvement
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Threats for agricultural development
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Social unrests like wars
Berlage and Verpoorten (2007):
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Negative impact on FDI
Create a large welfare loss
Rwanda needed 15 years to reach the same income level as
before the civil war
Outcome of the war: more poorer population and a more
unequal distribution of income
Food shortages
Natural disasters
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„Since poverty is also a determinant
of violent conflicts, Sub-Saharan
Africa may be trapped in a downward cycle of poverty, conflict and
low growth rates“
M. Verpoorten and L. Berlage
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Interactions Agriculture and the Rest
of the Economy
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farm and non-farm rural activities strongly
related
savings derived from farm activities can be used
as start-up capital for rural non-farm activities.
savings derived from non-farm activities can be
used to acquire inputs and adopt improved
agricultural technologies
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World Development Report 2008:
Agriculture for Development
Recommendations for agriculture-based countries
of Sub-Saharan Africa:
 building markets and value chains
 a smallholder-based productivity revolution in
agriculture
 expanding agricultural exports
 securing the livelihood and food security of
subsistence farmers
 labor mobility and rural non-farm development
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