Transcript Sustainable Agricultural Development and Poverty

Agriculture and Public Finance
Gershon Feder
Senior Research
Manager
DECRG
May 2006
Agriculture and Rural Sector
Perspective
LIC
MIC
HIC
Share of Agriculture in GDP
23%
10%
<5%
Share of Rural Population
70%
47%
20%
Percent Employed in Agriculture
59%
35%
5%
Percent of Ag. Exports in Total Exports
27%
12%
9%
Poverty is mostly a rural phenomenon
It is estimated that over 70 percent of the
world’s poor reside in rural areas
– For example, in China, 69 percent of the poor
are rural, and in India, 78 percent are rural
Poverty is mostly a rural
phenomenon, cont.
Rural areas have lower levels of social services,
such as health, education, and sanitation, and
less physical infrastructure, such as roads,
energy, communications.
Improved sanitation facilities, rural
Improved sanitation facilities, urban
Improved water source, rural
Improved water source, urban
LIC
24%
61%
69%
89%
MIC
25%
79%
63%
96%
Four main links of agriculture to
poverty reduction
Direct effects on farmers’ incomes
Increase employment in agriculture
Reduced prices of food staples
Growth multiplier effects on the non-farm
economy
Poverty reduction impact of a
10 percent increase in yields
Poverty reduction
(percent)
6
4
2
0
Africa
Asia
Latin America
and the Caribbean
Poverty impact of a 10% increase
in yield, India
Poverty
reduction
20
19%
10
0
4%
Short-run
Long-run
Rural growth and poverty reduction
A study of China’s poverty reduction in
the period 1980-2001 indicates that:
China’s poverty count fell from
53 percent to 8 percent
Most of this improvement is due to
growth in rural incomes
Example: returns to rural growth in
Uganda
Number of poor reduced per million schilling:
Investment
Agriculture R&D
Education
Feeder Roads
Tarmac Roads
Health
Uganda
58
13
34
10
5
Challenges of collecting data on public
agric spending: off budget funding
National Governments
ODA
% of total
% of total Ag % of % of Ag.
Ag
exp.
GDP
GDP spending
Country
Benin
4
35
2
14
Burkina Faso
15
38
11
11
Cameroon
4
43
2
29
Cote d'Ivoire
5
25
4
9
Ethiopia
6
52
4
22
Ghana
1
35
0
64
Guinea
6
24
5
45
Kenya
3
28
23
12
Madagascar
12
29
7
23
Malawi
6
39
6
39
Mali
11
38
8
33
Niger
1
40
1
92
Nigeria
3
26
5
1
Uganda
2
31
2
80
Zambia
5
22
8
21
Investment in infrastructure serving
agriculture will contribute not only to
agricultural expansion, but also to
yield increases and poverty alleviation
Rate of return
Number of
poor lifted
Investment in
India China
India* China**
Rural roads
531%
212%
124
32
Rural power
26%
54%
3.8
23
*Per
**Per
million rupees
thousand yuan
Main Public Goods in the Rural
Economy
Agricultural Research
Agricultural Extension
Irrigation and Drainage Infrastructure
Rural Infrastructure
Veterinary Services (some)
Land Administration
Other Agricultural Spending Items
Subsidies to inputs and outputs
Rural Credit
Marketing Organizations and Cooperatives
Agricultural Research
Organization and management of public research often
deficient and not cost effective (e.g., “disconnect”
between priority needs and research focus.)
Successful experiences in increasing the cost
effectiveness of research systems (e.g., “competitive
grants”, partnership with private sector and NGOs).
Agricultural Extension
Agricultural extension systems have some generic
weaknesses which make them prone to low
effectiveness (e.g., weak accountability to clients).
At times of plentiful agricultural budgets (e.g. donor
projects) personnel tends to grow, when budgets shrink,
most of it is spent on salaries and little on field
operations. A bias towards larger farmers has been
observed in many systems.
Irrigation and Drainage
Infrastructure
Significant item of public spending in many irrigationdependent countries.
Market failures related to water management, justify
public sector involvement at various levels.
Cost recovery is politically unpopular, implying a large
public subsidy.
Bureaucratic and political considerations result in
neglect of O&M, which lead to costly “rehabilitation”.
Lack of water pricing leads to wasteful use, and
inefficient cropping patterns.
Rural Infrastructure
Major impact on the performance of the agricultural
sector (rural roads, energy and communications).
Some opportunities for private sector participation, in
operating the service delivery component.
Common problem with rural roads is neglect of O&M,
leading to expensive rehabilitation.
For energy and communications, user charges are
feasible, but are often subsidized.
Subsidization and overstaffing in specialized agencies
leads to deficits and dependence on fiscal transfers.
Veterinary Services (some)
Regulatory functions due to the risks to human
health, and livestock epidemics.
Contracting out some services, privatizing other
aspects, and transferring some functions to
producer associations can considerably reduce
the fiscal burden
Land Administration
Provision of ownership certification, keeping
cadasters and land records, has strong public
good elements
Functions are handled by specialized ministries,
or autonomous public agencies.
Good land administration enhances security of
tenure, and access to credit (land collateral).
The main PE issues are an adequate fee structure
to allow sustainability of the services.
Subsidies to Inputs and Outputs
Input subsidies are perceived as conducive to increased
productivity.
Output subsidies are intended to promote production of “strategic
commodities”, or social objectives.
Administered through specialized credit programs, or
interventions in input and output markets.
Causes inefficiencies.
Income effects are often concentrated among larger farmers.
Credit subsidies
Typically administered through state-owned
banks
Benefits often going to larger landowners
Frequently low repayment rate
Losses of state banks are eventually covered by
the public budget.
Marketing organizations and
cooperatives
A combination of monopoly privileges, lack of budget
constraints, political interference, and public sector
personnel policies, leads to overstaffing, non-businesslike decision making, and losses in marketing
organizations.
Agricultural cooperatives are nominally private (farmerowned) entities. Often not bottom-up organizations, but
promoted and supported by the state, and act as a state
tool for administering agricultural policies.
Losses are covered directly or indirectly by the fiscal
budget.
India Agricultural PER
Agricultural sector
– Ag GDP down to 20%, but 58% of labor force still
employed in agriculture
– Rural poverty- 26% 1999/00 (195 million people)
Major concern: slowdown in agric growth
– From 3.4% during 1985/86 to 1994/95 to 1.8% in
1995/96 to 2002/03
– GOI’s goal: raise it to 4% per year
PER helps identify one of the key constraints—
declining public investments in agriculture
Trends in Agric Public Expenditures
India Public Ag Investments vs
Subsidies as % of Agric GDP
Note:Ag subsidies include foodgrain, fertilizer, power, irrigation
PER and Benefit Incidence:
who captures benefits?
India: Price support beneficiary states
28000
24000
Rice Subsidy
Wheat Subsidy
16000
12000
8000
4000
Pr
ad
es
h
Ch Bih
a
at
tis r
ga
Ha rh
r
Ka ya n
M
a
ad
r
h y n ata
a
ka
P
M rad
e
ah
a r sh
as
ht
r
Or a
is s
Pu a
R nja
Ut a jas b
ta
r P than
W rad
es
e
t B sh
Ta eng
a
m
il N l
ad
u
0
An
dh
ra
Rs million
20000
Categorize by
state/province,
region, crop
category, farm size,
income group,
ethnic/social group,
etc
E.g. subsidies,
expen. on agric
services,
employment,
nutrition programs
PER and Benefit Incidence
 Possible data sources for BI include National Household
Surveys, LSMS, Household Income and Expenditure
Surveys, project baseline surveys
Producer Price Support Per Household, Rs/household, 1998
Rice Producers
All
Marginal
Small
Medium
Punjab
3,041
1,674
3,094
799
Andhra Pradesh
164
186
339
54
Wheat Producers
Punjab
9,980
5,094
9,761
2,210
Haryana
5,794
3,597
6,547
2,236
Uttar Pradesh
217
351
793
29
Large
7,556
621
26,752
14,705
1,807
Note: HH- households. Marginal farmers own less than 1 ha of land. Small farmers own 1 to less than 2 ha
of land. Medium farmers own 2 to less than 4 ha of land. Large farmers own 4 or more hectares of land.
PER - Is India Ready for Income
Support?

What happens to fiscal cost?
e.g. foodgrain subsidies--depends on coverage
–
–
–
All rice and wheat farmers in procurement states
All rice and wheat farmers
All farmers (128 million, Ag Census 99/00)
Simulate price subsidy received by Punjab
farmers (most influential) as income support
–
Income support = MSP – cost of production
PER to simulate fiscal costs…
Scenario
Per Household Support
a
I. Total Current Producer Price Support, Rs million
b
II. Total Subsidy Using Punjab Support Rate per HH
Procurement states only, Rs million
All states, rice or wheat, Rs million
All states, all crops, Rs million
c
III. Total Producer Support-Rs1000 per HH
Procurement states only, Rs million
All states, rice or wheat, Rs million
All states, all crops, Rs million (Rs500/season)
Producer Support
Rice
Wheat
Total
17,605
23,728
41,333
Additional Fiscal Cost (Savings)
Rice
Wheat
Total
403,346
449,430
749,452
404,558
518,052
1,174,707
807,904
967,482
1,924,159
385,741
431,825
731,847
380,830
518,052
770,148
766,571
949,877
1,501,996
21,902
24,404
14,015
17,947
35,917
42,352
81,392
26,199
31,204
4,302
35,894
`
30,502
67,098
121,451
Fiscal costs increase drastically. Adding equivalent of fertilizer, power,
and irrigation will increase fiscal cost further.
Mozambique
Agriculture Public Expenditures
Current Status and Issues
Mozambique, Basic Facts
20 years since peace
Population: 19 million
Per Capita Income: US$250
GDP growth rate : 7.2%
Nominal GDP: US$6.1 billion
Inflation: 12.6 % ( currently about 9%)
GDI/GDP: 20%
Govt. Revenue/GDP: 12.3%
Govt. Expenditures/GDP: 23.7%
Aid/GDP: 13.2%
Total Expenditures- 2004
Total Budget of the state: US$1,397million
Of which : Investment : $ 555 million (40%)
Selected Priority Sector Spending
(% of total expenditures)
2000 2001 2002 2003 2004
Health
8
9
9
10
10
Educ.
21
20
19
22
21
Ag.&Fish
2
2
2
2
3
Transp. &
Comm.
5
6
8
11
9
Composition of expenditures
Locally Financed Government Expenditures
(As percent of total expenditures)
20.0%
15.0%
10.0%
5.0%
0.0%
Health
Education
Agriculture and Fishing
8
9
19
9
9
19
0
0
20
1
0
20
2
0
20
3
0
20
4
0
20
Transport and
communication
Total and Foreign-financed Investment in Agriculture,
1998 Billion Mt)
300
266
250
219
200
174
148
150
100
50
108
84
80
73
24
129
29
8
3
8
1999
2000
2001
0
1998
2002
Total budgetary Investment (Agriculture)
2003
2004
Foreign Financed
Composition of Ministry of Agriculture
Expenditures
Agriculture Services
Forestry Services
Agriculture Research Services
37%
5%
17%
Land Management Services
Rural Development Services
Other Services
Total
4%
19%
18%
100%
Key Issues
High level of donor dependency.
Lack of coordination between the Ministry of
Finance and the sector ministries in budget
planning and finance.
Budget execution reports, economic and social
plans report different figures. Hence outcomes
difficult to evaluate.
Weak transparency and accountability- Over
60% of expenditures are off- budget funded by
donors, (of which 80% of investments)
Key Issues ( cont’d)
Preparations of the recurrent and capital
expenditures separated.
Allocation of resources within Ministry ad-hoc.
Effectiveness of P.E. not evaluated – thus
difficult to justify increased donor funding.