Stimulating Agricultural and Rural Transformation (StART) in the Low-Income Tropics

1. Stimulating Agricultural and Rural Transformation (StART) in the Low-Income Tropics Chris Barrett February 20, 2009

2. The promise Extreme poverty has fallen rapidly in east Asia and worldwide, but only proportional gains in South Asia and none in Sub-Saharan Africa, where >50% still live on less than $1.25/day. Source: Chen and Ravallion (2008)

3. The challenge Ultra-poverty is especially persistent and prevalent in sub-Saharan Africa Ultra-poor (income per capita< 2005US$0.54/day) Source: IFPRI (2007)

4. A key driver Persistent poverty is closely tied to agricultural stagnation Cereal yields and extreme poverty move inversely. South Asian progress Sub-Saharan African stasis Source: World Bank (2007)

5. The consequence Agricultural stagnation is a key driver of poverty and undernutrition The WHO identifies undernutrition as the biggest risk factor for disease and death worldwide … and 30/47 SSA countries have macronutrient availability shortfalls .

6. Poverty traps Reinforcing feedback: Low productivity causes poverty. Poverty causes hunger and natural resource degradation. But hunger and degraded natural resources also cause poverty and low productivity. Hence the vicious cycle of poverty traps, hunger and natural resources degradation.

7. The challenge: Poverty traps Why such persistence? • Two key features of poverty traps: • Initial conditions matter • “It takes money to make money” … investment is the engine of growth and exit from poverty. • In SSA, ultra-poor are heavily rural and depend on meager (and degrading) natural resource base and have little access to key infrastructure. • Risk matters • Direct loss of productive assets to disease, conflict, climate variability, etc. • Responses: ex post coping (e.g., school drop-outs, distress asset sale) and ex ante risk management (e.g., low-risk, low-return livelihoods).

8. Need to StART Need agricultural and rural transformation to break out of ultra-poverty/hunger trap: Reason 1: location, livelihood and asset holdings • Most ultra-poor live in rural areas (rural-urban poverty gap increases in poverty depth) • Most ultra-poor work in agriculture, at least part-time. • Increasing the productivity of the assets controlled by the poor (and the stock of assets they control) is fundamental to any strategy to break out of the poverty/hunger trap. So must increase the productivity of the rural poor’s labor, land, livestock and other assets.

9. Need to StART Reason 2: Budget dependence Food is 65-80% of ultra-poor’s budgets. Most SSA farmers are not net sellers of basic commodities … most are net buyers. So food price effects of agricultural productivity growth reinforce gains to the rural poor by reducing cost of living. Hence the seriousness of the recent global food price crisis for the poor, including most small farmers!

10. Need to StART An example from Madagascar: A doubling of rice yields: • reduces the share of food insecure households by 38% • shortens the average hungry period by 1.7 months (1/3) • increases real unskilled wages in lean season by 89 % (due to both price and labor demand effects) • All the poor benefit: unskilled workers, consumers, and net seller producers … the poorest gain most. (Minten and Barrett, World Development, 2008).

11. Need to StART Result: • World Bank estimates that real GDP growth from agriculture is 2.7 times more effective in reducing extreme poverty headcount in poorest countries, vs. non-ag sectors. • Historically, advances in food system productivity have been the foundation of poverty reduction and modern economic growth throughout history. • Agricultural growth has strong multiplier effects on the rural non-farm economy … generating both local demand and investible resources, as well as ensuring the food security of those who leave the farm.

12. Key StART principles No one size fits all approach is viable. Need to contextualize. But there exist several key principles for targeting StART interventions: Principle 1: Build and protect productive assets. Multiple assets matter: Human capital, land (incl. soil fertility), water, livestock, investible funds (savings, credit) Interventions include direct provision (e.g., free education) or subsidies for asset accumulation or insurance of existing assets For privately held assets (land, livestock, equipment, education, businesses, etc.), mainly need to improve investment incentives. Also need to conserve common pool assets (rangelands, water, forest, etc.) through better governance and incentives.

13. Key StART principles Principle 1: Build and protect productive assets. How to improve incentives? • More secure property rights (tenure, police) • Resolve financial market failures • “Crowding-in” investment in complementary inputs (e.g., physical and institutional infrastructure) • Provision of safety nets • Clear conservation rules, authority w/o burdening the poor. A key concern: Soil quality SSA losing ~$4bn/yr in soil nutrients… plus feeds a Striga problem that costs another $7 bn/yr in yield losses and mycotoxin contamination of >25% of food supply.

14. Key StART principles Principle 2: Improve the productivity of the poor’s current asset holdings. • Improved production/processing technologies • More efficient/remunerative marketing channels Uptake/participation turns on assets, so don’t forget #1! Key concern 1: Agricultural research in SSA AvgRoR ~35%, and ~80% of ultra-poor in agriculture But only 4% of public expenditures are on ag and a small fraction of that goes into research. Key concern 2: Changing agrifood supply chains Who is participating, on what terms, w/ what effects?

15. Key StART principles Principle 3: Improve risk management options for the ultra-poor. Regressivity, multidimensionality and context-specificity of uninsured risk exposure make this a serious challenge. Risk reduction: Improved crops and livestock, better water control, diversification, peace, disease control Risk transfer: Improved markets, index-based risk finance, global humanitarian response

16. Key StART principles Principle 4: Facilitate favorable transitions out of agriculture. Must equip the next generation to transition into remunerative non-farm employment. Keys are (i) supporting physical and institutional infrastructure; (ii) early childhood health, nutrition and education, especially for disadvantaged children. Closely tied to improvements to parents’ productivity, risk management and asset holdings. Global + local (“Glocal”) Solutions

17. Conclusions • There is real reason for hope: • Real ag output growth is accelerating in South Asia and SSA at long last … back to positive per capita rates of food output growth • Renewed and innovative initiatives (e.g., AGRA) and attention (e.g., WDR 2008), and turn-around in both public aid and private investment in low-income countries. • Exciting new innovations in technologies (e.g., micronutrient-rich staple crops, drought-resistant cultivars), advances in finance (e.g., index insurance to pre-finance emergency response and provide a productive safety net), and improvements in policies (e.g., rule of law, tenurial security, global food aid). Global + local (“Glocal”) Solutions

18. Conclusions • But recognizing the need to intervene is the easy part. • We need to emphasize and focus on four key StART principles: • Build and protect productive assets. • Improve the productivity of the poor’s current asset holdings. • Improve risk management options for the ultra-poor. • Facilitate favorable transitions out of agriculture. • And remember that appropriate policy design and implementation are highly context specific. So need to continuously and rigorously research the settings in which we work and the policies we design and introduce … • … beware repeating the errors of the 1980s-90s! Global + local (“Glocal”) Solutions

19. Thank you Thank you for your time, interest and comments!