ARC/00/4
|
TWENTY-FIRST
FAO REGIONAL CONFERENCE
FOR AFRICA
|
Yaounde, Cameroon 21-25 February 2000
|
PUBLIC ASSISTANCE AND AGRICULTURAL
DEVELOPMENT IN AFRICA
|
Table of Contents
I. THE AGRICULTURAL SITUATION IN AFRICA
II. NATURE AND SCOPE OF PUBLIC AGRICULTURAL INVESTMENTS
III. THE NEED FOR PRICE AND PUBLIC INVESTMENT POLICY REFORMS
IV. CONCLUSIONS AND ACTIONS REQUIRED
Annex
I. The Agricultural Situation in the Africa Region
- Agriculture dominates the economies of most African countries and is the prime vehicle
for economic growth. It produces the bulk of food consumed in Sub-Saharan Africa and
accounts for 70% of total employment, about 40% of total merchandise exports and 34% of
African GDP.
- This sector is the major source of raw material for industry, the main purchaser of
simple tools (farm implements) and services (transport), and farmers are the main
consumers of locally produced consumer goods. In fact, one to two-thirds of manufacturing
value-added in most African countries is based on agricultural raw materials, and many
services are linked to agriculture (Barghouti, Garbus and Umali, 1993).
- Agriculture will remain, in the foreseeable future, the most important sector for
addressing food security and poverty in Africa. Transforming agriculture and expanding its
productive capacity is the prerequisite for improving living standards in Sub-Saharan
Africa.
- Unfortunately, since the 1960's Africa has been the only region of the developing world
where per capita food production has been declining, putting large segment of the
population in a precarious situation in terms of food security and nutrition. To reverse
this trend, most African Governments undertook, two decades ago, extensive economic policy
reforms, nevertheless, without achieving any perceptible improvement in food security and
reduction in poverty.
- The declining role of the agricultural sector is symptomatic of inadequate capital
formation, coupled with heavy de-capitalization, making the sector one with a high cost
structure and low-productivity . This situation compels most farmers and other economic
agents to engage in practices which promote degradation of land resources, depletion of
forest and other natural vegetation, and that of marine and other aquatic resources,
including water.
- A few indicators suffice to illustrate the extent of decline of the sector and the
marginalization of African countries in the global market. Most countries in the region
continue to rely on one or two traditional commodities for the bulk of their export
earnings. The production and market shares of these commodities claimed by Africa have
been falling since the 60's.
- For cocoa, the production share fell from 71.6% in the 60's to 58.7% in the 90's, while
the market share dropped from 78.9% to 64.7%. For coffee, the production and market shares
declined from 25.9% and 28.8% in the 60's to 18.6% and 18.5% in the 90's respectively. The
situation is even more worrisome for groundnut and palm oil. In the 60's, Africa claimed
respectively, 33.8% and 88.4% of world production and market shares for groundnut. In the
90's, these shares fell to 21.4% and 7.6% respectively. For palm oil, the production and
market shares declined from 84% and 36.8% in the 60's to 23.3% and 2.6% in the 90's
respectively.
- Asia, on the contrary, increased its production and market shares for cocoa from 0.7%
and 0.4% in the 60's to 16.9% and 18.5% in the 90's respectively. With respect to coffee,
its production and market shares moved from 6.6% and 6.5% in the 60's to 18.9% and 16.7%
in the 90's respectively. With regard to groundnut, Asian production and market shares
were 51.7% and 54.0 % in the 60's respectively and in the 90's, these shares are about
69.0% and 48.5% respectively. With respect to palm oil, Asia claimed 11.1% of world
production and 58.8% of the world market in the 60's. In the 90's, the continent improved
its performance and its production and market shares for palm oil stand at 69.8% and 91.5%
respectively.
- With regard to food crops, it is observed that the rate of growth of cereal output
achieved by the region during the 1961-97 period, was lower than that achieved in other
developing regions of the world. The food situation in Africa, compared to that in other
regions of the world, is observed to be deteriorating, as a result of the growing gap
between the rate of growth in output and the rate of growth in the population, while other
developing regions of the world, with low and declining population growth rates, have
achieved significant productivity gains.
- During the 1961-97 period, the annual growth rates of cereal yields in Africa were 1.1%,
0.6%, 0.2% and 0.4% for maize, rice, sorghum and millet respectively. In Asia, the same
cereal crops experienced annual growth rates of 3.4% for maize, 2.2% for rice, 1.7% for
sorghum and 1.2% for millet. South America also achieved respectable levels of
productivity growth with 2.0% annual growth rates for maize, 1.8% for rice, 2.0% for
sorghum and 0.6% for millet during the period.
- The data given above emphatically show that food and export crop sub-sectors in the
sub-Saharan region have performed very poorly during the period. This has resulted in a
significant loss of market share for traditional export crops and in a substantive
increase of market share for food (cereal) imports and food aid.
- The institutional base and the entire economic policy framework are central in
explaining the poor performance of both internal and external sectors of African
economies. Countries in other developing regions which have succeeded in claiming large
shares of the world markets of traditional export crops have worked hard to eliminate or
at least to reduce significantly both supply and demand-side constraints. On the supply
side, they have made substantive efforts to: (1) improve agricultural productivity by
promoting research, training, and extension; (2) reduce transaction costs by developing
both infrastructure and institutions, and by promoting the private sector and stimulating
it to undertake a number of upstream and downstream support functions essential to the
agricultural sector; (3) reduce agricultural (explicit and implicit) taxation; and (4)
diversify the export base. The overall outcome of these actions has been a significant
improvement in trade competitiveness, and the hedging of the export sector against world
market volatility and other unfavourable shocks.
- On the demand side, world competition and domestic price support (agricultural
subsidies) can hardly be regarded as significant factors in explaining the marginalization
of Africa in world trade. It is the inability of African economies, to significantly
increase the productivity of the agricultural sector and to reduce transaction costs, that
has substantively reduced the ability of these economies to compete in the world market.
Domestic prices of agricultural exports paid to producers were and continue to be well
below their world market levels as a result of both direct and indirect taxation. The real
producer prices of their primary commodities are still a small fraction of the real world
market prices. Input (fertilizer) subsidies, which have already been eliminated as
prescribed by structural adjustment programmes, were limited in volume and scope for them
to offset the negative impact of price-distorting policies.
- Trade and exchange rate policies associated with severe structural and institutional
deficiencies have worked to maintain the producer prices of export crops at a level
significantly low not only relative to the world market price level, but also relative to
other producing regions of the world. The overvaluation of African currencies especially
during the 60's, 70's and 80's also contributed as an implicit tax levied on export crops.
- Strategic investments in infrastructure and institutional development in the region,
including capacity building and strengthening, have remained abnormally low compared to
those in Asian countries, which have achieved high level of economic growth and
significant poverty reduction (Ragayah, 1998; Kiran 1998; Falusi, 1998; Kouassy and
Diop-Boar�, 1998).
II. Nature and Scope Of Public Agricultural Investments
- Since the 60's, the level of public resources allocated to agriculture has been
consistently low relative to the sector's size and contribution to the economy. The sector
has received in most countries less than 10% of the public (recurrent and investment)
expenditures during the 1961-97 period while its contribution to gross domestic output has
been between 30% and 80%. What makes this situation even more disturbing is the fact that
direct and indirect transfers of income from agriculture to government and the rest of the
economy continue to be significantly larger than the amount of public resources allocated
to the sector.
- By providing inadequate levels of public resources to the sector, public expenditure
policy has constrained the development of public goods (basic infrastructure,
institutions, human capital and support services) and public assistance to the private
sector. Consequently, the policy has not only affected negatively the agricultural growth
and development process, but also the rest of the economy. It is well established that 1%
growth in agriculture causes economic growth of 1.5 times this amount due to the stimulus
to industry, transport and services (Cleaver, 1993).
- Not only is the level of public resources expended to agriculture low relative to other
sectors of the economy, but also public expenditure policy which presents a number of
other weaknesses. In Africa, public investments are not often matched up by adequate level
of recurrent budget. This situation limits the maintenance and management of these public
capital goods. Examples abound in Africa, be it for roads, irrigation infrastructure or
other public structures. Even in countries where significant investments were made to
develop public agricultural capital goods, governments have often failed to provide
adequate resources required to maintain and properly manage these capital goods. The
example of irrigation infrastructure characterised by poor management and utilisation is
spread across.
- The intra-sectoral allocation of these public resources among sub-sectors and within
sub-sectors, among commodities, is at best based on little economic rationale. Within the
crop sub-sector the overwhelming share was devoted to one cereal crop e.g. rice, maize or
wheat and little to roots and tubers, pulses and oil seeds.
- Regarding the geographical coverage, the allocation of the public resources was also
very inappropriate. Factors such as agro-ecological potentials, natural constraints, level
of development of infrastructure, human resources, institutions, the demographic base and
the contribution of the area to gross domestic product are not often considered during the
process of regional allocation of public resources in most African countries.
- As a matter of economic principle, the allocation of public resources among different
areas of the country has to be guided by the factors noted above. In an area characterised
by serious constraints, heavy investments do seldom generate a commensurate level of
output. On the contrary, they require important recurrent costs to maintain the capital
goods developed. In high potential areas however, the economic returns to investments are
generally high. The surplus generated can then be redistributed between high and low
potential areas. This enables the country to contribute to its own investment efforts in a
meaningful way, instead of relying almost exclusively on external sources for investments.
This long-term vision needs to be carefully examined.
- The case of Malaysia, a country whose level of economic development was comparable to
that of most Sub-Saharan countries at the eve of its independence from Britain in 1957,
deserves to be noted for the purpose of enhancing our understanding of issues, and
providing useful lessons to policymakers and other stakeholders. Development strategies
adopted by Malaysia during the 1957-70 period, included a mix of import-substitution,
industrial policy, extensive intervention by government to promote the rural sector and
provision of social and physical infrastructure. The agricultural and rural sector
received 22.3 percent of public expenditures, while industry claimed only 2.4 percent
during the period. This economic policy regime helped Malaysia to enjoy an average
economic growth rate of about 6 percent per year, but failed however, to reduce income
inequality and poverty, whose incidence was about 52.4 percent at the end of the period.
- In 1970, a new economic policy framework was adopted whose main features were
diversification of agriculture, intensive use of natural resources, integration of
agricultural, rural and commercial development in selected regions, promotion of cocoa,
and oil palm production and forestry. About 16.0 percent of Malaysia's Federal Government
Development expenditures is allocated to agriculture. This figure is even much higher if
figures for recurrent budget were also considered. Industrial policy shifted from
import-substitution to export-oriented activities. Prices were regulated and private
sector development was encouraged in export-oriented industries.
- A strong growth averaging almost 8 percent per year was achieved during the 1971-1990
period. In terms of welfare, the policy was a great success. At the end of this policy
episode in 1990, the incidence of poverty fell to 16.2 percent. This experience has been
widely hailed as a success example of strong economic growth coupled with equity (Bhalla
and Kaharas 1992; Ragayah 1998). In 1991, the National Development Policy was adopted to
cover the period up to 2000. This policy attempts to attain a balanced development marked
by growth in equity. The share of agriculture and rural sector in Federal Government's
expenditures was about 11.3 percent during the 1991-1995 sub-period. The economy grew at
8.7 percent and the incidence of poverty fell to 9.6 percent at the end of this
sub-period.
- The experience of most African countries has been rather disappointing in many respects.
These countries have failed to achieve a sustained agricultural and economic growth,
improved income distribution, and reduced incidence of poverty. Even in countries known to
have made significant efforts in reforming their economic policy regimes, the achievements
have been limited and most notably associated with massive external public assistance,
while the share of domestic public resources expended to agriculture has remained
negligible, not exceeding 5% of the domestic public resources allocated to the economy.
- The diminishing involvement of the public sector in economic activities dictated by
market-based economic policy reforms and the rather weak response of the private sector to
such reforms has raised increasing concern about how the sector could best be supported to
enable it meet its socio-economic obligations, fulfil its role, and make the necessary
contributions to meet the economic growth of most African countries. To this end, African
governments should adopt a policy mix to improve the structure of both price and non-price
incentives. It is under these conditions that the sector can respond effectively, achieve
a desirable level of growth, and contribute significantly to the overall economic
development of the region.
III. The Need for Price and Public Investment Policy Reforms
- The extent of farmers' response to price policy reforms has been found to be severely
constrained by structural and institutional deficiencies. Removal of price distortions
through macro-economic and sectoral policy reforms has only had a limited impact on
farmers' response as market infrastructure, institutions and support services continue to
be grossly undeveloped. This situation puts the farmer at a double disadvantage as he/she
is compelled to incur high costs for his/her inputs and to sell his/her produce at a much
lower price. It is also true that the removal of structural and institutional constraints
alone will only have limited impact on the farmers' response if price distortions continue
to be significant.
- It has been proved that the removal of price distortions coupled with the elimination of
structural and institutional constraints increases the synergy between price and non-price
determinants of the supply response such that the total impact on output is greater than
the sum of the impact of each group of supply response fundamentals taken separately.
Consensus on the importance of both price and non-price factors for the response of
agricultural supply is shared by an increasing number of economists (Elamin and El Mak
1997; Tshibaka 1997; Binswanger 1989).
- In Sudan, a comparison of two farming systems based on the mode of production --
irrigated versus rain-fed agriculture -- clearly shows that the synergy exists between
price and non-price factors in affecting the agricultural output response. Rain-fed
agriculture, characterised by limited public investments per unit of cropped area, was
found to exhibit a low level of response to price and non-price factors relative to
irrigated agriculture, characterised by a high level of public investments per unit of
cropped area. This was also found to be true for cereals and non-cereal crops. Most public
agricultural investments are allocated to non-cereal crops1
(Hag Elamin and El Mak, 1997).
- The results summarised in Annex show that the sum of output elasticity estimates with
respect to price and public capital goods, is higher for the agricultural mode of
production (irrigated agriculture) or group of commodities (non-cereals) which has a high
level of public investments (public capital goods). The sum of short-run output
elasticities with respect to price and non-price factors is about 0.4 and 0.8 for rain-fed
and irrigated agriculture respectively. The sum of long-run elasticity estimates is about
0.6 and 0.8 for rain-fed and irrigated agriculture respectively. For cereals and
non-cereal crops, the sum of output elasticity estimates is about 0.94 and 1.2 in the
short-run respectively. In the long-run the sum of these estimates is about 1.3 for
cereals and 1.8 for non-cereals. These results suggest a synergy between price and
non-price factors affecting the level of agricultural output response.
- Recent empirical studies conducted in Africa lend support to the need for policy reforms
that should result in improved price and non-price incentives. The pricist paradigm
maintains that an improvement in domestic agricultural terms is expected to lead to a
significant improvement in resource allocation to agriculture. In most African countries,
the improvement in agriculture's domestic terms of trade consecutive to structural
adjustment policy reforms did not result in any improvement of agriculture's relative
share of investments and labour flows in the economy (Dike 1998). Even, governments in
these countries did not increase their resource allocation to agriculture. Instead, what
was observed was the de-capitalisation of the agricultural sector, as reflected in a
steeply declining agricultural capital/labour ratio during the period, contrary to
expectations.
- The inability of price reforms to enhance the flow of investment resources needed to
develop agricultural capital goods suggests that both price and non-price policy reforms
are not only required, but are also complementary. Conclusively, getting price right and
improving non-price incentives are a twin goal to pursue if the growth of the agricultural
sector is to be enhanced and sustained.
- Research has shown that not only the domestic terms of agricultural products, but also
the content of capital input are the key determinants of labour allocation to agriculture.
The elasticity of labour time allocated by farmer to farm activities was found to be about
0.4 with respect to the domestic terms of trade of farm products and 0.3 with respect to
the capital input (Tshibaka, 1998). This finding suggests that improvement in real
agricultural price and in capital input will induce farmers to substantively allocate more
labour to farming. Put differently, the finding suggests that poor structure of price
incentives and poor level of capital goods and services will lead farmers to allocate
their labour time in favour of non-agricultural activities, including the migration out of
farming.
- Countries that have succeeded in maintaining a relatively high level of price incentives
and in developing public capital goods and services, have not suffered agricultural labour
shortages compared to those that did not follow the same course of action. Most African
countries continue to suffer agricultural labour shortages as a result of significant
rural-urban labour migration due to significant de-capitalisation of the agricultural
sector. Even where heavy agricultural investments made in various parts of the country,
the migration of labour out of agriculture continues unabated as a result of worsening
domestic agricultural terms of trade. These observations suggest that price and non-price
incentives are complementary. It is therefore imperative for policy makers to adopt policy
measures and actions to enhance the structure of price incentives facing farmers and other
economic agents involved in agriculture-related activities, to promote the development of
public agricultural capital goods and services, and to stimulate private agricultural
investments.
- It is also important to note that from past public programmes of assistance directed at
the agricultural sector, limited successes have been achieved in Africa in the following
areas:
- Human resource development, particularly the training of subject matter specialists and
extension workers;
- Technology generation and dissemination - (adaptive research for improved crop varieties
and animal breeds);
- Physical infrastructure development, construction of large processing plants (though few
and far between);
- Marketing systems for agricultural export commodities; and
- Systems for planning and management - mainly strengthen government institutions
(although sustainability has been extremely weak).
- The above notwithstanding, a number of areas in which public assistance to the
agricultural sector appears to have failed include the following:
- Lack of proper identification of the needs of farmers and other economic agents, due to
their non-participation in the assessment process. As such, the quantum and/or quality of
support provided was inappropriate, resulting in very low returns to the support provide;
- Instability of Governments in many countries led to changes and discontinuity of
policies and programmes. Very frequent turnover of Ministers and other high ranking
decision makers, resulting in frequent changes in sectoral and macro-economic policies to
the disadvantage of the sector, particularly in strategies, volume of resource allocations
or technical appropriateness of programmes;
- Over-centralisation of decision-making and resources, which prevented active stakeholder
participation in the identification of needs, design of programmes and involvement in
implementation-, all of which differently handled would have assured sustainability of
achievements;
- Poor availability of, and access to, agricultural support services (such as transport,
input and output marketing, credit and agricultural extension) which, in significant ways,
add to the transaction costs to smallholder agriculture;
- Inefficient use of donor funds through inappropriate project identification, design and
implementation and the flow of capital funds to farmers and other economic agents in the
sector;
- Over-globalisation of programmes which do not facilitate focusing on specific problems
to meet the needs of localities;
- Lack of adequate rural infrastructure to facilitate increased production, processing and
marketing;
- Lack of the courage to identify and reject donor agency conditionalities and programmes
that are not relevant to the needs and priorities of the agricultural sector;
IV. Conclusions and Actions Required
- This paper shows clearly that countries which maintain a high level of public resource
allocation to agriculture over a long period of time, in terms of both financial and human
resources (volume and quality) have promoted private sector involvement and significantly
enhanced agricultural growth and development. This has helped to achieve better income
distribution and consequently has reduced poverty. In this connection, the following
actions need to be carefully considered:
- Allocate a much higher level public resource to agriculture than is presently the case
in most countries in the Africa region in view of the needs of agriculture in these
economies. Judging from the successes of some Asian countries and a few African countries,
particularly with regard to the quantum of allocation of resources to the agricultural
sector, national governments should make available a minimum of 25% of the national budget
for agricultural and rural development programmes.
- Ensure that these expenditures are of high quality in terms of structure and
utilisation, that they serve to alleviate the problem of operators in the sector,
particularly the small-scale operators, and that they encourage greater flow of private
investment to the sector.
- Consider selective subsidy which is limited in space and time. This option is not
inherently undesirable if it is provided within the framework of a clear and coherent
national policy that identifies unambiguously why the subsidy is necessary, what is being
subsidised, and who the expected beneficiaries are. The net benefits derived from this
policy option also need to be determined.
- Reduce direct subsidies to agriculture and utilise the resources in areas that
indirectly support agriculture, such as the provision of infrastructural facilities and
private investments.
- Maintain a low rate of taxation of agriculture and avoid taxation through price
manipulations.
- Ensure that credit is not only available to all who are directly and indirectly involved
in agriculture (farmers and other economic agents handling upstream and downstream
functions) but is also accessible particularly to the small-scale farmers. Availability of
and accessibility to credit were found to be so central to the growth and development of
agriculture that governments in the Africa region.
- Endeavour to ensure that the real exchange rate of the national currency is stable and
maintained at an historical level that has helped the economy to achieve an acceptable
rate of growth. African countries should recognise that a liberalised exchange rate policy
has always benefited agriculture.
- Create more awareness by anticipating the trends, so that countries can begin to review
their policies to ensure that their economies and the agricultural sector benefit from
these changes, as the post-Uruguay international trading arrangements.
- Examine the conditionalities of each deficit financing through borrowing. It should be
noted that where debts have been contracted to promote agricultural growth and
development, the outcome has often been disappointing and agriculture has been taxed at a
level much higher than the level of public (domestic and foreign) resources transferred to
the sector.
- Continue to put in place mechanisms (policies) that will allow market forces to
determine the prices of agricultural products and inputs rather than try to interfere with
the workings of the market. Support should be given through investments and other
interventions that remove structural and institutional constraints, which hinder private
enterprise (e.g. provision of market information, transportation and other services).
- Provide assistance, particularly, in technology development and transfer involving
problem-oriented research and user participation with a focus on the rural economy;
- Pay greater and urgent attention should be given to human resource development and
institutional strengthening for policy analysis, programme planning, identification,
preparation, appraisal, prioritisation monitoring (including data generation and use),
transfer and use of technology;
- Increase the provision of resources, with private sector participation for planning,
preparation, establishment and management of selected physical infrastructure (e.g., dams,
roads, and irrigation, processing plants). This strategy will stimulate interest and
quicken the response of the private sector to appeals to increase their investments in,
and commitment to, the development of the agricultural sector.
- Decentralise the development of agriculture and the rural sector in terms of
administrative, financial and development activities. This approach will allow for
participatory planning (prioritisation of needs, appropriateness of resource allocation),
programming, resource mobilisation, implementation, monitoring and evaluation of
agricultural development. It will also allow for sharpening the focus on developing the
capacities of stakeholders at the grassroots level and empowering them to make appropriate
decisions on all aspects of their vocation.
- In doing so, the following considerations have to be kept in mind:
- past experiences of public sector assistance to the agricultural sector in African
countries, and the successful experiences of other developing countries outside the
region;
- the prevailing liberalised market-oriented macro-economic policies currently being
pursued in those countries;
- the very low capacities of the private sector in these countries to invest in the
sector; and
- the continued role of the agricultural sector as a major driving force of the economies
of the countries under reference.
Annex
Agricultural Output Elasticities, Sudan, 1970-1993
Mode of production/
Commodity Composition |
Level of Public investments per ha of cropped area |
Elasticities with respect to agricultural price |
Elasticities with respect to public investments (public
capital goods) per ha of cropped area |
Sum of elasticity estimates |
|
|
Short-run elasticity estimate |
Long-run elasticity estimates |
Short-run elasticity estimate |
Long-run elasticity estimate |
Short-run |
Long-run |
Rain-fed agriculture |
Low |
0.23 |
0.40 |
0.13 |
0.22 |
0.36 |
0.62 |
Irrigated agriculture |
High |
0.29 |
030 |
0.47 |
0.48 |
0.76 |
0.78 |
Cereals |
Low |
0.45 |
0.63 |
0.49 |
0.69 |
0.94 |
1.32 |
Non-cereal crops |
high |
0.34 |
0.49 |
0.89 |
1.27 |
1.23 |
1.76 |
Source Drawn from: Hag Elamin, N.A. and E.M. El Mak (1997): Adjustment Programs and
Agricultural incentives in Sudan: A comparative study. Research Paper 63, African Economic
Research Consortium (AERC), Nairobi, Kenya
____________________________
1 Non-cereal crops include export crops such as
gum, groundnut, cotton and sesame. While cereals primarily produced for domestic
consumption, are mainly made up of sorghum, wheat and millet