104. The combined extra public cost of all investment requirements indicated in this programme will be approximately US$24 billion at 2002 prices. Of this, about US$5 billion will be for addressing the hunger problem through direct transfers to the undernourished. Another US$19 billion will be required for addressing the problem of undernourishment and rural poverty through agricultural growth and productivity enhancement in rural areas. The possible sources of funding for this latter part are examined below.
105. For the year 1999, total ODA (i.e. bilateral and multilateral grants and concessional official flows) to developing and transition countries for agricultural and rural development amounted to about US$8.1 billion,[4] while non-concessional official flows amounted to about US$3 billion. In real terms there was a decline of about 31 percent between 1990 and 1999 in concessional assistance to agriculture broadly defined and 48 percent to agriculture narrowly defined (see Figure 2). Unfortunately, this declining trend was not counteracted by increased lending to agriculture by the international financing institutions (IFIs).[5] The share of agriculture in total lending - concessional and non-concessional - by IFIs declined by more than half over this period, from about 20 percent of total lending in 1990 to about 9 percent in 1999. The total volume of lending to agriculture declined by 40 percent in real terms.
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Figure 2
The graph shows the evolution of concessional external assistance to agriculture from 1988 to 1999 in 1995 prices. The figures represent commitments made by donors, showing a drastic decline in ODA during the period. The decline is more pronounced for the narrowly defined agriculture sector. The declines in concessional flows for the broadly defined agriculture sector have been contained mainly due to the increased weight of environmental protection, research, extension and training, and rural development and infrastructure in total concessional flows to agriculture. |
106. The problem of declining official resource flows to agricultural and rural development is compounded by the fact that the regional distribution of these flows does not reflect the distribution of hunger in the world. Under the Anti-Hunger Programme proposed here, a reorientation of the additional resource flows is suggested in favour of regions that have a high incidence of undernourishment.
107. The relative contributions of ODA, non-concessional assistance and national expenditure to the total costs of this programme are outlined in Figure 3, with a more detailed breakdown in Table 2. Total resources required for the agricultural and rural development component of the programme amount to US$18.6 billion. Of this, it is anticipated that approximately US$2.5 billion will be financed through non-concessional assistance flows. This is considered to be essential for supporting and stimulating private sector lending for these purposes. The remaining US$16 billion will be financed by a combination of concessional external flows (ODA) and domestic resource flows. It is expected that most of the direct access to the food component will be financed from ODA.
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Figure 3
Note: All figures are in 1999 US$. This figure shows one possible option for sharing the costs of the investments proposed here.
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Table 2
Possible sources of finance for the
programme
|
Priority action area |
Total |
Increase in |
Increase
in |
Increase
by |
|
Improve agricultural productivity in poor rural communities |
2.3 |
1.0 |
0.3 |
1.0 |
|
Develop and conserve natural resources |
7.4 |
3.2 |
1.0 |
3.2 |
|
Expand rural infrastructure and market access |
7.8 |
3.3 |
1.2 |
3.3 |
|
Strengthen capacity for knowledge generation and dissemination |
1.1 |
0.6 |
00 |
0.5 |
|
Total agricultural and rural development |
18.6 |
8.1* |
2.5 |
8.0 |
|
Ensure access to food for the most needy |
5.2 |
4.7 |
0.0 |
0.5 |
|
Total |
23.8 |
12.8 |
2.5 |
8.5 |
* Of which, concessional loans = US$2.8 billion, multilateral grants = US$2 billion and bilateral grants = US$3.3 billion.
Source: FAO calculations.
108. The breakdown will vary among investment items and countries. Historically, the breakdown for agricultural and rural development has been roughly 65:35 between domestic and external funding. In view of the competing demands on developing country budgets to meet other Millennium Development Goals, and in view of efforts articulated during the Monterrey conference to raise development assistance, it would appear reasonable to assume a 50:50 breakdown between ODA and domestic resource mobilization on average for the additional resources required under the Anti-Hunger Programme. This leaves open the possibility that countries with a high prevalence of hunger would contribute a lower share from domestic sources. Applying this general principle would result, on average, in higher ODA shares for regions with a high prevalence of hunger, such as sub-Saharan Africa (for which a 60:40 ratio is suggested between ODA and domestic resources) and in lower shares of ODA for regions with a low prevalence of hunger, such as the transition countries (25:75).
109. The proposed average cost-sharing of 50:50 will result in a doubling of ODA (concessional flows) to agricultural and rural development, from roughly US$8 billion in 1999 to US$16 billion per year. Cast in terms of its share in total agricultural GDP of the developing countries, a doubling of ODA will bring this share closer to (but still slightly less than) the same share in 1988. So, even a doubling of ODA to agricultural and rural development will barely recover the ground lost by the continuous decline since the peak year of 1988. There appears to be a growing consensus in favour of such a doubling, as shown, for example, by the final declaration of the 2003 UN Economic and Social Council High-Level Segment. The declaration stresses the need for an integrated approach to rural development and then "... recalls the pledges made at Monterrey to substantially increase ODA, and today calls for immediate measures to at least double, from the current levels, the allocation of ODA to agriculture and rural development ...".
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Figure 4
The vertical axis shows the ratio of the share of agriculture in government expenditure to the share of agriculture in GDP. The higher this ratio, the greater the weight of agriculture in government spending relative to its weight in the economy. Countries have been grouped according to the prevalence of hunger. Category 1 includes countries for which the share of undernourished to total population is less than 2.5 percent, etc. Owing to lack of data, countries where the undernourished constitute between 2.5 and 5 percent of the population have been omitted. The figure shows that in countries which have been most successful in reducing hunger, the weight of agriculture is better reflected in national spending than in the least successful countries, although in the latter group of countries agriculture constitutes the backbone of the economy. Relative neglect of agriculture in favour of a drive towards industrialization has prevented many countries from realizing their growth and hunger reduction potential. |
110. The implication for the national budgets of the developing countries will be an average increase of about 20 percent of the total expenditures for agriculture, compared with the recent past. Figure 4 provides some evidence on the impact of such spending. It shows that countries that allocated relatively more public resources to agriculture had a lower prevalence of hunger.
111. Various options are conceivable for mobilizing the additional external resources required for the financing of the Anti-Hunger Programme. New and innovative forms should also be considered. Two possibilities are discussed below.
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Box 2 While developed countries continue to provide high subsidies to their farmers, ODA for agricultural and rural development in developing countries has declined unabatedly. In real terms, it fell by as much as 31 percent over the 1990s, and has reached a level as low as US$6 per agricultural worker. The lack of resources for agricultural and rural development hinders the efforts of developing countries to increase the productivity and competitiveness of their agriculture and agro-industry. Nowhere is this more evident than in rural infrastructure - particularly the lack of rural roads, research and extension and irrigation facilities - but ports, energy and telecommunications systems are also inadequate. Developing countries often lack the material and human resources to implement the policies and institutional reforms needed to comply with and take advantage of trading opportunities arising from the WTO Agreement on Agriculture (AoA). Substantive investment is also needed for the necessary capacity building to implement the Agreements on Sanitary and Phytosanitary Measures (SPS), Technical Barriers to Trade (TBT) and Trade-Related Intellectual Property Rights (TRIPS). The capital needed may come close to a year’s development budget for many of the least developed countries. While aid should not substitute the removal of barriers to trade, it will remain essential for hunger and poverty alleviation in many of the poorer countries. An increased flow of ODA to the priority areas under the Anti-Hunger Programme would, in particular, result in enhanced competitiveness of the agriculture and rural sectors of developing countries, in markets at home and abroad. Thus, it would support the principle of "aid for enhancing trade", thereby enabling developing countries to share in the benefits of freer trade. |
112. Liberalization of agricultural trade implies substantial savings to developed countries from reduced support to their agricultural sectors. Some of the resources saved could be channelled in the form of development assistance to promote agricultural and rural development in developing countries. Box 2 provides a review of some of these issues.
113. Figure 5 shows how the proposed incremental public investments in agricultural and rural development compare with recent flows of national budgetary allocations, concessional international assistance and non-concessional lending to agricultural and rural development. It is underlined that the proposal on cost sharing put forward in the Anti-Hunger Programme is one of many conceivable options for dividing the costs between various financing sources.
|
Figure 5
ODA for agricultural and rural development: The current level, US$8 billion in 1999, is for agricultural and rural development, broadly conceived. National budgets: Since only a limited number of countries report data on government expenditures on agriculture, the corresponding figure for all developing countries had to be estimated. Thus, the average share of agricultural expenditures of the reporting countries was multiplied by the 1998 data on "General Government Final Consumption Expenditures" for all developing countries in current US dollars. The data sources were World Bank. World Development Indicators 2001; and IMF Government Financial Statistics. Non-concessional lending: The source for the figure on current non-concessional lending is derived by FAO using data from OECD/DAC and the international financing institutions. |
|
[4] Sources: OECD/DAC creditor
reporting system; FAO calculations. A broad definition of agricultural and rural
development is used. Data from 1999 were used, as the 2000 data for UNDP and
OPEC transfers are not available. [5] The World Bank, African Development Bank, Asian Development Bank, Inter-American Development Bank and the International Fund for Agricultural Development. |
