Unit 1: The Current Aid Framework: Agriculture and Rural ... One: The Current Aid Framework: Agriculture and Rural Development Investments Unit Information 3! Unit Overview 3! Unit

Unit One: The Current Aid Framework: Agriculture and Rural Development Investments

Unit Information 3

Unit Overview 3 Unit Aims 3 Unit Learning Outcomes 3 Unit Interdependencies 3

Key Readings 4

Further Readings 5

References 7

Multimedia 10

1.0 The current aid framework 11

Section Overview 11 Section Learning Outcomes 11 1.1 Introduction: international agreements 11 1.2 Programme-based approaches 14 1.3 Poverty reduction strategy papers (PRSPs) 15 1.4 Sector-wide approaches (SWAps) 16 1.5 Direct budget support 18 1.6 Cash on Delivery (COD) 19 1.7 The role of projects in the new aid framework 20 Section 1 Self Assessment Questions 25

2.0 Agriculture, pro-poor growth, and poverty reduction 26

Section Overview 26 Section Learning Outcomes 26 2.1 Reversing underinvestment 26 2.2 Agriculture and its contribution to poverty reduction 28 2.3 Agricultural productivity 29 2.4 Current challenges for the agriculture and rural development sectors 30 2.5 Understanding rural diversity 30 Section 2 Self Assessment Questions 33

P534 Project Planning and Management Unit 1

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3.0 Reducing poverty: agriculture and rural development strategies 34

Section Overview 34 Section Learning Outcomes 34 3.1 Introduction – MDGs, PRSPs, agriculture and rural development 34 3.2 The policies of development agencies towards agriculture and rural development 36 Section 3 Self Assessment Questions 41

Unit Summary 42

Unit Self Assessment Questions 43

Key Terms and Concepts 44


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UNIT INFORMATION

Unit Overview This unit reviews the international context to, and modalities of, investment in the agricultural and rural development sectors. It considers the nature and role of projects in comparison to development assistance provided as direct budgetary support. In this unit we also consider the important linkages between development in the agricultural sector, economic growth and poverty reduction. This provides the rationale for our focus on agricultural and rural investment. In the third and final section we try to build on the two previous sections by exploring how agricultural and rural development can contribute to both national and international objectives for development and poverty reduction.

Unit Aims • To ‘set the scene’ for the module by describing and critically assessing the

current context for investment in agriculture and rural development.

• To provide greater familiarity with the key actors, aid instruments, and challenges in the sector.

• To highlight the links between agriculture, pro-poor growth, and poverty reduction.

• Briefly to describe some of the agricultural and rural development strategies followed by multilateral and bilateral development agencies.

• To describe some of the key challenges in the sector.

Unit Learning Outcomes By the end of this unit, students should be able to:

• understand the role of agriculture in the context of economic development, poverty reduction, and pro-poor growth

• have an understanding of the current aid framework, the role of the state, and the aid instruments which are available and in use

• explain the reasons why agriculture has an important role to play in poverty reduction

• have an awareness of the trends in agricultural productivity in recent years and the importance of improving productivity

• have a deeper understanding of the changing rural environment and current issues

• understand the current policies and strategies of funding agencies, including one in your own country

Unit Interdependencies This unit provides the context for this module and should be studied first.


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KEY READINGS

DAC (2006) Promoting Pro-Poor Growth: Agriculture. Development Assistance Committee, Organisation for Economic Co-operation and Development (OECD).

Available from: http://www.oecd.org/dac/povertyreduction/37922155.pdf

This DAC report is an extract from the publication Promoting Pro-poor Growth: Policy Guidance for Donors. It focuses upon the contribution of agriculture to pro-poor growth, highlighting the contribution that agricultural growth can play in enabling poor countries to take the first steps toward economic transformation. It identifies four principles of engagement: adapt approaches to diverse contexts; build institutions and empower stakeholders; support pro-poor international actions; foster country-led partnerships. It also identifies the key priorities for action in the new agenda: enhancing sector productivity and market opportunities; promoting diversified livelihoods; and reducing risk and vulnerability.

IFAD (2011) IFAD Strategic Framework 2011–2015: Enabling Poor Rural People to Improve their Food Security and Nutrition, Raise their Incomes and Strengthen their Resilience. IFAD, Rome

Available from: http://www.ifad.org/gbdocs/eb/102/e/EB-2011-102-R-2-Rev-1.pdf

IFAD is the United Nations International Fund for Agricultural Development. It funds agricultural and rural development projects and programmes in developing countries, and has traditionally focused on the rural poor, especially those living in more marginal and remote regions. This reading outlines IFAD’s strategic objectives for 2011 to 2015. As you read, make a note of the changing context of rural development as well as the changing architecture of development assistance. Pay particular attention to the key strategic objectives outlined in Section V and the way that IFAD proposes to pursue these, noting the different levels (macro as well as programmes and projects) at which it will strategically engage with them.


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FURTHER READINGS

Birdsall N, Savedoff W (2011) Cash on Delivery: a New Approach to Foreign Aid. Center for Global Development, Washington DC.

Available from: http://www.cgdev.org/content/publications/detail/1423949/

Booth D (2005) Missing Links in the Politics of Development: Learning from the PRSP Experiment. Working Paper 256, Overseas Development Institute.

Available from: http://www.odi.org.uk/publications/working_papers/wp256.pdf

Cabral L (2006) Poverty Reduction Strategies and the Rural Productive Sectors: What Have we Learnt, What Else do we Need to Ask? Natural Resource Perspectives 100, Overseas Development Institute.

Available from: http://www.odi.org.uk/nrp/nrp100_web.pdf

DFID (2005) Growth and Poverty Reduction: the Role of Agriculture. A Department for International Development (DFID) Policy Paper, DFID, London.

Available from: http://collections.europarchive.org/tna/20100423085705/http://dfid.gov.uk/Documents/publications/growth-poverty-agriculture.pdf

Dijkstra G (2011) The PRSP approach and the illusion of improved aid effectiveness: lessons from Bolivia, Honduras and Nicaragua. Development Policy Review 29(s1)s111–s133.

Available from: http://onlinelibrary.wiley.com/doi/10.1111/j.1467-7679.2011.00522.x/pdf

Evans A, Cabral L, Wiggins S, Greeley M (2007) Formulating and Implementing Sector-wide Approaches in Agriculture and Rural Development. ODI, London

Available from: http://www.odi.org.uk/resources/details.asp?id=3005&title=sector-wide-approaches-agriculture-rural-development

FAO, IFAD, IMF, OECD, UNCTAD, WFP, World Bank, WTO, IFPRI, UN HLTF (2011) Price Volatility in Food and Agricultural Markets: Policy Responses. The World Bank, Washington DC.

Available from: http://www.worldbank.org/foodcrisis/pdf/Interagency_Report_to_the_G20_on_Food_Price_Volatility.pdf

IFAD (2011) Rural Poverty Report 2011. International Fund for Agricultural Development, Rome.

Available from: http://www.ifad.org/rpr2011/index.htm


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IMF (2011) International Monetary Fund Factsheet – Poverty Reduction Strategy Papers.

Available from: http://www.imf.org/external/np/exr/facts/pdf/prsp.pdf

Lavergne R, Alba A (2003) CIDA Primer on Programme-Based Approaches.

Available from: http://www.aideffectiveness.org/Themes/Country-ownership/Programme-based-approaches/CIDA-Primer-on-Programme-Based-Approaches.html

Programme-based approaches are explained within this Canadian International Development Agency (CIDA) primer. It provides a basic introduction to the topic and a review of the literature. It also highlights how a change in focus from projects to programme-based approaches has implications regarding how donor agencies function.

Leader N, Colenso P (2005) Aid Instruments in Fragile States. PRDE Working Paper 5, Poverty Reduction in Difficult Environments Team/Aid Effectiveness Team, Policy Division, UK Department for International Development.

Available from: http://ageconsearch.umn.edu/bitstream/12818/1/pr050005.pdf

Melamed C, Scott L (2011) After 2015: Progress and Challenges for Development. ODI Background Note, Overseas Development Institute, London.

Available from: http://www.odi.org.uk/resources/download/5671.pdf

OECD (2005/2008) The Paris Declaration on Aid Effectiveness and the Accra Agenda for Action. Organisation for Economic Co-operation and Development.

Available from: http://www.oecd.org/dac/effectiveness/34428351.pdf

OECD (2008) Accra Agenda for Action. 3rd High Level Forum on Aid Effectiveness. Accra, Ghana. Organisation for Economic Co-operation and Development.

Available from: http://siteresources.worldbank.org/ACCRAEXT/Resources/4700790-1217425866038/AAA-4-SEPTEMBER-FINAL-16h00.pdf

OECD-DAC (2010) Measuring Aid to Agriculture. Organisation for Economic Co-operation and Development.

Available from: http://www.oecd.org/dac/stats/44116307.pdf

Severino J-M, Ray O (2010) The End of ODA (II): The Birth of Hypercollective Action. CGD Working Paper 218, Center for Global Development, Washington DC.

Available from: http://www.cgdev.org/content/publications/detail/1424253

This is a lengthy paper, but it provides both an overview and a thorough critique of contemporary aid, ie Official Development Assistance (ODA).


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REFERENCES

Cabral L (2006) Poverty Reduction Strategies and the Rural Productive Sectors: What Have we Learnt, What Else do we Need to Ask? Natural Resource Perspectives 100, Overseas Development Institute.

CGD (2011) Cash on Delivery: a New Approach Financing Foreign Aid. Publisher’s Notes, Centre for Global Development, Washington DC.

Available from: http://www.cgdev.org/content/publications/detail/1423949/ [Accessed 20 May 2013]

Collier P (2008) The politics of hunger. Foreign Affairs November/December 2008 67–79.

DAC (2006) Promoting Pro-Poor Growth: Agriculture. Development Assistance Committee, Organisation for Economic Co-operation and Development (OECD).

DFID (2005) Growth and Poverty Reduction: the Role of Agriculture. A Department for International Development (DFID) Policy Paper.

Ellis F (1999) Rural Livelihood Diversity in Developing Countries: Evidence and Policy Implications. ODI Natural Resource Perspectives 40.

EuropeAid (2007) Support to Sector Programmes. Covering the Three Financing Modalities: Sector Budget Support, Pool Funding and EC Project Procedures. Tools and Methods Series, Guidelines Number 2, European Commission, Brussels.

Evans A, Cabral L, Vadnjal D (2006) Sector-Wide Approaches in Agriculture and Rural Development Phase I: A Desk Review of Experience, Issues and Challenges. Global Donor Platform for Rural Development, Bonn.

FAO, IFAD, IMF, OECD, UNCTAD, WFP, World Bank, WTO, IFPRI, UN HLTF (2011) Price Volatility in Food and Agricultural Markets: Policy Responses. The World Bank, Washington DC.

Available from: http://www.worldbank.org/foodcrisis/pdf/Interagency_Report_to_the_G20_on_Food_Price_Volatility.pdf [Accessed 20 May 2013]

FAOSTAT (2011) Website.

Available from: http://faostat.fao.org/ [Accessed 20 May 2013]

Foster M, Leavy J (2001) The Choice of Financial Aid Instruments. Working Paper 158, Overseas Development Institute.


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Haggblade S, Hazell P, Reardon T (2002) Strategies for Stimulating Poverty-Alleviating Growth in the Rural Nonfarm Economy in Developing Countries. Environment and Production Technology Division, Discussion Paper 92, IFPRI, Washington DC.

Available from: http://ifpri.org/divs/eptd/dp/eptdp92.htm [Accessed 20 May 2013]

IFAD (2011a) IFAD Strategic Framework 2011–2015: Enabling Poor Rural People to Improve their Food Security and Nutrition, Raise their Incomes and Strengthen their Resilience. IFAD, Rome.

Available from: http://www.ifad.org/gbdocs/eb/102/e/EB-2011-102-R-2-Rev-1.pdf [Accessed 20 May 2013]

IFAD (2011b) Rural Poverty Report 2011. International Fund for Agricultural Development, Rome.

IMF/World Bank (1999) Introduction. In: Poverty Reduction Strategy Papers – Operational Issues. Approved by Boorman J, Ahmed M.

Available from: http://www.imf.org/external/np/pdr/prsp/poverty1.htm [Accessed 20 May 2013]

Lavergne R, Alba A (2003) CIDA Primer on Programme-Based Approaches.

Available from: http://www.aideffectiveness.org/Themes/Country-ownership/Programme-based-approaches/CIDA-Primer-on-Programme-Based-Approaches.html [Accessed 20 May 2013]

Meinzen-Dick RS, Gregorio MD, Dohrn S (2008) Pro-Poor Land Tenure Reform and Democratic Governance. OGC Discussion Paper 3, UNDP Oslo Governance Centre.

Available from: http://www.rightsandresources.org/publication_details.php?publicationID=827 [Accessed 20 May 2013]

Mensbrugghe D, Osorio-Rodarte I, Burns A, Baffes J (2009) Macroeconomic Environment, Commodity Markets: a Longer Term Outlook. Proceedings of the Expert Meeting on How to Feed the World in 2050, 24–26 June 2009, FAO Headquarters, Rome.

Available from: ftp://ftp.fao.org/docrep/fao/012/ak542e/ak542e00.pdf [Accessed 20 May 2013]

Morardet S, Merrey D J, Seshoka J, Sally H (2005) Improving Irrigation Project Planning and Implementation Process: Diagnosis and Recommendations. Final report submitted by International Water Management Institute.


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OECD-DAC (2010) Measuring Aid to Agriculture. Organisation for Economic Co-operation and Development.

Available from: http://www.oecd.org/dac/stats/44116307.pdf [Accessed 11 December 2013]

OECD-DAC (undated) Website of the OECD’s Development Assistance Committee (DAC).

Available from: http://www.oecd.org/document/18/0,3343,en_2649_3236398_35401554_1_1_1_1,00.html#Paris [Accessed 20 May 2013]

Severino J-M, Ray O (2010) The End of ODA (II): The Birth of Hypercollective Action. CGD Working Paper 218, Center for Global Development, Washington DC.

Available from: http://www.cgdev.org/content/publications/detail/1424253 [Accessed 20 May 2013]

Thirtle C, Irz X, Lin L, McKenzie-Hill V, Wiggins S (2001) Relationship Between Changes in Agricultural Productivity and the Incidence of Poverty in Developing Countries. Report 7956 commissioned by Department for International Development, London.

UNDP (undated) Millennium Development Goals. Website.

Available from: http://www.un.org/millenniumgoals/ [Accessed 20 May 2013]

World Bank (2005) Agriculture Investment Sourcebook. The International Bank for Reconstruction and Development/The World Bank, Washington DC.

Available from: http://go.worldbank.org/CCC68JMIZ0 [Accessed 20 May 2013]

World Bank (2009) Implementing Agriculture for Development: World Bank Group Agriculture Action Plan: FY2010–2012. The World Bank, Washington DC.

Available from: http://siteresources.worldbank.org/INTARD/Resources/Agriculture_Action_Plan_web.pdf [Accessed 20 May 2013]


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MULTIMEDIA

Barder O (2009) Beyond Planning: Markets and Networks for Better Aid. Working Paper 185, Center for Global Development, Washington DC.

Available from: http://www.cgdev.org/content/publications/detail/1422971/

CGD (2010) What’s Not to Like About the Millennium Development Goals? Global Prosperity Wonkast Center for Global Development. Duration: 21 minutes.

Available from: http://blogs.cgdev.org/global_prosperity_wonkcast/2010/09/18/whats-not-to-like-about-the-millennium-development-goals-todd-moss-and-michael-clemens/

Review and critique of the Millennium Development Goals.

CGD (2010) Good Aid? Bad Aid? QuODA Tracks How Donors Stack Up. Global Prosperity Wonkast Center for Global Development. Duration: 26 minutes.

Available from: http://blogs.cgdev.org/global_prosperity_wonkcast/2010/10/04/good-aid-bad-aid-quoda-tracks-how-donors-stack-up-interview-with-nancy-birdsall-and-homi-kharas/

Discussion with co-creators of the Quality of Official Development Assistance (QuODA) assessment, a new tool that tracks and compares donor programs against four dimensions of aid quality.

Development Drums (2009) Beyond Planning. Episode 19. Duration: 38 minutes.

Audio file available from: http://developmentdrums.org/278

Transcript available from: http://developmentdrums.org/wp-content/uploads/DD19transcript1.pdf

Alison Evans, Director of ODI, interviews Owen Barder about his new paper, Beyond Planning: Markets and Networks for Better Aid, and Roger Riddell, author of two key books on aid.


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1.0 THE CURRENT AID FRAMEWORK

Section Overview This section reviews the international context to, and modalities of, investment in the agricultural and rural development sectors. It considers the nature and role of projects in comparison to development assistance provided as direct budgetary support.

Section Learning Outcomes By the end of this section, students should be able to:

• understand the key factors that have influenced the current aid framework

• be familiar with the main approaches and instruments used by development actors including programme-based approaches, sector-wide approaches, and direct budget support

• comprehend the role of projects in this context

1.1 Introduction: international agreements In the current aid framework, international development approaches aim to promote strategies that address both poverty and sector-wide programmes of investment and policy reform, at least nominally, developed and implemented by developing countries themselves. These changes have been driven by many factors including recognition of the importance of harmonising and aligning development assistance behind developing countries’ own poverty reduction goals, and agreement by many countries to work towards a set of common goals – the Millennium Development Goals.

Each country that contributes development aid is unique in the way it manages and implements development co-operation. The institutional support structure for delivering foreign assistance also differs in each recipient country. Thus, the way donors tackle challenges in development co-operation varies significantly. Greater harmonisation of donors’ efforts has emerged as a development priority given the past lack of co-ordination, risk of duplication of efforts, high transaction costs and multiple reporting systems. The Paris Declaration on Aid Effectiveness in 2005, agreed to by more than 90 countries, represented a change in past aid practices and set out the following principles for making development assistance more effective (see 1.1.1, below)


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1.1.1 Paris Declaration on Aid Effectiveness

(1) Ownership: Developing countries set their own strategies for poverty reduction, improve their institutions and tackle corruption.

(2) Alignment: Donor countries align behind these objectives and use local systems.

(3) Harmonisation: Donor countries coordinate, simplify procedures and share information to avoid duplication.

(4) Results: Developing countries and donors shift focus to development results and results get measured.

(5) Mutual accountability: Donors and partners are accountable for development results.

Source: OECD-DAC (undated)

The Accra Agenda for Action (AAA) was drawn up in 2008 and builds on the commitments agreed in the Paris Declaration. It aimed to deepen implementation of the Paris Declaration and respond to emerging aid effectiveness issues. It identified a number of areas in which further improvement was needed (see 1.1.2)

1.1.2 The Accra Agenda for Action

Designed to strengthen and deepen implementation of the Paris Declaration, the Accra Agenda for Action (AAA 2008) takes stock of progress and sets the agenda for accelerated advancement towards the Paris targets. It proposes the following three main areas for improvement:

Ownership: Countries have more say over their development processes through wider participation in development policy formulation, stronger leadership on aid co-ordination and more use of country systems for aid delivery.

Inclusive partnerships: All partners — including donors in the OECD Development Assistance Committee and developing countries, as well as other donors, foundations and civil society — participate fully.

Delivering results: Aid is focused on real and measurable impact on development.

Capacity development — to build the ability of countries to manage their own future - also lies at the heart of the AAA.

Source: OECD-DAC (undated)

The well-publicised Millennium Development Goals created ambitious targets for reducing poverty by 2015. They were agreed by world leaders at the United Nations Millennium Summit in 2000 and have also served to encourage enhanced efforts to achieve greater co-ordination and effectiveness of aid (recognised as necessary elements for achievement of goal number 8).


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The eight targets are shown in 1.1.3.

1.1.3 Millennium Development Goals

(1) Eradicate extreme poverty and hunger

(2) Achieve universal primary education

(3) Promote gender equality and empower women

(4) Reduce child mortality

(5) Improve maternal health

(6) Combat HIV/AIDS, malaria and other diseases

(7) Ensure environmental sustainability

(8) Develop global partnerships for development

Source: UNDP (undated)

You can find out more about the MDGs by going to the United Nations Development Programme website (UNDP undated).

Have a look at this site and see what you can learn about the goals and progress towards achieving them.

The international agreements and commitments outlined in this section have helped to shape the aid framework which can be seen today. However, it should be recognised that this is only part of the current ‘picture’. In the last decade ‘traditional’ international development assistance channelled from donor states to recipient governments through bilateral aid programmes and through a small number of multilateral development organisations has become paralleled by an expansion of financial and technical assistance provided through a diversity of new private and civil society organisations. These seek to promote poverty reduction and development, often focusing in particular on provision of both national and transboundary ‘public goods’ in the fields of health, environment and governance.

The international aid architecture is now in a continual state of change. There are new sources of financing, new aid modalities and a new mix of donors, leading to new dynamics and new capital flows between donor and recipient countries. Some of these changes are illustrated in 1.1.4, below.


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1.1.4 Changing aid architecture

Source: Severino and Ray (2010) p. 10.

1.2 Programme-based approaches Compared with the mainly ad hoc project based approaches of the past, many donors (such as The World Bank and the UK’s DFID) now emphasise the support of government budgets and programmes which fit with a country’s priorities.

Programme-based approaches encompass a wide array of different programmes – they may be at the national level or focus upon a particular sector. They are driven by a recognised need for donors to co-ordinate their aid provision and activities. The extract in 1.2.1, below, from Lavergne and Alba (2003) provides more details as to what a programme-based approach comprises. It is worth noting that the OECD’s Development Co-operation Committee (DAC) who help to co-ordinate aid from bilateral donors have adopted this definition of programme-based approaches (PBAs).


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1.2.1 Definition and principles of PBAs

‘PBAs emphasise comprehensive and co-ordinated planning in a given sector or thematic area of intervention, or under a national poverty reduction strategy (PRS). PBAs are intended to support locally owned programs of development, so the word ‘program’ in the expression refers to the program of a developing country government or institution, which one or more donors have agreed to support. In CIDA’s understanding (2002a), that program may be a PRS, a sector program, a thematic program (such as an environmental strategy), or the program of a specific organisation such as a non-governmental organisation (NGO).

A program and a PBA can be defined as follows.

− A program is an integrated set of activities designed to achieve a related set of outcomes in a relatively comprehensive way.

− A PBA is a way of engaging in development co-operation based on the principle of co-ordinated support for a locally-owned program of development. The approach includes four key elements.

o Leadership by the host country or organisation

o A single program and budget framework.

o Donor co-ordination and harmonisation of procedures.

o Efforts to increase the use of local procedures over time with regard to program design and implementation, financial management, and monitoring and evaluation.’

Source: Lavergne and Alba (2003) p. 2.

Programme-based approaches can be used at many levels – national, sectoral or sub-sectoral for example. One widely-used national level programme which falls under the PBA category is Poverty Reduction Strategy Papers (PRSPs).

1.3 Poverty reduction strategy papers (PRSPs) Poverty Reduction Strategy Papers set out an analysis of a country’s poverty situation and define a government’s strategy as to how to tackle it over a three- to five-year period. PRSPs were introduced by the World Bank as an aid instrument in September 1999 as the new focus for its, and the IMF’s, assistance to developing countries. The intention was to aim for greater partnership, and a ‘country-owned’ process.

Five core principles were identified to underlie PRSP development and implementation, below.


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1.3.1 Key principles of PRSPs

– country-driven: involving broad-based participation by civil society and the private sector in all operational steps

– results-oriented: focusing on outcomes that would benefit the poor

– comprehensive: recognising the multidimensional nature of poverty

– partnership-oriented: involving co-ordinated participation of development partners (bilateral, multilateral, and non-governmental)

– based on a long-term perspective for poverty reduction

Source: IMF/World Bank (1999)

In the late 1990s and early 2000s, many multilateral and bilateral donors sought to align their development goals and strategies for each partner country with PRSPs and develop their own country assistance strategy paper which defined their role and objectives as they fell under the country’s PRSP. For example, the World Bank and IMF linked their development assistance to the preparation of PRSPs, and the Heavily Indebted Poor Countries (HIPC) initiative which was launched in 1996 by the IMF and the World Bank aimed to ensure that no poor country faced a debt burden that it could not manage, and used PRSPs as the operational basis for deciding upon debt relief.

Although PRSPs have now been used for a number of years, commitment to them as a process by aid donors has somewhat dwindled. Experience has shown that, in reality, there are variations in the degree of ownership, the participatory nature of the development and implementation of the PRSP and the adequacy of monitoring and evaluation systems. Some specific criticisms have been that:

• they are naive about domestic political processes

• they state what governments think the major donors want to hear

• stakeholder participation is rather superficial

• they over-emphasise social sectors and infrastructure sectors and do not give sufficient emphasis to the productive sectors (including agriculture)

1.4 Sector-wide approaches (SWAps) SWAps are one type of PBA, and are supported by donors in different ways including budget support to the sector, pooled funding, NGO support, and project support. Historically, SWAps preceded PBAs and lent their principles to PBAs. They were developed in the 1990s to address the problem of poor performance and high transaction costs in some sectors. They have been more prevalent in the education and health sectors but have also been used in productive sectors such as agriculture.


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A working definition for a SWAp is:

‘A SWAp is a process in which funding for the sector – whether internal or from donors – supports a single policy and expenditure programme, under government leadership, and adopting common approaches across the sector. It is generally accompanied by efforts to strengthen government procedures for disbursement and accountability’

Source: based on Foster and Leavy (2001)

SWAps aim to achieve:

• institutional capacity building with long-term benefits

• a common system for planning, monitoring, evaluating, and accountability therefore reducing transaction costs

• promote coherence between policy, budgeting, and actual results

• overall greater co-ordination and effectiveness in the allocation of donor and government resources

• broadened ownership by partner governments over decision-making regarding sector policy, strategy, and spending

It is useful to contrast the sector approach with a conventional project approach (see 1.4.1).

1.4.1 Contrasts between a conventional project approach and the sector approach

Unco-ordinated project approach Sector-wide approach

Narrow focus on projects with narrowly defined objectives

Bilateral negotiations and agreements

Donor—recipient relationships with unbalanced power

Parallel implementation agreements

Short-term disbursement and success of projects

Blue-print approach

Country holistic view on entire sector

External partners co-ordination and collective dialogue

Partnerships with mutual trust and shared accountability

Increased use of local procedures

Long term capacity/system development in sector

Process-oriented approach through learning by doing

Source: EuropeAid (2007)

The experience of SWAps has been mixed. See 1.4.2, below, for a summary of a review about the performance of SWAps.


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1.4.2 The experience of SWAps

‘In summary, while there is tangible evidence of progress with SWAps, that progress has often been slow and has sometimes resulted in unintended consequences for the balance of power within and between government institutions and between government institutions and donors. Donor and recipient behaviours have been slower to change than initially expected. While SWAps have provided a vital forum for discussing and resolving some key policy differences (eg over user fees in primary education), disagreements continue to persist particularly in areas involving a reduction of state action. This appears to have been most evident in sectors where public-private roles are still evolving, as in health, agriculture and rural development. Slow progress in the preparatory phases has also kept donors heavily involved in the micro-management of SWAps with consequences for the extent of country commitment to the process and for transactions costs.’

Source: Evans et al (2006) p. 11.

1.5 Direct budget support There are many instruments through which donors channel funds to developing countries. It is important for the context of this course to distinguish between two types of instruments: direct budget support and off-budget support.

When donor funds are channelled into government budgets through the normal budgeting and financial management process, it is referred to as direct budget support. It is typically linked to the PRSP process, given that government’s commitment to a poverty reduction strategy is usually required in order to attain the funds.

There are two types of direct budget support: general budget support or sector budget support.

• Sector budget support – funds are earmarked to finance an agreed expenditure plan for a sector and disbursed and accounted for through government systems, sometimes with some additional sector-specific reporting. It often entails sector conditions usually requiring agreement between government and donors on the sector’s policy.

• General budget support – this is provided as part of the national budget and there is relatively little specification as to expenditure purposes or priorities by donors.

The decision as to whether to channel funds into government budgets depends upon factors such as accountability, trust, the strength of government financial management and systems. Some donors have been more open to direct budget support than others (for example, the World Bank and DFID).

Before continuing to read, take a few minutes to think about the benefits and drawbacks of direct budget support.


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Benefits of direct budget support

Some of the benefits of direct budget support include:

• leads to more efficient use of resources through pooling of funds

• reduces the transaction costs involved with aid planning and delivery

• helps to build the capacity of government institutions to deliver

• shows trust of government systems and builds partnership

• provides greater predictability and clarity of funding

There are clearly issues over the financial management systems of partner governments, so that donors can show that their funds are being used appropriately. It may well be that direct budget support should be complemented by capacity-building in areas of administration, government effectiveness etc.

Off-budget support for programme-based approaches (PBAs) includes pooled funding by various donors, support for NGOs, and project support.

1.6 Cash on Delivery (COD) Many recent developments in aid delivery aim to provide greater ‘ownership’ to recipient countries and help ‘build the capacity’ of recipient countries to design and implement development strategies. One of the most recent initiatives with these aims in mind is ‘Cash on Delivery’ aid as explained in 1.6.1

1.6.1 Cash on Delivery: a new approach financing foreign aid

‘Public and private aid can improve lives in poor countries, but the willingness of taxpayers and private funders to finance aid programs depends more than ever on showing results. COD Aid is a funding mechanism that hinges on results. At its core is a contract between funders and recipients that stipulates a fixed payment for each unit of confirmed progress toward an agreed-upon goal. Once the contract is struck, the funder takes a hands-off approach, allowing the recipient the freedom and responsibility to achieve the goal on its own. Payment is made only after progress toward the goal is independently verified by a third party. At all steps, a COD Aid program is remarkably transparent: the contract, the amount of progress made, and the payment are disseminated publicly to highlight the credibility of the arrangement and improve accountability to the public. COD Aid is a new approach to foreign aid, but one that complements other aid programs and would ultimately encourage funders and recipients to use existing resources more efficiently.’

Source: CGD (2011)

COD is not yet in widespread use although a number of donors and developing countries have expressed interest in trying out the approach.

Before continuing to read, take a few minutes to think about the sorts of goals that might be pursued under a COD approach and the challenges that might be faced in implementing COD.


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There are numerous goals that could be subject to COD, including those relating to education outcomes, health outcomes, poverty reduction etc. However, the contribution that a recipient government makes to achieving them will be harder to verify for some goals than for others and there is a risk that, unless goals are chosen carefully, governments may seek to fulfil them in ways that do not really have a development impact, for example, increasing school enrolment at the expense of education quality. Additionally, since COD is only paid when the goal has been achieved, it does not provide the finance that may be needed actually to achieve the goal. This will have to come from other sources. Nevertheless, the COD approach does seem to address the ‘ownership’ and ‘capacity-building’ issues that have been central to much of the aid debate in recent years.

1.7 The role of projects in the new aid framework The move towards direct budget support does not mean that projects do not have a role. Projects will continue to be important, but will have different starting-points: ie programmes and strategies led by partner countries rather than donor-identified priorities.

The change in approach has resulted from reflections of the project format. There have been various criticisms of conventional donor-funded projects:

• Projects often exist outside of the structures and systems of a country’s public sector administration. As such, they do not contribute to strengthening systems such as a country’s budgeting and planning processes.

• For countries with a large number of aid projects and a multitude of donors, each with their own reporting schedules and accounting requirements, the transaction costs of delivering aid through projects can be unacceptably high. A lack of co-ordination across projects can lead to duplication in project administration and activities. Donors are able to impose their own priorities for investment upon governments as well as their management requirements for project implementation.

• The funding of multiple investments by donors often lacked an overall vision and clear priorities, leading to unbalanced sectoral development.

Projects often attract skilled personnel away from the public sector’s routine activities:

• the use of donor-specific mechanisms of accountability potentially corroding the normal structures of democratic accountability

• projects can be costly to administer and manage, both for governments and the donors that finance them

The new role of projects differs from the conventional idea of a project, in that:

• they are not standalone projects that are managed by donors

• they are intended to be locally-owned development programmes

• donors co-ordinate their efforts within the projects

• success is assessed in terms of a project’s role in contributing to programme goals


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The role that projects will continue to play is apparent from 1.7.1 which discusses projects emerging from different systems.

1.7.1 Projects in the current aid framework

‘Project aid using government systems

Project aid provides more specific earmarking of expenditures to a discrete set of activities for which coherent objectives and outputs and the inputs required to achieve them can be defined. The donor supported project can still be part of the Government budget, can be subject to policy conditions related to the project and the sector in which it is situated, and the resources can be disbursed and accounted for using Government systems. World Bank projects are often implemented in this way, though additional statements of expenditure and specific project accounts may need to be added to standard Government financial procedures. DFID projects make limited use of Government systems, mainly in cases where UK funding is reimbursing local cost expenditures by Government.

Project aid using parallel systems

Project Aid using parallel systems refers to those spending proposals where the donor has taken the lead in design and appraisal, has decided the inputs which will be provided, and uses its own disbursement and accountability procedures. In these circumstances, the donor is usually in a weaker position for insisting on project or sectoral conditionality, and the donor project operates as an enclave not fully integrated in the budget. This is likely to be true so long as the donor retains management control, even if log frame workshops and other techniques have been used to develop ownership and participation.

Project aid through NGO/private providers

In principle, in a good policy environment, Government would define its own role in relation to the private and not-for-profit sectors and, if there is a case for subsidising an activity carried out via these non-Government routes, the resources could be financed via the budget. In practice, Government Departments often resist resources being spent on outside organisations, while NGOs may be undertaking activities which, though important, do not map neatly onto the budget responsibilities of specific public sector organisations. There can therefore be a strong case for direct support to non-Government actors even in good policy environments, whereas the non-Government route may be the only feasible one in weak environments.

The rationale for donor involvement would need to be based on some form of market failure or on a distributional argument. The distributional case would be that the proposed project is a cost-effective way to provide better access by the poor to a socially desirable service. That is, a specific poor and vulnerable population requires subsidy before a service will be provided, and the proposed project is a cost-effective way to reach them. Issues of sustainability and of exit strategy will be especially important in looking at the case for subsidising goods or services provided by bodies outside Government, for whom the growth of taxation revenues does not provide a clear pathway to eventually reducing reliance on donors.

For support via the private sector, a critical issue is to ensure that the competitive market is not undermined as a result of the involvement of concessional finance. This implies using competition and good procurement practice to ensure that any subsidies benefit the end user rather than accruing as 'rent' to private sector operators. Where a long-term case for subsidised provision by non-Government service providers exists, there is a strong case for engaging Government in dialogue on eventually providing the necessary funding via the Government budget.’

Source: Foster and Leavy (2001) pp. 5—6.


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The diagram in 1.7.2, which was developed by Foster and Leavy (2001), is a decision-making tool for choosing appropriate aid instruments and provides a useful reference.

1.7.2 Decision tree for choosing aid instruments

Source: Foster and Leavy (2001) p.23.

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Before concluding this section, it is interesting to look at insights from projects and programmes about the advantages and disadvantages of some of the approaches discussed. The table in 1.7.3 highlights insights from the irrigation sector regarding projects, sectors and budget support. (Note that IFIs mentioned in the table refer to International Financial Institutions).

1.7.3 Advantages and drawbacks of different funding mechanisms of development assistance

Source: Morardet et al (2005) p. 41.

Instruments Advantages Drawbacks

Project approach

• Allows for innovation

• More clarity of use of funds and their direct outcomes

• Mobilises resources focused on specif ic objectives

• Poor co-ordination of dif ferent IFI’s interventions

• High costs of implementation and monitoring for IFIs

Sector approach

• Helps governments to provide adequate resources for project implementation and functioning (in particular, extensions services, capacity building, statistical systems, research and education systems ...)

• Opportunities for harmonisation, up-scaling and replication

• Governments can develop and apply own procedures rather than trying to please multiple IFIs

• Governments can avoid spreading resources among too many different projects

• Reduced opportunities for innovation

• More diff icult to document linkages between investments and outcomes

• Dependence on government processes for f inancial accountability

Budget approach

• Better ownership of development strategy

• Help government to provide itsf inancial counterpart

• Impose more transparency on the use of funds from government

• Risk to lose focus on agricultural development in general and agricultural water development in particular (Eicher2004)

• Risk of a shift of funds from the agricultural sector to other sectors

• Risk of a top-down and opaque process of fund allocation, weakening the empowerment of local stakeholders, and therefore the sustainability of irrigation projects

• Risk to implement projects only in the most accessible and best-known regions

• Risk of inappropriate transfer of funds from national government to local governments and of competitions between urban and rural areas (with clear bias towards the former)

• Risk of more dependency on external assistance


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Section Summary

• The new aid framework has come about for a number of reasons including aspirations of greater harmonisation of donors’ efforts and a commitment to the Millennium Development Goals by many countries.

• Programme-based approaches are prevalent today and aim to be an integrated set of activities which harmonise donors’ activities and are led by the host country or organisation.

• Poverty reduction strategy papers set out a country’s strategy to reduce poverty. Introduced by the World Bank and IMF, they intend to foster partnership-oriented, country-led approaches to which donors align their efforts.

• Direct budget support is when funds are channelled through government budgets and signify commitments by donors to trust and strengthen a country’s national processes and accountability systems.

• Cash on delivery aid pays recipient countries for achieving pre-defined goals. The aim is to give recipient countries ownership of development initiatives and help them build their capacity to innovate and design solutions to development problems.

• Projects have a role in this context, but not as stand-alone initiatives, rather as co-ordinated efforts towards programme goals.


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Section 1 Self Assessment Questions

uestion 1

A recent shift in the aid framework has been:

(a) harmonisation of donors efforts

(b) an increase in projects

(c) a move away from budget support

(d) donors working with different goals and objectives

(e) a move away from poverty reduction strategies

uestion 2

General direct budget support is:

(a) capacity building for budget management

(b) funds allocated for specific government activities

(c) funds for which expenditure priorities are relatively unspecified and contribute to the national budget

(d) financial support towards a specific sector

(e) funds which are focused towards education and health

uestion 3

Projects have a role in current development approaches as:

(a) stand alone projects

(b) projects developed and implemented by donors alone

(c) projects which are developed from a country’s national or sectoral priorities

(d) projects to administer budget support

(e) the need for projects has not changed

Q

Q

Q


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2.0 AGRICULTURE, PRO-POOR GROWTH, AND POVERTY

REDUCTION

Section Overview In this section we consider the important linkages between development in the agricultural sector, economic growth and poverty reduction, and the importance of rural livelihood diversification.


• articulate the key reasons why agriculture is considered to be important for poverty reduction, and the linkages between agriculture, pro-poor growth and poverty reduction

• understand why agriculture is vital to a country’s development not only for the sector itself, but for the ‘multiplier effect’

• be aware of the trends in agricultural productivity over recent years, and the importance of improving productivity particularly in sub-Saharan Africa

• be familiar with the challenges that the rural poor, and the sector as a whole currently face

2.1 Reversing underinvestment Following two decades of decline in investment in the agriculture and rural development sectors, investments are now increasing. Official Development assistance to the sector reached a low point around 2006, but now the trend is upwards (see the figure in 2.1.1, below).

This dramatic change in policies and donors’ priorities reflects the recognition of the critical contribution of agriculture to pro-poor growth, and awareness that the majority of the world’s poor live in rural areas. It also reflects growing international concerns about food security following recent hikes in global food prices (see the figure in 2.1.2, below) and increasing anxiety about the potential effects of global warming on global food production. The latter in combination with growing demand could lead to permanently high prices that will affect the poor the most.


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2.1.1 Trends in aid to agriculture (constant 2007 prices)

Source: OECD-DAC (2010) p. 1.

2.1.2 Changes in the real price of commodities (1948—2008)

(based upon index of 100 in year 2000)

Source: The World Bank in Mensbrugghe et al (2009) p. 15.


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For a few minutes, write down some of the ways in which you think agriculture can contribute towards poverty reduction. Divide your responses into: (a) farmers, households and their communities (b) a developing country’s route to poverty reduction and economic growth.

2.2 Agriculture and its contribution to poverty reduction There is a lot of evidence that agriculture can contribute to poverty reduction beyond a direct effect on farmer’s incomes. Agricultural development can stimulate economic development outside of the agricultural sector, and lead to higher job and growth creation. Increased productivity of agriculture raises farm incomes, increases food supply, reduces food prices, and provides greater employment opportunities in both rural and urban areas. Higher incomes can increase the consumer demand for goods and services produced by sectors other than agriculture. Such linkages (or the ‘multiplier effect’) between growth in the agricultural sector and the wider economy has enabled developing countries to diversify to other sectors where growth is higher and wages are better.

Diversification outside of agriculture is important to a country’s development. This is particularly true in rural areas where about 70% of the world’s poorest people live (IFAD 2011a). Haggblade et al (2002) estimate that across developing countries, as many as a quarter of the rural population is employed full time outside of agriculture, which constitutes 35–40% of rural incomes. This is not only a pattern amongst the wealthier rural population – the poorest 20% of the population earn an average of 30% of their incomes from non-farm sources (DFID 2005).

2.2.1 The agricultural sector in economic growth and transition

The general pattern for least developed countries who diversify and reduce poverty is:

− Early stage: agriculture is a large share of gross domestic product (GDP) and food is a high percentage of the poor’s expenditure.

− As agricultural productivity increases, the non-farm sector develops and countries are less dependent on agriculture for their economy (although this may not occur in all areas of the country, where the non-farm sector is not as well developed).

− Agricultural growth contributes to wider growth and poverty reduction, to what degree is dependent on the changes in productivity and the size of farms. Increases in land and labour productivity can be central to pro-poor growth. Initially land and labour productivity must rise to reduce poverty, but land productivity should rise faster... to create additional employment on farms which benefits the poor and leads to demand for non-farms goods and services.

− As growth increases, there are more employment opportunities outside of agriculture, and labour moves outside of agriculture thus wage rates for farm labourers rise. At this stage, it is important to increase labour productivity to maintain food supply and prices.

Source: adapted from DFID (2005)

Agricultural productivity can therefore be seen as a first step or engine of growth leading to greater income for a country. It is interesting to note that historically no poor countries have reduced poverty only through agriculture, but almost none have achieved it without increasing agricultural productivity in the first instance.


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Agricultural growth is an essential complement to growth in other sectors (DFID 2005).

2.3 Agricultural productivity For most developing countries, improved agricultural productivity is essential to growth. One estimate is that, on average, a 1% increase in agricultural yields reduces the number of people living on less than a dollar a day by 0.83% (Thirtle et al 2001). However, agriculture’s performance in recent years has been disappointing. It is critical to reverse this in order to increase growth and reduce poverty.

It is useful to look at past performance across different regions. In Asia, gains in productivity and poverty reduction were made in the 1960s through the ‘green revolution’ but the rate of growth of agricultural productivity has reduced in recent years with implications for the poor. In sub-Saharan Africa, the situation is more extreme – growth in agricultural output has not met increasing population levels.

2.3.1 Africa and Asia: a contrasting picture of agricultural performance

‘Between 1961 and 2001, per capita production of cereals rose by over 50% in the developing world as a whole. But this overall picture masks great regional differences. In sub-Saharan Africa, output barely kept pace with population growth, increasing from 40 to 116 million tonnes. Most of this (probably 80%) came from expanding the area farmed: cereal yields increased by just 50%, from around 0.8 to 1.2 tonnes per hectare, and soil fertility has fallen dramatically. This contrasts sharply with Asia, where cereal output tripled from 309 to 962 million tonnes over the same period. This was far above the increase in population, and mostly came from higher yields, which rose from an average of 1.2 to 3.3 tonnes per hectare. The farmed area increased by just 40% over the same period.’

Sources: IFPRI (2002), FAOSTAT (2004) quoted by DFID (2005) p. 6.

2.3.2 Per capita cereals production trends

Source: unit author based on FAOSTAT (2011)


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It is likely that the rate of agricultural productivity growth achievable in future will be slower than that of the green revolution and will vary according to countries and local conditions. If agricultural output is to keep pace with growing demand, in the face of a possibly dwindling supply of fertile land and water due to climate change, then the productivity of these scarce resources will need to rise significantly. This will require investment in improved technologies and policies that encourage more efficient resource use.

2.4 Current challenges for the agriculture and rural development sectors

The challenges faced by rural households today are very different to those faced by the producers in the ‘green revolution’ who increased agricultural productivity dramatically in the 1960s.

The decline in investment in agriculture and the rural development sector over much of the last two decades has meant reduced public sector support for agriculture, and reduced supply of inputs and services to producers. For many rural producers, the state was their only source of inputs and links to markets. In today’s globalised world in which there is much greater economic integration, small farmers are competing in markets that are more sophisticated with demanding standards in terms of quality and safety. Rural households are subject to risks from greater economic integration such as depressed commodity prices. Furthermore, international trade in agricultural commodities presents a number of challenges to developing countries.

Agricultural protectionism and farm support in OECD economies has tended to protect farmers in those countries while reducing trade opportunities for small farmers in the rural areas of developing countries.

A further challenge faced by rural households particularly in sub-Saharan Africa is the HIV/AIDs pandemic. The evidence about its impacts on agriculture is contradictory but it is certainly changing the demographic composition in many rural communities, disrupting the transfer of knowledge from one generation to another and affecting the ability of the government to deliver services. Families are having to focus on surviving, rather than improving agricultural productivity and their livelihoods.

Climate change is also affecting the rural population and placing additional pressures on often resource constrained agricultural systems and fragile natural resource base. Conflict, which result from or are triggered by poverty reduce the resilience of the rural poor further.

2.5 Understanding rural diversity The rural poor are of course not a homogeneous group that can be treated as such. There is considerable variation in access to assets, access to markets and the way in which institutions hinder or promote their interests for example. There needs to be an understanding of the rural context and people’s livelihood strategies in any development policies and programmes. Two key areas are briefly discussed here.


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Gender

In many rural areas women play a large role in agriculture as farmers, processers and selling at market for example. 2.4.1 provides an example from Cambodia.

2.4.1 Cambodia: agriculture feminised

‘In Cambodia 65% of the agricultural labour and 75% of fisheries production are in the hands of women. In all, rural women are responsible for 80% of food production. Half the women producers are illiterate or have less than a primary school education; 78% are engaged in subsistence agriculture, compared with 29% for men. In rural areas only 4% of women and 10% of men are in wage employment.

Households headed by women are more likely than households headed by men to work in agriculture, yet they are also more likely to be landless or have significantly smaller plots of land. Policies, programmes and budgets for poverty reduction must thus address the situation of Cambodian women.’

Source: Gender and Development Network and NGO Forum on Cambodia (2004) quoted by DAC (2006) p. 17.

Many women have poor access to resources, insecure land rights and poor returns in labour markets.

Given the importance of women as agricultural producers, initiatives aimed at increasing agricultural productivity need to reduce differential access to and control of resources by women and support women’s effective participation in decision-making processes.

Livelihood diversification

Livelihood diversification is more and more prevalent amongst rural households as a way to mitigate risk and make a living as recognised in the late 1990s (see 2.4.2, below). Many households pursue a number of different activities such as farming, non-farm enterprises and seasonal migration for paid employment. The result can be an increasing dependency on alternative sources of income to farming, with contribution to total income found to be more than 50% in some rural areas. Policies and programmes need to take account of this diverse portfolio and understand livelihood strategies, migration patterns and labour markets. Such livelihood diversification and broader multiplier effects in the economy have already been shown to contribute to poverty reduction.


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2.4.2 A change in thinking: beyond farming to livelihood diversification

The tendency for rural households to engage in multiple occupations is oft remarked, but few attempts have been made to link this behaviour in a systematic way to rural poverty reduction policies. In the past it has often been assumed that farm output growth would create plentiful non-farm income earning opportunities in the rural economy via linkage effects. However, this assumption is no longer tenable; for many poor rural families, farming on its own is unable to provide a sufficient means of survival, and the yield gains of new technology display signs of levelling off, particularly in those regions where they were most dramatic in the past.

The causes of the adoption by rural families of diversified income portfolios are better understood than the policy implications. Considerations of risk spreading, consumption smoothing, labour allocation smoothing, credit market failures, and coping with shocks can contribute to the adoption, and adaptation over time, of diverse rural livelihoods. However, livelihood diversity results in complex interactions with poverty, income distribution, farm productivity, environmental conservation and gender relations that are not straightforward, are sometimes counter-intuitive and can be contradictory between alternative pieces of case study evidence.

Future rural poverty reduction policies need to be better informed on the nature of these interactions. For example, it is fairly well known that the poor diversify more in less advantageous labour markets than the better-off, ie in casual, part-time and unskilled work compared to full-time work or substantive self-employment. These findings are related to the asset status of the poor (eg low human capital) and barriers to entry resulting from low assets (need for skills, ability to navigate bureaucratic hurdles, etc). It is possible that facilitating the poor to gain better access to opportunities (or to create their own opportunities) may turn out to be substantially more cost-effective for poverty reduction than attempting, artificially, to support particular sectors or sub-sectors of rural economic activity. Source: Ellis (1999)

Section Summary

• The linkages between agriculture, pro-poor growth and poverty reduction are substantial and important. There is now recognition that agriculture and its multiplier effect to the wider economy has scope for poverty reduction. With 70% of the world’s poor living in rural areas, it is critical that rural poverty is addressed.

• Agricultural productivity has been in decline in recent years. It is important to reverse this for substantial gains in poverty reduction to be made.

• Current challenges facing rural households include risks from a more globally integrated economic system, the HIV/AIDs pandemic and climate change.

• It is vital to build in to any policy on agriculture and rural development, the heterogeneous nature of the rural population and livelihood diversification.


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uestion 4

Agriculture can contribute to poverty reduction through:

(a) an increase in farmers’ incomes only

(b) a reduction in food prices for consumers only

(c) increases in farmers’ incomes, food prices and a stimulation of the wider economy through the multiplier effect

(d) an increase in farmers and their communities incomes only

(e) the multiplication effect

uestion 5

Agricultural productivity has been:

(a) high in sub-Saharan Africa and Asia in the 1960s due to the Green Revolution

(b) low in Asia for the last fifty years

(c) higher in sub-Saharan Africa than in Asia

(d) always lower in sub-Saharan Africa and now not rising as fast in Asia as it has in the past

(e) difficult to know

uestion 6

Which of the following statements is true?

(a) 70% of the world’s poor live in rural areas

(b) 30% of the world’s poor live in rural areas

uestion 7

Which of the following statements is true?

(a) An increase in agricultural productivity can often be a necessary first step in poverty reduction.

(b) Almost all rural households depend on farming alone for their livelihood.

Q

Q

Q

Q


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3.0 REDUCING POVERTY: AGRICULTURE AND RURAL

DEVELOPMENT STRATEGIES

Section Overview In this section we try to build on Sections 1 and 2 by exploring how agricultural and rural development can contribute to the MDGs and to the goals of PRSPs.


• know about the perceived role of agriculture and rural development in the MDGs and PRSPs

• understand the current policies and strategies of funding agencies, including one in your own country

3.1 Introduction – MDGs, PRSPs, agriculture and rural development

Investing in agriculture and rural development with the aim of promoting pro-poor agricultural growth is not easy. It is subject to risks from many sources, ranging from market uncertainty and variation in prices to impacts of unfavourable weather. Many investments, while providing high payoffs, can take years, and even decades to fully materialise. And because the population directly affected by rural development is widely dispersed, and often has little political voice, the results are often not visible to influential decision-makers. However, the fact that 70% of the world’s poor live in rural areas and the importance of the linkages between agriculture and growth, combined with rising global food prices and climate-related food security concerns, have led to renewed interest in investing in agriculture and rural development.

It is worth questioning whether this is always recognised in national and international policies and processes. In this section, we look at some of the policies which directly affect agriculture and rural development.

Spend a few moments thinking about the eight Millennium Development Goals (MDGs) – which ones relate to agriculture and natural resources? (As a reminder the eight MDGs are: eradicate extreme poverty and hunger; achieve universal primary education; promote gender equality and empower women; reduce child mortality; improve maternal health; combat HIV/AIDS, malaria and other diseases; ensure environmental sustainability; develop global partnerships for development.)


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Answer.

Few contries will substantially reduce poverty, and the world will not achieve the Millennium Development Goals unless agriculture and rural development challenges are addressed. MDG 1 ‘to eradicate extreme hunger and poverty’ will not be achieved unless the needs of the 70% of the world’s poor that live in rural areas are met. MDG 6 regarding ‘environmental sustainability’ needs to involve the rural poor who largely live in and rely on natural resources. Furthermore, other MDGs such as child nutrition and gender equality depend directly or indirectly on pro-poor agricultural growth (World Bank 2005).

Poverty reduction strategy papers and the rural sector

Given the importance of PRSPs within the current aid framework, it is vital that PRSPs take account of the circumstances, priorities and challenges for the rural poor. However, a review of PRSPs from various studies has shown that there have been serious shortcomings in the ways that rural poverty and the agricultural sector are addressed across PRSPs.

3.1.1 PRSPS — rural poverty inadequately addressed

‘Various studies have suggested that PRSs, or at least the first generation of them, are weak in terms of the analytical content of policies. Studies focusing on the rural dimensions of poverty and the rural economy conclude likewise and identify at least four types of problems: deficient poverty diagnoses, lack of correspondence of diagnosis to policy recommendations, bias to activities that concern public spending, and failure to explore the links between growth and poverty reduction.

Taking these in turn: In PRSs, the rural poor are frequently treated as a homogeneous group with little discussion of the determinants of their poverty status (World Bank 2005). The neglect of dynamic aspects of poverty–opportunities for the poor to participate in economic growth as well as the risks of the non-poor descending into poverty – has also been noted (Shepherd and Fritz 2005).

An additional concern is the extent to which poverty diagnoses, or indeed participatory assessments involving the poor, actually inform the setting of policy priorities and targets. The links between poverty assessments and policy are seldom straightforward. The World Bank review notes, for example, that half of the 32 PRSs analysed included water-related issues in the poverty diagnosis, but only one-quarter included actions related to this sector. Livestock provides a similar example. By contrast, decentralisation and local governance were linked to rural poverty in only 28% of the PRSs but considered a priority area of intervention in 72% of them (World Bank 2005).

PRSs seem to have failed to draw from poverty diagnoses, or to explore the rural dimensions of poverty, and so convey little understanding of the poverty reduction potential of the rural productive sectors.

PRSs have a strong public expenditure focus, and pro-poor policy prescriptions are greatly determined by the prevailing pattern of public sector intervention. This is said to have created a bias in PRSs — a bias reflected in the MDGs also — against the productive sectors (Shepherd and Fritz 2005; Cromwell et al 2005). The public expenditure focus is not surprising given the initial tight link between the PRS process and debt relief, and the fact that PRS processes have often been co-ordinated by ministries of finance. This might have left little space for considering enabling (and less expenditure-focused) public sector measures and for exploring linkages between the public sector and the


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profit and non-profit non-state sectors with great poverty reduction potential.

Nor have the linkages, or trade-offs, between poverty reduction and growth been adequately explored (World Bank 2004). There are sectors, such as tourism, where considerable scope for poverty reduction exists but has rarely been explored in PRSs (Shepherd and Fritz 2005). Often, the implicit pro-poor growth model in PRS is one of ‘trickle-down’, which tends to treat growth and poverty reduction as one and the same thing, overlooking the connections between the two (Cromwell et al 2005).’

Source: Cabral (2006) p. 2.

Briefly summarise some of the key issues which need to be included in PRSPs in the future in order to address rural poverty and agriculture adequately.

3.2 The policies of development agencies towards agriculture and rural development

The context for agriculture has changed in the last few decades, as has the approach to aid to address agricultural and rural development challenges. The following table highlights some of the changes which have occurred in the rural context and livelihood strategies of the rural poor and the policy responses to them.

3.2.1 An evolving agenda towards rural development

Evolving agendas Policy responses

From ... To ...

Focus on commodity production and increasing farm productivity

Focus on household productivity through diversified production and off-farm work

Build household assets, reduce market related barriers and expand access to local, national and international markets

One work location Multiple work locations Support diversified livelihoods

Smallholders are marginal

Reduce risk and vulnerability to increase market participation

Secure assets (land, water, finance) and mitigate shocks (new forms of insurance)

One size fits all technologies

Technologies that respond to the very diverse needs of a wide range of small producers

Target research and development investments to smallholders

Agriculture is synonymous with the farm

Agriculture contributes to growth and poverty reduction at the field level all the way to the table

Promote a holistic approach to rural poverty reduction in country PRS’s

Source: based on DAC (2006)


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The ‘triple-f’ crisis

The table in 3.2.1 is based upon the findings of a report written in 2006. Since that time the world has experienced some major shocks in the form of a financial, fuel and food crisis (the so called ‘triple-f’ crisis). Higher prices for food and fuel (see the figure in 2.1.2) combined with slower growth in many parts of the world have pushed many people back into poverty. The crisis has highlighted the vulnerability of poor people to commodity price shocks and once again drawn attention to the agricultural sector, although the precise implications of the crisis for development policy and the aid agenda remain to be seen.

The fear that we might now have shifted from an era of continuously falling food prices to one in which the long term price trend is upwards has put the focus back on productivity and yields and the question of how to raise domestic and international food supplies fast enough to reduce the pressure on prices. In this regard there are heated debates in the development community about the respective roles of large farms and smallholders, and also about whether food security is best served by furthering the spread of high-tech external inputs (including controversial GMOs), or by promoting resilience to climatic shocks through technologies that have more in common with organic farming and ‘sustainable agriculture’ than with the input-intensive strategies of the past (IFAD 2011b, Collier 2008).

Recent global price shocks have also strengthened calls for greater self-sufficiency in food production, both at the household level and at the national level. Rural households that are self-sufficient in food (and perhaps also less dependent on external inputs) will be less vulnerable to international price hikes. The same goes for individual countries, although this will depend to some extent on their trade policies, and the degree to which these allow international price movements to be transmitted to the domestic market. However, the food security of households with access to land is not necessarily served by the same policies as those who are landless. The latter are a growing proportion of a country’s poor, in rural, as well as urban, areas. Their interests are best served by low food prices, which in turn depend upon rising domestic food production and easy access to international markets when domestic harvests fail.

Debates about farm size, technology, and trade policy and the way these debates shape donor funded development programmes will be influenced by both consumers’ and producers’ interests. Development interventions will need to minimise the trade-offs between these interests whilst maximising the synergies that we mentioned earlier between growth in farm and non-farm incomes.

The World Bank’s strategy

The strategies of individual donors and development agencies towards the rural and agricultural sectors can usually be found in various policy and strategy documents. At the time of writing the most recent one for the World Bank is its Agricultural Action Plan for 2010–2012 that updates previous statements in the light of the ‘triple-f’ crisis that we mentioned earlier. See 3.2.2, below, for more details.


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3.2.2 World Bank Agricultural Action Plan 2010—2012

‘The World Bank Group has made a renewed commitment to agriculture: this document presents the World Bank Group’s Agriculture Action Plan, FY2010—2012. It follows on from the World Bank agriculture and rural development strategy: Reaching the Rural Poor 2003—2007, and operationalizes the World Development Report 2008: Agriculture for Development.’ (p. xiii)

The plan puts greater emphasis on increasing productivity than was previously the case, particularly for smallholders in sub-Saharan Africa and those parts of Asia in which agriculture remains an important driver of growth and poverty reduction. However, the plan recognises that developing countries are no longer a homogenous group and that in Latin America and rapidly growing parts of Asia rural poverty reduction needs to focus on a different set of priorities, including ways of enabling the poor to exit from agriculture and find work in other sectors. The main goals of the plan as far as agriculture is concerned are as follows:

– ‘Raise agricultural productivity — including support to increased adoption of improved technology (eg seed varieties, livestock breeds), improved agricultural water management, tenure security and land markets, and strengthened agricultural innovation systems.

– Link farmers to market and strengthen value addition — including continued support for the Doha round, investments in transport infrastructure, strengthened producer organizations, improved market information, and access to finance.

– Reduce risk and vulnerability — continued support for social safety nets, for better managing national food imports, innovative insurance products, protection against catastrophic loss, and reduced risk of major livestock disease outbreaks.

– Facilitate agricultural entry and exit and rural nonfarm income — including improved rural investment climates, and upgraded skills.

– Enhance environmental services and sustainability — including better managed livestock intensification, improved rangeland, watershed, forestry and fisheries management, and support to link improved agricultural practices to carbon markets (eg through soil carbon sequestration).’ (p. vii-viii)

Source: World Bank (2009) pp. Xiii and vii—viii.

From market liberalisation to resilience?

The World Bank’s agenda for development has long been associated with market liberalisation and privatisation – the policies of the so-called ‘Washington Consensus’. The efficacy of these policies were already being criticised prior to the ‘triple-f’ crisis, but the crisis has certainly lent additional weight to these criticisms. Although the World Bank and other donors continue to emphasise market-led development, there is now greater acknowledgement of market failures and of the need to correct them by building both private and public sector capacity and by fostering public-private sector partnerships.

Tackling market failure was one of the key objectives in DFID’s 2005 Agricultural Policy paper.


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‘Poorly functioning markets continue to hinder agricultural development in many poor countries. State intervention, particularly in Africa, has a poor track record, but when markets have been liberalised, the private sector has often failed to fill the gap left when government withdraws. Building effective markets that are accessible to poor people needs actions to reduce the transaction costs and risks that inhibit the private sector. This involves improving infrastructure and communications, and removing burdensome regulations or inconsistent policies. Where markets are very weakly developed, governments may need to play a more direct role in encouraging private sector participation by using targeted and time-bound guarantees or subsidies’

Source: DFID (2005) p. 3.

Trade liberalisation, another donor-led policy objective, has also become more controversial since the ‘triple-f’ crisis. The recent volatility in food prices has highlighted the risks of full exposure to global markets. Recent hikes in international food prices led many countries that had previously liberalised agricultural trade to re-introduce export controls to protect domestic consumers. The effect on regional and global markets of such interventions is to push prices up further still, exporting domestic price volatility onto the global market instead and further increasing the vulnerability of importing countries. Standard economic analysis treats trade restrictions as a net cost to the economy, with the benefit of export controls to consumers outweighed by the associated losses to producers (and vice versa in the case of import controls) However, extreme price volatility also has a cost that is now better appreciated than it was before the triple-f crisis (FAO et al 2011).

Although most donors still recognise the benefits of markets and free trade, the emphasis in many donor policy documents seems to have shifted somewhat from ‘market liberalisation’ (partly because this has already been done) to one of ‘building resilience’ and ‘reducing vulnerability’. See, for example, the five main strategic objectives listed in IFAD’s most recent Strategic Framework document in 3.2.3.

3.2.3 IFAD Strategic Framework 2011—2015

‘IFAD’s overarching goal is: enabling poor rural people to improve their food security and nutrition,4 raise their incomes and strengthen their resilience. This goal is underpinned by five strategic objectives:

– A natural resource and economic asset base for poor rural women and men that is more resilient to climate change, environmental degradation and market transformation;

– Access for poor rural women and men to services to reduce poverty, improve nutrition, raise incomes and build resilience in a changing environment;

– Poor rural women and men and their organizations able to manage profitable, sustainable and resilient farm and non-farm enterprises or take advantage of decent work opportunities;

– Poor rural women and men and their organizations able to influence policies and institutions that affect their livelihoods; and

– Enabling institutional and policy environments to support agricultural production and the full range of related non-farm activities.’

Source: IFAD (2011a) pp. 16—17.


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Property rights

Resilience depends upon to a large degree on security of property rights, which has long been emphasised by donors, particularly in relation to the access that poor people have to land

‘Ownership and access to land in many poor countries remain inequitable, reducing agriculture’s contribution to poverty reduction. Efforts are needed to help poor people to buy land and to encourage large landowners to sell it. This may be done by simplifying legal and administrative procedures and strengthening the financial position of the poor. In addition to measures aimed at increasing poor farmers’ land ownership, attention should be given to new approaches to land administration that can help provide secure access to land through, for example, leasing arrangements. Special attention should be given to improving access to land for the most marginalised people, particularly women and indigenous communities.’

Source: DFID (2005) p. 4.

Land rights are, however, complicated and there is still considerable debate about the extent to which land privatisation and formal titling programmes actually benefit the poor and whether the poor may in some circumstances be better served by lending greater weight to traditional land tenure arrangements (Meinzen-Dick et al 2008)

For your own country, or one with which you are familiar, investigate the agricultural ministry or a development agency’s strategy. Summarise the key points of the strategy, and the emphasis of the approach.

Section Summary

• If we are to achieve poverty reduction and meet the MDGs, agriculture and rural development will play an important role directly and indirectly.

• The experience so far of the sector within PRSPs shows that agriculture and rural development have been inadequately addressed.

• Policies are having to evolve to reflect the changes in the rural environment. Policy responses include a shift in focus from commodity production to household productivity and livelihood diversification, and from a view that smallholders are marginal to market participation to strategies that reduce their risk and vulnerability and increase their participation in markets.

• Different funding agencies have their own approaches to agriculture and rural development, but in common they focus upon the enabling environment for rural growth, agricultural productivity, reducing risk and vulnerability, and the sustainability of natural resources.


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uestion 8

True or false?

(a) A concern regarding agriculture in Poverty Reduction Strategy papers is that they treat the rural poor as a homogenous group.

(b) The World Bank’s Rural Strategy does not encourage non-farm economic growth.

(c) IFAD’s Rural Strategy emphasises the importance of building up the poor’s resilience to shocks, such as those that have occurred as a result of the ‘triple-f’ crisis.

uestion 9

Choose the correct answer or answers from the list below.

Which of the following will help to reduce the transaction costs and risks that may inhibit private sector participation in agricultural input and output markets in developing economies?

(a) an increase in regulation

(b) investment in infrastructure and communications

(c) reduced funding for agricultural research

(d) information dissemination

(e) time bound and well targeted subsidies

(f) macro-economic instability

Q

Q


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UNIT SUMMARY

This unit sets the scene for the module by providing an overview of the current aid framework in the context of agriculture. It shows how over the last two decades there has been a significant shift in international development approaches towards the promotion of strategies to address poverty and sector-wide programmes of investment and policy reform that are developed and implemented by developing countries themselves. This has been driven by factors including aligning development assistance behind developing countries own goals, and the signing up of many countries to work towards the Millennium Development Goals.

In recent years, many donors (such as the World Bank and the UK’s DFID) have moved towards supporting government budgets and programmes which fit with a country’s priorities. New aid modalities have developed including programme-based approaches, sector wide approaches and budget support. Poverty Reduction Strategy Papers have been used by many countries to set out the poverty situation and define a government’s strategy as to how to tackle it over a three to five year period. The move towards these different aid modalities does not mean that projects do not have a role. Projects will continue to be important, but will have different starting-points: ie programmes and strategies led by partner countries rather than donor identified priorities.

There are renewed efforts by donors and higher levels of investment aimed at developing agriculture as a means to provide pro-poor economic growth. There is evidence that agricultural development can stimulate economic development outside of the agricultural sector, and lead to higher job and growth creation. However challenges remain in ensuring that policy is translated into action and that agriculture is sufficiently represented within current aid modalities.


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UNIT SELF ASSESSMENT QUESTIONS

uestion 1

List the eight Millennium Development Goals.

uestion 2

Fill in the gaps on the table below which compares a project approach, programme-based approach and direct budget support.

Projects Programme-based approach

Direct budget support

Results and accountabilities

Targeting or earmarking of funds

Local ownership and division of responsibilities

Collaboration between donors

uestion 3

Explain the general sequence of events for developing countries to reduce poverty by agriculture and diversification.

Q

Q

Q


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KEY TERMS AND CONCEPTS

cash on delivery aid payments made by donors to recipient governments as a reward for progress towards achieving pre-defined development goals

general budget support support that contributes to the national budget in which case there is relatively little earmarking by donors.

livelihood diversification the tendency for households to engage in multiple occupations

millennium development goals

the MDGs are a set of development goals agreed by the United Nations at the Millennium Summit in September 2000. They include the goal of halving the number of people living on less than a dollar a day and the number suffering from hunger by 2015

programme a set of interventions, including projects, designed to meet policy objectives. Typically characterised by longer term commitment, and wider geographical or sectoral scope, compared to projects

programme-based approach (PBA)

new focus for donor aid to developing countries based upon the support of programmes designed and led by recipient countries

project discrete investment initiatives that are usually of fixed and pre-determined duration

project cycle a logical sequence of stages through which projects pass including: identification, planning and appraisal, implementation and evaluation

sector budget support support that is earmarked for a particular sector by being channelled to the ministry or department responsible for that sector

sector-wide approach (SWAp)

involves a sector level programme and follows the same principles as PBAs more generally – can be supported by donors in various different ways, including via sector budget support, pooled funding, NGO support, and project support

triple-f crisis the financial, fuel, and food crisis and associated price shocks