IFPRI

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Overview of growth, public investments,

and future challenges for achieving

MDG and CAADP goals

Shenggen Fan

International Food Policy Research Institute

USAID/World Bank Workshop on

“Agricultural investment priorities and financing gaps for achieving growth and

poverty reduction targets: Review of evidence and methodology”

January 7, 2010

IFPRI

Global Initiatives

G8, G20 and other global initiatives increased

attention and financial commitments for agriculture

as a tool for development:

» L’Aquila G8 Statement on Global Food Security: “We support

the implementation of country and regional agricultural

strategies through country-led coordination processes….

Investment in and access to education, research, science and

technologies should be substantially strengthened at national,

regional and international levels.”

Need for credible commitments to support long term

“agriculture for development” agenda, beyond price

and political cycles

However, capacity is often weak at the regional and

country level

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Outline

Why is Agriculture Important?

Current Trends: Public Spending and

Growth

Results from Modeling Work: Are

current targets enough?

Setting Priorities

Why is Agriculture Important?

Source: Ravallion et al. (2007)

Note: Poverty line is set at $1.08/day

Poverty Remains Largely Rural

Despite recent urbanization trends, majority of the world’s poor will

continue to live in rural areas for many decades to come

Link Between Agricultural Growth and Poverty Reduction

Poverty Reduction Elasticities of Agricultural Growth

SSA -1.83

South Asia -1.73

East Asia and Pacific -1.44

Eastern and Central Europe -1.57

Latin America -1.11

Middle East and North Africa -0.92

All Low Income Countries -1.6

Poverty Reduction Effect of Agriculture vs. Non-agriculture Led

Growth Strategies

Ethiopia Ghana Rwanda Uganda Zambia

Agriculture-led GDP

growth-1.7 -1.8 -1.4 -1.6 -0.6

Non Agriculture-led

GDP growth-0.7 -1.3 -0.8 -1.1 -0.4

Source: Johnson et al, 2009

Source: Christiaensen et al, 2006

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Agricultural Growth is Key for Poverty Reduction

SSA

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Po

verty rates (%

)

Actual trend

MDG target trendLast off icial

estimate

SSA

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Po

verty rates (%

)

Actual trend

MDG target trendLast off icial

estimate

Business as usual Focus on agricultural growth

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Ethiopia: 5% of GDP annual growth in both cases

26

28

30

32

34

36

38

40

42

44

2003 2005 2007 2009 2011 2013 2015

Ghana: 6% of GDP annual growth in both cases

17

19

21

23

25

27

29

31

33

35

2003 2005 2007 2009 2011 2013 2015

Rwanda: 6% of GDP annual growth in both cases

34

37

40

43

46

49

52

55

58

61

2003 2005 2007 2009 2011 2013 2015

Ag-led growth Nag-led growth

Uganda: 7% of GDP annual growth in both cases

12

15

18

21

24

27

30

33

36

1999 01 03 05 07 09 11 13 15

Ag-led growth Nag-led growth

Agricultural Growth is More Pro-Poor

Sector

Ghana Uganda Tanzania Ethiopia China India Thailand

Returns to agriculture or rural income(local currency/local currency spending)

Agriculture 16.8 12.4 12.5 0.14 6.8 13.5 12.6Education -0.2 7.2 9.0 0.56 2.2 1.4 2.1Health 1.3 0.9 n.e. -0.03 n.e. 0.8 n.e.Roads 8.8 2.7 9.1 4.22 1.7 5.3 0.9

Ranking in returns to poverty reduction

Agriculture n.e. 1 2 n.e. 2 2 1Education n.e. 3 1 n.e. 1 3 3Health n.e. 4 n.e. n.e. n.e. 4 n.e.Roads n.e. 2 3 n.e. 3 1 2

Notes: “n.e.” indicates not estimated.

Public Investment Impact

Source: Mogues, Benin, and Fan (2008); Fan and Zhang(2004); Fan,

Hazell, and Thorat (2000); and, Fan, Yu, and Jitsuchon,(2008)

Need for a review of recent spending levels and priorities to identify

challenges and opportunities for improvement within developing countries

Current Trends: Agricultural Expenditures by Region

0

4

8

12

16

1980 1990 2000 2005

(%)

Share of AgGDP

SSA ASIA LAC TOTAL

0

50

100

150

200

250

1980 1990 2000 2005

20

00

In

tern

ati

on

al D

oll

ars

(b

illi

on

s)

2000 International Dollars

SSA ASIA LAC TOTAL

Source: ReSAKSS, calculated using data from International

Monetary Fund’s (IMF) Government Financial Statistics Yearbook

Uneven progress towards 6% annual

agricultural growth across SSA countries

-10

0

10

20

30

%

Annual Agricultural GDP Growth (%), 2007

CURRENT, 2008 (Unless otherwise noted)

CAADP 6% BENCHMARK

*=2007; **=2006; and ***=2005Source: World Bank (2009)

Uneven progress towards 10% budget allocation to agriculture across SSA countries

African continent as a whole has not met the 10% target (current spending at 6-8 percent)

Source: Omilola (2009)

Results from Modeling Work

Are Current Targets Enough?

0

5

10

15

20

25

Current and Required AgGDP Growth Rates to Meet Poverty MDG (%)

Annual AgGDP Growth Rates, 2000-2006

Required AgGDP Growth Rates to Meet MDG by 2015

Source: Johnson et al, 2009

Agriculture Financing Gaps to Meet MDG 1

Under current agricultural spending commitments

US$, constant 2007 (millions)US$, constant 2007 (millions)

Under CAADP-level agricultural spending (10% of total spending)

Source: Johnson et al, 2009

Agriculture Spending and Poverty Reduction

Number of people lifted out of poverty by 2015, under current

trends vs. after closing financing gap (millions)

Source: Johnson et al, 2009

0 5 10 15 20 25 30 35 40

Nigeria

Congo, DR

Ethiopia

Tanzania

Kenya

Mozambique

Niger

Mali

Rwanda

Malawi

Zambia

Senegal

Liberia

Uganda

Ghana

Under Current Scenario

After Closing Financing Gap

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Strengthening Global Efforts for Agricultural Development

Need to ensure that the political statements and

financial pledges in support of agricultural and rural

development are translated into actual actions and

development outcomes

Quantity plus Quality: Importance of coordination and

sustainability

Major Issues:

» How to track donor commitments and

disbursements?

» How to coordinate across donors?

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Global Agricultural and Food Security Program (GAFSP)

Proposed multilateral mechanism to assist in the

implementation of donor pledges to scale-up agricultural and food

security assistance

Provides additional funds to fill financing gaps in support of

country-led agriculture and food security programs

Improves donor alignment around country programs by

channeling multiple donor funds through unified global

mechanism

Places emphasis on public and private investments that

» improve agricultural productivity

» link farmers to markets

» reduce risk and vulnerability

» improve non-farm rural livelihoods

» provide technical assistance and capacity building

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Setting the Right Priorities

Returns to public spending vary drastically across

different types of investment and regions within the

same country

Agricultural research, education, and rural

infrastructure (especially low cost feeder roads) are

the three most effective public spending items in

promoting agricultural growth and poverty reduction

Evidence from China and Uganda indicates that it is

often low cost infrastructure that has highest return in

terms of growth and poverty reduction

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Setting the Right Priorities

“One-size-fits-all” strategies do not work: different spending priorities are needed during different stages of development

» During the first phase, spending should focus on reducing widespread poverty through broad-based economic growth that reaches rural areas

» In subsequent phases, more direct attention should be focused on lagging sectors/regions in order to reduce poverty and income inequalities that arise and persist despite reforms

Reforms in institutions and governance related to

public spending

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How to Approach Governance Reforms?

Need to strengthen capacity to use resources more

efficiently through governance reforms:

» Supply-side

Building administrative capacity via civil service reforms

Improving government procurement procedures and auditing

systems to root out corruption

» Demand-side

Strengthening governments’ accountability to citizens

through a system of checks and balances

Empower the participation of citizens and non-state actors

through greater decentralization

Institutional/governance reforms need to address

governance challenges at local, national, & global level

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Governance Challenges

Global

» Failure of global institutions to predict and

coordinate past response to emergencies (e.g. food

& financial crises)

National

» Low capacity and will to use agriculture for

development

» Lack of mechanisms and skills for cross-sectoral

coordination

Local

» Low empowerment and capacity to set priorities and

implement policies

» Weak local accountability structures

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Future Directions

Country and regional level capacity

building

Emerging issues, including:

» Climate change

» Financial crisis

» Emerging players like Brazil, China,

and India