Study shows which policies succeed in developing agriculture

Recent research by the International Food Policy Research Institute and the International Institute for Sustainable Development analysed progress in agricultural development in 117 countries in Africa, Asia and Latin America to understand which policies h

Inclusive economic growth is essential to achieving long-term poverty reduction and development goals. The transition from traditional, rural societies dominated by farm systems with low productivity toward more diversified, urban-centred societies with high productivity is a complex process that depends on a country’s resource endowments, institutions and other factors. Within the structural transformation of the economy, agricultural transformation has an essential role to play, and successes and failures in this sector have serious consequences for social outcomes, environmental impacts and economic efficiency.

Research conducted by the International Food Policy Research Institute and the International Institute for Sustainable Development looked at government policies and public investments that drove agricultural transformation in African, Asian and Latin American countries between 1970 and 2015.

a changing world

According to the findings, significant progress was made during this period to reduce undernourishment and provide employment opportunities outside of agriculture in lower and middle-income countries. The greatest success has been in Asia, Latin America and parts of North Africa, while sub-Saharan Africa has not experienced the same growth.

In 1970, most countries in Africa, Asia and Latin America were characterised by high levels of undernourishment, heavy dependence on agriculture for employment, and low productivity. By 2015, most countries had largely achieved transformation, with only sub-Saharan Africa lagging behind.

Today, only 10 countries are still in the earliest phase of agricultural transformation, namely subsistence agriculture, compared with 30 countries in 1970. They are the Central African Republic, Chad, the Democratic Republic of Congo, Eritrea, Haiti, North Korea, Somalia, South Sudan, Sudan and Zambia. Farm systems in most countries have commercialised and use modern inputs. South Africa ranks among the top industrialised economies in terms of agricultural development.

Countries that have failed to transform their farming sector can learn from those that have been more successful. However, when providing policy guidelines, it is important to take into account that the global economic and environmental context has changed dramatically since the green revolution between 1950 and the late 1960s in countries that, at the time, formed part of the so-called developed world. In the current context, countries will not necessarily be able, or need, to replicate those early strategies that focused on primary production of staples.

agricultural activity and fertile land are key to spurring economic growth

Urbanisation has progressed ahead of structural transformation in many countries that have not yet transformed their agriculture. Dietary changes and the modernisation of food distribution and processing create new opportunities as well as challenges of overnutrition. The increased frequency of extreme weather-related events as a result of climate change, deforestation, biodiversity loss and freshwater scarcity are disrupting agriculture’s potential, and require new approaches to achieve economic growth and poverty reduction. At the same time, advances in science and technology have created new approaches and opportunities to support agriculture.

having fertile land is crucial

The research produced five key findings. Firstly, the availability and fertility of agricultural land, as well as population dynamics, are core to the role of agriculture in economic transformation. Where countries have abundant and fertile agricultural land and high birth rates, increasing agricultural productivity is a key priority for spurring economic growth in the early phase of transformation. This is evident from many successful Latin American countries, such as Brazil and Colombia.

Where countries have high birth rates but limited agricultural land and water per capita, increasing non-agricultural productivity is a key priority for spurring economic growth in the early phase of transformation. This is evident from many successful Asian countries studied.

Secondly, price policies play a key role in agricultural transformation. Price interventions include measures that change the demand and supply of private goods. They affect market prices (for example, through trade policies, price controls and marketing boards), or they affect producer prices (through subsidies paid by taxpayers) both for inputs and outputs.

Price interventions can provide either positive assistance or negative assistance to farmers relative to the rest of the economy. What really matters when assessing the bias of a price policy regarding agriculture is the notion of ‘relative rate of assistance’. If a country implements a 5% average tariff on agricultural products but a 10% average tariff on industrial products, it does not support agriculture (in other words, there is a negative relative rate of assistance). In many countries, such as Brazil, Indonesia, South Korea and Vietnam, agriculture took off when the anti-agricultural bias was removed.

On the other hand, countries that have not yet transformed their agricultural sector, such as Ethiopia, Malawi, Togo and Uganda, maintained an anti-agricultural bias for the entire 45-year period. Stable macroeconomic policies also played an important role, including through exchange rate interventions and managing inflation.

Investment and reforms

The third key finding of the research was that public investment is important but not sufficient for success. Significantly expanding public investment in support of agricultural development has been a key factor in most successful countries, such as China, Costa Rica and Malaysia. But some countries, for example Ghana and Peru, have achieved impressive growth without significant increases in public investment. For the group of countries studied, investments in research and development and extension services have been the most important types of public investments and tend to have a greater impact when accompanied by other measures.

Rural infrastructure, particularly electrification and irrigation, is a crucial public investment, and delivers even better results when combined with roads. Fourthly, the research suggested that institutional change and legal reforms were critical to achieving transformation and development in the agriculture sector. Land and other institutional reforms are especially critical in the initial stages to jumpstart agricultural productivity growth and generate surpluses to facilitate structural change. Land reform was key in countries with unequal land distribution, such as Brazil, South Korea and Vietnam. Combining these reforms with public investment has led to far greater success when wellcoordinated and carried out in a proper sequence. This has been the case with agricultural institutional reforms in China and Vietnam, land reforms in Vietnam and South Korea, and provision of public credit in Brazil and Colombia.

heeding the past

The final finding was that complementarity is essential. No single measure is sufficient to make progress, and no country studied succeeded without an appropriate mix of policies and public investment. Moreover, the composition of public spending mattered; some countries had low levels of spending in research and extension and too much focus on input subsidies.

Ultimately, each country will chart its own path with attention to the global economic, social and environmental contexts, but it will do so more effectively by drawing on the lessons of the past.