Food Policy Statement No. 17

Food Policy Statements

Aid to Agriculture: Reversing the Decline Joachim von Braun, Raymond F. Hopkins, Detlev Puetz, and Rajul Pandya-Lorch December 1993

Despite continuing food crises in the developing world, agricultural development assistance from major governments and international institutions has declined since the early 1980s. Aid to Agriculture: Reversing the Decline, an IFPRI Food Policy Report by Joachim von Braun, Raymond F. Hopkins, Detlev Puetz, and Rajul Pandya-Lorch, addresses the economic, political, and bureaucratic causes of this downward trend and the reasons why reversing this trend is of critical importance for many of the world's poorest countries. The decline in external assistance to agriculture in developing countries could be justified only if their food situation were improving, if their rural poverty were diminishing, and if they were becoming more capable of meeting their needs for the public goods that are essential for agricultural growth. But many of these countries are experiencing deteriorating food situations, increasing rural poverty, and stagnating agricultural growth. In many of the poorest countries, agriculture is the largest sector. It is difficult, if not impossible, to stimulate economic growth in these countries without sustained agricultural growth. International development assistance can help overcome domestic financial, technical, and human resource constraints that hamper the ability of developing-country governments to provide the needed public goods. This is the key rationale for international assistance to agricultural development. Cuts in financial aid to agricultural development could threaten not only economic growth but also political stability in volatile regions of the world. Changing Patterns of External Aid What is the appropriate level of assistance in the 1990s? To determine the need, past experience with such investments must be examined along with the projected demand for food, which will be driven by growth of populations and incomes. Since the mid-1970s, major changes have taken place in the size, pattern, and use of agricultural assistance. Following a food crisis in 1973/74, external assistance to low- and middle-income countries increased rapidly. Because of concerns about high food prices and impending food shortages, donors expanded their aid commitments to agriculture by more than 30 percent between 1975 and 1980. But in the first half of the 1980s, slow growth in the industrialized countries themselves led to a decline in the total flow of aid and thus to diminished aid to agriculture. Overall, bilateral and multilateral assistance to developing-country agriculture declined from US$12 billion in 1980 to US$10 billion in 1990 (in constant 1985 U.S. dollars). Agriculture's share of total development fell from 20 percent to 14 percent during this period. Although the total contribution of major donors declined in the 1980s, including a sharp cut by the World Bank, some multilateral donors such as the regional banks, United Nations agencies, and the Organization of Petroleum Exporting Countries (OPEC) maintained or expanded their share of agricultural assistance. During the same period, changing priorities led to major shifts among bilateral donors, although they slightly increased their overall commitments to agriculture. The United States reduced its share of total bilateral agricultural aid from more than 30 percent in the early 1980s to less than 15 percent in 1989/90. In 1987 Japan overtook the United States as the largest single bilateral donor to agriculture, and by 1990 one quarter of total bilateral agricultural assistance came from Japan. Reasons for the Decline There are economic, political, and bureaucratic explanations for declining external assistance to agriculture. Many donors concluded that agricultural projects were generally sound but would perform better under better macroeconomic conditions. This spurred their desire to promote policy and governance reforms. They gave priority to macroeconomic reforms and redirected loans and aid to support these reform programs, which led to reduced emphasis on project lending. Political pressure groups in both donor and recipient states compete for development assistance. Three major political forces contributed to the downward trend of assistance to agriculture in the 1980s. One was the interests of domestic farm groups in donor countries. In response to increased competition and deteriorating international commodity prices, they shifted their objectives from only seeking subsidies to opposing funding for agricultural assistance to low-income countries. Another political force was international lending interests. The rise in Third World debt in the 1980s contributed to the shift to structural adjustment and policy-based lending and reduced the power of agricultural ministries in low-income countries. Lending institutions believed that macroeconomic adjustments, such as elimination of overvalued exchange rates, would have a greater positive effect on agriculture than provision of the same funds for the agricultural sector in the absence of reform. They argued that without major economic reforms, agricultural projects would not recover their costs, would have unacceptable rates of return, or would not generate growth in other sectors of the economy. The third political force was the interest of government officials in investing in agriculture. The revenues that governments could derive from agriculture were negatively affected by declining international commodity prices, and pressure to liberalize trade rules, eliminate overvalued exchange rates, and reduce subsidies led to smaller government gains from agriculture. Consequently, many low-income countries began to withdraw state responsibility from agriculture, and investment in agriculture--whether for personal or public-interest purposes--receded among government officials. Three bureaucratic forces also affected external assistance to agriculture in the 1980s: organizational restructuring, staff reductions, and organizational politics. The organizational restructuring in major donor agencies such as USAID, the World Bank, and GTZ shifted discretionary power from functional units such as agriculture to regional units. This resulted in important agricultural decisions being made by generalists, who became the major shapers of policy at country or regional levels. Reductions in the number of agricultural specialists in donor agencies presented a major barrier to the design and implementation of successful agricultural projects. Although these agencies recognize the need to better address technical aspects of agricultural projects, the trend since the 1980s has been toward fewer specialized staff. Organizational politics came into play with a perception that agricultural projects would either fail or pay off only in the long run, thus negatively affecting bureaucratic careers. In addition, the major donor agencies seldom gave organizational rewards to individuals or units who maintained a specialty. Prospects for the Future Over the last 25 years, despite the addition of more than 1.8 billion people to the world's population, global per capita food supplies have risen, mainly because of the success of agricultural research and development investments. Future growth in food supplies can only come from yield-increasing technological change. Expansion of production into new areas has reached its limits. Increased yields will require both technological innovations and effective dissemination of the technology to farmers. Maintaining and accelerating yields will be difficult in the absence of a concerted national and international effort that includes sustained investment in agriculture. Support for sustainable agricultural growth and development in low-income countries has not kept pace with their ability to meet the challenges of current and future food insecurity, increased land scarcity, and a diminishing natural environment base. Agricultural growth is vital to these countries both to meet these challenges and to stimulate economy-wide growth. To reverse the decline in agricultural aid to these countries, several priorities need to be established. Increased financial support must be given to sustainable agricultural growth, especially in such aspects as yield-increasing technological change, agricultural research, rural infrastructure, and training. Commitment to agriculture must be both high priority and long-term, recognizing the risk that fleeting commitments from international development agencies may divert the attention of developing-country governments from their own agricultural sectors. Capabilities of low-income countries to develop and implement food and agricultural policies must be strengthened to lessen their dependence on aid allocations by major donors. Political and bureaucratic obstacles to increased agricultural lending must be recognized and overcome, not only in donor agencies but in the recipient countries, where corrections are also needed in the reward structures and pressures on those in charge of allocating domestic public expenditures to agriculture. © Copyright and Fair Use IFPRI holds the copyright to its publications and web pages but encourages duplication of these materials for noncommercial purposes. Proper citation is required.

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