Since the publication of the 2008 World Development Report, there has been a vigorous discussion in the development community about agriculture; today’s publication of the World Bank’s Agriculture Action Plan is a milestone in that process. To stimulate further discussion on the subject, here are some thoughts from a garden-variety economist.
1. The oft-quoted statement, “GDP growth originating in agriculture is about four times more effective in raising incomes of extremely poor people than GDP growth originating from other sectors,” is an arithmetical point, not an economic point. It simply reflects the fact that 75 percent of the world’s poor depend on agriculture for their livelihoods.
2. The key to reducing poverty is agricultural productivity growth. This is different from agricultural growth. In most countries that have grown and reduced poverty significantly, agricultural productivity (output per unit of land, for instance) grew, while agriculture’s share in GDP fell.
3. Why has agricultural productivity not grown rapidly in Africa and South Asia? Some people claim it’s because the international community neglected agriculture for decades. While there is some truth to this claim, I also find that many government interventions in agriculture have worked against productivity increases, rather than for it. The canonical example is the large array of subsidies (water, power, fertilizers, and other inputs) we observe in both regions, which are aimed at helping poor farmers, but end up inducing the wrong product mix (growing cotton, a water-intensive crop, in Maharashtra, which is practically a desert), deplete environmental assets and, most importantly, crowd out necessary spending on infrastructure. Even the apparent success of the fertilizer subsidy in Malawi is being contested.
4. If government interventions have backfired in the past, how do we know that this time will be different? I hear a lot of discussion about “smart subsidies,” but I don’t hear enough about how this new generation of interventions will address the fundamental problem with these interventions: political capture. Most of these subsidies failed to help poor farmers because they got captured by other interest groups (including large-scale farmers). These interest groups were powerful enough to block attempts at reform.
5. Along the same vein, I am puzzled by the rule-of-thumb that, in Africa, at least 10 percent of public expenditure should be for agriculture. My agriculturalist friends tell me that there are huge problems with the productivity of public spending in agriculture. So why should we advocate an increase in this spending? It reminds me of the Woody Allen joke about two people eating at a restaurant. One says, “The food in this restaurant is terrible.” The other responds, “Yes, and the portions are so small.”
6. Perhaps the best way to ensure that interventions are productive is to make sure that voters are better informed about their benefits and costs. And how can we do that? We can start by a discussion on blogs like this one!