Reasserting the Rural Development Agenda: Lessons Learned and Emerging Challenges in Asia 9789812304810

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Reasserting the Rural Development Agenda

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The Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA) is one of the regional research and training centres of the Southeast Asian Ministers of Education Organization (SEAMEO), an intergovernmental body founded in 1965 to promote cooperation among Southeast Asian nations through activities in education, science, and culture. SEARCA’s programmes are designed to strengten institutional capacities in agricultural and rural development in Southeast Asia through graduate education, short-term training, research, and knowledge exchange. It is hosted by the Philippine Government on the campus of the University of the Philippines Los Baños, which is based in Los Baños, Laguna, Philippines. It is supported by donations from SEAMEO member and associate member states, other governments, and various international donor agencies.

The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organisation in 1968. It is a regional centre dedicated to the study of socio-political, security and economic trends and developments in Southeast Asia and its wider geostrategic and economic environment. The Institute’s research programmes are the Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). ISEAS Publishing, an established academic press, has issued almost 2,000 books and journals. It is the largest scholarly publisher of research about Southeast Asia from within the region. ISEAS Publishing works with many other academic and trade publishers and distributors to disseminate important research and analyses from and about Southeast Asia to the rest of the world.

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Reasserting the Rural Development Agenda Lessons Learned and Emerging Challenges in Asia

Arsenio M. Balisacan Nobuhiko Fuwa Editors



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SOUTHEAST ASIAN REGIONAL CENTER FOR GRADUATE STUDY AND RESEARCH IN AGRICULTURE

INSTITUTE OF SOUTHEAST ASIAN STUDIES

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First published in Singapore in 2007 by ISEAS Publishing Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang, Singapore 119614 E-mail: [email protected] Website: http://bookshop.iseas.edu.sg and Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA) College, Los Baños, Laguna, Philippines 4031 E-mail: [email protected] All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 2007 Institute of Southeast Asian Studies, Singapore The responsibility for facts and opinions in this publication rests exclusively with the authors, and their interpretations do not necessarily reflect the views or the policy of the publishers or their supporters. ISEAS Library Cataloguing-in-Publication Data Reasserting the rural development agenda: Lessons learned and emerging challenges in Asia/ edited by Arsenio M. Balisacan and Nobuhiko Fuwa 1. Rural development—Asia. 2. Agriculture—Economic aspects—Asia. 3. Rural poor—Asia. 4. Asia—Rural conditions. I. Balisacan, A.M. II. Fuwa, Nobuhiko HN655.2 C6R28 2007 ISBN 978-981-230-403-2 (soft cover) ISBN 978-981-230-412-4 (hard cover) Printed in Singapore by Utopia Press Pte Ltd

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CONTENTS

Tables Figures Preface Contributors 1 2 3 4 5 6 7 8

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Challenges and Policy Options for Agricultural Development - Overview and Synthesis Arsenio M. Balisacan and Nobuhiko Fuwa The Economics of Agricultural Development: What Have We Learned? James Roumasset The Role of Social Structures and Norms in Agricultural Development: Africa and East Asian Communities Compared Yujiro Hayami Food Security in a Globalised Setting Jock R. Anderson Poverty and Vulnerability Arsenio M. Balisacan and Nobuhiko Fuwa Asian Agricultural Development: From the Green Revolution to the Gene Revolution Prabhu Pingali and Terri Raney Dryland Agriculture in Asia: Ideas, Paradigms, and Policies William D. Dar, M.C.S. Bantilan, P. Anand Babu, G.V. Anupama, H. Deepthi, and R. Padmaja Establishing Efficient Use of Water Resources in Asia Randolph Barker and Mark Rosegrant

vii ix xi xv

1

33

63 81 121

159 191

227

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Improving the Delivery of Extension Services to Rural People: New Perspectives Dina Umali-Deininger 10 Land Tenure and Forest Resource Management in Asia Keijiro Otsuka 11 Globalisation and the Poverty-Environment Link in Asian Agriculture Ian Coxhead 12 The Supermarket Revolution with Asian Characteristics Thomas Reardon and C. Peter Timmer Index

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267 303

335 369

395

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TABLES

1.1 Income Growth 1.2 Agricultural Performance 1.3 Population Living Below $1 (PPP) a Day 3.1 World Food Production by Region, 1963-2000 4.1 Overview of Hunger and Poverty in Developing Countries in 2005 6.1 Performance Advantage of Bt Over Conventional Cotton, Percentage 6.2 Performance Advantage of Bt over Non-Bt Cotton in India, by State, 2002-03, Per cent 7.1 Total Cereal Area, Yield, and Production in Rainfed Areas: 1995 Baseline Data Compared to 2025 Projections 7.2 Descriptive Statistics of Crop Yield in Rainfed and Irrigated India, 1966-97 7.3 Number of Rural Poor (in millions) in Developing Countries Categorized by Agro-ecological Zone, 1996 8.1 Growth in Irrigated Area of Asian Countries, 1962-2002 8.2A Increase in Rough Rice Production (‘000 mt) in Selected Asian Regions, 1963-2003 8.2B Percentage Increase in Rough Rice Production in Selected Asian Regions, 1963-2003

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3 6 7 66 85 179 181

194 199

203 230 239 240

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viii 8.3 9.1 9.2 10.1 10.2 10.3 11.1 11.2

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Investments in Infrastructure Development in the Irrigation and Drainage Sector by the African Development Bank, Asian Development Bank, Inter American Development Bank, and World Bank Region, 1961-2002 National Producer Federations/Associations and their Main Activities Direct and Indirect Determinants of Cost and Returns to Private-for-Profit Extension Importance of Forest, Rate of Change in Forest Area, and Importance of Fuelwood Across Major Regions of the Developing World Hypothesised Relationships Among the Cost of Protection, Management Intensity, and Efficient Land Use and Land Tenure Institutions Characterisation of Study Sites Growth Indices of Rice Production, Area, and Yield Agricultural Land Use Trends in Southeast Asian Economies (Per cent of Land Area)

248 279 289

307

319 321 352 355

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FIGURES

2.1 4.1 5.1 5.2 7.1 7.2 7.3 7.4 7.5 7.6 8.1 8.2 8.3 8.4 8.5 9.1 9.2

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Incentive Compatibility in Irrigation Finance Snapshots of Future Food Insecurity from the IFPRI IMPACT Model Growth Convergence Poverty Convergence The Global Extent of Drylands All-India Production, Yield, and Cultivation Area of Coarse Cereals, Rice, and Wheat, 1950-2003 Yields of Cereal Crops in Irrigated and Rainfed India, 1966-97 Population in Asia, 1961-2003 Entry Points for Development in Dryland Agriculture ICRISAT’s Research for Development Model Evolution of Large Dam Construction in Asia (Pre-1900 to Post-1980) Trend in Cereal Grain and Urea Prices (Computed as Five-Year Moving Average) Trend in Area Irrigated by Groundwater in India Number of Irrigation Pumps in Agriculture in Bangladesh and Vietnam, 1975-2000 Trend in Water Supplied by Zhanghe Reservoir and Rice Production in Zhanghe Irrigation District, 1965-2003 Economic Classification of Agricultural Information and Technologies Accountability Relationships Between Farmers, Extension Providers, and Policymakers

50 86 123 124 193 195 197 201 217 220 231 232 234 235 257 271 273

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 9.3A 9.3B 10.1 10.2 11.1 11.2 11.3 11.4 11.5 11.6

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Alternative Channels for Public and Non-Profit Sector Extension Service Delivery Alternative Channels for Private Sector Extension Service Delivery Choice of Natural-Resource-Intensive vs Labour-Intensive Land Use Systems Evolutionary Changes in Stock of Natural Resources The Environmental Kuznets Curve: Relationships Between Per Capita Income, Policies, Institutions, and Environmental Change The Harris-Todaro Model and Effects of Population Growth Effects of the Green Revolution in Lowland Agriculture Effects of Industrial Job Growth Southeast Asia: Area of Oil Palm Harvested, 1980-2005 Southeast Asia: Area of Coffee Harvested, 1990-2005

276 277 313 317

340 343 346 348 356 357

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PREFACE

This volume is the final product of efforts to revisit familiar themes and controversies that have played a crucial role in shaping the way we view rural development. We are in deep gratitude to all the colleagues and organisations that have assisted us in the different stages of the project. The idea for this volume drew inspiration from a SEARCA initiative in 1979, which, in cooperation with then Agricultural Development Council (ADC) of New York (now Winrock International), resulted in the publication of a book entitled Risk, Uncertainty and Agricultural Development, featuring such respected authors as Hans Binswanger, Jean-March Boussard, Robert Evenson, David Newberry, James Roumasset, Inderjit Singh, and Joseph Stiglitz, to name a few. Now, three decades and many global changes after, SEARCA has found it timely and relevant to revisit their views of agricultural development vis-à-vis the current situation in the region. The main objective is to draw up policy lessons from the major ideas and paradigms that have influenced academic and policy thinking in agricultural and rural development in the past 30 years. SEARCA began formulating the plan for a conference as early as the first quarter of 2004, with the end goal of producing this book. It was decided that the conference would mark the beginning of the celebration of SEARCA’s 40th Anniversary in November 2006. We sought the assistance of Emmanuel Esguerra in drafting a concept paper for the conference. We are thankful to him for the initial discussions and thoughts he shared with us toward this volume. By bringing together an international group of acknowledged research scholars in agricultural and rural development in dialogue with policymakers

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from the Asian region, the conference, held in November 2005, provided a venue for articulating policy options on emerging development issues in the region. The discussions focused on several thematic and issue papers on agriculture and rural development, food security, population and environment, institutions, and biotechnology, among others. The papers presented were revised accordingly, taking into account the suggestions from the editors and discussants. The resulting volume attempts to identify the rural development challenges in the next 10 years and draws up possible directions for future academic and policy research. In addition, a separate publication, a monograph entitled Challenges and Priorities for Agricultural Research in the Next Decade, synthesizes the issues raised at the panel discussion among Mahfuzuddin Ahmed, Taco Bottema, William Dar, Mark Rosegrant, and Robert Zeigler during the conference. Richard Day, in his foreword in the 1979 volume, said that the volume “is no doubt an intermediate product, for evidently much remains to be done in the field and doubtless, as well, the present works will stimulate many new investigations in what must surely be a most crucial branch of economic research.” Certainly, much has been done in the field of development, in particular, agricultural development. Nevertheless, the work is a continuing saga and it will remain to be as people, technology, and institutions continue to evolve and propel development. Special thanks are in order to all the book’s contributors: Jock Anderson, K.V. Anupama, P. Anand Babu, Ma. Cynthia S. Bantilan, Randolph Barker, Ian Coxhead, William Dar, Deepthi Harkar, Yujiro Hayami, Keijiro Otsuka, R. Padmaja, Prabhu Pingali, Terri Raney, Thomas Reardon, Mark Rosegrant, James Roumasset, C. Peter Timmer, and Dina Umali-Deininger, who contributed papers with only gratis in exchange. Without their support and enthusiasm, this volume would not have been possible. We are also grateful for the financial support and generosity given by the following organizations: AusAID International Seminar Support Scheme (ISSS), International Food Policy Research Institute (IFPRI), International Crops Research Institute for the Semi-Arid Tropics (ICRISAT), International Rice Research Institute (IRRI), Australia Department of Primary Industries and Fisheries-Queensland Government (DPIF), Worldfish Center, Philippines Department of Agriculture – Bureau of Agricultural Research, and Lapanday Foods Corporation.

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Discussants and other speakers at the November 2005 conference in Makati City, Philippines helped enhance the quality and usefulness of the papers and this volume. A note of thanks to the following colleagues who participated in this respect: Mahfuzuddin Ahmed, Germelino Bautista, Taco Bottema, Ramon Clarete, Cristina David, Larry Digal, Desiree Hautea, Mahabub Hossain, Eliseo Ponce, Agnes Rola, Sushil Pandey, and Robert Zeigler. Our appreciation also goes to the following individuals who kindly facilitated and chaired sessions during the conference: Nicomedes Briones, Rhoel Briones, Gelia Castillo, Emmanuel Esguera, Arnold Garcia, Emil Javier, Edilberto de Jesus, Tirso Paris, Nipon Poapongsakorn, and Noel Vock. This project could not have been possible but for the concerted effort of the people at SEARCA, particularly the staff of the Research and Development Department managed by Arnulfo Garcia. Majah-Leah Ravago and Jessaine Soraya Sugui were not only efficient assistants but also kind naggers, always demanding adherence to deadlines. Administration and other logistics were ably accomplished by Ruby Johnson. Vivian Teresa M. Ledesma and the staff of the Knowledge Management Unit headed by Lorna Malicsi worked under a tight deadline to deliver the conference program and in transforming the manuscript to the final polished version of this volume. A number of people from all departments and units of SEARCA assisted during the conference and in various stages of the project: Althea Aragon, Nelia Belen, Edith Cedicol, Jaymark Dia, Vic Evan, Jess Fernandez, Susan Fernandez, Randy Foronda, Jolo Logon, Nyhria Rogel, Toti Menorca, Sonny Tababa, Lily Tallafer, Carol Tolentino, and Wanah Velo. Collectively, they did a good job. We thank our co-publisher, Institute of Southeast Asian Studies (ISEAS) of Singapore, for its support to this project, particularly to K. Kesavapany, Chin Kin Wah, Triena Ong, Tan Kim Keow, and Rahilah Yusuf for their interest in seeing the volume through to its present form.

Arsenio M. Balisacan Nobuhiko Fuwa

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CONTRIBUTORS

Arsenio M. Balisacan is a professor of economics at the University of the Philippines Diliman since 1988, and serves as the director of the Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA) in the Philippines on secondment basis starting July 2003. He has also been serving as President of the Human Development Network (a UNDP-assisted organisation producing the Philippine Human Development Report) since 2003, and as Chairman of the Board of Advisors of the Asian Institute of Management-Mirant Center for Bridging Societal Divides since 2004. His research interests are poverty, inequality, food security, agricultural and rural development, globalisation, and political economy of policy reforms. Nobuhiko Fuwa is an associate professor of agricultural economics at the Graduate School of Science and Technology of Chiba University in Japan. He is also a visiting research fellow of SEARCA. He previously served as an international research fellow at the Social Sciences Division of the International Rice Research Institute in the Philippines and was on the staff of the World Bank’s Gender and Development Group, Poverty Reduction and Economic Management Network. His research interests are poverty, rural development, household decision-making, and gender and development.

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CONTRIBUTORS

Jock R. Anderson works on impact assessment at the International Food Policy Research Institute in Washington, DC, aside from doing other consultancy undertakings. He is an elected fellow of the Australian Institute of Social Sciences in Australia and the Australian Agricultural and Resource Economics Society, and an honorary life member of the International Association of Agricultural Economists. Guvvala Venkata Anupama works as scientific officer in the Global Theme on Institutions, Markets, Policy and Impacts at International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) in India. Her expertise is statistical analysis and database management. She has worked on research projects on agricultural transformation, research impacts, ICRISAT’s Village Level Studies, and strategic assessments of the Institute. Prakasam Anand Babu a scientific officer in the Global Theme on Institutions, Markets, Policy and Impacts at the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) in India. His research fields are agricultural economics, applied econometrics, and development economics. His current research looks at dryland agriculture, climate change, global policy issues, the economics of commodity markets, and the macroeconomics of developing countries. Ma. Cynthia S. Bantilan is currently the theme leader of the Global Theme on Institutions, Markets, Policy, and Impacts of International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) in India. She specialises in agricultural research evaluation and impact assessment, poverty and income distribution, econometrics, agricultural economics and agricultural statistics, information systems management, and applications for decision support and policy analysis. She currently heads the development of key research resources on agriculture and health at ICRISAT based on village level studies in Southern Africa and India. Randolph Barker has been involved in teaching and research on issues related to agricultural and rural development in Asia. Much of his work has been related to rice production, irrigation management, and water resource development. At present, he is a professor emeritus at Cornell

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University. He has won several awards, including best publication from the American Agricultural Economics Association for The Rice Economy of Asia, which he co-authored with Bob Herdt. This has been the most widely cited publication among his written works. Ian Coxhead is a professor in the Department of Agricultural and Applied Economics at the University of Wisconsin-Madison and concurrent chair of the UW Development Studies Ph.D. program. His research interests are trade, development policy, agricultural development and the environment in developing economies; land use, technology choice and environmental consequences in upland agriculture; and policy lessons from upland- and watershed-based research. William D. Dar has been director-general of the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) in Andhra Pradesh, India since January 2000. He is the first Filipino chairman of the Alliance of Future Harvest Centers, an international body that governs the collective functioning of individual CGIAR centers. He is a member of the UN Millennium Task Force on Hunger. Since leading ICRISAT, he has intensively advocated for a “Gray to Green Revolution” in the dry tropics of Asia and Sub-Saharan Africa through “Science with a Human Face.” Deepthi Harkar is currently working as data analyst in ICRISAT’s Global Theme on Institutions, Markets, Policy and Impacts. She was actively involved in SWOT analysis of the Institute and had contributed to the implementation of many research projects. Yujiro Hayami is the chairman of the graduate faculty in the Foundation for Advanced Studies on International Development (FASID) in Japan. His current research interests focus on the role of communities in economic development, specifically the participation of local people, the relative positions of peasants and plantations in agricultural production, and the interactions among community, market, and state in economic development. He is a fellow of the American Agricultural Economics Association and an honorary lifetime member of the International Association of Agricultural Economists.

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Keijiro Otsuka is currently the director of the Foundation for Advanced Studies on International Development (FASID) Graduate Program and a professor at the National Graduate Institute for Policy Studies (GRIPS) in Japan. His research interests include land rights, land tenure, and natural resource management. His current research attempts to formulate an “East Asian model of industrial development” primarily on case studies of industries in Japan, Taiwan, and China. Ravula Padmaja is a senior scientific officer in the Global Theme on Institutions, Markets, Policy and Impacts of International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) in India. Her research interests are social analysis, poverty and gender analysis in research technology design and diffusion for the semi-arid tropics, strategic assessments for Semi-arid Tropics (SAT) agriculture, social capital, and social networks. She has coauthored and contributed to several publications and collaborated in the production of a video documentary showcasing the process of empowerment through technology. Prabhu Pingali is the director of the Agricultural and Development Economics Division of the Food and Agriculture Organization (FAO) of the United Nations in Italy. He was the president of the International Association of Agricultural Economists (IAAE) in 2003-06. He co-chairs the Millenium Ecosystem Assessment Panel’s working group on Future Scenarios. He is editor of the newly established e-Journal of Agricultural and Development Economics (e-JADE). He has authored many books and journal articles on technological change, productivity growth, and resource management issues in Asia, Africa, and Latin America. Terri L. Raney is a senior economist at the Agricultural and Development Economics Division of the United Nations Food and Agriculture Organization (FAO) in Italy. She concurrently serves as the editor of The State of Food and Agriculture, a publication by FAO. She was conferred with the Quality of Communications Award in 2005 by the American Agricultural Economics Association for “Agricultural biotechnology: meeting the needs of the poor?” in The State of Food and Agriculture 2003-04. A significant body of her research focus is on agricultural biotechnology, international trade, and food security.

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Thomas Reardon has been a professor at the Department of Agricultural Economics at the Michigan State University since 1992 where part of his research and teaching hours are devoted to supervising master’s and doctoral thesis students. He is also currently involved in research projects in Guatemala, Nicaragua, Mexico, China, Indonesia, and Vietnam. His research interests include links between the rapid rise of supermarkets and agricultural development in developing countries; food safety and quality standards; fruit and vegetable and dairy product markets; and international joint ventures in the produce industry. Mark W. Rosegrant is the director of the Environment and Production Technology Division at the International Food Policy Research Institute (IFPRI) in the USA. His research interests include policy analysis in agriculture and economic development, with emphasis on agricultural and natural resource policies as they affect regional and global food security, rural livelihoods, and environmental sustainability. He developed IFPRI’s International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT), which has become a standard for projecting global and regional food demand, supply, trade, and prices; and global water supply and demand to 2020. He is a prolific writer of books and professional papers on agricultural economics, water resources, and food policy analysis. James Roumasset is a professor of economics at the University of HawaiiManoa, where he has taught since 1976. He specialises in agricultural development, environmental and resource economics, and public microeconomics. He is on the Board of Directors of the Western Economic Association International and a member of the American Economic Association, American Agricultural Economics Association, Association of Environmental and Resource Economists, and International Society for New Institutional Economics. He has published widely on agricultural development, environmental and natural resource economics, transaction cost economics, risk and decision-making, and the nature, causes, and consequences of public policy.

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Charles Peter Timmer is currently a senior research fellow at the Center for Global Development in the USA. He is also a professor emeritus of Harvard University and University of California, San Diego. His professional affiliations include membership in the American Economics Association, the American Agricultural Economics Association, and the American Association for the Advancement of Science. He has received several professional awards and has authored many publications. Dina Umali-Deininger is the lead agricultural economist in the World Bank’s Sustainable Development Unit (South Asia Region), where she oversees the preparation of analytical studies. She has authored several World Bank reports and papers on agricultural policy, food security and nutrition, food grain, cotton, and livestock sector policy in India and Sri Lanka. Prior to joining the South Asia Region, she worked on agricultural policy issues in East Asia and Eastern Europe.

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1

Challenges and Policy Options for Agricultural Development: Overview and Synthesis Arsenio M. Balisacan and Nobuhiko Fuwa*

INTRODUCTION This book attempts to take stock of the evolution of theoretical and empirical knowledge about economic development, mainly focusing on agricultural and rural development, and drawing mainly (if not exclusively) on experiences in Asia. There have been other such stock-taking exercises in development economics (e.g., Meier and Stiglitz 2001), but this book is somewhat unique in its exclusive focus on agricultural and rural development in Asia. In the 1970s, agricultural and rural development occupied the centre stage of the economic development debate. Amid the increasing sense of food and resource scarcity, as reflected in rising commodity prices, investment in rural development was ranked top priority among development projects (see Chapter 8 by Barker and Rosegrant). The Green Revolution was in its early stages, and major efforts were underway to deliver complementary inputs such as fertiliser and subsidised credit, culminating in the Integrated Rural Development schemes. The impact of the Green Revolution (especially on small farmers) was then being fiercely debated. After the 1980s, however, the perceived importance of the agricultural sector in the international development circle waned dramatically.

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Investments in rural development and agricultural research and development (R&D) declined sharply (see Barker and Rosegrant, Chapter 8). Correspondingly, Roumasset (Chapter 2) notes that the economics of agricultural development “has arguably been in decline,” and is “twice marginalized in the academe.” Nevertheless, Asia still accounts for about 60 per cent of the world’s 1.1 billion poor, and the majority of them are found in rural areas (Balisacan and Fuwa, Chapter 5). In addition, we take note of the following worldwide developments that are wielding tremendous effects on agriculture, to wit: the increasing globalisation, along with rapid changes in marketing systems, which is offering farmers (especially small farmers) in the region the opportunities and enormous challenges for greater competitiveness (Reardon and Timmer, Chapter 12); the Gene Revolution — characterised by rapid advances in agricultural biotechnology, driven mainly by the private sector — which is taking over the Green Revolution (Pingali and Raney, Chapter 6); and the increasing awareness and concerns for environmental problems, such as deforestation (Otsuka, Chapter 10; Coxhead, Chapter 11) and water scarcity (Barker and Rosegrant, Chapter 8), which present additional challenges for agricultural and rural development policy formulation. One common intent running through all the chapters of this book is to reassert the role of agricultural and rural development in the economic development debate. By revisiting the evolution of ideas, paradigms, and empirical evidences, and by drawing upon Asian experiences, the book aims to set a reinvigorated agenda on agricultural and rural development both for research and for policy discussions in the development circle. To provide a fitting backdrop for the discussion and analysis throughout this volume, this introductory chapter starts with a brief overview of agricultural and rural development in Asia in the last thirty years. We then provide a brief synthesis of the evolution of the knowledge on agricultural and rural development by drawing on the chapters of the book.

AGRICULTURAL AND RURAL DEVELOPMENT IN ASIA: AN OVERVIEW Asia has done quite well in agricultural growth within the developing world during the past few decades. As shown in Table 3.1 in Chapter 3, the annual

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CHALLENGES AND POLICY OPTIONS FOR AGRICULTURAL DEVELOPMENT

growth rate of food production per hectare during 1963–2000 was 2.7 and 2.5 per cent in East Asia (including Southeast Asia) and in South Asia, respectively, while it was 2.1 and 1.8 per cent in Latin America and in Africa, respectively. However, it is evident from Tables 1.1 to 1.3 of this chapter that a great deal of variations characterised the patterns of growth and poverty reduction within Asia. Table 1.1

Income and Growth

Region/Country

East Asia (incl. Southeast Asia) China Southeast Asia Indonesia Malaysia Philippines Thailand Vietnam South Asia Bangladesh India Nepal Pakistan

GDP Per Capita (PPP, constant 2000 International $)

Average GDP Growth Rate (%)

1975-1977

2002-2004

1975-2004

1,989

6,257

4.2

594 1,404 1,138 3,205 3,728 2,041 1,184* 1,105 1,015 1,152 836 989

4,984 3,752 3,201 9,089 4,113 7,044 2,381 2,527 1,657 2,723 1,351 1,988

7.6 3.7 3.8 4.0 0.6 4.7 5.5** 3.1 1.9 3.2 1.8 2.5

Source: World Bank, World Development Indicators 2006. Note: Available data start at 1975. Available data for Vietnam start at 1989. *1989-1991 average. **1989-2004 average.

As shown in Table 1.1, per capita gross domestic product (GDP) more than doubled during the period between the mid-1970s and the mid-2000 in most of the Asian countries except in the Philippines (which recorded only a 10 per cent increase), Bangladesh (a 63 per cent increase) and Nepal (a 62

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per cent increase). Per capita GDP in China increased eightfold, and that in Malaysia and Thailand by factors of (almost) 3 and 3.5, respectively, during the period. Generally, East Asia (including Southeast Asia) performed better than did South Asia. Per capita GDP grew at annual rate of 4 per cent in East Asia and 3 per cent in South Asia during the period between 1975 and 2004. Within East Asia, the per capita GDP of most of the Southeast Asian countries grew at roughly 4 to 5 per cent per annum with the major exception of the Philippines whose per capita GDP grew only at less than one percent per annum, while Vietnam and China grew at impressive rates of 5.5 per cent and 7.6 per cent, respectively. Among the South Asian countries, the annual growth rate of per capita GDP stood at 3.2 and 2.5 per cent for India and Pakistan, respectively, while it was somewhat lower at about 2 per cent in Bangladesh and Nepal. Due to the generally higher rates of growth in per capita income in Southeast Asia than in South Asia, the gap in the per capita income level between the two sub-regions tended to widen over the last few decades. The per capita GDP (in PPP dollars) of Indonesia, Vietnam, Bangladesh, India and Pakistan all fell within the US$1,000–US$1,200 range in the mid1970s. Three decades later, the per capita GDP of Indonesia was twice that of Bangladesh and 60 per cent higher than Pakistan’s. In sharp contrast is the dismal failure of the Philippines. While the per capita GDP of the Philippines was the highest among all countries listed and nearly four times the level of South Asian countries in the mid-1970s, its per capita income level by 2004 had been surpassed by most of the Southeast Asian countries (with the exception of Indonesia and Vietnam, whose per capita GDP was less than one third of the Philippines’ as of the mid-1970s), as well as by China. As to the question of whether factor accumulation or productivity growth was the main source of growth in Asia, a recent survey by Rosegrant and Hazel (2000) has concluded that the former (the accumulation of labour and capital) was more likely the case. In 1970, the agricultural sector accounted for a quarter to a third of GDP in Southeast Asia and a third to 60 per cent of that in South Asia and China. Over the period between 1970 and 2003, the share of agriculture in GDP has declined roughly by half in most of the countries in both Southeast Asia and in South Asia (Table 1.2). The structural transformation proceeded relatively faster in China (from 56 per cent in 1970 to 13 per cent in 2003), Malaysia (from 28 to 9 per cent) and Thailand (from 24 to 9

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per cent). In Southeast Asia and in China, such transformations occurred despite impressive growth in agricultural production. Based on the food production index, per capita food production more than doubled during the period between 1970 and 2003 in Malaysia, China and Vietnam, and it grew by 85 per cent, 20 per cent and 45 per cent in Indonesia, Philippines and Thailand, respectively. The growth in per capita food production in South Asia was somewhat lower — roughly by 30 per cent over the period between 1970 and 2003 — except for Bangladesh. In Bangladesh, per capita food (as well as agricultural) production slightly declined during the same period. While the Green Revolution was undoubtedly the main driver of the agricultural growth in Asia (see Pingali and Raney, Chapter 6, for details), additional accompanying factors, some of them country-specific, have also been at work. Agricultural growth in transition economies such as China and Vietnam, for example, was accompanied by land and institutional reforms. India focused on developing climate-specific varieties, agricultural extension, and investment in irrigation. The sluggish record of the Philippines can be explained by the decline in investment in rural infrastructure and research and development (R&D), and perverse government policies especially after the 1980s (David 2003; Balisacan, Sebastian and Associates 2006). Agricultural growth was also accompanied by commercialisation and diversification (Rosegrant and Hazell 2000). Technological change, rural infrastructure development, and increasing preference for high-value foods and non-agricultural goods associated with a growing economy led to the gradual shift from subsistence farming to more commercially-oriented production. The dietary shift resulted from the increasing urbanisation and the rise in per capita income, causing the decline in the share of food expenditure via the Engel effects. The cost of family labour increased as a result of the increasing availability of more lucrative off-farm employment opportunities (e.g., Pingali and Rosegrant 1995). Fast adoption and adaptation of technology from abroad to substitute for human and animal power was also a common trend in Asian agriculture. The pace of such agricultural diversification and commercialisation was faster in East Asia than Southeast Asia, with South Asia bringing up the rear.

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56.1 23.7 34.7 27.5 22.6 23.5 36.6** 41.1 37.5 42.5 60.2 36.0

China Southeast Asia Indonesia Malaysia Philippines Thailand Vietnam South Asia Bangladesh India Nepal Pakistan

12.5 11.2 15.4 8.5 15.4 8.6 22.2 20.6 23.4 20.0 39.2 22.3

4.4

2003

413 539 424 429 576 898 473 345 502 337 553 217

437

1970

537 742 663 212 633 984 946 634 569 348 532 257

561

2003

Agricultural Production Per Capita (kg)

Source: Food and Agriculture Organization Stat, World Development Indicators 2006 Note: 3-year average centered on the year shown. Available data for Vietnam start at 1985. *1998-2000 average for China. **1985-1987 average for Vietnam.

8.7

East Asia (incl. Southeast Asia

1970

Share of Agriculture to GDP (per cent)

Agricultural Performance

Region/Country

Table 1.2

43 61 62 90 69 50 77 109 74 81 78

67

1970

99* 112 107 107 104 113 98 99 98 103 98

108

2003

Agriculture Production Index (Net per capita PIN base 1999-2001)

40 60 42 89 71 53 75 103 73 79 77

65

1970

111 111 106 107 103 113 98 99 98 103 98

107

2003

Food Production Index (Net per capita PIN base 1999-2001)

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Finally, in terms of poverty reduction, Asia has achieved a similarly satisfactory record in the last few decades, benefiting as well from the rapid growth in agriculture and in overall economy supplemented by public investment (Table 1.3). Table 1.3

Population living below $1 (PPP) a day

Country

East Asia and the Pacific China Indonesia Malaysia Philippines Thailand Cambodia Laos Vietnam South Asia Bangladesh India Nepal Pakistan

Headcount (millions)

Incidence (%) 1975

1990

2003

1975

1990

2003

-

33.0

13.4

-

377.6

173.5

59.5 64.3 17.4 35.7 -

33.0 20.5 0.6 19.7 10.1 46.0 52.7 50.7 41.3 34.0 42.1 44.1 47.8

13.4 6.5 0.2 14.1 0.7 33.8 28.8 9.7 29.0 30.3 30.7 23.8 19.7

568.9 87.2 2.1 15.4 472.2 -

377.1 36.8 0.1 12.2 5.7 4.0 2.2 33.4 448.4 37.0 351.2 8.0 51.6

173.1 13.9 0.0 11.5 0.4 4.5 1.6 7.9 403.8 41.8 326.7 5.9 29.3

Source: For 1990 and 2003- ADB Key Indicators (2005). Available at www.adb.org/statistics For 1975 data- Table II.1 of Rosegrant and Hazell (2000).

The proportion of the population living below the one-dollar-a-day poverty line declined by one half or more in most of the Southeast Asian countries during the period between 1990 and 2003, with the exception of Cambodia (which showed a 26 per cent reduction in poverty incidence) and the Philippines (a 28 per cent decline). In Malaysia and Thailand, poverty incidence reached a level below 1 per cent by 1990 and 2003, respectively.

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Once again, the relatively lacklustre performance of the Philippines pales in comparison to other countries in the sub-region. In terms of the absolute number of poor population, the record of China, representing a 200 million decline from 377 million during 1990-2000, is particularly impressive. The speed of poverty reduction in South Asia has generally been slower than that in Southeast Asia, but Pakistan more than halved its poverty incidence between 1990 and 2003. In contrast, poverty reduction in Bangladesh has been relatively slow compared with the Asian standard, and in fact the absolute number of poor population increased during the period 1990–2003. In terms of absolute numbers, however, India dominates, with a record total of 327 million poor people, even though its poor population declined by 25 million during this period. Because of the sheer size of the population in India and China, there are still a larger number of poor people in Asia than in Africa.

EVOLUTION OF IDEAS AND PARADIGMS ON AGRICULTURAL AND RURAL DEVELOPMENT The multiple roles of agriculture in the process of economic development have long been recognised in the economics literature (Mellor 1966; Johnston and Kilby 1975; Hayami and Ruttan 1985; Eicher and Staatz 1990; Roumasset Chapter 2). These roles have been thought to lie in (i) releasing surplus labour to industry and the rest of the economy; (ii) producing food for the non-agricultural labour force and supplying raw materials to industry; (iii) making savings and capital resources available for the development of industry and other sectors; (iv) earning foreign exchange to finance the capital accumulation needed for industrialisation; and (v) supplying the market for the goods and services generated by the non-agricultural sector. A necessary condition for agriculture to fulfill this developmental mission is for agricultural productivity to rise. The Asian experience shows how rapid agricultural and rural transformation triggered by significant improvements in farm productivity, on account of the Green Revolution, provided the conditions for capital accumulation and technological change that led to economic growth. But the experience equally shows that while Asian economies generally succeeded in

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raising agricultural productivity, some were more successful than others in attaining broad-based growth as well as in making the transition to a higher growth path. Explanations for the differential performance of developing economies have received a good deal of attention in the literature. The notable economic successes of South Korea and Taiwan were heralded, at one point, as the decisive triumph of market liberalisation as a development strategy over competing paradigms. Later explanations, however, emphasised the role of government in providing the needed public investments in infrastructure, R&D, and human resource development. Still other accounts point to the importance of initial conditions — favourable agro-climatic environment, less unequal asset distribution, and secure property rights — in eliciting the proper response from economic agents. ‘Fads and Fancies’: Evolution of Development Paradigms These views on the roots of the differential economic performance, while ostensibly offering competing explanations for the same phenomenon, are best regarded as reflective of the evolution in thinking in development economics in the last thirty years. Chapter 2 by James Roumasset provides an overview of the evolution of thinking on economic and agricultural development. The chapter traces the changes in “fads and fancies” in development thinking in almost every decade. One fad was abandoned and replaced by another, argues Roumasset, without “a thorough diagnosis of the reasons that they failed to deliver according to expectations.” On many policy issues, debate often came full circle. On the role of government, for example, while the “interventionist” 1970s was followed by the era of “privatize and get the price right” in the 1980s, the “post-modern development microeconomics” has revived renewed interventionism since the 1990s, returning to a more sympathetic stance towards the role of the state in development. The economics of information has been instrumental in enhancing our understanding of the way rural markets (labour, land, credit, etc.) function (or don’t function) and the roles played by agrarian institutions (e.g., see Bardhan and Udry 1999 for a concise theoretical treatment). According to Roumasset (Chapter 2), however, our understanding and appreciation of

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the choice and evolution of institutions in rural areas are still inadequate, and “the tendency to socially engineer reforms instead of facilitating cooperation persists.” The chapter further examines the evolution of policy discussions on crop insurance, agricultural price stabilisation policies, land markets (land reform), labour markets, rural credit, research and extension, and water resource management. (The lessons from the policy experiences in these areas will be discussed further.) Evolution of Rural Institutions and Agricultural Performances By pointing out the problem of ‘social engineering’ and ‘misplaced exogeneity’, Roumasset places a particular emphasis on the evolution of (endogenous) institutional development. The theme of endogenous institutional development is taken up by Hayami’s discussion on the comparative agricultural growth in East Asia and Africa (Chapter 3) as well as by Otsuka’s examination of local institutions governing forest resource management (Chapter 10). Hayami puts forward the hypothesis that the differential performances in agricultural growth between the two regions can be attributed to the differences in traditional social structures and norms in rural communities, which, in turn, emerge from differential resource endowment conditions. Under the relatively high-risk production environment and extractive production activities (such as shifting cultivation and nomadic grazing) characteristic of Africa, the linkage between labour effort and production outcomes tends to be weak. Such production systems, in turn, tend to support the “redistributive norms” within local communities. These norms, while efficient under the mobile production systems where they originated, provide relatively weak incentives for innovation and hard work and thus become a major obstacle to production growth after the shift to sedentary agricultural systems. In East and Southeast Asia, on the other hand, irrigated agriculture is common, and the linkage between individual labour effort and production outcomes is relatively easily observable. Such environments, in turn, have supported “patron-client reciprocity norms” where personal accumulation is seen as legitimate (as far as it is based on individual effort and innovation), but those accumulators behave as ‘patrons’ providing public goods (e.g., safety nets in the community). The latter norms, argues Hayami, provide stronger incentives for innovation, entrepreneurship and labour effort, leading to higher agricultural growth.

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Hayami further points out that there are differences in state behaviour which are also rooted in the differential natural endowments. Under the land-abundant environment with mobile agricultural systems, as observed in Africa, physical infrastructure was not vitally important. The ‘norm’ as a legitimate patron in African contexts mainly involved selective distribution of private goods to rural elites. In contrast, in the Asian context where land resource tends to be scarce, ‘norms’ have developed requiring elites (and the state) to provide public goods, such as irrigation, in order to earn legitimacy as a patron. Hayami contends that these differences in the social ‘norms’ of the elite could explain the relative lack of infrastructure investment in Africa vis-à-vis East Asia. Such differential evolutions in the social ‘norms,’ both at the local community level and at the state level, provide differential incentive structures and thus lead to contrasting agricultural growth outcomes. While the hypothesis mostly explains the comparative agricultural development experiences between East (and Southeast) Asia and Africa, a similar logic (as Hayami argues in his discussion of intra-region variations between northeast versus southeast Asia), could potentially be employed to explain varying growth performances at various levels of analysis, including comparisons across countries within a region, regional comparisons within a country, or comparisons among communities within a locality.

LESSONS FROM PAST POLICY EXPERIENCES AND CONTROVERSIES Despite the shifting ‘fads and fancies’ in development paradigms on the role of the state, and despite the accumulating examples of government failures in the past decades, all would agree that the public sector has crucial roles to play in the process of economic development. Among the traditional roles of the government, that on the provision of public goods has long been recognised by economists. As Roumasset concludes toward the end of Chapter 2, among such public goods, “investments in agricultural infrastructure and research were often successful, albeit their potential was not fully realised due to organisational problems in their implementation”; this area thus deserves renewed efforts and commitment from the public sector. It would therefore be crucial to learn from the policy experiences (including the

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many failures) in the past three decades, as well as from the advancement in the theoretical developments (especially on information asymmetry) so that the public sector can deliver public goods more efficiently and more effectively than in the past. Chapters 4 to 9 contain such valuable insights on food security, poverty and vulnerability, agricultural technology, water resources, and extension services. When agricultural and rural development was high on the development agenda in the 1970s, a large proportion of the public investment went into the financing of research and development in agricultural technology (e.g., new crop varieties), irrigation, extension services, and the integrated rural development projects, among others. The experiences from these endeavours provide a fertile ground for learning. Food Security and Vulnerability to Income Shocks of Farm Households Thanks in part to the Green Revolution (as we will see below), major progress has been made in addressing the food security problems among the rural poor in Asia. As Anderson warns in Chapter 4, however, the issue of food security among the poor still remains the most pressing policy concern; the statistics cited by Anderson show that 100 million (70 in South Asia and 30 in East and Southeast Asia) out of the 150 million malnourished children in the world are found in Asia, and 600 million (400 in South Asia and 200 in East and Southeast Asia) of the 1.01 billion poor are in Asia. In addition, the fact that the poor are particularly vulnerable to various potential risks and that they have developed various risk-coping strategies have been long recognised in the development debate. In fact, the predecessor of the conference on which this book is based, focused on that theme, i.e., “Risk, Uncertainty and Agricultural Development.” At the centre of the debate in the 1970s was the concern that “low-income farmers are risk-averse (RA), modern technology is more risky, and low-income farmers will therefore underinvest (UI) in modernisation—RAUI for short,” as summarised by Roumasset (Chapter 2). He observes, however, that empirical evidence for the ‘RAUI’ hypothesis has been mixed. The question of whether, and to what extent, the risk-averse behaviour of poor farmers has been a binding constraint on agricultural development is still debated. Apart from the remaining controversy regarding the ‘RAUI hypothesis,’ the scope of the research on various risks and vulnerability of poor farm

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households has been broadened since the 1990s to include not only productive activities, other than crop production, that would mitigate potential income fluctuations (income-smoothing strategies), but also behavioural mechanisms that would insulate the consumption variability from income fluctuations (consumption-smoothing strategies). As discussed in Chapter 5 by Balisacan and Fuwa, given the already low margin for survival among the poor households in rural areas, the direct welfare costs of suffering from negative income shocks could be quite severe. With the availability of the annual 10-year panel data on both production and consumption in South India collected by the International Crops Research Institute for the Semiarid Tropics (ICRISAT), empirical investigations focusing on household coping strategies for smoothing consumption as well as income have made steady progress in the last two decades. The literature has shown that the poor households appear capable of protecting their consumption from income fluctuations to a larger extent than earlier thought. There is a host of observed consumption-smoothing strategies such as the holding and liquidating of assets (e.g., livestock), inter-household transfers, and statecontingent credit. Nevertheless, such ‘informal insurance’ (or risk sharing) is far from perfect, and, furthermore, poorer households tend be less insured than are relatively better-off households. In addition, as noted by Balisacan and Fuwa in Chapter 5, the vulnerability of poor households to short-term fluctuations of income and the various income- and consumption-smoothing strategies adopted to cope with such risks (e.g., choosing low-risk but low-return economic activities, sale of productive assets when hit by a negative income shock) may make it even more difficult for them to escape from poverty. As a result, in more recent years, there has been an increasing attention to both theoretical and empirical aspects of longer-term poverty dynamics and economic mobility (see the next section). One of the immediate policy responses to the ‘RAUI hypothesis’ was to provide subsidised crop insurance schemes; since the risks involved in the use of new and more productive crop varieties were holding back farmers from adopting, it was hoped that insuring them against those risks would facilitate technology adoption and thus facilitate agricultural development. As noted by Roumasset, however, “(b)y the early 1980s … it became apparent that crop insurance was not a particularly effective instrument for promoting agricultural development” (Chapter 2). The emerging ‘new consensus’ then

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was that “crop insurance was good in theory but too costly in practice,” recognising bureaucratic inefficiency and information problems involved in the implementation of such insurance schemes. Roumasset argues, however, that crop insurance was “bad in practice precisely because it is bad in theory” due to its perverse incentive effects. Despite such a scepticism expressed by Roumasset, the merits and drawbacks of the policy option to provide insurance to the poor (and presumably risk-averse) farmers still continue to be debated. As noted in Chapter 5, based on the more recent empirical work on the micro-level behaviour of poor households which typically shows that various informal risk-sharing institutions do exist but are far from perfect, some have expressed cautious optimism for the potential roles of the public sector in providing insurance programs which attempt to mitigate classic information problems (e.g., micro-insurance, weather-indexed insurance). The Green Revolution: Investment in Agricultural R&D as an International Public Good Among the most significant developments in rural Asia in the past three decades is undoubtedly the Green Revolution. Chapter 6 by Pingali and Raney provides a broad assessment of the Green Revolution in Asia, including its impact on productivity growth, on income distribution and poverty, and on the profitability of farmers. It also surveys the literature on estimated returns to investments in agricultural research and development. The Green Revolution can be seen as a classic example of a successful investment in the international public sector research and development. The initial breakthroughs in yield potentials in wheat and rice by the researchers at the International Maize and Wheat Improvement Center (CIMMYT) and the International Rice Research Institute (IRRI), now under the Consultative Group on International Agricultural Research (CGIAR), built on the rich stocks of genetic resources and breeding experiences in developed countries. Even in the 1990s, the CGIAR content of modern varieties represented one quarter to one third of all varietal releases of food crops. As shown in section 1 above, agricultural production increased dramatically in developing Asia. The estimated returns to the investments in this international public good (i.e., agricultural R&D) were generally high; while such estimates vary widely, studies suggest a benefit-cost ratio of 6.7 and

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net rates of returns ranging between 30 and 70 per cent. One study estimates that without the CGIAR and national programmes on crop germplasm, the improvements in food production in developing countries could have been lower by almost 20 per cent. Furthermore, it is now widely accepted that the Green Revolution had a major positive impact on poverty reduction by lowering food prices, although there were intense debates in the 1970s on whether it did have an impact on the poor. Despite the falling output prices, agricultural producers continued to benefit from the productivity growth through the fall in the cost of production per unit output. As Pingali and Raney point out, however, this does not mean that the benefits of the Green Revolution have been evenly distributed. The benefits to the smaller farmers were initially delayed, compared to larger farmers, while the impact on the rural landless was debated. Furthermore, despite the more recent breeding efforts targeted at the marginal environments, note Pingali and Raney, “few would argue that rural producers in marginal areas have received benefits comparable to their counterparts in the better endowed areas, where irrigation and associated inputs are more readily available, and modern varieties have been widely adopted.” This theme is picked up in Chapter 7 by Dar et al. as they delve into dryland agriculture in Asia. The chapter tackles the general characterisation of the dry land areas in Asia, and identifies priority areas for research and development, as well as complementary public policy issues, specifically focusing on such areas. One of the indirect consequences of the Green Revolution, which has often been under-appreciated, is its effects on the preservation of forest resources. As Coxhead discusses in Chapter 11, the dramatic increase in the land productivity in the lowlands attracted rural-rural migration from less-favourable areas to the lowlands (e.g., David and Otsuka 1994; Hayami and Kikuchi 2000), thereby reducing the pressures on the natural resource base in marginal/frontier areas (through clearing forests, for example). As we discuss below, the degradation of natural resources, particularly forest resources, has proceeded at an alarming rate in many parts of Asia (as well as in the world), mainly due to the population pressure. Without the Green Revolution, however, the speed of the deforestation would have been even faster. In addition, the increase in land productivity in the lowland is likely to have reduced the rural-urban migration, thereby partially offsetting the urbanisation trend and the subsequent urban congestion (Chapter 11).

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Despite the success in the past, according to Pingali and Raney (Chapter 6), the public sector research in agriculture faces a major challenge with the emergence of the ‘Gene Revolution,’ where the locus of technological innovation has now shifted from the public to the private sector. While some studies on the existing transgenic crops suggest that the technology may be pro-poor, it is not clear whether the private sector has enough commercial incentive to invest in the development of crops and traits aimed at poor farmers in marginal production environments; this therefore hints at potential roles for the public sector. Effective involvement by the public sector in developing countries, however, requires a relatively high level of national institutional capacity in agricultural research, in environmental and food safety regulations, and in intellectual property rights (IPRs) protection. As the Chinese example discussed in the chapter illustrates, effective competition by the public sector research organisations may potentially lower the prices of new seeds so that farmers gain a larger share of the economic value produced by transgenic crops. According to Pingali and Raney, in Asia, only China and India have so far invested heavily in developing such institutional capacities. As a result, there is a real risk that farmers in the poorest countries are excluded from the Gene Revolution. In addition, in Chapter 4, Anderson also draws some lessons for public investments based on past experiences, noting that ‘promoting hunger eradication’ is an international public good. Anderson advocates developing ‘new pro-poor’ research priorities including increasing staple food production, crop productivity in marginal and less-favoured areas, helping small-scale farmers diversify into higher value products and develop more nutritious foods, (because those are unlikely to be addressed sufficiently by the private sector research organisations), and making public R&D systems more demand-driven with participatory research and new partnerships with the civil society. Investment in Irrigation and Water Resource Management In addition to the investments in agricultural R&D, also instrumental in the success of the Green Revolution was the massive investments during the 1960s and the 1970s in rural infrastructure in general, and in irrigation, in particular. As shown in Chapter 8 by Barker and Rosegrant, one of the

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key accompanying ingredients of the Green Revolution technology was the doubling of irrigated land over the past four decades, which, in turn, was driven (initially) by public investment in large storage dams and (later) by private investment in groundwater extraction. The huge public sector investments (by multilateral and bilateral donors as well as by national governments), as they argue, “can easily be regarded as the foundation of food security in Asia today”. After the 1980s, however, the public investment in irrigation declined dramatically due to the combined effects of the sharp decline in cereal grain prices, the rising construction costs of irrigation systems, and the growing opposition to large-scale dams which have been blamed for contributing to environmental degradation and social dislocation. On the other hand, the development of groundwater extraction (through pumps and wells) in various parts of Asia followed disparate patterns, depending on local conditions in natural environments and policies. In many areas, however, the explosion of groundwater irrigation (and use of pumps) after the 1980s was perceived to be “largely a response by farmers to the lack of flexibility and the unreliability of canal systems”. Among other policy issues, critical lessons have also emerged from past experiences with water pricing policies and the poor performance of irrigation systems. In most of the Asian countries, the large subsidies they have provided for the use of irrigation water, as well as domestic water have resulted in a lack of incentive for the efficient use of water. As noted by Barker and Rosegrant (Chapter 8), these subsidies lead not only to inefficient allocation of water resources but also to inequity since a larger share of the subsidy benefits accrues to better-off users. In addition, more recently emerging policy issues in water resource management include environmental problems and water scarcity, especially in semi-arid areas. The issue on the poor performance of irrigation systems has been addressed by various institutional reforms, including decentralisation. Barker and Rosegrant note, however, that despite the strong drive for decentralisation in irrigation management from multilateral donors (World Bank and Asian Development Bank), the experiences with irrigation management turnover, devolution, and water user associations (WUA) in Asia have produced mixed results, and their impact on water use efficiency has often been unclear. Nevertheless, some common characteristics for a successful WUA have been identified in the literature, including the presence of social capital or patterns of cooperation which WUAs may build upon, group homogeneity,

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and a supportive policy/legal environment marked by secure water rights, regulating externalities, and technical and organisational assistance. The chapter also cites some examples of effective synergies between private investment (tubewell development) and public investment (roads, research and extension systems, access to credit and electricity). Based on those and other policy experiences, Barker and Rosegrant conclude in Chapter 8 that “reforms in the water sector should include changing the institutional and legal environment in which water is supplied and used to one that empowers water users to make their own decisions regarding use of the resource, while providing correct signals regarding the real scarcity value of water, including environmental externalities.” Agricultural Extension Systems Another complementary input to the Green Revolution, which has a public good characteristic, is agricultural extension services. Similar to irrigation management systems, national extension systems have been “widely criticized for being inefficient, ineffective, poorly linked to agricultural research systems, lacking clear objectives and motivation, not accountable to clients, and lacking relevant technologies” (Umali-Deininger, Chapter 9). The chapter further observes that those problems have been attributed to various factors, among them: the weak political commitment and support of government agencies as reflected for example in insufficient funding; the allocation of resources not aligned with local needs; the weak linkages between public expenditures and outcomes; the weak linkages between the extension and agricultural research systems; and the frequent diversion of extension staff time to other duties. On the premise that “no single formula exists for all types of extensions services in all countries,” Umali-Deininger (Chapter 9) considers a menu of options at various levels of public sector provisions and involving private sector actors. Decentralisation of extension services provision has been frequently proposed for the purpose of improving accountability and better service delivery. Similar to the case of irrigation management, however, past experiences with various schemes of decentralisation have yielded mixed outcomes. The chapter enumerates some critical actions essential to ensuring the successful decentralisation programmes, among them: (1) the

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clear delineation of political, fiscal and administrative authority, as well as coordination mechanisms among different tiers; (2) empowering farmers and other crucial rural clients, possibly aided by an active civil society; (3) adequate capacity building at lower tiers of government to assume the new responsibilities; (4) knowledge and technical skills development of extension staff; (5) adequate funding either through own revenue or from inter-governmental fiscal transfers and user payments; and (6) appropriate mechanisms for maintaining transparency and accountability. Despite the often disappointing performances in the past, UmaliDeininger argues, extension systems today are being compelled to adopt a broader mandate, due to the changing demand for their services. Some factors that have triggered these changes are: the increasing demand and thus potential opportunities for growing higher-value products; the increasing pressure on local farmers to be competitive in the globalising markets; and greater concern on, and awareness of food safety issues. Those latter issues are the main focus of the chapter on the supermarket revolution by Reardon and Timmer (Chapter 12), and we will return to this theme later on. Integrated Rural Development Projects (IRDPs) and Other Policy Failures Project Design Issues in IRDPs: During the period of massive investments in agricultural and rural development projects in the 1970s, Integrated Rural Development Projects/schemes emerged as a popular vehicle for such investment efforts. It is shown by Anderson in Chapter 4 that despite the introduction of the modern high-yielding varieties of grain cereals (such as rice and wheat), the “many constraints faced by smallholders were felt to be inadequately addressed in projects with a piecemeal approach to selected weaknesses in local institutions and infrastructure,” and “special efforts were judged to be needed to reach the weakest and most remote members of society, who seldom benefit from ‘trickle down’ effects of interventions not directly targeted to them.” As Anderson notes, however, “designing project interventions to reflect these constraint-removing desiderata proved difficult from the outset.” Drawing lessons from the IRDP experiences (mainly by the World Bank) in the 1970s, Anderson identifies “key design issues” involved in such projects. Perhaps among the most serious limitations of the

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IRDPs was its ‘top-downism,’ as also pointed out by Roumasset (Chapter 2), who notes that the subsidies provided as IRDP components “were largely delivered through line agencies with little or no accountability … and discouraged the emergence of spontaneous, unsubsidised institutions.” The involvement of local governments and capacity building efforts were both limited, while there was “excessive reliance on expatriate technical assistance” (Anderson, Chapter 4). A range of input subsidies provided through IRDPs “both blunted incentives and provided opportunities for rent-seeking” (Roumasset, Chapter 2). Additional shortcomings of IRDPs discussed by Anderson (Chapter 4) include the following: inadequate policy environments; limited partnerships and donor coordination; IRDPs being ‘enclaved from the rest of the sector and economy’; and the substantial but largely inefficient monitoring and evaluation (M&E) components staffed by expatriates. Anderson also notes the many failures in the implementation of project components, including directed credit programs, resettlement programs to frontier areas, and publicsector involvements in production input supply, processing and marketing . Directed/Subsidised Credit: Among those (failed) policy instruments, directed credit schemes perhaps drew the greatest attention in the literature, as discussed in some detail by Roumasset in Chapter 2. Directed credit programs, according to Roumasset, “typically provided subsidised credit to agricultural and rural banks, instructing the banks to lend to an agricultural and rural clientele without exceeding controlled interest rates”. It turned out, however, that those loans were “disproportionately given to large commercial clients” and that the default rates were quite high. The high default rates meant that those programmes were not sustainable without large infusions of new subsidies and thus eventually waned. While the early critiques of the subsidised credit (“the Ohio school”) focused on the possible inefficiency due to the artificially low interest rates (‘financial repression’), the experiences from the East Asian Miracle (World Bank 1993) may support a ‘modest financial restraint’ (Roumasset, Chapter 2). The theoretical developments incorporating asymmetric information have provided explanations for the coexistence of informal and formal lenders as well as for the failures of the directed credit programs. In contrast with the failures in directed credit programmes, one significant innovation that emerged in the 1970s and 1980s in rural finance is the micro credit institutions. They were able to mitigate the information

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asymmetry problems (i.e., adverse selection and moral hazard) typically faced by both formal banks and directed credit institutions, by substituting ‘peer monitoring’ for collateral (Roumasset, Chapter 2). Those micro credit institutions, represented by Grameen Bank in Bangladesh and others, have flourished in developing countries and in developed countries. The policy lessons drawn by Roumasset are: “to eschew subsidies, to improve information networks and to advance complementary markets both to decrease costs and to increase the bargaining power of borrowers” (Chapter 2). As also pointed out by Roumasset, however, while micro credit schemes have no doubt been much more successful than the directed credit programmes, some argue that those schemes are typically not sustainable without administrative subsidies. In addition, there have emerged wide variations in the designs of micro credit programmes (e.g., the size of loan, group size, inclusion of savings scheme, etc.) and a lively debate continues on the relative merits of such alternative designs and on the emerging evolution of ‘micro credit to microfinance’ (e.g., see Armendariz de Aghion and Morduch, 2005). Price Control via Parastatals: There are a few other policy measures that were relatively popular during the 1970s, as discussed by Roumasset (Chapter 2). One is the food price stabilisation policy with the use of parastatals. While the conventional view was that governments could stabilise prices, Roumasset argues that “trying to insulate domestic markets from international price fluctuations is counterproductive” and “the best means of stabilising prices involves using international markets to stabilise domestic prices.” Furthermore, even conceding that “increased incentives for agricultural growth may be warranted” given the pro-poor and development linkages of agricultural development, Roumasset notes that this “does not imply that agricultural price protection is warranted”. In fact, as Roumasset concludes: “subsidized prices, especially when administered via monopolised import controls, fragment the economy and pull entrepreneurial resources into rent-seeking instead of productive innovation.” Land Reform: Another controversial policy instrument with a long history is land reform. There are two main issues which have served as the rationale for land reform policies and have been intensely debated in both theoretical and empirical literature. One is the relative inefficiency of larger and commercial farms compared to small family farms due to the higher efficiency of family labour relative to hired labour. The empirical counterpart is the “notorious” (according to Roumasset) observed inverse relationship

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between farm size and productivity. Redistributive land reform has been advocated, most notably by the World Bank since the 1990s, based on the view that “large farms are at a transaction-cost disadvantage with respect to labor” (Roumasset, Chapter 2). While many empirical studies have been conducted (following Berry and Cline 1979), however, evidence appears to be divided as to whether smaller farms are indeed more efficient than large farms. Furthermore, argues Roumasset, the existence of the inverse relationship between farm size and productivity may not necessarily mean inefficiency in labour allocation due to heterogeneity in land quality. In addition, there may be counteracting factors that favour larger farms relative to small farms (thus offsetting the possible transactions cost disadvantage of hired labour used by large farms) such as access to credit and to markets. This point is somewhat related to the potential impact of the emerging supermarket revolution, which is the focus of the discussion of Reardon and Timmer in Chapter 12. The second issue is the inefficiency of share tenancy. The issue dates back, at least, to the days of Alfred Marshall, but was more recently reformulated by Stiglitz, Joseph (1974) in terms of information asymmetry and risk-bearing, characterising share tenancy as being “in equilibrium but massively inefficient” (Roumasset, Chapter 2). Again, empirical evidence on the issue has been divided; some studies (e.g., Shaban 1987, Banerjee et al. 2002) confirm inefficiency while others (e.g., Hayami and Otsuka 1993) do not. Furthermore, while the banning of share tenancy, such as the one in the Philippines, has been based on the notion of the (Marshallian) inefficiency of share tenancy, many observers have pointed out that such policy is counterproductive. Roumasset argues that those theories behind outlawing share tenancy often “fail to recognize the nature of share tenancy” as a “long-term contractual arrangement for bringing management together with land and that facilitates the tenant’s learning-by-doing about production decisions.” Both the relative efficiency of smaller farms and the inefficiency of share tenancy have been the subject of debates, and empirical evidence on both issues has been divided. Roumasset argues that a major difficulty in empirical studies tackling these two issues is the presumed exogeneity of the farm size (in the case of the inverse relationship between farm size and productivity) and the choice of tenancy contract (in the case of the relative

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inefficiency of share tenancy). Furthermore, distinction needs to be made between family and commercial farms.

EMERGING POLICY ISSUES IN RURAL DEVELOPMENT This book not only takes stock of past lessons but also highlights the emerging research and policy challenges that have gained prominence in the past few decades. Environmental Concerns (Natural Resource Degradation) An issue that has drawn increasing attention among policymakers over the past few decades is the close linkages among poverty, population growth and natural resource degradation. In the 1950s and 1960s, as Coxhead notes in Chapter 11, natural resources such as forests were considered relatively abundant and “most Asian states traded them for poverty reduction through internal migration and land colonization”. With the rapid increase in population, however, the natural resource base in developing countries has been rapidly degraded, and maintaining the goals of both poverty reduction (as well as economic growth) and environmental sustainability has become a major policy issue. Two complementary chapters of this volume, one by Coxhead and the other by Otsuka, focus on this theme. As noted by both Coxhead (Chapter 11) and Otsuka (Chapter 10), with the emergence of environmental problems as a major policy issue, the macro-level relationship between income levels and environmental quality, as depicted by the ‘Environmental Kuznetz Curve’ (EKC), has drawn much attention in the literature. According to the EKC hypothesis, in the initial stages of economic development people tend to value material well-being relative to environment and natural resources. As their income levels rise, however, they increasingly value natural capital and environmental services relative to the material well-being derived from purchased goods and services, both as economically productive factors and as sources of aesthetic satisfaction. In addition, fuel woods tend to be replaced by alternative energy sources such as kerosene, electricity and gas. Such reasoning suggests a ‘U-

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shaped’ relationship between the level of income and environmental quality: As per-capita income rises, environmental quality initially worsens, but, eventually, improves as the per-capita income level increases further. The empirical evidence mostly based on cross-country data is mixed, however. Such difficulties in identifying/obtaining statistically significant relationship between environmental quality and income levels in cross-country contexts are not surprising since the paths of environmental degradation are affected by various other factors (which are difficult to control), such as institutional settings and policy contexts, which are the focus of the discussions by Coxhead and Otsuka1. The relative importance of various sources of deforestation in developing countries has been debated. According to one estimate, commercial logging is directly responsible for roughly one quarter of forest losses (Braga 1992, as quoted by Coxhead, Chapter 11), and appears to be relatively more important in Southeast Asia (Otsuka, Chapter 10)2 . However, fuel wood collection by relatively poor peasants in marginal areas appears to be a more important immediate cause of deforestation and degradation of forest resources, particularly in South Asia, as noted by both Coxhead and Otsuka. It is thus of prime importance to understand the behaviour of small peasants in those marginal areas, which, in turn, directs our attention to the incentive systems where those peasants operate. Otsuka’s chapter focuses on the evolution of the incentive systems provided by institutional arrangements governing the access to land and trees within local communities, while Coxhead’s chapter examines the forces outside local communities and instead focuses on the incentive systems provided by inter-sectoral linkages and by government policy environments, mainly working through labour migration. Following the traditions of Boserup (1965) and Hayami and Ruttan (1985), Otsuka sketches the pathways followed by the evolving community institutions governing access to land and forest resources (Chapter 10). As the population pressure increases, extensive agricultural systems (such as shifting cultivation) become infeasible and unsustainable, and evolve into more intensive systems. According to Otsuka, such shifts toward intensive agricultural practices are (or need to be) accompanied by parallel institutional changes “in order to provide appropriate incentives to invest in land and trees.” The underlying hypothesis is that “land tenure institutions evolve towards the more efficient system from the viewpoint of the community.” Communal land tenure institutions, as Otsuka hypothesises, tend to evolve

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increasingly toward individualised ownerships. Such evolution has been observed in a case study in Sumatra. In the case of common property forest lands, open access can prevail in the early stages of development but is eventually likely to lead to excessive extraction due to the ‘tragedy of the commons’ situation. Induced institutional innovations under such circumstances, argues Otsuka, are likely to evolve into collective management of the common resources (Chapter 10). Such examples can be found in the hill regions of Nepal. On the other hand, Otsuka points out that where crop farming or agro forestry has a comparative advantage, land rights institutions are likely to evolve into fully individualised private property rights, as found in case studies in northern Vietnam. As a result of such institutional evolutions responding to different environmental conditions, it is possible, and has often been observed, that the stock of forest resources is restored after initial depletion. One important point emerging from Otsuka’s discussions is that individual/ private ownership can be an efficient institution under certain circumstances but it may not be always so; some type of collective management could be the most efficient system under other circumstances. Such may be the case in non-timber forest areas, where a collective system allows substantive cost savings in resource protection (from outsiders), which can offset the potential costs of weaker incentives for work efforts among individual members. While the foregoing focuses on the important role of institutions within local communities in the access to forest resources, the literature shows as well that the incentive (or disincentive) structures that local peasants in marginal areas face are affected not only by the agricultural systems and institutional arrangements for land rights within communities, but also by various factors outside the community. An increase in agricultural productivity in lowlands, for example, reduces pressures on natural resource exploitation on marginal lands, as we noted in the case of the likely effects of Green Revolution on deforestation. Furthermore, an expansion in employment opportunities outside the agricultural sector is likely to reduce the incentive to clear the forests in marginal areas. Such inter-sectoral linkages affecting the exploitation of forest resources are explored in Chapter 11 by Coxhead. Import substitution industrialisation (ISI) policies, which intended to protect inward-looking and capital-intensive sub-sectors, for example, were once a popular development strategy in many developing countries. Such policies, argues Coxhead, tend to expand those protected (i.e., capital-intensive) sub-

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sectors at the expense of the labour-intensive industrial sub-sectors, thereby reducing the overall labour demand in the industrial sector and raising the incentive for peasants to exploit marginal lands and to degrade natural resources. The Philippines was a prime advocate of such policies for an extensive period of time. After the 1980s, in contrast, many of the Asian economies “began to turn away from the most highly inward-oriented development policies” and toward more outward-oriented policies, with the main focus on labourintensive manufacturing production (Coxhead, Chapter 11). One of the consequences of those policies was to encourage internal rural-urban migration, thereby reducing the pressure/incentives to exploit marginal lands and natural resources; the average rural population growth rate in Southeast Asian countries since the 1980s was only 0.6 per cent a year, well below the replacement rates, due to urban migration. Thus, the advance of globalisation as experienced by those outward-oriented Asian economies after the 1980s likely had an effect of easing the pressures on deforestation at the frontier. Thailand can be seen as a prime example. There are some exceptions, however, to such a generalisation of the effects of globalisation on natural resource degradation, according to Coxhead. In those countries with comparative advantage in plantation crops and aquaculture (and with weak property rights at the frontier), such as Vietnam, Malaysia, Indonesia and the Philippines, agricultural land has been expanding. Such a trend can be partly attributed to the more recent trends in some countries of raising domestic protection for cereal crops. Private Sector Development After the major swings in the development thinking from the ‘interventionist 1970s’, through the ‘privatize and get the price right’ 1980s, and then to the somewhat renewed interventionism (mainly meant for correcting market failures due to imperfect information as well as those due to more traditional causes) since the 1990s, there has been an emerging recognition that both (for profit) private sectors and (not for profit) civil societies have major roles to play in development processes, although the exact nature of these roles is still being ascertained in the ongoing debate. The public sector is also in a position to improve the conditions for private-sector development in rural areas, and Chapter 4 by Anderson draws lessons from past policy experiences

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relevant in this area. For example, Anderson notes: “privatization of agricultural industries has proven to be complex and difficult…where market services and provision of credit to farmers collapsed after privatization.” The opening of markets to enhance competition needs to be realised in the early phase of the privatisation process and effective safety nets also need to be in place. As Anderson maintains, “deregulation, privatisation and liberalisation still have far to go in many countries,” including the reforms in “many regulations and interventions that inhibit the development of local markets.” There has also been a renewed recognition, it seems, in the government’s role in investing in rural infrastructure (especially transport infrastructure) to enhance market development (Anderson, Chapter 4). A major part of the private sector development in rural areas comes from the rural non-farm economy (RNFE), which now constitutes roughly 40 per cent of rural income sources. Anderson argues that past government policies/interventions in manufacturing sectors, however, tended to provide preferential treatments, subsidies and technical assistance to larger-scale and capital-intensive firms, at the expense of small-scale, labour-intensive firms and informal sectors. Thus Anderson sees the need to remove such “unnecessary subsidies and protective policies that reduce competitiveness of rural firms in the market place” and to level the playing field for rural industrialisation. Recent experiences in China could be instructive in light of the recent rapid growth in small private firms specialised in service, trade and construction. Globalisation and Supermarket Revolution Chapter 12 by Reardon and Timmer focuses on one conspicuous aspect of private sector-led development, the so-called “Supermarket Revolution”, that has been spreading dramatically across Asia. The spread of the ‘revolution’ in Asia, according to Reardon and Timmer, has occurred in three waves. The first-wave started with the ‘take-off’ of the supermarket sector in the early 1990s in East Asia outside China, such as China (Taipei) and Korea, where the share of supermarkets in food retail reached 50 per cent by 2004. Some Southeast Asian countries, such as the Philippines and Thailand, are positioned at the ‘tail end of the first wave’ where the ‘take-off’ started in the mid-1990s, and their supermarket shares are approaching close to 50 per cent. The second wave countries include other Southeast Asian countries,

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such as Indonesia, where the supermarket share stands at around 30 per cent while in the third wave countries (including Vietnam, China and India), the ‘take-off’ started in the late 1990s or early 2000s with their share of supermarkets reaching 10 to 20 per cent as of 2004. Such developments in various countries have been driven by the rising incomes of consumers and urbanisation on the demand side, and the liberalisation of retail foreign direct investment (FDI) and the modernisation of procurement systems, on the supply side. Parallel to the diffusion of supermarkets across countries, the movement within countries traces the spread of supermarkets from large cities toward smaller cities and then to poorer and remote areas. While the initial stage of the supermarket revolution mainly caters to the rich and middle-class customers in urban areas, it has increasingly served poorer consumer segments as well, as the geographical coverage expanded. In yet another aspect of the pattern of diffusion of supermarkets, the market penetration starts with processed foods (such as grains, oil and packaged goods) and proceeds to include semi-fresh products such as dairy, and then toward fresh produce (such as fruits and vegetables). Among the driving forces of the rapid changes in marketing systems has been the technology change in the procurement system. Under competitive pressures, procurement officers sought to reduce purchase and transaction costs, and to raise product quality. This resulted in the tendency to shift from fragmented, per-store procurement systems to distribution centres serving several stores. The centralisation of procurement systems further evolved into regionalisation (internationally), as observed worldwide. This has meant a growth in intra-firm trade spanning several countries, which, argues Reardon and Timmer, is likely to induce greater intra-regional trade and economic integration in sub-regions and between sub-regions of the Pacific Rim. Also, the traditional wholesale system has been partially replaced by specialised wholesalers who cater to the procurement requirements of supermarkets. Specialised wholesalers, in turn, have increasingly entered into preferred (contractual) supplier relationships with limited numbers of processing firms and farmers in order to ensure quality and consistency. One of the crucial questions for policymakers in the region in the face of the ‘supermarket revolution’ is: what do all those changes mean to small farmers and the rural poor? While empirical evidence on the effects of the supermarket revolution on small farmers is still scanty, Reardon and Timmer summarise a few notable tendencies. Small farmers are indeed involved in

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supermarket supply chains since “supermarkets have no choice but to rely on small farmers” because in most Asian countries, “at least for the medium term … nearly all farmers are small!” (Reardon and Timmer, Chapter 12). Moreover, the chapter contends that the important factor that determines the participation of small farmers in the ‘supermarket revolution’ is not so much the ‘farm scale/size’ but rather the richness in financial and human capital. To illustrate, it cites that “only 10% of the West Javan produce farmers sell to the supermarket channel.” Reardon and Timmer therefore conclude that while the majority of small farmers continue to rely on outlets in the traditional markets, such traditional outlets are declining, at different rates over different products and in different countries, “seemingly inexorably” and “the farm sector, in the medium term, will need to be ready for that reality.” Renewed Focus on Poverty Reduction and the Dynamics of Poverty After a decade-long focus on debt crises, structural adjustments and ‘getting prices right’ during the 1980s, the 1990 World Development Report published by the World Bank focused on ‘poverty,’ which marked a (yet another) major shift in the international development agenda. Since then, ‘poverty reduction as an overarching goal’ has been widely espoused in the international development circle. Large-scale household surveys have been routinely collected in many of the developing countries and have become a standard tool for development policymaking. It has now been widely accepted that aggregate income growth is a fundamental determinant of poverty reduction. At the same time, however, as noted by Balisacan and Fuwa (Chapter 5), “the nature of growth, not just its speed, matters” when it comes to assessing its effect on poverty reduction performances. The responsiveness of poverty reduction to economic growth has been found to be affected by the initial distribution of income, initial conditions in investment climate, policy environments, and the quality of local institutions (Balisacan and Fuwa, Chapter 5). In addition, both the theoretical developments on the dynamics of social stratification, and the increasing availability of micro-level panel data sets have facilitated a closer scrutiny of the dynamic aspects of poverty and economic mobility. More recent literature on poverty dynamics has found that a large proportion of the poor at any point in time tend to be the so-

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called ‘transient poor’ instead of the ‘chronic poor.’ The transient poor are those who typically fall into poverty due to relatively short-term income fluctuations, while the chronic poor are those whose incomes tend to stay below the poverty line persistently for a long period of time. Paying heed to such distinctions among the poor population would lead to a sharper focus and improved effectiveness of poverty reduction policies, understandably because the determinants of poverty differ depending on the types of poverty, and thus call for appropriate policy instruments tailor-made for the characteristics of the specific groups being targeted.

CONCLUDING REMARKS As will be evident in the chapters that follow, the past few decades have yielded an abundant supply of valuable lessons. Those significant developments in economic theory, empirical evidence, and policy experiences (both successes and failures) have provided a fertile ground for learning. However, we have also briefly noted in this chapter (and these will be discussed in more detail throughout this volume) that there are still significant knowledge gaps and emerging policy challenges that confront researchers and policymakers alike in the coming decades. Among the relatively more familiar issues, for example, our understanding of the (endogenous) evolution of institutions in rural areas remains inadequate, and a clear consensus is yet to emerge regarding the appropriate roles of the government, such as the exercise of appropriate policy options for supplementing informal insurance arrangements among poor rural households. Similarly, the relative efficiency of small family farms vis-à-vis larger (commercial) farms is still a subject of debates; the issue is important not only in the traditional contexts of justifying distributive land reform policies but also in light of the more recent changes in the marketing systems, which have stirred a major concern as to how the emerging ‘supermarket revolution’ could affect small farmers and the rural poor. The (mainly private-sector led) ‘Gene Revolution’ is another example of the recent challenges where the potential implications on the rural poor remain to be seen. Pursuing the twin goals of maintaining the natural resource base (e.g., forest and water resources) and environmental services, on the one hand, and of poverty reduction, on the other, will also be a significant policy challenge for the coming decades. Given the still

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significant proportion of the population living under poverty in rural Asia, those challenges remain enormous and urgent. It is our hope that many more researchers and practitioners will join the concerted efforts aimed at revitalizing the agricultural and rural development agenda to address those challenges.

NOTES * The authors can be reached at [email protected] and nfuwa@ faculty.chiba-u.jp. 1 See Coxhead’s and Otsuka’s chapters for the literature on EKC. 2 As noted by Coxhead, the indirect effects could be greater since “commercial logging is known to create access to forests by farmers”.

REFERENCES Armendariz de Agion and Jonathan Morduch. The Economics of Microfinance. Cambridge, Mass.: MIT Press, 2005. Balisacan, Arsenio M., Leocadio S. Sebastian and Associates. Securing Rice, Reducing Poverty: Challenges and Policy Directions. Los Baños, Philippines: Southeast Asian Regional Center for Graduate Study and Research in Agriculture, 2006. Banerjee, Abhijit V., Paul J. Gertler, and Maitreesh Ghatak. “Empowerment and Efficiency: Tenancy Reform in West Bengal”. Journal of Political Economy 110 (2002): 239–80. Bardhan, Pranab and Christopher Udry. Development Microeconomics. New York: Oxford University Press, 1999. Behrman, Jere and T.N. Srinivasan, eds. Handbook of Development Economics, Volume III. Amsterdam: North Holland, 1995. Berry, R. Albert and William R. Cline. Agrarian Structure and Productivity in Developing Countries. Baltimore: Johns Hopkins University Press, 1979. Boserup, Esther. The Conditions of Agricultural Growth. London: George Allen & Unwin, 1965.

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David, Cristina and Keijiro Otsuka (eds.). (1994) Modern Rice Technology and Income Distribution in Asia. Boulder & London: Lynne Rienner Publishers. David, Cristina C. “Agriculture”. In The Philippine Economy: Development, Policies, and Challenges, edited by Arsenio Balisacan and Hal Hill. New York: Oxford University Press; Quezon City: Ateneo de Manila University Press, 2003. Eicher, Carl K. and John M. Staatz. Agricultural Development in the Third World, 2nd ed. Baltimore: Johns Hopkins University Press, 1990. Hayami, Yujiro, and Keijiro Otsuka. The Economics of Contract Choice: An Agrarian Perspective. Oxford: Oxford University Press, 1993. Hayami, Yujiro and Masao Kikuchi. A Rice Village Saga: Three Decades of Green Revolution in the Philippines. Macmillan, Barnes & Noble, for the International Rice Research Institute, 2000. Hayami, Yujiro and Masao Kikuchi. Asian Village Economy at the Crossroads: An Economic Approach to Institutional Change. Tokyo: University of Tokyo Press; Baltimore: Johns Hopkins University Press, 1982. Hayami, Yujiro and Vernon Ruttan. Agricultural Development: An International Perspective. Baltimore: Johns Hopkins University Press, 1985. Johnston, Bruce F. and Peter Kilby. Agriculture and Structural Transformation: Economic Strategies in Late Developing Countries. New York: Oxford University Press, 1975. Meier, Gerald and Joseph Stiglitz. Frontiers of Development Economics: The Future in Perspective. New York: Oxford University Press, 2000. Mellor, John W. The Economics of Agricultural Development. Ithaca: Cornell University Press, 1966. Rosegrant, Mark W. and Peter B.R. Hazell. Transforming the Rural Asian Economy: The Unifinished Revolution. Hong Kong: Oxford University Press, 2000. Shaban, Radwan Ali. “Testing between Competing Models of Sharecropping”. Journal of Political Economy 95, no.5 (1987): 893–920. Stiglitz, Joseph E. (1974). “Incentives and Risk-sharing in Sharecropping.” Review of Economic Studies. Vol. 41. Pp. 219-255. World Bank. The East Asian Miracle: Economic Growth and Public Policy. New York: Oxford University Press, for the World Bank, 1993. ———. World Development Report 1990. New York: Oxford University Press, for the World Bank, 1990.

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2

The Economics of Agricultural Development: What Have We Learned?



James Roumasset*

INTRODUCTION At the 1995 UN Social Summit, 117 countries pledged to adopt programmes to rid themselves of extreme poverty; the UN Millennium Summit agreed to halve global poverty by 2015. According to the International Fund for Agricultural Development (IFAD 2001), these targets are not being met. Thirty million people a year should have been released from poverty for the 2015 target to be met. But, says IFAD, the figure is no more than 10 million a year, a rate of progress that makes the target unattainable. Since 75 per cent of extreme poverty occurs in rural areas, IFAD suggests that the whole question be looked at in the context of the rural world. “Current development efforts grossly and increasingly neglect agriculture and rural people,” says Dr. Michael Lipton, Director of the Poverty Research Unit at Sussex University, who co-authored the report. Between 1987 and 1998, for instance, agricultural aid to low-income or least developed countries, which account for over 85 per cent of the world’s poor, shrank by two-thirds. Since the 1980s, however, the economics of agricultural development has arguably been in decline. Donor agencies have often found agricultural development contrary to the precepts of the Washington Consensus and of

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even less worth in the face of low agricultural prices. Economists often leave agricultural issues to the agricultural economics profession. But development is not a high status enterprise in the departments of Agricultural and Resource Economics. This leaves agricultural development twice marginalised in the academe, and non-academic institutions are hard-pressed to fill the void, despite the heroic efforts of a few stalwart crusaders and organisations. The following review of agricultural development thinking is offered in the spirit that understanding of previous thinking may help to identify new frontiers that today’s researchers will find suitably promising and challenging.

FADS AND FANCIES IN THE ECONOMICS OF AGRICULTURAL DEVELOPMENT The economic development literature has gone through recognisable stages of fad and fancy. The 1950s and early 1960s was dominated by the planning mentality. The rest of the 1960s witnessed an era of dualism wherein the import protection of industry was justified by asserting that the marginal product of labour in agriculture was relatively low (Ranis and Fei 1961). The 1970s was the “growth with equity” decade. It was an era of modernism wherein social engineers at the World Bank and elsewhere decried market failures and proclaimed the need for redistribution in line with an imaginary social welfare function. The pendulum swung to the opposite extreme in the 1980s. Government was thought to be a greater source of failure than markets and the slogan, “privatize and get the prices right” ruled the day. As the Washington Consensus faded with the Reagan-Bush era, a post-modern development microeconomics evolved from economists’ fascination with the East Asian miracle. The perceived role of agriculture shifted dramatically as development thinking changed. In the dualistic view, agriculture could be squeezed, even as industry was protected to accelerate the transfer of surplus labour to the modern sector. Proponents of agricultural development (e.g., Mosher 1966; Mellor 1966; and Myrdal 1968) noted that levels-of-living of the poor would not be raised by turning the terms of trade against those whose livelihoods depend on agriculture. Jorgenson (1961) showed how neoclassical forces could account for the relatively rapid increase in manufacturing employment.

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Johnston and Mellor1 (1961) went further, describing how agricultural investments stimulate the larger economy through “pro-poor” linkages — lower food prices, higher employment and real wages, and induced demand for non-agricultural products combined with an economic surplus with which to fund their production. During the interventionist 1970s, it was natural to seek favourable linkages by subsidies and market interference in the name of integrated rural development. The subsidies were largely delivered through line agencies with little or no accountability (Binswanger 2004) and discouraged the emergence of spontaneous, unsubsidised institutions (Rosegrant and Hazell 2000). Confiscatory land reform and a whole range of input subsidies both blunted incentives and provided opportunities for rent-seeking by coalitions of political and commercial elites. Infrastructure projects were characterised by huge discrepancies between project design and realisation (Repetto 1986). Growth in agriculture progressed nonetheless, aided in part by new technologies and rising factor productivity (Federico 2005). As the 1980s brought new enthusiasm for trade-led growth, agricultural development thinking became more outward-oriented (Clarete and Roumasset 1987; Krueger et al. 1988; Gardner 1996). Despite this, the liberalisation of agriculture lagged behind that of manufacturing (Federico 2005). Rising per capita incomes, increased capital-labour ratios, and agriculture’s increasing concentration and commercialisation all contributed to the resiliency of agricultural protection (Balisacan and Roumasset 1987). As the participatory development movement of the 1990s (and beyond) focused increasingly on rural issues, community-driven development (CDD) (Binswanger 2004) was the result. CDD is an approach that aims to “empower communities and local governments with resources and the authority to take control of their development” (Binswanger and Atyar 2003). The four core features of CDD are real participation, improving accountability, technical soundness, and sustainability. The promise of CDD is its recognition that political feasibility is essential for successful policy reform. Realisation of its potential will require further conceptual development and synthesis from systematic case studies, however. To a large extent, the fads and fancies of each decade have been abandoned without a thorough diagnosis of the reasons they failed to deliver according to expectations. To some extent, new policies have been added without a

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corresponding dismantling of prior policies – giving rise to the suggestion that development policy has been based on band-aid economics. Indeed — failing to learn the lessons of the history of development policies may have doomed us to repeat them. For example, interventions during the 1970s were based on the diagnosis of market failure and the prescription of Pigouvian cures. This method commits a nirvana fallacy by failing to engage in the comparative institutional analysis necessary to balance prospects for improved resource allocation with unintended consequences and implementation failures (Demsetz 1969). In post-modern interventionism, market failure derives from misallocations in equilibrium, albeit without considering voluntary mechanisms of governance and multilateral cooperation. Like the old fallacy, the new nirvanaism suffers from misplaced exogeneity. The tendency to socially engineer reforms instead of facilitating cooperation persists. Just as the old structure-conduct-performance paradigm was replaced by contestable market theory and other innovations, the prospects for improved empirical work on developing agriculture await the development of an appropriate structural model wherein farm organisation, specialization between family and hired labour, and choice of contracts across tasks and economic environment are understood as parts of an endogenous whole. Some of these themes are developed in specific contexts below.

POLICIES AND PROGRAMMES Behaviour: Risk and Crop Insurance Before Schultz’s Transforming Traditional Agriculture (1964), it was implicitly believed that peasant farmers were tradition-bound, ignorant, lazy and backward. T heir behaviour was thought not to be describable by conventional models of economic rationality. Schultz shattered that belief, showing that poverty among peasant farmers derived from limited resources, including human capital, and from a stagnant technology, not from sloth or decisionmaking failures. Just as Schultz’s book was catching on in the late 1960s, however, high-yielding modern varieties (MVs) of rice and wheat were becoming available in Asia and Latin America. Rapid early adoption of MVs was enthusiastically described as a “green revolution.”

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By the end of the 1960s, however, it became apparent that the MVs were not meeting expectations. The forecasted doubling and tripling of yields was rarely realised. The rate of increase in the incidence of adoption slowed down much earlier than expected and when varietal adoption did take place, farmers generally “failed” to adopt the packages of inputs and cultural practices that were recommended by the international and national research and extension services. Agricultural development professionals faced a quandary. On the one hand, they had recently been converted to the view that farmers were economically rational. On the other hand, farmers failed to adopt production techniques that were thought far superior to traditional practices. The agricultural development texts of the day (Wharton 1969; Mellor 1966) suggested a resolution to the apparent paradox. Farmers were rational but were assumed to be highly risk-averse, due to incomes in the proximity of “subsistence levels-of-living.” New varieties and the associated packages of recommended practices were assumed to be much more risky than traditional practices, which were thought to perform better under adverse circumstances. In summary, low-income farmers are risk-averse (RA), modern technology is more risky, and low-income farmers will therefore underinvest (UI) in modernisation – RAUI for short. Empirical evidence for the RAUI hypothesis is mixed. Roumasset (1976) and Walker (1980) reject the hypothesis, but a few studies conclude that the role of risk-aversion in cropping decisions, varietal adoption, and fertilizer use is not unimportant. 2 Anderson and Hazell (1994) provide a number of reasons why RAUI has not been more regularly confirmed. First, the modern technology, while more variable, may stochastically dominate the more traditional technology. Second, output variability is often negatively correlated with price fluctuations. Third, risk-reducing strategies, including both diversification and risk sharing (e.g., Walker and Jodha 1986; Walker 1989) reduce the relevance of risk for an individual crop; and fourth, riskcoping strategies for consumption-smoothing (e.g., Deaton 1990; Paxson 1990; Townsend 1994) reduce the importance of risk aversion. Methodological problems may also exaggerate the importance of risk aversion. In particular, failing to fully specify the consequences of different choices may result in risk being a proxy for omitted non-linearities. This can be avoided by a complete specification of payoffs for each production

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technique in each state of the world, allowing the analyst to compute optimal behavior under the competing objectives. Only then is it possible to make a meaningful comparison, for a sample of farmers, between actual behaviour and predicted behaviour under each model. The RAUI hypothesis has been a convenient rationale for subsidising crop insurance. The prevailing orientation of agricultural development planning during the 1960s and 1970s was largely shaped by Mosher’s (1966) Getting Agriculture Moving. The idea was to locate the bottleneck to development and design government intervention to remove it. The RAUI hypothesis fit into this thinking perfectly. Risk aversion was the culprit, and crop insurance appeared to be the natural tool to break the constraint. By the early 1980s, however, it had become apparent that crop insurance was not a particularly effective instrument for promoting agricultural development. A new consensus emerged that crop insurance was good in theory but too costly in practice (see, especially, Hazell 1992; Hazell et al. 1986; and Nelson and Loehman 1987). High administrative costs were thought, by new consensus authors, to be due to bureaucratic inefficiency, to the large number of small and sometimes geographically dispersed farmers in developing countries, and to moral hazard, and adverse selection. Adverse selection was thought to require costly actuarial techniques to distinguish between high- and low-risk farms. Moral hazard was similarly thought to require costly monitoring to ensure proper precautions were taken, e.g., the judicious application of pesticides. This view holds out the hope that if only new administrative approaches can be found, crop insurance can yet be made into a viable tool of agricultural development. It may be, however, that crop insurance is bad in practice precisely because it is bad in theory and that the time has come to give up on the constraints approach and turn to fundamentally sound approaches to agricultural development. As explained in Quiggin (1992), crop insurance causes positive negligence as well as negative negligence. Negative negligence is the tendency, even for a risk-neutral farmer, to overuse risk-reducing inputs such as pesticide. Positive negligence is the tendency to overuse inputs that are yield-increasing in the good state and yield-decreasing in the bad state, e.g. fertilizer in drought-prone areas. For a risk averter, the input effects of crop insurance result from a combination of the moral hazard effect and the risk-bearing effect. For inputs with a negative marginal product in the bad state (and a high enough marginal product in the good state to warrant use),

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crop insurance will lower the risk-bearing cost of the input, i.e., the effect on input use is positive. On the other hand, if the marginal product in the bad state is positive enough to decrease risk, crop insurance will decrease the use of that input. In these two cases, crop insurance exacerbates positive and negative negligence. Accordingly, crop insurance may produce negative benefits. The higher the subsidy, the greater these negative benefits will be. Subsidised crop insurance will also partially displace risk-reducing and riskcoping strategies, thereby causing additional excess burden. Another fallacy in the conventional view of crop insurance is that utility functions in current period income or wealth are typically taken as given. As shown by Spence and Zeckhauser (1972) and Roumasset (1979), however, such functions are inherently indirect and depend on the structure of assets, liabilities and transaction costs. Making subsidised crop insurance available or mandating insurance will change the utility function, in particular truncating the lower end. Among other things, the indemnities obfuscate idiosyncratic transaction costs that the efficient decision-maker takes into account. In short, the insurance promotes getting-the-incentives wrong. Marketing, Parastatals, and Price Policy Rashid et al. (2005) review the original motivation of parastatals and conclude that their dismantling should be accelerated. Their case against parastatals is actually somewhat conservative. The traditional case for parastatals presumes that governments can stabilise prices. Williams and Wright (1991) show, however, that trying to insulate domestic markets from international price fluctuations is counterproductive. Indeed the best means of stabilising prices involves using international markets to stabilise domestic prices (Clarete 2003). Evidence to the effect that domestic prices vary less than international prices should not be construed as implying that governments have succeeded in stabilisation. First, international markets are residual markets implying greater variability and that variability in the two markets is non-commensurate (Siamwalla et al. 1990). Second, data on “domestic prices” already contain a huge amount of averaging/smoothing. Third, such evidence may be selective. Some authors maintain that domestic prices are not more stable. Fourth, there is a non-observed counterfactual. We don’t know how stable

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domestic prices would have been in the absence of government controls. Moreover, price stabilisation may decrease economic welfare. Some argue that stabilisation is a political necessity, but it appears that what is political is fooling some of the people into believing that government is in fact stabilising when they are in fact extracting rents (Roumasset 2003). Timmer (2002) makes a compelling case that border prices do not confer correct signals for agricultural development. Given the pro-poor and development linkages of agricultural development (lower food prices and higher demand for labour both lower poverty; higher rural incomes promote the demand for manufactures), increased incentives for agricultural growth may be warranted. This does not imply that agricultural price protection is warranted, however. Moreover, as discussed above in the context of the East Asian miracle, industrialisation is commonly assumed to confer greater external economies than agricultural growth. Most importantly, subsidised prices, especially when administered via monopolised import controls, fragment the economy and pull entrepreneurial resources into rent-seeking instead of productive innovation (Roumasset 2002). Land and Labour Markets The efficiency case for land reform has traditionally been based on two planks – the relative inefficiency of large, commercial farms in the utilisation of labour, and the inefficiency of share tenancy. A number of studies (e.g., Binswanger and Rosenzweig 1986; Binswanger, Deininger and Feder 1995) have suggested that hired labour is inefficient relative to family labour. Utilising family labour economises on recruiting and supervision costs, the latter because family labour stands to lose from both quality and effort shirking. These labour market imperfections are said to result in the productive superiority of family farms (Deininger 2003, p. 84) and to the characterisation of hired labour as inefficient (Otsuka 2005). In contrast, Benjamin (1992) finds that hired labour is neither significantly more nor less productive than family labour. The empirical case for inefficiency rests largely on the notorious inverse relationship between size and productivity (Berry and Cline 1979). Recent evidence is mixed, however. Some studies confirm the inverse relationship (e.g., Burgess 2001 and Udry 1996). Others fail to reject constant returns to scale (e.g., Dow and Putterman 2000; Wan and Cheung 2001).

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Even for data sets wherein the inverse relationship exists, it does not follow that the allocation of labour is inefficient, however. First-best efficiency predicts that landlords will equate the marginal product of labour across diverse land qualities by adjusting the size of family farms, thus leading to the observation of higher per hectare yields on smaller farms (e.g., Roumasset and James 1979). Indeed, Benjamin (1995) shows that the inverse relationship is at least partly due to the bias induced by omitting land quality from the regressions.3 Deininger (2003) asserts, however, that the inverse relationship persists even after controlling for land quality with proxies such as land value. But land value is not an accurate indicator of land’s potential agricultural productivity, nor is distance-to-market and other proxies. Lacking a perfect measure, one cannot confidently reject the hypothesis that the inverse relationship is due to land quality nor conclude that the relationship implies higher productivity of small-farm labour. A second-best efficiency explanation for the inverse relationship is that the shadow price of labour for farm households that hire labour at the margin is higher than that for households who supply all of the farm labour, especially so for households who supply labour to other farms as well as their own (Sah 1986). To the extent that the inverse relationship is sourced in this cause, no inefficiency is indicated. In the second-best equilibrium, shadow prices vary over space, time, and economic agents. Using a first-best standard of efficiency risks drawing policy implications that have efficiencydecreasing consequences. Nonetheless, the World Bank has concluded that large farms are at a transaction-cost disadvantage with respect to labour, and this conclusion has apparently played an important role in their small-farm policy orientation (Deininger 2003). In effect, this reasoning resurrects the fallacy of the structure-conduct-performance paradigm wherein industrial structure was inappropriately viewed as exogenous. The transaction-costdisadvantage view similarly regards farm size as exogenous. But both farm size and, especially, hired labour are endogenous. Farmers voluntarily incur transaction costs largely because of the specialisation that the transactions facilitate, and prejudging the hired labour without acknowledging their specialisation benefits is premature. Future analysis of the inverse relationship should also distinguish between family and commercial farms. Feder (1985), Eswaran and Kotwal (1986), Carter and Wiebe (1990), and Deininger (2003) discuss the possibility that the inverse relationship could reverse for larger farms, noting that that

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their disadvantages in the labour market could be outweighed by their advantages in credit and other markets. Indeed, Uy (1979) finds an inverse relationship on family farms but a positive relationship between productivity and farm size on commercial farms. Likewise, in the new supermarket economics (Reardon et al. 2003), dedicated wholesalers coordinate specific farmers with specific retailers with appropriate procurement, quality, safety, and timing standards and thereby confer transaction cost advantages on large farms. The currently populist World Bank displays a curious schizophrenia here. They are quick to legitimise breaking up large farms because small farms allegedly economise on the transaction costs of hiring labour. But when faced with evidence that large farms have transaction cost advantages in credit and marketing, they call for cooperatives to appropriate those advantages, despite theoretical and empirical obstacles. For the empirical literature on hired labour to progress, two improvements are needed. First, the different types of transaction costs must be distinguished. Transaction costs have been defined by Nobel laureate Kenneth Arrow as the costs of running the economic system and are the economic equivalent of friction in physical systems (Williamson 1985). The primary category of transaction costs is contracting costs, including the costs of participant-selection, negotiation, and enforcement. Lower costs of transportation, communication and institutional innovations that lower enforcement costs facilitate falling unit transaction costs per worker. But as intensification and specialisation increase, for example as the number of workers per hectare rises, transaction expenditures tend to increase, even as unit transaction costs fall.4 Empirical work on transaction costs and agricultural organisation is unlikely to progress until these distinctions are made. Indeed, these and other ambiguities about transaction costs suggest the prudence of focusing on the components of agency and contracting costs and incorporating them into production costs, instead of trying to define transaction costs as a separate category (Demsetz 2006). The second needed improvement is to recognise that the choice of hired vs. family labour is endogenous and that the two kinds of labour will naturally differ in both tasks and skills. In the simple version of the wedge model (Roumasset 1981; de Janvry et al. 1991), household and hired labour are assumed to be perfect substitutes, and labour is hired because of the rising opportunity cost of household labour. An additional reason for hiring labour is that it facilitates specialisation such as teams of workers that move

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from farm-to-farm doing the same task.5 On the prototypical farm in which both family and hired labour are employed, economics implies that there will be a non-random division of tasks between family and hired labour according to the comparative advantages of each. Share tenancy is another commonly asserted source of agricultural inefficiency. The market failure view of share tenancy is based on the socalled Marshallian model, which amounts to Pigouvianism before Pigou.6 According to Marshall’s famous footnote, the rational tenant equates his marginal opportunity cost of labour with only his share of the marginal product. This alleged inefficiency was commonly used to advocate the banning of share tenancy. Cheung (1969) debunked this view, observing that the Marshallian model could hardly be an equilibrium contractual solution inasmuch as the landlord and tenant could renegotiate about the share and amount of output or inputs that must be provided or used, thereby making both parties better off. Stiglitz (1974) proposed a principal-agency model wherein sharecropping is viewed as a pairwise-efficient means of incentivising labour, relative to wage contracts, without the cost of risk-bearing that would be imposed under rent contracts. He thus resurrected Marshallian inefficiency and the proposition that share tenancy should be outlawed. Indeed Stiglitz (e.g., 1994, 2002) has often used the institution of share tenancy to exemplify how economic organisation can be in equilibrium but massively inefficient, asserting that a landlord’s share of 1/2 would have the same disincentive effects as a 50 per cent income tax. The Stiglitz model has had a long and successful run in agricultural development circles. Hayami and Otsuka (1993) conclude that the risk-aversion vs. moral hazard model indeed “justifies the existence of share tenancy in the theoretically most consistent manner” and that econometric studies (e.g., Shaban 1987) confirm that the model is empirically sound. As is the case with the literature on the inefficiency of large farms and hired labour, however, this conclusion is premature. First, the canonical model does not imply, as originally claimed (Stiglitz 1974), that the optimal share, β, varies positively with the tenant’s degree of risk aversion (Deweaver and Roumasset, 2002). Moreover, if one allows for risk-reducing labour, then risk aversion may effectively blunt the tenant’s incentive to shirk. Second, the model is incapable of explaining the empirical distributions of tenant shares, which cluster around 50 per cent, with a smaller cluster around 2/3.7

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But the larger problem is that the theory fails to recognise the nature of share tenancy, a typically long-term contractual arrangement for bringing management together with land and that facilitates the tenant’s learningby-doing about production decisions (Reid 1976; Murrel 1983; Eswaran and Kotwal 1986; Roumasset 1995). On the other hand, share contracting is a popular labour contract for specific tasks. Share tenants themselves hire substantial amounts of labour, especially for the more arduous and routine tasks such as harvesting, weeding, and transplanting. These rationales for land reform fail to acknowledge the complexity of economic cooperation. The principle of comparative advantage implies that different characteristics of land and landowners will call for different intensities and composition of inputs and organisational forms with unlimited differences in architecture. Judging the relative efficiency of different organisational forms commits the most fundamental fallacy in economics – judging performance without understanding the nature and causes of the phenomenon of interest.8 Prescribing policy reforms based on the premise that politicians, bureaucrats, and academics can sociallyengineer institutions superior to those shaped, tested, and improved in the crucible of competition is a recipe for government failure. For example, land reform in the Philippines outlawed share tenancy. As a result, land reform beneficiaries hired permanent workers who were paid a fixed amount for the season. Hayami and Otsuka (1993) conclude that this has been an inferior substitute for share tenancy. Another Philippine example concerns the failure to properly base landlord compensation on land quality. By basing compensation on the principle that 25 per cent of yield is a fair rent, reform confiscates value from owners of good and average farms but actually over-rewards owners of poor-quality land (Roumasset and James 1979). As a result, friends and relatives of some owners of poor-quality land submit bogus claims that they have been working the land as tenants so that the landlord receives more than the land is worth (and landownership remains in the family). The antidote to the misplaced exogeneity that has spawned these policy failures is taking a more fundamental view of agricultural organisation. This includes understanding the nature of the farm as an endogenous institution (Roumasset 1995; Allen and Lueck 1998). As agriculture becomes more intensive, due to population pressure and other forces of modernisation, a greater degree of specialisation is warranted. A prototypical firm in

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developing agriculture may consist, for example, of a landowner who chooses the long-run crop plan and implements mechanisms for controlling land quality; the tenant who does day-to-day production management, and the hired workers. This vertical specialisation is complemented by horizontal specialisation among workers. The following stylisation suggests how horizontal specialisation evolves with population pressure and increasing labour per hectare. Initially, family farms are largely self-sufficient. As the physiological population density increases, exchange labour emerges for the more arduous tasks of transplanting and weeding. During the next stage, the institution of hired labour emerges; but, initially, hired workers engage in several different tasks. As hired labour per hectare increases even further, those workers specialise among tasks and piece rate contracts become relatively more important than wage rate contracts. As piece-rate services are increasingly delivered by teams, the farm may be viewed as contracting with separate labour-providing firms who deliver intermediate products and services, e.g. sharpened cane stalks for transplanting or the transformation of a ploughed field into a transplanted one. Oftentimes as intensification and hired labour increase further, there is a partial reversal, with wage rates replacing piece rates, albeit retaining the horizontal specialisation across tasks. These many stages of labour specialisation are especially pronounced in economies such as the Philippines that have experienced population pressure without sufficient offsetting growth in the industrial sector to increase wages. When wages finally increase, hired labour in arduous tasks is gradually reduced through labour-saving equipment, e.g., for land preparation and threshing and by chemicals such as herbicides (Roumasset et al. 1995; Roumasset 2004). These patterns of vertical and horizontal specialisation are qualitatively similar to those observed in industrial growth and exert a positive force on labour productivity, which may or may not be sufficient to overcome dismal Malthusian forces (Yang 2003). Rural Credit Beginning in the 1950s, through the 1960s, and expanding rapidly in the 1970s, many governments in Asia and elsewhere in the developing world concluded that small farmers lacked access to adequate capital and

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established directed credit policies. These programmes typically provided subsidised credit to agricultural and rural banks, instructing the banks to lend to an agricultural and rural clientele without exceeding controlled interest rates. These programmes performed poorly. Meyer and Nagarajan (2000) show that loans were disproportionately given to large commercial clients and that there were high default rates.9 The authors conclude that their study supports the hypothesis of Shaw (1973) and McKinnon (1973) that “repressed financial systems constrain economic growth.” The conclusions of the “Ohio School” may be too extreme, however. Stiglitz and Uy (1996) conclude that modest financial restraint was a key ingredient in the East Asian miracle. Savings promotion, regulations to improve solvency, creation of financial-market institutions (e.g., bond and equity markets), and broad-based regulations that direct increased credit to the corporate relative to the household sector all helped to improve resource allocation without picking winners. The last policy is said to promote external economies, especially technological and marketing spillovers. Promoting slightly lower interest rates is said to decrease savings by households but more than compensates by increasing savings among corporations. As the directed credit programme waned, due to low repayment rates and the inability of rural banks to survive without large infusions of new subsidies, focus turned to the micro credit cooperative approach where “peer monitoring” substitutes for collateral (Conning and Udry 2005). Morduch (1999) concludes however that while micro credit institutions are more profitable than the directed credit approach, they are typically not sustainable without administrative subsidies. In order to analyse the consequences of credit market policies, we need to model the provision of credit. The first challenge is to explain the coexistence of formal and informal credit. Formal lenders have a comparative advantage in utilising formal enforcement institutions while informal lenders rely on repeated exchange and reputation effects for enforcement (Roumasset 1986). Hoff and Stiglitz (1998) provide a model in which formal sector subsidies allow lenders to expand their informal lending activities. The said expansion results in loans to less reliable and higher cost borrowers, resulting in a higher interest rate. Ghosh et al. (2000) obtain a similar result from a model with differential bargaining power of lenders relative to borrowers, where relationships are exclusive and interest rates are uniform.

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Assuming the law of one price in credit markets abstracts from the essence of credit, however. Credit is not wheat. The nature of the service varies across borrowers and the terms of the credit contract depend on the amount of the loan, the asset-liability position of the borrower, and other borrower characteristics. Bose (1998) provides a promising approach. He assumes that there are two types of informal lenders – the informed and the uninformed – and replaces the assumption of one price per market with the assumption that lenders offer their clients a menu of loan sizes and interest rates. When the government subsidises credit, the perfectly informed lender expands her loan portfolio albeit selectively to reliable clients. The uninformed lender then faces a higher proportion of risky clients and lower expected profits, and must raise interest rates and ration credit ala Stiglitz and Weiss (1981).10 This allows the informed lender to charge higher interest rates in equilibrium. These models represent market failure from information distortions augmented by subsidies. The policy implications are to eschew such subsidies, to improve information networks, and to advance complementary markets, both to decrease costs and to increase the bargaining power of borrowers. Future models may elaborate on how the menu of contracts varies with both lender and borrower characteristics. The directed credit approach and the new informational approach can be combined by acknowledging government failure. Directed credit policies have artificially fragmented capital markets. Further subsidies will worsen allocative efficiency unless severe interest rate and sectoral controls are relaxed. By understanding the evolution of credit market deepening where it has been successful, insights into a facilitation approach can be attained. Research and Extension Birkhaeuser et al. (1991) review nine studies published between 1973 and 1988 on the rate of return to extension. These estimates range from negative to 115 per cent. Evenson (1998) reviews another six studies conducted between 1973 and 1989. Between the two reviews, a total of 26 linear estimates of returns to extension are reported. Of these 26 estimates, only 11 are significant at the 90 per cent confidence level. Of all of these, none finds extension to increase total crop value by more than 27 per cent.

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Owens et al. (2003) note, however, that these estimates tend to be biased upwards due to endogenous programme placement and two-way selection bias (agent selects farmer and/or farmer selects agent). Using productivity and farmer data (e.g., crop production and yields, revenues, land used in agricultural production, labour input, levels of education, rainfall, land quality, slope, soil type, and distance to market) from rural Zimbabwe, Owens et al. (2003) find that agricultural extensions (defined as regular visits once or twice per year) raise the value of crop production by 15 per cent. Inasmuch as these corrections cannot entirely control for within-location quality variation and differences in farmer characteristics, some upward bias may remain, however. What is clear is that the returns to extension can be substantial and that sometimes extension fails to deliver a positive return. Accordingly, research needs to shift from the question of how much extension to the question of how extension services should be delivered. Research on farmer behaviour relative to recommended practices affords some tentative conjectures. First, top-down extension that attempts to coerce, cajole, or subsidise farmers into adopting “accepted practices” is risky business. Extension agencies are typically unable to tailor recommended practices in accordance with economic efficiency given the enormous diversity in agro-climatic, economic, and institutional environments. Instead, extension should offer farmers a menu of promising practices that may be suitable for their conditions and simultaneously communicate those conditions and farmer concerns back to the research establishment. Second, measures of extension agent performance are needed such that suitable agent incentives can be designed and implemented. Until this happens, horizontal and vertical accountability in extension will remain buzzwords. Water Resource Management The enthusiasm for growth with equity generated during the 1970s brought with it a rapid increase in publicly-financed irrigation. As documented (e.g. by Repetto 1986), investment performance was far less than its potential. Project selection and design, as well as operation and maintenance, were compromised by rent-seeking. The Washington-Consensus-prescribed full cost recovery was a poorly-conceived and infeasible substitute, however. The

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correct antidote to rent-seeking is benefit taxation, but direct beneficiaries should only be required to pay up to the percentage of direct out of total benefits. In addition, water provision should be in accordance with principles of reciprocal accountability and appropriate centralisation of function. Project design as well as operation and maintenance should be devolved to the local water authority; the national water authority should provide a menu of technology; and the treasury or finance ministry should coordinate the division of finance between direct and indirect beneficiaries. These principles are illustrated in Figure 2.1.

SYNTHESIS AND NEW DIRECTIONS In the not-so-distant past, land reform was justified by two stylised facts. The first was the inverse relationship between yield per hectare and farm size, said to be caused by dualism in agricultural labour markets. The second was the mere existence of share tenancy, thought to be inefficient and exploitative. These claims are now recognised as founded on ad hoc theorising, and more fundamental explanations of the stylised facts have been recognised (e.g., Sah 1986). In the “new dualism”, a more market-friendly, albeit still interventionist, land reform is justified by the claim that commercial farms are inefficient due to the inefficiency of hired labour (Deininger 2003), along with a belief that asset redistribution is an effective instrument of poverty reduction.11 The tendency to leap to policy implications from a single explanation of a stylised fact perseveres. Not only do explanations need to be more complete in the sense described, but multiple explanations, with potentially different implications, should be entertained. Politicians, and many academics, have the incurable disease of topdownism. As recognised by Adam Smith, they are forever designing rules, regulations, and institutions to be coercively imposed on the economy.12 For example, despite decades of failed land reform legislation that have resulted in untold waste and injustice, land reform efforts continue to this day. The palliative for top-down tinkering with institutional design is an understanding of institutional choice and evolution. More specifically, we need a theory of how agricultural organisation evolves from a self-sufficient peasant economy to a more specialised and intensive market economy.

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Incentive Compatibility in Irrigation Finance

** Agriculture related industries, rural labour force, consumers, and other taxpayers.

* e.g. Water District, utility company, local government, or federation of user associations.

Figure 2.1

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As also envisioned by Adam Smith, the division of labour affords a window into market development generally. Specialisation is limited by the size of the potential market, and the size of the market is limited by population, incomes, and transaction costs. On the other hand, a healthy respect for the role of efficiency in institutional change should not lead one to ignore the conventional role of government in the provision/internalisation of public goods/externalities and the less conventional role of facilitating economic cooperation more generally. In particular, investing in agricultural research, and legal as well as physical infrastructure will stimulate the coevolution of the division of labour and the corresponding institutional change. As specialisation proceeds, more and more complex patterns of coordination are facilitated. In the supermarket metaphor of Reardon et al. (2003), for example, farmers are increasingly linked to specific retailers by means of complex chains that transform farm products over space, time, and form, thereby replacing the cumbersome and costly method of indirect coordination via inventories. The transaction sector that produces such transformation actually grows, even as the per-unit costs of coordination fall (North and Wallis 1982). The agricultural development that ensues from this approach is likely to have a high growth elasticity of poverty reduction (e.g., Lipton and Ravallion 1995). Not only does the facilitation strategy generate the traditional propoor linkages associated with lower food prices and higher demand for labour, but it aids workers whose wages are net of lower unit transaction costs as well as small farmers who benefit from falling transaction costs being subtracted from their sales and added to their purchases. In contrast, central design may actually fragment economic connectivity and stagnate efficiency-enhancing evolution. When Paul Krugman innovated the new international economics, he observed that it did not obviate the neoclassical model but supplemented it. In the same way, the new institutional economics does not contradict previous lessons from economic theory, such as the aforementioned linkages. Rather it can help not only with the new issues of market facilitation, but also with institutional design regarding incentive structures and management of potentially high-payoff investments such as agricultural research. One lesson from the history of thought that bears learning (lest one repeat it) is that the fads and fancies of development strategy have shifted from one to another without adequate appreciation of the successes and

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failures of previous stages. In particular, investments in agricultural infrastructure and research were often successful, albeit their potential was not fully realised due to organisational problems in their implementation and remaining policy distortions. The role of government is to stop fragmenting the economy through subsidies and constraints, push agriculture, e.g., through research and welldesigned investments in irrigation, and to facilitate cooperation. To understand how to proceed with the third mission, further positive research is warranted. For example, how did capital markets evolve in different countries from fragmented institutions to integrated, complex, and deep markets? How did specialisation evolve and how was it related to the movement of factor prices and productivity? These questions call for explorations in many countries over several centuries, i.e., they provide an apt challenge for economic historians.

NOTES * Thanks to Kimberly Burnett, Sittidaj Pongkijvorasin, Sean D’Evelyn, and Geri Mason for assistance. The author may be reached at [email protected]. 1 For example, Johnston and Mellor (1961), Mellor (1986), Mellor and Johnston (1984), and Mellor (1995). 2 See Anderson and Hazell (1994) for references. 3 See also Roumasset (1976, chapter 4). 4 The share of the transaction sector tends to grow with economic development (North and Wallis 1982). 5 See e.g. Roumasset and Uy (1980). 6 It is easy to show that Marshallian underemployment is readily cured by a Pigouvian labour subsidy. 7 Deweaver and Roumasset (2002), show that, for parameters representative of the Philippine case, the model predicts that optimal tenant’s share declines from one to 80 per cent as the tenant goes from risk neutrality to moderate risk aversion and increases back to one as risk aversion increases further. 8 In Coasean terms, this is known as blackboard economics.

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9 As early as 1972, the US Agency for International Development Spring Review for Small Farmer Credit found that “the major increases that occurred in formal finance have mainly gone to larger farmers.” Similarly, Gonzalez-Vega (1984) found that subsidised interest rates actually benefit the rich. Meyer and Nagarajan (2000) conclude that three decades of rapid changes and government interventions have left “a fragile financial system with limited outreach.” 10 Stiglitz and Weiss (1981) ostensibly model formal-sector lending. Bose adapts the same logic in modeling informal lending. 11 The element of confiscation is not necessary and indeed was not advocated in Deininger’s earlier articulation of market-friendly land reform. To the extent that land reform is a political necessity, inefficiency can be minimised by rendering the division of large farms voluntary. This can be done by making property taxes progressive according to farm size/value (Hayami et al. 1990). 12 “The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different pieces of a great society with as much ease as the hand arranges the different pieces on a chessboard. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it.” – Adam Smith, Theory of Moral Sentiments, 1976, VI.ii.2.17

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REFERENCES Allen, D. and D. Lueck. “The Nature of the Farm”. Journal of Law and Economics 41, no. 2 (1998): 343–86. Anderson, J.R. and P.B.R. Hazell. “Risk Considerations in the Design and Transfer of Agricultural Technology”. In Agricultural Technolog y: Policy Issues for the International Community, edited by J.R. Anderson, pp. 321-39. Wallingford: CAB International, 1994. Balisacan, A. and J. Roumasset. “Public Choice of Economic Policy: The Growth of Agricultural Protection”. Weltwirtschaftliches Archives, 1987. Benjamin, D. “Household Composition, Labor Markets and Labor Demand: Testing for Separation in Agricultural Household Models”. Econometrica 60 (1992): 287-322. ———. “Can Unobserved Land Quality Explain the Inverse Productivity Relationship?”. Journal of Development Economics 46, no. 1 (1995): 51–84. Berry, A. and W. Cline. Agrarian Structure and Productivity in Developing Countries. Baltimore: Johns Hopkins University Press, 1979. Binswanger, H. “Agricultural and Rural Development,” Nigeria Policy Dialogue, 2004 Binswanger, H. and M.R. Rosenzweig. “Behavioral and Material Determinants of Production Relations in Agriculture,” Journal of Development Studies 22 (1986): 503-39. Binswanger, H. and S. Atyar. “Scaling Up Community-Driven Development”. World Bank Policy Research Working Paper no. 3039. Washington, D.C.: World Bank, 2003. Binswanger, H., K.Deininger, and G. Feder. “Power, Distortions, Revolt and Reform in Agricultural Land Relations”. In Handbook of Development Economics, Vol. II, edited by J. Behrman and T.N. Srinivasan. Amsterdam, New York and Oxford: Elsevier Science, North-Holland Publishing Co., 1995. Birkhaeuser, D., R. Evenson, and G. Feder. “The Economic Impact of Agricultural Extension: A Review”. Economic Development and Cultural Change 39, no. 3 (1991): 507-21. Bose, P. “Formal-informal Interaction in Rural Credit Markets”. Journal of Development Economics 56, no. 2 (1998). Burgess, R. “Land and Welfare: Theory and Evidence from China”. Working paper. London School of Economics, 2001.

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Carter, M. and K. Wiebe. “Access to Capital and its Impact on Agrarian Structure and Productivity in Kenya”. American Journal of Agricultural Economics 72, no. 5 (1990): 1146-50. Cheung, S.N.S. A Theory of Share Tenancy. Chicago: University of Chicago Press, 1969. Clarete, R.L. “Options for NFA Reforms in the Philippines”. In Agribusiness: From Parastatals to Private Trade-Why, How, and When? Washington, D.C.: International Food Policy Research Institute, 2003 (forthcoming). Clarete, R.L. and J. Roumasset. “A Shoven-Whalley Model of a Small-Open Economy: An Illustration with Philippine Tariffs”. Journal of Public Economics 32 (1987): 247-61. Conning, J. and C. Udry. “Rural Financial Markets in Developing Countries”. Handbook of Agricultural Economics 3 (2005), Chapter 15. Amsterdam: Elsevier Science, North-Holland. De Janvry, Alain, Marcel Fafchamps, and Elisabeth Sadoulet. “Peasant Household Behavior with Missing Markets: Some Paradoxes Explained”. The Economic Journal 101, no. 409 (1991): 1400-17. Deaton, A. “On Risk, Insurance and Intra-Village Consumption Smoothing”. Research Program in Development Studies. New Jersey: Princeton University, 1990. Deininger, K. Land Policies for Growth and Poverty Reduction. World Bank Policy Research Report. World Bank and Oxford University Press, 2003. Demsetz, H. “Information and Efficiency: Another Viewpoint”. Journal of Law and Economics 10 (1969): 1-21. ———. “Transaction Cost Troubles”. Western Economics Association International conference paper. 2006. Deweaver, M. and J. Roumasset. “Risk Aversion as Effort Incentive: A Correction and Prima-Facie Test of the Canonical Theory of Share Tenancy”. Economics Bulletin 15, no. 4 (2002): 1-16. Dow, G. K. and L. Putterman. “Why Capital Suppliers (Usually) Hire Workers: What We Know and What We Need to Know”. Journal of Economic Behavior & Organization 43 (2000): 319-36. Eswaran, M. and A. Kotwal. “Access to Capital and Agrarian Production Organization”. Economic Journal 96 (1986): 482-98. Evenson, R. “Economic Impact Studies of Agricultural Research and Extension”. Mimeographed. New Haven, Conn.: Yale University, 1998.

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Feder, G. “The Relation Between Farm Size and Productivity: The Role of Family Labor, Supervision, and Credit Constraints”. Journal of Development Economics 18 (1985): 297-313. Federico, G. Feeding the World. New Jersey: Princeton University Press, 2005. Gardner, B. “Policy Reform in Agriculture: An Assessment of the Results in Eight Countries”. Department of Agricultural and Resource Economics, University of Maryland, 1996. Gonzalez-Vega, Claudio. “Credit Rationing Behavior of Agricultural Lenders: The Iron Law of Interest-Rate Restrictions”. In Undermining Rural Development with Cheap Credit, edited by Dale W Adams, Douglas H. Graham, and J.D. Von Pischke, pp.78-96. Boulder: Westview Press, 1984. Ghosh, P., D. Mookherjee, and D. Ray. “Credit Rationing in Developing Countries: An Overview of the Theory”. Readings in the Theory of Economic Development, 2000: 383-401. Hayami, Y. and K. Otsuka. The Economics of Contract Choice: An Agrarian Perspective. Oxford: Clarendon Press, 1993. Hayami, Y., M.A. Quisumbing, and L.S. Adriano. Toward an Alternative Land Reform Paradigm: A Philippine Perspective. Quezon City, Philippines: Ateneo de Manila University Press, 1990. Hazell, P.B.R. “The Appropriate Role of Agricultural Insurance in Developing Countries”. Journal of International Development 4, no. 6 (1992): 567-81. Hazell, P.B.R., C. Pomareda and A. Valdés (eds.). Crop Insurance for Agricultural Development: Issues and Experience. Baltimore: Johns Hopkins University Press, 1986. Hoff, K. and J. Stiglitz. “Moneylenders and Bankers: Price-increasing Subsidies in a Monopolistically Competitive Market”. Journal of Development Economics 55 (1998): 485-518. Johnston, B.F. and J.W. Mellor. “The Role of Agriculture in Economic Development”. American Economic Review 51, no. 4 (1961): 566-93. Jorgenson, D.G. “The Development of a Dual Economy”. Economic Journal 71 (1961): 309-34. Krueger, A., M. Schiff, and A.Valdés. “Agricultural Incentives in Developing Countries: Measuring the Effect of Sectoral and Economywide Policies”. World Bank Economic Review 2 (1988): 255-72.

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Lipton, M. and M. Ravallion. “Poverty and Policy”. In Handbook of Development Economics, Volume 3B, edited by J. Behrman and T. N. Srinivasan, pp. 2553-601. Amsterdam: Elsevier Science, North Holland, 1995. McKinnon, R.I. Money and Capital in Economic Development. Washington, D.C.: Brookings Institution, 1973. Mellor, J.W. The Economics of Agricultural Development. Ithaca, New York: Cornell University Press, 1966. ———. “Agriculture on the Road to Industrialization”. In Development Strategies Reconsidered, edited by John P. Lewis and Valeriana Kallab. New Brunswick, N.J.: Transaction Books. Reprinted in Eicher, Carl K. and John M. Staatz, Agricultural Development in the Third World, 3rd Edition. Baltimore: Johns Hopkins University Press, 1986. ———. Agriculture on the Road to Industrialization. Baltimore: Johns Hopkins University Press, 1995. Mellor, J.W. and B. F. Johnston. “The World Food Equation: Interrelations Among Development, Employment, and Food Consumption”. Journal of Economic Literature 22 (1984): 531-74. Meyer, R. and G. Nagarajan. Rural Financial Markets in Asia: Policies, Paradigms and Performance. New York: Oxford University Press, 2000. Morduch, J. “The Microfinance Promise”. Journal of Economic Literature 37, no. 4 (1999): 1569-1614. Mosher, A.T. Getting Agriculture Moving: Essentials for Development and Modernization. New York: Praeger, 1966. Murrel, Peter. “The Economics of Sharing: A Transaction Cost Analysis of Contractual Choice in Farming”. Bell Journal of Economics 14, no.1 (1983): 283-93. Myrdal, G. Asian Drama: An Inquiry into the Poverty of Nations. New York: Pantheon, 1968. Nelson, C.H. and E.T. Loehman. “Further Towards a Theory of Agricultural Insurance”. American Journal of Agricultural Economics 69 (1987): 523-31. North, D. and J. Wallis. “American Government Expenditures: A Historical Perspective”. American Economic Review 72, no. 2 (1982): 336-40. Otsuka, K. “Land Markets”. In Handbook of Agricultural Economics: Agricultural Development: Farmers, Farm Production, and Farm Markets, Volume 3A, edited by R. Evenson, P. Pingali, and T.P. Schultz. Amsterdam: Elsevier Science, North-Holland Publishing Co., 2005.

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Owens, T., J. Hoddinott, and B. Kinsey. “The Impact of Agricultural Extension on Farm Production in Resettlement Areas of Zimbabwe”. Economic Development and Cultural Change 51 (2003): 337-¬57. Paxson, C.H. “Borrowing Constraints and Portfolio Choice”. Quarterly Journal of Economics 105, no. 2 (1990): 535–43. Quiggin, J. “Some Observations on Insurance, Bankruptcy and Input Demand”. Journal of Economic Behaviour and Organization 18 (1992): 10110. Ranis, G. and J.C.H. Fei. “A Theory of Economic Development”. American Economic Review 51 (1961): 533-65. Rashid, S., R. Cummings, and A. Gulati. “Grain Marketing Parastatals in Asia: Why Do They Have to Change Now?” International Food Policy Research Institute/ Marketing, Trade, and Institutions Division Discussion Paper no. 80, 2005. Reardon, T., P.C. Timmer, C.P. Barrett, and J. Berdegu’e. “The Rise of Supermarkets in Africa, Asia, and Latin America”. American Journal of Agricultural Economics, 85 (2003): 1140-46. Reid, Joseph D. “Sharecropping and Agricultural Uncertainty”. Economic Development and Cultural Change 24, no. 3 (1976): 549-76. Repetto, R. Skimming the Water: Rent Seeking and the Performance of Public Irrigations. Washington, D.C.: World Resources Institute, 1986. Rosegrant, M. and P. Hazell. Transforming the Rural Asian Economy: The Unfinished Revolution. Oxford, UK: Oxford University Press/International Food Policy Research Institute, 2000. Roumasset, J. Rice and Risk: Decision-Making among Low-Income Farmers in Theory and Practice. Amsterdam: North-Holland Publishing Co., 1976. ———. “Risk Aversion, Agricultural Development and the Indirect Utility Function”. In Risk, Uncertainty and Agricultural Development, edited by J. Roumasset, J.M. Boussard, and I.J. Singh. Philippines: SEARCA/ADC, 1979. ———. “Land and Labor Contracts in the Philippines: Lessons from the New Institutional Economics”. Paper presented at the Agricultural Organization and Rural Welfare Conference, held in the Philippines, January 1981. ———. “The Welfare Economics of Rural Credit and the Benefits of Land Titles”. Manuscript. Washington, D.C.: World Bank, 1986.

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———. “The Nature of the Agricultural Firm”. Journal of Economic Behavior and Organization 26 (1995): 171-77. ———. “The Microeconomics of Agricultural Development in the Philippines”. University of Hawaii, Department of Economics Working Paper # 02-10, 2002. ———. “Rural Institutions, Agricultural Development, and Pro-Poor Economic Growth”. Asian Journal of Agriculture and Development 1, no. 1 (June 2004): 61-82. Roumasset, J. and W. James. “Explaining Variations in Share Contracts: Land Quality, Population Pressure and Technological Change”. Australian Journal of Agricultural Economics 23, no. 2 (1979): 116-27. Roumasset, J. and M. Uy. “Piece Rates, Time Rates and Teams: Explaining Patterns in the Employment Relation”. Journal of Economic Behavior and Organization 1 (1980): 343-60. Roumasset, J., S. Setboonsarng, U. Wickramasinghe, J. Estudillo, and R. Evenson. “Specialization and the Coevolution of Agricultural Markets”. Institutional Reform and the Informal Sector Working Paper. University of Maryland, 1995. Sah, R.K. “Size, Supervision and Patterns of Labor Transactions”. Journal of Philippine Development 13, nos 1 & 2 (1986) Schultz, T.W. Transforming Traditional Agriculture. New Haven: Yale University Press, 1964. Shaban, Radwan A. “Testing Between Competing Models of Sharecropping”. Journal of Political Economy 95, no. 5 (1987): 893-920. Shaw, Edward S. Financial Deepening in Economic Development. New York: Oxford University Press, 1973. Siamwalla, A., C. Pinthong, N. Paopongsakorn, P. Satsanguan, P. Nettayarak, W. Mingmaneenakin, and Y. Tubpun. “The Thai Rural Credit System: Public Subsidies, Private information and Segmented Markets”. World Bank Economic Review 4, no. 3 (1990): 271-95. Smith, A. An Inquiry into the Nature and Causes of the Wealth of Nations. Oxford: Clarendon Press, 1976. Spence, M. and R. Zeckhauser. “The Effect of the Timing of Consumption Decisions and the Resolution of Lotteries on the Choice of Lotteries”. Econometrica 40 (1972): 401-3.

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Stiglitz, J. “Incentives and Risk Sharing in Sharecropping”. Review of Economic Studies 41, no. 2 (1974): 219-55. ———. Whither Socialism? Cambridge, MA: MIT Press, 1994. ———. Globalization and its Discontents. New York: W.W. Norton and Company, 2002. Stiglitz, J. and Andrew Weiss. “Credit Rationing in Markets with Imperfect Information”. American Economic Review 71, no.3 (1981): 393-410. Stiglitz, J. and E. Uy. “Financial Markets, Public Policy and the East Asian Miracle”. The World Bank Research Observer 11, no. 2 (1996): 249-76. Timmer, C. P. “Food Security and Rice Price Policy in Indonesia: The Economics and Politics of the Food Price Dilemma”. Working Paper no. 14. Indonesian Food Policy Program, 2002. Townsend, R.M. “Risk and Insurance in Village India”. Econometrica 62, no. 3 (1994): 539-91. Udry, C. “Gender, Agricultural Production, and the Theory of the Household”. Journal of Political Economy 104, no. 5 (1996): 1010-46. Uy, M. “Contractual Choice and Internal Organization in Philippine Sugarcane Production”. M.A. thesis, University of the Philippines, 1979. Walker, T. “Decision Making by Farmers and by the National Agricultural Research Program on the Adoption and Development of Maize Varieties in El Salvador”. Ph.D. thesis. Stanford Food Research Institute, Stanford, California, 1980. ———. “Yield and Household Income Variability in India’s Semi Arid Tropics”. In Variability in Grain Yields: Implications for Agricultural Research and Policy in Developing Countries, edited by Jock R. Anderson and Peter B.R. Hazell. Baltimore: Johns Hopkins University Press, 1989. Walker, T. and N.S. Jodha. “How Small Farmers Adapt to Risk”. In Crop Insurance for Agricultural Development: Issues and Experience, edited by P. Hazell, C. Pomareda, and A. Valdes. Baltimore: Johns Hopkins University Press, 1986. Wan, G.H. and E. Cheung. “Effects of Land Fragmentation and Returns to Scale in Chinese Farming Sector”. Applied Economics 33, no. 2 (2001): 183-94. Wharton, C.R. “The Issues and a Research Agenda”. In Subsistence Agriculture and Economic Development, edited by C.R. Wharton, pp. 455-67. Chicago: Aldine Publishing Co., 1969.

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———. “The Green Revolution: Cornucopia or Pandora’s Box”. Foreign Affairs 47 (1969): 464-76. Williams, J.C. and B.D. Wright. Storage and Commodity Markets. Cambridge University Press, 1991. Williamson, O. The Economic Institutions of Capitalism: Firms, Markets and Relational Contracting. New York: Free Press, 1985. Yang, X. Economic Development and the Division of Labor. Malden, MA: Blackwell Publishing, 2003.

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The Role of Social Structures and Norms in Agricultural Development: African and East Asian Communities Compared



Yujiro Hayami*



63

INTRODUCTION This chapter aims to shed light on the mechanism of how the social structures of rural communities, such as tribes and villages, fundamentally constrain agricultural development processes, not only through the community members’ individual or collective actions in farm production and investment but, also, through their influences on governments’ actions. Ideally, this task would have required detailed empirical research involving the approaches of sociology and political science to obtain any tangible results. Instead, I attempt in this paper to postulate provisional hypotheses based on my rather casual observations of village communities in both Northeast and Southeast Asia during my numerous field visits there in connection with my other studies. I start this highly exploratory study by comparing community characteristics in East Asia with those in Africa. Because the agricultural and economic growth performances of these two regions sharply contrasted with one another in the past several decades, the comparison is expected to provide some useful insights on identifying which characteristics of communities promote growth and which retard growth.

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Indeed, East Asia, particularly Southeast Asia, has been a growth pole of world economy after the Second World War (World Bank 1993). The high economic growth of Japan for two decades beginning in the mid1950s was followed by those of Asian NIES such as Korea and Taiwan in the 1960s, and was further reprised in the 1970s by high-performing economies in the Association of Southeast Asian Nations (ASEAN), and in the 1980s by China. In all these cases, the high economic growth was supported by rapid industrialisation based on technology borrowing from more advanced economies, starting with labour-intensive manufacturing and later advancing to more sophisticated knowledge-intensive activities, in a so-called “flying geese” pattern. One of the major factors underlying the success of industrialisation was the high growth performance of agriculture. The rise in the labour-intensive manufacturing of this region was based on the supply of cheap labour, which was critically dependent on the supply of food at low prices. Agricultural innovations, as represented by the “Green Revolution” increased rice output to such an extent as to significantly lower the real price of this critically important wage good for this region during the period 1970–90. This phenomenal performance of agriculture did provide an invaluable support for industrialisation in its initial stage. The East Asian experience in this regard represents a strong contrast with Africa where the stagnation of industry as well as the total economy has been associated with declines in food production per capita. In this chapter, I deliberately exclude South Asia for comparison despite its high agricultural growth performance comparable to East Asia, and a recent spurt in economic growth in India. This is not only because my knowledge about South Asia is not as extensive as that on East Asia, but also because of the possibility that the current growth of the Indian economy which is dependent heavily on IT service activities might be categorically different from that of East Asia which is mainly based on the growth of manufactures. Thus, hereafter I use “Asia” to refer to East Asia, unless otherwise stated, and “Africa” to refer to Sub-Saharan Africa. Needless to say, since community structures vary greatly even within each region, it is audacious to characterise communities in one region commonly in distinction from those of other regions. Therefore, the hypotheses to be advanced in this chapter are in the nature of broad and conjectural generalisations, as opposed to hard evidence. Moreover, my attempt to build a framework for the two-region comparison is seriously

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constrained by my insufficient knowledge about Africa. Nevertheless, I dare to present my provisional framework at this stage for the sake of inviting comments that will benefit future research— mine as well as others’. Following this introduction, I proceed to outline contrasting agricultural growth performances between East Asia and Africa in terms of aggregate data on grain output. In the following section, I compare the characteristics of African tribal communities and Asian village communities corresponding to different resource endowment conditions, and discuss how these characteristics might underlie the difference in agricultural growth performances. I then try to identify linkages between the community characteristics and the state governance structures. Finally, I advance a tentative conclusion with possible policy implications.

COMPARATIVE AGRICULTURAL GROWTH PERFORMANCES Before proceeding to the main discussion about communities, it would be useful to confirm the contrasting agricultural growth performances between Asia and Africa. Table 3.1 compares the growths of grain production across major regions in the world from 1963 to 2000. In terms of total grain output, East Asia’s growth of 3 per cent per annum was the fastest, but not significantly faster than the growths in South Asia and Latin America. However, the grain output per capita in East Asia, including Southeast Asia, increased at the average rate of 1.2 per cent during this period, which is more than twice as fast the 0.5 per cent in South Asia and Latin America; in contrast, Africa recorded a decline of 0.4 per cent. These data show that East Asia’s victory in the race of food supply over population growth in the past four decades was significantly aided by a deceleration in population growth, whereas Africa was handicapped by population growth acceleration. However, in comparing the rates of growth in per capita food supply, it is equally important to consider the speeds of increase in land productivity. In Table 3.1, the average grain yields per hectare of arable land in both East and South Asia increased at the rate of about 2 per cent per year, implying that as much as two-thirds of total output growth in Asia resulted from increases in land productivity while the remaining one-third resulted from an expansion of the area under cultivation.

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Table 3.1

YUJIRO HAYAMI

World Food Production by Region, 1963 to 2000 Indexa 1963

World Total 100 100 Per hectareb Per capitac 100 Developed Countries Total 100 Per hectare 100 Per capita 100 Developing Countries Total 100 Per hectare 100 Per capita 100 East Asia (including Southeast Asia) Total 100 Per hectare 100 Per capita 100 South Asia Total 100 Per hectare 100 Per capita 100 Latin America Total 100 Per hectare 100 Per capita 100 Africa Total 100 Per hectare 100 Per capita 100

1970

1980

1990

2000

Growth rate 1963-2000 (%/yr)

120 117 104

153 145 110

190 173 116

240 215 127

2.40 2.09 0.65

117 116 109

142 141 122

153 152 122

156 163 119

1.20 1.32 0.47

123 117 103

165 151 112

236 198 130

344 271 160

3.40 2.73 1.27

121 117 102

181 160 122

252 196 140

333 248 158

3.31 2.49 1.24

118 115 100

153 146 104

221 209 121

297 278 134

2.99 2.80 0.78

125 111 104

175 140 115

275 171 121

308 213 140

3.09 2.07 0.92

122 116 102

142 126 90

190 157 91

256 194 96

2.57 1.81 -0.11

5-year averages centered on the years shown per hectare of arable land+ c per capita of population Source: FAO, FAOSTAT database, February 2004. a

b

In contrast, the rate of per-hectare yield increase in Africa was only 1 per cent per year, implying that less than one-third of grain output growth came from increases in land productivity. Such comparisons strongly suggest that Asia was able to overcome the population pressure on limited land resources

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through innovations geared for increasing land productivity such as the use of high-yielding varieties and yield-increasing inputs among which are fertilisers, irrigation and drainage systems. Evidently, Africa failed in this regard. From a broad perspective, this failure in Africa is considered to have stemmed from the lag in adopting land-saving production systems despite the fact that this region’s resource endowments have moved from the landabundant to the land-scarce regime. For several hundreds of years before the early 20th century, the population growth rates in Africa were much lower than in Asia (Hayami and Godo 2005, p. 65). As a result, the population density in Africa, especially East Africa, was traditionally much lower than in Asia, so that shifting cultivation and nomadic grazing had commonly been practised. Because much of the farmlands remained in the communal possession of tribes, the development of private property rights as a means of facilitating long-term investments in land infrastructure has consequently lagged. The lag in the shift to sedentary agriculture underlies the lag in investments in basic infrastructure such as roads and irrigation systems. According to a survey on the humid and sub-humid tropics of Africa covering 18 countries, the percentage of cropland irrigated in 1987–89 was only 2.5 per cent (3 per cent in both Nigeria and Tanzania). This ratio is only one-tenth of India’s 25 per cent in 1950 when India’s population density was about the same as in this part of Africa in the late 1980s. Also, roads per 1000 square kilometres in this area averaged 53 kilometres— less than 20 per cent of India’s 388 kilometres in 1950 (14 per cent in Nigeria and 36 per cent in Tanzania) (Spencer 1994). Such underdeveloped infrastructure is hardly sufficient to support the Green Revolution of the Asian type which is critically dependent on irrigation and the supply of commercial inputs such as chemical fertilisers. Poor infrastructure would have not been a problem, so long as land resources were abundant. Similar to other developing regions, the major acceleration in population growth began in Africa in the period 1920–30. The rate of acceleration was faster in Africa than in Asia with the result that Africa’s population growth rate exceeded 3 per cent per year in the period 1960–80 as compared with Asia’s 2.2 per cent. Still, until toward the end of the 1960s, Africa had been able to keep up its food production with the population growth under traditional farming systems by expanding the land

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area for cultivation. However, as cultivation frontiers progressively closed, Africa’s grain output per capita began to decline from the 1970s as observed in Table 3.1. It is difficult in any society to adjust to such a rapid shift from the landabundant to the land-scarce regime by developing land-saving agricultural production systems which require adequate infrastructure. There is strong evidence that individual peasants in Africa have been making significant efforts in switching to land-saving systems by investing in land infrastructure such as terracing and planting trees for high-valued commercial products. Yet, their efforts have not adequately been supported by complementary government programmes and community-level collective actions (Tiffen and Mortimore 1994). Thus, the crisis situation in Africa, as reflected in the decrease in per capita food supply, is considered to have stemmed from the intrinsic difficulty of creating community and state institutions for the supply of public goods to a population that was growing rapidly in a short span of time and unduly straining the capacity of available natural resources. This problem shall be elucidated in the next sections through comparisons in the social characteristics of communities and states between Asia and Africa.

COMMUNITY STRUCTURES AND NORMS A community is defined here as a relatively small group of people bound by intense social interactions beyond the arm’s length relationship, who cooperate for the purpose of common interests, including defense against natural calamities as well as aggression from outside. Communities observed in the rural areas of developing economies may be classified into two types: “tribal communities” and “village communities”. Tribal communities are commonly found in environments characterised by low population density where people stake out a living mainly from mobile production activities, such as hunting and gathering, shifting cultivation, and nomadic grazing. On the other hand, village communities are common in areas dominated by sedentary agricultural production. In the former, blood ties are the major means to keep solidarity among its members, as reflected in the prevalence of extended families and corporate land ownership. In the latter, although lineage is important, the bonds emanate more from the fact that the villagers

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permanently live together in the same location and thus need to cooperate with one another for security and survival. Typically, village communities are characterised by conjugal family systems and the individualization of land tenure rights. Corresponding to different production environments, tribal communities are common in Africa, whereas village communities are common in Asia. However, it should be noted that tribal communities can be found in Asia among indigenous populations living in mountain areas and practising shifting cultivation, whereas communities with a structure akin to Asian villages can also be observed in some locations in Africa, where sedentary farming has traditionally been practised under relatively high population density. A critical role of the community as an economic organisation is to guide its community members to cooperate voluntarily based on close personal ties and mutual trust, while the state and the market coordinate people’s activities by means of coercion and competition, respectively (Hayami and Godo 2005, Chapter 8). Social norms and customs are the guideposts by which community members are induced to cooperate through persuasion for conformity, and the threat of ostracism in case of defiance. It seems reasonable to presume that community norms have been crafted in response to the need to ensure the subsistence of all community members. In lowincome rural communities characterised by high risk of natural hazards, with no access to insurance and credit markets, community norms provide social safety nets such as the reallocation of community-owned lands to prevent landlessness, and the extended family system to support widows and orphans. Further, in order to sustain the livelihood of community members, the reproductive capacity of natural resources surrounding the community must be conserved. This need gives rise to regulations on the use of common-pool or common-property resources such as limiting the amount and/or season of fish catch from a lake and the number of animals placed in commons for grazing. While community norms were originally crafted to avert a subsistence crisis among community members, they can either promote or obstruct the efficient utilisation of resources, depending on the nature of historically determined norms governing their relationships with current environmental, social and economic conditions. What are the differences in community norms between Africa and Asia? How would these underlie their respective agricultural growth performances?

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Egalitarian Redistributive Norms in African Tribal Communities What kind of community norms are prevalent in Africa? Jean-Philippe Platteau has argued that African tribal communities traditionally based on mobile production systems have to conform to the “redistributive norm“ in which “lucky guys“ are forced to distribute their incomes and wealth to other members in the same community (Platteau and Hayami 1998). High risk, together with weak linkages between work efforts and production outcomes, is considered to underlie this norm. Production geared for direct extraction from natural resources, such as shifting cultivation and nomadic grazing, is highly vulnerable to fluctuations in environmental conditions, which tend to overshadow the effects of human efforts to increase output. If one herdsman’s cattle are killed by lions, whereas another’s animals are able to escape, it should be reasonable to attribute the poor production outcome of the former to bad luck rather than lack in his work efforts. Then, it should be fair and legitimate to expect the lucky guy to support the livelihood of the unlucky guy by sharing survived animals, in accordance with the basic norm of the community to guarantee subsistence to community members. Thus, this redistributive norm, which dictated an egalitarian redistribution of wealth and incomes among community members, was an efficient institution in meeting the high demand for insurance under mobile production systems in the land-abundant regime. However, it has been obstructing the shift to sedentary agricultural systems at the onset of the land-scarce stage since social norms could not adjust so readily in response to changes in economic environments. It is inevitable for people accustomed to the egalitarian redistributive norm to harbour strong envy and antagonism against entrepreneurial neighbours who begin to accumulate capital for increased agricultural production by such means as introducing improved cattle herds. They would demand redistribution according to the traditional norm or try to obstruct the innovations, often by spreading such rumours as the innovators’ practice of witchcraft supposedly to enhance their luck at the expense of other community members. In order to evade this constraint on innovations, those endowed with entrepreneurial abilities often try to sever links with their native communities, either through migration to urban areas or through conversion to non-indigenous religion such as Islam or Christianity. In this way, the entrepreneurial drive needed to develop landsaving production systems tends to be lost from rural communities.

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Patron-client Reciprocity Norms in Asian Village Communities Such redistributive norms also operate in Asian village communities. In a small village, the accumulation of wealth by a person can hardly escape strong feelings of envy from other villagers. In order to avoid the neighbours’ antagonism and maintain their goodwill, incentives operate among the rich to redistribute income and wealth to the poor. According to James Scott (1976, pp. 41-2): “Well-to-do villagers avoid malicious gossip only at the price of an exaggerated generosity. They are expected to sponsor more conspicuous lavish celebrations at wedding, to show greater charity to kin and neighbour, and to take more dependents and employers than average households”. However, the redistributive norms in Asia are not loaded with egalitarian beliefs as strong as in Africa. In Asian village communities based on sedentary agriculture, private property rights on arable lands have long been established and class differentiation or stratification in terms of land ownership has significantly progressed. Compared with mobile production systems in Africa, risk due to natural hazards is much smaller in sedentary agriculture, especially irrigated rice farming in Asia, so that the effects of crop care as well as land infrastructure investments on production outcomes are clearly observable. By seeing such causal relations, a belief should have been established in people’s minds to honour properties accumulated through industriousness and frugality. Thus, the redistributive norm in Asia claims “that all should have a place, a living, not that all should be equal” (Scott 1976, p.40). Rich villagers are regarded as legitimate patrons to the extent that they provide subsistence guarantee to the poor, in terms of securing secular income-earning opportunities as well as giving credits and grants as a safety net against unexpected calamities. Poor clients reciprocate to patrons by paying respect and offering loyal services not only in work but also in local politics. This “patron-client reciprocity norm” is unlikely to inhibit economic growth like the case of the egalitarian redistributive norm in Africa. Rather it would support innovation and capital accumulation because the village elite are able to mobilise the conscientious work efforts of clients.

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Northeast versus Southeast Asia This possibility is strong and real in Northeast Asia where irrigated rice cultivation has long been the dominant mode of rural production. Communities in Northeast Asia represent the polar opposites of the African communities. Production risk is relatively low under irrigation but natural resources are scarce relative to the population. However, people have constantly been facing the danger that the population pressure on severely limited land resources would culminate in a subsistence crisis, especially for the poor members of the village community. How to organise collective actions to conserve and augment local commons, especially irrigation systems, has thus become their central concern. Community norms have been developed to penalise free-riders in the enhancement and maintenance of critical local infrastructure needed to increase output and employment at a pace consistent with population growth. Consequently, communities in Northeast Asia, especially Japan, are said to be “tightly structured“ in the sense that both the geographical and social borders between one village and others are more unambiguously demarcated, and rights and obligations are more clearly assigned to individual households relative to others within the village than those of Southeast Asia, especially Thailand (Embree 1950). Communities in Japan used to be highly stratified according to differential claims to property rights established on arable land. Accumulation of land property by an individual is not something regarded with disfavour if accomplished by one’s efforts in both production and investment activities. One is, however, expected to allocate time and effort to construct and maintain infrastructure vitally needed by the community, including drafting villagers for communal work projects as well as lobbying to the state for the provision of infrastructure. As one accumulates land more than that cultivable by one’s family labor, the usual practice is to lend out the excess portion to poorer villagers, while continuing self-cultivation of the rest. To establish oneself as legitimate elite, one must behave as a benevolent patron to one’s tenant and, at the same time, work hard on one’s own operational plot with the best use of available farm practices to serve as a model to the tenants. The communities of mountain tribes in Southeast Asia are similar to those in Africa. On the other hand, communities in lowland rice areas

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where the majority of population live are similar to those in Northeast Asia. However, as natural resources have traditionally been much more abundant, the need for conserving and augmenting local commons has been lower. Also, until rather recently, an option had been open for villagers to migrate to frontier lands for new land opening. As the population became more mobile and the need to construct and maintain local infrastructures by communal efforts decreased, villages in Southeast Asia became “loosely structured” as compared with Northeast Asia. Typically, the obligation to participate in collective actions for the enhancement and maintenance of local commons, including irrigation systems, has not been established as social norm in many areas of Southeast Asia. Yet, villages in Southeast Asia have their own mechanism of guaranteeing subsistence to poor members in the same community. Similar to the case of Northeast Asia, village communities in lowland rice areas in Southeast Asia are stratified according to claims to land property rights. The difference is that, instead of taking leadership in the construction and maintenance of local infrastructure vital for increasing output and employment under limited land resources, well-to-do members in Southeast Asian villages tend to retreat from doing manual work by themselves on their farms and instead employ poor clients even if they have sufficient family labour. This system of sharing income through sharing work as a guarantee of subsistence to the poor seems to have been established as a basic norm in village communities in Southeast Asia (Hayami and Kikuchi 1981, 2000). Although the village elite in Southeast Asia seldom organise projects to develop rural infrastructure at the community level, they seem to be rather active in organising political lobbying for governments to provide infrastructure by mobilising the political support of their clients.

STATE GOVERNANCE STRUCTURES Community-level collective actions are necessary but can hardly be sufficient for supporting modern agricultural development. The underdevelopment of basic infrastructure critically needed for the shift to land-saving production systems in rural Africa reflects the policies of African nations after independence to exploit agriculture for supporting both industrial and

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governmental sectors by means of interventions in markets. Frequently used were the policies to eliminate private traders from agricultural marketing channels so as to establish government monopoly organisations that offered farmers lower product prices and higher input prices than border prices. This exploitation mechanism was augmented by other policies such as overvalued exchange rates, export tax on agricultural commodities, and import duties on agricultural inputs. It was the small peasants who suffered the most from these policies (Sahn and Sarris 1994). Since the 1980s, such agriculture-exploiting market interventions have been counteracted to some extent by the so-called “Structural Adjustment Policies” (SAP) under the initiative of the International Monetary Fund (IMF) and the World Bank. However, the SAP policies produced much poorer outcomes than in Asia and Latin America. The failure has been attributed to the mismatch of applying liberalisation policies to economies with underdeveloped markets like Africa, which are characterised by imperfect information and meagre entrepreneurship (Stiglitz 2002). While such a criticism on SAP is theoretically valid, it may be refuted on the ground that in the economies characterised by high degrees of information imperfection, government failures may be even more damaging than market failures, which is likely to have been the case in Africa since independence (Hayami 2004a). However, the exploitation of agriculture to promote industrialisation was not a strategy unique to African States but rather universal to developing countries, especially during the first three decades after the Second World War (Anderson and Hayami 1986; Krueger et al. 1991). Even in Taiwan, known for its success in achieving the world’s highest land productivity in agriculture as a basis of healthy industrial development, the government had monopolised the supply of fertilisers and forced farmers to barter rice for fertilisers at much less favourable terms than those in international markets in the early development stage until the 1960s. It is also well known that Thailand used to tax rice exports heavily as a major means to raise government revenue as well as to reduce rice prices for urban consumers before the 1980s. However, although these Asian states exploited agriculture, they did not neglect to make necessary investments in irrigation and agricultural research as well as roads and electricity for increasing land productivity. In contrast, there has been a tendency among politicians in Africa to compensate for agricultural exploitation by distributing subsidised credits

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and inputs to particular rural elites instead of providing public goods. According to Robert Bates (1981, 1983), the selective distribution of such private goods (“divisible inputs”, according to Bates’ terminology) to specific rural elites was more advantageous for politicians since it helped them maximise the probability of their stay in office, as compared to the provision of public goods which benefit a large number of farmers indiscriminately. Underlying this strategy appears to be the absence of social norms like in village communities in Asia, especially Northeast Asia, which identify as legitimate patrons those who provide irrigation and other infrastructure necessary for villagers’ survival. In African tribal communities traditionally based on mobile production systems, infrastructure tied to a certain location had not been so vitally important. More basically, even a ruler who has established a permanent hold over a territory would have little incentive to limit taxation and provide infrastructure for raising productivity in the region if he knows that his subjects are likely to leave his territory before he could harvest the fruits of his efforts to protect his subjects; it is considered a reverse mechanism to that of a roving bandit becoming a public-goodproviding aristocrat when he can establish a chronic hold on a territory, according to the logic of Martin McGuire and Mancur Olson (1996). Thus, the social norm created under the land-abundant mobile agricultural production system has not identified the supply of land infrastructure as the rulers’ responsibility, even though its importance has been rising rapidly in recent years. This difficulty of African communities to adjust to the rising scarcity of land resources is augmented by their colonial heritage in which the territorial boundaries of many African nations were determined through competition and compromise among colonial powers, with little regard for the social integrity of native people. It is natural that, even after independence, both politicians and citizens continued to have a stronger sense of belonging to their tribal communities than to their nations. It is therefore no surprise to see that politicians were motivated to allocate resources under their control to elites in their own tribes. The tradition of rice-growing societies in Asia is very different in this regard. The densely-populated, stably-settled farm population had traditionally been the convenient basis for rulers to expropriate tax. This is the environment in which the McGuire-Olson incentive of a self-interested ruler to becoming a protector of his subjects in the territory works most

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effectively. Since peasants had been the major bearer of the tax burden, a kind of agricultural fundamentalism to regard peasants as the foundation of society had been established. According to this “peasant fundamentalism”, it is legitimate for a ruler to tax away surplus above peasants’ subsistence but must fulfill the responsibility to maintain their sustenance by providing infrastructure such as flood control, major irrigation and drainage systems, as well as appropriate tax reductions in bad crop years (Wittfogel 1954). Even in Asia, the national boundaries were also heavily influenced by colonialism. However, partly because of their generally longer colonial periods, the sense of national integrity or nationalism had evolved among most Asian nations, through such processes as the accumulation of legends about heroes in independence movements like Jose Rizal and Mahatma Gandhi; this explanation flows from the logic of “imagined communities” as described by Benedict Anderson (1983). These traditions seem to underlie the government strategy in Asia of providing key public goods for agricultural development while taxing farmers for the purpose of national development. Such contrasts in political leaders’ attitudes toward agriculture is best illustrated in different policies taken toward agriculture in Indonesia and Nigeria, two major oil-producers in Asia and Africa, in response to the so-called “Dutch disease” during the period of two oil booms in 1973– 75 and 1979–81 (Pinto 1987). The pathology of the Dutch disease was typically observed in Nigeria. Major inflows of foreign exchange due to booming oil export resulted in sharp appreciation in the real exchange rate. Correspondingly, sectors producing non-oil tradables, especially agriculture were adversely affected. Rural villages were deserted and urban slums mushroomed due to the influx of migrants seeking employment in nontradable sectors such as services and construction. After the collapse of the second oil boom in 1981, Nigeria was left with desolated rural communities and swarms of unemployed workers in cities. In contrast, the Indonesian government increased assistance to agriculture during the oil booms through investments in irrigation and agricultural research as well as subsidies on fertilisers and other farm inputs. The repeated devaluation of the Indonesian currency helped strengthen the competitive positions of agriculture as well as labour-intensive manufacturing. As the result, the productive capacity of domestic agriculture was strengthened, as demonstrated by the achievement of self-sufficiency in rice by the late 1980s after being the world largest rice

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importer in the early 1970s. It may be difficult to explain such pro-farmer policies adopted in Indonesia without considering the influence of peasant fundamentalism in the mind of President Suharto under his autocratic regime.

CONCLUSION Broad comparisons between East Asia and Africa have suggested a hypothesis that major differences in agricultural growth performances between the two regions are deeply rooted in traditional social structures and norms in rural communities, which are moulded under different resource endowment conditions. In Africa, the egalitarian redistributive norms geared to assure the subsistence of community members under mobile production systems during the land-abundant regime has been impeding the technological innovation and capital accumulation needed to shift to sedentary landsaving systems under rapidly rising land scarcity. In contrast, Asia has been advantaged by the patron-client reciprocity norm, molded under traditional land scarcity, which tolerates wealth accumulation by industrious and innovative villagers so long as they fulfill the role of legitimate patrons looking after the subsistence needs of poor clients. Under this norm, the patrons have been able to accumulate individual wealth, at the same time spearheading the building of community-level infrastructure and, lobbying for government’s provision of larger infrastructure. This hypothesis, if valid, implies that, to be effective in furthering agricultural growth, Asian governments as well as international aid agencies must try to incorporate into their development programmes the incentive mechanisms implicit in patron-client relationships within villages, as well as those between village leaders and local government officials so as to maximise municipal-level collective actions for the supply of local public goods. It is, however, important to guard against the danger of patron-client relationships becoming the basis of collusion for rent-seeking activities, not only at the local level but also at the national level, as demonstrated by the failures of Presidents Marcos and Suharto. Compared with Asia, it should be much more difficult to design the effective participation of communities in rural development programmes in

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Africa. Due to my ignorance about realities at the grassroots of Africa, I am unable to suggest any concrete measures. At this stage I can only make a very general advice of strengthening agricultural research, extension and training activities, so that farmers will be able to grasp the benefits of innovations inherent in land-saving production systems. Although traditional norms are slow to change, the rate at which it proceeds should depend on the magnitude of expected profit from the change. It seems difficult to escape from the present stalemate in Africa without providing truly profitable opportunities to rural producers, as Theodore Schultz (1964) so powerfully pointed out four decades ago. Beyond this truism, effective policy designs for rural development based on genuine local participation will have to wait until after community mechanisms in Africa will have been grasped in more detail and greater depth.

NOTE * This chapter draws heavily from Platteau and Hayami (1998), Hayami (2004b), and Hayami and Godo (2005). The author may be reached at [email protected].

REFERENCES Anderson, Benedict. Imagined Communities: Reflections on the Origin and Spread of Nationalism. London: Verso, 1983. Anderson, Kym and Yujiro Hayami. The Political Economy of Agricultural Protection. Sydney: Allen and Unwin, 1986, Bates, Robert H, Markets and States in Tropical Africa. Berkeley: University of California Press, 1981. ———. Essays on the Political Economy of Rural Africa. Cambridge: Cambridge University Press, 1983. Embree, John F. “Thailand—A Loosely Structured Social System”. American Anthropologist 52 (1950): 181-93. Hayami, Yujiro. “From the Washington Consensus to the Post-Washington Consensus: Retrospect and Prospect”. Asian Development Review 20, no. 2 (2004a): 40-65.

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———. “Agrarian Communities across Asia: A Provisional Note”. Paper contributed to the volume in honor of C.H.Hanumantha Rao (draft), 2004b. Hayami, Yujiro and Masao Kikuchi. Asian Village Economy at the Crossroads. Baltimore: Johns Hopkins University Press, 1982. ———. A Rice Village Saga: Three Decades of Green Revolution in the Philippines. London: Macmillan, 2000. Hayami, Yujiro and Yoshihisa Godo. Development Economics: From the Poverty to the Wealth of Nations. Oxford: Oxford University Press, 2005. Krueger, Anne. O., Maurice Schiff, and Alberto Valdes (eds.). Political Economy of Agricultural Pricing Policies, 3 volumes. Baltimore: Johns Hopkins University Press, 1991. McGuire, Martin C. and Mancur Olson. “The Economics of Autocracy and Majority Rule: The Invisible Hand and the Use of Force”. Journal of Economic Literature 34 (March 1996): 72-96. Pinto, Brian. “Nigeria during and after the Oil Boom: A Policy Comparison with Indonesia”. World Bank Economic Review 1 (May 1987): 419-45. Platteau, Jean-Philippe and Yujiro Hayami. “Resource Endowments and Agricultural Development: Africa versus Asia”. In The Institutional Foundation of East Asian Economic Development, edited by Yujiro Hayami and Masahiko Aoki, pp. 357-410. London: Macmillan, 1998. Sahn, David E. and Alexander Sarris. “The Evolution of the States, Markets and Civil Institutions in Rural Africa”. Journal of Modern African Studies 32 (1994): 279-303. Scott, James C. The Moral Economy of the Peasant: Rebellion and Subsistence. New Haven: Yale University Press, 1976. Schultz, Theodore W. Transforming Traditional Agriculture. New Haven: Yale University Press, 1964. Stiglitz, John E. Globalization and its Discontents. New York: Norton, 2002. World Bank. The East Asian Miracle: Economic Growth and Public Policy. Oxford: Oxford University Press, 1993.

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4

Food Security in a Globalised Setting



Jock R. Anderson*

Introduction A conference on “Agricultural and Rural Development in Asia: Ideas, Paradigms, and Policies Three Decades After” sounds interesting and indeed it was, as readers of this volume will discover. Three decades after what, the young may ask? The 1976 Conference proceedings edited by Roumasset, Boussard and Singh (1979) into the volume Risk, Uncertainty and Agricultural Development was for me a landmark, and one that I feel strongly has continuing relevance today. The short title for this essay could be “Agricultural and rural development (ARD) is (still) risky business”. Richard Day put it less cryptically and more elegantly in his Foreword to the volume (p. iv): “Nowhere in economic life is choice more fraught with unknown consequences and immediate danger than in agriculture, which, as it still holds the larger part of the world’s population, well deserves the special emphasis it receives in deliberations such as the present volume.” Even in my most immodest moments, I would not have jumped into a topic as broad as Food Security in a Globalised Setting without some compelling excuse. For me it was the prospect of reliving the spirit of the predecessor Conference in Mexico, when luckily I had an easier topic (Anderson 1979), that overcame the inertia of tackling the challenging topic of this session. But as I began to think about it, I was relieved to find that I was not too alone, as indeed one never is in a world of globalised social science knowledge. So

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let me proceed, with more than a little help from my friends, some of whom are featured in this volume.1 For instance, Runge et al. (2003a) chose as their subtitle “Food Security and Globalisation” so they have (for me, most conveniently) already “written” my paper, and have done so without the saga of Anderson self-citation and other conferee citation that follows, so let me commend that esteemed source as the place to go, notwithstanding my repeated returns to it in what follows. Vern Ruttan (in his back-cover note to that book) says he knows of “no other work that brings the various threads of the food security issue together under one cover”, and I (and clearly others, given its best-seller status) agree that it is also well conceived and executed. Just what is meant by my assigned topic title? Both food security and globalisation mean different things to different people; this is analogous to the situation for risk, but semantic differences have not stopped me dabbling in these topics in the past. To start with globalisation, the World Bank (2003a, p.6) has one view that can serve my purpose here. The concept of globalisation captures the growing interdependence and linkages of the world’s economies, markets, and people. It concerns more open international trade in goods and financial services, growth of multinational companies, more uniform labor and environmental standards, and growing global sourcing in supply chains. In the context of rural development and poverty reduction, globalisation presents both emerging challenges and new opportunities. The process of globalisation, including increasing inter-linkages across countries, lower transaction costs, and expanded trade, financial, and information flows, provides some of the key ingredients for rural development and poverty reduction. But globalisation and economic liberalization carry with them risks. There are winners and losers in globalisation, and the challenge for policymakers is to provide adjustment assistance or at least partially compensate losers.

The “process” described in this quotation has been going on for millennia,2 will continue and will likely accelerate (despite protestors or promoters), and is far from being, in any sense, finished or, indeed, from having yet reached an especially satisfactory stage (e.g., as eloquently argued by Watkins and von Braun 2003).

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Food security probably has even more concepts and definitions but for simplicity let me take what Runge et al. (2003a, p. 25) claim is the most widely used definition: “Food security is access by all people at all times to enough food for an active healthy life”, which it seems actually comes (perhaps not uniquely but to my surprise) from World Bank (1986). A rich literature surrounds this issue, which cannot be adequately treated in this space, and among other themes not dealt with here is the related issue of food self-sufficiency. The connections between food insecurity and poverty are obvious (e.g., Anderson and Scandizzo 1983; Anderson and Roumasset 1996) yet subtle, as Sen (1981 in long form; 1998 in short form) has insightfully explained. The obscenity of continuing food insecurity problems is one that humanity should not tolerate. News items that report, for example, that: “About 600 million children worldwide are growing up in absolute poverty. Over ten million children under five years of age die every year.” (Harper 2005) should truly disturb. So, this chapter is largely about poverty and what can be done about it; in short, development; and I have not been as clever as the World Bank (2003b) to be able to get it down to just two pages. If I were a political scientist (perhaps of a like mind to Paarlberg 2002), this chapter would surely argue that, while the issues canvassed here may variously be important aspects of both the problems and their solution, the real issue is a lack of real political (power-based) interest and commitment in countries rich and poor around the world to do the needful. In this somewhat nostalgic mode, I count myself lucky to have had occasion to reflect a little on the issues from a few privileged vantage points, namely the University of New England (e.g., Anderson 1985), the Consultative Group on International Agricultural Research or CGIAR (e.g., Anderson, Herdt and Scobie 1988; Anderson 1999a), the World Bank (e.g., Anderson 1994, 2001d, 2003b), and in the past (e.g., Anderson and Hazell 1989) and more recently at IFPRI (e.g., Anderson, Bos and Cohen 2005). Food and Poverty: Facts and Fantasies My excursions into the more or less contemporary world food situation were also usually not alone, largely with the late John Dillon in the 1980s (e.g., Dillon 1984), and the late Pierre Crosson in the 1990s (e.g., Crosson and Anderson 1994, 2002). The issues we struggled with persist, however,

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remarkably unchanged; so, in some senses, I am merely updating past positions, some of which, particularly those relating to natural resource management and degradation (Crosson and Anderson 1993, 1999; Alston, Anderson and Pardey 1995; Wesseler and Anderson 2004; Lal et al. 2003) and climate effects (Anderson 1991, 2006; Pingali 2004), I am unable to broach here. But I attempt this update from a vantage point of ready access to a cogent set of global public goods produced since the mid-1990s by IFPRI—which celebrated its 30th anniversary in 2005. Thus, instead of having to crank up the back-of-the-envelope calculations of Crosson and Anderson (1992) and Anderson (1991, 1995) or draw on work of my previous colleagues Mitchell, Ingco and Duncan (1997), I can exploit the IFPRI IMPACT model, variously refined by Mark Rosegrant and colleagues, and used in a wide range of applications for insightful analyses of diverse food policy issues. My inclination, as an enthusiastic exploiter of IFPRI products, is to draw on the projections and analyses of Rosegrant et al. (2001a) as this work is not only the “best act in town”, and has not only a fairly full model description, but also features detailed regional breakdowns and several scenarios in addition to the three standard ones the Rosegrant teams typically use, namely the “optimistic”, “pessimistic”, and “business-as-usual” projections. As is usually the case at IFPRI, there is also a convenient compact version for those without the inclination to wade through the deeper pool of organised wisdom (Rosegrant et al. 2001b). An overview of the situation is given by a summary table of personally extrapolated expectations (Table 4.1), rounded because both the concepts underlying the data and the data themselves are rather fuzzy. Really hard “facts” in this business are difficult to find. The mentioned fuzziness relates in part to the arbitrariness of $1/day consumption as an indicator of poverty. Try living on 50-times that and feel other than poor! Using $2/day more than doubles the appalling numbers of the poor today, and with disturbingly unchanging numbers down the coming decades, notwithstanding the great reductions in China. The fuzziness of the “data” on hunger is another and different story, well told by Lisa Smith (1999). The “data” on malnourished children may be slightly less fuzzy but for that problem, the effects of key factors not directly related to food per se, such as women’s education identified among others by Smith and Haddad (2000a, c), must be taken into account in any such extrapolation.

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Table 4.1 Overview of Hunger and Poverty in Developing Countries in 2005

Region East & SE Asia South Asia Sub-Saharan Africa Middle East/N Africa Latin America All developing regions

Undernourished people mill/y (a)(d)

Malnourished children mill (b)(d)

Numbers of poor people mill (c)(d)

200 300 200 25 50 800

30 70 40 5 5 150

200 400 350 10 50 1,010

a. Author rounding and update of Runge et al. (2003a, Table2.2) on numbers of hungry. b. Author rounding and guesstimates based on Smith and Haddad (2000a), Rosegrant et al. (2001c, Figure 45, p. 132) and Runge et al. (2003a, Figure 3.10, p. 66). c. Author rounding and update of World Bank (2005a, Table 1.5) on $1/d poverty. d. Subjective standard errors on all “data” are self-elicited at about 20%.

However one contemplates such large numbers, and no matter how concerned one might be over the loss of the many thousands of lives to natural disasters in just 2005, the global overview of food insecurity is painfully disturbing indeed, which helps to explain the passion with which Runge et al. (2003a, b) write their diagnosis of, and cure for, the clearly unacceptable situation that prevails. Their cures are wide-ranging and correspond roughly to what is envisaged in the “optimistic” scenario of Rosegrant et al. (2001). Some of these remedies are taken up in the following section but having now overviewed the “facts”, let us now refer to the “fantasies” of the title of this section. The latter f-word is an alliterative allusion (not meant to be unkind) to the projections that are made in such scenario compilation work (see, e.g., McCalla and Revoredo 2001). The IMPACT model at IFPRI produces projections on thousands of variables but let us return to child malnutrition for the future as an illustrative set of numbers relevant to the present discussion. The following figures (my Figure 1) come from Rosegrant et al. (2001b) and are discussed by Runge et al. (2003a, pp. 64-68). They illustrate that the harsh reality of today depicted in Table 4.1 is not going to vanish any time soon, particularly in Asia and

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Africa, and whether the vision of Runge et al. (2003b) of ending hunger by 2050 can be realised will necessarily involve immense good luck as the determining uncertainties of policy advance, institutional development, investment and Mother Nature are resolved over coming decades. On Asia specifically, Rosegrant and Hazell (2000, p. 410) are similarly pessimistic about the prospects. For the Philippines see, for example, Balisacan and Hill (2003). Figure 4.1 Snapshots of Future Food Insecurity from the IFPRI IMPACT Model

Source: IFPRI IMPACT projections, June 2001.

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Policies for the Better and Lessons from the Past Runge et al. (2003a) follow their diagnostic work with an excellent discussion of policies that must change if food security is to be properly addressed and, as I have noted that they have already “written” this chapter, this section is brief. They start by citing the World Bank (1997a) on the fundamental importance of fixing governance broadly in the developing world3 before any real headway can be made, reasserting the point of view of Paarlberg (2002) noted earlier. They go on to review policies relating to education, women’s status, health in general and HIV/AIDS in particular, water management (dealt with by Mark Rosegrant in this volume), several key areas of investment, such as agricultural research and rural infrastructure (taken up below), and development financing broadly, all of which are demonstrably important in winning a fight against hunger. They also present an intriguing agenda for reform and re-engineering of various institutional arrangements, especially at the international level. Surprisingly, they have little discussion of social protection policies per se, and also little on land tenure issues (but see, e.g., Otsuka and Place 2001; World Bank 2003c). They do, albeit rather pessimistically, deal with trade policy, which surely also has vital roles in how globalisation plays out in terms of food security. On the trade-policy dimensions of this topic there is such an abundance of material now available that I am inclined to rather skirt this important aspect of globalisation, even though not all such materials are highly conformable. Not too surprisingly, I like the positions taken by Watkins and von Braun (2003) and Diaz-Bonilla and Gulati (2003); the realistic assessment of Runge et al. (2003a) is to be admired (in spite of their harsh words about the World Bank, recently reinforced by Falcon and Naylor 2005). My countrymen Kym Anderson and Will Martin (e.g., 2005) argue strongly for improved market access as a key goal for the Doha round of trade negotiations, since nearly two-thirds of the economic gains from dismantling merchandise trade barriers and farm subsidies would come from agriculture, gains that apply to the world as a whole and to developing countries as a group. While much of the focus to date has been on moredeveloped country policies, their recent modeling work shows that over 50 per cent of the gains to developing countries from agricultural reform

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would come from liberalisation by developing countries themselves. The reason for their proposal is two-fold: because agricultural tariffs are even higher in developing than more-developed countries (18 per cent in 2005 compared with 16 per cent on average in 2001), and because a large minority of developing-country trade is now with other developing countries. Furthermore, their research finds that some 90 per cent of the welfare gains from removing distortions to agricultural incentives globally would come from reducing import tariffs, while only 2 per cent is due to export subsidies and 5 per cent to domestic measures. Would that such gains be larger and more easily negotiated and sustained. Even though such gains may be slow to realise, obtaining them is no easy matter. Related policy developments are needed to improve the regulatory, environmental and scientific interventions that are complementary requirements, especially if some trading blocs substitute prevailing means of protection by sanitary and phytosanitary (SPS) and other non-tariff impediments. A key practical consideration is the fostering and sustenance of effective human capacity in delegations to multilateral trade negotiations. There is much to be done in this regard and, in spite of growing efforts, such as within IFPRI and World Bank, there are too few engaged in developing the relevant skills among those who should be working to protect the interests of the poor and hungry.4 I was asked to reflect on the lessons of ARD experience. It may be useful to begin by reaching back well into the past, with some emphasis on the experience accumulated by the World Bank. The Bank is a wonderful source of lessons, in part because of its own mistakes while evolving as a major player in modern economic development and especially in agriculture in developing countries5 and more particularly because of its willingness (actually an enshrined institutional commitment) to document them (e.g., World Bank 1998). Recent years have seen many efforts to capture and distill lessons into user-friendly form, and to have such in “living” and virtual forms, such as the Poverty Reduction Sourcebook (Klugman 2002) and, closer to the current theme, the Agriculture Investment Sourcebook (World Bank 2004b). As rural development moved up in the development agenda during the 1960s and early 1970s, analysis of problems in the rural sector and project interventions therein identified issues of ownership, design, implementation and supervision, many of which apply also to those of the integrated agricultural or rural development era. The era of Integrated Rural

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Development Projects (IRDPs) had emerged in the early 1970s. Several basic concerns drove the IRDP approach to rural development (e.g., Ruttan 1984). The many constraints faced by smallholders were felt to be inadequately addressed in projects with a piecemeal approach to selected weaknesses in local institutions and infrastructure. In preparation for Robert S. McNamara’s famous 1973 Nairobi speech, there was a renewed interest in the Bank to strive to deliver project benefits to the poor. Explicitly addressing human development aspects such as health, nutrition and education, along with directly productive aspects of the agricultural environment, was felt likely to be both socially vital and synergistically productive. Special efforts were deemed needed to reach the weakest and most remote members of society, who seldom benefit from the “trickle down” effects of interventions not directly targeted to them. Active participation by all potential beneficiaries in change processes was desired so as to move the marginalised members of society from oppressive dependency structures. Designing project interventions to reflect these constraint-removing desiderata proved difficult from the outset. Activity levels and project preparation among the donor community and the Bank increased in the 1970s, when enthusiasm for broad-based projects of this type reached a high pitch. Critical scrutiny of many aspects of implementation grew rapidly in the 1970s, leading to a proliferating literature on key design issues. Among the many concerns was the consistent tendency for under-performance in the planned monitoring and evaluation work designed in the projects because the same inherent complexity in scope of project activities led any effective monitoring to be similarly complex, difficult and expensive. With this history, it was inevitable that the World Bank’s Independent Evaluation Group (then Operations Evaluation Department, OED) would review experience in this area of rural project work (OED 1988). That review by OED of Bank rural development experience was critical of many design elements, including setting up enclave projects outside regular administrative structures, excessive reliance on expatriate technical assistance, and a tendency to upscale projects before adequate pilot experience had been gained. Linkage to civil society was then usually vague and fragile, especially in the early projects. Also, with widening partnerships has come a sharpened understanding of the need for more decentralised approaches and administrative structures to engage effectively with communities in both the design and implementation of rural development efforts.

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To recap on the problems of this era, the following selected observations from Graham Donaldson (1991), as well as Anderson (2001a) and Anderson and Thompson (2001), are pertinent: • • •

• • •

•

IRDPs were supply-driven, central-planning exercises, although often decentralised to the regional or provincial level. They were designed and implemented as blueprints with limited flexibility. There was little involvement of local governments and limited building of capacity either at national or local level; generally decentralisation as such was not an element. IRDPs failed partly because of inadequate policy environments. Where policies were recognised as serious constraints, sometimes attempts were made to resolve them, but largely through conditionality rather than through convincing analysis. IRDPs typically took place within a governance environment that was largely inimical to local consultation and feedback. Partnerships and donor coordination were limited. Regions were “parceled out” and donors went about their business largely in isolation. Typically, IRDPs were enclaved from the rest of the sector and economy. IRDPs were typically managed by project management units (PMUs) which lay outside the normal government structure. There was usually a presumption that expatriate Technical Assistance was essential. Monitoring and evaluation (M&E) was typically a substantial component in IRDPs, with sometimes massive expatriate-staffed M&E units. However, there were serious questions about efficiency, with large household surveys yielding limited results usable by management.

Needless to say, understanding of these and other intrinsic weaknesses featured strongly in the evaluation of the Bank’s evolving rural vision, and was reflected in the 1996/97 strategy (From Vision to Action, World Bank 1997b) as well as the Bank’s then emerging (now straggling) Comprehensive Development Framework. Each time the Bank revisits its strategy for ARD, there is naturally an effort to reexamine what has been learned by past endeavour. Apart from the already noted avoidance of top-down approaches such as the IRDPs, other lessons that were articulated (World Bank 1997b,

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pp. 33-34) included recognising the failures of “directed” credit programmes, of resettlement programmes to frontier areas, of some large-scale irrigation schemes, and of most public-sector involvement in production input supply, processing and marketing (e.g., Meerman 1997). Hans Binswanger, who was a key player in the 1997 strategy development, described what he called “painful lessons” (Binswanger 1994, 1998). The consequences of urban bias in ARD, and the problems of dealing with both food scarcity at one end of the spectrum and the “compensation” policy for the rural elites at the other end, were already widely appreciated among the development community and many observers rightly called for promoting more open economies and emphasising rural employment and small-scale farming in development strategies. Binswanger also pointed to: misguided land policies that have so often bugged development where distribution is highly unequal; the unfortunate neglect of women farmers in far too many cases; and a general lack of appreciation by planners, at many levels, of the positive effects in poverty reduction that can be achieved through agricultural growth. He championed (and has continued to do so) the benefits that can come from (carefully implemented and effective) decentralisation of administrative, fiscal and political systems that empower and activate the poor. The Bank’s most recent ARD strategy, Reaching the Rural Poor, built on all the above lessons and added some more (World Bank 2003a, pp. 9697). These included strengthening a more holistic approach by emphasis on non-agricultural physical and human infrastructure, and developing institutional mechanisms for multi-sectoral coordination and coherence, as well as giving increased support to client-driven processes for national rural development efforts. Most importantly, emphasis was to be given to focusing development dialogue, sector work and investment lending on explicitly pro-poor results. Other sets of lessons abound but as a past member of the Bank’s Evaluation team, I am driven to observe one recent synthesis from that source of “hard” (certainly expensive) knowledge (Nelson et al. 2003). From a critical examination of many recent completed operations, these authors draw an instructive set summarised in Box 1. As this book has an explicit Asian theme, following on earlier work such as that of David and Otsuka (1994), the book of Rosegrant and Hazell

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(2000) must be noted as perhaps the work on contemporary thinking on food security and globalisation in Asia. Of course, many others have struggled with these themes/lessons/agenda (even, e.g., Anderson and Parker 2004) and in this short chapter it is invidious to single out observers of note but let me get the jump on the Nobel committee and recognise at least Hayami and Ruttan (1985), Hayami (2001) and Ruttan (1994, 2002). Box 1. OED Project Lessons 1 When the rationale for a project and the linkages from the rationale to the design are not clearly spelled out, or when the rationale is not carefully maintained throughout the project cycle, sound judgments made during preparation and appraisal may be compromised and monitoring and evaluation may be hindered. 2 Weakness in the analysis of who is poor and why they are poor can dilute the propoor focus of a project. 3 Monitoring and evaluation will be much more effective when they are integrated into project design at the outset. 4 Designing not just the substance but the phased implementation actions involved in achieving policy and institutional reforms is essential to achieve both action and support for reforms. 5 If the incentives created for stakeholders by new policies and institutional arrangements are not thoroughly analysed the desired impact may fail or take longer than expected to realise. 6 Effective donor coordination depends on a project or program design that is based on a clear understanding of respective roles and responsibilities. 7 Financial projections in project design can help ensure the financial sustainability of a project. Source: Nelson et al. (2003).

Investment issues Risk: Pervasive but oft ignored When so many natural disasters have recently caused much death, despair and suffering, it is easy to turn attention to some of the uncertain aspects of food security and globalisation. At one level the issue arises starkly when, for instance, the nutritional status of groups affected directly by a disaster is

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compromised. So, social safety nets and emergency response arrangements must be able to react appropriately (and quickly) when disaster strikes, in countries rich as well as poor.6 These types of large risks emanate from unpredictable events in the natural or economic environments, such as tsunamis in South East Asia, earthquakes in South Asia, and droughts and hurricanes anywhere. Even if such events remain largely unpredictable, it is possible to quantify the risks, subjectively and perhaps to some degree objectively, and make plans conditional on their occurrence. Another predecessor conference addressed many of the management and public policy issues, and I will resist the opportunity to repeat some of my “ABCs” on that occasion (Anderson 1997). But for many of the world’s poor, every day can be a disaster, and the safety net issues discussed under poverty consequences must be a key part of the development agenda (e.g., Anderson 2001b; Christen and Pearce 2005). Critics may chide that I find risk under every stone on the development road (e.g., Anderson 2001c, 2003a; Anderson and Hardaker 2003; Hardaker et al. 2004), and it is true that older tigers do not change their stripes. The theme of this sub-section, however, centers on approaches to dealing with the lack of certainty in models of development phenomena and thus in the forecasts made using them — a theme long dear to my heart (e.g., Anderson 1976), much influenced by Mirham (1972) and his Uncertainty Principle of Modeling. These uncertainties are of several types. First, there is the inability of any model to represent a real system perfectly, which might be termed modeling uncertainty (MU) and, in some contexts, has been termed estimational risk. Such uncertainty consists of several components, such as those arising from the exclusion of some variables that should be included but are not, for reasons of ignorance, measurement difficulty or simply absence of “relevant” data (presumably on grounds of excessive cost of collection for the modeling purpose at hand). A second and similar uncertainty arises because of the inadequacy of the model to represent the way that the included variables interrelate, such as linear or other approximation of something that is more complex. Unfortunately, many practitioners elect not to attempt to quantify MU in reporting their modeling work. The next group of uncertainties pertains to the degree of unpredictability of the variables that are included and that drive the system and the model of it, what we might term environment uncertainty. Such variables are external

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to the modeled system and are thus regarded as exogenous to the model. Modelers have many different strategies for dealing with such exogenous variables, ranging from simply ignoring the uncertainty and using a set of some single-valued assumptions, perhaps a mean, perhaps a mode, or other measure of central tendency, to detailed and “full” (particularly joint) stochastic specifications and representations. The middle ground is to avoid such detailed work but to represent at least some of the lack of certainty in the environment by some bundled sets of assumptions, often described as scenarios. It has become the custom not to attach probabilities to such sets, which would be a potential step towards more complete accounting of the inherent uncertainty. Indeed, this is the approach taken by Rosegrant and colleagues in the works cited above, where projections are made for a few scenarios, and users are left to apply their own probabilities, if they will, to what are presumably conditional mean projections associated with the respective sets of assumptions. Thus if just one scenario is focused upon by a user, the probabilities attaching to the alternatives are implicitly zero. Whether such an approach to scenario reporting is good practice, of course, rests in the minds of the modelers, users and beholders. But one thing is clear, the “full story” of the projections is not being told in such an approach. Even putting aside the potential weighting of the different scenarios, what precision can be inferred from these conditional mean projections? By not reporting any indication of the magnitude of the MU, the user has to assign what is necessarily a purely subjective degree of uncertainty, which of course may not be a bad thing. At least some of the intrinsic difficulties are shirked in that way (e.g., Anderson 2000). But if modelers routinely reported their best assessment of the uncertainty in their models and projections, users would have a better basis for using the information generated, even if dispersion around mean predictions is in most cases not theoretically too irrelevant to public decision-making (e.g., Anderson 1983, 1989; Belli et al. 2001). With a switch to uncertainty reporting, users would have some idea of how critical it is to achieve specific target levels of investment; for instance, to reach designated food security goals, such as reported by Rosegrant et al. (2001b, Table 3, p. 15). Is the baseline of nearly $600 billion really different from the optimistic $800 billion or the pessimistic $300 billion (over the period 1997-2020)? Standard errors could be attached based on the sorts of error rates reported, for example, by McCalla and Revoredo (2001). It would not cost much to do,

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the users would be more informed, and the world would be a better (and possibly a safer) place. Putting aside these personal quibbles about the mechanics of handling risk, perhaps we could agree that the world is indeed a risky place and that if we are to plan for its betterment, for example with regard to food insecurity and poverty, we had better take deliberate account of this dimension of reality. Public Investment Runge et al. (2003b, p. 4) synthesized their (2003a, Chapter 7) analysis of the public policy needs with regard to public investment as follows: To end hunger in our lifetime, a comprehensive set of investment priorities is required: education, health, agricultural research, irrigation and water management, rural infrastructure, institutional reforms, and the creation of entirely new institutions. How much funding will be needed and where will it come from? The World Bank estimates that an annual increase in aid of $40 to $60 billion (roughly double the current level of aid) will be required to reach the United Nations’ Millennium Development Goals or MDGs (see von Braun, Swaminathan and Rosegrant 2004 for what it all means for ARD) by 2015. That initiative seeks to cut extreme poverty in half and make substantial improvements in education and health in the developing world. The developing countries themselves will invest much of this amount. But the remaining portion will have to come from the international community.

There are five primary sources of funding for global food security: 1. governments (and thereby the citizens) of developing countries; 2. foreign assistance by the world’s wealthier developed nations; 3. private international capital flows in the form of targeted foreign direct investment; 4. remittances from developing-country citizens working abroad; and 5. global philanthropy.

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Promoting hunger eradication as an ‘international public good’ — an objective that benefits everyone — is key to building the will and financial support to make it happen. This section is about the first two of these sources (in my reordered and numbered list), and aspects of the other three (essentially private) sources are discussed in the following section. Public sources in much of the developing world are increasingly overwhelmed by private sources, in terms of sheer volume, but the latter are naturally focused more on generating private goods, part of which will likely contribute to food security. Bundles of investment in important drivers such as irrigation, rural roads, education, clean water supply, and agricultural research are included in the IMPACT model for the various scenarios modeled.7 The actual path of investment that will be followed is, of course, quite uncertain at every level, from local, through national and certainly global, playing out as it does against the backdrops of public expenditure reviews, government prioritysetting mechanisms, country assistance strategies, borrowing programmes, and non-traditional lending and grant operations such as through the poverty reduction support credits (PRSCs). But, in a general sense, it surely matters to food security outcomes as to whether appropriate levels of public investment can be reached where the needed services/drivers have characteristics of public goods, such as many (but increasingly not all) products of agricultural science, and some stabilising interventions, such as social safety nets. Social returns to investment in such drivers have been found to be remarkably high (e.g., Alston et al. 2000 for agricultural research; Fan, Hazell and Thorat 1999 for infrastructure such as roads) and the poverty-reduction magnitudes impressive (e.g., Hazell and Haddad 2001; Meinzen-Dick et al. 2004) but there are continuing political difficulties in getting budgetary commitment for the indicated increased investment needs (e.g., Pardey, Roseboom and Anderson 1991; Pardey and Beintema 2001). Even the optimistic scenario considered in the IFPRI IMPACT models has levels of R&D investment well below what seems likely to be economically worthy. But the levels are not the whole story of course; efficiency is key too. While the finding on high returns to investment in agricultural R&D may be comforting when considering future investment to improve food security (notwithstanding Gautam and Anderson 2004), it is clear that scarce funds are not always productively used in many national agricultural research systems (e.g., Purcell and Anderson 1997; Anderson 1999b, 2002;

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Maredia, Byerlee and Anderson 2001), and questions can also be asked of the international system (e.g., Anderson 1998; Anderson and Dalrymple 1999; OED 2003). This is not the place to get into these organisational and management issues, which are at the heart of the new ISNAR Program of IFPRI. Suffice it to say that several potential “reform” themes appear to apply to many national agricultural research systems. New pro-poor research priorities for public R&D must be articulated to include increasing staple food production, increasing crop productivity in marginal/less-favoured areas, helping small-scale farmers diversify into higher value products, and developing more nutritious foods. These themes, even those identified as biotechnology (Anderson 2001e), are unlikely to be taken up sufficiently by the growing private research industry, although there is clearly scope for some productive public-private partnerships to engage in parts of this large agenda. Institutional change is needed on many fronts to make public R&D systems more demand-driven, to involve more participatory research, to build new partnerships (with NGOs in production research and the private sector especially in product and processing research), and going beyond research systems, to improve extension efforts for new technologies (e.g., through decentralised extension services), and to develop new funding mechanisms (e.g., Umali-Deininger 1997; Alex, Zijp and Byerlee 2002). Indeed, the reform agenda for extension is large (e.g., Picciotto and Anderson 1997; Anderson and Feder 2004) and is fortunately the subject of another chapter in this volume by Dina Umali-Deininger, so is not pursued here. The private sector is increasingly becoming involved in crop-productivity research and seed production and distribution. So, public R&D systems can redefine their focus to address problems that are socially, economically, and environmentally important, but of little interest to private firms. Private Investment Agriculture these post-Soviet days is overwhelmingly a private investment and management issue; so, while the delivery of public goods is important to the sector, and for food security and poverty reduction, it is really the private sector that is going to make the running and the difference ultimately. Even in the agricultural research sub-sector, traditionally dominated by public

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entities in developing countries, change is coming fast, in part under the rubric of globalisation but also fuelled by the ubiquitous spillovers championed by Alston (2002). There are vital public policy roles for setting the circumstances for private investment where the goods involved are largely private, so that dealing satisfactorily with security of property rights is a fundamental issue (e.g., Alston, Pardey and Smith 1999; Byerlee and Echeverría 2002). Other cogent public roles include refining the regulatory environment beyond the property rights and their enforcement that will be critical for private-sector participation in research, to social responsibility aspects such as food safety in general (domestically and for export, including SPS aspects underpinning trade) and biosafety in particular. These public elements of private sector development are well covered by Runge et al. (2003a) in so far as they relate to food security, and accordingly are skipped here. By way of illustrating the emerging regulatory challenges, consider that of the telecommunications regulators who are facing a major paradigm shift as they increasingly have to deal not only with regulating infrastructure, but also the content it can now carry, such as voice, Internet data and media applications. The companies and industry landscape has changed from being sole fixed telephony or mobile operators, to corporations using new technologies to build content and services on top of infrastructure, and thus effectively shaping the new knowledge economy. Who knows what the cost and opportunities lost for markets and populations will be where regulation does not adapt? Such challenges are multiplied many times over across evolving sectors, and building relevant capacity in developing countries to meet them is clearly a monumental task — fortunately one beyond the scope of these few remarks. I do want to close my discussion of improving food security and alleviating (especially rural) poverty by focusing briefly on a part of the private economy that is too often relatively neglected, namely the rural nonfarm economy (RNFE). There has fortunately been growing recognition of the importance of the RNFE8 in rural economic growth, and consequently in food security and poverty reduction. Perhaps even more than is the case for agriculture, globalisation has many implications for the growth of the RNFE, especially if China provides any sort of model for the rest of the developing world (e.g., Zhang et al. 2005). In the space available here, it is impossible to do any sort of justice to this large topic but fortunately there is a major edited collection by

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Haggblade, Hazell and Reardon (2002). Many of the policy issues relate to what is increasingly known as the investment climate (e.g., World Bank 2004a, featuring analyses by Kees Van der Meer et al., and from which much of the discussion in this section is drawn). Broad-based growth and better functioning markets are the main hope for the 800 million poor people living in rural areas. Reliance on government services is a false hope. Sole reliance on private initiative and markets would also clearly not work, given the many market failures, in particular those faced by the poor, and shortcomings in the availability of public goods. An effective pro-poor strategy for the private sector in rural development is thus an essential ingredient in contemporary strategies to reduce rural poverty and improve food security, as has been reflected in the World Bank’s most recent ARD strategy (World Bank 2003a). The non-agricultural rural economy provides: employment and income for the non-agricultural population, including those from farming families who are leaving agriculture; part-time and full-time employment for some of the agricultural population to supplement agricultural incomes; and possibilities for risk management by rural households through the potential diversification of income sources. The size of the non-agricultural economy is often underestimated but recent estimates of non-agricultural income as a share of total rural household income now usually run at 40 per cent or higher (e.g., Reardon et al. 1998). It matters a lot for the rural economy and for the poor in particular, whether the conditions for private-sector investment are conducive or otherwise. Private investment will create more value added and employment in rural areas, more competition and thus better services for consumers, farmers and non-agricultural businesses. In vibrant local communities there are strong positive interactions between agricultural income, non-agricultural income and low real prices for consumer goods. Rural areas, in particular in middle-income countries, can also be the location of consumer goods industries and value-added activities in agri-food chains, provided that the incentives for investment are favourable. However, the way governments, donor agencies and NGOs have tried to overcome market failures has usually served instead to stifle the development of the private sector. Indeed, most development assistance efforts have failed to mainstream market development and private-sector development so that opportunities for the private sector to flourish have been missed.

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There are, however, generally many options for public-sector interventions to improve the conditions for private-sector development in rural areas. Such options provide governments and development agencies important means to facilitate economic growth in rural areas and thus to reduce rural poverty. Not that they have been easy, however, and in the spirit of the lessons learned above, several cautions must be made. For instance, the privatisation of agricultural industries has proven to be complex and difficult, largely because public and private duties are interwoven in the state-owned companies. There are many cases where market services and provision of credit to farmers collapsed after privatisation. It usually requires good preparation, good technical assistance, perhaps two to three years of effort, and strong commitment by the respective government to make a successful transformation. To create competitive markets and to foster competitive enterprises, the opening of markets to enhanced competition has to be realised in the early phases of the privatisation process. If this is not done, the privatised company may not be able to face liberalisation later on and will heavily oppose it. Needless to say, the particular circumstances of the poor must be sensitively addressed in privatisation if it is to be poorfriendly. Unless effective safety nets are in place, the weakest members of rural societies stand to be disadvantaged when services previously supplied through government systems are withdrawn, prices for purchased goods and services strongly increase, and previously guaranteed selling prices for products suddenly decline. Deregulation, privatisation and liberalisation still have far to go in many countries. Yet there is ample evidence of beneficial results, if they are done properly. Although many conditions have improved for developing efficient markets, an IFPRI report on Sub-Saharan Africa noted that the road is only half travelled (Kherallah et al. 2000), and perhaps that was being metaphorically generous. Valdés (2000) in a comparative study for Latin America has similarly shown the importance of reforms in trade and transport for agricultural growth. Input supply has, in many countries, long been seen as a government responsibility, and there are still many regulations and interventions that inhibit the development of local markets in which shops, peddlers, traders and artisans play important roles connecting farmers with strong market players in urban centres (Gisselquist and Van der Meer 2001).

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With improved transport services, markets develop and households have the opportunity to produce surplus for sale, to specialise in producing those goods in which they are most productive, and to diversify into producing goods for distant markets. New technology is relatively powerless in the absence of transport and trade, but can help to generate new market opportunities. Agriculture, provided it has growth potential, responds to the new opportunities. High returns to rural roads (e.g., Chowdhury and Hossain 1985, to mention some important early work in Bangladesh), in particular in marginal areas (e.g., Fan and Hazell 1999 on India, but reinforced by followup work in several other countries), reflect the potential of growth through increased trade and the introduction of improved technology. Globalisation and urbanisation trends provide challenging opportunities for creating more value added, income and employment in rural areas. However, the increasing competition and growing power of consumers and retailers, aided by information technology, are compelling reasons for taking a more demand-driven approach to agricultural development. This creates a particular challenge to small producers. Small producers are generally fairly efficient in production but they have high transaction costs in markets, poor ability to adjust supply to demand and to meet requested quality standards. These trends may put poor producers in a disadvantaged position, unless they can overcome organisational problems and link themselves to new supply chains in profitable ways. A pro-poor, broad-based growth strategy should thus be market-driven, and should help the poor to participate in new markets in ways profitable to them. Rural industries can play an important role in economic development. With increasing rural and urban income, and adequate infrastructural and institutional development, rural entrepreneurs emerge from among farmers, traders, artisans and landless labour. Initially, rural industries and services are strongly resource-based, but there are many examples of rural industries being important in the early stages of economic development in Europe and East Asia, as well as in present-day developing countries, that are not much related to agriculture and cater for rural and urban consumers markets. Sometimes “putting-out” models play an important role in local rural development (e.g., Hayami 1998, 2000). There needs to be more focus on the rural household-manufacturing and tertiary sectors, which employ the vast majority of RNFE workers (e.g., about 80 per cent in Asia), and are of particular importance to women and

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the poor, although many can be left out of participation (e.g., Barrett et al. 2005). Policy-makers in the past were sold on the manufacturing sector, and rural industrialisation policies have showered manufacturing firms with diverse preferential treatments, subsidies and technical assistance. These policies have typically favoured larger capital-intensive manufacturing firms, and neglected small labour-intensive firms and informal household manufacturing activities. The playing field must be leveled by revamping rural industrialisation policies: (a) to be more inclusive and make them “rural enterprise” policies; and (b) to remove all unnecessary subsidies and protective policies that reduce the competitiveness of rural firms in the market place. The experience of China, for instance, is instructive, as there the most rapid growth in recent years has been in small private firms specialised in service, trade and construction activities (e.g., Fan, Zhang and Zhang 2000). If there is an urban bias, such as rural areas being less well endowed with infrastructure and public services, the interaction will be less, there will be less growth of rural income, and rural-to-urban migration will be greater. Many developing countries do not provide a business-friendly environment for investment by either national or foreign investors. Clearly macroeconomic stability and good governance are necessary conditions for a positive investment climate (World Bank 2004a). But they are far from sufficient. At a minimum, three other sets of conditions must be in place, and most of these usually require public-sector action and/or participation. First, the basic physical infrastructure must be in place. This includes roads, ports, reliable electrical power, and not to forget telecoms (e.g., Bayes, von Braun and Akhter 1999), increasingly as mobile service. In urban areas the private sector can do a lot of this, albeit often with some public inducement and regulatory oversight. In rural areas, where population and economic activity are less dense, more of this investment must be provided by the public sector (or at least it will take larger public input to induce the private sector to invest in the necessary infrastructure). Second, there must be an adequate supply of human resources with basic numeracy, literacy, health and skills. The public sector has primary responsibility for fostering these, especially for the poor. Third, there has to be a legal and policy environment that is conducive to investment. That is, there need to be clear rules for a functioning market economy. These rules include, among others, the existence of a commercial code that defines contract sanctity,

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a judiciary that fairly and expeditiously adjudicates contract disputes, and clear definition of property rights (including land, intellectual property, etc.) and the ability to register them, transfer them, and pledge them as collateral against loans. Markets, in spite of being imperfect because of market failures, are the primary vehicle for private-sector development (DFID 2000). Market failure can only be overcome by the collective action of individuals and enterprises, and/or by government intervention. Improvements in the functioning of markets can be an important booster of growth and poverty reduction. Rural areas have specific market failures. In most poor rural areas, roads, electricity and telecommunications are seemingly deficient, presumably because they are relatively expensive to establish and to maintain, particularly when denominated by numbers of users or volumes of trade. Government services, such as health and education, are almost inevitably quantitatively and qualitatively less developed than they are in urban areas. Business services are similarly much less developed, if available at all. Traditional culture and low levels of education can retard processes of innovation and modernisation. Traditional power structures may interfere in markets and retard the emergence of broad-based participation and democratic institutions. Micro, small and medium enterprises and community-driven groups are of dominant importance in linking farmers to markets and technology providers. At the local level, the volume of trade greatly affects the competitiveness of markets. Transaction and information costs are relatively high in rural areas, in particular for outsiders who lack local information. In short, private-sector activity requires a supportive business environment, a catalytic public sector, and the participation of stakeholders in decision-making, if it is to realise its potential. The private sector is in the driving seat in most aspects of private-sector development, and markets provide the vehicle. Interventions to help the drive are on four main levels: legal framework (rules and regulations); enterprises; markets; and facilitating organisations. Actions often useful include fostering small and medium enterprises, which provide most non-agricultural employment and services in rural areas. Interventions should be focused on reducing market imperfections such as those related to the availability of skills in accountancy, technical skills, computer skills, understanding markets and management, especially for women and other poor groups: and the

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availability of (commercial) financial and other business support services, such as support for making business plans and bankable projects, perhaps through broadened “extension” programmes. Other actions can be directed to making globalisation work better for the poor, such as investment for establishing quality-assurance systems that comply with overseas buyer specification (e.g., food safety or specialised quality standards), and the financing of wholesale markets, warehouse receipts, commodity exchanges and forward contracting systems. There is great scope for effective policy dialogue with government and private-sector stakeholders on laws and regulations, and on product/process standards, food safety legislation, phytosanitary regulations, etc.

Conclusion It would not be appropriate to conclude this paper without noting that there are many players beyond those cited above who are active in the food security and globalisation business. One group is the Hunger Task Force appointed through the UN Millennium Project (e.g., 2005b) to analyse the prospects through to 2015, and compile advice to contribute to the contemporary debate on achieving the MDGs. To recognise it here, let me quote a little from the Web blurb: Halving Hunger examines current world progress towards eliminating hunger, and calls for the implementation of seven recommendations in the areas of: political action, national policy reforms, increased agricultural productivity for food insecure farmers, improved nutrition for the chronically hungry, productive safety nets for the acutely hungry, improved rural incomes and markets, and restoration and conservation of natural resources essential for food security. (UN Millennium Project 2005a).

The present author contributed to the work of the Task Force and elected not to use the material of that report in this chapter but rather to acknowledge that it is yet another book making the present chapter of dubious value, as, of course, does the above-oft-cited book of Runge et al. (2003a).

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In this same vein, 2005 also saw the preparation of another pertinent book in which the author (along with Derek Byerlee of the World Bank, and Thom Jayne and Robert Myers of Michigan State University in a DFIDsupported effort) was actively involved, namely, Managing Food Price Risks and Instability in the Context of Market Liberalization (World Bank, 2005c). As this work had yet to appear at the time of writing I did not wish to draw on it, or indeed on other recent but unrelated efforts (e.g., Larson, Anderson and Varangis 2004). Finally, in this short list of some major materials omitted on grounds of selectivity within the limited space, one activity with which I was somewhat involved is the 2005 report Agricultural Growth for the Poor: An Agenda for Development prepared by World Bank staff (World Bank 2005b). It features lessons, country case studies, and much good practical policy advice on how agricultural development can really reduce poverty. Accordingly, it can be thought of as the positively upbeat version of the policies and lessons section in this paper. Runge et al. (2003b, p.4) observed that: In a world of unprecedented wealth, the persistence of widespread, chronic hunger is unacceptable. Although ending food insecurity will be an enormous task in itself, the greater challenge may be complacency, indifference, and a lack of political commitment.

They went on to quote Amartya Sen: The contemporary age is not short of terrible and nasty happenings, but the persistence of extensive hunger in a world of unprecedented prosperity is surely one of the worst. Massive endemic hunger causes great misery in many parts of the world, debilitating hundreds of millions and killing a sizable proportion of them with statistical regularity. What makes this widespread hunger even more of a tragedy is the way we have come to accept and tolerate it as an integral part of the modern world, as if it [were] ... unpreventable.

Their punch-line then was: “With appropriate investments, innovations, and institutions, we can end chronic hunger in our lifetime. Widespread hunger is preventable.” I would have liked to end on such a positive note too (perhaps adding “incentives”) but I am not sure the statement is accurate

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in a predictive sense. I do think we now know fairly well what has to be done but, given the many risks to accomplishing the needful, especially with regard to political will, I remain pessimistic about this happening even in the lifetimes of the young among us, to whose hands this challenging torch will soon pass.

NOTES * The author may be reached at [email protected]. 1 For example, Mark Rosegrant is one of the “et al.” in the citation of Runge et al. (2003a) and his work is drawn upon extensively in this paper. 2 Not all observers share this long-run view of globalisation. Davies (2005) argues that the “first globalisation”, from the late 1840s to the First World War, offers important lessons for the present era of globalisation. It is argued that the social and economic change created by the first globalisation led to increased protectionism and nationalism in France and Germany rather than the free-trade utopia envisaged by many liberal optimists. Contemporary optimists should be aware that globalisation and liberalisation are not inevitable processes; more and freer trade may induce a similar negative response from the short-term losers and those who fear a more dynamic and less predictable world. Needless to say, assessing the effects of globalisation on poverty involves non-trivial conceptual and measurement issues (e.g., Ravallion 2003). 3 The experience of hurricane Katrina on the US Gulf Coast in 2005 reminds us that governance and poverty problems are not confined to the developing world. 4 Thanks to wise policy, nearly all IFPRI publications are available on the Web but I should also note that IFPRI has a communications strategy that provides access to its wealth of materials via various CDs for those who do not enjoy ready access to high-speed Internet connections. Most recently relevant to this Conference is a 2005 CD, Food and Nutrition Security in South Asia: 20 years of IFPRI Research which comes inside IFPRI (2005). Also strongly applicable is Impacts of Agricultural Research on Poverty: Results of an IFPRI-led project of

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the CGIAR Science Council’s Standing Panel on Impact Assessment, a 2003 collection of 28 publications on CD-ROM. This is a theme fervently dealt with recently by Wally Falcon (with Naylor, 2005) who relevantly invoked the spirit of T.W. Schultz (1964, 1968). No less a source than the Times of India [“An increasingly hungry America”, Saturday, 29 October 2005] observes that: “Hunger in American households has risen by 43 per cent in the last five years … According to … the US Department of Agriculture … 38.2 million Americans live in households that suffer directly from hunger and food insecurity, including nearly 14 million children.” This should not be too surprising if some 10 per cent of the US population is officially poor but it seems inexplicable that a superpower allows this situation to persist. An overview is provided by Rosegrant et al. (2001a, chapter 3) and Runge et al. (2003a, Appendix B). The details of the assumptions are provided in summary form by Rosegrant et al. (2001a, chapter 7), as well as in the model description in the now downloadable model. See, for example, Liedholm 1998; Hayami 2001; Lanjouw and Lanjouw 2001; Reardon, Berdegué and Escobar 2001; World Bank 2003a; Buchenrieder 2005; and Hossain 2004, among many others.

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Meerman, J. Reforming Agriculture: The World Bank Goes to Market. A World Bank Operations Evaluation Study. Washington, D.C.: World Bank, 1997. Meinzen-Dick, R., M. Adato, L. Haddad, and P. Hazell. Science and Poverty: An Interdisciplinary Assessment of the Impact of Agricultural Research. Washington, D.C.: IFPRI, 2004. Mirham, G.A. Simulation: Statistical Foundations and Methodolog y. New York: Academic Press, 1972. Mitchell, D.O., M.D. Ingco, and R.C. Duncan. The World Food Outlook. New York: Cambridge University Press, 1997. Nelson, R., C. Gerrard, J. Heath, and N. Kumar. “Seven Leading Rural Lessons”. Sector Lessons Note, Operations Evaluation Department (OED). Washington, D.C.: World Bank, 2003. OED. Rural Development: World Bank Experience, 1965-86. Washington, D.C.: World Bank, OED, 1988. ———. The CGIAR at 31: An Independent Meta-Evaluation of the Consultative Group on International Agricultural Research, A study led by Uma Lele. Washington, D.C.: World Bank, OED, 2003. Otsuka, K. and F. Place (eds.). Land Tenure and Natural Resource Management: A Comparative Study of Agrarian Communities in Asia and Africa. Baltimore: Johns Hopkins University Press, 2001. Paarlberg, R.L. “Governance and Food Security in an Age of Globalization”. 2020 Vision Discussion Paper 36. Washington, D.C.: IFPRI, 2002 Pandey, S. “Rainfed Lowland Rice Research: Challenges and Priorities for the 21st Century”. In Breeding Strategies for Rainfed Lowland Rice in Droughtprone Environments, edited by S. Fukai, M. Cooper, and J. Salisbury, pp. 112. Canberra: Australian Centre for International Agricultural Research, 1997. Pardey, P.G. and N.M. Beintema. “Slow Magic: Agricultural Research a Century after Mendel”. Food Policy Report. Washington, D.C.: IFPRI, 2001. Pardey, P.G., J. Roseboom, and J.R. Anderson (eds.). Agricultural Research Policy: International Quantitative Perspectives. New York: Cambridge University Press, 1991. Picciotto, R. and J.R. Anderson. “Reconsidering Agricultural Extension”. World Bank Research Observer 12, no. 2 (1997): 249-59.

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Pingali, P. “Climate Change and Food Systems”. Paper presented at the OECD Global Forum on Sustainable Development: Development and Climate Change. Paris: OECD, 2004 < ENV/EPOC/GF/SD/ RD(2004)11/FINAL> Purcell, D.L. and J.R. Anderson. Agricultural Extension and Research: Achievements and Problems in National Systems. A World Bank Operations Evaluation Study. Washington, D.C.: World Bank, 1997. Ravallion, M. “The Debate on Globalization, Poverty and Inequality: Why Measurement Matters”. International Affairs 79, no. 4 (2003): 739-53. Reardon, T., K. Stamoulis, M.E. Cruz, A. Balisacan, J. Berdegué, and B. Banks. “Rural Non-farm Income in Developing Countries”. The State of Food and Agriculture, 1998. FAO Agricultural Series, no. 31. Rome: FAO, 1998 Reardon, T., J. Berdegué, and G. Escobar. “Rural Nonfarm Employment and Incomes in Latin America: Overview and Policy Implications”. World Development 29, no. 3, (2001): 395-409. Rosegrant, M.W. and P.B.R. Hazell. Transforming the Rural Asian Economy: The Unfinished Revolution. New York: Oxford University Press, for the Asian Development Bank, 2000. Rosegrant, M., M.S. Paisner, S. Meijer, and J. Witcover. Global Food Projections to 2020: Emerging Trends and Alternative Futures. 2020 Report. Washington, D.C.: IFPRI, 2001a. ———. Global Food Outlook: Trends, Alternatives and Choices. Food Policy Report. Washington, D.C.: IFPRI, 2001b. Rosegrant, M., M.S. Paisner, and S. Meijer. “Long Term Prospects for Agriculture and the Resource Base”. Rural Strategy Background Paper #1, ARD. Washington, D.C.: World Bank, 2001c Roumasset, J.A., J.-M. Boussard, and I. Singh (eds.). Risk, Uncertainty and Agricultural Development. College, Laguna, Philippines: SEARCA, 1979. Runge, C.F., B. Senauer, P.G. Pardey, and M.W. Rosegrant. Ending Hunger in our Lifetime: Food Security and Globalization. Baltimore: Johns Hopkins University Press, 2003a. ———. Ending Hunger by 2050: Crucial Investments and Policies. Washington, D.C.: IFPRI, 2003b.

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Ruttan, V.W. “Integrated Rural Development”. World Development 12, no. 4 (1984): 393-401. ———. (ed.). Agriculture Environment and Health: Sustainable Development in the 21st Century. Minneapolis: University of Minnesota Press, 1994. ———. Technolog y, Growth, and Development: An Induced Innovation Perspective. New York: Oxford University Press, 2000. Schultz, T.W. Transforming Traditional Agriculture. New Haven: Yale University Press, 1964. ———. Economic Growth and Agriculture. New York: McGraw-Hill, 1968. Sen, A.K. Poverty and Famines: An Essay on Entitlement and Deprivation. Oxford: Clarendon, 1981. ———. “Food, Economics and Entitlements”. In International Agricultural Development, 3rd Edition., edited by C.K. Eicher and J.M. Staatz, pp. 24056. Baltimore: Johns Hopkins University Press, 1998. Smith, L.C. “Can FAO’s Measure of Chronic Undernourishment Be Strengthened?”. Food Consumption and Nutrition Division Discussion Paper no. 44. Washington, D.C.: IFPRI, 1998. Smith, L.C. Child Malnutrition in Developing Countries: A Cross-Country Analysis. Research Report 111. Washington, D.C.: IFPRI, 2000a. ———. “Overcoming Child Malnutrition in Developing Countries: Past Achievements and Future Choices”., Food, Agriculture, and the Environment Discussion Paper 30. Washington, D.C.: IFPRI, 2000b. ———. “Overcoming Child Malnutrition in Developing Countries: Past Achievements and Future Choices”., Food, Agriculture, and the Environment 2020 Brief 64. Washington, D.C.: IFPRI, 2000c. Umali-Deininger, D. “Public and Private Agricultural Extension: Partners or Rivals?”. World Bank Research Observer 12, no. 2 (1997): 203-24. UN Millennium Project. “Halving Hunger: It Can Be Done”. Summary version of the report of the Task Force on Hunger. New York: The Earth Institute at Columbia University, (2005). (Lead authors: Pedro Sanchez, M.S. Swaminathan, Philip Dobie, and Nalan Yuksel). ———. Halving Hunger: It Can be Done. Report of the UN Millennium Project Task Force on Hunger. New York: Earth Institute at Columbia University, 2005a

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———. Investing in Development: A Practical Plan to Achieve the Millennium Development Goals. UNDP, New York, directed by J.D. Sachs. Published by Earthscan, London, 2005b. Valdés, A. “The New WTO Round on Agriculture: Trade Liberalization versus Food Security, Observations on Latin America”. Quarterly Journal of International Agriculture 39, no. 4 (2000): 379-94. Watkins, K. and J. von Braun. “Time to Stop Dumping on the World’s Poor”. In IFPRI, Trade Policies and Food Security, pp. 1-18. Extract of essays from the IFPRI 2002-2003 Annual Report. Washington, D.C.: IFPRI, 2003. Wesseler, J. and J.R. Anderson. “Risk and Uncertainty in Environmental and Resource Economics: Insights from an International Conference at Wageningen June, 2002”. Risk Decision and Policy 9 (2004): 107-28. World Bank. Poverty and Hunger: Issues and Options for Food Security in Developing Countries. A World Bank Policy Study. Washington, D.C., 1986. ———. World Development Report 1997: The State in a Changing World. New York: Oxford University Press, 1997a. ———. Rural Development: From Vision to Action: A Sector Strateg y. Environmentally Sustainable Development Studies and Monographs Series, no. 12. Washington, D.C.: World Bank, 1997b. ———. Assessing Aid: What Works, What Doesn’t, and Why. New York: Oxford University Press, for the World Bank, 1998. ———. World Development Report 2000/2001: Attacking Poverty. New York: Oxford University Press, for the World Bank, 2000. ———. Reaching the Rural Poor: A Renewed Strateg y for Rural Development. Washington, DC. World Bank, 2003a. ———. Stimulating Agricultural Growth and Rural Development in Developing Countries. ARD Washington, D.C.: World Bank, 2003b ———. Land Policies for Growth and Poverty Reduction. Policy Research Report. Washington, D.C.: World Bank, 2003c. ———. World Development Report 2005: A Better Investment Climate for Everyone. Washington, D.C.: World Bank, 2004a. ———. Agriculture Investment Sourcebook. Agriculture & Rural Development Department. Washington, D.C.: World Bank, 2004b.

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———. Global Economic Prospects: Trade, Regionalism and Development. Washington, D.C.: World Bank, 2005a. ———. Agricultural Growth and the Poor: An Agenda for Development. Directions in Development. Washington, D.C.: World Bank, 2005b. ———. Managing Food Price Risks and Instability in the Context of Market Liberalization. Agriculture & Rural Development Department. Washington, D.C.: World Bank, in press, 2005c. Zhang, J., L. Zhang, S. Rozelle, and S. Boucher. “Self Employment With Chinese Characteristics: The Forgotten Engine of Rural China’s Growth”. Mimeographed. Davis: UCD, 2005.

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5

Poverty and Vulnerability



Arsenio M. Balisacan and Nobuhiko Fuwa*

INTRODUCTION By global standards, Asia has done remarkably well in both economic growth and poverty reduction during the past thirty years. However, this performance has not been uniform across sub-regions and countries. Indeed, even within a country, there is a typically large diversity in income growth rates and poverty reduction outcomes across household groups, locations, or socio-demographic attributes. In part, the diversity may reflect various patterns of social stratification arising from the effects of a combination of market imperfections, initial conditions, and political-economy dynamics. In this paper, we distill not only the experiences, key research issues and findings on the nature and causes of poverty and vulnerability, but also the policy lessons emerging from the rapidly expanding literature on growth, poverty, vulnerability, and inequality in Asia. Our focus is on rural Asia. In Section II, we provide an overview of the vast number of macro-level studies exploring the connection between economic growth and poverty reduction. In Section III, we examine the evidence on the link between agricultural performance and poverty reduction. We then selectively review — in Sections IV and V — recent developments in micro-level studies on poverty dynamics and vulnerability. While the macro-level studies make us understand policy questions related to long-term development processes, the micro-level studies draw insights from the heterogeneity and diversity

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of economic agents and focus directly on behavioural mechanisms leading to poverty. We then conclude, in Section VI, with policy lessons and implications drawn from the review.

GROWTH AND POVERTY REDUCTION Asia’s gross domestic product (GDP) growth has consistently outpaced those of other regions of the world in the past thirty years. The region’s economic growth rate averaged about 4.0 per cent per year, while the corresponding figures for developed countries and the world were about 2.6 per cent and 2.7 per cent, respectively. The growth accompanied a historic rapid poverty reduction, especially in East Asia and Southeast Asia. Between 1990 and 2001, the number of people living on less than a dollar a day fell by about 129 million. Poverty incidence in East Asia dropped from 31 to 12 per cent, while that in South Asia fell from 41 to 29 per cent. At these rates, the Millennium Development Goal (MDG) of halving by 2015 the proportion of people whose income falls below one dollar a day looks attainable for Asia. Even so, the region still accounts for about 60 per cent of the world’s 1.1 billion poor. Moreover, other human development indicators show much less spectacular success. For example, the proportion of underweight children in the region fell by only 4 percentage points (from 35 to 31 per cent) between the early and late 1990s (ESCAP 2003). In Cambodia, Bangladesh, India, and Nepal, almost half of the children under five years of age are still moderately and severely malnourished. The proportion of undernourished people in the region remains high at 16 per cent, with very little progress in the 1990s for Bangladesh, India, Nepal, and the Philippines. Without renewed push and initiatives, the region will likely miss the MDG of halving the incidence of hunger by 2015. Income growth has not been uniform across sub-regions and countries. GDP per capita in East Asia expanded by 6 per cent, driven by sustained growth in China, Korea, Thailand, and Malaysia. In South Asia where growth rates of output were relatively low, and those of population high, it was about 3 per cent per year. It is worth noting that, nonetheless, the growth patterns across countries in the region exhibit absolute growth convergence,

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i.e., countries with initially low per capita income have tended to grow faster than those with already initially high per capita income (see Figure 5.1). Figure 5.1 Growth Convergence

The diversity of inter-country growth outcomes shows up as well in the diversity of poverty outcomes (Balisacan and Ducanes 2005; Kanbur et al. 2006). Reflecting the tendency of cross-country data to exhibit growth convergence, Figure 2 shows a tendency for “poverty reduction convergence.” Estimates of the responsiveness of poverty to growth corroborate the above patterns. In developing economies, the elasticity of poverty headcount index to mean income ranges from -2.1 to -3.1 (Ravallion 2001; Cline 2004). This varies widely across and within countries due to differences in conditions prior to growth. Where access to land, credit, social services, and infrastructure is highly unequal, weak response is observed especially in the rural areas. Such is the experience of provinces/districts/regions/

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states in the Philippines, Indonesia, Vietnam, and India (Balisacan 2003; Balisacan, Pernia and Asra 2003; Ravallion and Datt 2002). In some cases, weak local institutions (including social capital), poor investment climate, and inward-looking policies favouring capital over labour-intensive sectors like agriculture, exacerbate the feeble response. For East Asian countries like China and Korea, the effect of growth on poverty is stronger owing to their generally more favourable initial conditions — a salient one for China being the equitable distribution of land-use rights (Fan et al. 2002). Income distribution, besides asset distribution, also affects growth elasticities. Those with lower levels of initial income inequality have more potential to lift people out of poverty (Ravallion 1997): countries with Gini below 40 have estimated elasticities of –5.7 to –6.1; for those with Gini above 40, the range is –2.4 to –3.3 (Adams 2002). Figure 5.2 Poverty Reduction Convergence

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More disaggregated data from country studies provide ample evidence that income inequality blunts the impact of growth on poverty. In Lao PDR, for instance, if inequality had not changed or worsened, every 1 per cent growth would have reduced poverty incidence in the country by 3.2 per cent between 1992 and 1998; likewise for Thailand between 1988 and 1992. The actual decline for both countries, however, was about 1 per cent (Kakwani and Pernia 2000). If growth were distributionally neutral in 1994–97 in the Philippines, poverty incidence would have fallen from 32 to 22 per cent, instead of down to 25 per cent only (Balisacan 2003). Conversely in Thailand, a 1 per cent reduction in per capita income would have raised the percentage of the poor by 4.7 per cent only, but the actual increase in the 1997 financial crisis was 6.5 per cent (Kakwani and Pernia 2000). During growth periods in Vietnam, households in communities with paved roads show larger increases in expenditures than those in communities with unpaved roads; those with higher levels of education experience larger declines in poverty incidence. Households that remain poor have about twice as much debt relative to assets compared with those that escape poverty (Glewwe et al. 2002). In the Philippines, irrigation and favourable terms of trade for agriculture positively influence the living standards of the poor (apart from their indirect impact via overall income growth), as does schooling if complemented with the presence of better roads. The welfare of the poor tends to be lower in provinces governed by political dynasties than in provinces characterised by competitive politics (Balisacan and Fuwa 2004). In Indonesia, improvement in access to technology, such as electricity and information channels, raises the incomes of the poor (Balisacan et al. 2003). Meanwhile, states with lower literacy rates, higher landlessness, and higher infant mortality rates, benefit less from non-farm growth in India (Ravallion and Datt 2002). Strong correlations among poverty, technology adoption, irrigation, agricultural productivity, education, road density, electricity, and non-farm employment growth are also observed (Fan et al. 2002). Overall, these observations suggest that policies, the quality of institutions, and the access of the rural population to infrastructure, credit, land, and human capital, are robust predictors of income and poverty. Evidently, the nature of growth, not just its speed, matters to poverty reduction. In this regard, the quality of growth has to be made more broadly based than it has been for a number of the Asian countries.

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As is the case in developing regions of the world, nearly three-fourths of the poor in Asia live in rural areas; the large majority of them are dependent on agriculture for employment and income. Thus, agricultural and rural development appears to be key to achieving broad-based growth and the MDGs.

AGRICULTURAL GROWTH AND POVERTY REDUCTION As pointed out earlier, the large majority of Asia’s poor live in rural areas and depend on agriculture. Thus, growth in agriculture directly reduces poverty and food insecurity by augmenting farm incomes. If broadly based, this growth stimulates rural non-farm activities through demand and supply linkages, thereby increasing employment opportunities and providing enduring sources of poverty reduction. Evidence indicates that this has been a powerful source of poverty reduction in Asia (Rosegrant and Hazell 2000; Timmer 2005). Employing cross-country averages of recent decades, Bravo-Ortega and Lederman (2005) estimated the marginal impact of agricultural vs. nonagricultural growth on national welfare. In their formulation, national welfare (W) is determined by GDP per capita (y), average income of the poorest quintile (y1), environmental quality (E), and a measure of the volatility or unexpected shocks (v). W increases with y, y1, and E, and decreases with v. The question they tried to resolve was how best to maximise national welfare — via agricultural or non-agricultural growth. Their results showed that the effect varied with the income level of the country. There was a positive causal effect running from agricultural to non-agricultural output in developing countries. But this turned negative for developed countries. While agricultural labour productivity had a significant effect on the average income of the poorest quintile, this was smaller than the impact of nonagricultural output per worker. The result with respect to environmental quality was mixed. The non-agricultural sector was the main determinant of CO2 emissions, but the agricultural sector was the main source of deforestation. The volatility-reducing effect of the non-agricultural sector increased with the level of income, while that of the agricultural sector exhibited the opposite pattern.

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Combining the findings on each of the determinants of overall welfare and using two weight scenarios (in one, using equal weights, while in the other, GDP per capita was assigned a 40 per cent weight), they concluded that the national welfare in high-income countries was best served through non-agricultural growth. In developing countries, welfare was also best served by non-agricultural growth, although the contribution of agriculture was positive and relatively larger than its share in GDP. At present, we observe that the focus of development efforts is shifting toward developing the rural non-farm sector, with the hope that this shift will catalyse the development of the farm sector. Ravallion (2002) adopts the same distinction in his study of the externalities in rural development in China. First, there is the so-called “own effects”, where the level of economic activity in a given sector positively affects the growth of income from that source. Next, there are “cross effects” where farm output has a positive impact on the output of forestry, animal husbandry, and fishing, which, in turn, positively affects handicrafts, industry, processing, and transportation. Thus, rural development generates externalities. On the other hand, there is hardly any sign of reverse linkages. If anything, there are indications of negative external effects from some non-farm activities on farm output.

SHOCKS AND RISK-COPING AMONG RURAL HOUSEHOLDS Our discussions in the previous two sections are mostly based on insights drawn from studies at relatively aggregated levels. They help us understand policy questions related to long-term development processes, resource allocation across sectors, and inter-sectoral linkages. However, there is a great deal of heterogeneity across sub-regions of Asia, across regions within a country, across localities within a region, and across households within a village, which tend to be averaged out in those aggregated studies. In contrast, micro-level studies, typically based on household survey data, focus on heterogeneity and diversity, and draw insights from the observed variations at the micro level. Using the household as the unit of analysis further allows us to focus directly on the behavioural mechanisms leading to poverty. The rest of the paper selectively reviews recent developments in the micro-level studies on poverty and some policy implications based on those studies.

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The Link between Poverty and Vulnerability The micro-level literature focusing on rural poverty dynamics has (collectively) highlighted the possible two-way causality between poverty and vulnerability (e.g., Morduch 1991; Dercon 2005). On the one hand, poor households tend to be more vulnerable to various income shocks than their wealthier neighbors. Due to their poverty (e.g., low level of asset holding, limited access to credit, etc.), they are often ill-prepared to cope with negative income shocks. Given their already low margin for survival, the direct consequences of suffering from the income shock could be quite severe. The causality may not stop there, however; vulnerability could exacerbate the future depth of poverty. The very behaviour to cope with the risks could make their prospect of escaping poverty even more remote. Given the potentially dear consequences of negative income shocks, the poor may opt for “income smoothing” strategies by choosing safer but lower-return economic activities/investments, thereby forgoing potentially higherreturn (but riskier) economic activities. In addition, some ex post risk-coping (consumption smoothing) behaviours (such as the depletion of assets) could erode the productive base for future income earnings. This section focuses on the nature of risks and household behaviour in response to such risks in rural areas in developing countries. The potentially longer-term consequences of even a short-term income fluctuation (through the chains of causality above) naturally direct our attention to longer-term welfare trajectories among the poor and to a search for possible ‘poverty traps.’ The focus on the welfare trajectory/ poverty dynamics/economic mobility over time, in turn, has led to the important distinction among the poor population between the ‘transient’ (or ‘transitory’) poor and the ‘chronic’ or ‘persistent’ poor. We discuss the literature on longer-term poverty dynamics (as opposed to short-term income fluctuations) and economic mobility in the next section. Sources of Shocks and Imperfect Insurance As noted earlier, the majority of the poor in developing countries live in rural areas and many of them depend on agriculture for their livelihood.

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Due to weather variations and other environmental factors affecting agricultural production (especially if permanent irrigation is not available), their income fluctuates from one season to another. There are other sources of uncertainty that aggravate income fluctuations, such as the risk of disease, injury, unemployment, price variability, and so on. Bad outcomes may tend to come together, such as heavier work, dearer food, and more infections, especially for the poor. The fluctuations of labour incomes for casual labourers have been well documented (Lipton and Ravallion 1995). To illustrate, the coefficient of variation in income for farm households found in southern India was 137, while that for white males in their late twenties in the US was 39 (Rosenzweig and Binswanger 1993). With a relatively small margin for survival among the rural poor, the consequences of those risky events can be extremely severe, potentially leading to malnutrition, disease, starvation (or even worse, death). As a result, managing and coping with risks are an integral part of the daily lives of the rural poor. In addition, there has been a concern that the recent successes of market-oriented policy reforms (e.g., India and China) or the advance of globalization may have further increased the degree of potential income fluctuations, thereby exacerbating the already precarious position of the rural poor (e.g., Dercon 2005; Kurosaki 2006). Some of the risks that households face are individual-specific or idiosyncratic, such as disease, injury, and death of animals. Others are common or aggregate risks that are covariate, such as drought, epidemic and economy-wide shocks, affecting everyone in the locality/community/ region (or a country).1 The distinction is important because idiosyncratic risks could potentially be insured among the members of a community. Aggregate shocks, on the other hand, cannot be insured within the areas where the risks are covariate. Managing aggregate risks requires either insurance transfers (credit or insurance) from outside the locality or intertemporal transfers, such as savings (e.g., Dercon 2005). Empirical Findings on Consumption-smoothing Outcomes The increasing availability of household-level panel data in developing countries after the 1980s has triggered an explosion of the literature investigating the consumption-smoothing behaviour of rural households under various risks in developing countries.2 What proved instrumental

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in this development was the pioneering attempt by the International Crop Institute for Semi-Arid Tropics (ICRISAT) which produced the Village Level Studies (VLS) data collection.3 A large number of studies based on the ICRISAT-VLS data have been published, but perhaps the most well-known is the classic paper by Townsend (1994) testing the hypothesis of Pareto-efficient risk-sharing in the village as a benchmark; the basic idea is that if idiosyncratic risks are shared in an efficient manner, individual household consumption should not be affected by its income but only by the village-level income. His estimation results reject the complete risk-sharing hypothesis but nevertheless reveal that “(t)hese villages display a considerable amount of risk sharing, though pooling is less than perfect” (Townsend 1995a, p. 92). The analyses using the ICRISATVLS data (Townsend 1994; Morduch 2005, among others) have challenged conventional views by showing that a large proportion of household income fluctuations (as much as 75 to 95 per cent4 of income variations; Morduch 2005) are due to idiosyncratic risks, rather than covariate risks, and the extent to which villagers are able to insulate their consumption from income fluctuations is considerably greater than previously assumed. In his assessment, Murduch (2005, p. 42) commented that “Townsend’s initial work was so striking because it came very close to not rejecting the full risk-sharing model”.In fact, Townsend’s work was followed by a number of studies addressing various econometric issues involved (measurement errors, specification of utility function and other possible ‘spurious’ factors generating results, etc.) and also examining the degree of risk-sharing within village communities in various contexts. Qualitatively similar results have been obtained, for example, by Morduch (1991), Ravallion and Chaudhri (1997), Ligon et al. (2002), Kurosaki (2001), all using the same VLS data set, and also by Deaton (1997) using data from Cote d’Ivoire. Some studies moved away from the ‘village’ as the risk-sharing unit toward other groups, such as the caste; higher ranked caste members, for example, have been found to be relatively better able to insure themselves than members of lower ranked caste (Morduch 2005, p. 43). Also, households with larger landholdings were found to be better insured than less landed households (Kurosaki 2001). The general conclusion from these studies is that while complete/Paretoefficient risk-sharing is almost invariably rejected, a considerable degree of consumption smoothing (possibly through risk sharing or self-insurance) does appear to take place in rural economies in developing countries.

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However, poorer households (lower caste or less landed households) are relatively more vulnerable to risks than richer households. A key feature of Townsend’s (1994) approach is that, instead of focusing on specific behaviour for specific risks, he focuses on whether various markets and (formal and informal) institutions jointly provide optimal allocation of risk bearing. At the same time, however, by not looking into any specific types of risks or of risk behaviour, the approach is silent about how people actually insure themselves (or self-insure, as the case might be) in order to insulate their consumption from income fluctuations. We now turn to the literature addressing behavioural aspects. Ex post Risk-coping Strategies or How the Poor Smooth Consumption To the extent that poor rural households are in fact able to insulate their consumption from income fluctuations, how do they do so? Household responses to risks can be categorised into ex-post “coping” and ex-ante “risk management”. Ex-post coping mechanisms, in turn, can be further categorised into: savings or asset holdings, reallocation of household resources (most notably, household labour force including children), and (mostly informal) risk-sharing institutions. Savings/Asset Holdings: One way of smoothing consumption, in the face of fluctuating incomes, is to hold assets (as precautionary savings), to liquidate/deplete them when hit by a negative income shock, and to accumulate in the face of a positive shock. Given the general absence of financial assets (e.g., bank deposit), asset items for consumption smoothing can take a wide variety of forms including jewelry, animals, crop inventory, or land. Using the ICRISAT-VLS data, Rosenzweig and Wolpin (1993) show that holding of bullocks appears to serve as a consumption-smoothing measure, while Townsend (1995, p. 96) finds in the same data set that crop inventory, rather than bullock holding, is the main means of consumption smoothing. Kochar (1995) also questions whether Rosenzweig and Wolpin’s (1994) evidence supports the use of bullock as the main consumptionsmoothing strategy. Fafchamps et al. (1998), based on African example, also find evidence that asset holding is not the main consumption-smoothing mechanism. On the other hand, using Thai data, Paxson (1992) finds that transitory incomes due to rainfall fluctuations are mostly saved rather than

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consumed, consistent with consumption-smoothing behaviour based on the permanent income hypothesis (PIH). The importance of asset holdings as a means of consumption smoothing has been debated in the literature, but relatively few studies have directly addressed such behaviour. Furthermore, conceptually, the effectiveness of holding assets as a consumption-smoothing strategy can be limited for various reasons (Besley 1995b; Dercon 2005); the returns on assets can fluctuate due to macroeconomic shocks (introducing its own risk element), and, in addition, when a covariate shock hits (such as drought), the terms of trade between the asset and food can collapse when everyone wants to sell assets (e.g., animals) and buy food which is in short supply. In addition, the sale of productive assets (such as land and draft animals) for consumptionsmoothing purposes will reduce the asset base for future income flows. Reallocation of Household Resources: Households, in the face of shocks, can also reallocate their resources to cope with income fluctuations by, say, a reduction of consumption (e.g., cutting down on the consumption of non-essential or luxury goods) or a reallocation of household labour force. When a crop fails (and local labour markets are reasonably well-functioning), for example, the farm households could increase labour wage incomes to compensate for the lost (farm) income (Kochar 1995, based on ICRISATVLS). Such a strategy may also involve pulling out children from school and sending them to labour markets instead, which could potentially have longterm implications (e.g., Jacoby and Skoufias 1997, based on ICRISAT-VLS), although Jalan and Ravallion (2001) find a contrasting evidence showing little effect of income shocks on children’s schooling in China. In addition to the ICRISAT data set, the Asian financial crisis has provided valuable insights into understanding the various coping strategies adopted by households. Based on a Korean example, Kang and Sawada (2003) found that Korean consumers responded to the income shock (a 24 per cent reduction on the average) mainly by reducing consumption of luxury items, such as leisure activities, dining out and purchase of durable goods, while maintaining the expenditures for food, education and health. The effects of the Asian crisis on poorer countries, however, are likely to have been much less benign. A study on Indonesia (Thomas et al. 2004), for example, found that in the face of the income shock (a 15 per cent decline in per capita consumption), households reduced non-food consumption while maintaining the share of food consumption; also, both school enrollment

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and the share of the education budget decreased among younger children (aged 10-14), while the schooling of older children was shielded from such reductions in poor households (but not in better-off households). While it is not immediately clear whether the impact of such reduction in human capital investment observed in one year ends up as a short-term phenomenon (e.g., leading to a relatively small-scale delay in school enrolment) or involves serious long-term effects (i.e., a reduction in human capital stock in the next generation among the poor), it certainly raises a concern. In attempting to understand household coping mechanisms, focusing on the household aggregate level may not be sufficient (e.g., Fuwa et al. 2000). Some studies have found, for example, that the reduction of consumption in response to income shocks is shared unequally within the household. Behrman (1988), for example, finds that the bulk of consumption fluctuations due to seasonal price fluctuation is borne by girls; Rose (1999) finds evidence that child mortality rates (especially for girls) increase when rainfall is low. Particularly in South Asia, there has been an accumulated evidence showing biases against female members in intra-household resource allocation (e.g., Behrman and Deolalicar 1990; Rosenzweig and Schultz 1982; Foster 1995). Informal Risk-Sharing Arrangements/Institutions: In addition to the risk-coping mechanism noted above (mainly involving inter-temporal transfers within the households), there are a host of informal risk-sharing institutions in rural communities. Due to the informational problems (moral hazard and adverse selection), informal (non-market) institutions are likely to have comparative advantage in monitoring and enforcement capacity visà-vis formal institutions such as crop insurance schemes and formal banking arrangements, which often do not function satisfactorily (Besley 1995b). Such informal institutions include credit cooperatives, informal credit and insurance arrangements (including state-contingent credit), rotating savings and credit associations (ROSCA), interlinked agricultural contracts, and inter-household transfers through gifts, combined with strategic decisions on marriages, etc. Given the complexity and the richness of the phenomena, there has been a gradual accumulation of empirical studies drawing upon detailed information collected in particular localities. A classic study by Udry (1994), for example, finds in northern Nigeria the state-contingent credit functioning as an insurance mechanism to smooth consumption. In northern Philippines, on the other hand, consumption smoothing is attempted through gifts and

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informal loans (mostly with zero interest) among relatively small networks of friends and relatives, rather than through livestock or grain stocks, and village-level risk sharing is incomplete. In addition, such network risk-sharing appears capable of insuring only against specific types of risks (i.e., major life-crisis rituals like funerals and unemployment of the household head) but not other risks (Fafchamps and Lund 2003). In northern Thailand, a wide range of risk-coping mechanisms has been observed, including buffer stocks, labour supply, and village-level institutions which provide credit, rice, and health insurance funds. The pattern is not uniform and substantial variations are observed across villages (Townsend 1995b). Taken together, observed risk-coping mechanisms among the poor rural residents are extremely diverse and highly location-specific. Ex-ante ‘Risk Management’ (Income-smoothing) Strategies As far back as the late 1960s, farmers have been viewed as risk-averse and likely to trade off higher expected returns and lower variability in their investment decisions, as depicted in Roumasset’s RAUI (risk-averse and under-invest) hypothesis (see Chapter 2). This theme drew renewed attention with the increased availability of household-level panel data after the 1990s; as Morduch (1995, 2005) emphasises, in addition to ex-post coping strategies, the rural poor may make considerable efforts to smooth income ex ante by opting for economic activities (mainly production and employment) with possibly lower but safer returns, thereby forgoing economic activities with potentially higher (but possibly more volatile) expected returns. For example, based on the ICRISAT-VLS data, farmers have been observed to overuse labor inputs than required for expected profit maximisation (Antle 1987), delay the timing of cultivation in order to obtain better information of the seasonal rainfall (Walker and Ryan 1990), and diversify crops across plots (Morduch 1995). Northern Indian farmers were similarly found to underuse fertilizer in order to cut investment losses in the event of bad weather (Bliss and Stern 1982). Another means of possible income-smoothing would be diversification into non-farm activities (e.g., Rosenzweig and Stark 1989). However, poor households are often faced with significant entry barriers to income diversification involving relatively more profitable non-farm activities since these often require substantial amount of initial capital and/

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or education. Such entry barriers for activities with higher expected returns may be one reason for the possible unwillingness or inability of the poor to accept lower average incomes in exchange for smoother income flows (Dercon 2005). The findings of Jalan and Ravallion (2001) also appear consistent with this interpretation. These income-smoothing production decisions, as described above, can involve significant efficiency losses (relative to the situation where full insurance is available). For example, Antle (1987) estimates the relative risk premium of 14 per cent of expected net profit, and Binswanger and Rosenzweig (1993) estimate the reduction in farm profits due to one standard deviation increase in the coefficient of variation of rainfall timing at 15 per cent at the median wealth level, and 35 per cent at the bottom wealth quartile (both studies based on the ICRISAT-VLS data). One major methodological difficulty in quantifying the degree of incomeand consumption-smoothing behaviour, however, is the following: The studies quantifying the degree of consumption smoothing (e.g., Townsend 1994) usually ignore the availability of income smoothing. Similarly, studies quantifying the risk premium of farmers (e.g., Antle 1987) usually assume that insurance for consumption-smoothing is absent; as a result, the degree of risk aversion from those studies is likely to be underestimated (Morduch 1995). In reality, farm households are likely to determine income-smoothing strategies depending on the extent to which consumption-smoothing strategies are available (as well as on the amount of risk, the degree of risk aversion, etc.), and their consumption-smoothing strategies are chosen in response to the realized income fluctuations as a result of the (presumably optimally chosen) income-smoothing strategies. Disentangling the consumption-smoothing and income-smoothing strategies appears to be difficult. More recently, however, Rose (2001) focused on household labour supply to the market and measured the relative importance of ex-ante and ex-post responses to rainfall risks, and found that the quantitative magnitude of the labour supply response ex-ante was roughly twice the magnitude of ex-post labour supply response to weather shocks.

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LONGER-TERM DYNAMICS OF POVERTY AND ECONOMIC MOBILITY The possibility of a two-way causality between poverty and vulnerability suggests potentially longer-term consequences of (even short-term) income fluctuations/shocks and draws our attention to longer-term trajectories of income and consumption among poor (and non-poor) households. The increasing availability of panel data at the household level (with the coverage of increasingly longer time periods) in recent years has made it possible to track the poverty status of individual households over time. While Baulch and Hoddinot (2000) noted in 2000 that panel data suitable for addressing poverty dynamics were found only in eleven developing countries, with the observation period ranging between 18 months and 18 years (early contributions include: Gaiha and Deolalikar 1993; and Grootaet and Kanbur 1995), the number of available data sets has increased rapidly since then. Transient and Chronic Poverty Some immediate findings from panel data sets are that, among the poor population at any point in time, there are those who are always poor and those who are only temporarily poor; furthermore, the observed number of households moving in and out of poverty is quite large compared with those who stay poor persistently. This observation leads to the important (and now-standard) distinction found in the poverty dynamics literature between ‘chronic’ and ‘transient/transitory’ poverty; the ‘chronically poor’ are those whose average income over the entire observation period falls below the poverty line while the ‘transient’ poor are the rest of the poor (Ravallion 1988; Jalan and Ravallion 2000). Obviously, the share of the transient poor tends to be higher when household income, rather than household consumption expenditures, is used as the measure of welfare, since income fluctuation tends to be greater than that of consumption (as indicated by the consumption- smoothing literature). Also, household incomes (in developing country contexts) are arguably measured with greater measurement errors than are consumption expenditures, which further inflate the degree of apparent mobility. Even when measured by consumption expenditures, the proportion of the

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transient poor (vis-à-vis the chronically poor) appears to be considerable. A six-year panel data set on consumption expenditures in China reveals, for example, that the share of transient poverty varies across provinces between 43 and 84 percent (Jalan and Ravallion 2000). The annual panel data on per capita income in the ICRISAT-VLS reveal that only 12 per cent of the sample households were ‘never poor’ and only 22 per cent were ‘persistently poor’ during the period between 1975 and 1984.5 Some studies that have attempted to address the measurement error issues (e.g., McCulloch and Baulch 2000) also find that there is still considerable transient poverty. Transient poverty is likely to be affected more by short-term luck or misfortunes, as well as by the lack of risk-coping capabilities, while chronic poverty is more likely to be determined by the factors with longer-term impact. Comparing the determinants of chronic and transient poverty in China, Jalan and Ravallion (2000) find that while greater wealth holdings and life-cycle stages are significant determinants of both transient and chronic poverty, other determinants of chronic poverty, such as demographic characteristics, human capital, size of cultivated land and grain yield level (a proxy for unit return on land) are significant determinants of chronic but not transient poverty.6 Variability (over time) in wealth holdings, on the other hand, is found to be a significant determinant of transient poverty but not chronic poverty. Effective policies addressing transient poverty are likely to be different from those geared toward chronic poverty. Economic Mobility and Possible Poverty Traps? Our understanding of potential mechanisms leading to long-term poverty dynamics and economic mobility has been partly aided by the significant developments in the theoretical literature (e.g., Banerjee and Newman 1993; Galor and Zeira 1993). These dynamic models generally show that the combination of credit market imperfections and some kind of indivisibility of one of the investment activities (e.g., human capital investment) typically leads to various patterns of social stratification as steady-state equilibria that are dependent on the patterns of initial distribution of wealth/assets.7 Given the central role of assets in determining economic mobility (and thus chronic poverty), some studies have focused directly on the dynamics of asset-holding rather than the dynamics of income or consumption (e.g.,

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Lybbert et al. 2004; Carter and May 2001; Swaminathan 1991. Other attempts rely on the occupational categories combined with contextual/qualitative knowledge of the localities (e.g., Dreze et al. 1992; Fuwa 2007) or other specific categories such as the elderly or the disabled (e.g., Barrientos et al. 2003; Yeo and Moore 2003), for identification and explanation of persistent/ chronic poverty. Based on both theory and empirical evidence, there appears to be a general consensus in the poverty dynamics literature that the main causes of chronic poverty are: low asset endowment (low initial level, slow or absent accumulation), low asset returns, and relative inability to cope with (especially repeated) negative shocks. A series of studies have attempted to identify the major determinants of poverty dynamics and/or economic mobility by relating the level or the change over time in income or consumption to a set of potential determinants. Existing studies suggest that asset accumulation may play a smaller role; instead, the role of increases in returns to endowments emerges to be more prominent (Baulch and Hoddinott 2000; McKay and Lawson 2003)8; a recent study by Estudillo, Sawada and Otsuka (2005) in the rural Philippines, for example, attributes 90 per cent of the differences among households in income growth during the period 1997–2004 to the changes in the returns to assets (land and human capital) and only 10 per cent to the changes in endowments. The introduction of Green Revolution technologies, coupled with investments in irrigation systems, is a classic example of an exogenous change altering returns to land (e.g., Gaiha 1988). More recently, however, increasing opportunities in non-agricultural sectors appear to have raised the returns on human capital significantly relative to those on agricultural land. (e.g., Estudillo, Sawada and Otsuka 2005). As documented in the Philippines, the expansion of non-agricultural opportunities (affecting returns to education) can come from various sources depending on the specific locations, including industrialisation in the Metro Manila area (Hayami and Kikuchi 2000), domestic non-farm sector growth in general (e.g., Estudillo, Sawada and Otsuka 2005), and the expansion of international migration (e.g., Fuwa and Anderson 2006; Fuwa 2007). In contexts outside Asia, the effects of the abolition of apartheid (e.g., Maluccio, Haddad and May 2000) and of macroeconomic decline (e.g., Glewwe and Hall 1998) on returns to endowments have been documented.

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In the examples mentioned above, returns to assets (land, human capital, etc.) are taken as exogenous. In other contexts, returns to household assets can more appropriately be seen as endogenous (Barrett 2005), although they have rarely been addressed in the existing econometric estimations. Investment in land quality, as documented in Zimbabwe by Gunning et al. (2000), is one example. The literature on income smoothing suggests that the poor households may hold assets of lower return as a risk-management strategy. Identifying the long-term effects on economic mobility of negative income shocks (as well as of asset accumulation) is relatively more difficult due to the paucity of appropriately long-term data (Baulch and Hoddinott 2000), but some studies have found some significant effects (mostly in the contexts outside Asia). In rural Ethiopia, Dercon (2004) has detected significant negative effects of a major drought on consumption growth after roughly a decade. Other studies, mainly in Africa, identified long-term effects of shocks through anthropometric outcomes,rather than income or consumption (Dercon and Hoddinott 2005). Using yet another approach, Scott (2000) documented the effects of idiosyncratic shocks in Chile through an anthropological life-history inquiry. An alternative and more recent approach to the analysis of welfare trajectories over time is to search for the possible existence of poverty traps (or the threshold to chronic poverty) by directly characterising the time paths of income/consumption or asset holdings over time and detecting possible nonlinearity patterns. For example, using a 17-year panel data set on cattle herd histories in southern Ethiopia, Lybbert et al. (2004) found, through a nonparametric approach, a non-convex wealth dynamics pattern and identified what appeared to be a threshold for a ‘poverty trap.’ Lokshin and Ravallion (2004), on the other hand, did not find a similar non-convexity implied by a poverty trap based on parametric estimation applied to panel income data from Hungary and Russia. Similarly, Jalan and Ravallion (2005), examining income and consumption dynamics in rural China for the period 1985-1990, also failed to detect the type of non-convexity consistent with poverty trap, although the speed of recovery from a negative income shock was found to be slower for the poor than for the non-poor. Through a somewhat different approach, Fuwa (2007) also failed to detect a ‘poverty trap’ based on occupational mobility data in rural Philippines. The empirical evidence regarding the existence of ‘poverty traps’ is still relatively thin and mixed.

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Finally, the two main methodological issues that have arisen in all of those dynamic analyses of poverty are the measurement errors, and panel attrition. The issue of measurement errors (as mentioned earlier) remains unsolved. In particular, it is not yet clear to what extent the observed income (or consumption) mobility is inflated by the presence of the measurement errors contained in the income (or consumption) data. This has obvious implications for the estimation of the relative magnitudes of transient versus chronic poverty. Sample attrition in the household panel data is another potential problem which tends to be exacerbated as the observation period becomes longer. If relatively more destitute households among the poor have a higher tendency to move out (and thus drop out of the sample) than better-off households, for example, observed poverty persistence could be underestimated. While there are reasons for potential concern, relatively few studies have addressed the issue directly and the results are somewhat mixed. In one of the very few studies where the sample households moving out of the original locations were systematically traced, Thomas et al. (2001) found that ‘attritors’ tended to be systematically different, and that ignoring them could thus have significant effects. On the other hand, Alderman et al. (2001) found, in line with findings from the United States, that the potential effects of attrition could be (surprisingly) small even when attrition rates were relatively high. Incorporating Dynamic Aspects into the Measurement of Poverty Identifying the poor and monitoring the prevalence of poverty are important for policymakers, and quantitative measures of poverty play a major role in policy formulation, such as targeting interventions or setting public investment priorities. The Foster-Greer-Thorbeck (FGT) class of poverty measures, for example, has now become a standard tool for monitoring poverty. A similar idea of measuring vulnerability (rather than static poverty) and identifying the vulnerable has more recently been developed, in an attempt to develop the kind of quantitative measures that (like the FGT-type static poverty measures) are comparable across time and space; however, unlike the static poverty measures, these not only calculate the shortfall of income/consumption from the poverty line but also incorporate the welfare losses arising from the income/consumption variability. A classic example

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by Ravallion (1988) and a more recent attempt by Kamanou and Morduch (2005) use expected values of (static) poverty measures with the expectation taken over the income or consumption. An alternative approach proposed by Ligon and Schechter (2003) uses expected utility function rather than poverty measures. Based on the ICRISAT-VLS data, Ravallion (1988) finds that the level of poverty, as measured by poverty gap or squared poverty gap, would have been reduced to about one-half if the observed variability in food consumption had been eliminated, while no such effect is found on the headcount poverty ratios. Based on a similar approach (but with an important difference, as mentioned below), Kamanou and Morduch (2005) argue that some populations (e.g., city dwellers outside Abidjan in Cote d’Ivoir) could be considerably more vulnerable than the pattern implied by the changes in the observed (static) poverty measures. Taking a somewhat different approach, Ligon and Schechter (2003) use an expected-utility-based ‘poverty measure’ and attribute about half of its level to the low (expected) income level and the rest to welfare losses due to income variability (of which idiosyncratic risk is relatively unimportant), based on monthly data from Bulgaria. They also find that labour endowment (e.g., male workers and pensioners) is a major correlate (among a range of household characteristics) of vulnerability. This literature is in its infancy, however, and, unlike the static poverty measures, a consensus appears yet to emerge regarding the relative merits of alternative approaches. The debate still continues, for example, as to the conceptual interpretations of the approaches based on expected (cardinal) utility versus those based on the expected values of commonly used poverty measures. In addition, since the vulnerability measures (by definition) require reasonably reliable measures of variability of welfare measures (income or expenditure), practical application has so far been limited to a small number of cases due to the paucity of suitable data; this issue, though, has been addressed by Kamanou and Morduch (2005) who proposed substituting hypothetical data generated by Monte Carlo estimates (drawn from the distribution of cross-section regression residuals) for the actual panel data which are typically unavailable.

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POLICY IMPLICATIONS Relationship between Growth and Poverty Reduction Our review of macro-level studies on growth and poverty (invariably) shows that sustained economic growth is essential for substantial poverty reduction. At the same time, the ‘quality of growth’ also matters, and economic growth has to be broadly based. The varied experiences in Asia, as illustrated in the literature, show that the degree to which growth translates into poverty reduction (the impact of growth on poverty reduction) very much depends on various initial conditions. High inequality in the distribution of income and in the access to land, credit, social services and infrastructure all tend to weaken the impact of aggregate income growth on the speed of poverty reduction. A higher level of initial human capital is also associated with a stronger impact of growth on poverty reduction. The literature also suggests that growth in the agricultural sector, relative to the non-agricultural sector growth, tends to have a strong impact on rural poverty reduction in the relatively earlier stages of economic development. Safety Net Policies against Transient Poverty9 Empirical studies on micro-level poverty dynamics reveal that at any point in time the poor consist of the transient poor and the chronically poor and that the factors affecting the two types of poverty tend to differ. This suggests that effective policies addressing the two types of poverty are also likely to differ. In addition, the possibly circular nature of causality between poverty and vulnerability suggests that the policies addressing transient poverty and those addressing chronic poverty are likely to have complementary roles to play. For example, addressing transient poverty through safety net policies could prevent (some of) the transient poor from falling into chronic poverty, and thus reduce the burden placed on the policies addressing chronic poverty in the future, just as preventive medical care could save the medical bills later. There are severe imperfections in insurance and credit markets in rural areas in developing countries, exposing the poor rural households to various risks. A wide array of empirical evidence suggests that informal insurance

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(including savings, consumption smoothing through informal risk- sharing, and income smoothing) is far from perfect. The rural poor are only partially insured at best, and are less insured than are the rich. Typically, informal risk-sharing can handle only particular types of risks. Worse still, all coping mechanisms (i.e., consumption smoothing) are likely to function poorly when insurance is most needed, namely: when hit by severe and covariate shocks such as droughts and floods, or by repeated shocks (e.g., Deaton 1991; Alderman 1996). Such findings provide both the justifications for, and the limitations to, intervention by the public sector. Such policy instruments are typically called ‘safety net’ (e.g., Barrett 2004; Morduch 1999) or ‘social protection’ (e.g., Dercon 2005), and their main aims are: (1) to protect the most vulnerable (who are also likely the chronically poor) from the costly consequences of negative shocks, and (2) to prevent the transient poor from falling into chronic poverty (e.g., Barrett 2004). The preceding discussions provide an additional rationale for sound macroeconomic policies and for better governance (Morduch 1999; Baulch and Hoddinott 2000). Increasing macroeconomic stability by controlling inflation, for example, would reduce some potential risks of economy-wide shocks, particularly since covariate risks such as these are difficult to insure against. In addition, given the past failures of government schemes (such as crop insurance programs and targeted credit programs; see Chapter 2), public sector involvements have been proposed in the literature, alongside the usual caveats. Also, as a general principle, the potential roles by actors other than the public sector institutions, such as non-government organisations (NGOs) or the private sector, are recognized; thus, building on and scaling up existing informal institutions (which tend to have informational advantages vis-à-vis the public sector and thus have a better prospect of mitigating moral hazard), whenever possible, are perceived as attractive options (e.g., Dercon 2005, chapter 19). When it comes to the specifics of what governments can or should do, however, various schemes have been proposed and debated, but a clear consensus has yet to emerge as to the relative merits of alternative schemes. One policy instrument seen by many as a promising safety net device is the rural public work scheme (like the Employment Guarantee Scheme in India) because of its desirable features such as self-targeting, thereby avoiding the need for costly means testing, and its temporary nature, thereby avoiding long-term dependency (e.g., Morduch 1999; Barrett 2004). Other possible

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policy instruments may be more speculative. Public policy could potentially encourage putting in place savings instruments for low-income households (as exemplified by the Bank Rakyat Indonesia or SafeSave in Dhaka, Bangladesh); the income-smoothing role played by the widely successful micro-credit schemes has also been recognised (Morduch 1999). Limited-scale insurance (micro-insurance) schemes have also been experimented on (e.g., by the Grameen Bank in Bangladesh), although some potential limitations that differentiate micro-insurance from the much more successful microcredit have been noted, dimming its prospects somewhat (Dercon 2005). Others propose a shift in public research, extension, or subsidies toward locally risk-reducing inputs (e.g., irrigation, pest management) or crop-mixes (Lipton and Ravallion 1995). If there is some risk-sharing within certain groups, then the better alternative might be the public transfer schemes with group targeting, rather than individual targeting (Dercon 2005, chapter 19). However, the typical conclusion is that ‘more research is needed.’ The design of policy interventions would need to take into account household behaviour in response to such interventions. In this context, the potential pitfalls of ‘crowding out’ have drawn particular attention in the literature; government transfers intended for the vulnerable population could ‘crowd out’ (and displace) existing schemes of private transfers. Studies from South Africa and the Philippines, for example, indicate that the introduction of a public transfer program could potentially displace 20 to 40 per cent of existing private transfers, leaving recipients with relatively small net gains in income (Cox and Jimenez 1995). While the study of Cox and Jimenez (1995) is based on predictions rather than on the measured impact of an actual transfer program, another study similarly finds 20 to 40 per cent reductions in private transfers in response to an (actual) extended pension benefit program implemented in South Africa (Jensen 1998, as cited by Morduch 2005). More generally, the consequences of transfer policies are likely to depend on the kinds of market and non-market institutions that exist in local communities. Ligon (2005), for example, theoretically discusses differential household responses predicted by alternative models/ explanations for imperfect risk-sharing; a targeted (non-contingent) transfer scheme intended for compensating the vulnerable households is likely to be offset by household responses if informal insurance arrangements exist but combined with dynamic moral hazard (e.g., in labour markets) or with imperfect enforcement.

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How much policymakers should actually worry about such ‘crowding out’ has been much debated and remains controversial. Morduch (2005) argues, for example, that even with some crowding out, as long as the private transfers that public interventions partially displace are mainly among poor households, such displacements would still contribute to the goal of poverty reduction. Perhaps more importantly, he further points out that some of the private insurance or risk-coping schemes may be highly discriminatory, say, along gender dimensions (e.g., arranged marriages or child fostering) so that it may even be socially desirable to have some private insurance displaced by public safety nets. Finally, in addition to household responses in terms of inter-household arrangements, intra-household resource allocation behavior may also be relevant in some cases. For example, while specific types of household members are found to be particularly vulnerable (e.g., female children, as found by Behrman 1988), targeted interventions, such as school feeding may induce household responses that (partially) compensate such intervention (e.g., Fuwa et al. 2000). The appropriate mode of policy intervention thus depends on the ‘correct model’ to account for particular policy needs in the locality, which is still actively debated in the literature. Policies for Poverty Reduction The foregoing policies discussed can be seen as one set of “effective safety net” policies that “may … also help reduce chronic poverty” (Lipton and Ravallion 1995, p. 2622). There are other sets of policies directly addressing the causes of chronic poverty such as low levels of asset/wealth endowments and low levels of returns to those assets typically held by the poor. To use Barrett’s (2004) analogue, safety net policies can be seen as preemptive interventions, and poverty reduction or ‘cargo net’ polices as redemptive ones for chronic poverty. In terms of potentially effective policy instruments for poverty reduction, the recent focus on chronic poverty, as distinct from transient poverty, often leads to familiar kinds of interventions addressing the low levels of asset-holding and the low asset returns among the chronically poor. Policy instruments listed as ‘cargo net’ policies by Barrett (2004, p. 48), for example, include: land reform, targeted school feeding, targeted microfinance, and

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agricultural input subsidies. One way the rapidly growing empirical literature on poverty dynamics and economic mobility could potentially contribute to practical policymaking may be to empirically identify (quantitatively or possibly qualitatively) the ‘threshold’ point in the asset space (or possibly in other spaces as well, such as occupation), below which the household is likely to fall into the poverty trap (or chronic poverty). Although such attempts pose significant challenges in both data and methodologies10, if successful, the results are likely to assist policymakers in more sharply focusing their attention on interventions aimed at the chronically poor. The transient poor, on the other hand, need not be covered by the ‘cargo net’ but rather, can be left on their own since, as long as the safety nets are in place, they should be able to escape from their temporary poverty situation (Barrett 2004).

CONCLUDING REMARKS While Asia has generally done remarkably well, by global standards, in both economic growth and poverty reduction, performances have been far from uniform within the region, and the progress in some aspects of human development, such as child malnutrition, has been less spectacular. We see both growth and poverty reduction ‘convergence’ patterns in Asia, but the macro-level studies reviewed in this chapter suggest that the pace of poverty reduction is dependent on such factors as: the level of initial income inequality; the access of the rural population to infrastructure, human capital and various markets (e.g., credit, land); the quality of institutions; and government policies. While the last couple of decades have also witnessed major advances in our understanding of household behaviour toward risk and income shocks, and of some dynamic aspects of rural poverty (e.g., transient versus chronic poverty), thanks to the rapid increase in the availability of micro-level data, the relative importance of alternative riskcoping mechanisms (e.g., income vs. consumption smoothing, alternative types of asset holdings, etc.) has been debated, and it is likely to vary across different localities. It appears clear, however, that the risk-coping mechanisms can insulate household consumption from income fluctuations only incompletely, and that poorer households tend to be less able to insure themselves than do better-off households. While this suggests potential

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roles to be played by the public sector, given the past experiences of many government failures in providing credit and insurance (see, for example, Chapters 1, 2 and 4), more research is arguably required before a clearer consensus could emerge as to exactly how the public sector should devise social protection policies. Another area where more research is needed is the empirical characterisation of longer-term poverty dynamics, including the so-called ‘poverty traps.’ Enhanced understanding in such areas is likely to help policymakers in designing more sharply focused policy interventions addressing chronic poverty.

NOTES * The authors may be reached at [email protected] and nfuwa@ faculty.chiba-u.jp. 1 Weather shocks (e.g., amount and timing of rainfall) are aggregate risks but, due to heterogeneous climatic and soil conditions among individual farms, the consequences of weather shocks are likely to have large idiosyncratic elements (Morduch 2005). 2 The literature is vast and has been accompanied by a number of survey articles: Alderman and Paxson (1994), Dercon (2005), Kurosaki (2006), Morduch (1995), Sawada (2006), Townsend (1995). We draw on many of them. 3 This effort, covering a 10-year period between 1975 and 1985, and producing detailed information on household consumption and agricultural production, was unprecedented, and is still unsurpassed today. Not only is the data set unique in its panel nature and its coverage of all aspects of household behaviour, it is also considered to be of high quality. The high quality of the VLS data is partly due to the placement of the ‘resident investigators’ in each village and their frequent visits to the surveyed households to record economic transactions. A similarly meticulous collection of all aspects of household behaviour was conducted at about the same time by the International Rice Research Institute (IRRI) in the Philippines but the observation period lasted for just one year (Hayami et al. 1978) . 4 This includes possible measurement errors.

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5 Somewhat different concepts have been used in the literature examining the patterns of changes in poverty status of a household over time. The “persistently poor” (or “always poor”) has been defined as those households whose income or consumption level falls below the poverty line in all observation periods, while the chronically poor, whose mean income or consumption level across the entire observation periods falls below the poverty line, may or may not be poor in every observation period. The persistently poor are a subset of the chronically poor. However, some studies used the term ‘chronically poor’ to describe the “persistently poor.” 6 That stock of land and education are not significant determinants of short-term income changes is also in line (although the effects of demographic variables differ) with an earlier finding by Grootaert and Kanbur (1995) based on the short-term consumption growth in Cote d’Ivoir. 7 Earlier, Loury (1981) showed that the existence of credit market imperfection alone did not necessarily generate long-run stratification patterns that depended on the initial distribution. Thus, both the credit market failure and indivisibility conditions are necessary to generate the kind of social stratification patterns discussed in these models (Bardhan and Udry 1999, p. 130; also Barrett 2005). 8 This may not be too surprising, however. It is likely to be difficult to identify the effects of asset accumulation (or depletion) since asset holdings are typically slow to change and the observation periods in most of the existing studies are relatively short. 9 This section draws on the surveys by Barrett (2005), Dercon (2005), Morduch (1999), and Lipton and Ravallion (1995). 10 See, for example, a discussion in Barrett (2005).

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Hulme, David and Andrew Shepherd. “Conceptualizing Chronic Poverty”. World Development 31 (2003): 403–23. Jacoby, Hanan and Emanuel Skoufias. “Risk, Financial Markets and Human Capital in a Developing Country”. Review of Economic Studies 64 (1997): 311–35. ———. “Testing Theories of Consumption Behavior Using Information on Aggregate Shocks: Income Seasonality and Rainfall in Rural India”. American Journal of Agricultural Economics 80 (1998): 1–14. Jalan, Jotsuna and Martin Ravallion. “Is Transient Poverty Different? Evidence from Rural China”. Journal of Development Studies 36 (2000): 8299. ———. “Behavioral Responses to Risk in Rural China”. Journal of Development Economics 66 (2001): 23–49. ———. “Geographic Poverty Traps? A Micro Model of Consumption Growth in Rural China”. Journal of Applied Econometrics 17 (2002): 329–46. ———. “Household Income Dynamics in Rural China”. In Insurance Against Poverty, edited by Stefan Dercon. New York: Oxford University Press, 2005. Kamanou, Gisele and Jonathan Morduch. “Measuring Vulnerability to Poverty”. In Insurance Against Poverty, edited by S. Dercon, New York: Oxford University Press, 2005. Kanbur, Ravi, Anthony J. Venables, and Guanghua Wan (eds.). Spatial Disparities in Human Development: Perspectives from Asia. Tokyo: United Nations University Press, 2006. Kang, Sun Jin and Yasuyuki Sawada. “Credit Crunches and Household Welfare: The Case of the Korean Financial Crisis”. CIRJE Discussion Paper Series 2003-CF-234. University of Tokyo, 2003. Kochar, Anjini. “Explaining Household Vulnerability to Idiosyncratic Shocks”. American Economic Review 85 (1995): 159–64. ———. “Smoothing Consumption by Smoothing Income: Hours-of-work Responses to Idiosyncratic Agricultural Shocks in Rural India”. Review of Economics and Statistics 81 (1999): 50–61. Kurosaki, Takashi. “Consumption Smoothing and the Structure of Risk and Time Preferences: Theory and Evidence from Village India”. Hitotsubashi Journal of Economics 42 (2001): 103–17.

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Asian Agricultural Development: From the Green Revolution to the Gene Revolution



Prabhu Pingali and Terri Raney*

Introduction The past four decades have seen two waves of agricultural technology development and diffusion to developing countries, and Asian countries have been at the forefront of both. The first wave was initiated by the Green Revolution in which improved germplasm was made available to developing countries as a public good through an explicit strategy for technology development and diffusion. The second wave, which is currently underway, is being generated by the Gene Revolution in which a global and largely private agricultural research system is creating improved agricultural technologies that are flowing to developing countries primarily through market transactions. While some Asian countries are leading the Gene Revolution in agriculture, many lack the research and regulatory capacity to participate fully, and their underdeveloped markets for agricultural inputs and outputs weaken the incentives for technology development and adoption. These institutional requirements make it unclear whether the Gene Revolution can generate widespread benefits for poor farmers in poor countries.

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The Green Revolution was responsible for an extraordinary period of growth in food crop productivity in the developing world. Productivity growth has been significant for rice in Asia, wheat in irrigated and favourable production environments worldwide, and maize in Mesoamerica and selected parts of Africa and Asia. A combination of high rates of investment in crop research, infrastructure and market development, as well as appropriate policy support, fuelled this productivity growth. These elements of the Green Revolution strategy improved productivity growth despite the increasing land scarcity and high land values (Pingali and Heisey 2001). The Green Revolution transformed global food production systems and, in the process, defied the conventional wisdom that agricultural technology does not travel well because it is either agro-climatically specific, as with biological technology (i.e., seeds), or sensitive to relative factor prices, as with mechanical technology (Byerlee and Traxler 2002). The Green Revolution strategy for food crop productivity growth was explicitly based on the premise that, given appropriate institutional mechanisms, technology spillovers across political and agro-climatic boundaries could be captured. Efforts to develop the necessary institutional capacity, particularly in plant breeding, were a central part of the Green Revolution strategy. Based on the early successes with maize at the International Maize and Wheat Improvement Center (CIMMYT) in Mexico, and rice at the International Rice Research Institute (IRRI) in the Philippines, the Consultative Group on International Agricultural Research (CGIAR) was established specifically to generate technological spillovers for countries that underinvest in agricultural research because they are unable to capture all the benefits of their research investments. Over the past decade the locus of agricultural research and development has shifted dramatically from the public to the private multinational sector. Three interrelated forces are responsible. The first is a stronger and evolving environment for protecting intellectual property rights (IPR) in plant innovations. The second is the rapid pace of discovery and growth in importance of molecular biology and genetic engineering. Finally, agricultural input and output trade is becoming more open in nearly all countries. These developments have created a powerful new set of incentives for private research investment, altering the structure of the public/private agricultural research endeavour, particularly with respect to crop improvement (Pingali

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and Traxler 2002). What happens to the spillover benefits from agricultural research and development in a globally integrated agricultural technology and food supply system? Developing countries are facing increasing transactions costs in the access to, and use of technologies generated by the multinational sector. Existing international networks for sharing technologies across countries, and thereby maximising spillover benefits, are increasingly threatened. The urgent need today is for a system of technology flows which preserves the incentives for private sector innovation while at the same time meeting the needs of poor farmers in the developing world. The remainder of this chapter is organised as follows. The following section reviews the experience with Green Revolution agricultural research and technology development (R&D) and assesses the diffusion and impacts of modern plant varieties, particularly in Asia. The succeeding discussion focuses on the Gene Revolution and explores the changing locus of agricultural research, the potential implications for technology development for less favoured regions, and the economic evidence to date regarding transgenic crop development, diffusion and impacts in developing countries, with emphasis on Asia. The last section concludes with recommendations for enhancing biotechnology development and deployment in developing countries.

Green Revolution: R&D, Access and Impact Agricultural R&D in the Green Revolution The major breakthroughs in yield potential that kick-started the Green Revolution in the 1960s reflected the advanced state of research on wheat and rice in the late 1950s (Evenson and Gollin 2003). Researchers at IRRI and CIMMYT had access to rich stocks of genetic resources and drew on extensive breeding experience in developed countries. For both crops, breeders incorporated dwarfing genes that allowed the development of shorter, stiff-strawed varieties. These varieties devoted much of their energy to producing grain and relatively little to producing straw or leaf material. They also responded better to fertiliser than traditional varieties.

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Conventional plant breeding approaches were responsible for the development of these modern varieties (MVs). Crossing plants with different genetic backgrounds and selecting among the progeny for individual plants with desirable characteristics, repeated over several generations, led to varieties with improved characteristics such as shorter stature, higher yields, improved disease resistance and improved nutritional quality. In the case of wheat, varietal releases doubled from an average of 40 per year in the period 1965-1970 to 80 per year by the period 1986-90. Annual rice releases tripled during the same time period and maize releases increased five-fold. The same pattern holds for sorghum, as well as for crops that were relatively little researched such as millet, barley and lentils. Prior to 1960, there was no formal system in place that provided plant breeders access to germplasm available beyond their borders. Since then, the international public sector (the CGIAR) has been the predominant source of supply of improved germplasm developed from conventional breeding approaches, especially for self-pollinating crops such as rice and wheat and for open-pollinated maize. CGIAR managed networks of international nurseries for sharing crop improvement results evolved in the 1970s and 1980s, when financial resources were expanding and plant IPR laws were weak or nonexistent. The international flow of germplasm has had a large impact on the speed and the cost of national agricultural research systems’ (NARSs) crop development programmes, thereby generating enormous efficiency gains. [See Evenson and Gollin (2003) for a global assessment of gains from the international exchange of major food crop varieties and breeding lines]. Traxler and Pingali (1999) have argued that the existence of a free and uninhibited system of germplasm exchange that attracts the best of international materials allows countries to make strategic decisions on the extent to which they need to invest in plant breeding capacity. Small countries behaving rationally choose to free ride on the international system rather than invest in large crop breeding infrastructure of their own (Maredia, Byerlee and Eicher 1994). International spillovers are likely highest for a commodity like wheat, which is grown in relatively homogeneous production environments, with little variability in local tastes and preferences for quality characteristics (Byerlee and Traxler 2002). Quality characteristics are a limiting factor in the direct transferability of varieties for some major commodities such

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as rice and maize. Consumer tastes may be so highly location-specific in some cases, such as beans in Africa, to make it difficult even for country programmes to develop widely accepted varieties (Sperling et al. 1993). NARS programmes have generally used varieties or crosses made in the CGIAR centres as parents for the development of varieties that are more closely adapted to particular agro-ecological environments or specific taste preferences. In practice, a large proportion of varietal transfers take the form of adaptive transfers. The CGIAR has contributed significantly to the improvement of research efficiency and to the reduction of research costs by enabling such adaptive transfers. Evenson and Gollin (2003) report that even in the 1990s, the CGIAR content of modern varieties was high for most food crops; 36 per cent of all varietal releases were based on CGIAR crosses. In addition, 26 per cent of all modern varieties had a CGIAR-crossed parent or other ancestor. Evenson and Gollin (2003) suggest that germplasm contributions from international centres helped national programmes to stave off the ‘diminishing returns’ to breeding that might have been expected to set in had the national programmes been forced to work only with the pool of genetic resources that they had available at the beginning of the period. The number of varietal releases from a crop breeding programme is only a partial indicator of success. Farmer adoption is a better indicator of how well a new variety meets the needs of farmers and consumers. Access to, and Impacts of Green Revolution Technologies1 Assessments of the extent of adoption of modern, high-yielding varieties (HYVs) of rice, wheat, and maize have been conducted since the early 1970s. Similar work for other crops, such as cassava, sorghum, millets, and potatoes, followed in the 1980s and beyond. Dalrymple (1978), for example, documented that approximately 30 million hectares of wheat and 25 million hectares of rice in the developing world were planted to HYVs by 1977, corresponding to 32 per cent and 18 per cent, respectively, of the global area for these crops. Dalrymple’s work triggered numerous other efforts by researchers over the next two decades to study the adoption and impacts of improved varieties of rice, wheat, maize, sorghum, millet, and potatoes (e.g., Herdt and Capule 1983; Byerlee and Moya 1993; López-Pereira and Morris

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1994; Evenson and David 1993; Walker and Ryan 1991; and Walker and Crissman 1996). Evenson and Gollin (2003) provided detailed information on the extent of adoption of modern variety use for all the major food crops. The adoption of modern varieties during the first 20 years of the Green Revolution ― aggregated across all crops ― reached 9 per cent in 1970 and rose to 29 per cent in 1980. By 1990, the adoption of MVs had reached 46 per cent and, by 1998, 63 per cent. Moreover, in many areas and in many crops, first-generation modern varieties have been replaced by second- and thirdgeneration modern varieties. MVs have been adopted faster and more widely in Asia than in the other developing country regions, with the exception of wheat in Latin America. By the 1970s, more than 50 per cent of the wheat and 40 per cent of the rice grown in Asia consisted of MVs. By the 1990s, more than 80 per cent of wheat and 60 per cent of rice, maize and other cereals in Asia were MVs. In contrast, wheat is the only crop in sub-Saharan Africa for which MV adoption exceeds 40 per cent. Production and productivity Substantial empirical evidence exists on the production, productivity, income, and human welfare impacts of modern agricultural science and the international flow of modern varieties of food crops. Wheat production in developing countries quadrupled since 1960 and rice production trebled with only a 35 per cent increase in area for both crops. For Asia, wheat production doubled and rice production trebled, in both cases with only a 30 per cent increase in area. Clearly, the rapid increase in agricultural output over the past 45 years has come from an impressive increase in yields per hectare. Data from the Food and Agriculture Organization (FAO 2005) indicate that for all developing countries, yields rose 224 per cent for wheat, 114 per cent for rice, 171 per cent for maize, 93 per cent for potatoes and 46 per cent for cassava. Yield growth in the Asian developing countries exceeded the world average for these crops, with the exception of potato, in most cases by substantial margins. Pingali and Heisey (2001) provide a comprehensive compilation of yield and total factor productivity (TFP) evidence for several countries and

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crops, and find that TFP trends are similar to the partial productivity trends captured by yield per hectare. Average rice yields for all developing countries grew less than one per cent per year in the decade up to 1965, a rate that more than doubled in the first decade of the Green Revolution, 1966-75, and almost trebled by the second decade, 1976-85. Similarly for wheat and maize, the impact of HYVs on average yields is obvious in a comparison of the decades 1966-75 and 1976-85. Developing countries in Southeast Asia and India were the first to show the impact of the Green Revolution varieties on rice yields, with China and other Asian regions experiencing stronger yield growth in the subsequent decades. Aggregate rice output and yields declined precipitously in all developing regions, including Asia, in the decade after 1985, and more recent data from FAOSTAT show an acceleration of these downward trends. Growth rates for wheat and maize yields also exhibit declining trends after 1985 and especially after 1995. In the post-Green Revolution period in Asia, productivity growth has been sustained through increased input use and, more recently, through more efficient use of inputs. Lately, however, indicators show a decrease in the growth rate of productivity of the three primary cereals—rice, wheat and maize—especially in the intensively cultivated lowlands of Asia. This reduction in productivity growth can be attributed to three key factors: 1) degradation of the land resource base due to intensive cultivation; 2) declining infrastructure and research investments; and 3) the increasing opportunity cost of labour. Future increases in food productivity growth will rely on substantial research investments aimed at shifting the yield frontier of rice and wheat, and improving the profitability of cereal crop production systems through more efficient use of inputs (Pingali and Heisey 2001). Returns to crop improvement research investment The returns to research investments in the Green Revolution strategy of germplasm improvement have been measured in great detail by several economists over the last few decades. These studies have found high rates of returns that, for the most part, compare favourably with alternative public investments. The very first studies that calculated the returns to research investment were conducted at IRRI for rice research investments in the Philippines (Flores-Moya et al. 1978) and at the International Centre

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for Tropical Agriculture (CIAT) in Colombia (Scobie and Posada 1978). Although focused on relatively short periods of time, 1957-64 and 1966-75, the studies estimated relatively high rates of return, well above 50 per cent for each. More detailed evidence on the high rates of return to public-sector investments in agricultural research was provided by the International Service for National Agricultural Research (ISNAR) (Echeverría 1990) and the International Food Policy Research Institute (IFPRI) (Pardey et al. 1992). For detailed synthesis of the numerous studies conducted across crops and countries, see Evenson (2001) and Alston et al. (2000). Gardner (2003) provides a comprehensive review and critique of the huge body of impact and rates of return literature in a recent analysis done for the World Bank. His meta-analysis draws on a range of CGIAR impact assessments as well as some major earlier meta-analyses. He draws attention to a major piece of work carried out by Anderson et al. (1988) that convincingly demonstrates the huge benefits—relative to the costs—of especially (but not only) the wheat and rice breeding effort in the CGIAR centres. Even allowing for conservative assumptions about the estimate of the total economic gains and with modest attribution to the CGIAR role, he estimates a benefit-cost ratio of 6.7, only considering efforts on wheat and rice. A number of other recent rates of returns studies are reported and critiqued by Gardner in his review. Anderson and Dalrymple (1999) estimated very large economic surplus generated via improved CGIAR-derived varieties of wheat and maize ($1.8 billion and $1.0 billion, respectively for 1997). Jha and Khumar (1998) calculated high net returns for joint IRRI and the Indian national programme effort in rice (internal rates of return between 32 per cent and 74 per cent across states). Heisey et al. (1999) on wheat and Morris, (2001) on maize calculated “phenomenal rates of return” on a global scale. Gardner highlights important caveats and qualifying statements for many of these studies, including the degree to which adequate documentation is provided (poorly in some cases), the degree to which reasonable assumptions have been made (often not), the transparency provided (missing in several studies), biases in case study selections (the winners), and problems invariably associated with attribution effects and the development of the counterfactual. Notwithstanding these caveats and the different concerns expressed for different studies, taken together, the body of evidence is widespread and

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fairly consistent (albeit with probable large degrees of error) for the high rates of return from the CGIAR commodity programmes—particularly for wheat, rice and maize—and to some extent for cassava, potato, sorghum, and other crops. Some have claimed, based largely on anecdotal evidence that rates of returns to agricultural research have been declining. Alston et al. (2000) in their assessment of trends and characteristics of the rates of return in agricultural research and development examined 292 case studies with 1,900 estimated rates of returns. The median annual rate of return estimate from these studies ranged from 40-60 per cent, consistent with the broad literature. More importantly they found no evidence that the rates of return to research had declined over time. Evenson (2001) in his review of over 100 studies estimating rates of return to research came to a similar conclusion. Gardner (2003) concurs with that assessment based on those study results, but notes that even the most recent impact assessment reflects the product of research that occurred years earlier and that there is really no evidence from these studies on returns to research conducted after 1990. Economy-wide effects Several studies have provided empirical support to the proposition that growth in the agricultural sector has economy-wide effects. One of the earliest studies showing the linkages between the agricultural and nonagricultural sectors was done at the village level by Hayami et al. (1978). This study illustrated the impacts of rapid growth in rice production on land and labour markets and the non-agricultural sector. Long-term changes in village economy were traced through periodic revisits over three decades (Hayami 2000). Hazell and Ramaswamy (1991) showed the development of backward and forward linkages from increased agricultural productivity growth in India. The term “backward linkages” refers to the demand for inputs used in a new production activity, whereas “forward linkages” refers to new processing industries stimulated by the availability of raw materials provided by the new production activity. Delgado et al. (1998) found similar evidence for Africa of growth being stimulated in the non-agricultural sector by growth in agricultural productivity. For sector-level validation of the proposition

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that agriculture does indeed act as an engine of overall economic growth, see Hazell and Haggblade (1993), Delgado et al. (1998), and Fan et al. (1998). Widespread adoption of modern seed-fertiliser technology has led to a significant shift in the food supply function, contributing to a fall in real food prices. The primary effect of agricultural research on the non-farm poor, as well as on the rural poor who are net purchasers of food, is through lower food prices: The effect of agricultural research on improving the purchasing power of the poor—both by raising their incomes and by lowering the prices of staple food products—is probably the major source of nutritional gains associated with agricultural research. Only the poor go hungry. Because a relatively high proportion of any income gains made by the poor is spent on food, the income effects of research-induced supply shifts can have major nutritional implications, particularly if those shifts result from technologies aimed at the poorest producers (Alston et al. 1995, p.85).

Early efforts to document the impact of technological change and the consequent increase in food supplies on food prices and income distribution were made by Hayami and Herdt (1977) at IRRI, Pinstrup-Andersen et al. (1976) and Scobie and Posada (1978) at CIAT, and Binswanger (1980) at the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT). Pinstrup-Andersen argued strongly that the primary nutritional impact for the poor came through the increased food supplies generated through technological change. In examining some of the economic and social welfare effects of crop genetic improvement programmes of the CGIAR and its partners, Evenson and Rosegrant (2003) estimate that without the CGIAR and national programme crop germplasm improvement efforts, food production in developing countries would have been almost 20 per cent lower (requiring another 15-20 million hectares of land under cultivation in addition to at least 5 per cent higher food imports). World food and feed prices would have been 35 to 65 per cent higher, and as a consequence, average caloric availability would have declined by 11 to 13 per cent globally (more in some regions). Finally, child malnutrition would have gone up by 6-8 per cent ― affecting some 30 to 45 million more children than otherwise. Overall,

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these efforts benefited virtually all consumers in the world and the poor relatively more so. The profitability of modern farming systems has been maintained despite falling food prices (in real terms), owing to a steady decline in the cost per ton of production. The point that producers have continued to benefit from technological change despite falling output prices has not been emphasised adequately in the literature on research impacts, although empirical evidence does show quite clearly that the cost per ton of production has fallen significantly. Most of the empirical data on changes in unit production costs is on rice. The very first study comparing unit production costs of modern and traditional varieties was done by IRRI (1972) for several Asian locations and found significantly lower costs per ton of production of modern compared to traditional varieties. More recent studies have documented trends in the cost per ton of rice production over time. Consistently across several Asian countries, unit production costs have tended to decline over time, and over the same period, production costs have generally tended to be lower than output prices. Empirical evidence for the long-term decline in unit costs of production also exists for wheat; see Sidhu and Byerlee (1992) for evidence from the Indian Punjab and numerous publications for evidence from the Yaqui Valley of northwestern Mexico, the starting point for the Green Revolution in wheat. Differential impact of technological change While the benefits of agricultural productivity growth have been shared widely, it is clear that some sections of society have gained relatively less than others, specifically landless labour, female-headed households, and farm households in marginal environments. Pinstrup-Andersen and Hazell (1985) argued that the landless labour did not adequately share in the benefits of the Green Revolution because of depressed wage rates attributable to migrants from other regions. David and Otsuka (1994), on the other hand, found that migrants shared in the benefits of the Green Revolution through increased employment opportunities and wage income. The latter study also documented that rising productivity caused land prices to rise in the highpotential environments. The impact and benefits of technological change have varied by ecological domain, socio-economic factors (such as farm size), and gender.

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Many studies have addressed the differential impact of technological change in favourable and unfavourable production environments. Byerlee and Moya (1993), in their global assessment of the adoption of wheat MVs, found that over time the adoption of MVs in unfavourable environments caught up to levels of adoption in more favourable environments, particularly when the germplasm developed for high-potential environments was further adapted to the more marginal environments. In the case of wheat, the rate of growth in yield potential in drought-prone environments was around 2.5 per cent per year during the 1980s and 1990s (Lantican and Pingali 2003). Initially the growth in yield potential for the marginal environments came from technological spillovers as varieties bred for the high-potential environments were adapted to the marginal environments. During the 1990s, however, further gains in yield potential came from breeding efforts targeted specifically at the marginal environments. David and Otsuka (1994) conducted a study on the differential impact of technological change across rice environments in Asia. Although the favourable, high-potential environments gained the most in terms of productivity growth, the less favourable environments benefited as well through technology spillovers and through labour migration to more productive environments. Wage equalization across favourable and unfavourable environments was one of the primary means of redistributing the gains of technological change. Renkow (1993) found similar results for wheat grown in high- and low-potential environments in Pakistan. Indeed, there are many examples where people living in marginal environments did in fact benefit from new agricultural technologies and development efforts, with significant impacts (Kelley and Byerlee 2004; Lantican and Pingali 2003). Notwithstanding these important qualifiers, few would argue that rural producers in marginal areas have received benefits comparable to their counterparts in the better endowed areas, where irrigation and associated inputs are more readily available, and modern varieties have been widely adopted. For example, Byerlee and Morris (1993) confirmed that improved seed-fertiliser technologies for wheat were less widely adopted in marginal environments worldwide and had less of an impact there than in favoured environments. Byerlee (1996), too, found that almost full adoption of wheat and rice HYVs had been achieved in irrigated environments by the mid-1980s, but very low adoption occurred in environments with scarce rainfall, or

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poor water control (in the case of rice). Moreover, whereas HYVs of wheat provided yield gains of 40 per cent in irrigated areas, with modest use of fertiliser, the gains in dry areas were often no more than 10 per cent. Income distribution effects across the various socio-economic groups within a rural community have received some attention in the impact literature. In a detailed study of the North Arcot District of Tamil Nadu, India, Hazell and Ramaswamy (1991) estimated the distribution of benefits of technological change across landless labourers, tenant farmers, and small and large landowners. David and Otsuka’s (1994) study paid particular attention to effects on landless labour and tenant farmers, and found that the benefits were shared across the various farm size groups. The early criticism that the Green Revolution had benefited only large-scale farmers was stood in sharp contrast to the findings of all of these studies. Empirical evidence indicates that small farms also benefited, albeit later, in terms of productivity and income growth2 . Hazell and Ramaswamy found that initially the new technology was principally adopted by large-scale farmers, but as time passed smaller farms began adopting high-yielding varieties at rates similar to those of large-scale farmers. In the North Arcot District of Tamil Nadu, between 1973/74 and 1983/84 “small paddy farmers and landless labourers gained the largest proportional increases in family income”. The authors point out that the results of these papers are quite different from many previous studies which evaluated the new technology too early in the adoption process. The evidence on landless labour is less clear. Pinstrup-Andersen and Hazell (1985) argued that the landless labour did not adequately share in the benefits of the Green Revolution because of depressed wage rates attributable to migrants from less endowed regions. David and Otsuka (1994), on the other hand, found that migrants shared in the benefits of the Green Revolution through increased employment opportunities and wage income. The differential impact literature has focused on identifying the distribution of benefits between men and women farmers and male- and female-headed households. The general finding across crops and continents is that women farmers and female-headed households have gained proportionally less than their male counterparts. It is not gender alone that determines whether an individual benefits from technological change, however, but rather the initial social and economic status of the individual (Paris 1998). Quisumbing et al. (1995) concluded from a ten-country study

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that among the very poor, the economic welfare of male- and female-headed households differed very little. Differences emerged only where cultural or institutional factors prevented equal participation in the labour force, as in Bangladesh. For excellent recent reviews of the literature, see Doss (1999) on African maize farming systems and Paris (1998) on rice in Asia. Poorly-endowed environments, nevertheless, pose tremendous challenges to researchers and policymakers alike, namely to identify new agricultural R&D opportunities and to facilitate adoption of technologies and appropriate institutions to meet the needs of the poor living there. Some of these challenges will be even more difficult in the Gene Revolution era.

Gene Revolution: R&D, Access, Impact, and Obstacles The world today is dramatically different from the one that existed when the Green Revolution began. Trade liberalisation and greater integration of global food markets are leading to more reliable food supplies and lower food prices in real terms. Income growth, urbanisation and growing global interconnectedness are leading to diet diversification and homogenisation. Scientific advances and stronger protection of intellectual property rights have greatly increased the ability of agricultural researchers to recoup their investments in crop improvement research. These and other factors have altered the commercial incentives for agricultural research in ways that have transformed the system through which agricultural technologies are developed and disseminated, with profound implications for farmers in developing countries. The Changing Locus of Agricultural R&D With the emergence of the Gene Revolution, the locus of technological innovation in agriculture has shifted from the public to the private sector. While this has brought a surge of new investment into agricultural research, it has also increased the transactions costs faced by developing countries in accessing new technology. Access problems are particularly severe for poorer countries with small markets and weak institutions, which have traditionally been the targets of public sector research on “public goods”.

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In the Green Revolution period, from the 1960s through the 1980s, private sector investment in plant improvement research was limited, particularly in the developing world, due to the lack of effective mechanisms for proprietary protection on the improved products. This situation changed in the 1990s with the wider availability of hybrids for cross-pollinated crops such as maize. The economic viability of hybrids led to a budding seed industry in the developing world, initiated by multinational companies but soon followed by the emergence of national companies. Despite the rapid growth of the seed industry in the developing world, many markets remain under-served (Morris 1998). Throughout the 1990s, the private seed industry relied on public sector gene banks and pre-breeding materials for the development of its hybrids (Morris and Ekasingh 2001; Pray and Echeverría 1991). The break between public and private sector plant improvement efforts came with the advent of biotechnology, especially genetic engineering, and the strengthening of intellectual property rights for artificially constructed genes and genetically modified plants. Proprietary protection provided incentives for private sector entry into plant improvement research. The large multinational agro-chemical companies invested early in the development of transgenic crops. One of the reasons that these companies moved into crop improvement was that they foresaw a declining market for pesticides (Conway 2000). The chemical companies got a quick start in the plant improvement business by purchasing existing seed companies, first in industrialized countries and then in the developing world. Pingali and Traxler (2002) argue that the amalgamation of multinational and national companies makes economic sense because the process of transgenic crop development and delivery is a continuum that spans the expertise and operating scale of both entities. The process starts upstream with the generation of basic knowledge on useful genes and the insertion of transgenic constructs into plants. The process then moves downstream to adaptive breeding, through backcrossing the transgenes into commercial lines, and finally to delivering the seed to farmers. The products from upstream activities have worldwide applicability across several crops and agro-ecological environments. On the other hand, specific genetically modified plants and varieties are applicable to narrower agro-ecological and socio-economic niches. In other words, spillover benefits and scale economies decline in the move to the more adaptive end of the continuum.

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Similarly, research costs and research sophistication decline in the progression towards downstream activities. Thus, a clear division of responsibilities in the development and delivery of biotechnology products has emerged, with the multinationals providing the upstream biotechnology research and the local firms providing crop varieties with commercially desirable agronomic backgrounds. Whether the international and national public sector research systems can replicate this model for the provision of public goods is unclear. Public sector research programmes are generally established to conform to state or national political boundaries, and direct country-to-country transfer of technologies has been limited (Traxler and Pingali 2002). Strict adherence to political domains severely curtails the spillover benefits of technological innovations across similar agroclimatic zones. The operation of the CGIAR germplasm exchange system has mitigated this problem for the conventional breeding of several important crops, but it is not clear whether the system will work for biotechnology products and transgenic crops, given the proprietary nature of the technology. Moreover, the public sector, with a few notable exceptions, lacks the resources to effectively create an alternative source of biotechnology knowledge, innovations and applications. According to Byerlee and Fischer (2001), private sector investment in agricultural research now exceeds the combined investments of all public sector research institutes in the world and dwarfs the investments in public research targeted to developing country agriculture. At the beginning of this decade, the world’s top ten multinational bioscience corporations’ collective annual expenditure on agricultural research and development was nearly US$3,000 million, of which about half was devoted to biotechnology. In comparison, the CGIAR, which is the largest international public sector supplier of agricultural technologies, spent less than US$300 million annually on plant improvement research and development, of which less than 10 per cent went to biotechnology. The largest public sector agricultural research programmes in the developing world – Brazil, China, and India – had annual budgets of less than $500 million each, with less than 10 per cent devoted to biotechnology (Byerlee and Fischer 2001).

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Biotechnology R&D and Commercialisation in the Developing World Reflecting their low agricultural research budgets and the small share devoted to biotechnology, few developing countries have highly sophisticated biotech research programmes. Exceptionally, Brazil, China and India have extensive research programmes in all areas of biotechnology, including advanced genomics and gene manipulation techniques (FAO BioDeC 2005). According to IFPRI (2004), an additional 12 developing countries have significant and growing capacity for biotechnology research, but these are typically more advanced countries such as Argentina and Egypt. Growing numbers of developing countries have the capacity to adopt and adapt innovations developed elsewhere. Most of the least developed countries, however, have no documented research experience with genetically modified organisms (GMOs) and many have limited capacity for agricultural research of any kind (FAO BioDeC 2005). Policymakers in China view agricultural biotechnology as a strategic investment in future productivity, food security, competitiveness and economic growth (James 2004). Since the figures mentioned above were published, China has dramatically increased its public-sector spending on agricultural biotechnology research, to $200 million by 2004 with the intention of reaching $500 million by 2005 (James 2004). China began investing in biotechnology research in the mid-1980s and was the first Asian country to commercialise a transgenic crop – insect-resistant cotton. China is now field-testing several transgenic crops, including staples such as rice, maize and wheat as well as many vegetables and oilseed crops. About 20 per cent of China’s agricultural biotechnology research budget is devoted to rice, and is aimed at a variety of traits including insect and disease resistance. Transgenic rice varieties entered field trials in 2001 but none has received approval for commercial production. The Government of India has also invested heavily in plant molecular biology, particularly genomics and crop biotechnology. National seed companies and multinational biotechnology firms have also invested in the Indian market. Total public and private investment in crop biotechnology in India was estimated at $25 million in 2001 and focused on raising and stabilising yields and enhancing nutrition (James 2004). As in China, rice is

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a major focus of India’s biotechnology research programme which ranges from genomics to applied research on resistance to biotic and abiotic stresses, and reduction of post-harvest losses (James 2004). The governments of China and India have invested heavily in developing the regulatory frameworks and capacity for intellectual property rights and biosafety (food safety and environmental) protection that are essential for the successful commercialisation of transgenic crops. Although both governments have approved the commercial production of transgenic insect-resistant cotton, both had difficulty retaining control over the process and neither has successfully managed the clearance of a major food crop. Many developing countries, including some higher-income countries, lack regulatory capacity in the areas of intellectual property rights protection and biosafety procedures. Commercial Cultivation of GM Crops in the Developing World James (2006) reports that transgenic crops were commercially planted on 90 million hectares in 2005, in 21 countries, 10 of them developing. Developing countries accounted for 38 per cent of the total global transgenic crop area in 2005, having increased their share consistently from 14 per cent of 12.8 million hectares in 1997. Argentina, Brazil, and China are the largest developing country producers of transgenic crops but India is growing rapidly. Herbicide tolerance and pest resistance remain the main GM traits that are currently under commercial cultivation and the main crops are soybean, maize, canola and cotton. Insect-resistant cotton is by far the most important transgenic crop being produced commercially in Asia, with more than 3.3 million hectares in China and 1.3 million hectares in India. In addition to cotton, China also produces small quantities of transgenic virus-resistant tomatoes and peppers, delayedripening tomatoes, and petunias with color-altered flowers. Elsewhere in Asia, the Philippines produces a small amount of insect-resistant maize (less than 100,000 hectares) and Iran made history in 2005 as the first country to commercially produce transgenic insect-resistant rice (about 5,000 hectares) (James 2006). Comprehensive data are not available on the origin of the GM varieties being planted in developing countries; however, the available evidence

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suggests that most were originally developed by international biotechnology firms for the North American market and were adapted for local agroecological conditions, usually by a joint venture between the international firm and a national seed company. China is the only developing country that is commercially producing transgenic crops that contain a genetic transformation construct developed independently of the private multinational sector (Pray and Naseem 2003). China also produces transgenic cotton varieties developed jointly with the multinational private sector, and is the home of the most successful examples of public/private joint ventures aimed at spreading biotechnology to poor farmers. Ji Dai is a joint venture between two U.S.-based companies (Monsanto and Delta & Pineland) and the Hebei Provincial Seed company in China. An Dai is a joint venture between the same U.S. companies and the Anhui Provincial Seed Company in China. Under these joint venture contracts, Monsanto supplies the Bt gene and Delta & Pineland provides the cotton varieties while Ji Dai and An Dai provide the variety testing, seed multiplication, and seed distribution networks in their respective provinces and beyond. The U.S. companies and the Chinese seed companies both had financial incentives to participate in these joint ventures. The U.S. companies hoped that partnering with the provincial government-owned seed companies would provide them with the local knowledge they needed to have their GM cotton varieties approved by the national biosafety committee for commercial production. The provincial seed companies were interested in acquiring access to the Bt gene construct and the improved germplasm held by the two U.S. companies. Previously, cotton seed had not been a commercially interesting enterprise in China, but introducing the Bt gene greatly increased the value of cotton seed that contained it. Both sides achieved their aims and the Chinese case is the most successful experience to date in the development and deployment of a transgenic crop to small farmers in a developing country. The Indian case provides another example of cooperation between international and national companies, and is more typical of the experience of other developing countries where transgenic crops have been deployed. Bt cotton for the Indian market was developed by the Maharashtra Seed Company (Mahyco), a private company in which Monsanto owns a 26 per cent stake (James 2001). Monsanto licensed the Bt gene to Mahyco

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which incorporated it into local cotton varieties. The government’s main involvement was in the biosafety testing and approval process. Economic Impacts of GM Crops3 Because transgenic crop production is such a recent phenomenon in developing countries, economic research on their impacts is limited. The available peer-reviewed studies find positive but highly variable farm-level economic returns. These studies do not support the perception that transgenic crops are biased in favour of large farms; on the contrary, the technology may in fact be strongly pro-poor (Pray et al. 2002; Qaim and Traxler 2005). Nor does the available evidence support the fear that multinational biotechnology firms are capturing all of the economic value created by transgenic crops; rather, these benefits are being shared by consumers, technology suppliers and adopting farmers (Qaim and Traxler 2005). Non-adopting farmers are being penalised, however, as their competitors achieve the efficiency gains they are denied. Farm-level profitability ultimately determines whether farmers adopt and retain a new technology, but the research available so far shows that farm-level returns depend on much more than the technical performance of the crops. These studies confirm that institutions ― national agricultural research capacity, environmental and food safety regulations, intellectual property rights and agricultural input markets ― matter at least as much as the technology itself in determining the level and distribution of economic benefits (Raney 2006). The most extensive ex post studies of transgenic crop adoption in developing countries have been conducted for insect-resistant cotton in Argentina (Qaim and de Janvry 2003), China (Pray et al. 2002), India (Qaim 2003; Qaim and Zilberman 2003; Qaim et al. 2006), Mexico (Traxler et al. 2003) and South Africa (Morse et al. 2004; Gouse et al. 2005). Transgenic herbicide-tolerant (HT) soybeans are being grown in Argentina, Brazil, Paraguay and elsewhere, but Argentina is the only developing country for which peer-reviewed studies have been published (Qaim and Traxler 2005; Trigo and Cap 2003). As noted above, some developing countries also produce HT and/or Bt maize, but South Africa and Argentina are the only countries for which peer-reviewed analyses of their impacts have been published to date (Trigo and Cap 2003; Gouse et al. 2004).

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Table 6.1 summarises the results from the most comprehensive economic studies of the farm-level impacts of transgenic insect-resistant cotton in developing countries (Raney 2006). Each study was based on data from farm-level surveys over either two or three seasons of commercial production. The figures in Table 6.1 reflect the average per cent difference between the transgenic cotton and conventional cotton for all farmers over all seasons covered in the study. Although the averages conceal a high degree of temporal and spatial variation, they clearly indicate positive overall results. Farmers who adopted the transgenic varieties experienced higher effective yields (due to less pest damage), higher revenue and lower pesticide costs. These factors more than compensated for higher prices paid for transgenic seeds so that net profits increased for adopters. The two Asian cases are discussed in detail below. Table 6.1 Performance Advantage of Bt over Conventional Cotton, Percentage Argentina

China

India

Mexico

South Africa

Yield

33

19

34

11

65

Revenue

34

23

33

9

65

Pesticide costs

-47

-67

-41

-77

-58

Seed costs

530

95

17

165

89

31

340

69

12

299

Profit

Source: Raney (2006) based on: Argentina (Qaim and de Janvry 2003); China (Pray et al. 2002); India (Qaim et al. 2005); Mexico (Traxler et al. 2003) and South Africa (Morse et al. 2004)

China. Some 7.5 million small farmers are growing Bt cotton in China (James 2005). As reported by Pray et al. (2002), much of China’s success rests on its highly developed public agricultural research system which has independently produced two transgenic constructs that confer insect resistance. These have been incorporated into a large number of locally adapted cotton varieties and compete directly with Monsanto’s Bt cotton varieties. As a result, transgenic seed prices are much lower in China than elsewhere and farmers reap substantially higher returns. The role of the public sector in developing and distributing Bt cotton varieties has been

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instrumental in reducing the price premium. Lower costs and marginally higher yields translate into large net profit gains in China. Chinese farmers experience lower yield gains than in many other countries because pest damage on conventional cotton is controlled by heavy pesticide use. The findings of Huang et al. (2004) show that China has been able to significantly reduce its use of chemical pesticides on cotton, with important environmental and farmer health benefits. In their study of two Bt cotton varieties and the non-transgenic counterparts in Hubei and Fujian, they found a yield advantage of 5 per cent and pesticide reductions of 90 per cent for the transgenic varieties. Pray and Huang (2003) analysed the distribution of Bt cotton benefits in China by farm size and found the innovation to be decidedly pro-poor. The smallest farms (less than 0.47 ha) experienced the largest yield gains, and mid-size farmers (0.47-1.0 ha) had the largest reductions in total costs due to less pesticide use. In terms of net income, the gains for the two smaller farm-size categories were more than twice those for the largest farms (over 1.0 ha). India. The Indian experience with Bt cotton has been controversial. Despite the rapid expansion of Bt cotton in India, its economic impact continues to be hotly contested, with some critics charging that Bt adopters are worse off than conventional growers (Shiva and Jaffri 2004). The first peer-reviewed economic studies of the Indian experience estimated potential yield benefits from Bt adoption of 80 per cent. These studies were based on farm-level field trial data, and as such did not reflect actual farm experience with commercial cultivation (Qaim 2003; Qaim and Zilberman 2003). A subsequent study, summarised in Table 6.1 and shown in detail in Table 6.2, was based on farm-level data from four different states in India (Qaim et al. 2006). This study found large net gains from Bt cotton adoption at the national average level although with significant variation across states. One state, Andhra Pradesh, experienced negative results. The authors speculated that the lack of locally adapted cultivars was the main reason for the poor performance in this state. At the time of the study, the Indian biosafety authorities had approved only four Bt cotton varieties for use throughout the country. By 2005, that number had increased to 20, and the Bt cotton area in the country almost tripled from the previous year (James 2005).

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Table 6.2 Performance Advantage of Bt over Non-Bt Cotton in India, by State, 2002-03, Per cent   Maharashtra

Yield

Revenue

Chemical costs

Total Costs

Profits

32***

29***

-44***

15**

56***

Karnataka

73***

67***

-49***

19**

172***

Tamil Nadu

43***

44***

-73***

5

229***

Andhra Pradesh

-3

-3

-19

13*

-40

National average

34***

33***

-41***

17***

69***

Source: Qaim et al (2006). *,**,***Significantly different from zero at the 10 per cent, 5 per cent and 1 per cent confidence levels, respectively.

The evidence reviewed above suggests that farmers in developing countries can benefit from transgenic crops, but a fairly high level of national institutional capacity is required to ensure that farmers have access to suitable innovations on competitive terms. Developing countries that lack strong public sector research systems and/or strong commercial seed sectors will be handicapped in the adoption of transgenic varieties. The enforcement of IPRs clearly influences the farm-level returns to GM crops. Where the public sector provides effective competition with private sector technology suppliers, farmers gain a larger share of the economic value produced by GM crops. Where IPRs are strictly enforced the technology may be priced beyond the reach of farmers, but when there is no IPR enforcement the technology supplier cannot earn a return on its investment. Where regulatory procedures are slow or weak, there may be significant delays in the development and deployment of suitable innovations. And where credit systems are weak and contracts are unenforceable, small farmers may not have access to the new technologies.

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Developing and Accessing Biotechnology for the Poor The Green Revolution showed that technological innovation in agriculture could have significant positive impacts on production and productivity, farm incomes, farm wages, demand for off-farm goods and services, food prices, and broader economic growth. It also proved that agricultural technology could be transferred internationally, when the necessary institutional capacity existed or could be built, and that developing countries could capture important spillover benefits from public sector research conducted elsewhere. On a more cautionary note, the Green Revolution showed that technological change could have adverse distributional implications – at least in the short run – if certain groups or regions were prevented from accessing the new technologies because of scale economies, agronomic limitations or social exclusion. What lessons can be drawn for the Gene Revolution, given the very different economic and institutional environment in which it is occurring? The main challenges involve first promoting research to develop the “public good” technologies needed by poor farmers and then ensuring their access to the new technologies. Access will depend crucially on the institutional capacity of countries to manage the intellectual property and biosafety regulatory requirements for transgenic crops. There is a real risk that farmers in the poorest countries, where these institutional prerequisites are lacking, may find themselves excluded from the Gene Revolution. Unlike the Green Revolution technologies, transgenic technologies are being developed predominantly by the private sector and transferred internationally through market mechanisms. This system of technology development and transfer works well for commercially viable innovations in well-developed markets, but perhaps not for the types of innovations needed in developing countries: crops and traits aimed at poor farmers in marginal production environments. These “orphan” technologies have traditionally been the province of public sector research and dissemination. Although private sector agricultural research expenditures are very large, they are focused narrowly on a small number of crops, mainly cotton, maize, canola and soybeans. Private sector investment in the world’s two most important food crops, rice and wheat, is insignificant in comparison.

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Moreover, all of the private sector investment is targeted towards the commercial production sector in the developed world, with some spillover benefits flowing to the commercial sector in the developing world. The public sector, with its increasingly meagre budget, is left to take care of the research and technology needs of the subsistence farming sector, as well as being the only source of supply for conventionally bred seed and crop and resource management technologies. Although it is unlikely that the private sector will address the specific technological needs of subsistence farmers operating in marginal environments, private sector investments in genomics and genetic engineering could be very useful for addressing their production constraints. Knowledge generated through genomics, for example, could have enormous potential in advancing the quest for drought-tolerant crops in the tropics. The crucial question is whether incentives exist or can be created to foster public/private partnerships that would allow the public sector to use and adapt technologies developed by the private sector for the problems faced by the poor. Pingali and Traxler (2002) suggest three possible avenues for public sector institutions in developing countries to gain access to transgenic technologies: (i) directly import private- or public-sector transgenic varieties developed elsewhere, (ii) build the independent capacity to develop and/ or adapt transgenic varieties, and (iii) collaborate on a regional basis to develop and/or adapt transgenic varieties. The second option is the most costly and requires the highest degree of national research capacity, while the first option depends on the availability of suitable varieties developed elsewhere. The third option would require a higher degree of cooperation across national boundaries than has typically characterized public sector research. FAO (2004) identifies a number of policy recommendations to promote research on innovations of relevance in the developing world and to improve farmers’ access to new and existing innovations. For the poorest countries, international assistance may be needed to create the necessary physical infrastructure such as transportation and communication networks and institutional infrastructure such as law and order and enforceable contract law, which are required for markets to work. In addition to promoting

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public/private partnerships as discussed above, specific measures to foster research and access include the following: •

•

•

•

chap6 Pingali.indd 184

Make biotechnology an integral part of a comprehensive agricultural research and development programme that focuses on the problems of the poor. Developing countries should consider their individual needs and capacities before investing in advanced biotechnology research and research capacity. It makes little sense to develop the ability to perform genetic transformations, in the absence of plant-breeding capacity. The public sector – in developed and developing countries and in the international research centres – should devote more resources to agricultural research, including biotechnology, to develop the public goods that the private sector neglects. A strategic assessment of the crops and traits of greatest importance to the poor should be conducted to guide research funds to the highest priority activities. The international donor community should prioritise the development of biotechnology innovations that can be transferred to a wide range of developing countries, along the lines of the Green Revolution model of germplasm improvement and exchange. Developing country governments should provide incentives and an enabling environment for private-sector agricultural biotechnology research, development and deployment. Examples of enabling measures include: (i) liberalising input markets and eliminating government monopolies to increase the potential size of the market for agricultural technology innovations, (ii) strengthening IPR laws and enforcement to increase the ability of technology developers to appropriate a share of the returns to research, (iii) easing trade restrictions on inputs required for research, such as chemicals, (iv) easing restrictions on foreign direct investment, and (v) assisting small local firms to gain access to proprietary technology. National and international biosafety regulations should be rationalised to ensure (i) that decisions are made transparently and on the basis of scientific criteria and evidence, and (ii) that regulatory measures are no more restrictive than necessary to ensure that transgenic innovations are at least as safe as their conventional counterparts. Transgenic innovations should be evaluated on a case-by-case basis, taking into

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•

185

consideration the crop, trait and ecosystem. A very time-consuming and expensive regulatory process may preclude the development of transgenic innovations for “orphan” crops and traits because only the largest commercial markets would justify the cost of regulatory compliance. The international community has an obligation to assist developing countries in complying with international conventions related to biotechnology. Regional harmonisation and mutual recognition of biosafety regulatory measures could remove unnecessary barriers to the transfer of new conventional and transgenic plant varieties between developing countries and allow private firms or public sector institutions to have bigger markets for the products of their research. This would enable seed companies in larger countries like India and China, for example, to supply technology to neighbouring countries.

These recommendations could help overcome some of the constraints that currently inhibit the development and deployment of biotechnology innovations for poor farmers in developing countries. In the world today 800 million people remain chronically undernourished and another billion people survive on less than one dollar per day. Ironically, most of the world’s poorest and most food-insecure people depend on agriculture for their livelihoods. Raising agricultural productivity is the surest way of helping them improve their lives. Biotechnology is certainly not a panacea, but it can be one part of a strategy aimed at eliminating extreme hunger and poverty.

NOTES * Correspondence: [email protected]. 1. This section draws on Pingali and Raney (2005), Pingali and Kelley (2006, forthcoming) and Pingali and Heisey (1999). 2. One of the common arguments made for small farmers’ reluctance to adopt new technologies is that it is riskier than the ones they use currently. Anderson and Hazell’s (1989) volume on variability in grain yields provided an important synthesis of evidence on production variability in agricultural systems that had recently switched to modern

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varieties. The volume covered most CGIAR crops and all continents where the CGIAR centres worked. The worry that modern varieties may be more risky and therefore less attractive to farmers does not seem to have held up in practice. Stochastic dominance tests of the distribution of returns from improved and traditional varieties typically show new varieties to be dominant. The following studies provided crop-specific results for sorghum and millets (Walker 1989; Witcombe 1989) and rice (Flinn and Garrity 1989; Coffman and Hargrove 1989). More recent studies at CIMMYT (CIMMYT 1991) for wheat and at ICRISAT for millet (Adesina 1988; Shapiro 1990) have reported reduced coefficients of variation for yields over time. 3. This section is based on Raney (2006).

References Alston, J.M., M.C. Marra, P.G. Pardey, and T.J. Wyatt. “Research Returns Redux: A Meta-analysis of the Returns to Agricultural R&D”. Australian Journal of Agricultural and Resource Economics 44, no. 2 (2000.): 185-215. Bennett, R., Y. Ismael, S. Morse, and B. Shankar. “Reductions in Insecticide Use from Adoption of BT Cotton in South Africa: Impacts on Economic Performance and Toxic Load to the Environment”. Journal of Agricultural Science 142 (2004): 665-74. Binswanger, H.P. “Income Distribution Effects of Technical Change: Some Analytical Issues”. South East Asian Economic Review 1, no. 3 (1980): 179218. Byerlee, D. and P. Moya. Impacts of International Wheat Breeding Research in the Developing World, 1966-1990. Mexico D.F.: International Maize and Wheat Improvement Center (CIMMYT), 1993. Byerlee, D. and K. Fischer. “Accessing Modern Science: Policy and Institutional Options for Agricultural Biotechnology in Developing Countries”. IP Strateg y Today, no. 1 (2001). Cornell, Ithaca, NY: BioDevelopments–International Institute Inc. Byerlee, D. and G. Traxler. “The Role of Technology Spillovers and Economies of Size in the Efficient Design of Agricultural Research Systems”. In Agricultural Science Policy: Changing Global Agendas, edited

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by J. M. Alston, P. G. Pardey and M. J. Taylor. Baltimore, USA: Johns Hopkins University Press, 2002. Conway, G. “Crop Biotechnology: Benefits, Risks and Ownership”. Foundation News (03062000). New York: Rockefeller Foundation, 2000. David, C. and K. Otsuka (eds.). Modern Rice Technolog y and Income Distribution in Asia. Boulder: Lynne Rienner, 1994. Delgado, L.C., J. Hopkins, and V.A. Kelly. “Agricultural Growth Linkages in Sub-Saharan Africa”. IFPRI Research Report No. 107. Washington, D.C.: International Food Policy Research Institute (IFPRI), 1998. Echeverría, R.G. “Assessing the Impact of Agricultural Research”. In Methods for Diagnosing Research System Constraints and Assessing the Impact of Agricultural Research, Volume 2, edited by R.G. Echeverría. The Hague: International Service for National Agricultural Research (ISNAR), 1990. Evenson, R.E. “Economic Impacts of Agricultural Research and Extension”. In Handbook of Agricultural Economics, Volume 1, edited by B.L. Gardner and G.C. Rausser. North Holland, 2001. Evenson, R.E. and D. Gollin. “Assessing the Impact of the Green Revolution: 1960-1980”. Science 300 (2003): 758-62. Fan, S., P. Hazell, and S. Thorat. “Government Spending, Growth, and Poverty: An Analysis of Interlinkages in Rural India”. EPTD Discussion Paper no. 33. Washington, D.C.: International Food Policy Research Institute, 1998. Flores-Moya, P., R.E. Evenson, and Y. Hayami. “Social Returns to Rice Research in the Philippines: Domestic Benefits and Foreign Spillover”. Economic Development and Cultural Change 26, no. 3 (1978): 591-607. Food and Agriculture Organization. “Agricultural Biotechnology: Meeting the Needs of the Poor?” The State of Food and Agriculture 2003-04. Rome: Food and Agriculture Organization, 2004. ———. BioDeC database. 2005 Gouse, M., J. Kirsten, B. Shankar, and C. Thirtle. “Bt Cotton in KwaZulu Natal: Technological Triumph but Institutional Failure”. AgBiotechNet 7 (2005): 1-7. Gouse, M., C. Pray, J. Kirsten, and D. Schimmelpfennig. “A GM Subsistence Crop in Africa: The Case of Bt White Maize in South Africa”. International Journal of Biotechnolog y 7, nos. 1-3 ( 2004): 84-94.

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Hayami, Y. and R.W. Herdt. “Market Price Effects of Technological Change on Income Distribution in Semi-subsistence Agriculture”. American Journal of Agricultural Economics 59, no. 2 (1977): 245-56. Hayami, Y., with M. Kikuchi, P.F. Moya, L.M. Bambo, and E.B. Marciano. Anatomy of a Peasant Economy: A Rice Village in the Philippines. Los Baños: International Rice Research Institute (IRRI), 1978. Hazell, P. and S. Haggblade. “Farm-nonfarm Growth Linkages and the Welfare of the Poor”. In Including the Poor, edited by M. Lipton and J. van de Gaag. Washington, D.C.: World Bank, 1993. International Food Policy Research Institute. “To Reach the Poor: Results from the ISNAR-IFPRI Next Harvest Study on Genetically Modified Crops, Public Research and Policy Implications”. EPTD Discussion Paper no. 116, 2004. James, C. “Global Status of GM Crops”. International Service for the Acquisition of Agri-Biotech Applications (ISAAA) Brief no. 32, 2005. ———. “Global Status of GM Crops”. ISAAA Brief no. 34, 2006. Lantican, M. and P.L. Pingali. “Growth in Wheat Yield Potential in Marginal Environments”. In Proceedings of the Warren E. Kronstad Memorial Symposium, held 1-17 March 2001. Mexico City: International Maize and Wheat Improvement Center (CIMMYT), 2003. Maredia, M.K., D. Byerlee, and C.K. Eicher. “The Efficiency of Global Wheat Research Investments: Implications for Research Evaluation, Research Managers and Donors”. Staff Paper no. 94-17. Department of Agricultural Economics, Michigan State University, 1994. Morris, M. Maize Seed Industries in Developing Countries. Boulder, Colorado: Lynne Rienner Publishers, 1998. Morris, M. and B. Ekasingh. “Plant Breeding Research in Developing Countries: What Roles for the Public and Private Sectors”. In Agricultural Research Policy in an Era of Privatization: Experiences from the Developing World, edited by D. Byerlee and R. Echeverria. Wallingford, U.K.: CABI, 2001. Pardey, P.G., R.K. Lindner, E. Abdurachman, S. Wood, S. Fan, W.M. Eveleens, B. Zhang, and J.M. Alston. “The Economic Returns to Indonesian Rice and Soybean Research”. Unpublished report. Jakarta and the Hague: Agency for Agricultural Research and Development

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(AARD) and International Service for National Agricultural Research (ISNAR), 1992. Pingali, P.L. and S.R. Rajaram. World Wheat Facts and Trends, 1998/99. Mexico, DF: CIMMYT Institute, 1999. Pingali, P.L. and P.W. Heisey. “Cereal-Crop Productivity in Developing Countries: Past Trends and Future Prospects”. In Agricultural Science Policy, edited by J.M. Alston, P.G. Pardey, and M. Taylor. Washington: IFPRI and Johns Hopkins University Press, 2001. Pingali, P. and G. Traxler. “Changing Locus of Agricultural Research: Will the Poor Benefit from Biotechnology and Privatization Trends”. Food Policy 27 (2002): 223-38. Pinstrup-Andersen, P., N. Ruiz de Londoño, and E. Hoover. 1976. “The Impact of Increasing Food Supply on Human Nutrition: Implications for Commodity Priorities in Agricultural Research”. American Journal of Agricultural Economics 58, no 2 (1976): 131-42. Pinstrup-Andersen, P. and P.B.R. Hazell. “The Impact of the Green Revolution and Prospects for the Future”. Food Review International 1, no. 1 (1985.): 1-25 Pray, C.E. and R.G. Echeverria. “Private Sector Agricultural Research in Less Developed Countries”. In Agricultural Research Policy — International Quantitative Perspectives, edited by P.G. Pardey, J. Roseboom, and J. Anderson. Cambridge: Cambridge University Press, 1991. Pray, C.E. and K.O. Fuglie. “Policies for Private Agricultural Research in Asian LDCs”. Paper presented at the XXIV International Conference of Agricultural Economists. Berlin, Germany, 2000. Pray, C.E., A. Courtmanche, and R. Govindasamy. “The Importance of Intellectual Property Rights in the International Spread of Private Sector Agricultural Biotechnology”. Paper presented at the 6th International Conference convened by International Consortium for Agricultural Biotechnology Research (ICABR), held in Ravello (Italy), 11-14 July 2002. Pray, C.E. and A. Naseem. “The Economics of Agricultural Research”. ESA Working Paper 03-07. Washington: FAO, 2003. Pray, C.E., J. Huang, R. Hu, and S. Rozelle. “Five Years of Bt Cotton in China – The Benefits Continue”. The Plant Journal 31, no. 4 (2002): 42330.

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Qaim, M. “Bt Cotton in India: Field Trial Results and Economic Projections”. World Development 31, no. 12 (2003): 2115-27. Qaim, M. and D. Zilberman. “Yield Effects of Genetically Modified Crops in Developing Countries”. Science 299 (2003): 900-2. Qaim, M. and G. Traxler. “Roundup Ready Soybeans in Argentina: Farm Level, Environmental and Welfare Effects”. Agricultural Economics, 32 (2005):73-86. Qaim, M., A. Subramanian, G. Naik, and D. Zilberman. “Adoption of Bt Cotton and Impact Variability: Insights from India”. Review of Agricultural Economics 28, no. 1 (2006): 48-58. Raney, T. “Economic Impact of Transgenic Crops in Developing Countries”. Current Opinion in Biotechnolog y 17 (2006): 1-5. Renkow, M. “Differential Technology Adoption and Income Distribution in Pakistan: Implications for Research Resource Allocation”. American Journal of Agricultural Economics 75, no. 1 (1993): 33-43. Scobie, G.M. and R.T. Posada. “The Impact of Technical Change on Income Distribution: The Case of Rice in Colombia”. American Journal of Agricultural Economics 60, no. 1 (1978): 85-92. Shiva, V. and A. Jaffri. “Failure of GMOs in India”. Synthesis/Regeneration 33 (Winter 2004) Traxler, G. and P.L. Pingali. “International Collaboration in Crop Improvement Research: Current Status and Future Prospects”. Economics Working Paper No. 99-11. Mexico City: International Wheat and Maize Improvement Center, 1999. Traxler, G. and S. Godoy-Avila. “Transgenic Cotton in Mexico”. AgBioForum 7, nos. 1 & 2 (2004): 57-62.

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7

Dryland Agriculture in Asia: Ideas, Paradigms and Policies



William D. Dar, M.C.S. Bantilan, P. Anand Babu, G.V. Anupama, H. Deepthi and R. Padmaja*

Introduction Dryland ecosystems, where most of the world’s poor live, are characterised by extreme rainfall variability, recurrent but unpredictable droughts, high temperatures and low soil fertility. The underdevelopment in the dryland1 region of Asia reflects the pervasiveness of poverty, as demonstrated by continuing concerns about malnutrition, migration due to frequent droughts, growing constraints of the natural resource base (water scarcity and land degradation), lack of infrastructure, poor dissemination of improved technologies and effects of government policies, and further economic liberalisation (GT-SAT Futures 2002). Dryland areas indeed present significant constraints to intensive agriculture. The Green Revolution of the 1960s and 1970s — with its package of improved seeds and chemical fertilisers, and enhanced farm technology and irrigation — successfully attained its primary objective of increasing crop yields and augmenting aggregate food supplies. In Asia, where the package was most widely adopted, food production increased substantially during

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those decades. Despite its success in increasing aggregate food supply, the Green Revolution as a development approach has not necessarily translated into benefits for the lower strata of the rural poor in terms of greater food security or greater economic opportunity and well-being. Moreover, vast expanses of dryland regions were bypassed by the Green Revolution. They had failed to attract commercial investments in agricultural technology due to small or non-existent markets. Development planners and policymakers are now increasingly eyeing the hitherto less-favoured dryland regions, where agricultural transformation is yet to take off. Due to issues of equity, efficiency and sustainability, the need to improve the productivity of dryland agriculture has become more compelling, given that the growth opportunities in irrigated areas are being exhausted. This paper summarises the major challenges in achieving food security, income growth, poverty reduction and environmental sustainability for the dryland regions of Asia. It also identifies future strategies and priorities as it highlights emerging issues that threaten the sustainability of dryland agriculture and future sources of growth. The next section presents an overview of the dynamics of dryland agriculture. It is followed by an analysis of the persistent challenges facing it, and identifies opportunities such as agricultural diversification, trade liberalisation, the commercial orientation of agriculture, and institutional innovations. Finally, implications for policy, research priorities and development pathways are drawn, followed by a vision for Asian dryland agriculture.

Dynamics of Dryland Agriculture Dryland ecosystems span over 40 per cent of the earth’s total land surface (Figure 7.1). In fact, more than 60 per cent of Asia’s arable land is devoted to rainfed2 agriculture, ranging from the dry and semi-arid areas of Pakistan, India, Burma, Thailand and the People’s Republic of China, to the dry and sub-humid regions of Indonesia and the Philippines.

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