1. FOOD SECURITY
Concepts, Basic Facts,
and Measurement Issues
June 26 to July 7, 2006
Dhaka, Bangladesh

2. Rao 3b:
The Role of Agriculture in
Growth & Poverty Alleviation
Learning: The goal is to achieve an understanding
of the sometimes paradoxical role of agriculture
in promoting development and food
security, the value of agricultural growth in
economy-wide growth and poverty
reduction, international variations and the
changing role of agriculture.

3. Brief Contents
• paradox of the role of agriculture in econ. growth
• empirical evidence of agriculture/non-agriculture
growth complementarity
• the growth costs of neglecting agriculture
• the value of agricultural growth in reducing
poverty and raising FS
• Cross-country variations and country typology
• transforming traditional agriculture and rural or
urban policy biases
• the changing role of agriculture

4. The Role of Agriculture
• Paradox: Agriculture declines markedly with economic
growth
(Reason: Engel's Law + Diminishing Returns)
• Yet, neglect of AG is a persistent cause of growth
failure, widespread poverty and food insecurity. Two
apparently conflicting aspects to this role:
– High initial share in both GDP and (especially)
employment. This implies that neglecting AG would
hurt both growth and poverty reduction.
– Declining dynamic share: Yet, in long-
run, diversification into industry and modern services is
route to higher economic growth.

5. The Role of Agriculture
• Is there a conflict, then, between agricultural
growth and economic growth? Or at least
between economic growth and poverty
alleviation?

6. Agriculture/Non-Agriculture
Complementarity
• empirical evidence: high + correlation between
AG g-rate and GDP g-rate till y<$2000-3000
• supply-side complementarity: AG Food, Labor
& Saving surpluses absorbed by non-AG
• demand-side complementarity: AG source of
effective demand for non-AG and so stimulates
growth

7. Agriculture/Non-Agriculture
Complementarity
• THUS, at low y, AG growth speeds up overall
growth by contributing to investment
demand and saving supply, and relieving
food and/or import supply constraints

8. Paradox Resolved
• At the early stages of development, faster AG
growth not only does not conflict with
economic growth but is basically complementary
to it. [So AG neglect can be costly]
• But except for short periods, AG tends to grow
more slowly than the rest of the economy
implying a structural transformation.
• AG growth promotion should therefore go
hand-in-hand with overall growth promotion

9. Why Might AG be Good
for Poverty Reduction?
1. majority of poor are in rural areas where AG leads
employment and livelihoods
2. AG sector is labour intensive and can generate
employment for landless and under-employed (mostly
poor)
3. AG incomes is major basis of both demand and
investible resources for growth of off-farm rural
employment in informal industry and services

10. Why Might AG be Good
for Poverty Reduction?
4. rural & AG growth stimulates urban non-AG
growth via increased purchasing power among
rural people
5. rural & AG growth holds down migration and
so reduces urban poverty (disproportionate
among migrants)

11. Agriculture, Rural Development, and
Food Security
• Agriculture as an Engine for Poverty
Reduction:
– Fact 1: No country with rural population >75%
had pc food supply >2,500Kc.
– Fact 2: All countries with >3,000Kc had <60% of
population in rural areas
– Fact 3: Yet food production is often path out of
poverty for many, or even only path
– These facts are yet another manifestation of
"the paradox"

12. Limits to Complementarity of AG & GDP
Growth, of AG & Poverty Reduction
• Natural resource and environmental limits
– More severe resource and environmental limitations of late
developers
– Limited land and growing populations reduce the land-per-
worker steadily.
• Investment costs: Though available, HYV/GR
technologies are not cheap options. Require
investments in rural education, agricultural
research, extension, irrigation, roads, energy, etc. From
a growth standpoint, agriculture is no longer a `bargain
sector’.
• Achieving competitiveness: Late-industrialisation is
competitive, hard and K-intensive. This makes AG
neglect likely and growth poverty-enhancing.

13. Variations Across Developing
Countries in Role of AG
• Income level: large variation in y-levels so structural
constraints (savings, foreign exchange, external
vulnerability) vary in severity
• Agrarian structure: inequality in access to
productive assets varies; greater inequality distorts
rural markets and mal-distributes gains from growth
• Technological potentials: wide variation in natural
resources or environmental pressures; AG
technology does not favour all regions equally

14. Country Scenarios
• Technically, the above categories together yield
8 scenarios. It would not be very useful to
examine each policy under all these possible
scenarios. Instead, we shall use judgement in
indicating how certain scenarios are likely to
differ from others in the context of our policy-
analytic discussions later in the volume. In any
case, certain scenarios seem rather more
probable than others.

15. Country Scenarios
• These scenarios are…
Type INCOME Level AG Structure TECH Potential
1 low-income Unimodal low-potential
2 low-income Unimodal high-potential
3 middle-income Unimodal high-potential
4 low-income Bimodal high-potential
5 middle-income Bimodal high-potential

16. Twin Theses:
Transforming Traditional Agriculture
• T-1: Poor Peasants But Efficient Markets or "poor
but efficient“
– Poor because technology is backward. Efficient because
peasants rational, and markets efficient.
• T-2 Discriminatory And Inefficient States
– All systemic inefficiencies due solely to government
interference in markets: extracting resources from agriculture;
depressing agricultural prices or "urban bias"; public sector
activities burdened the economy.

17. Criticisms of T-1
• Ignores profound weight of land/inequality for
mass poverty and food insecurity
• Agrarian inequality is also major cause of AG
stagnation
• Agrarian inequality also makes FACTOR
markets inefficient e.g., inverse-size-yield
relation; localized monopolies
• Inequality also is the major cause of distorted
government policies

18. Criticisms of T-2
• Ignores fact that state is critical for GR/HYV
technologies
• Getting AG prices "right" (1): ignores TOT
consequences
• Getting AG prices "right" (2): ignores fiscal and
other functions of AG prices
• Ignores class bias of policies

19. Agriculture-Economy Interactions:
Bias in Pricing
• T-2 is based on unfavourable tariffs and
exchange rate overvaluation
• Neoclassical: Peasants VS City-Dwellers + State
• Classical: Rural Rentiers VS Urban Capitalists
• So Q is: whom does high AG prices benefit?
whom do they hurt?
• Windfall gain to rentiers + [Employment
Rise(?) + Food Price Rise]
• World prices as NORM: role of DC policies

20. Agriculture-Economy Interactions:
Bias in Pricing (examples)
• e.g., Bangladesh (ARKhan): Poverty rose 1985-
86 despite significant rise in y.
– But AG stagnant: due to drastic fall in public AG
development expenditure.
– Price reform reduced AG input subsidies
– No counteracting growth-inducing public policy
• e.g., India & Indonesia: rural & urban poverty
rises with rising food prices

21. Changing Roles of Agriculture in
Economic Development
• Adjustment: a set of policy reforms designed to activate
(if stagnant) or accelerate economic growth, usually in a
"market-friendly" direction
• Two components:
– macroeconomic adjustment (stabilisation): to reduce fiscal
and external disequilibria. The policy changes involve short-
term remedies for current problems and primarily influence
the demand side of the economy.
– structural adjustment: to influence supply side of economy
both to raise growth and to avoid future fiscal and external
disequilibria

22. Two Engines of Growth?
• Most economists believe free trade is unfailing
"engine of growth“
• We have argued, at low y, AG is a reliable
"engine of poverty reduction & growth“
– Q: Can the two "engines" work together in
harmony? Or is there conflict?

23. Case Study: SSA & L-America
(Poulton, Kydd and Harvey,1999)
• Most absorbed the lessons of conventional wisdom (Twin
Theses)
• Large concentrations of poverty
• Poverty reduction did not automatically flow from higher growth
• Liberalization did not automatically produce competitive markets
• Failure to recognize heavy dependence of the fisc on trade taxes
• Low level of development of technologies for sustainable
intensification
• Crucial role of a range of public expenditures/subsidies to get
agriculture moving
• Low price elasticity ←→ Major supply shifters are transport,
credit, marketing infrastructure in Africa

24. Do Developing Countries Have AG
Comparative Advantage?
• From World Bank to Bob Geldof, From WTO to
Bono: for price reforms
• Will the poor really benefit?
– SSA: Sachs says Africa does not have international comp adv
inAG.
– This implies Africa has comp adv in IND which seems
implausible.
– In reality, tradability of much of backward agriculture is
questionable.
– More complete AG liberalization could depress, not
stimulate, AG
– This calls the consensus of Bank-Bono-Bob-and-WTO into
question.

25. Promoting Rural-Urban,
Agriculture-Industry Linkages
• The logic of a complementary strategy:
– SUPPLY-&-DEMAND AG output growth can both relax
food supply constraint on non-AG growth and raise AG
incomes which will raise non-AG demand & so growth
– GROWTH-&-EQUITY But rural inequalities impede AG
growth. First, at the institutional and markets level.
Second, also by restricting demand for food.
• IF growth takes place with equity, THEN, S-&-D can
equilibrate at high levels
• IF growth is unequalizing, food demand will not rise
much, so S-&-D will equilibrate at low levels