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close this bookAid to Agriculture: Reversing the Decline - Food Policy Report (IFPRI, 1993, 24 p.)
View the document(introduction...)
View the documentPreface
View the documentPayoffs to Investment in Agriculture
View the documentRole of Aid in Agricultural Investment
View the documentChanging Patterns of External Assistance to Agriculture
View the documentTrends and Outlooks for Major Donors
View the documentDeveloping-Country Responses
View the documentReasons for the Decline
View the documentProspects for the Future
View the documentConclusions

Reasons for the Decline

Declining external assistance to agriculture has economic, political, and bureaucratic explanations.

Economic Causes

Some types of agricultural development activities such as area development and livestock, especially in Africa, did not pay off - partly due to donor countries' own agricultural trade policies - and, therefore, donors turned elsewhere. However, this broad conclusion cannot be generalized and is not justified by a review of World Bank projects in agriculture and rural development, which indicates that while many such projects performed poorly, many others performed at least as well as projects in other sectors. The proportion of World Bank agricultural projects performing satisfactorily has declined, but so has the proportion of all projects performing satisfactorily; thus, poor performance is not restricted to agricultural projects alone. During 1987-90, the proportion of agriculture and rural development projects rated satisfactory declined from 60 to 52 percent, whereas the proportion of all projects rated satisfactory declined from 72 to 64 percent.25

25. World Bank, Operations Evaluation Department, Evaluation Results for 1990 (Washington, D.C.: World Bank, 1990).

Moreover, the positive economy-wide effects of the "green revolution" and innovations in crop and seed technology, many of which were stimulated and supported by development assistance, have been repeatedly and successfully demonstrated in many developing countries. In India and Bangladesh, agricultural support through investment in new technology has led to growth elsewhere in the economy.26 The new seed technology has substantially reduced poverty, especially through price and employment effects on the nonfarm population.27

26. P. B. R. Hazell and C. Ramasamy, The Green Revolution Reconsidered: The Impact of High-Yielding Rice Varieties in South India (Baltimore and London: Johns Hopkins University Press for IFPRI, 1991).

27. M. Lipton and R. Longhurst, New Seeds and Poor People (London and Baltimore: Hutchinson and Johns Hopkins University Press, 1988).

Many donors, in fact, concluded that agricultural projects were generally sound, but would have performed better if implemented under better macroeconomic conditions. As has been mentioned in the case of the World Bank, this spurred their desire to promote policy and governance reforms. Donors gave priority to macroeconomic reforms. Loans and aid were redirected to support reform programs, leading to a reduced emphasis on project lending.

Political Causes

Pressure groups in both donor and recipient states compete for development assistance. In the 1980s there were three major political forces at work that help explain the downward trend of assistance to agriculture.

Domestic Farm Groups' Interests

In response to increased competition and deteriorating international commodity prices, farm groups' interests in donor countries shifted their objectives from only seeking subsidies to opposing funding for agricultural assistance to low-income countries. This shift was the result of weakened political support for maintaining large direct subsidies to farmers. Efforts were also made to increase the use of foreign assistance to promote short-run export enhancement for developed countries. Examples of this included the export enhancement program in the U.S. Farm Bill of the 1980s, which promoted cereals and oilseeds, and the promotion of wheat exports by European countries. Farm organizations pressed for allocating food aid to countries that could absorb agricultural exports, even when these countries were not likely to use savings resulting from food aid to develop domestic substitute crops. Egypt, for instance, was a favorite target for subsidized wheat exports. When some developing countries attempted to improve their domestic food production situation, they were impeded. For example, when Nigeria wanted to reduce dependency on wheat imports through a quota and to raise local cereal production, trade sanctions against Nigeria were sought. Any agricultural assistance to perceived "competitors" abroad was attacked.28

28. R. B. Purcell and R. Morrison, eds., U. S. Agriculture and Third World Development: The Critical Linkage (Boulder, Colo., U.S.A.: Lynne Rienner, 1987).

International Lending Interests

The rise in Third World debt contributed to the shift to structural adjustment and policy-based lending and reduced the power of agricultural ministers in low-income countries. The World Bank and other bilateral donors accelerated conditional lending to help low-income countries "reform" their macroeconomic policies in the 1980s. Lending institutions believed that macroeconomic adjustments, such as eliminating overvalued exchange rates, would have a greater positive effect on agriculture than providing the same funds for the agricultural sector in the absence of reform. They believed that improvements in the macroeconomic environment would indirectly support agricultural development in low-income countries.29 They argued that without major economic reforms, agricultural projects would not be able to cover their costs, would not have acceptable internal rates of return, or would not generate growth in other sectors of the economy. These arguments helped justify the shifts in allocating aid to central governments rather than tying them to direct agricultural investments.

29. Krueger, Schiff, and Vald Agricultural Pricing Policy.

Declining Returns to Agriculture

Declining international commodity prices affected the revenues governments could derive from agriculture, and pressure to liberalize trade rules, eliminate overvalued exchange rates, and reduce subsidies led to smaller gains to governments from agriculture. Consequently, many low-income country governments began to withdraw state responsibility from agriculture. The interest of government officials to invest in agriculture, either for personal or public interest reasons, also receded. The benefits of agricultural production could no longer be used to solicit rural political support, for instance.

Bureaucratic Causes

There were also three major bureaucratic forces that affected external assistance to agriculture in the 1980s: organizational restructuring, staff reductions, and organizational politics.

Organizational Restructuring

Organizational restructuring in major donor agencies such as USAID, the World Bank, and GTZ shifted discretionary power from functional units such as agriculture to regional units. In the World Bank, for instance, following reorganization in the mid-1980s, agricultural specialists and projects were incorporated fully within the regional and country departments. Consequently, instead of agricultural projects in various parts of the world competing with each other, agricultural projects competed with industry or energy projects in individual countries. In USAID, regional bureaus were given greater control over budgets, while functional bureaus were reduced in size and authority. The result for agriculture was that important decisions were often made by generalists, who became the major policy-shapers at country or regional levels.

Agricultural Staff Reductions

A major barrier to the design and implementation of successful agricultural projects was a decline in the number of agricultural specialists in donor agencies.30 While donor agencies recognized a need to better address the technical aspects of agricultural projects, since the 1980s the trend has been for fewer specialized staff. The World Bank, in particular, allowed a damaging diminution of technical capability in agriculture and rural development.31

30. Lipton and Paarlberg, Role of the World Bank; and G. E. Schuh, S. B. Hecht, J. B. Henson, U. Lele, J. Mellor, D. L. Plucknett, and J. G. Stovall, "International Cooperation for Sustainable Economic Growth: The U.S. Interest and Proposals for Revitalization," Report of a Task Force on Development Assistance and Economic Growth (Board for International Food and Agricultural Development, Washington, D.C., 1992, mimeographed).

31. Lipton and Paarlberg, Role of the World Bank.

Organizational Politics

There was a perception that agricultural projects would fail or only pay off in the long run and that such "failure" would negatively affect careers in the bureaucracy. In addition, organizational rewards in the major donor agencies seldom went to units and individuals who maintain a specialty. In some agricultural units it was also difficult to promote agricultural growth as the centerpiece of a sustainable poverty alleviation strategy when new "themes" became more competitive.