Agricultural Policy ARE 233
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Joint AfDB and IFAD Evaluation of ARD Context Paper Long AfDBIFAD Joint Evaluation of ARD in Africa The Changing Context and Prospects for Agricultural and Rural Development in Africa by Hans Binswangerlvlkhize and Alex F McCalla1 1 Hans P Binswanger is an Honorary Professor at the Institute for Economic Research of Innovation at Tshwane University of Technology Pretoria South Africa and AlexF McCalla is Professor Emeritus Agricultural and Resource Economics University of California Davis BinswangerMkhize amp McCalla July 24 2008 Joint AfDB and IFAD Evaluation of ARD Contents Summary and C u Context Paper Long u The legacy of the past failure to grow and of the neglect of Global Winds of Change African growth and 39 39 trendq Opportunities and Constraints The Imperative of Regionalization Issues for the Joint AfDBIFAD review of ARD The Charge to Us Our Approach 1 The Past Failure to Grow and the Neglect of Agriculture have Left an The Troubling Challenge of Poverty and Hunger The Special Role of Agricultural Growth in Reducing Poverty and Hunger 2 The Mandates of AfDB and IFAD and the Changing International Landscape of Development Aqqiqtanp The Changing International and Institutional Landscape for ARD 19802007 The 1980 s The Early 2000 s Aid ows to the 39 39 39 sector 3 Global Winds of Change C Trade Liberalization uu International Private Sector C Climate Change and other Trans Boundary Issues Global Warming and Climate Change potentially large but manageable for agriculture Infectious Animal Diseases and Epidemic Plant Diseases Old issues and new solutions Biotechnolgy and the I 39 of A 39 1 39 Reqezrrh I The Acceleration Phase of the Molecular Biology BioFuels Permanent or Transitory Global Demand Factor Changing Market and Price Trends for Food and Agriculture The rapidly changing prices of fond Impacts of exchange rate Impacts of energy and fertilizer prices BinswangerMkhize amp McCalla July 24 2008 17 21 Joint AfDB and IFAD Evaluation of ARD BinswangerMkhize amp McCalla Context Paper Long Prices of individual food ornnps The drivers of demand for fond Are Higher Food Prices Here to Stay Sensitivity of projected prices to key 1 39 Implications of Rising Food Prices Impact on the Balance of Trade Impact on domestic producer and consumer prices Impact on Poverty Economic and Agricultural Growth their Sources and their Constraints Poor Resource Rapid Demographic Ch an 09 Poor C and policy Integration into the World Economy De cient Infrastructure and business v u Capacity 1 Underdeveloped Financial Sectors Low sax inns The agenda for economic growth Agricultural growth has accelerated Agriculture suffers from trade global agricultural trade barriers Domestic Taxation of agriculture was exceptionally high but has been reduced The Bottom Billion Con ict Natural 1 6 SOqu CS Landlocked with poor neighbors Missing the boat of 39 39 quot Aid Other program The Institutional Pillars for ARD Pillar 1 The private sector Pillar 2 Communities Civil Society and Social Capital Pillar 3 Local government Pillar 4 Sectu1 39 Pillar 5 The Central government and other central institutions The capacity of agricultural and rural institutions July 24 2008 Joint AfDB and IFAD Evaluation of ARD Context Paper Long 7 Current Opportunities and Challenges for African ARD 91 Where are the short and medium term market opportunities for Africa 91 Demographic Social Health and Safety Net hzilenoeq 92 Demography 92 Migration Remittances and the Brain Drain 94 Gender Equity 96 Security of Access to Resources 97 Rural IHV and AIDS and 39 39 98 Rural safety nets Agroclimate BioPhysical Resources and Natural Resources Management Africa s Land Resource Water Resource Issues 105 Irrigation and drainage 105 Fnreqtq 106 Fisherieq 106 Are poor natural conditions a constraint to agricultural growth and commercialization in Africa 107 Marginal versus favored areas 108 The Future of Small Farmers 110 Enhancing Agricultural Pro ts and Rural I 110 Input llarketlt 1 12 Rural nance 112 Output Markets 113 Phytosanitary rules and regulation 115 The Ultimate Source of Growth Agricultural Technology 115 The growing 39 39 divide 115 The changing nature of technology discovery 117 The institutional framework for 39 39 39 39 39 quot 1 17 Returns to 39 39 39 research 120 The most urgent need for action 121 Agricultural science and education institutions 121 The Imperative of Regionalization 122 Annex 1 ODA for ARD in Africa Annex 2 Differences in Agricultural Performance and Success Stories Annex 3 POLICY RESPONSES TO SKILLED MIGRATION Annex 4 The Impact of AIDS on Agriculture Food and Nutrition 128 BinswangerMkhize amp McCalla July 24 2008 4 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Interventions against PHVAIDS in rural areas Annex 5 Coordination and Priority Setting in African 39 Research Annex 6 Waves of the supermarket revolution in the Developing World Annex 7 Estimates of the impact of climate change on African Agriculture References BinswangerMkhize amp McCalla July 24 2008 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Summary and Conclusions We undertake this task in a period of optimism about the prospects for Africa and for African agriculture and Rural Development ARD Per capita economic growth is now above three percent and per capita agricultural growth above 1 percent Armed con icts are down to 5 from 15 in 2003 While there are setbacks such as the recent Kenya and Zimbabwe crises democracy has advanced signi cantly Sub Saharan Africa SSA now has faster progress in its business environment than the Middle East and North Africa MENA and Latin America World Bank and IFC 2006 Africa is in the process of strengthening its Regional and subRegional Institutions Agriculture returned as a priority on the International Development Agenda even before the recent food price spike and even more so as a consequence of it The African Union AU in conjunction with the New Partnership for African Development NEPAD have developed the Comprehensive Africa Agricultural Development Program CAADP and are encouraging countries to allocate more scal resources to agricultural development While the recent sharp rise in international food prices is increasing poverty rates and food import bills in the short run combined with economic growth it is creating major opportunities for African farmers in domestic regional and international markets The purpose of this conteXt and prospects review for African Agriculture is to inform the ongoing joint evaluation of IFAD and AfDB policies and operations in Agriculture and Rural Development ARD The study i identi es major ARD policy sector and subsector issues from an African and a global perspective ii drawing on lessons from the past three decades it analyzes issues likely to be of relevance for future development assistance to the sector iii indicates speci c issues and regional priorities which are most relevant to IFAD s and AfDB s policies and operations and makes recommendations for issues to be given further attention in the course of the evaluation This context paper comes at a time when many others have summarized the state of knowledge on food and agriculture including FAO 2007 IFPRI 2006 Inter Academy Council 2005 and World Bank 2007 There are also recent studies on governance failure con ict and natural resource dependence Collier 2007 governance and regional integration Economic Commission for Africa ECA 2006 and especially the causes and consequences of the recent food price rises FAO 2008 OECDFAO 2008 IFPRI 2008 The conteXt paper harvests this rich knowledge Section 1 reviews the terrible legacy that past failure to grow and the neglect of agriculture have left behind in terms of poverty and hunger and the powerful role that agricultural growth can and has played in dramatically reducing poverty and hunger elsewhere in the World Section 2 covers the changes that have occurred in the international and institutional landscape that affect the prospects for African ARD Section three analyzes the Global Winds of Change that have signi cantly altered the environment for agricultural development and in particular analyzes the causes and short and long run consequences of the recent sharp increases in international food and agricultural prices Section 4 then turns to developments in Africa itself and analyzes the factors that have inhibited African economic and agricultural growth for so long and the change in macroeconomic and other policies that have brought about the recent turnaround and successes In section 5 we focus speci cally on the plight of the Bottom Billion countries that remain stuck with low growth rates In section 6 we turn to the institutional pillars that need to be in place for agricultural and rural development ARD including the respective roles of the private sector communities local government central and subregional institutions Section 7 covers the new market opportunities for African farmers that arise from the higher future price levels to which international prices are eXpected to settle after the current spike and then reviews the challenges that African agriculture faces in seizing consolidating the recent turnaround and seizing the new opportunities BinswangerMkhize amp McCalla July 24 2008 6 Joint AfDB and IFAD Evaluation of ARD Context Paper Long The legacy of the past failure to grow and of the neglect of agriculture Except for North Africa and selected countries in SubSaharan Africa that have joined the ranks of middle income countries growth in SSA has been the slowest of all Regions in the World characterized by low investment and productivity growth As a consequence rather than improving over the past ve decades as in all other Regions of the World poverty and hunger have deepened in Africa Among Africa s Regions poverty hunger and PHV and AIDS are signi cantly worse in East Southern and Central Africa than in North and West Africa Where growth has recently been improved it has reduced poverty although it is only where agricultural growth has also increased that hunger has been reduced Landlocked resourcepoor countries have had the slowest growth rates Slow growth was also caused by the delay in the demographic transition which led to very high dependency rates Poor governance macroeconomic instability and limited integration into global markets have sharply reduced growth growth until the mid 1990s when they started to improve signi cantly Today they are less of a negative factor Instead it is structural impediments that continue to impede further acceleration of growth Infrastructure roads electricity water supply is poor transport costs are high and the cost of doing business is much higher than in other parts of the World Financial markets in general and rural nance in particular are very poorly developed and savings rates are much too low Up to the recent past Agriculture in much of Africa has been discriminated against via macroeconomic trade and agricultural policies and starved of scal resources Even at the height of donor support for agriculture in the 1980s apart from often being poorly designed foreign aid was insufficient to compensate for these negative policies and lack of domestic resources especially after its dramatic decline in the 1990s and early years of this century The combination of these negative factors has prevented agriculture from making its contribution to growth and to the reduction in poverty and hunger that it has so powerfully made in East and South Asia Global Winds of Change Global winds of change provide both signi cant opportunities as for example from the biotechnology revolution and in the longer run the production of biofuels as well as signi cant impediments and threats as for example the failure of the Doha Round of trade negations to start dismantling OECD agricultural subsidies and trade barriers or the expected negative impact of climate change on agricultural productivity While the Bali discussions of climate change provide a promise of support to mitigation and adaptation in poor countries the actual mechanisms and actual funding remain still far away Dramatic changes are also occurring in the consolidation of private international agribusiness rms and the associated supermarket revolution that so far is driven by African players in SSA The privatization of much of agricultural research as a consequence of the biotechnology revolution is a similarly dramatic change The biggest global shock and the most complex mix of new opportunities and new problems comes from the recent dramatic rise in global food prices Aggregate food prices including not just grains and oilseeds have risen by approximately 60 percent in real terms while prices of individual commodities have risen even more sharply The rise in real food prices comes after decades of continuous decline But the real aggregate price increase is sharper than the one associated with the food crisis of the early 1970s Nevertheless aggregate real food prices are still lower than they were in the early 1980s The rising food prices have been driven by a combination of permanent structural changes in supply and demand conditions These were exacerbated by weather shocks the dramatic rise in energy prices and low interest rates that may have incited additional speculative behavior On the demand side rapid growth BinswangerMkhize amp McCalla July 24 2008 7 Joint AfDB and IFAD Evaluation of ARD Context Paper Long and rising incomes in emerging economies such as India and China has increased that rate of demand expansion Urbanization and global growth means demands for a larger and more varied food supply At least some of the increase in biofuel demand will be around for a while On the supply side the rate of increase supply has slowed over the past decade because of declining rates of productivity growth and increased competition for water and land Investments in agricultural RampD have declined globally as has investment in agricultural development Finally higher petroleum prices have permanently increased the costs of 39 39 39 l 39 39 As a l of all these trends global grain consumption has exceeded global production in 7 of the last 8 years The result has been a drawdown of stocks to critically low levels Thus when the weather shocks of the past three years combined with the dramatic surge in bio fuel production they have caused prices to rise sharply Are the rising prices here to stay The large emerging literature on this topic is reviewed in section 3 The OECD FAO 2008 conclusion comes closest to our reading of the literature World reference prices in nominal terms for almost all agricultural commodities covered in this report are at or above previous record levels This will not last andprices will gradually come down because ofsome ofthe transitory nature ofsome ofthe factors that are behind the recent hikes But there is strong reason to believe that there are now also permanentfactors underpinning prices that will work to keep them both at higher average levels than in the past and reduce the long term decline in real terms pII In the short run the higher food prices signi cantly increase poverty for urban populations and for poor net buyers of food in rural areas especially in food importing countries that have only limited ways to prevent international prices to pass through to consumers In Africa food import bills will rise by more than 1 percent of GDP in most North East and Southern African countries and in a few West African countries Many of these countries at the same time are even harder hit by the rise in global energy prices The spike in food prices therefore requires urgent actions via safetv nets and via balance ofpavment support Neither ofour two 39 39 39 is active in these areas however In the longer run after food prices settle back they will provide major additional opportunities for African farmers especially in domestic and regional markets that will also grow because of rising incomes In these markets farmers compete on the basis of import parity prices rather than the lower eXport parity prices and with fewer quality and phytosanitary barriers African farmers have a major opportunitv to reconauer markets lost over the past decades Internationallv the changing food demand andsupplv patterns will lead to more South South Trade which in the long run will bolster the onnortunities arising from domestic and regional markets Of course whether thev are able to seize these opportunities depends on manv factors reviewed in this paper Our two 39 39 39 can make innit ant contributions to supportive policies and programs that are urgentlv needed African growth and agricultural trends Section four analyzes major recent improvements in Africa itself and the opportunities for Africa and its agricultural and rural populations arising from the following favorable trends Since 2002 the number of armed con icts has been signi cantly reduced better macroeconomic management has combined with accelerating improvements in the business environment and a more appropriate publicprivate sector division of labor as a consequence scal de cits and in ation have come down and growth has accelerated Signi cant advances in democracy combined with stronger civil society community and farmer s associations have made more 39 39 to their 1 l 39 39 Africa has built stronger regional and subregional organizations both at the political level as well as for agricultural research new private and emerging economy donors are providing growing volumes of aid BinswangerMkhize amp McCalla July 24 2008 8 Joint AfDB and IFAD Evaluation of ARD Context Paper Long The agriculture speci c positive trends include signi cantly improved price incentives for agricultural producers as a consequence of uni ed exchange rates lower industrial protection and sharply reduced export taxation higher international commodity prices may be here to stay and create growing opportunities for import substitution and regional agricultural trade and nally African governments the Regional Institutions and development partners at least in words are showing increasing commitment for agricultural and rural development All these positive trends have led to a signi cant acceleration of per capita economic and agricultural growth and signi cant reductions in poverty headcount in the fastest growing countries Unfortunately except in North and Western Africa they have not yet translated into measurable reductions hunger and malnutrition Areas where progress is less satisfactory are the persistent PHVAIDS crisis the several stubborn con icts that have de ed resolution little improvement in governance and decentralization slow regional integration with a persistence of underfunded regional and subregional organizations inadequate scal commitments to agriculture and rural development by national governments slow progress in the infrastructure linking landlocked countries and remote regions of coastal countries to the centers of demand and the harbors Widely shared agricultural growth also remains impeded by poor nancial markets and rural nance institutions Development of competitive output and input markets is limited Services for smallholder agriculture remain poor Competition for natural resources isoil water sheries and forests is increasing and management of these resources is improving only slowly if at all Progress in bio technology is inadequate and combines with persistent underfunding funding of agricultural research agricultural extension and institutions of higher learning to condemn SSA agriculture to slow and inadequate technical change thus contributing to a growing technology divide From the above discussion it is clear that both A QB and IFAD will have to focus sharply on growth in their future programs and in particular on widely sharedgrowth that includes rural areas Ndulu et al39 propose a medium term growth strategy that hinges on taking action in four areas characterized as the four 1 s 39 improving the c imate39 a big push toward closing t e gap wit other regions of the world 39 a greater focus on 39 39 as the primary motor for productivity growth and enhance 39 39 an 39 39 39 39 umlhumlm capacity Opportul es and Constraints Stagnant volume and quality of aid from the traditional donors combine with only slowly growing nancial commitments for ARD from national governments In general African countries have placed far too much hope on donor support for their ARD programs than is warranted by i the past volumes and quality of aid ii poor donor specialization and coordination iii follow through on recent aid commitments and iv the only modest improvements in donor behavior over the past two decades The growing scal space arising from rapid economic growth is a major opportunity for change The new Aid Architecture Without falling back to the idea that ARD can be nanced via donor support the proliferation of new donors provides some opportunities to complement domestic resources with donor nance However countries will continue to have great difficulties in coordinating all the old and new donors Nevertheless ways must be found to ensure that other donors and aid recipients conform to national development and sector policies and national strategies and plans But their entrepreneurial drive and ability to raise and deploy resources without taxing government capacities should be encouraged as it has for long been the case with donations from foreign religious institutions of all faiths The burden of compliance with national policies could be put squarely on the recipient of the funds combined with expost audits could to verify that policies have been adhered to This would help reduce the donor quot burden Of course for the larger existing and new governm it and BinswangerMkhize amp McCalla July 24 2008 9 Joint AfDB and IFAD Evaluation of ARD Context Paper Long 1 391 1 donors includingAfDB and IFAD the coordination agenda ofthe Rome andParis declaration remain ull in lace The proliferation of new donors together with the rising emphasis on the rural poor and on agriculture should provide an excellent opportunitv for IFAD to broaden and deepen its donor base especiallv in light ofits highlv relevant mandate strategv and policies On the other hand the AfDB would have to articulate a more clearly ZocusedARD strategy to be able to do so In terms of the Rome and Paris agendas the two institutions should emphasize the following issues The overall ARD programs of AfDB and IFAD should derive from PRSP and the analytical work on poverty domestic institutions programs and expenditures which is associated with them While it is tempting to think of joint AfDBIFAD country ARD strategies putting the countries in the driver seat and economizing on scarce analytical skills in both institutions suggests a different approach Support to ARD strategies should be provided in coordination with the other donors in particular EU WB US etc Upgrading of national budgeting and duciary systems and use them as the framework for harmonization of procedures across donors and eventual move to budget support As emphasized in the IFAD policy paper on sector lending this may be more difficult to do for ARD than for health and education Yet progress is still possible Financing of subnational governments and communities via scalable LCDD projects and via the intergovernmental scal system Focusing on the Bottom Billion The enormous costs to the populations of the bottom billion countries and to their neighbors implies that both A123 and IFAD may need to focus more sharply on the countries and on the roots of the problems The enhanced focus on these countries and especially the pre and postcon ict ones will require the relaxation of rigid lending allocation rules that may turn bottom billion countries into aid orphans It will also increase the risk of the grant and lending operations of both Institutions These risks can partially be offset by enhancing supervision resources and therefore supervision budgets may need to increase in these settings The shift of IFAD to supervise more of its operations directly is therefore a most welcome change Finally both institutions may need to time their operations more carefully focusing on rapid provision of technical assistance following an incipient turnaround or con ict resolution followed by a strong shift to investment lending Stronger coordination ofthe capacitv building and 39 lending with other maior plavers will also be needed The capacity of agricultural and rural institutions Compared to 1980 the institutional environment for ARD has signi cantly improved The space for the private sector including producers associations has dramatically eXpanded even though the private sector response has not made yet entered input and output markets sufficiently to create a vibrant and competitive environment for small farmers Communities and civil society organizations have much more 1 l 39 to r 39 39r in 39 r and are receiving domestic and foreign support While most governments have decentralization initiatives under way administrative and scal decentralization are lagging badly behind political decentralization The sector institutions that should set and monitor policies and nance or provide service for small farmers remain largely ineffective however It is now well understood that these four sets of institutions need to collaborate at the local level as co producers oflocal and community development including agricultural development including in the form of public private partnerships Such collaboration needs to be led andfostered by the central government which continues to have overallpolicy andfinancing responsibilities and needs to drive further decentralization and public sector reform BinswangerMkhize amp McCalla July 24 2008 10 Joint AfDB and IFAD Evaluation of ARD Context Paper Long While there are no studies that measure the impact of the improved institutions on agricultural growth there is little doubt that these improvements in addition to macroeconomic stability and improved price incentives are one of the explanatory factors for the recent acceleration of agricultural growth Capacity development of agricultural and rural institutions would ourish best in the context of a broader national capacity development strategy and program It cannot be done as a top down provision of capacity development services Instead it involves learning by doing in which communities local governments farmer s organizations and private sector actors are given opportunities and resources and can exercise control over their own development Of course these actors should be provided with mandatory training in particular in diagnosis and planning nancial management and reporting procurement and monitoring and evaluation Other training should be provided largely on a demand driven basis Capacity development must build on the considerable latent capacities that are found in rural areas all over the World To do so rules and regulations for program execution must become much more participatory and empowering and eliminate complex features that destroy latent capacity or hinder its mobilization Binswanger and Nguyen 2005 Finally the broader sector institutions involved in ARD need to become much more accountable to their clients The African Development Bank and IFAD have important opportunities for fostering the institutional environment for ARD In uencing rural institutions should be part of the country and regional strategy development of both institutions The AfDB has a full range of instruments to foster institutional development at a national level both via policy change and capacity development The impact of IFAD is likely to be more selective such as building the capacity of local governments in rural development and to empower communities farmers associations and foster local publicprivate partnerships In novatinn and scaling up For IFAD Innovation should be rede ned Innovation for scaling up of targeted programs for the rural poor Rather than focusing on individual innovations this would involve putting packages together using best international practices to reach their target group and improve their incomes and food security with selective innovations in areas where international best practice is still not satisfactory such as rural nance Innovation would then mean to test and perfect the integrate approaches on a sufficiently large scale so that they can be scaled up nationally Its analytical capacity and work program should also be sharply focused on these tasks rather than attempting to cover all issues associated with 39 39 39 and rural 39 39 r Collaboration with AfDB in these areas would be of great advantage to both institutions The remaining challenges of agricultural incentives there are still a number ofremaining issues to be resolved A declining number of countries in the Region continue to pursue disastrous macroeconomic policies including especially Zimbabwe But in other countries in ation remains stubbornly high leading to high real interest rates that make it difficult for agriculture to compete for investment resources While on balance protection rates are no longer negative net protection rates remain below minus 10 percent in Ethiopia Tanzania Zambia Cote d Ivoire and Zimbabwe And compared to industrial products and importable agricultural products agricultural exportables remain with zero or negative protection Agricultural products and inputs suffer from excessively high transport costs on account of poor infrastructure policy interventions and illegal road blocks Agricultural incentives also suffer from barriers to interregional trade and poor phytosanitary capacities Finally while improving business climates in most countries still remain far worse than in other developing countries holding back private sector activities upstream and downstream from the farm Improving the many quot 39 of incentives forAfrican agricultural producers should be pursued by bot 39 39 39 as and when 39 39 arise in their advisory or proiect work Rural Finance Because of the extremely adverse environment for rural nance in most of Africa it is not surprising that both IFAD and the AfDB have found it excruciatingly difficult to achieve success in rural nance Yet both of them put rural nance high on their agenda in their agricultural programs BinswangerMkhize amp McCalla July 24 2008 11 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Instead we believe that the solution to the farm investment issues need to come from substantially improved agricultural incentives and pro tability in general so that farmers can invest these back into their farms This can be supported by easily accessible and low cost savings mechanisms such as postal savings systems linked to rural savings clubs A 1 y approach would be to nance more agricultural and rural 39 via matching grants with the matches coming both from 39 contributions in kind as well as individual savings Agricultural Science and Technology In spite of good returns to agricultural research in Africa the science and technology divide between SSA agriculture and the rest of the world is growing because of inef cient and underfunded science and technology institutions in SSA and because of rapid changes in the international research environment towards biotechnology and private agricultural research Borrowing opportunities from other regions and within the continent are constrained by the uniqueness and the heterogeneity of African 39 39 39 39 Combined with relativelv poor climate and resource base and the large number ofstressors on productivitv this will require more rather than less research than in otherRegions The 1 of natural resource and of climate change and growing climate risks onlv adds to this imperative Fortunately African leaders have started to respond to this challenge by creating consensus on what needs to be done improving their national institutions of higher learning and research building subregional and regional agricultural technology institutions and developing biotechnology networks and institutions Pillar 4 of the F l 39 39 African 39 39 D 39 r Program provides a vision and an action plan for African agriculture Science and Technology Unfortunately the significant 39 39 39 1 responses have not so far been matched bv adequate funding from national government and international donors especiallv in the areas ofbi 1 1 and science education While AfDB and IFAD are contributing financing at regional sub regional national and project levels it is clear that thev will need to step up their contributions just like others will The Imperative 0f Regir malimtion Throughout this paper there have been many critical issues that can best be or only solved by regional action and more are yet to come lets recall a sampling 0 Small countries dominate the African scene often lacking nancial capacity for public goods investments Small land locked countries generally do worse and depend on regional integration to be able to do better Expanded regional trade in agriculture and food products is good for growth farmer s income and regional foods security the short run management challenges of the current food price spike and the long run opportunities arising from prices that are eXpected to settle at higher than past levels only add to this imperative Expanded regional trade and food security will be helped by the harmonization of standards and sanitary measures and subregional and regional capacities to implement them 0 Freer boarders and internal infrastructure should encourage private sectors traders 0 For small countries regional infrastructure froads communications ports 7 critical for access to each other and eXtemal markets 0 Reversing land degradation and deserti cation and preserving biodiversity require trans boundary collective action 0 Managing crucial but under threat forestry and sheries resources must be approached on a transnational basis BlnswangerMkhize amp McCalla July 24 2008 12 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Defense against plant and animal disease epidemics require collective responses at subregional and regional levels Success in agriculture crucially depends on indigenous scienti c capacity to generate new technology given small and poor countries is far better done on a regional or sub regional basis 7 FARA and the SRO s are on the right track but the effort needs to be greatly expanded Bio technology research is expensive with a large critical mass therefore two or three regional institutes is far superior to 48 or 24 underfunded under resourced national institutions Indigenous scienti c capacity requires trained people again better done by regional institutions which have critical mass and necessary nancial support Regional approaches to rural nancial architecture may increase potential deposits and loanable funds and spreads risk These examples hopefully are enough to illustrate that the potential for regional approaches and an overall regional strategy for rural Africa are signi cant Yet in all most of these areas institutional development programs remain massively underfunded The main reason for this is that the regional efforts produce regional and subregional public goods and therefore their nancing is subject to the familiar free rider problem of nancing public goods Except the largest countries which have an incentive to supply themselves with these regional public goods countries will seek to bene t from the investment of others It is Breade here that a Regional 7 1 Finance Institution such as the African l Bank has a major opportunitv to step in as it can both coordinate as well as contribute to the financing of these essential regional capacities While there is probablv less ofa role for IFAD in this area it is alreadv active in hosting the Global 7 l 39 Against l 39 39 39 AfDB has fullv recognized this comparative advantage in general and can become much more active in the supporting cross border agricultural collaboration To effectivelv exercise a 7 4 7 39 role it needs to develop the analvtical and 39 1 39 capacitv as well as streamlined for financing them that are not dependent on individual country borrowin decisions to e ectivel exercise this leadershi role 1 Issues for the Joint AfDBIFAD review of ARD A number of issues emerged as part of the review that would merit further analysis in the joint AfDBIFAD review of ARD in Africa These are listed with little comment in the following points We have highlighted the considerable differences in the comparative advantage of the two institutions in their commitment to ARD and the level of development of their ARD strategies How can the two institutions design a common overall strategy for ARD in Africa that combines their strengths and how can such a strategy would be translated into countryspeci c and regional support Such a strategy could explicitly re ect the Ndulu priorities investment infrastructure innovation and institutions How can the two institutions take advantage of the renewed interest in agriculture of national governments and the international community that is now fuelled by the current food crisis and the future enhanced agricultural opportunities for Africa arising from higher agricultural prices How would a common overall strategy be translated into country support strategies in ARD that are led by the countries and that assist the countries in coordinating all major donors What are the opportunities that arise from the recent upsurge in China s and India s involvement in Africa for ARD and for AfDBIFAD How can resources from other new donors be harnessed and contribute to AfDBIFAD nanced programs BinswangerMkhize amp McCalla July 24 2008 13 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Given the proliferation of donors the fragmentation of aid and the high transaction costs associated with current aid delivery mechanisms should AfDBIFAD give higher priority to SWAPs and focus on capacity building for aid coordination and a new approach to technical assistance within the ARD sector How can IFADAFDB expand their role in preventing states from failing and in helping the recovery of bottom billion states How can AfDB and IFAD support the further development of the institutional environment for Local and CommunityDriven Development In particular how can they foster the lagging administrative and scal decentralization and scale their own nancial support to local governments communities and other local actors How can they merge their support in this area Who do they need to collaborate with and how How could AfDB support the wide variety of regional and subregional initiatives and institutions for ARD and in particular those that facilitate iritra regiorial trade in agriculture and for science education and bio technology Who should they collaborate with in terms of analysis and technical support and how should they structure their nancial support to strengthen incentives of countries to co nance these institutions at an appropriate level How will AfDB have to change its own regional nancing tools to enable it to take a leading role How would AfDB and IFAD help build the local national and regional mechanisms and institutions to take advantage of future opportunities arising in compensation and adaptation funds for climate change How could AfDB best support advocacy for international and regional trade reform How can IFADAfDB assist small farmers take advantage of growing opportunities in domestic and sub regional markets for food More speci cally how could AfDB and IFAD provide more support to the development of efficient and competitive input and output markets and supporting systems and the integration of small farmers into them And should the institutions provide the support in terms of research and technical support or also in the form of nancial support In light of the emergence of international supply chains and the revolution in food retailing what can IFADAfDB do to assist small farmers participate in the corresponding supply chains Should the new development opportunities offered by the international fair trade and organic food movements be privileged in IFADAfDB operations Given the adverse rural nance environment of much of Africa how much emphasis should AfDBIFAD place on strengthening rural nancial institutions How should they do it and how should they collaborate in doing it between themselves and with other actors To what eXtent can they expand the use matching grants to strengthen nancial capacities of small farmers How could IFADAfDB collaborate with others to protect Africa s coastal sheries from the predatory practices of rich countries industrial shing eets What should be the role of AfDBIFAD in promoting further reform in land and gender rights institutions for land administration and land redistribution And how would they actually do it How can AfDBIFAD more effectively partner with other major players in ARD in Africa particularly the World Bank and the European Union And in the longer run with India Brazil and China Introduction BinswangerMkhize amp McCalla July 24 2008 14 Joint AfDB and IFAD Evaluation of ARD Context Paper Long We undertake this task in a period of optimism about the prospects for Africa and for African agriculture Much of Africa has started to grow rapidly It has built more robust and sustainable policies and institutions at local national and regional levels and is strengthening their capacity Democracy has advanced all over the continent In 2007 Katito claims no less than 22 African countries held elections that were declared free and fair Katito 2007 Africa has moved from being the last Region in terms of reforms of the business environment ahead of the Middle East and Latin America World Bank and IFC 2006 While regional and global risks remain high for Africa the new environment also provides many opportunities Agriculture is nally identi ed as a sector which can both contribute to growth and lead in reducing poverty Agriculture and rural development have returned as priorities on the International Development Agenda African nations working through the African Union AU have identi ed joint action as critical and have created The New Partnership for Africa s Development NEPAD In NEPAD agriculture has a critical role through the AUNEPAD Comprehensive Africa Agricultural Development Program CAADP see AnneX 5 And nally general economic performance is positive as the quote from the High Level Panel HLP below indicates A favorable global economic context characterized by strong demand for many ofAfrica s primary commodities allied to progress by Africa on macroeconomic policy reform and governance are the main drivers behind the Continent s strong performance ofthe past severalyears Africa s recent progress is striking when compared to the I990s 39 Real GDP growth isforecast to exceed 6 in 2007 compared to less than 3 In ation hasfallenfrom nearly 30 to stabilize in the 10 range Following macro economic reforms many African countries have benefitedfrom debt relief which is reflected in significantly lower external debt to GDP ratios While Africa had afiscal deficit of35 ofGDP in 1999 the continent has producedfiscal surpluses since 2004 From Preliminary Observations ofthe African Development Bank High Level Panel May 16 2007 As a consequence while conscious about the remaining serious risks this review takes a moderately optimistic stance and develop its recommendations based on such a view The Charge to Us The purpose of the thematic conteXt analysis is to inform the ongoing joint evaluation of IFAD and AfDB policies and operations in Agriculture and Rural Development ARD through analysis of emerging issues challenges and opportunities The study has essentially three objectives To identify major ARD policy sector and subsector issues from an African and a global perspective and to indicate how they can enhance the performance and impact of ARD in Africa To focus attention on the issues likely to be of relevance for future development assistance to the sector The analysis will also draw on lessons from the past three decades 0 To indicate speci c issues and regional priorities which are most relevant to IFAD s and AfDB s policies and operations and taking account of their wider institutional mandates and corporate goals The analysis should provide recommendations for issues to be given further attention in the course of the evaluation either during country visits or through focused thematic studies in Phase II ARD Overview Final TOR BinswangerMkhize amp McCalla July 24 2008 15 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Our Approach This context paper comes at a time when many others have summarized the state of knowledge on food and agriculture what works in agricultural development and the Opportunities and Challenges for African Agriculture in great depth including FAO 2007 IFPRI 2006 Inter Academy Council 2005 and World Bank 2007 There are also a number of recent studies on governance failure con ict an natural resource dependence Collier 2007 governance and regional integration Economic Commission for Africa ECA 2006 and other relevant topics The conteXt paper will therefore not do any original work on these topics but instead harvest this rich knowledge To set the 39 39 39 for the quot and l l 39 39 for AfDB and IFAD in Section 1 we start by reviewing the great challenge of poverty and hunger that the past failure to grow has left behind It is in this section that we look at the major contribution that agricultural growth can make to poverty reduction as long recognized in the literature and analyzed again in the recent WDR In section 2 we rst present the mandates of the two institutions regarding agriculture and rural development noting that they are quite different institutions despite sharing a common interest in African agriculture We then review the major changes that have occurred in the international and institutional landscape within which the two institutions are operating for ARD globally and for Africa in the period 19802007 In section 3 we discuss Global Winds of Change that have signi cantly altered the environment for agricultural development in Africa in the same period We eXplore their implications for Africa and what Africa can or should do about them including possible roles for AfDB and IFAD With this changing global conteXt as background we investigate in Sections 4 and 5 The African Scene noting as have many others that heterogeneity is the operative descriptor 7 in natural resources climate soils and water resources farming systems infrastructure access to markets for inputs and outputs political stabilityinstability governance and economic performance Section 4 rst reviews the record of economic growth and the factors that have inhibited it for so long but now are starting to contribute to the recent successes We then turn speci cally to agricultural growth and review the speci c agricultural policies and factors that have for so long prevented its growth but have also now been turned around In section 5 we focus speci cally on the plight of the Bottom Billion countries in the terminology of the recent book by Paul Collier that is reviewed in that section It holds many important lessons for the future operations of the two institutions We then in section 6 turn to the institutional pillars that need to be in place for agricultural and rural development ARD including the private sector communities local government central and subregional institutions We speci cally analyze how they need to assume speci c functions and collaborate with each other in a process of coproduction of agricultural and rural development We note that a lot of progress has been made in improving the institutional environment for ARD but also note the remaining strong weaknesses especially in decentralization and regional integration Section 7 rst reviews the emerging market opportunities of African agriculture It then reviews the remaining challenges for African agriculture which are primarily under the direct control of African countries and the Region rather than eXternal in uences We divide these challenges into four groups Demographic social health and safety net issues Agroclimate biophysical resources and natural resource management Enhancing Agricultural Pro ts and Rural Investments The Ultimate Source of Growth Agricultural Technology It is in all these four broad areas that that more progress is needed to consolidate the recovery and to achieve rapid growth and poverty reduction BinswangerMkhize amp McCalla July 24 2008 16 Joint AfDB and IFAD Evaluation of ARD Context Paper Long 1 The Past Failure to Grow and the Neglect of Agriculture have Left an The Troubling Challenge of Poverty and Hunger Africa is second only to Asia in its size and heterogeneity Its land mass is larger than that of Brazil Japan Australia Europe and the continental USA combined Japan alone could easily t into Madagascar Its climates include Mediterranean climates in the North and in South Africa subtropical and tropical highlands the largest deserts and vast stretches of arid semiarid subhumid and humid tropical areas Of Africa s 900 million people about two thirds live in villages and small rural towns Except for the deserts rural people live farm and raise livestock in all the diverse environments of Africa They are much more concentrated where agroclimatic conditions are better such as in areas of Mediterranean climate and subtropical and tropical highlands leading to sharp variations in population densities across the continent African countries vary greatly in geographic area and population but compared to other regions a higher proportion of countries are very small Many countries are rich in natural resources while others are resourcepoor A larger proportion of African countries are landlocked than in any other Region of the World There are signi cant differences in culture and historical backgrounds education levels and population trends And economic growth has differed widely across countries and over time These large differences across and within countries imply different development and growth opportunities They make generalization across the continent dif cult In this paper we describe general trends and feasible generalizations but we pay great attention to how these differences have influencedpast general and agricultural growth performance prospects and the elements which have shaped them such as conflicts governance investment productivity trade and other determinants of performance Sub Saharan Africa SSA has the highest incidence ofpoverty ofall developing regions It accounts for IOpercent ofthe world s people but is home to 30percent ofthe World s poor In the last two decades the number ofthe poor in Africa has grownfrom 150 million to 300 million more than 40 percent ofthe region s people Africa is at the bottom ofthe UnitedNations Development Programme s human development index reflecting low levels ofeducation health and economic welfare And it is the only region o the requiredpath to reach most ofthe Millennium Development Goals World Bank 2005 p 1 Around 200 million of Africa s 900 million people are undernourished and thirtythree million children go to bed hungry every night More than 60 percent of the undernourished are concentrated in East and Central Africa while in West Africa undernutrition has declined in recent years Inter Academy Commission 2005 Over the past 45 years per capita income in Africa has grown at only 05 percent per year compared to 3 percent in the 57 countries in the rest of the developing regions including North Africa The slow growth in per capita income in Africa has meant that poverty in Africa has not only remained the highest in the World but has failed to decline between 1990 and 2003 Figure 11 BinswangerMkhize amp McCalla July 24 2008 17 Joint AfDB and IFAD Evaluation of ARD Context Paper Long FIGURE 11 POVERTY TRENDS ACROSS THE DEVELOPINGWORLD Whigsham padqll While urban poverty is increasing more than 70 percent of the continent s poor still live in rural areas Of the 15 countries in Figure 12 the rural poor are between 60 and eighty percent of all the poor In addition poverty mtes in rural areas are still much higher than in urban areas Of the 15 countries in the FIGURE 12 POVERTY m SSA REMAms PREDOMJNANTLY A RURAL PHENOMENON Hutat Poor Inlal Hoorwu Rumt Poverty Rate Uman Poverty Rats w aquot xxfx gtfg x J Source Pingali et al gure 9 have rural poverty rates that are at least three times as high than inurban areas And only in Mauritania is the urban poverty mte as high as the ruml one The ruml poor include small scale farmers nomads and herders anisanal shers and Wage laborers At the same time many of them are in households headed by awoman are unemployed youth entirely landless people or displaced persons Improved growth is not only critical for poverty reduction and for human development more generally within SSA an increase in the longrun growth rate ofrea GDP per capita by 1 percent wax amoeiated with an increme in an index ofcumulatfve human development ofnearly onehalfpercent Ndulu 2007 BinswangerMkhizeamp McCaIIa July 242008 18 JumtAfDB and m Eva uatmn mm mm Papev Lung mmn my Povmn REDUCTION m Elmn SSA Covmm L r aneny Wren We We mm headmum whom mmnm manath pum whom ms 1 ammo edumtmn wpewa39ev i i sannauan I mm m m m VhHenmum Dew npmem Gna ta 71M Summ nr d Bank and MF was mm m1 quotde pp Mwmh nmPr A w r PM 5 the dealing mhmgm m mum and my demdeshasbeenmsappmngysm While my halfbyZOIS Bmwangeverhwzeamp McCaHa Myza 2008 19 Joint AfDB and IFAD Evaluation of ARD Context Paper Long FIGURE 14 HUNGER IS MOST CONCENTRATED IN SSA BUT EVEN ELSEWHERE PROGRESS IS TOO SLOW Percentage ofpopulation I 1990 92 I 1995 97 I 2001 03 MDG target 40 35 30 25 20 15 10 5 Developing Asia Latin America Near East and Sub Saharan Transition world Pacific Caribbean North Africa Africa countries For the transition countries 1993 95 Source FAD Economic growth has been faster in North Africa than in SSA and was close to four percent in the ten years to 2005 ECA 2006a Therefore most countries in the subregion are well on their way to reach the 2015 millennium poverty reduction and Libya and Tunisia have already met them in 2001 Nevertheless in 2001 between 2 and 7 percent of the populations of Algeria Egypt Morocco and Tunisia were still suffering from hunger The agenda for poverty and hunger reduction in these countries is to address the remaining poverty pockets in the countries many of which are in rural areas ECA 2006a On the other hand economic growth and rural development have been the slowest in Eastern and Southern Africa Of the 21 countries no less than 10 have an average per capita income of less than 400 dollars Of the 350 million people in the subRegion about 260 million live in rural areas which account for 83 percent of extreme poverty making the subregion probably the worst poverty pocket in the world About 38 of the land base is desert arid or semiarid but these areas have relatively low population and therefore harbor only about 14 percent of the rural poor The remaining 62 of the land base has medium to high potential for increased production but harbors no less than 86 of the rural poor IFAD 2002b It is in this subregion that hunger is the most pronounced Figure 15 And as a look at the map of HIVprevalence in Chapter 8 shows Figure 83 this is combined with by far the highest HIV prevalence rates in the World Figure 84 shows that it is the young women who are disproportionately affected by HIV In West and Central Africa for the 16 out of 24 countries for which poverty data are available 41 of the total population is classified as poor Of these 125 million poor people around three quarters live in rural areas still very high but a bit less than in East and Southern Africa Poverty is higher in the Northern Sahelian and Guinean areas that are characterized by livestock cereal and cotton production but there are indications that poverty may be rising in the forest zones which suffer from highly volatile prices of tree crops IFAD 2002c As shown in Chapter 8 HIVAIDS prevalence rates are much lower in the subRegion except in Cameroon and the Central African Republic Figure 81 The FAO hunger maps show that hunger has sharply increased in the con ictridden Democratic Republic of the Congo On the other hand it is in West Africa that hunger has significantly declines BinswangerMkhize amp McCalla July 24 2008 20 Joint AfDB and IFAD Evaluation of ARD Context Paper Long FIGURE 15 POVERTY AND THEREFORE HUNGER ARE MOST CONCENTRATED m CENTRAL EAST AND SOUTHERN AFRICA cusauurmaEnman npm Source Pingali et al 2007 The Special Role of Agricultural Growth in Reducing Poverty and Hunger It is not only how much growth occurs but whether it is based on rapid agricultqu growth that counts for poverty reduction The WDR 2008 onAgriculture for Development shows that today across the World 21 billion people live on less than 2 dollars a day Most of them live in rural areas and depend on agriculture for their livelihood The number of ruml poor has increased in SSA and South Asia and reduced in East Asia and the Paci c The report summarizes an extremely large literature which demonstrates the great power of agricultural growth for poverty reduction Over the past 10 years global poverty with a 2 dollar a day poverty line declined by 87 percent in absolute numbers This decline was caused entirely by rural poverty reduction with agriculture as the main source of growth At the same time urban poverty has increased Mgration is not the main instrument for rural and global poverty reduction Improved rural conditions are the main caus As Mellor and Johnston 1961 showed nearly 50 years ago agricultqu growth reduces rural poverty 1 agricultural pro ts and labor income 2 By raising ruml nonfarm pro ts and labor income via forward backward and especially consumer demand linkages 3 By causing lower prices of nontradable foods and therefore the consumption basket of the poor gets cheaper 4 Lower food prices reduce urban real wages and accelemte urban w1h 5 Laborintensive agricultural growth leads to tightening labor markets and higher rural and eventually economywide unskilledwages The WDR quot 39d I o 39 39 39 inLatin America but also including South Africa with 255 million people transforming countries mainly in East Asia and lVLENA with about 22 billion rural people and agricultural countries mostly in SSA with 417 million rural pe ople BinswangerMkhizeamp McCalla July 242008 Joint AfDB and IFAD Evaluation of ARD Context Paper Long In the agricultural countries the sector accounts for 32 percent of GDP growth and two thirds of employment Growth in agriculture can drive economywide growth and mass poverty reduction as it has in East and SouthEast Asia and to a lesser eXtent in South Asia In transforming countries agriculture contributes 7 percent of growth but 79 percent of all poor are still rural The role of agriculture in these countries is to reduce poverty and confront rising ruralurban income disparities In urbanizing countries rural areas still have 39 percent of all the poor Even though the share of the sector in GDP is small it has been the fastest growing sector in this country group for over a decade with Brazil and Chile as the shining examples The sector therefore provides major investment opportunities for commercial enterprises and a large numbers of smallholders It is needed to reduce remaining rural poverty Christiaensen et al 2006 nd that in low income countries including in Africa the participation effect from agricultural growth on the poverty head count on average to be 23 times larger than the participation effect from nonagriculture Relative to the service sector the impact is even larger at a factor of 25 on average and 425 in Sub Saharan Africa These differences do not primarily follow from the large share of agriculture in these economies but rather from the much larger elasticity of overall poverty to agricultural GDP than to nonagricultural GDP The larger impact of agriculture on poverty headcounts also holds for the middle income countries such as those in North Africa where the participation effect of agricultural growth on head count poverty is on average 134 times larger than that of equal growth in the other sectors However the authors caution that these higher poverty reduction impacts are dependent on the use of the right technology e g focused on non tradable food versus tradable export crops land versus labor saving and its targeting small versus largefarmers This approach is of course very much in line with IFAD s vision and practices Figure 61 shows that since the 1960s North Africa and to a lesser eXtent the other country group in SSA have reduced their dependence on agriculture as an economic sector and a source of employment the Least Developed Countries in Africa have seen a virtually constant share of agriculture in GDP and only a slight decline in agriculture as a source of employment Figure 6 l The dependence of LDCs in Africa on agriculture has imreiy changed 2 The participation effect includes all impacts on the agricultural growth rates in the list of effects above BinswangerMkhize amp McCalla July 24 2008 22 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Share of Agriculture in GDP 196971 197981 198991 200204 North Afn ca 191 147 160 136 SubSaharan Africa an 402 404 375 388 SubSaharan Africa other 306 276 271 266 Africa 31 9 296 287 284 Shane of economically active population in agriculture in total 39 quot active lalion 196971 197981 198991 200204 North Africa 054 043 030 023 SubSaharan Africa LDC 083 079 076 071 SubSaharan Africa Other 068 060 049 041 Africa 076 070 063 057 t Source Sarris et al 2007 While general economic growth does not necessarily reduce hunger fast agricultuml growth has a much more direct impact on hunger Figure 16 shows hoW the rate of per capita agricultuml growth between 1990 and 2005 has tmnslated into the hunger reduction in SSA By and large the countries With faster agricultural growth have made more progress against hunger Hunger increased signi cantly in the con ict or coup countries Liberia Sierra Leone Cornoros Burundi Guinea Bissau and most dramatically the DRC Other countries with signi cant increase in hunger are the Gambia and surprisingly B otsWana To sum u 39 Part ailure to ow and the ne lect o a riculture have dramaticall increaxed over and hun er in SSA while rowth has contributedto over reduction in NorthA rica Recent economic growth on the other hand has reduced goverry and the associated agricultural growth is a gowertul actor in reducing hunger It is theretore clear that both AtZZB andIFAD will have to ocus sharglg on growth in J 39 7 1 growth their future programs and in particular on 4 id 1 BinswangerMkhizeamp McCaIIa July 242008 23 Joint AfDB and IFAD Evaluation of ARD Context Paper Long FIGURE 16 REDUCTION IN HUNGER AND AGRICULTURAL GROWTH Agriculture and Hunger V 10 199092 v 200204 lAgIicultmal Production per capita Gowlh Rates 1990 2005 Source et al 2007 2 The Mandates ofAlDB and IFAD and the Changing International Landscape ofDevelopment Assistance The two institutions involved inthis review are quite different Their mandates modi ed by many years of experience de ne the perspectives and knowledge that eachpartner brings to this common interest The African Development Bank AfDB is a regional multisectoral lending institution offering both commercial and concessional lending opportunities to African Countries while the International Fund for Agricultuml Development FAD is a highly focused global institution targeting only the ruml poor who rely primaJily on agriculture for their livelihood The African Development Bank AfDB was established in 1964 as a regional multilateral development nancial institution engaged in mobilizing resources towards the economic and social progress of its Regional Member Countries RMCs It operates through two windows The African Development Bank ADB lends on anonconcessional basis and the African Development Fund ADF provides concessional loans grants and technical assistance to quali 39nglow income countries The African Development Bank Group s ADB ADF and The Nigeria Trust Fund NTF primary objective is to promote sustainable economic growth to reduce poverty in Africa Annual Report 2006 Total BinswangerMkhizeamp McCaIIa July 24 2008 24 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Bank Group loan and grant approvals have increased steadily over the past decade from under 2 Billion US annually to more than 3 billion US in 2006 AfDB s breadth and focus on ARD has changed over time and the share ARD makes up of the Bank s operations has varied signi cantly In the 1970 s agricultural operations were small and growing but made up only 18 of operations Operations expanded rapidly in the 1980 s and early 90 s as AfDB along with everyone else pursued massive Integrated Rural Development Projects IRDP s and lent to Agricultural Development Banks Approvals exceeded 800 million dollars in both 1987 and1991 out of an average overall approval level of just less than 2 billion US Agricultural operations made up a high of 32 in the period 19851988 but declined to 19 in the period 19891997 Agriculture and Rural Development Sector Bank Group Policy PaperOCOD January 2000 As a share they have further declined since In 2006 agriculture and rural development loans and grants totaled US 362 million and made up slightly over 10 of total loan and grant approvals of 3472 Million US Annual Report 2006 Over the period 1974 2006 agriculture made up 167 of cumulative loan and grant approvals for the ADB Group118 of ADB cumulative approvals and 257 of ADF cumulative approvals The Bank Group is currently developing a new Sector Strategy for Agriculture The last one was published in 2000 replacing the 1990 Policy paper The 1990 paper had narrowed the Bank s focus from the earlier IRDP era to production agriculture The 2000 paper articulated a broader vision for the sector to assume a leading catalytic role within the next decade in supporting the technological institutional and policy changes that would trigger a lasting transformation of the rural economies of RMCs by empowering their ruralpopulations to improve theirproductivity and real incomes in an equitable and environmentally sustainable manner The Strategic Plan for 2003 2007 published in November 2002 says that within the broad focus of reducing rural poverty The Bank will focus on adoption of modern technology diversi cation of production systems efficient management of natural resources and improvement of productivity of farm and nonfarm activities It will take a leadership role in the development of rural nancial services and will support Bank wide efforts in rural infrastructure and water The most recent formal statement was in the TOR for the newly created Agriculture and AgroIndustry Department in 2006 The primary role of this Department is to contribute to the Bank s Vision ofpoverty reduction through increased agricultural production productivity marketing and trade in its Regional member Countries thereby increasingfarm incomes and the welfare of rural populations in general and agricultural producers in particular The Department will strive to do this through greater support for technology transfer rural infrastructure development capacity building and agriculturalprocessing marketing and trade links in RMCs The most recent document available to us is a DraftAgricSectorStrategyRev August 3 2007 entitled Agriculture and Agro Industry Department OSAN The document reviews past strategic documents and evaluates progress made towards meeting their objectives It concludes that while progress has been made the Banks efforts have been too focused on production aspects with virtually no backward and forward linkages Speci cally identi ed weaknesses are agribusiness development limited private sector engagement and partnerships They also note that since the last strategy was developed the NEPADCAADP framework has emerged which must in their view frame future strategies Therefore the need for a new strategy is compelling They propose siX guiding principles linkage to the MDG s harmonization and alignment with Africa s priorities selectivity in operation and managing for result s knowledgebased interventions gender equity in agricultural interventions and risk management The new Sector Strategy would see OSAN s interventions in partnership with the Private Sector where possible be largely concentrated in the following key areas 1 Support to Rural Infrastructure 2 Crop Production Productivity Growth 3 Agro Industry Development 4 Livestock Production 5 Natural Resource Management ipa icularly land BinswangerMkhize amp McCalla July 24 2008 25 Joint AfDB and IFAD Evaluation of ARD Context Paper Long water sh and forest resources and 6 Climate Change Adaptation Efforts in these areas would contribute to the Bank s Vision of poverty reduction through increased agricultural production and productivity efficient marketing and expanded trade in its RMCs thereby increasingfarm incomes and the welfare of rural populations in general and agricultural produces and enterprises in particular p 7 This document suggests that the likely future strategy will be more focused on Agriculture and less on broader issues of Rural Development and will be more selective Thus future potential partnerships with IFAD will need to be carefully crafted in the conteXt of this still emerging strategy for the AfDB In later sections we will discuss the preponderance of poverty and hunger in rural areas and the rm international consensus that agricultural growth has globally been and will be for the agricultural countries of subSaharan Africa the most powerful tool to achieve poverty reduction A major question that the Bank will therefore have to answer in developing its future strategy will be whether the strategy and its planned magnitude will be in line with its intended focus on poverty reduction We already note here that within the confines of the strategies articulated so far there are important opportunities for the AfDB to assist1RD bv improving rural infrastructure the road infrastructure 39 1 1 1countries to the sea agricultural 1 1 and in the st 1 39 ofRegional and Sub Regional Institutions or1RD In later sections we will discuss the rm international consensus 7 re ected in the CAADP program of NEPAD that agricultural growth will be for the agricultural countries of subSaharan Africa the most powerful tool to achieve poverty reduction A major question that the Bank will therefore have to answer in 1 1 39 its future strategv will be whether the strategv and its planned magnitude will be in line with its intended focus on poverm reduction The International Fund for Agricultural Development IFAD is highly focused on rural poverty in developing countries It operates through concessional loans and grants on global basis It annual loan and grant operations since 1992 have slowly increased from 300million US to over US 500 million in 2005 and 2006 Given that most IFAD projects involve co nancing total project value is usually about double IFAD approvals 1 billion in 2005 and 910 million in 2006 It is therefore a small and tightly focused global organization less than one fth the size of AfDB In their own words The International FundforAgricultural Development IFAD a specialized agency ofthe United Nations was established as an internationalfinancial institution in 1977 as one ofthe major outcomes ofthe 1974 World Food Conference Through low interest loans and grants IFAD works with governments to develop andfinance programmes andprojects that enable ruralpoorpeople to overcome poverty themselves IFAD tackles poverty not only as a lender but also as an advocate for rural poor people Its multilateral base provides a natural global platform to discuss important policy issues that influence the lives ofruralpoorpeople as well as to draw attention to the centrality ofrural development to meeting the Millennium Development Goals IFAD was subjected to a detailed Independent EXtemal Evaluation IEE which was published in 2005 That review had insightful comments on IFAD s evolving mandate Initially IFAD was intended to fundprojects that had been identified and designed by others But quickly it was seen that partner interests were much broader thanfood and agriculture and theirproject designs did not give sufficient focus to the needs ofthe poorest rural groups Consequently the Fund moved into identification and project design and in the mid 1990 s adopted a new goal to lead global efforts in helping the world s poorest By the early 2000 s IFAD hadfurther expanded its mission to include a range ofactionsfor enabling the ruralpoor The continuity with past strategies was clear but the new direction brought directfocus on empowerment on the role ofmarkets and non farm income and employment and on decentralization and governance IFAD 2005 p2 BinswangerMkhize amp McCalla July 24 2008 26 Joint AfDB and IFAD Evaluation of ARD Context Paper Long IFAD s activities are guided by the Strategic Framework paper 2007a In addition they have produced regional strategy papers for the Near East and North Africa 2002aWestern and Central Africa 2002c and Eastern and Southern Africa 200 4b The strategies are very good clearly setting out what IFAD will and won t do with in their broadened evolving mandate A few quotes from the Framework paper are the best way to convey their strategy Context Extreme poverty remains a realityfor over a billion people worldwide Three quarters ofthe world s extreme poor live in rural areas and most ofthem are dependent on some way in agriculture IFAD39s comparative advantage lies in working with national partners to develop and implement innovative projects andprogrammes that enable poor ruralpeople to increase their agricultural production food security and incomes in empowering poor rural women and men by building their s 39 s 7 J an 1 1 39 39 I 39 39 and in capturing and using the lessons ofproject experience as a basis bothfor promoting the scaling up ofsuccessful approaches and influencing the agricultural and rural developmentpolicies and investments ofits member governments and other partners ant t u IFAD s overarching goal is that rural women and men in developing countries are empowered to achieve higher incomes and improvedfood security at the household level Strategic objectives To achieve its overarching goal IFAD will aim to ensure that at the national level poor rural men and women have better and sustainable access to and have developed the skills and organization they require to take advantage of a Natural resources land and water which they are then able to manage efficiently and sustainably b Improved agricultural technologies and effective production services with which they enhance their productivity c A broad range offinancial services which they usefor productive and household needs d Transparent and competitive agricultural input andproduce markets with which theyprofitably engage e Opportunitiesfor rural off farm employment and enterprise development which they profitably exploit and f Local and national policy and programming processes in which they participate e ectively IFAD clearly states in its Principles of engagement what it will and will not do who it is targeting and it views on innovation and scaling up Selectivity and focus IFAD will focus on those areas in which it has developed a clear comparative advantage It will not work outside rural areas It will not target the non poor It is not mandated to respond directly to emergencies andprovide relief IFAD willfinance social service delivery 7 local water supplies health and educationfacilities ionly in response to the defined needs oflocal communities where thefacilities are limited in scope and criticalfor the achievement ofproject objectives and where otherfinancing sources are not available IFAD s expertise is specific to the rural sector it will engage in policy dialogue only in the areas ofits competence and it will not use general budget support as a meansfor disbursing its resources Targeting Afocus on targeting is central to IFAD s identity Its target group is made up ofextremelypoor rural people who have the capacity to take advantage ofthe economic opportunities o ered by IFAD engagements Innovation learning and scaling up BinswangerMkhize amp McCalla July 24 2008 27 Joint AfDB and IFAD Evaluation of ARD Context Paper Long In most countries IFAD s role is to establish partnerships for developing innovative approaches to rural poverty reduction at the local level testing 1 J 1 39 39 39 39 1 a r 1 39r or technologies that are new within the context in which they are being applied All elements ofIFAD s country programmes will be expected to be innovative Yet innovation without scaling up is of little value Strategic Frameworkfor IFAD 2007 2010 Enabling the ruralpoor to overcome poverty IFAD has also produced several policy papers including on Rural Finance 2004SWAP s 2006 Supervision and Implementation Policy 2007b and Knowledge Management 2007c The Private Sector Development and Partnership Strategy Policy 2007 d contains a very wide and innovative de nition of the rural private sector IFAD s direct target group is the rural poor who tend to be concentrated at the smaller end ofthe private sector continuum This group is consideredpart ofthe private sector because in essence it comprises agro or rural based microentrepreneurs who make their own economic decisions regarding what to produce and how to produce it what to buy and sell who to buyfrom and sell to how much to buy or sell and when p6 In sum IFAD has a highlv focused selective and well articulated vision and strategv as to what they will andwill not do And it has translated these into appropriate policies in a number ofareas It is therefore 11 well no irinned to take advantage ofthe improvingAfrican and international environment on behalfofits well defined client group The claritv ofits policies and focus will clearlv be valuable in plotting future strategies with A QB J on the following 1 139 ofthe two 39 39 39 and their 1 Bank has a broader mandate that allows it to finance or co We will frame our mandates The largerAfrican l finance programs in support ofpovertv reductions such as large scale infrastructure and support to Regional 1 39 39 that are bevond the capacities ofIFAD and have benefits for both poor and non poor 1 39 A s a regional ln stitution it also has voice and influence at the 39 1 level that it can leverage in 1 39 with other Regional 39 39 39 such as theAU NEPAD and sub regional C 39 39 The smaller IFAD focuses on empowering poor agricultural producers in all aspects of their agricultural and related 1 1 activities and u 39 39 Within this highlv selective focus it has manv 39 39 to innovate and collaborate with others to scale up successful 39 39 The Changing International and Institutional Landscape for ARD 1980 2007 There have been substantial changes in the international and institutional landscape of agriculture and rural development within which IFAD and AfDB have functioned historically and will implement their future rural strategies Organizations are heavily in uenced by their historical context That conteXt is shaped by major issues of substance and critical events that are then dominating the political economic and social debate This context de nes the critical questions and shapes the dominant objectives of the time Conceptual models of how to accomplish these objectives were driven by prevailing paradigms Paradigms need to be converted to processes and approaches the how of development Finally plans and policies have to be implemented by someone governments intergovernmental organizations private organizations and interest groups These are called the players Using this framework we characterize the radical changes in the ARD environment that have occurred in the period 1980 7 2007 We close this section with a special look at what has been happening in the nature and effectiveness of aid in the so called the new AID architecture The 1980 s The early 1980 s was a period characterized by rapid in ation and slow growth which was the fallout of the run up in oil and commodity prices in the 1970 s This made concerns about poverty and social issues which had been raised in the late 1970 s come into competition with and be partially crowded out on the BinswangerMkhize amp McCalla July 24 2008 28 Joint AfDB and IFAD Evaluation of ARD Context Paper Long international agenda by structural adjustment and other priorities in the 1980s The food price run up of the middle seventies coupled with the recognition that poverty was a predominantly rural phenomena made agriculture and rural development major items on the agenda But they had new competitors for priority in the global context as issues of the environment health education and social services emerged in the late 1980 s The cold war continued to drive bipolar competition including in foreign aid New global powerhouses in China India and Brazil had yet to emerge The paradigms of development were in a state of change The world trading system by the 1980 s had evolved by substantially reducing barriers to industrial trade and trade volumes and values increased substantially GATT initiated the Uruguay Round of trade negotiations in 1986 which when it concluded in 1994 brought agricultural trade under the general rules of the newly formed World Trade Organization WTO but with little impact on effective protection Some nations in East Asia abandoned the inward looking importsubstitution industrialization model and succeeded in growing rapidly by expanding exports Thus export lead growth was a new competing paradigm for general economic development The new priority of poverty reduction necessarily focused more attention on rural areas because most poor people live in rural areas Despite the pathbreaking academic study by Johnston and Mellor 1961 which argued that agriculture had a very positive role to play in the early stages of economic development the sector was still discriminated against It was seen more as a source of resources than a positive engine of growth Rural development was approached via massive Integrated Rural Development Projects IRDP s which focused more on infrastructure food production and investment in social capital than on improving the earning potential of the commercial crops of small farmers However the new rural development paradigm did recognize that rural wellbeing depended on income and access to physical and social infrastructure The how of development was also changing International Financial Institutions IFI s especially the World Bank greatly expanded lending to a broader set of sectors In the 1980 s rural development represented the largest sector of lending for the World Bank Development assistance expanded through IDA the newly established European Union and through competitive bilateral assistance and reached new heights Cleaver 2007 claims that agriculture received 18 of total ODA in 1979 The prevailing mechanisms for support of general economic development continued to evolve Project lending focused on poverty reduction was often not sustainable after the projects ended in part because many nations had large scal monetary and debt imbalances and projects had not been mainstreamed into sector institutions Often the taking on of additional commitments made matters worse Thus poverty lending gave way to structural adjustment lending in the 1980 s and then policy lending in the 1990 s The number of players in the international agricultural scene had greatly increased Rural development lending expanded not only for the World Bank but the Regional Development Banks including AfDB and the newly formed IFAD became major players as did a growing number of bilateral donors The Early 2000 s The international and institutional landscape of the early 2000 s is radically different from the 1980 s and can only be understood by tracing its rapid evolution over the short period of 20 years At the turn of the century the landscape was still changing rapidly Compared to the 1980 s some major changes were 0 The Cold War was over replacing a nuclear standoff with increasing numbers of regional national and sub national con icts The end of the Cold War reduced competitive pressures to expand aid and support levels fell BinswangerMkhize amp McCalla July 24 2008 29 Joint AfDB and IFAD Evaluation of ARD Context Paper Long 0 Severe food emergencies and large numbers of refugees emerged with increasing frequency not only increasing needs for World Food Program WFP help but also placing demands on many traditional agencies for postemergency assistance 0 Middle East con icts continued to contribute to rising petroleum prices 0 The quotquot 39 laid out 8 quotquot 39 D 39 r Goals MDG s Several particularly 1 on Poverty and Hunger refocused attention on rural development and on SSA The rise of the environment and other social sectors especially health radically shifted lending and assistance portfolios of IFI s and bilateral Agencies PHVAIDS emerged as a huge health labor and poverty issue Funding for agriculture and rural development hit a 25 year low in 2001 Cleaver 2007 says that agriculture s share of total ODA had dropped to 35 by 2004 0 The molecular biology revolution was in full swing leading to rapid privatization of agriculture research the GMO debate and patents on living organisms The publicprivate landscape in agricultural research was fundamentally altered Civil Society Organizations CSO s and Non Govemmental Organizations NGO s emerged as powerful forces in international development and global environmental and health issues 0 The World Bank and other development agencies are now championing good governance and have declared war on corruption 0 GATT has been transformed into the World Trade Organization WTO The Doha Development Round focused so far unsuccessfully on trade liberalization of particular bene t to developing countries The world s attention to agriculture and rural development seemed to wane even though rural poverty and 800 million undernourished people persisted The Five Years After follow up to the World Food Conference found very slow progress towards the goal of halving the number of undernourished by 2015 Recently however the rhetorical interest at least seems to be rising The Inter Academy Council report 2005 the Blair report of the Commission for Africa 2005 and the World Bank WDR of 2008 all make forceful cases for the positive role agriculture can play in SSA So the beginning of the new Millennium was characterized by great uncertainty rising con icts and increased competition for funds The prevailing paradigms of general economic development continued to evolve The current paradigm is open economy market driven private sector lead economic development The role of government is to set appropriate rules provide necessary public goods and make sure the playing eld is level fair and open Agricultural development paradigms continued to change also Massive rural development projects and support to agricultural credit institutions had high rates of failure and support for agriculturerural activities in general plummeted But rural poverty continued to be the predominant persistent poverty problem Some countries had achieved rapid growth with agriculture eXports leading growth and it began to be 39 39 that 39 39 was a r 39 39 sector potentially able to contribute to poverty reduction through growth The long standing but arti cial distinction between food crops and marketexport crops disappeared as it was recognized that with improved technology and access to markets farmers producing marketable surpluses of any commodity could improve their incomes Further agriculturally stimulated rural nonfarm activities in many countries provided for growth in employment and incomes Thus the 1961 Johnston Mellor argument nally seemed to be back in vogue refocusing attention on the critical 39 l of 39 39 39 growth 1 39 39 in the early stages of the economic transformation It was nally recognized that agriculture in most countries was the largest private sector activity and that farmers would respond to incentives BinswangerMkhize amp McCalla July 24 2008 30 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Accepted processes of development ithe Hows continued to be challenged and added to The emergence of a wide variety and burgeoning numbers of CSO s and NGO s at the local national and international levels radically altered our perceptions of who were players They had many new ideas about what needed to be done Almost all were advocates for particular sectors groups or causes Many became involved in the implementation of activities particularly in emergencies and many have evolved to have suf cient capacity to be technical partners Nowhere is the incredible array of involved entities more obvious than in the rural sector of many of the poor developing countries The concept of democratization in the design and implementation of projects necessarily required participation of potential bene ciaries The adoption of the concept of subsidiarity decentralizing decisions to the lowest often community levels led to the concept of client ownership a far cry from top down complicated complex expatriate dominated integrated rural development projects IRDP s Privatization the end of central planning and the rise of markets refocused attention on what contributed most to rural growth For farmers it meant technology that increased productivity and pro tability access to necessary inputs and functioning fair and open markets at home and abroad Thus trade liberalization became part of the rural development policy mix For the rural sector it dictated needs for education infrastructure especially transport and functioning markets The end of the Cold War and the rash of new con icts and disasters has changed the rationale for international assistance and focused even more attention on the short run Thus support for long term and continuing investments in development such as agricultural research in general and the CGIAR in particular institution building and rural infrastructure are more dif cult to generate Overall development processes have become more complex with larger numbers of projects because of decentralization and local ownership more fragmented and inevitably more heterogeneous The numbers of players who claim a legitimate interest have to use Homi Kharas term exploded To quote him Estimates suggest that there are 233 multilateral development agencies 51 bilateral donor countries most with multiple o cial agencies several hundred international NGO s and tens of thousands of national NGO s not including community based organizations which could number in the millions Kharas quot2007 p 3 Many are new players who have emerged in a big way in the past few years Kharas classi es them into two groups New bilateral donors from the South including China 2 billion USannum India and Saudi Arabia over a billion each several more in the 12 billion range Korea Turkey Kuwait and Taiwan and a total of 21 more who have or are establishing aid programs Kharas concludes that Estimates of aid from new players equaled or exceeded o icial development aidfrom traditional donors in 2005 p 6 Private organizations such International NGOs like World Vision International with a budget exceeding 2 billion US 4 with budgets between 500 million and 900 million Save the Children International Care USA Catholic Relief Services and Plan International and thousands of philanthropic foundations who contribute to international causes The largest of these in 2004 were Gates Foundation at 12 billion US and the Ford Foundation at 250 million Literally thousands of NGO sCSO s pay some attention to the rural landscape The privatization of agricultural research and the marketing of GMO seeds by large multinationals has placed larger agribusiness rms in the main stream particularly in pest management in agriculture Plant patenting has introduced many complications into international policies for preserving plant genetic resources FAO shepherded through the International Treaty on Plant Genetic Resources ITPGR but the Convention on Biodiversity CBD the World Intellectual Property Organization WIPO and TRIPSWTO all with competing concepts has greatly complicated the landscape BinswangerMkhize amp McCalla July 24 2008 31 Joint AfDB and IFAD Evaluation of ARD Context Paper Long In the United Nations sphere other agencies such as WHO UNICEF UNAIDS FIVIMS etc became increasingly engaged in issues of nutrition and health Millennium Development Goal Task Forces particularly Task Force One are new players New conventions such as on Deserti cation and The Montreal Protocol to mention two have overlaps with FAO and WFP and IFAD s roles are now more closely entwined in terms of emergencies early warning and a renewed focus on Africa There are many new institutions and players relevant to Africa African nations working through the African Union AU have identi ed joint action as critical and have created The New Partnership for Africa s Development NEPAD In NEPAD agriculture has a critical role through the AUNEPAD Comprehensive Africa Agricultural Development Program CAADP see also section 7 Technology Finally it needs to be underlined that new bilateral aid players like China India and Brazil are also now major commercial development players in terms of markets inputs technology and nance BBC News estimates that the most recent wave of Chinese migrants to Africa is thought to total up to75 0 000 They are settling all over the continent in rural and urban areas are involved in agriculture construction and trade BBC News 20071129 Aid The New Architecture and the Magnitude and Effectiveness and ODA Homi Kharas 2007 in new paper The New Reality of Aid analyzes the growth and further fragmentation of the aid landscape and the discouraging trend that once you account for all the things that are not really for development aid for development has hardly grown Of the 100 billion of o icial development assistance disbursed by rich countries to developing countries in 2005 only 38 billion was oriented towards long term developmentprojects andprograms Ofthis 38 billion perhaps halfreached the intended beneficiaries The balance ofthe money is tied up in specialpurposefunds like debt relief and technical assistance or in administrative costs incurred in both the donor and recipient country Presumably some is lost to corruption too Traditional donors are splintering into many specialized agencies Large new bilaterals have emergedfrom the South with their own approaches to development cooperation The number ofprivate nonprofits is exploding and the value oftheir donations could already equal or exceed official aid The new reality ofaid is one ofenormousfragmentation and volatility increasing costs andpotentially decreasing effectiveness A key challenge for the new era ofdevelopment assistance will be to 1 1 how W39 Mt i J Mt sharing and aid delivery will work in the new aid architecture Kharas p 1 His analysis regarding SSA is particularly sobering as he answers the question This same story is replayed on the ground in Africa The rhetoric is one ofprogress the G8 has an AfricaAction Plan with special representatives to keep a focus on the poorest continent But so far Sub Saharan Africa SSA has hardly seen anyfunding increase at all Astonishingly our estimates suggest that only 121 billion ofthe overall official development assistance takes the form of funds that SSA countries can use to invest in social and infrastructure development programs 7 one centfor every 27 in rich country income This is almost the same as the amount received by these countries twenty twoyears ago in 1985 116 billion In proportion to eitherAfrica s needs its population number ofpoorpeople or rich country income net development aid to Africa has beenfalling with no signs ofconcrete plans to raise this in an e ective fashion Small wonder thatpatience with o icial aid is running thin p 5 A second even more critical paper is one by William Easterly under the provocative title Are Aid Agencies Improving Easterly uses statistical analysis of OECD DAC data to see if donors are learning to do a better job of addressing three clusters of issues 1 Learning to resolve chronic problems of foreign aid7donor coordination aid tying and food aid and technical assistance BinswangerMkhize amp McCalla July 24 2008 32 Joint AfDB and IFAD Evaluation of ARD Context Paper Long u u 2 Learning new theories of 39 r l to need 39 and importance of institutions of government polices 1 3 learning from failure structural adjustment and debt relief His conclusions are perhaps even more pessimistic than Kharas The record of the aid agencies over time seems to indicate weak evidence ofprogress due to learning or changes inpolitical supportfor poverty alleviation The positive results are an increasedsensitivity to per capita income ofthe recipient although it happened long ago in the I970s a decline in aid tying and a decrease infood aid as a share of total aid Most of the other evidenceiincreasing donor fragmentation unchanged emphasis on technical assistance little or no sign ofincreasedselectivity with respect to policies and institutions the adjustment lending debt reliefimbroglioisuggests an unchanged status quo lack ofresponse to new knowledge and repetition ofpast mistakes Easterly p 38 Collier 2007 also analyzes aid and comes to somewhat more positive conclusions Collier et al have estimated that aid on average has added one percent to the growth rate of the Bottom Billion sometimes preventing it from becoming negative Aid has been more successful than oil revenues in improving growth Oil revenues are still poorly invested and the recent rate of growth of the SSAcountries bene ting from the oil bonanza has not been higher than that of the other SSA countries that suffer from the higher oil prices The projects conditions and procedures associated with aid have been helpful Aid also reduces capital ight because it makes private investment more attractive and keeps money in the country Nevertheless because of the fungibility of money AID inadvertently helps nance about 40 percent of African military expenditures Aid has been more successful where governance and policies are better The allocation of aid is not poverty efficient ie does not favor the poorest countries Far too much goes to middle income countries Overall these analyses are not encouraging in terms of how well the development community has learned to make more effective use of aid It should make us all give very careful attention to how we recommend the use of aid for African agricultural development We believe we are now much better positioned to know what is likely to work but we must always to careful to learn from past experiences Of course these discouraging trends have not gone unnoticed The new millennium brought about a sober reassessment of world progress in improving the economic and social conditions of the global community The agreement on goals led to calls for more harmonization and alignment of operational policies procedures and practices of development institutions These were articulated in the Rome Declaration on Harmonization and Alignment of February 2003 This was followed in March of 2005 by the Paris Declaration which was an agreement to which over 100 Ministers Heads of Agencies and other Senior Of cials committed to continue efforts in harmonization alignment and managing aid for results with a set of monitorable actions and indicators These continuing attempts at coordination and harmonization re ect the rapid increases in the number of actors in the aid business There is also an ongoing change in the architecture of aid from horizontal multisector agencies to new specialized vertical agencies such as the Global Fund to ght AIDS Tuberculosis and Malaria There are a number of issues and opportunities which ow from the proliferation of donor agencies the slow progress in improving donor effectiveness and the Rome and Paris Declaratron These are summarized in the executive summary BinswangerMkhize amp McCalla July 24 2008 33 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Aid aws to the agricultural sector We conclude this section by looking in some detail at aid ows to the agriculturerural sector in Africa We are using of cial OECD DAC data as provided to us by IFAD The data is reported commitments to Agriculture and to Rural Development in constant 2005 US Figure 21 plots three sets of data for the period from 1975 to 2005 The lowest plot is the sum of bilateral and multilateral Official Development Assistance ODA commitments to Rural Development for Africa Except for a couple of signi cant spikes in the 1980s it has been below US 500 million for most of the period The second plot is ODA for Agriculture which is higher and is considerably more volatile From a 1970s level of just above US 15 billion it doubled in the early 1980s and then spiked at US 4 billion in 1988 By 1991 it had fallen by more than 12 to US 18 billion and then trended downward to vacillate around US 12 billion since 2001 The upper plot is the sum which shows what has happened to overall assistance Donors quickly tripled ODA in the 1980s re ecting the rush into IRDP projects focused on agriculture lending to agricultural credit institutions and agricultural sector adjustment lending When these fell out of favor ODA plunged from above US 5 billion in 1988 to below US 2 billion in 1993 Since then it has uctuated between US 15 and 20 billion ending in 2005 at just above US 15 billion Looking further into the data one nds no signi cant differences in the uctuations of total bilateral and total multilateral aid Over the period 19742005 bilateral aid totaled just over US 40 billion while FIGURE 21 ODA FOR AGRICULTURE AND RURAL DEVELCvPiviEixiT Flynn 1 Aarlnultun Rural Dunlapmom and Total ARD ODA Afrlc 1914 4005 Million of 1005 Conhm SUS ARD Total IAarleulmre Rural Devalapmanl lllllonl 5 us 1974 1977 1999 1953 1996 1989 1992 1995 1999 2001 2004 You 1914 2005 the full multilateral aid totaled US 377 billion However there are wide uctuations in the commitments of individual donors The largest bilateral donor over the period was the United States whose commitments in agriculture varied between a high of US 522 million 1988 and a low of US 47 million 2003 The US variation in rural development was between US 89 million and zero Similarly for agricultural ODA France varied between US 280 and 35 million Italy US 364 million and zero and Japan US 341 and BinswangerMkhize amp McCalla July 24 2008 Joint AfDB and IFAD Evaluation of ARD Context Paper Long 49 million In many cases year to year variations were orders of magnitudes On the multilateral side there were also wide swings The European Community went from a high of US 949 million 1982 to a low of 65 million 2005 in agriculture and in rural development from US 969 million in 1987 to 61 million in 2005 The World Bank IDA US 845 million in 1990 to 125 million in 2005 and US 369 million to zero in rural development The commitments of IFAD and AfDB are shown in Figure 22 for total ARD Except for two peaks in the late 1980s by AfDB each agency had a fairly stable pattern of commitments between US 100 and 300 million If any trends are evident it would be an overall downward trend in IFAD commitments and an upward tend in AfDB commitments 1994 to 2003 before dropping sharply in 2004 and 2005 But overall the commitments of these organizations have been much less volatile than many bilateral donors and certainly more stable than for the EC and the USA Annex Tables 1 and 2 present summary ARD data by donor for two time periods 19742005 and 1998 7 2005 This gives a clear picture of who are the major players On the bilateral side the largest over the full period are the USA accounting for 20 of total bilateral aid France 16 Japan 10 Germany 88 Netherlands 84 Italy 7 and UK and Canada both at about 5 Comparing these shares to the most recent period 1998 2005 sheds light on changing donor preferences In this latter period the US share dropped tol7 France to 13 Japan 9 Netherlands 74 and Italy 24 On the other hand Germany The UK and Canada increased their shares of a much smaller total On the Multilateral side the IDA share dropped from 39 over the period 19742005 to 29 in the period 19982005 and the EC FIGURE 22 FLUCTU glans N AGRICULTURAL AND RURAL DEVELOPMENT F39 quot quot quot 39 Rulll quotE Ind IFAD 1918 2M5 Milliom of canhm 2006 SUS O AFDF Tabla FAD Total 1979 1991 1984 1997 1990 1993 1998 1999 2002 2005 from 30 to 20 Off setting these declines AfDB s share of multilateral increased from 173 in the full period to 255 in the recent period Similarly IFAD s share increased from125 in the full period to 241 in the recent period Thus our two focus institutions now make up nearly 50 of multilateral commitments and their share of total ARD rose from 145 in the long period to 238 in the most recent period They have become much larger players in a contracted environment Therefore how they choose future strategies is critical for Africa BinswangerMkhize amp McCalla July 24 2008 35 Joint AfDB and IFAD Evaluation of ARD Context Paper Long 3 Global Winds of Change Major forces continue to buffet the global agriculturalfoodnatural resource complex and will continue to do so for the foreseeable future Some are sufficiently well developed that initial conclusions about their impact is possible Others are in very early stage which makes prediction fraught with danger The private sector will play an even larger role in the future being a major player in most of the issues challenges listed below The current explosion in food prices creates major short run policy challenges After settling back higher expected prices will create signi cant opportunities for African agriculture Some have identi ed them as irreversible structural changes We discuss ve 0 Globalization Trade Liberalization International Private Sector Consolidation and Changing Role of Private Sector 0 Climate Change and other TransB oundary Issues 0 BioTechnolgy and the Privatization of Agricultural Research 0 BioFuels 7 A Permanent or Transitory Global Demand Factor 0 Changing Markets and Price Trends for Food and Agriculture The integration of all the Africaspeci c and the global issues takes place on the farm and in the nonfarm enterprises in the rural sector We try to trace how the global challenges and opportunities will be perceived and affect farmers communities farmer s associations nonfarm enterprises local governments and how will they react Globalization Trade Liberalization International Private Sector Consolidation and the Changing Roles of the Private and Public Sectors Globalization The latest wave of globalization is only the last one of many that profoundly shaped The rst started with the transatlantic silver sugar and cotton trade in the sixteenth century that was to fuel the terri transatlantic slave trade that burdened SSA for over three hundred years By the rst decade of the 1939h century the transport revolution associated with steamships and railroads of the second half of the nineteenth century brought all of SSA into the international division of labor It culminated in the exceptionally rapid and complete conquest of the continent by the European powers After the interruptions of World War 1 the Great Depression and World War 2 globalization started to ourish again in the second half of the 203911 century but was held back by restrictive trade policies that have now been reduced thanks to multilateral trade liberalization and unilateral dismantling of protective structures in Africa reviewed later in the report After the discovery of the Americas the rst wave of globalization brought many bene ts to Africa including some of its major staple crops that arrived as part of the Colombian exchanges such as maize potatoes sweet potatoes cassava and fruits and vegetables including the ubiquitous tomato However successive waves of globalization also brought slavery migrant labor systems diseases colonialism unfair trade and taxation war and the destruction of indigenous social systems and cultures Globalization in addition brought new modes of transport goods services technologies and institutions to Africa too numerous to list While there were many losers there were innumerable gainers as well How negative or positive will the current wave of Globalization be for Africa and who will lose or gain Clearly today with stronger state and regional institutions this is not just a question of what globalization will do to Africa but also how countries and institutions will seize its opportunities and shape its impact BinswangerMkhize amp McCalla July 24 2008 36 Joint AfDB and IFAD Evaluation of ARD Context Paper Long They are not nearly as helpless any more as they have sometimes been in the past Over the past two decades many African countries have clearly been bene ting from globalization via mineral exports cheaper consumer goods cheaper foods agricultural market opportunities and associated technologies with differentiated impacts across Northern Africa and SSA There has been considerable transfer of global chicken and other livestock technologies but less from crop technology The emergence of the international supply chains as a result of globalization in general and of the revolution in food retailing in particular discussed below signi cantly changes farmer market opportunities both domestically and regionally While globalization opens up new opportunities in agriculture the negative side of globalization is very stiff international competition in food grains meats horticulture and processed products For particular African fresh fruits vegetables and horticultural products competition from other developing countries has become ercer The agenda of actions discussed in section 7 offers options on how to seize opportunities and deal with the challenges In order to assist countries in facing the increasing 39 39 IFAD andAfDB need to adopt an approac focused squarely on the market39 AfDB could develop a niche in helping Regional 0 39 39 an member countries in dealing with sanitary and phvto sanitarWSPS rules standard setting and quality assurance L 39739 39 using its sub regional and countr39v sziecific instruments Trade Liberalization Trade over the past 50 years grew much more rapidly than global GNP so it now makes up a larger share of world economic activity A rising share of the world s foods supply is also traded and even without further trade liberalization agricultural trade will become an even larger share as a consequence of increased SouthSouth trade With the phasing out of the Multi Fiber agreement under the Uruguay Round of trade negotiations the constraints to trade in agriculture are the last bastion of protectionism in the real trade sector The important gains for Africa from multilateral trade liberalization with OECD and developing countries is now fully recognized Nevertheless the Doha Round of WTO negotiations has yet to conclude because developing countries led by India China and Brazil are demanding that rich OECD countries signi cantly liberalize access to their agricultural markets and reduce substantially subsidies to commercial farmers in particularly the EU and the USA Regardless of the outcome of Doha the process of globalization seems sure to continue driven increasingly by changes in the private sector For example in highly regulated sectors such as agriculture Foreign Direct Investment FDI by multi national rms has become a substitute for trade leading to massive international food sector conglomerates and global supply chains which are discussed below As we will note again in section 7 African farmers clearly need more access to international regional and sub regional markets But the big players in trade negotiations are the WTO the Group of 20 developing countries which includes only ve African countries 7South Africa Nigeria Egypt Tanzania and Zimbabwe the World Bank The USA The EC and UNCTAD the latter in terms of analysis and pressure for developing countries ECA the AU and NEPAD are more observers on the margins African governments and institutions need to watch carefully how the Doha Round turns out It is likely to be the last major multilateral trade negotiation for some time If it fails it is likely that the major trading nations will seek to gain access to closed markets and to attack unfair barriers to trade using trade litigation and the WTO dispute settlement mechanism This will further disadvantage small African nations as the process is eXpensive both in terms of money and intellectual capital Another likely consequence of failure would be a further acceleration of bilateral and multilateral preferential trading agreements PTAs There are already too many regional trade agreements in Africa and a further movement to bilateralism in Africa is clearly counterproductive BinswangerMkhize amp McCalla July 24 2008 37 Joint AfDB and IFAD Evaluation of ARD Context Paper Long As this draft is being nalized there are signs of progress in the negotiations generally and in agriculture in particular The Chair of the agricultural negotiations has signaled a major push in farm talks by the end of March By 31 March or earlier New ZealandAmbassador Crawford Falconer who chairs the talks will reconvene multilateral talks so that representatives of the full membership can negotiate the outcome and continue with other major issues leading to a revised draft blueprint ofthefinal deal WTO 14 March 2008 If the major elements of the deal already agreed to survive there will be ample protection of the interests of poor developing countries through requirements for smaller or in some cases no reductions in support for sensitive and specia products There will also be safeguard and anti dumping measures to protect against oods of subsidized products dampening local markets On June 3 the Agricultural Chair further reported quotincremental progress WTO June 3 2008 and quotis tryingfor improved texts in agriculture and NAMA for the Ministers Meeting week of 21 July 2008 WTO June 27 2008 It therefore remains clearly a major interest of African agriculture to achieve further liberalization in OECD country policies through a successful conclusion of the Doha Round The AU and NEPAD will have to recognize the need to streamline the regional trade architecture The AfDB appears to be giving high priority in the future to regional integration Clearly as part of these efforts much needs to be done to increase regional trade integration as we will again discuss in other sections of the report We see little onportunitv forADB to add value to the analvtical work or the 39 39 However AfDB could nlav a maior role as a champion of eer trade and better access for its RMC s andvia its grant window in building capacitv for 39 39 o anv agreements that are reached or in dealing with the ofa failure ofthe Doha Round irterlmliunai Private Sector Consolidation There continue to be radical changes in the number size and structure of multinationals in the global agrifood Industry that have so far led to increased international consolidation and concentration of multinational companies through both vertical and horizontal integration The implications for African agriculture are important because access to input and output markets is central to any strategy of rural poverty reduction If we think of the small holder farmer in Africa or Asia as at the center of the food security and poverty challenge of the 21st Century then we realize that for her to succeed she requires interaction with a broad set of interfacesmarkets for seeds and breeding stock increasingly supplied by the private sector and ultimately multinationalsfor inputs fertilizer chemicals machinery and feed supplements again supplied by the private sector and for markets for primary products again primarily private sector including very large multinationals such as Cargill ADM Bunge Louis Dreyfus and Con Agra Once the primary product is assembled it has to be processed stored and transported again most likely by major multinational rms such as Nestle Unilever ADM Cargill Tyson Con Agra Pepsico Coca Cola etc Ultimately the food is sold in retail shops stores to consumers and it is here that perhaps the most active supermarket revolution is just now unfolding The bottom line is that globally private AgriFood multi nationals are driving changes in the global food economy more than ever before Overall the process is characterized by increasing international consolidation of firms involving both vertical and horizontal integration In all of the marketsinterfaces noted above this is true Seeds genetic 39 r and 39 39 are d t d by siX multinational rms Many of these same rms are involved in providing agricultural pest control Provision of fuels fertilizers and other chemicals also come from industries characterized by signi cant economies of scale and are similarly concentrated globally As one shifts to the marketing side major rms such as Cargill ADM Bunge Con Agra The BinswangerMkhize amp McCalla July 24 2008 38 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Conti Group and Louis Dreyfus generally identi ed as primary grains oilseeds product handlers are also variously engaged in seeds feeds fertilizers food processing sweeteners biofuels and in a few case in wholesale food distribution Firms primarily identi ed with food processing such as Nestles Unilever Kraft FoodsPhilip Morse Tyson PepsiCo Heinz and Sara Lee also are integrating forward to distribution and backward to primary product handling Of course rms like Cargill and ADM are also important in the processing sector These trends have been going on for sometime in the OECD countries and are well known though the degree on concentration continues to increase with mergers and acquisitions What is new is that these same rms presence is now becoming very large in the rest of the developing world In part this is being driven by what is called the Super Market Revolution It is to that phenomenon we now turn The super market revolution is radically changing national regional and global food supply chains Supermarkets have spread eXtremely rapidly in developing countries after takeoff in the early to mid 1990 s Reardon Henson and Berdeque p 1 Reardon and colleagues postulate several hypotheses as why the takeoff occurred so rapidly First there was an avalanche of foreign direct investment FDI in developing countries re ecting major policy changes towards investment liberalization by developing countries This coupled with the failure of the Uruguay Round to signi cantly liberalize food trade made getting behind domestic barriers the preferred approach for international expansion Second there were institutional and regulatory reforms in many developing countries which removed or reduced barriers to entry into the grocery business Third the i J at ofthe r p u i it system reduced costs and increased the competitiveness of super markets relative to traditional retailers quotReardon et al p 3 The spread occurred rapidly in four waves the rst wave starting in the middle 1990 s and the fourth one now under way Further detail is in AnneX 6 The super market revolution in SSA started in the middle 1990s in South Africa and in eastern Africa particularly in Kenya Unlike other parts of the world where it was entry by European and North American multinationals that drove the revolution in SSA so far it has been by African rms which scaled up and proliferated The shift from differentiated small local rms to large supermarkets occurred rst in large urban areas of South Africa and the Kenya As of 2003 already 55 of food retail sales in South Africa were through supermarkets The market was dominated by four rms These same rms have then spread to smaller cities and other countries For example Shoprite the largest South African rm in 2003 operated over 400 supermarkets in 14 countries in 1979 it had 8 stores in South Africa Weatherspoon and Reardon 2003In their analysis they were particularly concerned about the implications for small local farmers Where medium large growers are available in the country in which a chain is operating the retailer draws as much aspossible on these growers who are usually formed into associations that both export and sell to local supermarkets ii Where the larger growers are not available and where smallfarmers cannotyet meet the standards ofthe supermarkets there is some reliance on importing produce to the stores in a given country from South Africa or other countries where the needs can be met iii Where projects can be put in place to upgrade the smallfarmers to meet the needs ofsupermarkets the chains appear to be eager to participate in these schemes ibid Similar developments happened in Kenya after 2000 where two leading indigenous rms rst became dominant in Nairobi retails sales and then eXpanded to other towns in Kenya The largest rm Nakumatt now has 19 stores and has announced plans to eXpand into Uganda Tanzania and Rwanda Global Retail Bulletin Friday 30 November 2007 There are two major issues that have been raised about this phenomenon rst is it only for upper income urban dwellers And second what happens to traditional small producers who sell in local markets Regarding the rst issue Neven Reardon et al studied the socio economic status of Nairobi supermarket customers and nd The keyfinding is that contrary to the conventional image ofsupermarkets in developing regions 7 the placefor the rich to shop 7t 1M i g from up M t hasr J the food markets ofthe poor and low income groups 7 in Kenya alreaay 56 ofsupermarket clientele 60 BinswangerMkhize amp McCalla July 24 2008 39 Joint AfDB and IFAD Evaluation of ARD Context Paper Long ofthe Nairobipoor buy some oftheirfood in supermarkets each month 7 Neven Reardon et al 2006 p16 Regarding the second question the paper by Neven Odera et al presents a clear nding Are the rural poor excluded from supermarket channels in developing countries We analyzed the farm level impact of supermarket growth in Kenya s horticulture sector which is dominated by smallholders The analysis revealed a threshold capital vectorfor entrance in the supermarket channel which hinders small rainfed farms Most ofthe growers participating as direct suppliers to that channel are a new group ofmedium sized fast growing commercialfarms managed by well educatedfarmers andfocused on the domestic supermarket market Their heavy reliance on hired workers bene ts smallfarmers via the labor market 7 Neven Odera et al p1 So far non African multinationals have not penetrated though Weatherspoon and Reardon think they will the African market Their traditional model was to focus on urban areas starting with durables ower salt and canned goods often bringing with them their wholesale suppliers and sourcing from their home country Thus to date there is limited evidence of displacing domestic supply chains When local rms nally start selling fresh produce they are sourced domestically at premium prices but with demanding standard in terms of quality Some domestic producers win others lose They are likely to bring technology requirements specify varieties and they can also bring processing industries Challenge for SSA In many small countries it may not pay outside rms to invest in local wholesale and processing facilities and they may source outside South African and Kenyan supermarkets are spreading in Africa To what eXtent are they sourcing locally In order to compete African supply chains from farmers to wholesale need to adapt Farmer organizations could play an important role especially regional and sub regional associations who could form regional cooperatives or joint venture companies The evidence seems to suggest that African rms prefer to source locally especially in fresh produce so these developments offer opportunities as well as threats The super market revolution is one more major change force which when added to the need for change arising from income and population growth and potential expansion of subregional trade clearly requires integrated policy attention The needs are to sharply reduce monopolies in transport address corruption invest in better on farm technology which takes us back to rebuilding capacity in science and adaptive research AfDB should pav attention to 39 39 39 policies and 39 along the entire supnlv chain A private sector interface IFAD can assist small farmers in reaching the threshold of capital and skills and link them to the supply chains This will also involve t 1 39 oftheir u 39 Climate Change and other Trans Boundary Issues In this subsection we review the issues related to climate change resource degradation deserti cation water availability and Infectious diseases Global Warming and Climate Change potentially large but manageable for agriculture Africa has experienced enormous climate changes since it gave rise to mankind about 150000 years ago Ever since the onset of agriculture about 8000 years ago climates have changed periodically The most important evidence to this is found in the records of two periods of pastoralism that have covered almost the entire Sahara desert only to retreat again since about 4500 years ago Reader 1998 p 171 The adaptive capacity of African agriculture to these massive climate changes in the past is well documented BinswangerMkhize amp McCalla July 24 2008 40 Joint AfDB and IFAD Evaluation of ARD Context Paper Long It also has suffered repeated long term droughts with devastating impacts on population size and welfare such as the decade long drought that afflicted West and Central Africa between 17741785 and that inter alia contributed to the peak in the transatlantic slave trade ibid p 429 ff Except for a few diehards there seems to be agreement that global warming caused by human activity is occurring The basic questions now are can the process be slowed stopped or even reversed and at what cost This is the issue of mitigation The second issue is adaptation ie how will the world adjust to the outcome This debate has recently beenjoined by Bjorn Lomborg in his book Cool It The Skeptical Environmentalist s Guide to Global Warming 2007 Lomborg s case is that we should do a serious cost bene t analysis comparing the bene ts of spending a lot of money on minimal reductions on CO2 or the same or less money on pressing current issues and on adaptation and adaption research For our purposes his book is useful in highlighting that this is a real trade off and nowhere is this more true than in tropical and sub tropical agriculture ie African agriculture SSA is the continent contributing the least to global warming It has the most urgent economic and social problems Except for land use changes discussed below the case for putting less emphasis on mitigation in SSA and more on dealing with the pressing current needs and with preparations for future adaptation is stronger here than anywhere else For agriculture a growing number of modeling efforts are suggesting that there will be changes not only in temperatures but also changes in the spatial and the temporal distribution of precipitation The models suggest that the temperature impacts will be greater in the higher latitudes and that night temperatures are likely to increase more than day temperatures Precipitation will increase in higher latitudes but will reduce in areas such as the Mediterranean and Southern Africa Adverse agricultural consequences are likely to be negative in the lower latitudes where temperatures are already high and precipitation is already limiting and they may be positive in the higher latitudes closer to the poles The most recent comprehensive analysis by Cline 2006 are presented in Annex 7 They are estimated to be considerably more adverse than predictions for the Developed World but less alarming then for example for India and for Mexico The consequences for poor small holder farmers and poor consumers could be substantial and mostly negative There is also a growing view that frequency and amplitude of extreme weather events may be increasing All of these happenings increase risks to farmers and especially resource poor small farmers in rain fed agriculture This is not the place to debate in detail the magnitudes of impacts onn agriculture The more relevant issue is how can African agriculture adapt and possibly pro t from climate change The implications global warming for African farmers are obvious They increase agronomic complexity and increase risks of shocks at the farm and community levels and imply additional changes in crops cropping patterns timing agronomic practices and seed needs They reinforce the need for stronger research systems capable of improving the resistance of crops and animals to biotic stresses and investments in irrigation and water management The critical issue is how to strengthen farmer s capacity to adjust Again they will be better able to do so if agriculture is highly pro table and they have the required savings to invest into these adaptations In addition there may be areas which will go out of agriculture or which may switch from agropastoral systems to extensive pastoralism and require more outmigration Therefore regional integration will become more important to provide destinations especially from countries such as Niger or the Sudan African agriculture not only needs to adjust to the impacts of climate change but also take advantage of opportunities it may present The question is how it should do this Climate mitigation through carbon o sets and carbon trading can increase income in rural areas in developing countries directly improving livelihoods while enhancing adaptive capacity Gary Yohe et al 2007 p1 Land use change 182 and agriculture 135 together create nearly one third ofgreenhouse gas emissions Achieving significant carbon mitigation in developing countries will require tapping carbon o setsfrom agriculture and land use change While not as large as potential savingsfrom reducing the consumption offossil BinswangerMkhize amp McCalla July 24 2008 41 Joint AfDB and IFAD Evaluation of ARD Context Paper Long 1 1 L1 fuels the total potential saving is still 39 1 and is 39 at a r cost With as much as 13 gigatons ofcarbon dioxide peryear atprices of US10 20per ton this representspotential financialflows of US130 260 billion annually comparable to ODA of US100billion andforeign direct investment in developing countries of US150 billion ibid p3 It is clear that to take advantage of these opportunities will require the building of appropriate policies and institutions at national sub regional and Regional levels Adaptation to climate change and the risks it brings should be part of overall development and coping strategies Yohe et al in a section headed Mainstreaming Adaptation into Development Planning conclude the tendency has been to treat adaptation to climate change as a stand alone activity but it should be integrated into development projects plans policies and strategies11ibid p2 Howden et al 2007 make a similar argument quotWe argue that achieving increased adaptation action will necessitate integration of climate change related issues with other risk factors such as climate variability and market risk and with other policy domains such as sustainable development The potential implications of climate change are still unfolding and it is clear that it cannot be either mitigation or adaptation but some combination in uenced hopefully by realistic analysis of cost and bene ts in particular circumstances The Lomborg message should be heeded For African agriculture it means coping adapting and contributing to mitigation primarily via judicious management of land use The three basic lessons we should take away from the literature are rst that African farmers in the past have adapted to climate change and will do so in the future second dealing with climate change must be considered as one additional element in agricultural development strategies not something apart Both farmers and governments can proactively manage the likely changes by investing in research and irrigation and taking advantage of the promised carbon trading opportunities And third managing increased climate variability should be included as an additional risk to be managed at the farm national and regional level as a part of an overall risk management strategy The lessons for AfDB and IFAD are that responses to the challenge of climate change need to be integral parts of their individual and collective strategies ForAfDB the main w rtunities arising from climate change are in assisting capacity 1 1 of national sub regional and regiona 39 39 39 to take advantage of future carbon trading opportunities The emphasis of both A QB and IFAD on irrigation will also come in handy IFAD already hosts the secretariat for the Global 1 l 1 39 to raise resources against desertification In addition it should mainstr a g 1 39 to climate change into their programs including the harnessing oflocal opportunities for carbon trading as and when come on stream Infectious Animal Diseases and Epidemic Plant Diseases Old issues and new solutions Infectious animal and plant diseases have ravaged Africa from time immemorial And many of the known human diseases crossed over from animals to humans the latest example being IHV and AIDS Reader 1996 describes a rinderpest epidemic around the turn from the 19111 to the 20th century that may have killed off 9 10th of Africa s livestock herds and led to catastrophic population losses and economic social and cultural decline that paved the way for the exceptionally easy conquest of Africa by the European colonizers Earlier devastating impacts are also historically documented What is new however is that modern science and appropriate management of the risks by governments and regional organizations can sharply mitigate and in some cases eliminate these risks Samuel C Jutzi ofFAO 2007 Highly infectious diseases do not respect borders geographical borders political borders and often not even species borders Infectious diseases are very diverse and aynamic in their adjustment to changing conditions ofenvironment and management The impacts of infectious diseases and their control on the agricultural sector on national economies on rural BinswangerMkhize amp McCalla July 24 2008 42 Joint AfDB and IFAD Evaluation of ARD Context Paper Long development on livelihoods on regional and international trade on food security on agricultural biodiversity and on human health are actually andpotentially massive Diseases in plants and animals importantly act as barriers to economic development and also threaten ecosystems and it has been established that 70 ofall new infectious diseases ofhumans stemfrom animals This is vet another area where regional i 39 Wproaches are required And again AfDB is appropriatelv placed to assist in the financing of these regional and sub regional efforts Biotechnolgy and the Privatization of Agricultural Research Biotechnology BTincludes a number of techniques the most powerful and controversial is the development of transgenic crops and animals Farmers have been genetically modifying plants and animals for 5000 years or more and agricultural scientists have joined them ever since the Mendel revolution in the 19th century The controversial issue is only whether it is appropriate to transfer genes from one species to another Evenson and Raney 2007 address these political and scienti c issues Among the developing countries China and Brazil followed by India have invested signi cantly in agricultural biotechnology On the other hand the CGIAR system is spending less than 10 percent of its overall budget on BT research perhaps because of resistance of important European donors The great success of BT cotton and the prospects of nutritionally forti ed rice and other crops have taken some of the wind out of the sails of environmental critics BT cotton has resulted in dramatic reductions in pesticides use wherever it has penetrated as well as higher yields and incomes of small farmers and no observable adverse 39 l 39 39 39 are regulated from the point of experimentation to eld trials and ultimate release Further regulations govern where and how the crops may be grown and how and where the products may be sold As part of its effort to bridge the technology divide it appears that Africa urgently needs to take advantage of the many possibilities that biotechnology holds Carl Eicher et al 2006 review biotechnology development for six food crops and cotton in Africa and nd unexpected scienti c legal economic and political barriers to the development of GM crops and long delays in developing and implementing national biosafety regulations and guidelines They unfortunately conclude that with the exception of BT cotton most GM crops are at least 107 15 years from reaching smallholders in Africa The Acceleration Phase of the Molecular Biology Revolution The potential of rapidly expanding knowledge of genomics and our increased capacity to modify useful plants and animals is just at its beginning and can become an important factor in adaptation to and mitigation of climate change deserti cation increasing resource scarcity and threats from pests and diseases Possibilities for building in stress resistance drought heat and cold immunity to pests and diseases and improved nutritional values as well as manufacturing pharmaceuticals in plants which 20 years ago were wild dreams are now much closer to reality For example Monsanto and BASF have just announced a 15 Billion research and development partnership using biotechnology research Focus of e orts will be on the development ofhigher yielding crops that are more tolerant to adverse environmental conditions such as drought CropBiotech Update 23 March 2007 But will these developments occur fast enough to offset continued population and income growth and rising stresses on natural resources The answers will come mainly by private sector proprietary research with intellectual property protection The fundamental question is how the bene ts of biotechnology can accrue to small African farmers in a world of privatized research But surely there remain major public goods issues We list three BinswangerMkhize amp McCalla July 24 2008 43 Joint AfDB and IFAD Evaluation of ARD Context Paper Long 0 Conservation of global genetic resources We have made signi cant progress on issues of preservation conservation access ownership and returns from genetic modi cation for the 64 plant varieties under the International Treaty on Plant Genetic Resources ITPGR but what about the rest of the rest of the plant kingdom including forests animals sh and critical microbial life Who is helping developing countries deal with con icts between TRIPSWTO CBD and ITPGR Given the large number of nontraditional little traded crops grown in African farming systems this is an important issue 0 Bio safety protocols Rules and regulation regarding the development and testing of GMO s While these are clearly national policy issues competing and con icting paradigms between North America and Europe put small developing countries at the mercy of large trading blocks when they attempt to decide whether they want to develop import or consume GMO s Where is FAO as an important global provider of help to countries in developing necessary rules and decision processes What role could IFAD and or AfDB play in this regard 0 Access to Promising Genetic Materials and Techniques Molecular biology research is eXpensive and much of it now is done by private sector rms which protect their discoveries with intellectual property rights IPR Current estimates suggest that siX multinational rms dominate molecular genetic research on plants and animals These rms include Monsanto Syngenta BASF Bayer Dow AgroSciences and Dupont The challenge is nd ways these rms can share promising technologies with developing countries without compromising their legitimate right to garner pro ts from their investments in discovery The Danforth Plant Science Center maybe one example AATF discussed earlier is another model But eventually at a minimum regional research organizations must acquire the capacity to participate as peers as the molecular biology revolution plays out Even where gene technology is donated there may be slow progress despite there being at least three biotech initiatives in Africa NEPAD has a biotech initiative AATF and AGRA Can Africa afford to be left behind China India and Latin America Should it adhere to complex regulations dictated by others Rather it should insist on more streamlined approaches Whatever the answer to the above questions Biotechnology approaches must be nested and integrated into plant breeding programs Special attention should be given to raising public awareness of and political support for biotechnology and commitment to strengthening African capacity in biotechnology biosafety food safety and IPR Intellectual Property Rights and the training of the neXt generation of African plant breeders and GM crop specialists Because ofits greater political 39 1 1 even though 39 39 1 nanced bv the Europeans the AfDB has a first class opportunity to invest in all aspects ofbiotech and could seek a partnership with China India andBrazil39 It could invest in Regional Centers ofquot 11 for research and teaching laboratories national and sub regional capacity to manage regulation etc IFAD s role would be to 1 packages of 1 1 and assist with the spread offinished products BioFuels Permanent 0r Transitury Global Demand Factor FAO s price indeX of all foods in dollar terms has more than doubled since last three years of the 20111 century and the real food price indeX has increased by over siXty percent Figure 31 below Between the beginning of 2007 and midyear 2008 rice prices have tripled wheat prices have more than doubled and maize prices have almost doubled Stoeckel 2008Prices for individual commodities such as milk maize and oilseeds have also increased A signi cant part of the cause claim many are eXtensive subsidies and0r mandates to substantially increase ethanol production to partially substitute for BinswangerMkhize amp McCalla July 24 2008 44 Joint AfDB and IFAD Evaluation of ARD Context Paper Long petroleum products in providing motor vehicle fuel Many countries are seeking renewable energy sources to replace declining supplies of nonrenewable sources such as petroleum In this section we rst review the trends in biofuels and other ef ciency issues In the next section we discuss the potential impact of biofuels on food prices in the context of the overall explosion of global commodity and food pr1ces The use of biological material for energy production has a long history of the use of fuel wood charcoal manure biogas agricultural wastes and byproducts to produce energy This is now labeled Bio Energy The typical approach has been transforming the material into gas or steam to be used in producing electricity or heat However the use of purposegrown crops to produce liquid biofuels 7 ethanol and biodiesel is of more recent vintage Brazil has been producing ethanol from sugar cane for over 30 years and recently the United States has embarked on a massive subsidized program to substitute ethanol produced from corn for gasoline to power autos The US has mandated an increase from 5 to 10 of its auto fuel supply coming from ethanol produced mainly from corn maize by 2011 and seems poised to increase it more Some are pushing for 20 which would need up to 50 of current US corn acreage to produce Europe has embarked on a program of promoting biodiesel as a renewable substitute for diesel using temperate oilseeds such as rape canola and soybeans Brazil has been in the business the longest now making up to more than 40 of its auto fuel supply with ethanol produced from sugar cane There are very serious issues of how much net energy savings there really are from using corn produced with high fossil fuel inputs ipetrol fertilizers pesticides and other petroleum based inputs processed into ethanol by a high energy using process and at very high costs Further there are signi cant differences in energy yields from different feed stocks For example one hectare of sugar cane yields 6000 liters of ethanol compared to 3000 from corn 2500 from wheat and 1000 from barley One hectare of palm oil yields 4500 liters of biodiesel compared to 2000 from jathropha 1100 from rapeseed and 500 from soybeansWorld Watch Institute2006 At some time in the future still uncertain a process using cellulostic feed stocks Grass waste products trees to produce ethanol will become commercially feasible which should provide a higher product yield at lower cost The problem is in breaking down the cellulose to free the carbon it can be done by enzymes but it is hard to scale up It is an engineering not a science problem These energy ef ciencies translate into a ranking of inputs for biofuels in economic terms In 2005 before the recent rise in food prices discussed in the next section Schmidhuber computed parity prices for oil at which at which biofuel production would have started to become pro table These provide useful rankings even though the prices of the foodstuffs have changed signi cantly The most economical production of biofuel was from sugarcane cane producers in Brazil with a parity oil price of 35 per barrel of oil Next was large scale cassavabased ethanol production in Thailand at US38bbl followed at US45bbl for palm oilbased biodiesel in Malaysia Given crude oil prices that prevailed in 1995 these three feedstocks and locations were already pro table Maizebased ethanol production in the US was much less ef cient with a parity oil price of US 58bbl For mixed feedstocks in Europe and for Biomass to Liquid Synfuel production the parity prices rose to US80 and US100bbl respectively requiring enormous subsidies at the time Schmihuber 2006 However these break even points depend sharply on the price of the feedstock used for biofuel production Table 31 At 60 dollars per barrel for crude oil the breakeven price of maize above which biofuels production is not pro table without subsidies would be 201 dollars per bushel of maize At a 120 crude oil price maize could cost more than 25 times as much namely US 520 per bushel before the breakeven point is reached beyond which biofuels from maize become unpro table In June 2008 maize traded above 7 dollars per bushel in Chicago which means that it was too expensive for ethanol production without subsidies Just looking at table 31 makes clear that at a crude oil price of 145 dollars BinswangerMkhize amp McCalla July 24 2008 45 Joint AfDB and IFAD Evaluation of ARD Context Paper Long that prevails as of this writing in early July 2008 biofuels from maize would still be unpro table without subsidies Table 51 Brealzm39eu umize prices t m producing bli wls at various crude Bii prices Crude oil Price Break even maize price USbbl USbushel without subsidies 40 096 60 201 80 308 100 414 120 520 Source Tyner and Thareipour 2008 Except in Brazil Thailand and Malaysia production of biofuels therefore had to be subsidized to be pro table The amounts of subsidies provided have eXploded Steenblick 2007 provides estimates of Total Subsidy Equivalents for biofuels production which represents the total value of all government support to the biofuels industry including the total value of consumption mandates taX credits import barriers investment subsidies and general support to the sector such as public research investment It does not include support to agricultural feedstock production US biofuels processors and farmers received about US67 billion in 2006 Those in the European Union received about US47 billion In addition the majority of support varies with the level of production which means that increases in biofuels mandates will lead to much larger OECD biofuel subsidies While fuels prices always had a signi cant impact on food prices via their impacts on the costs of running mechanized equipment the costs of transportation to and from the farms and the costs of fertilizers pesticides and herbicides increased biofuels production has created a new much more direct link between food and energy prices as amply demonstrated in table 31 In the neXt section we will show that future biofuels production eXpansion will have a very large impact on projected future prices as shown by several global food projection models What are the other consequences of tradeoffs of using agricultural production for energy rather than food supplies Can world agriculture do both And at what price These issues are discussed eXtensively in FAQ 2008 based on an eXploding recent literature on the topic IFPRI and the CGIAR have produced a series of Issue Briefs IFPRI December 2006 The UN has announced the formation of an International Biofuels Forum CropBiotech Update March 9 2007 which is aimed at promoting the sustained use and productions of biofuels on an international scale The World Watch Institute in partnership with GTZ published a major study on Biofuels for Transportation in June 2006 For Africa these developments will have multiple often competing impacts Returns to small farmers rise with rising prices but so do food costs for the urban poor and the landless But beyond these obvious impacts there are opportunities The relative efficiency of commodities in production of biofuels as noted above vary greatly sugar and palm oil are the most efficient so far BinswangerMkhize amp McCalla July 24 2008 46 Joint AfDB and IFAD Evaluation of ARD Context Paper Long This could open opportunities for certain African countries to produce for the global market without subsidies IfAfrica could produce at costs similar to Brazil Thailand andMalaysia it could make sugarcane cassava and palm oil production more profitable Production of bio fuels from cellulose could open huge potentials in the future especiallv for the manv areas ofmedium aualitv crop land that are not yet intensively armed and for the humid tropics In all cases decisions to engage in the production of bio fuels should not be made on a political basis as often done in the developed World but on the basis of careful benefit cost analvsis SSA cannot afford to subsidize the production of bio fuels The AfDB should invest in its capacitv to analvze the entire supnlv chains surrounding these opportunities and ultimatelv to develop these sectors as more economic 39 an 39 39 ecome available As and when the opportunities come about IFAD should assist quot7 J to participate as thev have alreadv done with funding ofan ICRISAT pro poor biofuels proiect focusing on sweet sorghum for ethanol and iathropha for biodiesel CropBiotech Update ISAAA December 14 2007 Changing Market and Price Trends for Food and Agriculture As discussed in the previous section world cereal prices have more than doubled since the beginning of 2007 The Wall Street Journal June 10 2008 reports that the cereal import bill of 82 low income countries has doubled since 2006To put the dramatic recent food price changes into perspective we rst review the history of food price trends since the early 1960s both in nominal and real terms and then compare them to some exchange rate movements and the changes in prices of energy that also have seen dramatic changes We then discuss the drivers of the rising global demand for food followed by a discussion of the emerging demand for food crops from biofuels Finally we discuss whether these price changes re ect a permanent shift in the global balance of agricultural supply and demand The rapidly changing prices of food Figure 31 shows that most of the sharp rise in nominal international food prices has come between 2006 and 2008 But it is not nominal prices that count but the real prices The question is which price index to choose If we look at purchasing power impacts we should de ate by an index of wage rates or a consumer price index of low income consumers Such indices are available for individual countries and it is these price indices that individual countries need to use to analyze their own food price impacts on consumers And to analyze the purchasing power countries we should de ate by a price index of their exports But the export mix of developing countries varies sharply between oil and mineral exporters exporters of labor intensive manufactured goods or agricultural goods and each country will need to do their own analysis An alternative is to look at the cost of manufactured imports since countries might have to give up some manufactured imports to buy more food Again no such global price index is available FAO in its analysis for the recent food crisis meeting therefore chose the index of unit value of exports of manufactured goods MUV from the G5 countries to the developing World calculated by the World Bank A merit of this index is that it already re ects changes in the relative exchange rates between G5 countries 3 Using real prices reduces the shock since 19982000 to about a 65 percent 3 This index is generally accepted as a proxy for the price of developing country imports of manufactures in US dollar terms The index is a weighted average of export prices of manufactured goods for the G5 economies the United States Japan Germany France and the United Kingdom with localcurrency based prices converted into current US dollars using market exchange rates Weights are the relative share in G5 exports of manufactured goods to developing countries in a base year currently 1995 with values US 322 Japan 356 Germany 174 France 82 and United Kingdom 66 The MUV tends to be dominated by movements in the cross exchange rates between the dollaryen euro and stering At a time of dollar depreciation for example the index BinswangerMkhize amp McCalla July 24 2008 47 Joint AfDBand IFAD Evaluation of ARD Context Paper Long increasele I39 I L 1L t li 39 of the early 1970s though real prices are still lower than the 1970 s 1 AItLI J39LI I Fight 31 Extended Annual 1740 Nominal 1th Real Food Price lndices 19982000 100 fd L Nominal Real The recent sharp price increases re ect 1 the rapidly rising food demand from accelerating global economic growth since the mid 1990s that are especially concentrated in Asia and in Africa 2 the emergence of demand for the biofuel crops especially maize oilseeds and sugarcane 3 poor weather conditions in several parts of the world especially since 2005 4 declining rates of productivity growth in major cereals Fig 32and 5 declining trends in food stocks that fell from over 600 million tons in 2000 to around 400 million tons in 2008 These stock changes are not just a consequence of bad harvests but also re ect the information revolution new hedging mechanisms in food and nancial markets and altered storage behavior of major importers and exporters OECD and FAQ 2008 These longer trends and weather events then have led to declines in stocks to use ratios to the same or lower levels that those that led to the food price explosion in the 1970s ibid The recent food price rises have triggered export restrictions in many food exporting countries aggravating price increases In rice for example prices shot up precipitously after major players like Thailand India and Vietnam applied export limitations Further food subsidies and other policies that tend to dampen domestic food and agricultural price rises slow down necessary adjustments in demand and truncate or eliminate domestic supply response Figure 3 1 also shows that from 1961 to 1987 except for the spike in the early 1970s real food prices in US dollar terms dropped steadily to about halftheir levels in the early 1960s This created huge bene ts for food consumers and poor farmers who are net buyers of food but also implied large losses for those net sellers of food who were not able to adopt new and more ef cient technologies to offset the price declines many of which were in Africa It bene tted net food importing countries and hurt net food exporters who were not able to compensate the falling prices with efficiency gains in production Africa was unable to compete in many food commodities and therefore became a net importer for food From 1987 the overall decline stopped for about 15 years to 2003 which means that the period of declining food prices has now been over for about 20 years Of course real prices of some commodities and commodity groups such as tropical beverages continued to decline for much longer as shown in gure 34 Despite the rapid rise in food prices since 2003 the real price index has not yet offset the gains of the nearly three decades to 1987 However more than half the gains have now been lost and real food prices are again at the level of the early 1980s will rise suggesting higherdollar based prices from nonUS 35 countries In contrast a rising dollar will tend to hwy a n ii 1 ma i MUV n BinswangerMknize 8 McCalla July 24 2008 48 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Figure 32 Dea llning Prmiuctivity Grmxht in Cereals u 5 u Average and Inwth rate m D 1953 1967 1971 1975 1979 1989 1987 1991 1995 1999 2003 Source WDR 2008 The long term trends in real food prices hide many factors that can drastically change the impact of aggregate world price changes on food consumers and food producers in speci c countries We look at three Exchange rates oil and inputprices and the specific commodities involved Im pacts 03 exchange rate In wements The real price index used in Figure 31 is in US dollar terms and already re ects the changes in the exchange rates between the US dollars and the G5 countries on whose costs of manufacturing exports to the developing World the de ator is based to convert to real prices see footnote 2 Countries that experienced appreciation of their currency relative to the US dollar similar to the developed countries included in the MUV price index need not make any further adjustments to arrive at their real costs of food Table 32 shows that a typical low income country experienced an adjustment in its real exchange rate to the US dollar of 16 percent between 2003 and 2007 when the bulk of the food price increases happened Further appreciations in early 2008 are not taken account of For example if a country experienced an appreciation of 50 percent against the dollar while the average exchange rate of high income appreciated by only 12 percent its real food costs in domestic currency would not have increased by 65 percent as discussed above but by 42 percent4 But this is only a back of the envelope calculation and individual countries should do their own analysis using their own import mix and trading partners 4 The additional appreciation of the country is 501238 percent But this translates into a 23 percent reduction of the new food price level of 165 percent BinswangerMkhize amp McCalla July 24 2008 49 Joint AfDB and lFAD Evaluation of ARD Context Paper Long Table 32 Average real exchange rate appreciation of domestic currencies verer the US dollar 300510 1007 by World Bank income classi cation Income class Percent appreciation Impacts of energy and fertilizer prices Figure 33 shows that global energy prices started to rise modestly in 1999 and then much more sharply in 2003 While nominal energy prices have more than tripled since 2003 with petroleum prices rising more than six fold nominal food prices have only doubled Clearly the rise in energy prices is much sharper than in food prices The energy price increases have transmitted themselves to higher fertilizer and pesticide prices higher costs of running farm machinery and higher freight costs for inputs and outputs The change in energy and other raw material prices also in uences the overall impact of the food prices on countries ability to afford food imports While net energy and mineral exporters are likely to be able to afford the higher food prices the net energy importers confront a double shock from both higher energy and higher food price Figure 33 Reuters CRB Energy Price index and FAQ Food Price Index 1993 3400quot 00 ReutersRB Energylndex FAOfond pricelndex World fertilizer prices rose steadily from 2004 through 2006 and then exploded as shown in table 33The sharpest increase came for Diammonium Phosphate followed by Muriate of Potash with the lowest increase in Urea of only 63 percent The simple average across fertilizers is more than 200 percent but weighting these prices by their weights in production would lower that percentage Another adjustment BinswangerMkhize amp McCalla July 24 2008 50 Joint AfDB and IFAD Evaluation of ARD Context Paper Long would occur by taking account of in ation and the depreciation of the US dollar Nevertheless it is likely that an index of real fertilizer price increases would still be well above the 100 percent mark about twice the real increase in the real food price indeX Table 33 Selected Inlu m xlimml Fertilizer Prin INN2008 US88 per ton Data Source IFDC The sharp increase in petroleum prices affect mechanized farmers directly and pushes freight rates of input and outputs up The broader energy price increases transmit themselves to the prices of fertilizers petroleum based pesticides herbicides and lubricants and other inputs As a consequence costs of purchased inputs have increased much more than food prices across the world and have dampened the rises in pro ts of food producers This will negatively impact on the supply responses from the producers How much depends on their energy and fertilizer intensity in production both of which are higher in the developed than the developing world and higher in South and East Asia than in SSA Prices ofindividual food groups 34 and 35 focus on what happened to the prices of the most important food groups that make up the overall indeX of food prices Figure 34 shows that between 1961 and 2002 the real international prices of meat dairy and horticulture products have roughly stayed constant On the other hand real prices of cereals oil crops tropical beverages agricultural raw materials and sugar were roughly between 50 percent raw materials and 100 percent oil crops higher in the in the 1960s than in the last ve years up to 2002 This means that price declines were concentrated heavily in basic staple foods tropical beverages agricultural raw materials and sugar The significant erosion in these prices implies a major shift in relative prices relative to the former group to meat dairy and horticulture which unlike some of the staples are higher valued commodities Only countries experiencing rapid technical change remain competitive in cereals oilseeds tropical beverages and sugar Another major feature of the period was high volatility in prices with staggered sharp peaks of all prices other than dairy and horticulture BinswangerMkhize amp McCalla July 24 2008 51 Joint AfDB and IFAD Evaluation of ARD Context Paper Long FIGURE 34 REAL PRICES FOR AGRICULTURAL COMMODITY GROUPS Indax 199192 HQ 350 Caed 5g Gilme WM 300 Mm Trap cclbsvvmgu 25 Daiy Mancini orx 3 a g 3 a 3 a 8 3 3 1861 988 39Ag39znlud mnmpimmdmlddhhdb upmuitvdzu af rmkm Figure 35 looks at the recent evolution of nominal pricer of most of these commodity groups between the base period of 19982000 and the immediately past year Note that during this period reulpricer have riren about a third err than nominalprr cer The sharpest increases are in dairy oils and fats and cereal prices while sugar prices and meat prices have increased much less dmmatically Except for meat price peaks oc curredbetwe en November 2007 and February 2008 with meat however still rising until the last data in April of this year What is very clear from this gure is that the increases in the crop prices have already re ected themselves in meat and especially milk prices In order to put these recent price changes into perspective we need to review aboth the longer history Overall food price indices are not available so we look at real grain prices Since the 1870 s real gmin prices have declined substantially Except for prices runups in 19101914 a spike in 197274 and another briefpr in 199698 the long run rate of supply increase has been greater than the mte of demand growth Malthus is still waiting for the opposite Thus the historical record is clear a long term BinswangeriMkhize amp McCaIIa July 24 2008 52 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Figure 35 Nominal Food Commodity Price Indices 1998 2000100 Food Commodity Price Indices Source FAO decline with sharp peaks followed by even lower trends Historically farmers have always invested excess pro ts into capacity and output has always expanded to put long run downward pressure on peak prices The declining trend food prices stopped in 1987 and in cereal prices it stopped in 2000 Therefore the current sharp nominal price increase could well be just another bubble In order to understand better what is likely to happen we now need to turn our attention to what has been driving the recent trends The drivers of demand for food The drivers of food demand are population income growth and urbanization The latter two change demand patterns away from cereals towards meat dairy fruits and vegetables Figure 36 shows that population growth for the World as a whole is slowing but remains at around 1 percent per year FIGURE 36 POPULATION GROWTH Is SLOWING BUT REMAINS HIGH IN THE DEVELOPING WORLD din quotMidel Source UN Population Prospects 2006 Population growth remains much higher in the developing world than the developed world where it is falling fast to zero It remains at around slightly less than 2 percent in Africa and at 2 percent for all Least BinswangerMkhize amp McCalla July 24 2008 53 JomtAfDB and WM Evaluation ofARD Context Paper Long m Inrhn m As gure 3 7 h urban Afnca Agarn ans suggests chat Asra and Afnca wru be me major source of changes In food FIGURE 37 MOST POPUL TiON mowm WILL BE in URBAN AREAS or DEVELOPKNU COUNTREES apnbmm EHHE on Source Ibld coupled to populauon growth wru be me major factor dnvrng me dernand ts refore rncorne growth In addmon duc Th for food and omer agnculmral pr 1996 and 2005 In 2007 World Bank to fall to 2 percent over me penod 20082020 Table 3 4 The developrng World wru see per 3 n c c a 1 to 3 9 urr rm msls chat 1 e connnne to dnve sharp rncreases In food dernand Frgure caplta changed v A 4 d r L L L A quot A ve Rg meat beef and mnlk wru grow at betwem one and one halfpercent Bmswangererhlze as McCalla July 24 2008 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Table 541 Calrita Inmme Gmwilr Rates 2007 2010 2007 20082010 26 20 22 17 65 52 96 77 67 57 FIGURE 38 PROJECTED GROWTH lN WORLD FOOD DEMAND hnhu Ill ll gm 4 an Source FAO Clearly the secular trend in relative prices from grains to foods with higher income elasticities is likely to continue a trend that should be accounted for in future agricultural development strategies However these demand projections do not yet re ect the impact of biofuels on land use production and commodity mixes Are Higher Food Prices Here to Stay Predicting prices is hazardous at any time but perilous for long term predictions The situation now is particularly difficult In addition to the demand factors we have already discussed there are many factors on the supply Side we have or will discuss in this report little progress in reducing agricultural trade BinswangerMkhize amp McCalla July 24 2008 55 Joint AfDB and IFAD Evaluation of ARD Context Paper Long barriers and subsidies in rich countries slowing yield growth constraints on the use ofbio technology little investment in irrigation deterioration of existing irrigated areas environmental constraints loss of land to competing uses u L 39 39 i J a t u m i ital set asides and water constraints While the history we reviewed earlier suggests that the higher food prices we now see may well be another major bubble it is not clear whether food prices will settle back to the same level they were in the early years of this century or at a lower or higher level The fact that their long term decline has stopped for almost 20 years and that demand forces are eXpected to be strong makes it unlikely that they will resume their secular decline This price spike has stimulated a large number of writings about the nature of the price increases their likely duration and the nature of a return to more normal times Within the past few months IFPRIMay 2008 IMF March 2008 FAO April 2008UNCTAD May 2008OECDFAO 2008USDAERS Trostle May 2008 and Australia Stoeckel June 2008 have all published analysis The New York Times ran a series under the general heading The Food Chain from January through June 2008 and The Economist has carried many articles in the last siX months All these analyses do not however agree on the causes likely duration and ultimate end of the spike Although all do agree prices will come down from current levels There are at least four competing hypotheses stories oating about which we brie y review here Story One 7 Macroeconomic Factors are Driving Price Rises What we are experiencing is a broad commodity boom Oil minerals especially gold and copper and agricultural commodity prices are rising in a similar pattern which suggests broad macro economic variables are driving the boom Explanations include the rapid decline in the value of the US dollar Given that all global commodity markets are denominated in dollars the declining dollars makes all commodities cheaper to the rest of the world driving up demand and pricesHanke ampRansom WSJ32508 In parallel US concerns about recession led to successive cuts in nominal and real interest rates which reduced the price of storage and encouraged buying and holding real commodities This phenomenon drives up all real commodity prices Frankel 2008 Story Two Speculators are Driving Prices Up and Increasing Volatility In periods of uncertaintyrecession investors shift assets to real assets including commodities Further the rise in hedge and particularly indeX funds has led to large increases in nontraditional investments in commodity markets These fund investors are currently very long betting on continued price increases in Commodity markets Story Three Simultaneous and Big Shocks are driving Prices up International commodity markets operate on a knife s edge between the rate of supply growth and demand growth Several years of weather impacts in Europe in 2006 North America in 20062007 and a continuing severe drought in Australia 20062007 have drawn stocks down to critical lows This coupled with the surge in bio fuel demand has created a price spike that will surely end when conditions return to normal Story Four Combination ofPermanent Structural Changes in Supply and Demand Conditions Exacerbated by Shocks This is the predominant story in the literature This story argues that there is a con uence of permanent and transitory factors that are driving the current price situation On the demand side rapid growth and BinswangerMkhize amp McCalla July 24 2008 56 Joint AfDB and IFAD Evaluation of ARD Context Paper Long rising incomes in emerging economies such as India and China has increased that rate of demand expansion Urbanization and global growth means demands for a larger and more varied food supply Finally at least some of the increase in bio fuel demand will be around for a while On the supply side the rate of increase supply has slowed over the past decade because of declining rates of productivity growth and increased competition for water and land Investments in agricultural RampD have declined globally as has investment in agricultural development Finally higher petroleum prices have permanently increased the costs of agricultural production Global grain consumption has exceeded global production in 7 of the last 8 years The result has been a drawdown of stocks to critically low levels Thus when shocks like weather and the surge in bio fuel demand occur they have caused prices to rise sharply The real explanation probably has elements of all four stories However if one favors any or all of the rst three the long run is clear when the contributing factors revert to normal the bubble will break and we will resume the same long run downward path in real prices as happened in earlier episodes Only story four proposes the possibility of a different ending Two outcomes seem possible After the spike nominal prices fall but stabilize at higher levels of real prices and continue their secular decline likely at a slower rate A second variant would be that the permanent structural changes are sufficiently strong that the historical pattern of declining real prices is over and real prices will rise modestly over the foreseeable future In future paragraphs we review empirical estimates that support each of these possibilities The rst is a set of projections to 2017 jointly prepared by OECD and FAQ in early 2008 Figure 39 shows the OECDFAO price projections The gure compares the average level of prices for the past decade which were already higher than prices in the 1990s with average expected nominal and real prices for the coming decade While nominal prices of all major food groups are likely to increase this is not so for real prices in real US dollars which are expected to decline or slightly or stay constant for beef and pig meat For sugar and rice they are expected to increase by between ve and 10 percent re ecting in the case of rice the expected slow growth of demand in Asia and for sugar a high supply response capacity By far the highest real price increase is expected in vegetable oils more than 50 percent while for the other commodities the real price increases range between 25 and 30 percent Compared to the prices we have been seeing in the early part of 2008 this means that a number of the high prices are expected to drop back signi cantly over the next one or two years but will remain much higher than in the last decade BinswangerMkhize amp McCalla July 24 2008 57 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Figure 39 Expected World Commodity Prices for the Coming Decade Nominal 1 Real Per cent growth between average 20082017 and average 19982007 100 60 40 20 20 l I I l I l l I l 1 Wheat Coarse Rice Butter Cheese SMP Oilseeds VBQBY Beef Pigmeat Raw grains oils Pacific Pacific sugar Source OECD and FAQ Secretariats The second study is a recent IF PRI analysis using their IMPACT Model which makes much longer term projections It projects that real grain and oilseed prices will not decline from levels they reached in late 2007 and will show a modest increase through 2050 Figure 310 shows those projections for rice wheat maize oil seeds and soybeans This is one of the rst substantive analyses we have seen that seems to support the proposition that the long term secular decline in grain and oilseed prices may be over Figure 310 Long Term Crop price projections to 2050 Real world cereal prices projected to rise 3040 percent beyond current high levels I E a m a o 2 L n 50 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 figures EFPRE li rIPArj39r orojsstions business usos i EPSS 33353332 stimsts sssnario sptsrrrbsr 200739 BinswangerMkhize amp McCaIIa July 242008 58 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Sensitivity of projected prices to key assumptions Figure 311 shows how sensitive projected world wheat rice and oilseeds prices are to key assumptions It shows the reductions in prices from the baseline projection in 2017 that would come from ve different scenarios OECDFAO 2008 Equot W 5 P39 BinswangerMkhize amp McCalla Instead ofrising rapidly over the next decade biofuelsproduction would be maintained at the level of2007 For the two main biofuels inputs vegetable oils and coarse grains this would lead to a reduction of2017prices by between 15 and 12 percent respectively more than any other scenario change Wheat that would be affected indirectly the reduction would be around siX percent Simulations by Rosegrant using the IFPRI IMPACT model come to the same conclusion Clearly there is no longer any question that bio fuelpolicy and the resulting production will have a major impact on future food prices Keeping oil prices constant at 72 dollars per barrel the average 2007 level would reduce maize and oilseed prices by around 10 and wheat prices by 7 compared to their baseline 2017 prices This shows the very high sensitivity offoodproduction costs andprices to energy prices If their rate of growth in EEScountries China India Brazil Indonesia and South Africa were reduced by half relative to current high projections this would lead to price reductions in vegetable oils that are highly income elastic of about 10 percent while it would reduce maize by signi cantly less and leave the wheat price almost unchanged If the US dollar were to appreciate by 10 percent relative to the baseline scenario which already incorporates a modest eXpected US dollar appreciation it would increase incentives in exporting countries to produce more and reduce import demand elsewhere The combined effect would reduce all three prices by about 5 percent relative to their baseline If crop yields at the end of the period would rise by an additional 5 it would reduce wheat and maize prices by 6 to 8 percent but leave vegetable oil prices relatively unaffected July 24 2008 59 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Figure 311 Sens h it of projected world prices to changes in ve key assumptions percenlage difference from baseline values 2017 Sceuanai Emiuel production constant at2007 level I 3mm 2 Scenario 1 and on price constant at 2007 level 72 IE 39 minim m l A ScenarioS 39 39 uuiwinmuuei 39 39 o 5 m 15 20 25 30 35 49 45 i i Wheat Maize Vegetable ml SOMYCE OECD and FAQ Secretariats The OECDFAO conclusion is worth quoting because it comes closest to our current views World reference prices in nominal terms or almost all agricultural commodities covered in this report are at or above revious record levels This will not last and rices will raduall come down because 0 some of the transitory nature of some of the factors that are behind the recent hikes But there is strong reason to believe that there are now also germanent actors underginning grices that will work to keeg them both at higher averge levels than in the East and reduce the longterm decline in real terms Implications of Rising Food Prices Impact on the Balance of Trade Higher food prices have important implications for the balance of trade of countries that are summarized in Figure 312 Highly specialized net exporters of food such as Argentina Will see their trade balance improve by more than 1 percent While other food exporters such as Brazil the US Russia or Australia Will see their trade balances improve by less than one percent Net food importers include much of the developing World With the exception of Thailand Indonesia and about half the South American countries All of Africa Will be hurt With the hardest hit countries including all of North Africa and much of Eastern Africa Who Will see their net trade balance deteriorate by more than one percent Of course these impacts have to be seen in the context of the rising prices of energy and other raw materials In Algeria and Libya the higher costs of food imports Will be more than offset by higher oil prices While Eastern African countries Will see a double hit from higher oil and food prices For this review it is striking that the Eastern and Smthem African cmnlries that have the highest rates of poverty and unemployment and also the highest HIV and AIDS rates are among those in this group Clearly special balance of payment support measures are urgently needed for these and other highly a ected cmnlries BinswangerMkhize amp McCalla July 24 2008 60 1mm mm and FAD Eva uztmn quRD Cumst PaperLurg 1122 comma e inrrmse ml Trade 33mm Figul 231 jmpm nf Fund P mm 7 Inna Impact er vnolzcrzn man was mcnusss on mm mmczs I Lama105mlmdabalancewmsening gt manna envy Maximal 395 mm mm wmenmg lt m ms GDP I Moderala gamsrs nude balance mxpmv ng lt 1mm an I ngagmnelsmadc mmmmpmmg gt HezoDsG P Nu dam lmpm nn dnmesn39c prndncs and rmmnna prices Mm kde w 1992 m h 4 am andcannutexceed Mare Only my h Pr abuut 17 preteen have yet respunded ma measures m mereese the fund Supply h rh wn w expun taxes recently dune by Argentina Dr expunbzns recently dune by Ind me phmppmes and Vxemzm H r m Fm m r able m affect dumesu pnces vary signi cantly BmswzngererhwzegeMcCaHz Ju y 242008 5 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Figure 313 Policy actions to address high foot prices Reauce axes on fundgvams Increase supply umg loadgvain Slotks I Expovtmstrinlons Source FAO 2008 As a consequence of these policy measures the passthrough of higher rice prices to domestic prices ranged from 6 9 and 11 percent of the intemational price rise respectively in the Philippines India and Vietnam all of them net food exporters The price rises were 43 53 and 64 percent respectively in Bangladesh Indonesia and China who import some and export other foods Argentina a major wheat exporter has been able to keep the price rise ofwheat to less than a thde the price rise in the international price while in Chile domestic prices almost fully re ect the rises in the intemational price In South Africa because of weather disturbances the price of white maize started rising in 2005 much earlier than international prices for yellow maize White and yellow maize are substitutes in livestock feed but not in human consumption and therefore only partially linked For this reason the sharp rises in the international price of yellow maize has not led to further increases in the South African price for white maize While international and domestic prices thus can differ signi cantly in the short run in most countries domestic consumer and producer prices have remained closely aligned all data from FAQ 20 08 Impact on Poverty It is genemlly assumed that higher food prices are good for rural populations in the long run because they lead to greater investments outputs pro ts and rural wage mtes They do so both directly and indirectly via forward backward and consumer demand linkages on the rural economy For economies dominated by agricultural sectors there may also be important positive linkage effects on urban economies as well as higher unskilled urban wages that are tmnsmitted from rural to urban economies The higher food prices projected for the future are therefore likely to provide important long run bene ts for many African economies and especially for rural populations who generally are poorer than urban populations An example of the positive price effects on ruml poverty reduction comes from China where a signi cant Binswangererhize amp McCaIIa July 242008 62 Joint AfDB and IFAD Evaluation of ARD Context Paper Long share of overall poverty reduction was associated with price reforms in the 1980s that led to higher producer prices increase poverty confronting countries with dif cult political management problems lvanic an 2008 took high quality household data from ten countries to simulate the short run impact of the rise in commodity prices from 2005 to 2007 onpoverty incidence and depth Longer run impacts that arise from rural linkage effects via forward backward and consumer demand linkages that come about as a consequence of higher farm pro ts associated with higher out ut prices are not included in the analysis The prices they took into account are for dairy 90 maize 80 Poultry 15 Rice 25 and wheat 70 They omitted edible oils and do not consider the price rises that happened in early 2008 which biases the results towards a lower poverty impact On the other hand they assumed that 100 percent of these price rises would be tmnsmitted to domestic consumers which biases the results towards ahigher poverty impact They present two scenarios one in which they assume that wages mtes do not respond to higher food prices and one in which they adjust partly They use short run wage elasticities derived from the geneml equilibrian Global Trade Analysis Project models to do so The impact of the adjustment of wages can be seen in gure 314 in the all countries comparison which are shown with wage adjustments andwithout Urbanpoverty impacts decline from 36 percent to 32 percent while rural impacts decline from 25 percent to 22 percent Ovemll these are small adjustments to the poverty impact and for the countries we show only the results including the wage adjustments The other overwhelming impression from gure 314 is the signi cant disparities in short term poverty impacts of identical food price rises aron the globe However these positive impacts take time to achieve and inthe short term the higher foodprices tend to n Ire 314 The short run impact of higher fond prices on Final and urban poverty Percent index in poverty rate l Rural l Urban Source Table 5 oflvanic andMartin 2008 On avemge it is clear that urban poverty increases more than rural poverty This is because rural households produce some of their own staple foods However there are some exceptions In Zambia rural poverty increases more than urban poverty probably because a much larger proportion of the rural population is just above the poverty line than in urban areas and therefore are pushed below the poverty line by the prices changes The same is true for Malawi and Cambodia all countries in which few rural households are suf ciently well off that they are net sellers of food The highest poverty impact of the BinswangerMkhizeamp McCalla July 242008 63 Joint AfDB and IFAD Evaluation of ARD Context Paper Long price rises is on urban populations in Nicaragua who spend a large share of their income on the foods included in the analysis and rural populations of Zambia who are net buyers of maize dairy and poultry On the other hand the rural poverty rate in Vietnam declines by 31 percent because most of them are net sellers of rice maize and poultry In Peru a middle income country rural poverty also declines because many poor people are net sellers of maize and dairy while the impact of the prices of raw foods on the much richer urban population is not measurable The changes in depth of poverty paint a similar picture to the changes in the poverty rates The authors then did a back of the envelope calculation to estimate the short run global rise in the number of poor people across the world First they took account of the further price rises that happened in the rst few months of 2008 as well as adjustments in the exchange rates They also assumed that only two thirds of the international price rises were transmitted to domestic markets and no offsetting wage effects Based on these assumptions they calculated that the overall short run poverty increase in the nine study countries would have been 45 percent rather than only 3 percent When they apply this average to the entire 24 billion people living at less than 1 dollar a day in the World they nd that the food price rises have thrown an additional 105 million people into eXtreme poverty This corresponds to all the gains in poverty reduction which were achieved in the 7 years prior to the food price crisis Three remarks about these estimates are necessary First they are back of the envelope calculations based on a very limited sample of country studies and therefore at best can provide an order of magnitude of the short run poverty impact Second they ignore all the positive impacts that higher food prices could have via forward backward and consumer demand or via wage improvements They cannot therefore assess what would be the poverty impacts of higher food prices in the medium to long term Third they measure the poverty impact of what is most likely to be a transitory spike in food prices Since it is eXpected that food prices would return to lower levels quite rapidly albeit not as low as in the past decades they again focus on the short run Nevertheless these estimates are a good indicator ofwhatpolicy makers are up to ifthey want to mitigate the adverse poverty effect in the short run Clearly this is a monumental task It is not only the additional poorpeople who need help most ofthose among the 23 billion who were poor before thefoodprice spike Small increases in safety net programs that rarely have significant coverage in thefirstplace will not be up to the task at all No wonder therefore thatpolicy makers have preferred the aggregate measures such as reducing taxation of food general food subsidies or price controls releases from stocks and export controls Of course some of these measures have poor fiscal sustainability and prevent reduce necessary 139 in I 39 andp J offood But ifthese measures are indeed used only to mitigate the short run impacts and then quickly phased out they may well have beenjustified We note here that neither IFAD nor the AFDB have mitigation ofshort term shocks and safetv nets as part oftheir mandate and portfolios As a the major 39 139 39 39 39 1 higher food and agricultural prices are for longer term agricultural and rural 1 1 topics that we pursue in section 7 and 8 BinswangerMkhize amp McCalla July 24 2008 64 Joint AfDB and IFAD Evaluation of ARD Context Paper Long 4 Economic and Agricultural Growth their Sources and their Constraints What we have shown in Section 1 is that the absence of growth in SSA and speci cally of agricultural growth has not only been the main reason for lack of poverty reduction but also is the key to the deplorable rate of progress in the reduction in hunger Fortunately the situation in SSA is changing Between 2004 and 2006 real growth rates for Africa as a whole have now been above 5 percent and for SubSaharan Africa have exceeded 5 percent since 2005 ECA 2007 As a consequence real per capita income growth in SSA in between 2004 and 2006 has been 32 percent almost as much as the 34 percent for the Middle East and North Africa MENA A recent report on the Challenge of Growth in Sub Saharan Africa sums up the rapid changes that have happened in the last decade In the 2006 Doing Business Report World Bank 2006 Africa has movedfrom last to third among Regions on the pace of reforms ahead of the Middle East and Latin America Africans at the grass roots level are hopeful and striving to do betterfor themselves A recent Gallup poll shows thatAfricans are more optimistic about theirfuture than people in many other developing regions Following a wave ofdemocratization in the region since early I990s there are now 31 young democracies in the region representing more than two thirds ofthe countries The number ofcountries in conflict likewise has come down sharplyfrom 15 in the early 2000 to 5 currently Ndulu et al 2007 In the neXt sections we therefore turn to the determinants of general economic and agricultural growth the determinants of severe underperformance of the countries of the bottom billion and the determinants of past agricultural underperformance and the recent recovery Because growth is so important this section rst summarizes the key ndings of the report on Challenges of Economic Growth in Africa Ndulu et al 2007 The report is based on an impressive body of SSA growth research carried out by researchers of the African Economic Research Consortium It includes not only analysis of macroeconomic data but also many other studies and in particular a comparative analysis of in depth surveys of rms all over the developing world The section will include additional information on North Africa and information from other sources that will be speci cally cited to distinguish it from the ndings of Ndulu et al Our own comments are included in brackets The general factors discussed by Ndulu et al of course are also key determinants of agricultural growth In addition there are agriculturespeci c policies and programs that are analyzed at the end of this section The one factor that has contributed signi cantly is the great improvements in agricultural price and trade policies in Africa Ndulu et al shows that poor long term growth performance lies behind the situation of low per capita income and high poverty in subSaharan Africa Growth in 41 SSA countries for which data for the full 45 year period is available was only 05 percent compared to 3 percent in 57 countries in the rest of the developing regions including North Africa The growth performance has been quite diverse SiX of 47 SSA countries have more than tripled per capita incomes between 1960 and 2005 nine countries have per capita incomes at the same level where they started or below and the remaining 32 have seen modest growth in per capita income but not enough to make a signi cant dent into poverty As a consequence the number of middle income countries has risen from 2 in 1960 Mauritius and South Africa to 13 in the region Seven of these acquired their middle income status largely because of mineral wealth The middle income countries account for only 13 percent of the population but two thirds of national income In addition growth in many countries has been episodic The majority of countries experienced modest growth between 1960 and 1974 decline between 1975 and 1994 and renewed and accelerating growth BinswangerMkhize amp McCalla July 24 2008 65 Joint AfDB and IFAD Evaluation of ARD Context Paper Long since then The prolonged period of economic decline between 1975 and 1994 was much deeper if growth rates are weighted by population numbers which give far greater weight to the poor performance of the large countries Nigeria and Ethiopia The period of decline started with a set of shocks to energy and tropical commodity markets and ended with a wave of democratic reforms between 1989 and 1994 During 19942004 there was more rapid per capita income growth during which 20 countries grew more rapidly than the average of the rest of the developing world New entry into this high growth club was associated either with natural resource exploitation Angola Chad Equatorial Guinea and Sudan or with strong reform movements Benin Ethiopia Ghana Mali Malawi Mozambique Senegal and Tanzania Economic growth further accelerated in all of Africa between 2004 and 2006 fueled by strong global economic growth and higher raw material and energy prices ECA 2007 In North Africa it accelerated from 38 and 4 percent between 19951999 and 2000 to 2004 to 52 and 64 percent respectively in 2005 and 2006 ECA 2007 and 2006 The only subRegion that is not participating is West Africa where growth slowed down from 54 percent in 2005 to 46 in 2006 ECA 2007 perhaps associated with higher oil prices and the appreciation of the FCFA For SSA what is striking is that countries with similar opportunities have ended up at completely different ends of the growth spectrum Zambia and Botswana are both landlocked and mineral rich and Mauritius and Cote d Ivoire are both costal countries Yet Botswana and Mauritius ended up in the higher middle income group whereas per capita incomes in Zambia and Cote d Ivoire have barely moved in 45 years Over the long haul slightly less than one half of the lower growth in SSA relative to the rest of the developing World is associated with lower growth of physical capital and slightly more than half with lower productivity growth The share of investment in GDP has been only about half as high as elsewhere and for given investment SSA has only achieved about two thirds of the productivity growth The above decomposition of the differences in growth rates tells us only what has failed to happen namely investment and productivity growth To understand the why Ndulu et al look in detail at constraints to investment incentives and returns to investment or conversely to what are the sources of growth that could be activated Poor Resource endowments Endowments partly explain the poor incentives The over 90 percent of SSA that lie between the Tropics suffer from much higher incidences of diseases that impact negatively on life expectancy human capital and labor force participation This compares to 3 percent of OECD countries and 60 percent for East Asia 2 SSA is highly fragmented Their 48 small economies have a median income of only 3 billion US dollars On average each country shares borders with 4 other countries versus 29 for other developing countries 3 40 percent of the population lives in landlocked countries as against only 75 percent in other developing countries and none in North Africa excluding Sudan This combines with a road density in SSA of only 13 km per sq km versus 41 km in other developing countries 4 26 percent of the SSA countries are both landlocked and resourcepoor while six percent are landlocked and resourcerich Coastal resourcepoor countries make up 43 percent of the countries while coastal resourcerich ones make up 26 percent BinswangerMkhize amp McCalla July 24 2008 66 Joint AfDB and IFAD Evaluation of ARD Context Paper Long How being landlocked interacts with poverty in resources to produce poor growth performance is illustrated in gure 41 Resourcerich landlocked countries did much better than their resourcepoor land locked counterparts especially in the 1970s and since 2000 Coastal resource poor and coastal resource rich countries did about the same over the long haul although the performance of coastal resourcerich countries dropped well below that of their resourcepoor counterparts during the 1980s Clearly it is not just the presence of resources that counts but the use of the money that is made from them Interestingly except for the 1960s coastal resourcepoor countries fared no better than landlocked resourcepoor countries Again geography is not complete destiny Geographic isolation and poor management of natural resources may explain about one third of the growth gap in SSA compared to the rest of the developing world These adverse factors should be tackled by infrastructure investments and improved management of natural resource revenues topics to which we will return later Figure 41 Growth Experimce According to Geography and Resource Endommnts Countres wih fu I set of growth observations 6 4 2 39 CI 3quot TAT Arquot ri er 0 4 I i 1 u I 1980 1970 1930 1993 2088 2018 and cokeo resource poor quot Landlocked FESCLFDE r o Coastal resource poor Coastal resource nch Source Ndulu et al 2007 Rapid Demographic Change A very important reason for poor investment incentives and returns is that the demographic transition in Africa began later than elsewhere and is slower than in the rest of the World leading to much higher dependency rates than elsewhere creating both household and scal pressures The delayed demographic transition in SSA consistently predicts two thirds of the difference in growth performance with the rest of the developing World Lower life expectancies are also shown to contribute to the poorer growth performance and the AIDS epidemic has made this factor much worse especially in Eastern and Southern Africa The current situation results in a high level of age dependency which reduces saving reduces investment in human capital and results in slower growth of the labor force All of this reduces economic growth rates from what they might have been if the agedependency ratio were lower Declines in fertility rates seem to be linked to income growth urbanization girls education and reduced infant BinswangerMkhize amp McCalla July 24 2008 67 Joint AfDB and IFAD Evaluation of ARD Context Paper Long and child mortality rates all of which have been delayed in SSA because of stagnant growth rates Thus as growth begins to accelerate declining agedependency ratios can accelerate per capita growth rates by 1 percent or more Given the importance of this issue and the fact that donors have reduced their funding for family planning programs it would be well to revisit the relative priority of investments in family planning Poor Governance and policy As discussed in his book on the Bottom Billion see section 5 Collier shows that three quarters of the bottom billion countries have suffered from prolonged periods of poor governance and poor policies Poor governance can ruin the most promising prospects as for example in Zimbabwe These countries are not able to provide essential services required for growth Resources get eaten up in corruption before they reach the service providers Poor governance and poor policies create a trap because powerful vested interest bene t from them and oppose reforms In addition correcting them requires skills which often have outmigrated or ed the country Donor conditionality cannot substitute for the lacking political will and lacking skills Collier 2007 Historical institutional and policyrelated constraints have reduced riskadjusted returns to investment Controlling for differences in opportunities the impacts of poorer governance and policy contribute between 25 and 50 percent of the difference in growth performance between SSA and the rest of the developing world Ndulu 2006 Launching a turnaround takes courage and proponents of change take a lot of risks While Democracy has spread in Africa democracy alone does not seem to help a turnaround A larger population a higher proportion of people with secondary education and having recently emerged from a civil war increase the chances of a turnaround But probabilities of a turnaround in the failing states such as the Central African Republic Liberia Sudan and Zimbabwe have been distressingly low Only 16 percent per year Therefore failing states have stayed in their trap for a very long time over which huge costs accumulate The cumulative cost of a failing state to itself and to its neighbors is about 100 billion The bene ts of helping turn around a failing state are therefore huge Collier 2007 Avoiding policy distortions include actions needed for sustained macroeconomic stability maintaining a prudent exchange rate policy to support exportled growth and improved market ef ciency to spur private sector initiatives and enterprise In spite of the low probabilities of past turnaround measured by Collier et al policies have signi cantly improved over the last decade unweighted consumer price in ation persistently and sharply fell within a decade from 27 percent in 1995 to about 6 percent by 2004 In a median SSA country government spending as a proportion of GDP also fell sharply in the past decade as it has in other developing countries in the world and the average scal de cit was halved to 2 percent of GDP by 2000 Except in a few countries black market exchange rate premiums now average just 4 percent Through unilateral trade reforms SSA countries have also compressed tariff rates the average rate is currently 15 percent As a consequence of the major policy reforms initiated in the continent since 1990 the impact of poor policies on growth may have waned Ndulu et al 2007 One factor that explains better policies and governance is having the right leader It has made a huge difference in growth outcomes across Africa since 1960 Glaeser et al 2004 Leaders make a difference either directly by in uencing policies or indirectly by shaping institutions Ndulu 2006 b Political competition transparency and strong domestic accountability not only raise the chances of having good leaders but also of having it sustained BinswangerMkhize amp McCalla July 24 2008 68 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Integration into the VVOI ICI Economy Greater integration in the world economy consistently is associated with higher growth performance This factor operates not only at the country level but also at the rm level It is not just border trade policy and port capacity and ef ciency that counts but increasingly infrastructure standards and access to information Deficient Infrastructure and business environment Investment incentives and returns are also conditioned by infrastructure We have already commented on the low road density in SSA relative to the rest of the developing world Transport costs are among the highest in the World and can reach as high as 77 percent of the value of exports Economic Commission for Africa 2004 And SSA farmers have to pay up to three times the price for fertilizer than farmers in Thailand India or Brazil But it is not just the state of infrastructure which counts Before the 1980s most transport businesses in including railways bus and trucking companies airports seaports and civil aviation were publicly owned and managed and heavily regulated These enterprises charged low tariffs and their reduced viability imposed heavy costs on both users and the national economies Since the 1990s the transport businesses have mostly been deregulated and privatized Concessions for operating railways ports and airports have become common Remaining public enterprises have been given more autonomy and arbitrary regulation has been replaced by regulation through consensual performance contracts In the highway sector setting up of more sustainable institutions 7 autonomous road agencies and dedicated road funds 7 has become the norm and has started to show positive results World Bank Africa Transport Unit website A serious problem in Africa is the extractions and bribes imposed by the police and others at border posts and road blocks Along the West African road corridors linking the ports of Abidjan Accra Cotonu Dakar and Lome to Burkina Faso Mali and Niger truckers paid 322 million in undue costs at police customs and gendarmerie checkpoints in 1997 partly because the InterState Road Transport Convention had not been implemented Economic Commission for Africa 2005 Since these extractions respond to the pro tability of the commodities transported there is therefore a real danger that if other margins of pro tability improve these extractions will go up and prevent the transmission of improvements to the farm Well organized producer organizations are needed to ensure that governments crack down on these practices Access to electricity is the most costly and unreliable in SSA problems which stem from state monopolies and inefficient state enterprises Energy costs are higher and power outages are more frequent than in any other Region of the World and in particular compared to China Figure 42 This generates the need for heavy investment in backup facilities BinswangerMkhize amp McCalla July 24 2008 69 mesm FADEvihitmn MARD mmmapyumw noun 4 2 Emmy com um POWER ounce W Wm Zak 21qu mm secuntymSSA relative m Mnmcca andchma afnmf cul payments m ge hmgs dam mgr paymzms m secure camncts new A 3 COST or cum m sacwm m uuomcm mme1 Bmswin erkmz amaua w 24 2003 7a JmmMDB m FADEvihitmn mm mmmapmmy mvestmzm Incentives and m xemms rim x in nu mm m hing in 5 unrkewhzn y m u M am a 5amp1 mmumm 4 luadequzta Cayau39ry A Wand am xepun an mum Effecnve Sums and mm Engaged 5mmquot mus mm H thNhAM mcennvesandchzcksandbahmes Insalmng pmcessmumemhlemshnncms Thanh res ecnve panm eadzxshp mm 1mm welafgvvemm m mm m mum emxstntzcapcnys dud mm tpm mmmn xepun c 1 manddwol 2 o s m m m m comm ownspurnsovallocatmgandmana ngmomynudto mwmmm ma mthavthan usmggamllalsyiam mm attha normal awlbutat duamalmd owl mm m gar am am donwe mmmamwm Thasham of chmcalassmamaundmggomgto 1211022 am mm mm 90mmquot Saturn and sung mushmvmsa 7h 5 bastdom by yoolmgtha amamad nancmga angamamsmto mam 2 m1 gnommdcagaoq dawlogmantactwnm y m comm mm 4 419mm mad ovachmwn mm 71 com 1m ovtnhmcalcooamnon ovld ankZWJ nsmmnsun m a 1 am amwangymm wanna JUN 24 2003 71 Joint AfDB and IFAD Evaluation of ARD Context Paper Long While SSA has made signi cant progress in basic education success in skills development has been distressingly slow The sheer scale of what needs to be done to achieve growth basic health care and improved government dwarfs the capacity on the ground Moreover emigration from the Region is predominantly in terms of skilled manpower And the pandemics of AIDS Malaria and TB add to the losses SSA countries should eXpand tertiary education enrollment and achievement After decades of decline many SSA universities are reforming themselves pursuing selfsuf ciency in nance improved management and partnering with the private sector Private Universities are mushrooming in both the for pro t and faithbased sectors We will take up the opportunities that arise in these areas for AfDB and IFAD in sections 6 and 7 Undenleveloped Financial Sectors SSA nancial sectors are among the least developed in the world The M2GDP ratio of about 27 percentfor the period 2001 04 is considerably lower than the 43 percentfor South Asia and 50percent and 569percentfor Latin America and South EastAsia respectively These comparisons are also reflected in the private sector credit averages whereby Africa scores I6percent against 26percentfor South Asia 44 percentfor Latin America and 45percentfor South EastAsia Nduluu et al p 117 Because of high operating costs risks of policy instability high concentration and lack of competition the median spread of interest rates is 13 percent in SSA as against between 5 and 10 percent for the other developing Regions The lending environment across SSA is characterized by a poor credit culture poor contract enforcement and lack of protection of creditor rights Access of small rms to loans is low and costs and collateral requirements are very high compared to China and India Fig 45 Financial systems for a broad part of the population could be improved by innovations such as cellphone banking smart cards and improved infrastructure and greater competition for the transmission of remittances Low savings Savings rates in the Region have stayed way below other developing Regions While South Asia and SSA both had savings rates of around 10 percent in the 1970s in South Asia they have climbed to more than 20 percent compared to a mere 9 percent in SSA between 1991 and 2003 Excluding the resource rich countries brings the average savings rate further down to 3 percent Both public and private savings rates are below that of other developing Regions Reasons include low incomes low interest rates paid by banks on deposits and the scarcity of savings infrastructure In addition much savings in the rural areas is in kind in the form of trees livestock land improvements dwellings and investment in children s education In rural Ghana for example the median household saved over 30 percent of its annual income Mobilizing this savings capacity for agricultural development is both a major opportunity and a challenge But poor people are kept out of formal nancial systems by very high balance requirements compleX administrative procedures and astronomical transactions costs in the formal banking sector Micro nance institutions have only managed to mobilize a small pool of savings have limited coverage and narrow areas of operations High management costs have been the norm and lead to negative net worth and high probability of failure For micro nance to ful ll its role as a complement to formal nance the institutions will need to become much more efficient At the same time the formal sector will need to reach out to poorer segments of the population including via technological and process innovations BinswangerMkhize amp McCalla July 24 2008 72 tutrt mot and FAD Evstusttun quRD chmext PaperLurg noun 4 5 AccEss To FMANJA CAPITAL m SbAts Lumen so tau amt Mm ca Emmi tm Kenya Uganda temme zemtte th 5 m H mm Ramachzndmn and Shah 1006 The agmdn n ecnnumic gmvrm ngena and at mh w tw wt and with wt mm m cummumcanun and data systems 51212010 the amizn m the reg Nam et a1 Wye a mer mrmm Imtegztha hmg eh tahhg aetxehm warm ehemetenzeda the w 1 1m mvm theinvextmandimmz ab 11 towarddaxm the39 mbum a thhethene amt Ihewarld a eater maninrmvatiana the mm mom I Inducan tawth ahdehhaheedeem Imwnexx andinm analandlmman m a TheA eah Devele mentBankampmE aired melude three a thee area Agricultural growth has accelerated e m quott as mm amund LheWurld and espe ally 5 m Afnca Butm SSA yeth pet zglcultural pupulahun acmde l u develupmg Regan Furtunately m 1an wtth the gana39al ngLh hands m SSA agmultural guWLh has acceleratedrecendy and reached 3 5 p cmtpa39 espttsm the rsthalfufthts decade Unhke m Aste the BtnswzngererhtZESeMcCaHz Juw 242008 7 Joint AfDB and IFAD Evaluation of ARD Context Paper Long The same conditions that have shaped economywide growth and performance have also been key de ermjnants of agricultural growth and performance And the same factors that have kept the bottom billion countries in their traps also have prevented them from achieving success in agriculture We therefore do not need to separately analyze the impacts on agricultqu growth of the factors discussed previously such as investment and savings levels nancial sector development macroeconomic policies governance demography infrastructure the investment climate natural resources and con ict on the performance of the agricultural sector Instead we can concentrate on agriculturespeci c trends and issues Figure 47 rst con rms that improving agricultqu growthwas very much driven by improved macro economic policies In addition we will show below that agricultural policies improved tremendously over the past two decades It is these policy factors and the general environment for growth discussed previously that have led to the agricultural recovery in Africa not agricultumlspeci c interventions and program We can infer this from our knowledge that few African countries have as yet increased their investments in agricultural technology and services and in many they have continued to decline But there were two additional factors that are discussed here namely the continuing adverse policies of the developed world and the sharp improvements in agricultqu policies in the Africa itself FIGURE 46 AGRICULTmuL GROWTH IN SSA ANT rrs SOURCES Accelerating agricultural growth in Africa but Lagging productivity 5 40 3 g 35 33 35 E E g 30 5 2 5 23 3 3 3 20 g 15 E a g a g 2 100 120 140 160 180 200 220 240 260 280 19804990 199072000 200072005 Area expanslon Index Source WDR 2008 BinswangerMkhizeamp McCalla July 242008 74 Joint AfDB and IFAD Evaluation of ARD Context Paper Long FIGURE 47 NIAC Rf ECONOMIC CONDITIONS Mm GROW TH Improving macroeconomic store l I Higherag ric growth 39 10 A A m Macroeconomic score Agriculture gmnm rate 0 A t98 1995 t99572005 0 at 1983 1986 1989 1992 1995 1998 2001 2004 020 060 0 on o 20 a 40 Average annual change of macroeconomc score Source WDR 2006 Agriculture suffers from trade gluhal agricultural trade barriers The agricultqu sector in SSA however continues to have to struggle against an adverse policy environment inthe developed World Avemge nominal mtes of assistance in the developed World peaked at over 50 percent between 1985 and 1989 They have declined only slightly to a little less than 40 percent since then The impact of this protection on World prices and trade shares are severe The prices of cotton oilseeds dairy products and cereals are reduced by 21 15 12 and 7 percent respectively and the trade shares of developing countries in these commodities by 27 34 7 and 5 percent respectively While price impacts on processed meats and sugar are less severe the respective impacts on developing country trade shares are 19 and 9 percent respectively WDR 2008 The universally common practice of tariff escalation under which processed goods are charged higher tariffs thanraW products further aggravates the impact of these policies on the prospect of agroindustrial development in developing coun The impact of tmde liberalization in agriculture across the World Was studied by Anderson et al 2006 using large international CGE models With unilateml tmde reform in SSA alone African agriculture trade Would change little in the aggregate as the barriers imposedby the developed World and other developing countries Would remain signi cant But With multilateml reform of all goods globally African agriculture and food exports Would increase by 38 percent While imports Would increase but 29 percent Clearly African agriculture stands to gain the most from multilateral tmde reform Moreover in the absence of a breakthrough in the Doha round of trade negotiations China and India could follow the developed World Korea and Taiwan in protecting their agriculture to close the rising urbanruml income gap This Would close the major iture export opportunity for SSA agriculture BinswangerMkhizeamp McCalla July 242008 75 Joint AfDB and IFAD Evaluation ofARD Context Paper Long While the international price reductions caused by developed countries now look small compared to the price changes under the current price spike they clearly had a very adverse impact during the long period of declimng and low international prices that preceded it In addition they would again have a sigmfrcant impact if after the spike prices settle at only modestly higher levels than they had been prior to the spike African countries have of course recogmzed the adverse consequences of these trade restrictions in agriculture and have become active participants in the trade negotiations The price spike should not change their policy stance The African Development Bank it well place in rapporting them via in advocacy role Domestic Taxation of agriculture was exceptionally high but has been reduced After the end of colonization African countries started to discriminate sharply against agriculture via overvalued exchange rates industrial protection and direct agricultural taxation A major study now has measured the combined effects of these three interventions on the net rate of agricultural assistance and compares them across the developing and developed World A negative rate of protection is in fact the rate of taxation This is sometimes called disprotection As shown in figure 48 for Africa as a whole the net protection rates have improved from about 20 percent in 19751979 to less than 10 percent in the first half of the present decade and to near zero in 2005 Figure 49 below However protection remains high in other parts of the World Figure 48 Protection rates remain at close to 40percent for the developed World over 20 percent for Asia and around 5 percent for Latin America and the Caribbean Undoubtedly these policy improvements were major contributors to the agricultural recovery Neverthelerr the SSA farmerr remain the mort dirprotectealfarmerr in the World FIGURE 48 AVERAGE RATES or NET ASSISTANCE FOR AGRICULTWE 19552005 t r r r r 195559 195569 197579 198589 199599 Africa 0 Asia A ECA I LAC Source Byerlee and Anderson 2007 As Figure 49 shows the antitrade bias against agriculture was concentrated on exportable commodities which in the late 1970 were taxed at around 50 percent whereas importables were almost always slightly protected The figure also shows that disprotection of exportables has further declined in the last two years a very positive trend BinswangerMkhize amp McCaIIa July 24 2008 76 Joint AfDB and IFAD Evaluation ofARD Context Paper Long FIGURE 49 NRAS IN AFRICA OVER THE PAST 50 YEARS 1880 2 HRAtmaI o TJRAH npDrIEDles a NRA Exportables Source ibid Within SSA agricultural taxation remains the most severe in Zimbabwe the Ivory Coast Zambia and Tanzania Figure 410 The greatest improvements since the rst half ofthe 19805 were made in Mozambique Kenya and Madagascar Where nominal rates of assistance are noW positive In Egypt the only North African country for Which data is available the NRA also remains close to 10 FIGURE 410 NET RATES OF ASSISTANCE To AGRICULTURE l39N AFRICA 198085 TO 2000 Senegal m Em Rsa Emmpla Tanzania m la Cuted lvalre Ztnmabwe 75 50 1 0 2d 50 75 NRA Ag Total 39 Daa nut available 1930 I 2000 Binswangererhize amp McCaIIa July 24 2008 77 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Among the agricultural commodities in the rst half of this decade the Nominal Rates of Protection NRAs for tobacco soybeans groundnuts cocoa cotton beans beef and tea remained at between 60 for tobacco to 20 for tea percent across Africa not including South Africa Clearly across 39 39 and across countries there remain important opportunities for improvement in the incentive regime of SSA agriculture BinswangerMkhize amp McCalla July 24 2008 78 Joint AfDB and IFAD Evaluation of ARD Context Paper Long 5 The Bottom Billion Despite the progress that SSA has made over the past 15 years and despite the extremely favorable international environment for growth in the past three years 7 countries in SSA still had negative average per capita income growth between 200406 Brundi Comoros Eritrea Niger the Seychelles Togo and Zimbabwe and a further siX had three year average per capita growth rate of less than one percent Benin Central African Republic Cote d Ivoire Gabon Guinea and Guinea Bissau These countries are stuck at the bottom while at the same time the average three year rate of per capita income growth for SSA was 32 percent Clearly these countries deserve special attention in a period of global prosperity when the rest of the World is marching on This section summarizes the studies of Professor Collier and his collaborators that were recently summarized in Collier 2007 5 Our own comments are again inserted in brackets Professor Collier and his collaborators have divided the developing world into the rapidly growing countries in which the middle four billion of people live and the 58 relatively small countries in trouble with about a billion people Of these 73 percent are or have recently been through civil war 29 percent live in countries dominated by natural resources 30 percent are land locked in resourcepoor countries and with bad neighbors and 76 percent have gone through a prolonged period of poor governance and poor policies Because these countries often suffer from more than one problem the percentages add up to more than 100 percent As a result while the rest ofthe developing world has been growing at an unprecedented rate these countries have stagnated or declined From time to time they have broken free ofthe traps but the global economy is making it much harder tofollow the path taken by the majority Collier 2007 p 99 Most of the bottom billion countries are in SSA but they also include countries such as Haiti Laos Cambodia Yemen Burma North Korea and Central Asian Republics In the trapped countries life expectancy is much lower infant mortality much higher and hunger is much more prevalent And missing prospects for development shroud their populations in despair Collier et al use a large crosscountry data set from 1960 to the early years of this decade to statistically estimate the impacts of different conditions and variables on the likelihood of falling and emerging from these traps and the contributions to growth of resource income and policy interventions in the countries on the likelihood of achieving higher growth For a number of those relationships they have to overcome endogeneity issues which could bias the estimated coef cients They do this via instrumental variable techniques While the underlying papers have been published in peer reviewed journals a number of econometricians believe that it is hard to estimate stable structural parameters from cross country regressions and that instrumental variable techniques are a relatively ineffective tool to overcome endogeneity problems There is therefore still a lively debate about the reliability of the resulting estimates especially where subtle effects are being estimated with relatively poor data However the policy conclusions presented by Collier not only rely on the statistical evidence but also on other bodies of knowledge and evidence 5 Collier s book summarizes the results of a large number of studies that have appeared or are about to appear in peer reviewed journals Readers interested in the data and econometrics used need to go back to the original articles BinswangerMkhize amp McCalla July 24 2008 79 1mm mm and FAD Eva uztmn quRD Cumext PaperLurg Cun icl m r n a u Fr Unnlabuut reeeh deehhes Ever 15 percent hf SSA uunmes remamed m cun xct at the begnmng ufthe 21 sL century um heeadywan w w PW w hhm and thm udw mahrhmmddldfmemfdled r W r V rs law 231313 Dr deehhes m cuunmes dependent un m1 demands and dmerpnrhsry expuns but m M r r du m w h m wl wsr rs aver These Busts spru aver m hergrhdrmg uunmes and the reg quhe vmdd Culher shd hrs callaburaturs emmate the uvemll mg per cml War rhdudhg mudvers 31 54 hdhdh Fvcum 5 1 COUNTRIES AND Pmth ans m cwu WAR SSA AND mg DEVELOPING W a dep snr ple Ame W Omar Devemmng Samre Sambam s damsel Nmuml 1 esuurces P r 1 w H reduee guvnh The resuurce eursequot anses hum Dutch Ddseasequotthefa1 that resuurce expurts lead m an BmswzngererhwzengcCaHz Ju y 242008 su Joint AfDB and IFAD Evaluation of ARD Context Paper Long bust cycle But resources also mess up the politics by making it easy to nance patronage politics and reducing the restraints on political power that are so important for a functioning democracy an independent central bank judiciary and press nancial transparency competitive bidding and the likes The reason is that governments do not need to raise taxes from their people and can therefore ignore their wishes Where restraints can nevertheless be put in place they improve investment decisions and reduce corruption Landlocked with poor neighbors Around 30 percent of SSA s l l 39 39 lives in 39 quot 39 39 u a countries Their transport costs depend less on distance but on how much their neighbors had spent on transport infrastructure Because they have not focused on serving neighboring markets if their neighbors grow by an eXtra one percent SSA landlocked countries grow by only an eXtra 02 percent against 07 percent for nonSSA landlocked countries To increase these multipliers these countries need to focus on their own and their neighbor s transport infrastructure including transport to the sea on regional integration and on reducing external trade barriers of their entire region They must be interested in good economic policies oftheir neighbors And last but not least they need tofocus on agricultural and rural development Growing urban subregional and international markets can provide many opportunities for their agriculture hilissing the boat of globaliz a tion Developing countries have changed from eXporters of raw materials to eXporters of manufactures which today constitute 80 percent of their eXports and service exports are mushrooming These changes have only come about recently because trade restrictions by developed countries and developing countries themselves have only been removed a few years ago The enormous labor forces of China and India therefore have only entered the global economy in the last decade And therefore it is only recently that the eXisting wage gap with the developed World has turned into an effective wage gap It is also only now have these economies been able to harness economies of scale and agglomeration And the agglomerations in Asia have become fabulously competitive By persisting with poor governance and poor policies even the coastal SSA countries shot themselves in the foot and largely missed the boat Given the productivity of their Asian competitors it is likely that it has now become more dif cult to take advantage of globalization Therefore the bene ts of globalization in trade will not easily be harnessed by the countries in the bottom billion SSA is desperately short of capital which in principle globalization could supply But the biggest capital ows are not going to countries that have the least capital The perceived risk of investment remains high even in SSA countries that have turned around International risk ratings take a very long time to re ect positive changes especially if reforms are fragile Changing countries need better ways of signaling that they have committed to reform In addition SSA has suffered from capital out ows By 1990 38 percent of its private capital was held abroad Africans like the rest of the world voted with their wallets Migration decisions of educated Africans re ect similar economic choices While globalization is helping the countries in the middle converge to the developed world the above analysis suggest that it will not do it easily for the bottom billion countries One of the major opportunities for convergence that is ignored in the analysis is agriculture and rural development Globalization rapid income growth and urbanization in the middle four billion countries and biofuel subsidies in the high income countries are sharply increasing the demand for agricultural products the diversity of the demand and therefore the quantity and diversity of agricultural trade Demand growth will be concentrated in developing countries and supply growth in OECD countries relatively constrained Therefore most of the trade growth in agriculture will be in the form of South South trade In addition the BinswangerMkhize amp McCalla July 24 2008 81 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Africawide acceleration of growth and urbanization also increases demand at country and subregional levels Most analysts predict an end to the secular decline of agricultural prices and sustained price rises are also possible Therefore import substitution options subregional trade and export opportunities will be rising rapidly Many of the bottom billion countries have very large untapped agricultural potentials that can be developed by appropriate policies and investment programs as explained in WDR 2008 Aid Collier shows that aid has improved growth by about one percent per year in contradiction with the assertion of other researchers In some instances the additional growth may just have stemmed a faster decline however The faster growth associated with aid would have provided modest bene ts in terms of security In postcon ict countries the security bene ts of the higher growth coming from aid implies that large aid programs are economically justi ed In natural resource rich countries aid is pretty impotent On the other hand in landlocked resourcepoor countries it is not only there to improve conditions for growth but also to bring some minimum decency to standards of living A major opportunity of aid in these countries is to improve their transport links to the coast and to urban centers in their neighbors It can also help in developing the agricultural potential of these countries In addition Collier concludes that policy conditionality has not worked in countries with poor policies Governance conditionality might do better as such conditionality does not shift power from the government to the donors but from the government to their own citizens While Technical Assistance TA does not have a positive impact on growth prior to a reform effort in postcon ict situations and incipient tumarounds TA can help provide the huge amount of skills needed in these situations and make up for lack of skills that have been lost Collier et al estimate a positive effect of TA in the first four years of an incipient reform TA packages during these periods of time should be large and create the conditions for productive use of subsequent aid After that TA should progressively be phased out as the usual objections to technical assistance reemerge when business is more usual Technical assistance should be reorganized to look more like emergency relief not like apipeline of projects Other aid money early in a reform is counterproductive it makes it less likely that reform will be sustained After a few years of reform the statistical effects of aid and technical assistance reverse themselves Technical assistance becomes useless while other aid starts reinforcing the reform process in an environment of better governance and policies Of course aid remains highly risky in such contexts because the chances of a reversal to con ict or bad governance and policies remain high But given the huge cost of such reversals the risks are well worth taking Donors need to adapt to this high risk of operation In failing states project implementation is poorer than elsewhere Collier et al showed however that money spent on project supervision in these states had been differentially effective Therefore in the environments in which aid agencies should be increasingly operating they should allow for higher operational costs and budgets especially for supervision This recommendation contradicts the conventional pressure on operational budgets of aid agencies Low operational cost in failing states is the opposite of what the aid agencies should allow for Given the increasing difficulties in breaking into international markets aid should also be concentrated on helping countries break into export markets for example by improving port infrastructure and roads BinswangerMkhize amp McCalla July 24 2008 82 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Other program components Military intervention as in Sierra Leone and Liberia are often necessary to maintain postcon ict peace They need to be present for much longer than usually assumed to be effective They can help in bringing down government spending on the military and free resources for economic growth They also can help prevent coups Of course they should be selectively used and not be motivated by considerations such as securing access to natural resources in particular oil International norms and standards can also be effective as the effort to reduce con ict diamonds and transparency in the use of oil revenues show Collier argues that such norms and standards could be helpful in a wide variety of areas as they would signi cantly reduce the one on one negotiations required in each tumaround situation and make a readily available and agreed upon menu of actions available for implementation For example corruption is concentrated in natural resource eXtraction and construction sectors It is particularly costly for bottom billion countries because it is likely to undermine any political reform process In 1999 the OECD countries nally agreed to legislate to make bribery of foreign officials by OECD nationals and their entities a criminal offence The issue now is how well these laws are enforced A charter with norms and standards for natural resources would be helpful to the future of the countries in the resource trap A charter for democracy could provide guidance on the checks and balances that are so important for the proper functioning of democracy the independent judiciary central bank free press and others And a charter on postcon ict situations would provide a road map for the many actors involved in post con ict support including the government in setting priorities and modes of operation Clearly action to help the bottom billion cannot be done by aid alone The overall agenda includes changes in aid policy in military interventions in OECD laws via the promulgation of International Standards and Charters and changes in international trade policies Progress on all four pillars is needed to change the fate of the bottom billion The analysis presented by Collier is very pessimistic in terms of probabilities of emerging from the traps in which countries nd themselves However the recent acceleration of growth in a large number of SSA countries appears to be in con ict with this pessimism We have already commented at the beginning of this section on the difficulties of estimating structural parameters using cross country regressions The many policy initiatives of SSA governments over the past decade and a half could have changed the structure Given that most of the data on which the estimation was based was for the period 1960 to the early part of this decade the estimates would not capture the changes in the underlying structure and could therefore be too pessimistic The enormous costs to the populations of the bottom billion countries and to their neighbors implies that bothA B and IFAD m need to ocus more shar l on these countries and on the roots 0 the problems 1 1 The enhanced focus on these countries and especially the pre and post conflict ones will require the relaxation ofrigid lending allocation rules that may turn bottom billion countries into aid orphans It will also increase the risk ofthe grant and lending y rations ofboth These risks can partially be offset by enhancing supervision resources and therefore supervision budgets may need to increase in these settings The shift ofIFAD to supervise more ofits operations directly is therefore a most welcome change Finally both 39 39 39 may need to time their operations more carefully focusing on rapid provision of technical assistance following an incipient turnaround or conflict resolution followed by a strong shift to 39 lending Stronger coordination ofthe capacity building and 39 lending with other major players will also be needed BinswangerMkhize amp McCalla July 24 2008 83 Joint AfDB and IFAD Evaluation of ARD Context Paper Long 6 The Institutional Pillars for ARD We have already discussed the process of democratization in Africa since the early 1990s the greater space for civil society and improvements in governance We now turn to speci c institutional issues that have in the past hampered agricultural and rural development in Africa and that have improved since the 1980s and that were discussed in Binswanger 2008 In 1980 in a typical country in Africa a young rural women or man who wanted to help develop her community found herself almost completely disempowered Three of the ve pillars of the institutional environment for rural development discussed below were poorly developed The rst pillar the private sector was largely con ned to small scale farming and the informal sector Much of the marketing input supply and agroprocessing was in the hands of parastatal enterprises The second pillar independent civil society community organizations and traditional authorities were highly constrained or suppressed In the wake of decolonization central governments had suppressed the third pillar local government or starved it of scal authority and resources Since none of these three pillars were providing much opportunity for the young woman or man she had to join the central government if she wanted to contribute her community But the central institutions failed the rural sector miserably World Bank 1982 Well structured institutions can tackle all the components of rural development from health and education to infrastructure agricultural services social protection resource management and more Not only does the institutional environment determine who can contribute to development and how successful it will be it also is the most important determinant of the distribution of the bene ts More speci cally where institutions are disempowering they can be used by strong individuals and groups to direct the bene ts of development to themselves via elite capture We will see below how the division of labor is changing between the private sector and the public sector We rst focus on local development that is a core component ARD although the latter also involves non local components such as transport processing and marketing activities No institution by itself can carry the burden of local development Instead the new paradigm that has emerged gives equal weight to the private sector communities and civil society local government and the sector institutions such as health education and agriculture World Bank 2004 This is a departure from the past when different disciplines and sectors single mindedly advocated approaches involving only one of the four sets of actors A broad consensus has been reached that local development and therefore rural development has to be viewed as a coproduction by all these four groups of actors They need to take account of their comparative advantage delegate functions to the other partners in coproduction and reform themselves to be able to function under this new paradigm How such an integrated approach would be fostered in a particular country should depend on past history what currently eXists and can be built on the prevailing traditions and cultures and past history and a diagnosis of the existing capacities and disfunctionalities Figure 61 illustrates this emerging consensus One can think of the capacities of each of the sectors by the size of the circles in a countryspeci c variant of gure 61 Different countries would have different diagrams with some having small circles for local governments while others would have small circles for their communities Only countryspeci c analysis can reveal where the greatest weaknesses are and the best opportunities for improvements in the institutional environment There are no universal magic bullets BinswangerMkhize amp McCalla July 24 2008 84 Joint AfDB and IFAD Evaluation of ARD Context Paper Long FIGURE 61 AN INTEGRATED APPROACH TO LOCAL DEVELOPMENT Decentralized Sectoral Approaches Direct Community Support Approaches Pillar 1 The private sector The World Bank s agricultural adjustment programs identi ed the suppression of the private sector the underperformance of parastatal enterprises and the scal black holes they created as the root cause of the underperformance of agriculture While this View was partially correct it was a too narrow The withdrawal of the parastatals did not lead to spontaneous growth of private replacements As we have seen above too many other problems existed in the business environment including corruption over regulation poor infrastructure and services Only in the last few years have crosssector analytical work and programs addressed the business environment in systematic way World Bank 2005bc Economic Commission for Africa 2004 2005a In section 3 we provided a full discussion of the deep changes that are taking place in the private agricultural sector along the entire value chain and at global regional domestic and local levels many of which are associated with the supermarket revolution Here we note that as part of these changes the private sector is entering the standard setting and regulatory areas across countries and sectors and therefore starting to deal with public goods The radical changes in retail markets and their supply chains greatly increases concern about food safety and quality The food industry globally has been very active in establishing norms and standards for itself and has not waited for governments to come up with them The two best known are the Hazard Analysis and Critical Control Points System HACCP which sets process standards for safety and quality control in food processing It has been widely adapted by the global food industry The second is the work of the International Organization for Standardization which goes by the acronym ISO It is a network of 157 National Standards Institutions which come together to agree on comparable international standards Two of these are ISO 65 dealing with agriculture and ISO 67 dealing with food technology Their most recent effort is ISOTS 22003 in 2007 which sets standards for Food Safety Management Systems Pillar 2 Communities Civil Society and Social Capital In the 1980s the development community woke up to the important role of communities civil society and social capital which activists and academics had emphasized much before them A broad range of NGOs BinswangerMkhize amp McCalla July 24 2008 85 Joint AfDB and IFAD Evaluation of ARD Context Paper Long started to sharply criticize donor nanced projects policies and structural adjustment programs Mallaby 2004The focus on communities came from two additional sources Sector specialists in water supply and natural resource management had started in the 1980s to involve communities systematically and found this to enhance project performance signi cantly World Bank 1996b The other source was social funds which quickly discovered the power of communities to assist in project design and implementation In some of the early Social Funds NGOs were used as intermediaries to substitute for the presumed lack of capacity at the community level But this approach proved to be costly and has increasingly been abandoned in favor of direct empowerment of communities with knowledge and resources while NGOs remain important facilitators and sources of knowledge From letting communities participate in the design nance and maintenance of microprojects CommunityDriven Development Programs have moved on to truly empower them to chose design and execute a large range of microprojects by transferring both the responsibility and the co nancing resources for these project to them At about the same time social scientists discovered the merits of social capital and traditional institutions and they are now often systematically assessed and integrated into policies and programs Economic Commission for Africa 2005 a b World Bank 2003b For agricultural development a particularly important development is the formation and progressive development of independent farmers organizations and micro nance institutions World Bank 1991 They are increasingly replacing or complementing cooperatives that were often created by the state and did not really lead to empowerment The growth and development of communities NGOs and social capital is not only important for the implementation of development programs diversity and strength of these organizations is also a defense against elite capture of programs and project bene ts A recent review compared the development of producer associations in Mozambique Nigeria and Zambia to the Brazil and Thailand Effective producer associations thrive in a democratic environment that provides a favorable climate for civil society organizations in general A really active role in defending smallholder rights including those to land and favorable contracts has emerged in Brazil and Thailand but in Africa is still poorly developed Although a signi cant start has been made few SSA associations have been able to develop 39 39 and their 39 39 linkages 39 39 to take on a major role in service delivery And many continue to be heavily dependent on donor support While farmer s organizations have become signi cant stakeholders in discussions of agricultural policies they have not yet been able to generate the strong political will in favor of agriculture which has propelled development of the CERRADO and of North East Thailand Nevertheless SSA countries today are probably more advanced in the development of producer associations than were the farmers in the Cerrado and North East Thailand in 1960 and therefore may have a more favorable starting point Binswanger 2007 Pillar 3 Local government During the late 1980s democratization in Latin America and later in other parts of the World led to the restoration or strengthening of local governments Another factor was the inability of central states to deliver services in widely heterogeneous environments But decentralization was often viewed as a dangerous development because provincial and state governments were often seen as a source of scal irresponsibility Fortunately by the mid 1990s the negative views on decentralization had given way to a more balanced assessment recognizing both successes and failures Faguet 1997 PiriouSall 1997 World Bank 1995 Equal emphasis on political administrative and scal decentralization is needed Unsuccessful decentralization programs are almost always characterized by inadequate allocation of scal resources to the local level Manor 1999 Shah 1994 Successful decentralization is often pursued by strong leaders in relatively strong states and puts a lot of emphasis on accountability at all levels Manor 1999 Local governments can of course become an instrument for elite capture and corruption To prevent that they must be democratic institutions but that in itself is not enough Without strong BinswangerMkhize amp McCalla July 24 2008 86 Joint AfDB and IFAD Evaluation of ARD Context Paper Long communities and civil society and a strong private sector local governments will not be subject to the scrutiny and the bargaining processes that are needed to make local development inclusive and efficient FIGURE 72 DECENTRALIZATION OF SERVICE DELIVERY FOR RURAL DEVELOPMENT ACRoss THE WORLD CHART 9 Index of Sector Decentralization in 19 Countries in the 19905 100 90 787 80 70 60 50 Sectoral Score 40 38 30 24 24 24 25 I I I 20 18 10 05 07 I I I I I I 00 o o q 0 xi e o 0 19 e KQ QO Gag bag 06 o o o 396 o 0 0 O 0 399 g 0 0 3 k l 0 6 0 p c 4 b o lto 0quot 0 Q20 0 Q 0 lt2 lt2 IR 9 Country Source McLean et al 1998 In the early 1990s the World Bank first discovered the power of local governments in its Community Driven Development Programs in Mexico World Bank 1991b and later in North East Brazil The innovation spread from there to Indonesia and East Asia then to Africa and the rest of the world Social funds started to build the capacity of local governments and entrust them with coordination and some implementation functions and eventually the distinction between communitydriven development and social funds disappeared A research program on Decentralization Fiscal Systems and Rural Development in the mid 1990s strengthened our understanding of this nexus of issues McLean et al 1998 PiriouSall 1998 It analyzed the level of decentralization of rural service delivery in 19 countries or provinces thereof across the World Figure 62 Four SSA countries had the lowest decentralization scores while Jianxi province in China had the highest one Latin American countries scored in the upper half while Karnataka state of India ranked ninth and Punjab Pakistan 13th The recent Governance Report of the Economic Commission for Africa 2005 shows that not much progress has been made in the past decade and a half Decentralization along with corruption still receive some of the lowest scores of a whole series of governance indicators studied in 28 countries of Africa There are powerful reasons for using the lowest level of local government for coordination and execution of rural development At the local level people have direct knowledge of the local conditions BinswangerMkhize amp McCalla July 24 2008 87 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Transparency is relatively easy to achieve since people can often verify the result of expenditures or lack thereof with their own eyes Given the heterogeneity of rural space coordination of the sectors involved in rural development at the central level is almost impossible Empowered and properly resourced local governments can mobilize latent capacities in communities and at the local level more easily than centralized systems And nally local governments do exist in remote areas where neither NGOs nor the private sector tend to operate In most OECD countries and in the high performing China local governments perform functions in education health social protection environment agriculture land local and community infrastructure and promotion of private sector development They are a multisector coordination tool even though their coordination capacity is always imperfect Pillar 4 Sector institutions In 1980 sector institutions were the main focus donor nanced programs even though they again and again were unable to effectively implement programs in widely dispersed rural areas There has been a growing realization that the sector institutions should delegate implementation to the private sector communities civil society organization and local governments using the principles of subsidiarity and comparative advantage The other pillars of the institutional environment will not reach their full potential without fundamental change in the sector institutions Instead of providing services and implementing programs they should formulate policies set standards and enhance and control quality World Bank 2004 Rural development involves almost all sector ministries from the police local government education and health to land environment agriculture and more The ones speci cally associated with agriculture and natural resources have often been a particularly sorry and corrupt lot Agricultural credit institutions and insurance systems not only achieved little for small and poor farmers they also were scal black holes bene ting primarily the wealthy Ministries of lands have lacked an effective constituency to ensure proper budgets for them are often highly centralized and corrupt Ministries of agriculture are notoriously weak and politicized In addition they are notoriously poor at collecting the necessary data monitoring sector developments analyzing sector policy issues and designing and implementing appropriate agricultural policy regimes and programs Worst of all they are often captured by large farmer elites and function more like pressure groups for them Efforts to reform individual sectors one by one have had little success Transformation and deconcentration of the sector institutions is probably better done via crosssector governance and public sector reforms Pillar 5 The Central government and other central institutions Today the functions of central governments considered important for development are very different from the roles they saw for themselves in the 1960s and 1970s Today the central government still has the ultimate design oversight and coordination role of national development programs including those for rural development But central government is less and less in a direct service delivery and executing role except in defense taxation management of expenditures and of the intergovernmental scal system and the electoral processes However the Central Government has a particularly important role to play in bringing about the changes needed for successful coproduction among the four institutional pillars discussed above It has to drive forward the process of decentralization of functions resources and accountability mechanisms to local governments and to the end users and to ensure that the sector 6 The principle of subsidiarity states that functions should be allocated to the lowest level capable of effectively performing them while at the same time minimizing adverse spillover effects to neighboring units at the same or higher levels BinswangerMkhize amp McCalla July 24 2008 88 Joint AfDB and IFAD Evaluation of ARD Context Paper Long institutions transform themselves It has to ensure that the business climate for the private sector improves and that communities and civil society are free to take on their coproduction functions Other speci c central institutions such as the judiciary parliament the press and national civil society organizations are today recognized as important for rural development as well in contract enforcement resource allocation to development programs and provision of information In addition they should be the guardians of good governance They also need to press for further devolution of power and resources to local levels and communities Institutional environments in Rural Africa have in many cases signi cantly improved Today the young ady about whom we spoke at the beginning of the section can operate much more freely in the private sector in a steadily improving business environment In most countries and commodities she can join a producer association She can also help her community by engaging in a wide variety of community driven initiatives for which funding is becoming available more systematically She can work for one of many NGOs and either use her technical skills in NGOfacilitated development programs or her advocacy skills in advocacy NGOs In countries such as Senegal or Uganda a number of former functions of ministries of agriculture are either being privatized or performed by producer associations often partially nanced by the state and the young lady may operate in one of these services Finally most countries have pursued decentralization initiatives and the young lady may work for her locality either as a staff member of a local government or as an elected counselor Unfortunately however progress in decentralization has been slow in most countries other than Uganda South Africa Burkina and a few more Elsewhere the process of administrative decentralization ie transferring functions to local governments has been slow And even where it has proceeded more rapidly scal decentralization has been lagging badly leaving most local governments with little resources to execute their mandated functions let alone taking a leadership role in local development u u Nevertheless compared to 1980 the institutional 39 for 39 and rural 39 r has improved While there are no studies that measure the impact of the improved institutions on agricultural growth there is little doubt that these improvements in addition to macroeconomic stability and improved price incentives are one of the explanatory factors for the recent acceleration of agricultural growth The capacity of agricultural and rural institutions The general approach to capacity development has already been discussed in secti0n4 emphasizing the broadbased process and the patience that is required to achieve it Capacity development of agricultural and rural institutions would therefore ourish best in the context of a broader national capacity development strategy and program More speci cally capacity development for local rural and agricultural institutions must build on the considerable latent capacities that are found in rural areas all over the World To do so rules and regulations for program execution must become much more participatory and empowering and eliminate complex features that destroy latent capacity or hinder its mobilization and further development Binswanger and Nguyen 2005 As far as possible the institutions and organizations of rural communities agricultural producers and accountable local governments should be relied on for program execution and service delivery Agricultural and rural capacity building cannot be done as a top down provision of capacity development services Instead it involves the following processes Learning by doing in which communities local governments farmer s organizations and private sector actors are given opportunities and resources to actually exercise control over their own development processes graduating from smaller to larger initiatives and responsibilities As part of the learning by doing these actors may be provided with mandatory training in particular in BinswangerMkhize amp McCalla July 24 2008 89 Joint AfDB and IFAD Evaluation of ARD Context Paper Long diagnosis and planning nancial management and reporting procurement and monitoring and evaluation Other training should be provided largely on a demanddriven basis Finally as emphasized in the WDR of 2005 on service delivery the broader sector institutions involved in ARD need to become much more accountable to their clients The African l 1 Bank analIFAD have important w tunities for fostering the 39 39 39 1 environment for ARD 1 1 39 rural 39 39 39 should be part ofthe country and regional strategy ofboth 39 39 39 The AfDB has a full range of truments to foster 39 39 39 1 1 1 at a national level both via policy change and capacity 1 1 The impact ofIFAD is likely to be more selective such as building the capacity oflocalgovernments in rural 1 1 and to empower 39 39 farmers 39 39 and foster local public primt 39 BinswangerMkhize amp McCalla July 24 2008 90 Joint AfDB and IFAD Evaluation of ARD Context Paper Long 7 Current Opportunities and Challenges for African ARD The InterAcademy Council 2005 cites the following unique features of SSA agriculture that represent special challenges to agricultural performance i Dominance of weathered soils of poor inherent fertility ii predominance of rainfed agriculture little irrigation and very limited mechanization iii heterogeneity and diversity of farming systems iv key roles of women in agriculture and in ensuring household food security V poorly functioning markets for inputs and outputs vi large and growing impact of human health on agriculture Unlike in Asia the growth was primarily achieved by area expansion rather than growth in productivity But these challenges have to be seen against the great opportunities arising from unused and underused arable land from higher commodity prices and the improved growth environment in Africa generally that we have reviewed in previous sections In this Section we rst look at where the major new market opportunities for African Agriculture lie We then look at the challenges under ve broad headings Demographic Social and Health Agroclimatic and Bio Physical Resources Economic Incentives and Investments Agricultural Technology and the Imperative of Regionalization Where are the short and medium term market opportunities for Africa In section 3 we have carefully analyzed the drivers of the change in international prices of agricultural commodities While the current price spike creates signi cant short run policy challenges for countries the international market outlook for agriculture appears to be very positive in general Where will the ne market opportunities for African farmers lie Recent studies of the history and prospects of commercial agriculture in SSA suggest that domestic and subregional markets as the main opportunities for SSA producers in the short to medium run Poulton et a1 2007 World Bank forthcoming Since SSA is an importer of many agricultural commodities SSA producers compete in these markets at the import parity price rather than the lower export parity price In addition quality standards are not as high and phyto sanitary barriers much lower than in international markets Bottlenecks in road and export infrastructure in SSA are likely to be removed only gradually reinforcing these conclusions Of course with appropriate policies and investments including in transport infrastructure and technology positive international market trends in agriculture could eventually be captured by SSA as well On the demand side the trends are favorable for domestic and subregional markets The combined value of domestic and regional markets for food staples within SSA is considerably in excess of its total international agricultural exports Diao et al 2003 and will grow signi cantly with both population and income over time SSA s demand for food staples is projected to about double by 2020 Moreover an increasing share of output will become commercialized as the continent becomes more urbanized This offers considerable growth in national and regional markets for food staples which in value terms may far exceed the potential growth of all high value agricultural products at least for the next decades The fact that domestic and subregional markets for food crops present the best opportunities does not mean that there are no opportunities in international markets However all notable cases of SSA agricultural export success with the exception of sugar have so far occurred in high value commodities a basic commodity value of US500 per ton or more Tobacco Tea Groudnuts Cashew Seed Cotton Coffee Poulton et a1 2007 They are high value because ideal agroecological conditions or low labor costs are necessary for their production which limits global supply and provides advantage to SSA producers Their high value in turn allows SSA supply systems to recoup their inherently high costs By contrast SSA has yet to record any signi cant export success in low value commodities eg cereals cassava soybeans that can be grown in a wide range of locations including by mechanization To cross BinswangerMkhize amp McCalla July 24 2008 91 Joint AfDB and IFAD Evaluation of ARD Context Paper Long the threshold from import substitution to competitiveness as an international exporter the cereal case study suggests that continued public investment in both research and infrastructure is needed Finally because food staples are grown by small farms across SSA broad based productivity gains in these crops can have far reaching impacts on the rural poor Although most countries grow many of the same food crops especially maize there are latent differences in their comparative advantage even within the same subregions Diao et al 2003 leading to sub regional trade opportunities Subregional trade could therefore be a relatively efficient way of smoothing out the impacts of droughts on production and prices at country and subregional levels There are many physical and institutional impediments to crossborder trade within SSA including differences in food safety requirements rules of origin and quality and product standards More importantly trade in food staples was for long discouraged by national food policies that placed a high priority on self suf ciency and vestiges of these policies still prevail in many countries One of the biggest impediments to large scale private investment in crossborder trading capability 7 particularly in Southern and Eastern Africa is the unpredictable behavior of governments in imposing export bans whenever they fear food shortages in their own markets IFPRI in its analysis of growth strategies in East and Central Africa reaches the same conclusions First the analysis indicates that the greatest potential for agriculture led growth andpoverty reduction in the region lies in agricultural sub sectors serving domestic and regional marketsinot those directed at overseas markets Export commodities will continue to be crucial income earners in key parts ofECA but they will not be the answer to the problem ofwidespread poverty and hunger in the region Second the analysis indicates that among agricultural sub sectors for which there is large and growing domestic and regional demand staples loom large as a group Production and sale ofthese poor man crops can be pathways out ofpovertyfor millions ofcitizens ofECA Omamo et al 2006 How likely is SubSaharan Africa to improve its growth and commercialization performance in food crops Total cereal production for Africa increased by 745 between 197981 and 200305 driven primarily by area expansion rather than yield increases a trend reminiscent of North East Thailand and also of the Cerrado of Brazil until the late 1970s Production of roots and tubers increased much more sharply in the same period by 1653 driven largely by cassava production Yield growth for roots and tubers played a much bigger role than with cereals increasing by 40 over the period More detail on the variability of African performance and a number of success stories are found in in Annex 2 While the livestock sector has been a successful export sector in parts of Africa exports have stagnated in recent years and there is little sign that SSA is able to maintain let alone increase its share of the explosive growth in world market demand for livestock products Moreover imports of poultry meat are growing rapidly Again in this sector import substitution and subregional trade opportunities are more important than export opportunities That domestic and regional markets are the most promising area for agricultural growth means that small farmer participation despite the revolution and rising international quality standards will be better plaed to seize them a good thing for most ofIFAD programs At the same time these 1 39 mean that both 39 39 39 will need to focus more on improving access and trade in regional and sub0regional Zood markets Demographic Social Health and Safety Net Challenges Demography BinswangerMkhize amp McCalla July 24 2008 92 Joint AfDB and IFAD Evaluation of ARD Context Paper Long In section 4 we have already discussed the general population trends which will still be around 2 percent per year for Africa as a whole The gradual slowdown of population growth associated with economic growth and the demographic transition will reduce dependency rates and therefore open up the opportunity of per capita growth dividends in Africa These will be higher in North Africa where the demographic transition is more advanced than in SSA Despite rapid ruralurban migration the high population growth rates mean that the absolute number of rural people will continue to grow in SSA and poverty will remain concentrated in rural areas for a long time In the Middle East and North Africa the absolute number of youth will peak in the neXt 25 years As in all Regions unemployment is concentrated among the young Figure 71 In most countries the share of unemployment of youth is more than 50 percent and employment is the key concern among them WDR 2007 Among women including the young ones a low labor force participation rate persists Schooling for both young men and women has increased but is yet insuf cient to ensure gainful employment of the young generation SSA is home to over 200 million young people who are between 12 and 24 years old The demographic transition to reduce the proportion of young people in the population has barely started and a decline in absolute numbers will only come in the distant future The poor quality of primary education severely limits their opportunities in many countries fewer than half of women aged 1524 can even read a simple sentence and their dropout rates are very high Young adults are at greatest risk of IHVAIDS and the more so the less they stay in school In Kenya the probability that a 20 year old may die before age 40 is 36 percent while it would only be 8 percent in the absence of IHVAIDS Many young people become combatants and lose future opportunities as a consequence They number 100000 in Sudan alone WDR 2007 BinswangerMkhize amp McCalla July 24 2008 93 Joint AfDB and IFAD Evaluation of ARD Context Paper Long FIGURE 71 THE UNEMPLOYMENT RATE EVERYWHERE IS MUCH FOR YOUNG PEOPLE THAN FOR OLDER PEOPLE thy Im nula Ill quot 39I quotll II39II39H Illlm I nu n n I n I In In unA u I no u v Nu I39m dark hm 11w 1 maql fum um afrcmh 505 13 vi cu 2251111 in cf i111 Lucc Amian czlculztiun 5105 on Pro 5mmgzo mid 011361111 c can Source WDR 2007 Both IFAD and the AfDB alreadv emphasize generating productiy and improving the domestic 39 wironment Since agriculture has a high intensitv both directh and Via its linkage effects a greater focus on agriculture in AfDB strategy would reinforce their focus on employment Migration Remittances and the Brain Drain According to IFAD et al2007 Africa has over 30 million people in the Diaspora However it s most predominant migrant ows are Within the Region usually from poorer countries to less poor countries As a consequence the average share of migrants in total population is 7 a share that rises to 20 in countries with less than a million population There is also signi cant international migration to former European colonial powers such as France England the Netherlands and Italy Remittance flows to and within Africa approach US 40 billion North African countries such as Morocco andEgypt are the continent s major recipients EastAfrican countries depend heavily on these flowsFor the entire Region these transfers are 13 percent ofper capita income ibid p 9 Annual average remittances are 83 per capita and remittances per migrant are 1358 dollars Clearly remittances are a major opportunity for Africa BinswangerMkhize amp McCalla July 24 2008 94 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Rural 39 are innifi ant analt related to i it a 5 ml migration particularly in Western and Southern Africa ibid p 9 Transfer costs are higher than for other Regions of the World partly because of nancial restrictions imposed by most African governments As a result there is both the emergence of informality in money transfers as well as the emergence of monopolies In West Africa for example 70 percent of payments are handled by one money transfer operator ibid Over the past tenyears developed countries have selectively dismantled barriers to immigration of the highly skilled Therefore the proportion of educated has increased among migrants across the World Kapur and McHale 2007 In Eastern Africa the percentage of skilled workers living in OECD countries has risen from around 18 percent in 1990 to around 20 percent in 2000 while for West Africa the corresponding numbers are 20 and over 25 Other long term trends that fuel these changes are the increased skills intensity of economic growth the aging populations of rich countries and the broader globalization of production and trade But countries are very unevenly affected as Figure 72 shows FIGURE 72 BRAIN DRAIN FROM SSA EMIGRATION RATES FOR TERTIARY EDUCATED 2000 Ferretnag 05 ncmonals with university education living abroad 2000 5 Can 39unrdn Gambia SayerIIth Somalia 2550 Angel Equc39nlcmmz Entmena Quin 382m Kenya Llama M my Mm tm Mannqu Ingaquot SaoTomo and mm Slaw mm I245 AW Damn Burundi cam dlwmn Carnaval Chad Comoros 4209 at quotmany bum opt1mm Etmapla Eaton Cuhnl Mauwt M31 Munitan Niger Home Rwanda mm A 39 Senegal swan Swaziland Tanninqu Tunisia Uganda 22m Ilmbabwa Bzcswzna Lesotho 9mm Fxo antral Afnzan napu lc Egypz Libya Nanmm Source Kapur and McHale 2005 While the effect on the welfare of the migrants will generally be positive Kapur and McHale distinguish four effects of migration on the welfare of those left behind in the origin countries The prospect channel of migration increases the incentives of those left behind to get more education and get education in areas that will increase their prospects for migration such as nursing or accounting The absence channe measures the economic loss to the country of the person actually leaving the difference between what the emigrant was adding to the economy and what he or she was being paid In addition absence might reduce a country s capacity to reform and build its own institutions The Diaspora channel focuses on the impact of the Diaspora Many SSA countries including South Africa and Senegal are both host to Diasporas from other countries as well as contributors to diasporas in more advanced countries They may therefore both bene t from remittances as well as be a source of them And they may receive skills as well as sending them Finally the return channel looks at how emigrants returning with enhanced human and nancial capital are contributing to their home countries Clearly the impacts of the brain drain are not all negative and can be improved by judicious policies and actions Kapur and McHale show that solutions to brain drain problems involve actions both on the part of the developed as well as BinswangerMkhize amp McCalla July 24 2008 95 Joint AfDB and IFAD Evaluation of ARD Context Paper Long the developing countries For example in developed countries improved human capital planning should help avoid skills shortages in health and education while higher education reforms in developing countries would enable private sector higher education institutions to offer more education in the skills in high international demand Other possible measures focus on controls and on compensation and are summarized in AnneX 3 While the AfDB does have instruments to affect education policies and capacities in the Region IFAD can help improve the local 39 39 39 39 39 so that recipients of 39 nd it more attractive to invest them in Gender Equity In many parts of the developing world women are a majority of the agricultural labor force and in Sub Saharan Africa they are the majority of the farmers Yet their rights over land are often poorly developed and they face disadvantages in education and health care and in access to information markets and capital These restrictions have a negative impact on the efficiency of both men and women and of agriculture as a whole Economic Commission for Africa 2005c Over the last decades OECD countries have become major advocates for women s rights in the developing world but entrenched social attitudes constrain the progress which has been achieved Ambler et al argue that Poverty and hunger cannot be conqueredwithout meeting the specific needs of poor women Like poor men they lack the assets and income necessary to exitpoverty butpoor women andgirls are also subject to a 1 ofS id La d ml a1 that keep them trapped in poverty Women have fewer bene ts and protections under customary or statutory legal systems than men they lack decision making authority and control offinancial resources ands they su er under greater time burdens social isolation and threats or acts ofviolence While the issues of gender inequalities seem now better understood the international establishment still seems slow in responding Holmes and Slater compare the 2008 World Bank WDR Agriculture for Development to the last Bank WDR Agriculture and Economic Development published in 1982 and conclude Comparing how gender equality is analyzed in the recentlypublished 2008 report to the 1982 report indicates that much progress has been made Nevertheless significant gaps remain in the 2008 report clearly showing that there is still much work to do to ensure that rigorous gender analysis becomes central to rural developmentpolicy making Holmes and Slater 2007 p 1 For all its merits there are also substantial areas in the 2008 report that lack important gender analysis The report focuses very little on the impacts and implicationsfor the global economy such as the impact of deregulated and liberalized economic policies and global agricultural trade markets on gender equality andsubsequently for growth andpoverty reduction The report also lacks a rigorous analysis ofsome key gender specific constraints 7 for example women s reproductive responsibilities or cultural barriers i when identifying mechanismsfor increasing the role ofe cient and equitable labour markets in enabling agricultural growth andpoverty reduction Furthermore at both the household and community level the 2008 report does not discuss the economic constraints to improving women s participation in farmers organizations or community committees Ibid p2 The Independent EXtemal Review of FAO 2007 nds that while gender is given greater prominence at high levels it has not yet been fully mainstreamed at the program and country level Johanson and Saint in their analysis of agricultural education in SSA conclude that Although women play multiple roles in agriculture and accountfor more than halfofagricultural output in the continent and three quarters of food production they have continuously received a less than proportionate share of investment in agriculture particularly in terms of interventions relating to education extension capacity BinswangerMkhize amp McCalla July 24 2008 96 Joint AfDB and IFAD Evaluation of ARD Context Paper Long strengthening empowerment and market access P26 Finally The Commonwealth Secretariat notes that regarding climate change It is clearly evident that there has been very little attention to gender issues in the international processes concerning the development of climate change whether in protocols treaties or debates around them Gender d erences in property rights and in issues related to access to information and the d erent cultural social and economic rolesfor men and women means that climate change is likely to affect them differentially quotCommonwealth Secretariat 2007 Changing gender norms in a society is a dif cult historic process that is far from complete in the developed world Growth and economic opportunities for women have been a main factor in driving such change again putting the emphasis back onto achieving higher growth We noted earlier that in many countries fewer than half of women aged 1524 can even read a simple sentence and their dropout rates are very high Thus the basic challenge of gender equity in terms of access to education and health care remains huge As both IFAD and the AfDB have 39 proactive fostering ofchange in gender norms and opportunities reauires mainstreaming ofthe gender agenda into all the activities ofdomestic and external actors Since there is no magic bullet this is the only way to make progress IFAD s external 39 2005 and recent annual report 2006 recognize the need for even greater proactive engagement on this agenda Security ofAccess to Resources Farmers will rarely invest in xed assets unless they have secure land rights While traditional tenure systems have often provided secure inheritable usufruct rights in many parts of SSA they have come under pressure from rising population density and increased market access World Bank 2004 Economic Commission for Africa 2005c They also often failed to provide secure tenure rights to women and to manage the potential con icts which arise when immigrants need to be accommodated and enclosure of pasture threatens the livelihood of herders Assisting these systems to evolve is therefore an important priority This has been a topic of intense interest in SSA in recent years DFID sponsored a workshop in 1999 which resulted in a valuable compendium of information published as Evolving Land Rights Policy and Tenure in Africa Camilla Toulmin ed 2000 Deininger s recent book Land Policies for Growth and Poverty Reduction 2003 contains a major section on Africa and most recently the CGIAR s Systemwide Program on Collective Action and Property Rights CAPRi has released a set of 12 policy briefs in a volume Land Rights for African Development From Knowledge to Action 2006 Ngaido argues that ensuring access to and control over landfor poor and marginalized rural households women and groupsequity are critical policy objectives for promoting agricultural growth and combating poverty in Africa quot2004 Excessive inequality of land ownership tends to reduce access to land and ef ciency of its use Binswanger Deininger and Feder 1995 Large scale farms from Brazil to the Philippines and Zimbabwe and Namibia have underutilized their land and have depended on subsidies to reduce their dependence on hired labor via mechanization Small farms on the other hand have inadequate access to capital to make their operations more ef cient and improve their pro ts As a consequence both farm sectors suffer an ef ciency loss For these reasons the World Bank has become a major player in land reform programs in the countries that still have an important land reform agenda Binswanger and Deininger 1995 However a lot of controversy still surrounds the best way of implementing land reform and this has slowed down progress in the countries most in need of it van den Brink et al 2006 It is not surprising therefore that IFAD has made land rights svstems a priority in its programs IFAD is hosting the secretariat ofthe Global Coalition on Land and is well placed to exercise strong leadership in this area BinswangerMkhize amp McCalla July 24 2008 97 mmmsm mommaquot MARD cmmmmmgw m umv udAl DSud griwhum Fa awmg m wave afmfeconnsbyamnrd 5 mm m wave numb rm HIV MAKE ls mw mm s mm m a number ufcannmzs m a smbdmmun ax shgm ach afHIV pxzwlznce mas mmWDra asmdbnhsasynfarfmmnspak mmpmmmumnmm reachZEl mdhnnmSSAmthz mxtdzcadz Hummus m mwsll enngalmnslas muhasm nanmzas andmaya mnmme fmmthz mphancnsls as manyaxphamdmmch dnnm xenmdmmnl Meme afHIV and AIDS vuxyshdyacms ammsz afSSA fax reasmls mm are so wad magmas Figure 7 z Fanr cammzs m SSA have pxzwlznce mas shave m pram mmth sewn 57wquot mumzmqmmmm 2mm amwangmkmammaua mums as Joint AfDB and IFAD Evaluation of ARD Context Paper Long FIGURE 74 AGE DISTRIBUTION OF DEATHS IN SOUTHERN AFRICA Percentage ctTclal Deans 21 5quot 3 19 ENE 3 5055 EC Age Groups 50 m1 World Bari Wde k39elcgmim Imcatws 53 051 with prevalence rates between 10 and 20 percent seven with rates between 5 percent and 10 percent and 26 with rates below 5 percent The nine countries of Southern Africa and the Central African Republic will experience the biggest demographic impact Deaths are concentrated among prime age adults Therefore the impact on the age structure of these countries is very adverse Figure 74 In 10 years Southern Africa went from having onethird of annual deaths coming from the working age population to twothirds It is unclear whether fertility will increase or decrease But agedependency rates will increase and thus reduce economic growth rates In this section we will not further review the evidence of the economic impact of HIV Aids in general but focus on the various interactions between IHVAIDS food and nutrition and agriculture We summarize the ndings from a literature review by Binswanger 2006 here and more extensively in Annex 4 Nutrition Status re risk of H1 V infection um mnvival rates once infected While a signi cant body of indirect biomedical evidence suggests that poor nutrition and parasitic infections should make a person more vulnerable the IHV infection major epidemiological studies cast doubt on this conventional wisdom In multidisciplinary surveys across cities the factors that determined differences in prevalence rates included circumcision the prevalence of SIVl herpes simplex being married having been married or marrying early all increasing prevalence and for men being employed Across villages what counted was the level of economic activity and proximity of the rural communities to cities Individual income did not gure as a major determinant which suggests that food intake and nutrition are not major determinant of differences in prevalence rates In longitudinal studies in SSA the median survival rate after infection with IHV was estimated at between 8 and nine years in the absence of antiretroviral treatment These survival rates are only about 20 percent lower than the survival rates in OECD countries before the advent of powerful antiretroviral therapy ART Just the differences in background mortality and in the prevalence of infectious diseases and parasites are likely to account for the measured difference in survival rates leaving little room for food intake and nutrition to be an important determinant Clearly therefore ART not food and nutrition interventions is the only way in which survival rates can be signi cantly increased BinswangerMkhize amp McCalla July 24 2008 99 Joint AfDB and IFAD Evaluation of ARD Context Paper Long The I napm Ufz lIDS on Agriculture F oou am Nutritinn While the main welfare loss associated with AIDS is the loss of life of the person affected the economic literature is primarily concerned with the welfare impacts on surviving family members orphans communities and countries Mahter et al 2005 conclude that AIDS will result in a roughly constant number of working age adults Many affected agricultural households quickly recruit new adults and the agricultural labor shortages are likely to induce urbanrural labor migration Therefore for poorer smallholder households land is likely to remain the primary constraint on income growth PHVAIDS is likely to progressively decapitalize highly affected rural communities and increasing scarcity of capital savings cattle draft animals may come to pose the greatest limit on rural productivity and livelihoods IFAD s focus on all of the assets of the rural poor is therefore as applicable to households having experienced a death from PHV or any other cause as to any other household affected by a negative s oc Orphans usually face serious psychosocial consequences of the loss of one or both of their parents The consequences for their food intake and nutrition their growth and their school attendance depend on the households within which they are placed Extended families are most likely to choose betteroff members as the fostering parents As a consequence studies have shown that orphanfostering households are not necessarily the poorest and most vulnerable ones Rivers et al 2005 show that orphaned children regardless of the way they were de ned were not consistently more malnourished than nonorphaned children On the other hand households with more than one orphan reported signi cantly more food insecurity and hunger than households with no or only one orphan The longitudinal data set in Kenya Yamano and Jayne 2004 shows that the death of an adult male household head is associated with a larger negative impact on household crop production nonfarmer income and crop production than any other kind of adult death In addition the Kenya data show that the impact of adult mortality on household welfare is more severe for households in the lower half of the per capita income distribution ie the target group of IFAD Interventions against H AIDS in mm areas We have seen that agricultural and food and nutrition interventions are not likely to be powerful interventions against the spread of the disease or the progression of an infected individual from infection to death Instead direct prevention intervention are required and making ART widely available rural areas On the other hand agricultural food and nutrition interventions are likely to be important in mitigating the impact of the disease on affected households especially those with more than one orphan households headed by women and grandmothers and children headed households And better and more food may also help the adherence of patients to ART For new rural development programs of IFAD it will be important to keep this high selectivity in mind A major dif culty for PHVAIDS interventions in rural areas is that in each of the areas of prevention care and treatment and mitigation a number of activities are required This means that intervention programs are compleX and involve several sectors and actors Where interventions must become available to all populations a service delivery approaches relying on specialized government implementing agencies or NGOs who each focus on a one or a small subset of components of the required interventions will not be scalable in rural areas The main reasons for this are that 1 delivering a multiplicity 0 services via specialized providers in separate programs would lead to very high overhead and transport costs and 2 in widely dispersed rural areas holistic multisector interventions can only be coordinated at local levels and implemented by communities themselves supported by local actors as we have learned over time through our integrated rural development programs BinswangerMkhize amp McCalla July 24 2008 100 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Prevention If people can be convinced to change their behaviors and either abstain from seX are faithful or use condoms they will be protected from infection This is so regardless of the factors determining prevalence in any given environment and regardless of the fact that it is not differences in behavior which determine prevalence rates In rural areas of Africa interventions not only required inter personal communication but participatory involvement of whole communities such as the model of TANESA which was scaled up to all villages in an entire district T hereZore all its rural development interventions should be designed to contribute to mainstream HIVandAIDS prevention efforts This does not ssarilv have to be a costh effort as the perations alreadv strength i 39 39 39 39 that can be entrusted with the task Mainstreaming HIVandAIDS prevention is certainlv should receive eaual emphasis as other Mi t amed agendas such as improving gender relations and the 02 natural resources Treatment The WHO guidelines for PHVAIDS treatment including ART WHO 2004 have been designed in such a way that a nurse in a rural health post without laboratory equipment can use syndromic management ie diagnosis based solely on observable symptoms to diagnose advanced PHV disease and prescribe a standard rst line treatment to adults The WHO guidelines recommend the strong involvement of communities in the provision of the other components such as training in healthy living and survival skills provision of food and nutrition and adherence support This again is an area in which IFAD has comparative advantage It therefore needs to to closelv follow what is happening in terms of the scaling up ofAIDS treatment in rural areas and assist via its projects where ever possible Care and support Care and support involve psychosocial support health care homebased care education food and nutrition interventions as well as livelihood support The consensus of the literature is that care and support should take a holistic approach to the needs of affected families and individuals rather than dealing with sectorspeci c interventions one at a time However very few holistic and communitybased care and support initiatives have been scaled up beyond the level of small boutiques We have seen that PHVAIDS impacts are highly differentiated according to who is sick or dies in a family how well off the household was before experiencing and PHVAIDS impact and how large and well off its eXtended family network is Therefore only a fraction of the affected households and individuals need care and support interventions from the outside A better way to provide care and support in a holistic and multisectoral way in rural areas would therefore be to design and nancially support more general communitydriven social safety nets that would focus on all highly vulnerable households and individuals irrespective of the source of their vulnerability Box 1 presents a proposal for such a program The high prevalence of AIDS stigma means that it is rarely possible to provide care and support interventions only to families and individuals affected by PHVAIDS And why would one want to direct support only to families who have chronically ill PHVAIDS patients rather than all families with chronically ill patients or only PHVAIDS orphans rather than just orphans Care and support to HIVAIDS orphans should therefore be approached within broad d w n social protection programs Rural safety nets While over the years humanitarian and emergency relief mechanisms in SSA have been strengthened the same cannot be said for safety nets The rising tide of orphans in SSA is an important reason to focus more on safety nets Ensuring that all orphans receive food and nutrition basic health care education and work skills will go beyond the capacity of many families who have to take care of more than one of them Additional reasons are that growth will inevitably leave some people behind while at the same time providing more resources to care from them In addition globalization and global warming may also dislocate the livelihoods and lives of many BinswangerMkhize amp McCalla July 24 2008 101 Joint AfDB and IFAD Evaluation of ARD Context Paper Long In SSA South Africa Botswana and Namibia have developed signi cant cash transfer mechanisms to assist a number of the most vulnerable groups the aged the disabled children and people living with Box 1 A BURKINA FASO PROPOSAL FoR SCALlNG UP SOCIAL PROTECTION Communities and individual families are already part of an informal if inadequate social protection system But they do need additional resources and support to eXpand these informal mechanisms into a more systematic effort and to nance support to education health care or home based care etc These resources should be provided as matching grants to the communities with the latter providing the matching resources in cash or in kind for example food needed for the most vulnerable While communities all over Africa are able to identify vulnerable families and classify them by degree of need they are not able to carry out proper needs assessment for these families a task which normally is done by a social worker In Sanmatenga there are nearly 300 villages and urban neighborhoods but only three trained social workers and there is no way the Ministry of Social Welfare can hire enough social workers to assist communities to do this job Just as in the areas of agricultural extension health or veterinary medicine it would therefore be necessary to develop a system of communitybased social workers Communities should to select one or several members to be trained in basic family needs assessment and supervision skills and they could then be remunerated via daily allowances for their work out of the community grants The ministry or Social Development would need to develop a curriculum training program and supervision program for them Assisting the chronically ill orphans and the families which take care of them will require signi cant additional training of enough community members to manage the tasks These community members cannot work as volunteers for a long period of time and need to be provided with modest remunerations such as per diems for every day they work or home visit they make The community members will encounter situations which they and the community as a whole cannot handle such as medical emergencies or child abuse To deal with these cases requires the putting in place of proper referral systems so that difficult cases can be handled by health professionals social workers or educators with the required skills These same specialists need to be involved in designing and delivering the training and be available for facilitation and training on demand The same committee structures that were used for prevention at the provincial district and community level the same training teams and the same nancing mechanisms can be reinforced and used to coordinate manage and monitor the social protection program In particular the committees can coordinate and provide nancial resources to the NGOs and local offices of the respective government services so that they can become the facilitators trainers and referral system Hans Binswan er personal observations IHV and AIDS These operate in both rural and urban areas Financing such cash transfer programs may be beyond the reach of many of the poorest countries Alternatives are to strengthen traditional community safety net mechanisms along the lines discussed in Box 1 Neither IFAD nor AfDB currently focus on emergency reliefor safety nets In the case ofIFAD this is because its target group is the poor who can be helped by improving their productivity However many poor rural people are either too young or too old to earn their own livelihood or disabled by disease or accidents Since safety net operations would inevitable focus on enabling the young to stay or become healthy and to acauire skills assisting them to do so will prepare them for becoming beneficiaries of BinswangerMkhize amp McCalla July 24 2008 102 Joint AfDB and IFAD Evaluation of ARD Context Paper Long IFAD s traditional programs IFAD s traditional skills in working with 39 39 would be well applied Agrocljmate Bionl hysical Resources and Natural Resources Management At the global level there is increasing competition for land and water Global population passed 6 billion in 1999 and will likely exceed 9 billion by 2050 This will put increased pressure on two non renewable resources critical to agriculture 7 land and water Feeding 9 billion may be able to be done on the same land area through productivity improvements but it will surely require more water But additional population increases competition for land in many ways aspace for housing recreation infrastructure and waste disposal Similarly more people most living in urban settings will demand more water and produce more liquid and solid waste Intensi cation of agriculture can cause water pollution erosion and salinization We may understand these pressures individually but it is the collective regional and global impacts that receive less attention Water for example is essential for life but who assures all people have access Developing and managing water supplies costs money but some people see access to water as a right and we know people over use a free good In both developed and developing countries water use in agriculture is often highly wasteful a consequence of past subsidies for the development of irrigation and low water and electricity tariffs Powerful vested interests defend these privileges As a consequence improved water use efficiency so necessary for managing the competition for water is rarely achieved If these issues are not addressed in the rest of the World Africa may once more be hit with rising food prices on account of increasing global water scarcity Africa is the world s oldest and most enduring land mass containing 22 of the earth s land surface Reader p9 It was characterized by InterAcademy Council s path breaking study Realizing the Promise and Potential of African Agriculture 2005 as having a dominance ofweathered soils of poor inherentfertility predominance ofrain fed agriculture little irrigation and very limited mechanization and heterogeneity and diversity of farming systems Thus the natural endowments of the continent deserve careful attention In this section we address issues of land water forest and sheries Africa s Land Resource Of Africa s most valuable resource the 2007 African Development Report said it best Land is a critical natural resource in Africa and the basis ofsurvivalfor the majority ofAfricans Ifsustainably managed the African landscape a rich and aynamic mosaic ofresources holds vast opportunitiesfor the development ofhuman well being p xvi Yet it is frequently argued that this valuable resource is being severely degraded Land degradations caused by nutrient depletion soil erosion salinization pollution overgrazing and deforestation are clearly major issues in African agriculture Many are of the view that low and declining soil fertility is a critical problem in Africa The InterAcademy Study says Depletion ofsoilfertility is a major biophysical cause oflow per capitafoodproduction in Africa Small holders have removed large quantities ofnutrientsfrom their soils without applying sufficient quantities of manure or fertilizers to replenish the soil quotInterAcademy Council p47 The World Bank IEG Review agrees using different references Low soil fertility is a major contributor to the low productivity of African production systems Only 6percent ofthe land in the Region has high agriculturalpotential quotp 14 The new Gates Rockefeller Foundations initiative Alliance for a Green Revolution for Africa AGRA has identified soil health as one of it priority program areas It is troubling that most of the evidence is however anecdotal based on local soil surveys and multitudes of plot studies Stocking 1996 As far as we can determine there has never been a comprehensive soil BinswangerMkhize amp McCalla July 24 2008 103 Joint AfDB and IFAD Evaluation of ARD Context Paper Long survey for most of Africa and beyond soil vulnerability maps there are no current or historical soil degradation maps Fortunately the Global Environmental Facility has recently funded a global Land Degradation Assessment for Drylands LADA that is executed by FAO UNEP and a number of collaborating institutions It is based on worldwide satellite measurement of vegetation covers in 8km X 8km grids with national and local follow up The local follow up focuses both on hotspots ie the areas with the most land degradation as well as bright spots where degradation has been reversed It appears that globally and in most places vegetation cover has increased over the past 25 years except in a number of hotspots such as the former homelands of South Africa personal communication Freddy Nachtergaele A full analysis of the results has however not yet been published Neither higher population nor poverty necessarily leads to land degradation7 In the transition from long fallow systems to permanent agriculture soil fertility declines and farmers eventually have to introduce new techniques to stem and reverse this decline This they tend to do during the evolution of the farming system to higher land use intensity as discussed so well by Ester Boserup 1965 and Hans Ruthenberg 1973 Their theories are consistent with an increasing number of studies which have shown that the normal processes of land improvement associated with agricultural intensi cation are taking place in many countries Pingali Bigot and Binswanger 1987 Tiffen Mortimore and Gichuki 1994 Signi cant cases of soil degradation on the other hand are usually associated with open access regimes insecurity of tenure and other policy failure which imply that the normal investment responses of individuals are impeded and the necessary soil investments are not made Heath and Binswanger 1996 Clearly the alarmist view that in many parts of the Developing World land is being rapidly and irreversibly degrading may be exaggerated Thirty years ago a World Bank sector report estimated that land losses in Burkina Faso amounted to something like 2 percent of GDP per year Today the land supports nearly twice the population than in 1980 and Kabore and Reij 2004 have documented how this was achieved The change is visible to the naked eye On a recent visit crops looked greener and healthier than the visitor had ever seen them before crop livestock integration had happened in many parts degraded arid lands were being recuperated via traditional and new techniques and a number of new crop varieties had been introduced there were more trees on the land This does not mean that deserti cation and soil erosion are not problems worthy of attention only that we can be more optimistic than the usual rhetoric implies Indeed the World Bank in its News amp Broadcast of November 7 2007 article entitled Deserti cation and Land Degradation Threaten Africa s Livelihoods de nes the issues and describes what action it is taking Desertification is a very severe form of land degradation involving the steaay but gradual loss of agricultural productivity and distinct decline ofecological health The phenomenon mattersfor Africa s environmentalfuture more sofor the brake it puts on economic activities directly tied to healthy ecosystems Take the case of farming Deserti cation drought and lately climate change are all adversely impacting farming threatening the principal source oflivelihoodi and exports ifor millions ofpoor people To tackle the problem ofland degradation more forcefully in Sub Saharan Africa in 2005 the World Bank and its partners including the New Partnershipfor Africa s Development NEPAD launched the TerrAfrica initiative tasked with promoting sustainable land managementpractices by mobilizing coalitions knowledge and scale up financing Global attempts at dealing with the issues of deserti cation and the related issue of biodiversity loss are dealt with in various international accords including the Conventions on Deserti cation and Biodiversity Climate change deserti cation and biodiversity losses really come together in the local government arena communities and on the farms requiring management and adjustment capacities Conventions in all three areas provide nancing opportunities andIFAD is hosting the Global 7 l 7 a nancing 7 The CGIAR has summarized the literature on this topic in an easily accessible website CGIAR 2005 BinswangerMkhize amp McCalla July 24 2008 104 Joint AfDB and IFAD Evaluation of ARD Context Paper Long instrument for the 39nVIWntinn ofl 39 39 39 These also require capacities to harvest the funds at the level ofnroducers local and national governments and sub regi Ml 39 39 and therefore provide capacitv pportunities for both IFAD farmer u 39 39 andAfDB national and sub regional level Water Resource Issues Water is crucial to Africa s development but it is becoming increasingly scarce To quote the Africa Development Report 2007 Available statistics reveal that nine African countries alreaayface water scarcity on a national scale less than 100m3 ofwaterperperson annually eight countriesface water stress less than I 700m3 while at least another six countries are likely tojoin the list in the coming decades More than 300 million people in Africa still lack access to safe water and adequate sanitation The majority ofthese people are in sub Saharan Africa where only 51 ofthe population has access to safe water and 45 to sanitation By 2025 almost 50 ofAfricans will be living in an area ofwater scarcity or water stress P 12 While in the aggregate Africa would seem well endowed with water having 17 major rivers and 160 lakes the distribution of these endowments spatially and temporally is very uneven For example the Congo River basin which receives over 35 of annual African rainfall is home to just 10 of Africa s population This means that in some areas there is high dependence on ground water North Africa and Southern Africa in others major rivers routinely dry up for several months a year Further the major rivers cross several national boundaries making water development more complicated Despite limited irrigation development agriculture is responsible for 86 of water withdrawals Given Africa s still rapid population growth and an eXpected increase in urbanization water is sure to become a larger regional issue This is compounded by the fact that the many small countries in Africa cannot go it alone on water issues The 2007 Development Report contains more detailed analysis of African water issues for those who are interested The Inter Academy Council Report provides further useful analysis The vast majority of farming systems in Africa are rainfed and only a small area is irrigated The possibilitiesforfull and supplementary irrigation are limited In 1995 96percent ofcereals in Sub Saharan Africa were sown in rainfed agricultural systemsp 46 47 The implication ofwater scarcityfor much ofAfrica especially in semi aridfarming systems is that more water eyficientfarm management systems will be needed They will incorporate drought tolerant varieties choose species with higher water use efficiencies and use crop and simulation modelingfor increased water use efficiency but they still will not be sufficient Countries will need to devote more resources to increasing the supply ofwater Most of the additional investment should not be in classic large scale irrigation systems There is considerable potentialfor capturing rainfall through improved soil surface managementpractices small water harvesting systems and small scale irrigation systems enabling intensification of farming and crop diversification in inland valleys and in upland systems using supplementary irrigation ofhigh value rainfed crops p 51 Irrigation and drainage The green revolution has shown how important water control is to make high levels of input use pro table In India the new varieties and higher input use spread rst to those areas with the best water control in the Northwest and South and moved East and to the Center later partly as a consequence of farmer investment in irrigation and drainage and partly because research made high yielding varieties available for dryland crops SubSaharan Africa is lagging badly in irrigation and drainage Less than 7 percent of crop area in SSA is irrigated compared to 33 percent in Asia Gelb et al 2000 Large scale irrigation has suffered from unaffordable costs and centralized bureaucratic institutions While models for changing these institutions into autonomous entities partially or fully controlled by the farmers have been BinswangerMkhize amp McCalla July 24 2008 105 Joint AfDB and IFAD Evaluation of ARD Context Paper Long successful in some countries such as Mexico or the Of ce du Niger this approach has not yet been replicated in many countries and therefore even rehabilitation is often not yet a viable option Small scale irrigation is a more promising option but investments are constrained by low pro tability of agriculture and therefore low investment capacities of the farmers Thus future development of irrigation capacity will need to be carefully planned in the context increasing competitionfor water Forests Forests cover 22 of Africa s land area and African forests make up 17 of global forest cover In contrast eXtreme desert covers 43 of Africa s land area African forests range from open savannahs to closed tropical rainforests FAO 2006 produces an assessment of the world s forests every 510 years Based on gures and assessments FAO concluded that the situation at the global level had remained relatively stable but the trend for Africa was of particular concern There appears to have been very limited progress towards sustainable forest management While there were some positive indicators that the net loss had slowed down overall the continued rapid loss of total forest area 4 million ha annually is disconcerting The ADB s African Development Report 2007 concludes that Deforestation forest degradation and the associated loss of forest products and environmental services are serious challengesfacing African countries The size ofnaturalforests and woodlands in Africa has been drastically reduced over the last century p 25 Degradation not only reduces economic returns from forest products but also contributes to losses of biodiversity increases the rate of erosion reduces water quality and increases the risks of ooding in surrounding areas While the particular issues pertaining to forest are very different among regions in Africa there is obviously a strong need for all development programs to be sensitive to potential impacts on forest resources This would include eXpanded forested areas brought under agricultural production Again as with water trans boundary issues are very signi cant For more detail on forestry issues the reader should refer to the 2007 African Development Report Fisheries Africa is a marginal and declining player in the world sh scene World wide production in 2005 was 1416 million tones 842 marine capture 96 inland capture and 478 million tonnes of aquaculture production Africa s total production was just less than 8 million tonnes 56 of global 48 from marine capture 57 of global 25 tonnes inland capture 26 of global and 07 tonnes from aquaculture 1 of global Two countries Egypt 82 and Nigeria 86 account for over 90 of aquaculture production Globally over all production is growing almost exclusively from growth in aquaculture output which increased from 355 million tonnes in 2000 to 478 million tonnes in 2005 while capture tonnage declined slightly African production was basically stagnant FAOSOFIA 2006 Per capita sh consumption in Africa is less than of global average per capita availability and is declining In 2004 per capita global availability was 166 kgcap while Africa consumption in 2003 was 76 kgcap down from 99 kgcap in 1982 Despite Africa s small role globally sh are important both as a source of income for sherpersons and as a source of protein NEPAD convened a FISH for ALL summit in 2005 which approved an action plan NEPAD s analysis in advance of the summit is instructive and we quote at length African fisheries and aquaculture are at a turning point T he fish sector makes vital contributions to food and nutrition security of200 million Africans andprovides incomefor over 10 million engaged infishproduction processing and trade Moreover fish has become a leading export commodityfor Africa with an annual export value of US2 7 billion Yet these benefits are at risk as the exploitation ofnaturalfish stocks is reaching their limits and aquaculture production has not yet fulfilled its potential A growing part of the trade value is high valued fresh Nile perch exports to Europe from Uganda and Kenya BinswangerMkhize amp McCalla July 24 2008 106 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Strategic investments are needed urgently to safeguard the future contribution of Africa s fish sector to poverty alleviation and regional economic development Broadly investment is needed 1 to improve the management of natural fish stocks ii to develop aquaculture production and iii to enhance fish trade in domestic regional and global markets In support ofthis investment capacity needs to be strengthened at regional and national levels for research technology transfer and policy development As afirst step stakeholders in the region need to build a common and strategic understanding of the importance offisheries and aquaculture for Africa s development and the challenges beingfaced by the sector P 4 Africa currently produces 731 million toffish each year Ofthese 4 81 million tcomefrom marine fisheries and 25 million tfrom inlandfisheries While capturefisheries rose steadily throughout the I980s and I990s they have stagnated since then reaching about 685 million tin 2002 Aquaculture on the other hand has risen but slowly and only in Egypt has growth achieved rates ofincrease seen in otherparts ofthe world risingfrom 85 000 t in 1997 to over 400 000 t in 2004 These trends combined with population growth mean thatper capita consumption offish in Africa is low and stagnating and in sub Saharan Africa specifically per capita consumption hasfallen in the past 20years In a recent study by the International Food Policy Research Institute IFPRI and the WorldFish Center analysis of future demand and supply offish suggested that ifper capita consumption is to be maintained atpresent levels up to the year 2020 capturefisheries will need to be sustained and where possible enhanced and aquaculture developed rapidly with an increase ofover 260 in sub Saharan Africa alone over the course ofthe next 15 years P5 Current concerns revolve around three sets of issues The rst is the continuing decline of coastal sheries alleged to be caused by foreign shing eets and the consequent impacts on the income of traditional artisanal shers Two recent news releases highlight the issue in rather stark terms The Institute for Security Studies October 2 2007 release de nes the issue in its title The Crisis of Marine Plunder in Africa and the Gristmill blog headline of18 Jul 2007 is West African sheries being destroyed The second is improved management of inland capture sheries which are comparatively more important in Africa The third is to rapidly expand aquacultural production The NEPAD plan of action lays out an ambitious set of investment proposals Progress to date appears to be mainly on the side of capacity building and research NEPAD Oct 2007 All of these natural resource issues fland water forest and fisheries are highly interdependent and will become more so with increased 1 39 pressure and rapid u L 39 39 The 11 for both IFAD andAfDB are to find wavs to incorporat 39 1 1 NRM into programs of growth and poverty reduction We close this section with brief discussions of two issues which frequently are raised as strategic issues Are poor natural conditions a constraint to agricultural growth and commercialization in Africa Some of the past successes in commercialization in subSaharan Africa depended on agroecological conditions that were ideal for cocoa tea coffee sugar and some other commodities In some of these eg tea and coffee the market pays high quality differentials and the desired quality attributes can only be obtained where particular growing requirements are ful lled Therefore the global players either traders or processors have to access supplies from certain African countries in order to be able to satisfy their customers Success in these commodities therefore has taken place despite the fact that many of the best regions were landlocked and remote On the other hand ideal agricultural conditions are not suf cient for success as the example of the slow growing Zambian sugar sector shows which enjoys some of the best growing conditions in the World While there is a major sugar factory in Zambia it has been unable to export sugar except into the protected European market Other success stories in Africa BinswangerMkhize amp McCalla July 24 2008 107 Joint AfDB and IFAD Evaluation of ARD Context Paper Long such as cotton and cassava in West Africa occurred under favorable but not ideal climatic and soils conditions They depend on highly labor intensive production processes that are difficult to mechanize and therefore bene ted from low labor cost in Africa Poulton et al 2007Beyond Africa as discussed in Box 2 agricultural success was achieved in a spectacular manner in landlocked areas of at best moderate agro climatic potential in the Cerrado of Brazil and in North East Thailand Marginal versus favored areas With the 39 39 more 1 39 and 39 39 39 the debate about this topic has come to the conclusion that this may be a false dichotomy Investments in both are necessary and both pay under many circumstances The WDR de nes less favored areas as ones constrained by poor market access and or limited by rainfall Using mapping overlays of both factors the WDR attempts to de ne where these areas eXist WDR pp 55 57 The WDR 2008 clearly lays out possible strategies for less favored areas arguing that public policy interventions to reduce poverty and preserve the environment are warranted in many of these regions Despite past arguments that these investments don t pay there is now analysis to support the conclusion that public investments in roads education irrigation and some types of research and development can produce competitive rates of return Fan and Hazell 2001 and positive outcomes for poverty and the environment in less favored areas WDR 2007 p192 The strategies recommended are based on two key interventions 1 improving technologies for sustainable management of land water and biodiversity resources and 2 putting local communities in the driver s seat to manage natural resources Ibid p 193 Absolute numbers of people living in marginal areas do not decline until a very advanced stage of urbanization is reached Outmigration is not a solution to the marginal areas problems What is needed is to harness all economic opportunities If they have been relatively neglected as in India rates of returns to investments may be as good as in better endowed areas For example Ethiopia has still an huge backlog in small scale irrigation BinswangerMkhize amp McCalla July 24 2008 108 Joint AfDB and IFAD Evaluation of ARD Context Paper Long BOX 2 SUCCESS IS POSSIBLE IN LANDLOCKED AREAS WHERE AGRICULTURAL CONDITIONS ARE FAR FROM IDEAL Decades of disappointing growth continuing erosion of the competitiveness of traditional export crops and increasing reliance on food imports have led many to conclude that African agriculture is condemned to perpetual stagnation Yet over the same period two landlocked agricultural regions in the developing world have developed at a rapid pace and conquered important world markets i the Northeast of Thailand and ii the Cerrado region of Brazil The Northeast of Thailand is characterized by relatively abundant but highly unreliable rainfall combined with poor soils and a high population density The Cerrado in contrast is characterized by its remoteness problematic soils prone to acidification and toxicities as well as low population density The paths along which commercial agriculture developed were very different in the two regions In Northeast Thailand smallholder production systems dominate export success was led by cassava chips soybeans and sugar In the Cerrado largescale mechanized production systems dominate Brazil became a world export leader in soybeans sugar and cotton The success achieved by Thailand and Brazil suggests that the pessimism found in Africa today may be exaggerated A major study carried out by FAO in 2001 identified the vast Guinea savannah zone as one of the zones in Africa with the highest potential for agricultural development The Guinea savannah shares a number of similarities with the Northeast of Thailand and the Brazilian Cerrado The cerealroot crop mixed farming system of the Guinea Savannah zones extends from Guinea through Northern Cote d39lvoire to Ghana Togo Benin and the midbelt states of Nigeria to Northern Cameroon and into the Sudan and there is a similar zone in Central and Southern Africa in Angola Southern Zambia and Mozambique lt accounts for 13 percent of the agricultural area of Africa and 18 percent of the cultivated area and supports 15 percent of the region s agricultural population It is aboutfour times as large as the immense Cerrado area ofBrazil Onchocerciasis control efforts have freed up an estimated 25 million ha of cultivated land for agricultural development However in some areas tsetsetransmitted African Animal Trypanosomosis is still a significant constraint A number of characteristics set this zone apart from other farming systems namely low altitude high temperatures low population density abundant cultivated land high livestock numbers per household the presence of a tsetse challenge in some areas and poorer transport and communications infrastructure Crops include maize and sorghum millets in the drier parts cotton cassava soybean and cowpea yam near the border of the root crop zone and wetland rice in parts of the river plains and valley areas The main source of vulnerability is drought Agricultural growth prospects are excellent and this system could become the bread basket of Africa and an important source of export earnings FAO 2001 While the Cerrado in Brazil and the Northeast of Thailand share important agroclimatic features with the Guinea savannah of Africa significant differences exist in terms of history culture social systems political structures and institutions that make it unlikely that any development model however successful can be gained This is what the large scale study of the World Bank entitled llTowards Competitive Commercial Agriculture in Africa CCAA study forthcoming has attempted to do In addition to Northeast Thailand and the Cerrado of Brazil it studied the history of commercial agriculture in Africa Poulter et al 2007 that was cited above and conditions and the history of commercialization in Nigeria Mozambique and Thailand It used a comparative value chain methodology to quantify the relative international competitiveness of cassava rice soybeans soybean oil seed cotton cotton lint granulated sugar maize and beef cattle across the five countries and quantified the bottlenecks to international competitiveness in Africa The findings of the study are referred to in the relevant sections of this report Source World Bank CCAA report forthcoming BinswangerMkhize amp McCalla July 24 2008 109 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Nevertheless a development approach to these areas has to empower the local populations with the authority and sufficient scal resources to provide the necessary human development and social services so that the new generations have the human capital needed if they choose to migrate Those who choose to stay behind can then combine remittances and social assistance with locally earned income for a decent living standard As Foster and Rosenzweig 2003 have shown such areas may also be able to attract some industrialization based on their lower labor costs The Future omeaII Farmers On a related issue of the role of small farms in growth and poverty reduction there is a new and insightful paper out by Peter Hazell and his colleagues Hazell et al 2007 which make a very good case for policy support for small farmers in both favored and particularly less favored areas There conclusions are very pertinent for this report In conclusion the casefor smallholder development as one ofthe main ways to reduce poverty remains compelling The policy agenda however has changed The challenge is to improve the workings of markets for outputs inputs and financial services to overcome market failures Meeting this challenge callsfor innovations in institutions joint work betweenfarmers private companies andNGOs andfor a new more facilitating rolefor ministries ofagriculture and other public agencies New thinking on the role ofthe state in agricultural development wider changes in J i at at i 1 139 39 andpa if y policyprocesses and a renewed interest in agriculture among major international donors do present opportunities for greater support to small farm development But unless key policymakers adopt a more assertive agenda toward small farm agriculture there is a growing risk that ruralpoverty could increase dramatically and waves ofmigrants to urban areas could overwhelm availablejob opportunities urban infrastructure and support services P 32 Enhancing Agricultural Pro ts and Rural Investment Once a welldeveloped institutional environment is in place and except for marginal agricultural areas rural development can be viewed as primarily a multifaceted agricultural investment issue Few of the needed investments will occur if agriculture is not pro table This is obvious for the on farm investments but none of the other institutional pillars are in a position to invest unless agriculture and agroindustry are pro table Unless they can save communities will not have the means to nance or co nance their investments Independent civil society organizations rather than creations from the outside must nance a share of their costs from local sources and these again depend directly or indirectly on pro ts from agriculture and other natural resources Local governments which do not mobilize part of their own resources tend not to be accountable to their constituencies Manor 1999 and instead they will be vulnerable to elite capture The local taX base in turn depends on agricultural and natural resource pro ts It is sometimes assumed that private agricultural investments can be nanced via credit Unfortunately as we shall see in the section on rural nance SSA provides some of the most inhospitable environments for rural nance in the world Low population density high and covariant risk little irrigation In other 8 Foster and Rosenzweig showed that in India rural industries have located preferably in areas which benefited relatively little from the green revolution and the subsequent agricultural development and where rural wages were generally lower Rural industrialization has therefore reduced rural poverty and inequality among and within rural areas Rapid growth of rural industries in the 19905 followed an increase in the overall growth rate of the economy which was itself partly a consequence of improved agricultural development and may have been aided by restrictive labor laws whose impact and enforcement may be less in rural areas than urban areas It is not clear how much these lessons apply to the underperforming countries which are suffering from low overall and low agricultural growth BinswangerMkhize amp McCalla July 24 2008 110 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Regions of the World where rural nance has been more successful regions with such characteristics have de ed rural nancial intermediation as well But even if institutions for rural nance could be built their success would depend on the borrowing and repayment capacity of the farmers both of which depend critically on agricultural pro tability There is therefore no shortcut to capital accumulation in agriculture eXpect via higher pro ts and ultimately higher savings and investments out of these pro ts It is often assumed that rural nonfarm activities can be an independent engine of growth for rural development But most rural nonfarm activities produce goods and services that are linked to agriculture via forward backwards and consumer demand linkages Hazell and Hagbladde 1993 World Bank 1983 Some industrial activities producing for the economy at large sometimes locate in rural areas because of low wages Foster and Rosenzweig 2003 But the advantage of lower rural wages is frequently offset by other disadvantages of a rural location Therefore the potential for rural industrialization is usually overestimated Agricultural growth therefore remains the single most important driver of the rural nonfarm sector In areas with limited agricultural potential investment opportunities will be limited even if the institutional environment is properly developed and agriculture in general is pro table While these favorable conditions will enable the limited potential to be fully developed that is not enough to provide for income growth of the populations of these areas A development approach to these areas has to empower the local populations with the authority and suf cient scal resources to provide the necessary human development and social services so that the new generations have the human capital needed if they choose to migrate Those who choose to stay behind can then combine remittances and social assistance with locally earned income for a decent living standard As Foster and Rosenzweig 2003 have shown such areas may also be able to attract some industrialization based on their lower labor costs9 Based on this discussion and the analysis in other sections of the report we summarize the remaining challenges to improving agricultural incentives Protection of im portables and subsidies for exportables not a good idea SSA countries have already altered their own policies and eliminated overall disprotection of the sector Section 3 However we have also seen that their incentives are still below those of the other Regions of the World especially OECD countries It would be tempting for African policy makers to attempt to further improve agricultural incentives by following the example of OECD countries and subsidizing their agricultural eXports or restricting imports to protect their producers However as shown in section 3 on average African countries already provide protection to their agricultural importables Raising these protection levels further would in many instances taX poor consumers and increase poverty rather than reducing it In the conteXt of the current agricultural price boom it would be more appropriate to lower the protection levels than increase them Increases in the protection of agricultural importables would also often lead to higher protection levels than for industrial goods and indirectly disprotect them Subsidizing agricultural eXports is constrained by the poverty of the countries and is a very inef cient way of supporting the agricultural sector compared to the use of scarce scal resources for infrastructure 9 Foster and Rosenzweig showed that in India rural industries have located preferably in areas which benefited relatively little from the green revolution and the subsequent agricultural development and where rural wages were generally lower Rural industrialization has therefore reduced rural poverty and inequality among and within rural areas Rapid growth of rural industries in the 19905 followed an increase in the overall growth rate of the economy which was itself partly a consequence of improved agricultural development and may have been aided by restrictive labor laws whose impact and enforcement may be less in rural areas than urban areas It is not clear how much these lessons apply to the underperforming countries which are suffering from low overall and low agricultural growth BinswangerMkhize amp McCalla July 24 2008 111 Joint AfDB and IFAD Evaluation of ARD Context Paper Long technology development and smallholder services And such subsidies would become contrary to WTO rules if the DOHA round of negotiations succeeds Input Markets As noted in Section 7 access to markets for both inputs and outputs is critical to the commercialization of small scale African farmers The WDR 2008 argues that developing ef cient input markets is a necessary prerequisite to expanded use of improved seeds and fertilizer Yet these markets are marked by highly seasonal demand for small quantities which are dispersed over wide geographic areas Further farmer demand is subject to change because of rainclimate variability Finally as is obvious rural infrastructure is essential The WDR shows that domestic port and transport costs make up to 50 of farm gate fertilizer costs in Nigeria Malawi and Zambia compared to slightly over 25 for the USA Scale economies in fertilizer production are substantial so for the vast majority of small SSA countries domestic production is infeasible and in fact as noted by the WDR cost effective minimum import lots of 25000 tons are considerably above the annual demand in most Sub Saharan African countries WDR 2007 p 150 Again this underlines the need for regional approaches and offers opportunities particularlv to A QB to support regionalization This also raises the perennial issue of fertilizer subsidies which is addressed in detail in the WDR Box 67 p152 with a proposal for what they call market smart subsidies targeted at poor farmers to encourage initial use of incremental amounts of fertilizer They also note wide spread use of fertilizer subsidies is expensive Zambia spent 37 of its public budget for agriculture in 20042005 on their fertilizer support program Of course other inputs will become important in the commercialization process as needs for tools machinery pest management and possibly irrigation equipment emerge A market oriented agriculture requires access to functioning input markets The challenge is how to encourage and support their development Rural nance One critical input market is rural nance The macroeconomic instability that has characterized Africa well into the 1990s has resulted in exceptionally high real interest rates Agriculture is rarely so pro table that it can compete with urban investments in such environments In addition rural areas in general and small farmers in particular face signi cant disadvantages in nancial markets Clients are usually smal and widely dispersed and seasonality and covariant risk make nancial intermediation difficult Binswanger and Rosenzweig 1986 While cooperative institutions have been a success for larger farmers in middle income countries such as Brazil specialized agricultural nancial institutions have been a failure all over the World World Bank 1996b The micro nance movement can make a modest contribution but it has found it difficult to overcome the rural disadvantages and emerge as an important agricultural lender Gine 2004 Successful approaches to improving rural nancial intermediation have been focused on savings mobilization postal systems and improving access to nance by the rural nonfarm sector input suppliers marketing systems and contract farming Yaron et al 1998 The government of India has forced commercial Banks to open rural branches and reserve a proportion of their lending to agriculture and agroindustry Two separate studies have shown signi cant impact on agricultural growth and the rural wage Binswanger and Khandker 1996 In light of the above analysis it is not surprising that both IFAD and the AfDB have found it difficult to achieve more that spotty success in rural nance in SSA Yet both of them put rural nance high on their agenda in their agricultural programs An alternative approach to fostering rural 39 is to focus on agricultural 1 39139 in general and support to effective easilv accessible and low cost savings 1 such as postal savings svstems linked to rural savings clubs A 1 y approach BlnswangerMkhize amp McCalla July 24 2008 112 Joint AfDB and IFAD Evaluation of ARD Context Paper Long would be to nance more agricultural and rural 39 via matching grants with the matches coming both from 39 tributions in kind as well as individual savings Output Markets The same problems which negatively affect input markets also impede the development of output markets and most of them have already been discussed Low population density landlockedness poor road and port infrastructure high transport costs for given infrastructure illegal extractions along the road inadequate competition poor nancial markets and the resulting high costs of nance and a business environment that is only slowly improving Market development in food crops is also impeded by frequent and unpredictable government interventions in the markets Fortunately farmers associations are increasingly entering input and output markets but a lot more support will be needed for them to achieve the kind of prominence they have in East Asian countries or Brazil for example The WDR of 2008 provides a comprehensive analysis of how to foster output markets in general and the participation of producer organizations in particular Intra regional trade in basic commodities offers real possibilities for African agriculture but is constrained by serious barriers to trade Barriers to intra regional trade In addition to domestic and global markets intraregional trade offers major opportunities for SSA agriculture It also helps avoid unwanted price declines Domestic demand for most agricultural commodities is price and income inelastic therefore rapid gains in production will inevitably lead to lower domestic prices and quickly reduce gains in farm pro ts Moreover high production volatility translates into high price variability and risk Opening subregional trade can reduce the impacts of these factors and increase regional food security Africa is a net agricultural and food importer and that trade imbalance is growing As Table 71 shows African agricultural imports grew from 163 billion in 199092 to 246 billion in 200204 32 per year while exports grew from 115 billion to 172 billion 3 per year over the same period The de cit grew in total agricultural trade but declined in food As Figure 76 shows intraAfrica trade in agriculture was a small share the total but that share rose from 11 to 18 over the period The largest de cits are in cereals followed oils and fats dairy products and meats Thus on the surface at least it seems there is substantial potential to expand intraAfrica trade in agricultural and food products Of course there are barriers that have to be overcome including transport and handling costs sanitary and phytosanitary issues tariff and non tariff barriers to trade and market information Lynam has argued that there are real possibilities and real challenges in developing pro table access by African small holders to growing African urban markets private communication Nevertheless regional integration in agriculture has been slow The Economic Commission for Africa has shown that there have been some strides in trade communications macroeconomic policy and transport Some regional economic communities have made significant strides in trade liberalization and facilitation infree movement ofpeople in infrastructure and in peace and security Overall however there are substantial gaps between the goals and achievements ofmost regional economic communities particularly in greater internal trade macroeconomic convergence production and physical connectivity Economic Commission for Africa 2004 p I Given11223 s desire to increase efforts in regional integration this area seems to be a desirable opportunitv which deserves to be vigorously pursued BinswangerMkhize amp McCalla July 24 2008 113 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Table 71 Overview 1111 trends in Africa s food and zlgl39irultural trade 200204 Value Growth rate 5 million per year 1 Ag culturll Import Agricultural products total 1 634 1 24650 3 2 Total food excluding sh 13082 1000 19976 1000 32 Cereals and 5775 441 9142 458 36 Vegetable oils 1405 107 2440 122 41 N lk and dairy products 1524 1 1 6 1 804 90 10 Fruits and vegetables 985 75 1625 81 39 Sugar 1264 97 1504 75 13 Meat and meat products 789 60 1030 52 14 Other foods 1339 102 2431 122 47 Nonfood agriculture 3259 4674 29 Total food as of agriculture 80 81 01 Agrlclllturll exports Agricultural products total 1 1487 17220 30 Total food excluding sh 6692 1000 10946 1000 36 Cereals and preparations 420 6 3 696 6 4 2 6 Vegetable oils 464 6 9 540 4 9 0 6 1k and dairy products 55 08 146 13 74 Fruits and vegetables 2013 30 1 33 14 303 38 ugax 999 14 9 935 85 01 Meat and meat products 208 31 207 19 06 Other foods 2532 37 8 5108 46 7 5 2 Nonfood agriculture 4795 6274 20 Total food as of agriculture 58 64 06 1 Growth rate was estimated as the slope b times 100 for percentage of the trend line log Y a b t Where Y is the variable in question andt is time period 1990 to 2004 Source Based on FAOSTAT data accessed September 2006 76 Trends in Quinstrade in g 5a impel 2 1mm Print as percentage ol A frica b iota 13m pong 5 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source FAO based on the WTO annual trade statistics BlnswangerMkhize amp McCalla July 24 2008 114 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Phytosan itary rules and regulation These are steadily emerging as more important barriers for developing country agricultural and agro industrial exports Their increasing stringency is driven by consumer demand factors as well as by their potential to replace tariff barriers as a protection against imports World Bank 2005a Developing countries have little choice but to insert themselves into the standardsetting processes and bodies and to build up their capacity to comply with these regulations Ingco and Nash 2004 Small countries are at a particular disadvantage as they will have dif culties providing the necessary services Regional collaboration and integration will be necessary to enable compliance at an affordable cost Again this seems an area where supportfrom AfDB would be highly desirable Functioning input and output markets reductions of barriers to trade and rural investment are all crucial to enhancing the pro tability of African farmers Getting incentives right is a necessary prerequisite to adopting appropriate technology the topic to which we now turn Again this seems an area where suggori ZromA zB would be highly desirable The Ultimate Source of Growth Agricultural Technology Despite the enormous growth in human population and incomes for more than 150 years agricultural commodity prices have followed a declining trend This astonishing phenomenon has been caused by the combination of increasing international trade and sustained technical change in agriculture Mundlak 2001 Adaptation of the stock of scienti c and technical knowledge to local conditions and implementation of new technology are most impressive in OECD countries where the necessary investments have bene ted from the distortions in favor of agriculture Asia and parts of Latin America have also done well In particular India and China have had some of the most impressive agricultural performances and therefore over a third of humanity has escaped the threat of famine during the past thirty to forty years Eventually most if not all bene ts from technical change in agriculture elude farmers and are transferred to consumers in the form of lower commodity prices the famous agricultural treadmill Evenson and Collin 2003 show this once again for the Green Revolution from 1996 to 2000 It is therefore not sufficient to improve the institutional environment and eliminate the barriers to pro tability in the low income countries so that they may adopt the already available technology In a global agricultural system agricultural pro ts will go to those who are ahead of the curve in terms of implemented technology human capital and institutions The underperforming countries will need to produce a steady stream of new technology by strengthening and rebuilding their agricultural research and technology adoption systems The growing technology divide However SSA has not participated much in technical change and the associated growth in yields Figure 77 for maize shows these adverse trends which are similar for other cereals Only in North Africa and to a lesser eXtent in South Africa have maize yields increased in the last 25 years We have already reviewed a number of factors behind this dismal trend including poor infrastructure lack of competition BinswangerMkhize amp McCalla July 24 2008 115 Joint AfDB and IFAD Evaluation of ARD Context Paper Long in input and output markets and therefore low use of purchased inputs However low expenditures on agricultural research and institutional weaknesses in research are a major cause as well Recall that SSA agriculture is characterized by a multitude and diversity of farming systems heterogeneity within farming systems rather than dominance by one or two crops the presence of many endemic plant and animal diseases weathered soils with low fertility and erratic rainfall In terms of its resource endowments and production mixes SSA agriculture differs more sharply from the developed world than other developing regions of the world Pardey et al 2006 therefore limiting the ability of SSA to bene t from direct technology transfer or spillover of scienti c and research ndings Moreover the heterogeneity of climate soils and farming systems within SSA limit transfers of technology and research ndings within SSA These features therefore imply that a greater scienti c and adaptive research effort is required to increase agricultural productivity in SSA than elsewhere in the World FIGURE 77 AVERAGE MUZE YIELDS SINCE 1980 Average Ylalds Malzo 8 6 4 2 O 0 Ln 0 Ln 0 Lo 00 oo o a o o C C CD C o o N N Afrlla North Afrlca SSA LDC other SSA South Africa Around 1961 average cereal yields were around 1 ton per ha in the developing world and rose to nearly 3 tons per ha by 2005 They increased to around 45 tons in East Asia and the Paci c EAP to around 23 tons in the Middle East and North Africa MENA while they stagnated around 1 ton in subSaharan Africa SSA WDR 2008 gure 21 In the other Regions the yield gains were driven by increases irrigation new varieties and fertilizers By 2002 irrigation covered 39 percent of arable and permanent crop land in South Asia 29 percent in MENA and 11 percent in Latin America and the Caribbean LAC but it covered only 4 percent in SSA In 2000 improved varieties covered 84 percent of the cereal area in EAP 61 percent in MENA and LAC while they covered only 22 percent in SSA In 2002 fertilizer consumption had reached a staggering 190 kg per ha of arable and permanent crop land in East Asia and the Paci c 73 kg in MENA but only 13 kg in SSA As a 1 even the 39 T t 1 39 of high yielding varieties led only to very limited yield growth in SSA In 2000 Global agricultural RampD spending including pre on and postfarm oriented RampD was 363 billion of which 37 percent was conducted by the private sector while 63 percent or about 23 billion was conducted by public entities Ninety three percent of the private research was conducted in developed countries where for the rst time in 2000 private agricultural RampD exceeded public RampD all gures from Pardey et al 2006 On the other hand public agricultural RampD grew faster in the developing world and is increasingly concentrated in China India and Brazil whose combined share in spending rose from 33 percent of developing country expenditures in 1981 to 47 percent in 2000 In stark contrast public BinswangerMkhize amp McCalla July 24 2008 116 Joint AfDB and IFAD Evaluation of ARD Context Paper Long agricultural research in SSA grew at only about 1 percent per annum in the 1990s and in 2000 was around 16 billion dollars of which only slightly more than I 0 percent was spent by the CGIAR Therefore the CGIAR can only play a minor role in the catching up of public research funding to international levels SubSaharan Africa has the lowest share of private agricultural RampD spending in the World only 17 percent of already low public spending ibid Of total agricultural research spending donors provide about 40 percent and in some countries this rises to 60 percent Only ve African countries 7 Nigeria South Africa Botswana Ethiopia and Mauritius 7 are paying the recurrent budget of their NARS from national sources Pardey et al summarize these data as follows Collectively these data point to a disturbing developmentia growing divide regarding the conduct ofagricultural RampDiand most likely a consequent growing technological divide in agriculture The measures also underscore the need to raise current levels offundingfor agriculturalRampD throughout the region while also developing the policy and infrastructure needed to accelerate the rate of knowledge creation and accumulation in Africa over the long haul ibid P 68 The changing nature ol technology discovery All around the world innovation is shifting away from a linear pattern that starts with scienti c discovery and moves successively to technology development adaptation to local conditions and dissemination to farmers In its place comes a broader and more circular paradigm It is broader in the sense that innovations no longer concentrate on basic food or industrial agricultural outputs but instead include the entire value chain from farm production natural resource management assembly processing marketing and retail to consumers Driven by consumer demand changes attributes of appearance convenience nature of the production process organic environmentally friendly genetic and location origin are assuming importance most strongly so in developed countries but increasingly in middle and low income countries The growth in information and communications technology has transformed the ability to take advantage of knowledge developed in other places or for other purposes Within this broader paradigm private research and development plays an increasing role facilitated by the development of broader intellectual property lights in agricultural technology which provide many promises but also induce high levels of anxiety about exclusion and high transactions costs for developing country agricultural innovation The trends in intellectual property rights in agriculture and their impacts on technology discovery are ably reviewed in Pardey et al 2006 A number of larger developing countries are taking advantage of greater private sector involvement including most recently India which now boasts over a hundred private domestic and multinational seed companies The private seed sector is also growing in SSA with Kenya being perhaps the most advanced Pardey et al conclude that developing countries would be well advised in strengthening their own intellectual property lights systems for agriculture in line with commitments that many have already made under WTO rules The last major change is the emergence of biotechnology which we have already discussed in section 3 Some of the needed institutional responses have already been initiated as discussed in the neXt subsection The institutional framework for agricultural technology generation SubSaharan Africa has over 400 public and private entities engaged in agricultural research of which nearly 200 are public research institutions and another 200 are universities compared to 20 in 1960 However 40 percent of them have fewer than 5 researchers and 93 percent have fewer than 50 full time BinswangerMkhize amp McCalla July 24 2008 117 Joint AfDB and IFAD Evaluation of ARD Context Paper Long researchers Beintema and Stads 2004 SubSaharan Africa has nearly 50 percent more agricultural scientists than India and about athird more than the United States but all of SubSaharan Africa spends only about half of what India spends and less than a quarter of what the United States spends Only a quarter of African scientists have a PhD compared with all or most scientists in India and the United States All institutions engaged in research within each country are collectively aggregated into National Agricultural Research Systems NARS In the different subregions of Africa the NARS have created SubRegional Organizations SROs the strongest of which are CORAFWECARD for West and Central Africa and ASARECA for Eastern and Central Africa The SRO for Southern Africa is the SADC Food Agriculture and Natural Resource Directorate SADCFANR and a North Africa SRO initially comprising Morocco Algeria Tunisia and Libya is also under development The SROs foster research collaboration in their subRegions and ASARECA and CORAFWECARD have established research grant funding mechanisms of their own with significant support from the European Union Source FARA website and websites of the individual SROs In 2001 the three SROs for subSaharan Africa established the Forum for African Agricultural Research FARA that has its secretariat at the regional FAO office in Ghana F ARA has been entrusted by the African Union and NEPAD to coordinate Pillar 4 of its Comprehensive African Agricultural Development Program CAADP which focuses on Agricultural Research and Technology Dissemination Figure 78 FIGURE 7 8 FARA AND ITs INSTITUTIONAL AND OPERATIONAL LINKS DRAFT 4 May 2007 Working Document Not For Citation Au EPAD Figure 1 Representation of the SUEREGIONAL relationship of F an theI SROs to CAADP and FAAP ORGAN39ZAT39ONS39 cm 7 I FAAP gt Evalulion andrefoml of agricultural institutions and services North Africa SRO ASARECA CORAFIWECARD SADCIFANR Strategic Plans Operational Plans E a E o S a E v 5 S E PIIIarz Rural Invrastructuro Flllu 4 Agricultural ream Pillars Food supply a technology dluemlnnlnn Programmes Projects Source FARA Strategic Plan 2007 In order to strengthen biotechnology research four regional biosciences networks initiatives were established under the auspices of the New Partnership for African Development NEPAD The Biosciences eastern and central Africa Network BecANet facility was established in 2004 BecANet consists of a secretariat and Hub located on the campus of the International Livestock Research Institute ILRI in Nairobi Kenya that should provide a common biosciences research platform researchrelated services capacity building and training opportunities regional nodes and other laboratories distributed throughout eastern and central Africa for the conduct of research on priority issues affecting Africa s development In addition NEPAD has initiated three other African Biosciences Initiative which are networks of leading centers and consist of hubs and nodes in Northern Southern and Western African ie the Southern African Network for Biosciences SANBio with its hub at the Council for Scientific BinswangerMkhize amp McCaIIa July 24 2008 118 Joint AfDB and IFAD Evaluation of ARD Context Paper Long and Industrial Research CSIR Pretoria South Africa the West African Biosciences Network WABNet with the hub at Institute Senegalais de Recherches Agricoles ISRA in Dakar Senegal and the Northern Africa Biosciences Network NABNet with the hub at National Research Centre NRC of Cairo Egypt These hubs possess and are strengthening the necessary physical infrastructure to develop and implement regional and continental biosciences projects NEPAD 2007 In the early 2000s a public ip vate sector partnership to foster access to proprietary research was created funded by the Rockefeller Foundation The African Agricultural Technology Foundation AATF is an international notforpro t organization designed to facilitate and promote PublicPrivate Partnerships for access and delivery of proprietary technologies that meet the needs of resourcepoor smallholder farmers in SubSaharan Africa SSA Through a catalytic and facilitative role AATF tries to serves as an honest broker between owners andor holders of proprietary technologies and those that need them to promote food security and improve livelihoods for smallholder farmers in SSA AATF was incorporated in the UK in January 2003 and in Kenya in April 2003 The Consultative Group on International Agricultural Research CGIAR supports the research of 15 international Centers of which 13 are located in developing countries In 2006 the CGIAR consisted of 1115 internationally recruited scientists and a total staff of 8154 working in over 100 countries A strategic component of the system is the eXsitu germplasm collections of eleven of the International Agricultural Research Centers IARCs Building on earlier independent initiatives the CGIAR since the early 1990s has rapidly broadened its focus from crop genetic improvement towards natural resource management NRM environmental issues and policy research In 2006 of total CGIAR expenditures of 458 million dollars around 220 million dollars or 48 percent went to SubSaharan Africa Africa also bene ted from the share of 9 percent share of CGIAR expenditures that went to North Africa and Central and West Asia All Centers currently have programs in SSA Two Centers are located in West Africa IITA and WARDA while two are in Eastern Africa ILRI and ICRAF In 2003 there were a total of 70 Center of cessites in SSA distributed in 21 countries Thirteen Centers operated in Kenya alone There were a total of 162 CGIAR Centers programsprojects in SSA of which 82 were conducted by the SSAbased Centers To implement these programsprojects the Centers engaged a total of 389 internationally recruited staff IRS 121 regionally recruited staff RRS and 2607 local staff LS However as discussed previously the CGIAR spends less than 10 percent of its overall resources on biotechnology research and little of that is likely to be spent in or for Africa The establishment of the Biosciences eastern and central Africa Network BecANet facility in 2004 was seen as a partial remedy to this situation CGIAR research has made 39 T t quot 39 to SSA 39 39 Many previous studies highlight successes such as the highyielding cassava varieties that include resistance to mites mealy bugs cassava bacterial blight tolerance to drought low cyanogens potential and good cooking quality the famous biological pest control especially in cassava but also in other crops biological pest control in potato including via pest resistant cultivars improved hybrids and openpollinated varieties of maize in western eastern and southern Africa higheryielding wheat in eastern and southern Africa hybrid sorghum in Sudan semidwarf rice for irrigated regions in West Africa early maturing cowpeas in West Africa and diseaseresistant potatoes in the eastern and central African highlands The CGIAR is not the only set of advanced research institutes ARIs operating in or for Africa France s Centre de Cooperation Internationale en Recherche Agronomique pour le D veloppement CIRAD and the Institut de Recherche pour le D veloppement IRD formerly Office de la BinswangerMkhize amp McCalla July 24 2008 119 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Recherche Scienti que et Technique Outremer ORSTOM also operate on the continent The combined budgets of these two institutes are as large as the entire CGIAR budget NEPAD 2007 Returns to agricultural research The adoption of new crop varieties in SSA has been signi cant In the late 1990s the adoption rate of improved varieties of all crops was 22 percent of total area planted and of this 11 percent was planted to CGIAR related varieties usually produced in collaboration with the NARS Pardey et al table 6 Data from between 2000 and 2005 shows overall adoption rates for wheat slightly above 70 for maize around 45 rice at 26 cassava 19 sorghum 15 and potatoes at 12 In eastern central and southern Africa 10 million farmers are reported to plant and consume improved varieties of beans Alston et al 2000 assembled more than 1500 rate of return estimates to agricultural research and extension Box 3 The median of the rate of return estimates was 480 percent per year for research 629 percent for extension studies 37 percent for studies that estimated the returns to research and extension jointly and 443 percent for all studies combined Box 3 shows that the median return in the developing World is about the same as in the developed World and that the median rate of return in Africa is slightly lower than elsewhere but still very high at 34 percent Box 3 ESTIMATED RATES OF RETURN Evenson 2003 estimates CGIAR contributions to yield T0 INVESTMENT IN AGRICULTURAL growth due to CGIAR research in SSA to be in the range of 0117013 per year This range is much RESEARCH smaller than the 0307033 per year average yield growth across all developing regions Evenson 2003 Regim Nu39f ber Madlaquot me Despite substantial introduction ofnew varieties there estlmates of rem m has not been a great aggregate impact on yields compared with other regions partly because of the Africa 188 34 much lower adoption rates and partly because of lack of irrigation fertilizer and inappropriate policies Asia 222 so Evenson and Rosegrant 2003 try to estimate the Latin America 262 43 aggregate effects of CGIAR research on Crop Genetic Improvement in different regions of the world They Middle 11 36 show that in the absence of the global CGIAR research 1th the area planted to major food crops in SSA would have been 0640 more while total food production would A d I have been reduced by 172 In addition the number of eve oplng 683 43 countries malnourished children would have 1ncreased by 1 and the availability of calories to the general population A developed 990 46 would have declined by 374 All these estimated countries effects are more modest than the effects estimated for Source Alston and al 2000 other regions of the developing world The upshot of this returns discussion is that the underinvestment in agricultural research in Africa is not warranted either by low returns or low adoption rates In the aggregate the main problem is not the quality or impact of the research but that so little has been done compared to the enormous diversity of climates soils and agricultural production systems and the limited opportunities for borrowing from elsewhere in the world BinswangerMkhize amp McCalla July 24 2008 120 Joint AfDB and IFAD Evaluation of ARD Context Paper Long The most urgent need for action FARA has developed the Framework for African Agricultural Productivity FAAP 2006 that sets out guiding principles for how research is to be fostered institutionalized and nanced in Africa Under FAAP FARA the SROs and the NARS will collectively guide the evolution and reform of agricultural institutions and services foster an increase in the scale of Africa s agricultural productivity investments and help aligned and coordinate nancial support These coordination efforts are described in greater detail in Annex 5 Figure 79 shows existing and proposed expenditure levels and breaks it down into global regional and national components Subregional expenditures are the ones which will have to grow the fastest to reach 500 million dollars per year AfDB should be part of its financing A joint donor evaluation analyzed F ARA and its programs as follows FARA is a young organization it has developed a strong organizationalframework in itsfirst three years offull existence T e Secretariat has demonstrated that it is both efficient and effective in its operations with increasingly significant tasks being assigned to the FARA Secretariat and the various FARA constituencies these urgently need to increase their human resource capacity JEE believes that the FAAP provides a framework for harmonizing donor support and that committing to consolidated funding of the FARA Rolling WorkProgramme amp Business Plan RWPBP is the best means ofpooling resources IEE report 2007 p11 1 1 Despite these favorable and external the work programs ofFARA of the SROs and ofthe NARS remain seriouslv under funded Fortunately the AfDB has recentlv approved a 25 million dollar ro ram in su ort o FARA and bothA B andIFAD are undin a ricultural research via different channels Nevertheless more finance for agricultural research at all levels by both institutions is warranted FIGURE 79 ACTUAL AND PROPOSED AGRICULTURAL RESEARCH AND EXTENSION EXPENDITURES Figure Agricultural Research amp Extension expenditures US Million I year 3500 3000 2500 2000 1500 1000 500 500 253 250 0 A u p Country SubRegional Global l 2005 I Proposed Source FARA Strategic Plan 2007 Agricultural science and education institutions Africa now houses roughly 300 Universities Three quarters ofAfrican countries o er some tertiary level training in agricultural sciences At least 96public universities teach agriculture and natural BinswangerMkhize amp McCalla July 24 2008 121 Joint AfDB and IFAD Evaluation of ARD Context Paper Long resources management Ofthese 26 are in Nigeria ten in South Africa six in Sudan five in Kenya and three in Ghana Nineteen separatefaculties ofveterinary science exist in 13 countries five ofthem in Nigeria alone Johanson and Saint p 15 Despite these many facilities agricultural aid funding has droppedprecipitously agriculture received a diminishing portion ofa shrinking development assistance pie Country expenditure has paralleled the drop in donor assistance resulting huge de cits in human capital and research support What is left is a proliferation of institutions which have limited staff with virtually no research support money The sad part is that now the need for agricultural technology development has regained high priority for SSA the continent is left with a deteriorating oversized and fragmented infrastructure Many vacant positions an aging staff FARA 2006 estimates that 60 of agricultural professionals currently employed in the public sector will reach retirement age in 5 to 8 years Johanson and Saint p 34 outdated equipment and no operating funds Johanson and Saint s conclusion is poignant Agricultural education and training has been demonstrated to be a vital but much neglected component ofagricultural development in Africa It is under value under iresourced and under provided Human capital in agriculture has been depleted by long neglect p 67 The InterAcademy Study states It is the conviction of this stuay panel that much of what would be necessary to improve agriculturalproductivity andfood security in Africa hinges on strengthening agricultural educational systems more specifically the coverage and quality ofhigher education P 184 However there are hopeful signs Seven American foundations have formed the Partnership for Higher Education in Africa andpledged to invest at least USD 200 million over the next ve years and the Gates and Rockefeller Foundations recently formed a separate partnership called the Alliance for a Green Revolution in Africa AGRA 1 ibid UNDP is supporting a community of practice SEMCA 7 Sustainability Education and the Management of Change in Africa focusing on agricultural education 1 section it is clear thatAfrican regional and national for agricultural science and agricultural science education have started to respond to the huge scientific and 1 11 faced vafrica The 1 11 are inten i ed by increasing 39 39 for resources climate change and rising 39 39 1 agricultural prices These responses are occurring in a rapidly changing global research system including bio 1 1 Uropertv rights and patent svstems and a growing range ofnlavers especiallv the private sector The innit ant 39 39 39 1 responses have not so far been matched by adequate funding from i it rnational donors and nationalgovernments especially in the areas of 39 1 1 andscience education While AfDB andIFAD are contributing financing at regional sub regional national and project levels it is clear that they will need to step up their contributions just like others will In cam im ion ofthis science and 1 1 The Imperative of Regionalization Throughout this paper there have been many critical issues that can best be or only solved by regional action and more are yet to come lets recall a sampling Small countries dominate the African scene often lacking nancial capacity for public goods investments Small land locked countries generally do worse and depend on regional integration to be able to do better Expanded regional trade in agriculture and food products is good for growth farmer s income and regional foods security the short run management challenges of the current food price spike BinswangerMkhize amp McCalla July 24 2008 122 Joint AfDB and IFAD Evaluation of ARD Context Paper Long and the long run opportunities arising from prices that are expected to settle at higher than past levels only add to this imperative Expanded regional trade and food security will be helped by the harmonization of standards and sanitary measures and subregional and regional capacities to implement them Freer boarders and internal infrastructure should encourage private sectors traders For small countries regional infrastructure froads communications ports 7 critical for access to each other and external markets Reversing land degradation and deserti cation and preserving biodiversity require trans boundary collective action Managing crucial but under threat forestry and sheries resources must be approached on a transnational basis Defense against plant and animal disease epidemics require collective responses at subregional and regional levels Success in agriculture crucially depends on indigenous scienti c capacity to generate new technology given small and poor countries is far better done on a regional or sub regional basis 7 FARA and the SRO s are on the right track but the effort needs to be greatly expanded Bio technology research is expensive with a large critical mass therefore two or three regional institutes is far superior to 48 or 24 underfunded under resourced national institutions Indigenous scienti c capacity requires trained people again better done by regional institutions which have critical mass and necessary nancial support Regional approaches to rural nancial architecture may increase potential deposits and loanable funds and spreads risk These examples hopefully are enough to illustrate that the potential for regional approaches and an overall regional strategy for rural Africa are signi cant Yet in all most of these areas institutional development programs remain massively underfunded The main reason for this is that the regional efforts produce regional and subregional public goods and therefore their nancing is subject to the familiar free rider problem of nancing public goods Except the largest countries which have an incentive to supply themselves with these regional public goods countries will seek to bene t from the investment of others It is Breade here that a Regional 7 1 Finance Institution such as the African l Bank has a major opportunitv to step in as it can both coordinate as well as contribute to the financing of these essential regional capacities While there is probablv less ofa role for IFAD in this area it is alreadv active in hosting the Global 7 I 1 39 39 Against l 39 39 AfDB has fullv 39 1 this 39 advantage in general and can become much more active in the supporting cross border agricultural collaboration To effectivelv exercise a 1 4 1 39 role it needs to develop the analvtical and 39 1 39 capacitv as well as streamlined 1 for financing them that are not dependent on individual countrv borrowin decisions toe ectivel exercise this leadershi role BinswangerMkhize amp McCalla July 24 2008 123 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Annexes Annex 1 ODA for ARD in Africa Annex Table 1 ODA to Africa in Agriculture amp Rural Development 19742005 Donors Amount Million USD Constant Prices 2005 Agriculture Rural Development Total Bilateral Australia 1054 240 1294 Austria 509 475 983 Belgium 5051 622 5673 Canada 17067 2893 19960 Denmark 15826 1681 17507 Finland 3167 1210 4377 France 48666 16219 64885 Germany 29984 5454 35438 Greece 11 11 Ireland 856 258 1114 Italy 18713 8982 27695 Japan 39548 476 40024 Luxembourg 75 219 294 Netherlands 25262 8559 33821 New Zealand 05 02 08 Norway 7884 4397 12281 Portugal 190 24 213 Spain 1371 527 1897 Sweden 17000 4114 21114 Switzerland 7975 2159 10134 United Kingdom 15658 4493 20151 United States 74245 8732 82976 Total bilateral 330117 71734 401851 Multilateral A DB 2858 476 3334 A DF 48576 13309 61886 EC 71037 41926 112963 IBRD 2895 289 3184 IDA 122871 25340 148210 IFAD 30772 16502 47274 UNDP 76 127 203 Total Multilateral 279085 97969 377055 BinswangerMkhize amp McCalla July 24 2008 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Table 2 ODA to Africa in Agriculture amp Rural Development 19982005 Donors Amount Million USD Constant prices 2005 Agriculture Rural Development Total Bilateral Australia 679 55 733 Austria 337 353 690 Belgium 3356 577 3933 Canada 3762 88 3850 Denmark 4637 81 4718 Finland 305 490 795 France 7337 2465 9802 Germany 5397 2356 7753 Greece 11 11 Ireland 856 258 1114 Italy 1572 245 1817 Japan 6691 92 6783 Luxembourg 75 219 294 Netherlands 3516 1933 5450 New Zealand 05 05 Norway 1858 576 2434 Portugal 177 24 201 Spain 962 482 1444 Sweden 669 1794 2463 Switzerland 1374 162 1536 United Kingdom 3003 1964 4967 United States 10816 1685 12501 Total Bilateral 57395 15899 73294 Multilateral A DF 11850 5641 17491 EC 8295 5770 14065 IDA 14558 5645 20203 IFAD 8551 7969 16520 UNDP 76 127 203 Total Multilateral 43330 25152 68482 BinswangerMkhize amp McCalla July 24 2008 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Annex 2 Differences in Agricultural Performance and Success Stories Performance within SSA varied signi cantly While cereal production increased by only 775 in East Africa it increased by a very noteworthy 1559 in West amp Central Africa Nigeria accounts for almost half of total maize production in West amp Central Africa During the 1980s the area planted to maize increased almost tenfold Area planted to maize then remained fairly static until 200305 but yields were raised by 30 Meanwhile the rest of West amp Central Africa recorded steady increases in both maize area 27 25 and yields 24 38 during the two subperiods considered Mali was the top performer despite also being a top performer in cotton production Here maize production was promoted especially in the cotton zone with fertilizer for maize provided to cotton farmers on a credit basis to be repaid out of cotton proceeds Maize production has also increased four or vefold in Senegal and in two other cotton economies Burkina Faso and Chad An earlier successful SSA experience in increasing the productivity of food staples occurred in Eastern and Southern Africa Originating from plant breeding and support programs for white settler farmers in colonial regimes newly Independent governments in Kenya Malawi Zambia and Zimbabwe expanded these programs to include the smallholder sector This included sustained public expenditure on plant breeding and extension programs grain marketing boards that bought up maize at guaranteed minimum prices and coordinated credit and farm input systems The withdrawal of the state from farm input systems during the structural adjustment period in the 1980s put an end to the rapid progress Several countries including Malawi and Zambia have developed new approaches to fertilizer subsidies with positive results in Malawi New York Times 2007 and mixed results in Zambia A second major success story is Cassava in West Africa a success that has spilled over to East and Southern Africa Although Nigeria is now the world s largest producer of cassava unlike Thailand it is not yet a signi cant producer of processed cassava products such as livestock feed and starch The increase in cassava demand arose from rapid population and income growth and the increasing demand for cassava foods such as garri and instant fufu our These have become major consumption items in urban areas even where cassava was not a major staple in the past There are also important regional market opportunities in a range of other commodities According to Diao et al 2003 during 19962000 oils and fats accounted for 12 US12bn pa of Africa s food imports meat accounted for 11 US11bn pa and sugar for 8 US800m pa South Africa is now almost the sole surplus supplier of these commodities within the region Zambian enterprises have achieved some success in selling sugar and soya to neighbouring countries whilst Kenyan dairy products have been sold around East Africa The three country studies for Nigeria Mozambique and Zambia carried out by different authors as part of World Bank forthcoming and based on different national bodies of literature con rm demand growth in domestic markets is likely to present the earliest and most secure opportunities for expansion of commercial food crop and livestock production GDP and per capita income growth have accelerated sharply in the three study countries The prospects in regional markets are especially promising for Zambia in terms of trade to the North and in particular to the DRC and to a lesser extent in Mozambique Annex 3 POLICY RESPONSES To SKILLED MIGRATION BinswangerMkhize amp McCalla July 24 2008 126 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Policies Rich countries Poor countries International organizations Control Shi balance toward Curb illegal migration Promote economic development unskilledimmigration Improve economic and Curb skillpoaching political stability programs unless compensation schemes are in p ace Creation Avoid shortages in Higher education reforms Increase support for higher as such as health and Liberalize skilled education education due to poor Immigration human capital planning Transparent mechanisms for recognition of foreign credentials Improve migmtionrelated data Tax foreign income Compensation Share social security taxes Exit tax Tie development ai to skilled emigration Firms pay headhunter fees to source country Connection Encourage circulatory Develop systems of IRAs Develop network infrastructure migration for migrants Strengthen temporary migration programs Dual citizenship Source Kapur and McHale 2007 BinswangerMkhize amp McCalla July 24 2008 127 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Annex 4 The Impact of AIDS on Agriculture Food and Nutrition The main welfare loss associated with AIDS is the loss of life of the person affected However the economic literature is primarily concerned with the welfare impacts on surviving family members orphans communities and countries The literature on the impact of IHV AIDS on agricultural household has suggested that the main adverse impact is labor scarcity and helping the affected househol s overcome labor bottlenecks was seen as the critical issue However this conclusion did not withstand rigorous research Mahter et a1 2005 used the broad survey data to analyze the hardest hit in seven Eastern and Southern Africa countries They conclude that AIDS is projected to erode population growth roughly to zero resulting in a roughly constant number of working age adults Many affected agricultural households quickly recruit new adults and the agricultural labor shortages are likely to induce urbanrural labor migration Therefore for poorer smallholder households land is likely to remain the primary constraint on income growth IHVAIDS is likely to progressively decapitalize highly affected rural communities and increasing scarcity of capital savings cattle draft animals may come to pose the greatest limit on rural productivity and livelihoods in these communities IFAD s approach on all of the assets of the rural poor is therefore as applicable to households having experienced a death from HIV or any other cause as to any other household affected by a negative shock Dorard and Mwale 2005 show that in rural Malawi communities with high IHVAIDS impact widespread reduction in household incomes and increased cash constraints also tend to depress agricultural demand and the demand for rural nontradables This reduction in aggregate demand would reduce labor demand and induce a fall in rural wages posing problems for poor households who are net suppliers of labor Differential adjustment in household composition also affects the welfare consequences for orphans Of course orphans usually face serious psychosocial consequences of the loss of one or both of their parents The consequences for their food intake and nutrition their growth and their school attendance depend on the households within which they are placed Extended families are most likely to choose betteroff members as the fostering parents As a consequence studies have shown that orphanfostering households are not necessarily the poorest and most vulnerable households Seaman and Petty 2005 and Polsky 2005 But all extended families do not have enough welloff members relative to the number of orphans they need to take care of In a metaanalysis of national nutrition and health surveys in SubSaharan Africa Rivers et a1 2005 show that orphaned children regardless of the way they were de ned were not consistently more malnourished than nonorphaned children On the other hand households with more than one orphan reported signi cantly more food insecurity and hunger than households with no or only one orphan Simple presence of an orphan can therefore not been used as a targeting criteria in IFAD s programs except perhaps if there are more than one or the household is headed by a grandmother or a child In terms of impact on agriculture the review of the large representative rural household studies by Mather et al 2004 shows that the average affected rural household has similar expost land cultivated total land area cultivation rates and total income These expost comparisons suffer from the fact that the affected households may have been better off to start with The longitudinal data set in Kenya Yamano and Jayne 2002 shows that the death of an adult male household head is associated with a larger negative impact on household crop production nonfarmer income and crop production than any other kind of adult death In addition the Kenya data show that the impact of adult mortality on household welfare is more severe for households in the lower half of the per capita income distribution Finally the households likely to suffer more lasting consequences are those with a head or spouse death since they will have higher dependency ratios than nonaffected ones or those where another adult died BinswangerMkhize amp McCalla July 24 2008 128 Joint AfDB and IFAD Evaluation of ARD Context Paper Long These data sets also do not support the conventional wisdom that affected households shift their cropping patterns away from high value crops towards roots and tubers Nevertheless the longitudinal data sets for Rwanda and Kenya do show such effect for some household classes and these effects are strongly conditioned by the gender and household position of the deceased and the initial asset level of the affected household Few data sets adequately capture the usually prolonged period of morbidity which precedes an AIDS death The impacts of morbidity on economic welfare especially of women asset depletion agriculture and nutrition deserve much more emphasis Interventions against THYAIDS in rural areas Depending on the rate of prevalence of HIV infection the literature distinguishes between nascent focused and generalized epidemics Prevention care and treatment interventions appropriate in nascent or focused epidemics are likely to differ signi cantly from those appropriate in generalized epidemics Where the epidemic is still focused as in many West African countries the most important intervention is targeted prevention focusing on speci c populations such as seX workers inmates in correctional institutions men having seX with men or locations such as truck stops and market places Cost 39 of quot 39 r 39 l 39 is doubtful broad ibased care and support interventions are not yet needed and treatment can also be targeted to the speci c populations at risk Treatment interventions will involve relatively few individuals and are likely best organized in urban areas or large rural towns There will be few rural households with an PHVpositive individuals and support interventions such as homebased care should probably target all households with chronically ill people not just those with an AIDS patient On the other hand under a generalized epidemic prevention treatment and support affect so many households and individuals that they need to be generalized to the entire population and all rural and urban areas A major dif culty for PHVAIDS interventions in rural areas is that in each and every one of the areas of prevention care and treatment and mitigation a number of activities are required This means that intervention programs are compleX and involve several sectors and actors Where interventions must become available to all populations a service delivery approaches relying on specialized government implementing agencies or NGOs who each focus on a one or a small subset of components of the required interventions will not be scalable in rural areas The main reasons for this are that 1 delivering a multiplicity of services via specialized providers in separate programs would lead to very high overhead and transport costs because such costs would arise for each intervention and that such a service delivery and therefore be prohibitively costly and 2 in widely dispersed rural areas holistic multisector interventions can only be coordinated at local levels and implemented by communities themselves supported by local actors as we have learned over time through our integrated rural development programs We have seen that agricultural and food and nutrition interventions are not likely to be powerful interventions against the spread of the disease or the progression of an infected individual from infection to death Instead direct prevention intervention are required and the making ART available widely in rural areas On the other hand agricultural food and nutrition interventions are likely to be important in mitigating the impact of the disease on affected households especially those with more than one orphan households headed by women and grandmothers and children headed households And better and more food may also help the adherence of patients to ART For rural development programs of IFAD it will be important to keep this high selectivity in mind Prevention If people can be convinced to change their behaviors and either abstain from seX are faithful or use condoms they will be protected from infection This is so regardless of the factors determining prevalence in any given environment and regardless of the fact that it is not differences in behavior which determine prevalence rates Therefore bringing about behavior change remains the most important BinswangerMkhize amp McCalla July 24 2008 129 Joint AfDB and IFAD Evaluation of ARD Context Paper Long approach to reducing the spread of the epidemic It is also clear that targeted prevention interventions are cost effective and economically Hartling et al 2005 Global experience suggests that AIDS education and awareness programs while clearly necessary rarely bring about behavior change without intensive participation by those whose behavior is to be changed UNAIDS 2004a section 4 In rural areas of SSA interventions not only required interpersonal communication but participatory involvement of whole communities such as the model of TANESA which was scaled up to all villages in an entire district However the reach of prevention interventions is generally much less in rural areas than in urban areas and intensive communitydriven workouts are still quite rare But IFAD has a comparative advantage in participatory approaches Therefore all its rura development interventions should be designed to contribute to the generalization of prevention efforts Treatment The WHO guidelines for IHVAIDS treatment including ART WHO 2004 have been designed in such a way that a nurse in a rural health post without laboratory equipment can use syndromic management ie diagnosis based solely on observable symptoms to diagnose advanced IHV disease and prescribe a standard rst line treatment to adults The nurse is also trained to refer children with AIDS symptoms patients with severe opportunistic infections and patients who respond poorly to the rst line treatment or show signi cant side effects to the neXt higher level health center The WHO guidelines view ART only as one component of successful treatment and recommend the strong involvement of communities in the provision of the other components such as training in healthy living and survival skills provision of food and nutrition and adherence support This again is an area in which IFAD has comparative advantage It therefore needs to to closely follow what is happening in terms of the scaling up of AIDS treatment in rural areas and assist via its projects where ever possible Care and support Care and support includes the care for the sick the support for their families and caregivers and mitigation of the impact on surviving families and especially orphans Care and support interventions are multisectoral and involve psychosocial support health care education food and nutrition interventions as well as livelihood support The consensus of the literature is that care and support should take a holistic approach to the needs of affected families and individuals rather than dealing with sectorspeci c interventions one at a time In addition it is widely recognized that such holistic interventions are best implemented by communities rather than by vertical servicedelivery mechanisms Of course communities will require technical and nancial support to be able to implement these compleX interventions and NGOs and line agencies therefore need to act as coproducers of the services However government and donor funding practices and the largely sectorbased organization of government and donor programs means that very few holistic and communitybased care and support initiatives have been scaled up beyond the level of small boutiques BinswangerMkhize amp McCalla July 24 2008 130 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Annex 5 Coordination and Priority Setting in African Agricultural Research The consultation process through which FAAP was developed concluded that the priorities of CAADP Pillar IV for agricultural research technology dissemination and adoption require radical improvements in i strengthening Africa s capacity to build capacity ii empowering farmers and iii strengthening agricultural support services By addressing these factors and undertaking the necessary reform of public sector institutions Africa will establish the capacity as indicated in CAADP Pillar IV of making a paradigm shift away from a principally technological package approach to a truly integrated agricultural research approach and to ensure that researchers national and international work together with smallholders pastoralists extension agencies the private sector and NGOs to have impact on the ground Fragmentation in eXtemal nancial support for Africa s agricultural productivity programs and institutions will be reduced by i Moving from project support to programmatic support for the entire budget of recipient programs and institutions including recurrent costs ii adoption of common planning horizons and common processes for strategic dialogue and for planning the activities to be supported by development partners iii acceptance of common nancial management procedures monitoring and evaluation reporting formats and procedures and processes of program review A substantial increase in investment in Africa s agricultural productivity programs is recommended 7 raising annual aggregate spending on these programs to US4 Billion by 2010 This increase should include an increase in the scale of spending at the national level on the order of US325 Billion annually for SubSaharan Africa as a whole This would represent an increase by one third over current levels of investment in these programs At the subregional and continental level current investment levels of roughly US25 Million annually should be increased to US500 Million annually Global investments should be maintained at roughly 250 million In order to attain and sustain these levels of investment African countries would have to increase their own contributions to these programs while the G8 group of developed countries and the associated development agencies will need to honour their commitment to substantially increase their support to these programs FARA 2006 131 Joint AfDB and IFAD Evaluation of ARD Context Paper Long Annex 6 39Waves of the supermarket revolution in the Developing World The rst wave of the supermarket revolution started in the early to middle 1990 s in much of South America East Asia outside of China and Japan North Central Europe and the Baltic s In these countries the supermarket share was in the range of 1020 concentrated in large cities at the beginning and it rose to 50 60 by the early 2000 s It took Western Europe and North America 40 50 years to get to 75 80 7 Argentina 60 2002 Brazil 70 2002 Taiwan 55 2003 Czech Republic 55 2003 Costa Rica and Chile 50 2001 South Korea Philippines and Thailand 50 2003 The second wave started in the middle to late 1990 s in MeXico South Central Europe South Africa and much of South East Asia where these countries rose from levels of 510 to 3055 by the early 2000 s The third wave began at the turn of the century in limited parts of Africa such as Kenya the rest of Latin America and some of south Asia In China it has gone from 0 in 1990 to 13 overall and 30 in urban areas in 2003 and in India change is occurring rapidly A fourth wave is just beginning which according to the authors will pick up most of the rest of the World including much of Africa This revolution is being driven primarily by European and North American multinational grocery chains SSA appears to be an exception as we review below A review of the Forbes Global 2000 list of the world s largest companies is instructive If companies are ranked by sales no less than 8 grocery rms are in the largest 150 rms The largest rm in the world in terms of sales is WalMart US which is now the largest seller of groceries in the US and is the dominant rm moving into Latin America and Asia The other 7 are Carrefour France Ahold Netherlands Kroger US Tesco UK Albertsons US Safeway US and Sainsbury UK These are the rms that are leading the revolution and in the process are signi cantly altering the traditional supply chain from local sources to national regional and global sources Large supermarkets require substantial reliable supplies of quality product One part of the transformation is that the entering supermarket may adopt follow sourcing where a transnational retailer encourages transnational logistics and wholesale rms with whom the retailer is working in home markets to locate to the developing country ibid p 1 Needless to say this process is very disruptive to traditional markets of small farmers selling to local specialized shops Annex 7 Estimates of the impact of climate change on African Agriculture Morton identi es the need to understand three different levels of impacts 1 Biological Processes at Organism and Field Level where there is a growing understanding of the direct impacts of changesin temperature C02 and precipitation on yields of speci c food and cash crops and productivity and health of livestock 2 Environmental and Physical Processes Another class of impacts is felt at the level of communities landscapes and watersheds and has been less considered in literature on climate change and agriculture although there is some overlap with consideration given to eXtreme events 3 Nonagricultural Climate Change Impacts The above impacts on agriculture will be combined with impacts on human health and ability to provide labor for agriculture such as increased malaria risk and on important secondary nonfarm livelihood strategies for many rural people in developing countries ibid p 19683 The most recent comprehensive modeling effort is found in the work of Cline William R Cline Global Warming and Agriculture Impact Estimates by Country Washington DC Center for Global Development and the Peterson Institute for International Economics 2007 which provides information about what two global models project as impacts at the country level This study which uses agricultural 132 Joint AfDB and IFAD Evaluation of ARD Context Paper Long impact models of two separate typesi Ricardian statistical economic models and processbased agronomic crop models combined with leading climate model projectionsiprojects overall declines in total agricultural productivity of between 3 and 16 percent depending on the extent of carbon fertilization The difference between the impact of global warming on agricultural productivity in developing and rich countries is stark developing countries will face a 9 to 21 percent decline overall depending on whether carbon fertilization bene ts materialize while industrial countries will experience a 6 percent decline to 8 percent increase Cline Global Warming and Agriculture New Country Estimates Show Developing Countries Face Declines in Agricultural Productivity CGD Brief September 2007 pp12 For Africa Cline s estimates for reductions in agricultural productivity are even worse 275 without Carbon Fertilization CF and 166 with CF The reality is that SSA contributes relatively less to global warming but pays a large price There are apparently two scienti c issues with respect to CF 7 does really happen in the eld and what is its net impact Thus the ranges seem appropriate Further Cline argues that he is taking a conservative view on its potential impact Therefore perhaps using the mid point of the range may have merit Indeed there is evidence it is already happening A new study by scientists at the Lawrence Liverrnore National Laboratory LLNL and collaborators con rmed the detrimental effects of warming temperature on global agriculture Increasing temperatures since 1981 have caused annual losses of roughly 5 billion for major cereal crops This study is the rst to estimate how much global food production already has been affected by climate change Crop Biotech Update 23 March 2007 While the absolute estimates of impacts on agricultural productivity are large especially for SubSaharan Africa they will occur over a 70 year period century over which agricultural productivity growth would be able to offset these changes The projected losses therefore have to be compared to the expected rate of agricultural productivity change Global productivity growth in agriculture has exceeded 2 percent per year for over 50 years nd the Evenson Source While there are always risks of a slowdown the expanding global research expenditures prospective gains from biotechnology and more rapid spread of innovation associated with globalization suggests that a signi cant slowdown is a less likely event For subSaharan Africa productivity growth has of course been much slower but even there increases in research and extension expenditures and application of more modern science are likely to rather speed up productivity growth Even under very conservative assumptions a 15 percent productivity growth for global agriculture and a 08 productivity growth for SSA agriculture can be expected That means that a bit more than ten years of global productivity growth could offset all the losses associated with the most pessimistic impact assessments over the next hundred year and two years of productivity growth could offset the losses associated with the most benign projections Further increasing agricultural research expenditures across the World would be a low cost way of mitigating even the most adverse projected losses For SSA on the other hand it would take between around 35 and 20 years of productivity growth to offset the expected losses On the other hand if SSA s productivity were to start growing on par with the rest of the World these periods would be reduced to more manageable 20 and 11 years respectively Clearly accelerating the rate of productivity growth in SSA is now more important than ever before There is also a growing view that frequency and amplitude of extreme weather events may be increasing with climate change All of these happenings increase risks to farmers and especially resource poor small farmers in rain fed agriculture In a special feature of the Proceeding of the National Academy of Sciences of the US PNAS there are several excellent articles including the one by Howden et al just quoted and one by Morton 2007 which we quote at length Some of the most important impacts of global climate change will be felt among the l l l 39 39 i 39 countries referred to as quotsubsistencequot or quotsmallholderquot farmers Their vulnerability to climate change comes both from being predominantly located in the tropics and from various socioeconomic demographic and policy trends limiting their capacity to adapt to change p 19680 Smallholder subsistence and pastoral systems especially those located in marginal environments areas of high variability of rainfall or high risks of 133 Joint AfDB and IFAD Evaluation of ARD Context Paper Long natural hazards are often characterizedby livelihood strategies that that have been evolved i to reduce overall vulnerability to climate shocks quotadaptive strategiesquot and ii to manage their impacts eXpost quotcoping strategiesquot The distinction between these two categories is however frequently blurred what start as coping strategies in exceptionalyears can become adaptations for households or whole communities p19681 134 Joint AfDB and IFAD Evaluation of ARD Context Paper Long References African Development Bank AfDB 2000 Agriculture and Rural Development Sector Bank Group Policy Paper Tunis OCOD January AfDB 2002 quotStrategic Plan 20032007 Tunis AfDB 2006a Annual Report Tunis AfDB 2006b TOR for the Ag1iculture and Agroindustry Department Tunis AfDB 2007a Agriculture and Agro Industry Department OSAN DraftAgiicSectorStrategyRev August 3 2007 AfDB 2007b Results Reporting for ADF10 and Results Measurement Framework for ADFll Background paper for Dec 2007 London consultation Tunis Alston Julian M Connie ChanKang Michele C Marra Philip G 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