Dercon and El Beyrouty make several important points in their note of Dec 4 about the role of agriculture in economic growth and the relationship between agricultural and non-agricultural sectors in the process of structural transformation. Where Dercon and El Beyrouty misrepresent the World Development Report 2008 (with no personal stake on our part in that publication) is by inferring that the statement “agricultural productivity growth is vital for stimulating growth in other parts of the economy” implies looking at agricultural growth in isolation from other sectors, and/or giving agriculture priority over all other sectors (agriculture first).
This is clearly not the case. Neither the WDR nor any other informed development economists are advocating such an approach. Indeed, the WDR argues that, over a generation, many people will have to move out of agriculture to escape poverty. The key point that the WDR and other authors make is that for most low-income countries, increasing agricultural productivity is critical to creating the demand to support non-agricultural sectors and to releasing the capital and labor to finance their growth – a process documented in the green revolutions and associated economy-wide growth experienced in much of Asia. Hence empirical studies find that agriculture-led growth generates roughly double the poverty reduction of comparable industrial growth. Far from thinking of agricultural growth in isolation from other sectors as Dercon and El Berouty suggest is the case, the WDR and other initiatives to support African agriculture are based on past evidence of how smallholder-led agricultural growth kick-starts broad-based economic development. Public investments in agricultural research, for example, generate median rates of return of 34 percent in Africa.
The problem of imbalanced and poorly integrated growth strategies in many countries in Africa over the past two decades has been one of widespread neglect of investment in agriculture in Africa and its linkages with the rest of the economy, not overinvestment. What is being advocated now is a correction of this imbalance to allow agriculture to contribute positively to intersectoral linkages and overall economic growth rather than acting as a brake on them. It is not a case of “agriculture first” but “agriculture also”.
The consequences of two decades of underinvestment in agriculture, in terms of productivity, real food costs, hunger and malnutrition for Africa are indisputable. The slow growth in manufacturing and other non-farm sectors of African economies in the 1980s and 1990s is not unrelated to the slow income growth among the roughly 70% of the population engaged primarily in agriculture. The 2008 international commodity price shock was a wake up call to how fragile food security (urban and rural) has become – with over a hundred million additional people pushed below the poverty line globally. The long-term projections of rising real energy costs, rising fertilizer feedstock materials, and a rapidly growing urban population, all indicate rising real food costs unless investments are made in agricultural productivity growth as well as other sectors. The 2008 shock was just a foretaste. Yet in response to higher food prices many African governments and their international aid partners are having to spend heavily on consumption and/or production subsidies to minimize the social consequences of high food prices rather than invest in solving the underlying causes, prominent among them low agricultural productivity.
Recent calls by G20 leaders for an additional investment of $20 billion in agriculture and food security over three years would, if realized, still amount to less than 10% of total OECD official development assistance flows. The Comprehensive Africa Agricultural Development Program (CAADP) calls for African governments to invest a similar share of public investment, recognizing that some countries may need higher levels and other less given their circumstances, in order to achieve the Millennium Development Goal of reducing poverty and hunger by half by 2015. This level of investment does not seem unreasonable in view of the underinvestment during the past two decades, and the very serious consequences of that underinvestment for overall economic growth as well as food security.
Dercon and El Beyrouty state that “An optimal growth strategy, therefore, must be designed to move people to sectors and locations that are optimal for growth and poverty reduction, rather than focusing on where people are located currently”. Precisely! Historical evidence points out that it is hard to envision how to achieve this without agricultural development being part of the process. Now that there is a broad-based political consensus on the part of African governments and international donors on the need to re-invest in agriculture, the challenge facing CAADP planners and analysts is to identify smart national and regional investment portfolios aimed at creating a pattern of agricultural growth that will foster employment expansion and growth in the non-agricultural sectors, including the off-farm portions of the food system.