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Is Agriculture still relevant to Poverty Reduction in Africa?

Date
Time (GMT +01) 16:00 17:00
Speakers:
Peter Hazell, Director, Development Strategy and Government Division, International Food Policy Research Institute (IFPRI)
Paul Collier, Director, Centre for the Study of African Economies, Oxford University, and former Head of Research at the World Bank
Chair:
John Battle MP

The Chairman explained that this meeting was the first in a series of APGOOD meetings which will discuss 'Agriculture in Africa - an effective route out of poverty?'. The series will finish with the Secretary of State for International Development, Hilary Benn MP, presenting at APGOOD the new agriculture policy on 7th December at 2pm. This meeting addressed the question of whether agriculture is still relevant to poverty reduction in Africa and included presentations from Peter Hazell, Director of the Development Strategy and Government Division of the International Food Policy Research Institute (IFPRI) and Professor Paul Collier, Director of the Centre for Study of African Economies, Oxford University and former head of research at the World Bank.

Peter Hazell divided his presentation into two parts, initially addressing why agriculture was central for economic growth followed by a discussion of the importance of agriculture in poverty alleviation in Africa, arguing that agricultural development especially that of food staples, was necessary to ensure extensive economic growth and poverty alleviation.

In relation to the first part, Peter Hazell focused on three issues; the predominance of agricultural activity in many African countries, the important and beneficial linkages between agricultural activities and economic development and concerns with the industrial and service sectors which suggest that they are unlikely to be the growth engines of African countries. Firstly, in most African economies 30-50% of national income and 70% of total employment comes from the agricultural sector. Therefore if this sector was successfully developed it could have a huge impact on national incomes. However according to Peter Hazell, such broad-based outcomes would only be achieved if the whole of the agricultural sector rather than just small subsections such as high value exports, were developed.

Secondly, he discussed the well-documented ways agricultural development can contribute to the overall growth of an economy through supplying food and inputs to the industrial sector, generating foreign exchange and providing a domestic market for non-agricultural goods and services. While acknowledging that some contributions may be less significant for today's African economies, he argued that the latter contribution was the most important to African economies today; because, as rural incomes rise, it will not only foster the development of the non-agricultural sector but help overcome the problems associated with labour market imperfections in African economies, especially that of seasonal employment, as well as create a more broad-based, country-wide development. Thirdly, Peter Hazell discussed the potential of non-agricultural sectors such as industry and service sectors to act as engines of growth in Africa. In many African countries industrial activity makes up only a small proportion of all economic activity within the continent; on average around 25% of national income with a smaller proportion in poorer countries. As a result, growth within this sector will not have the same level of impact as that from the agricultural sector. Furthermore, the industrial sector in Africa has proved relatively inefficient, generally underperforming relative to the agricultural sector, illustrated by the fact that since 1980 growth within the agricultural sector has been on average 2.5% per annum, compared to only 1.2% in the Industrial sector. Alternatively, the development of the service sector in some African countries is often seen as a more promising prospect as it makes up a larger percentage of national income in the continent, on average 45%, has grown at rates equivalent to that of the agricultural sector and is similarly labour-intensive. However this sector in its current form especially given the public sector dominance, is unlikely to act as the long term engine of growth in the continent, due to it largely catering to national demand which makes the sector dependent on the low per capita incomes prevalent in many African countries, as well as catering to donor demand which is non sustainable in the long term. Consequently, Peter Hazell argued that although individually none of the sectors would be sufficient to act as the engine of growth for Africa, the agriculture and industry sectors together could prove sufficient and that their complementarities in terms of agro-processing currently occurring in Africa was key, rather than their substitution.

In the second part of his presentation Peter Hazell discussed the importance of agriculture in poverty alleviation in Africa. He asserted that agricultural development in Africa has not necessarily been pro poor, with large commercial farms situated in places which enabled good market access, predominantly gaining. He, therefore, suggested that a focus on developing food staples despite their shortcomings would create greater pro-poor outcomes. This was because small rural farmers make up half the market for food staples in Africa. Moreover, if production of food staples were encouraged, lower food prices would be beneficial to all consumers.

Paul Collier set the background for his presentation by discussing the poor record of most African economies in terms of economic growth in the past 40 years. Given this, he argued that it was paramount to act strategically, rather than sentimentally, when analysing the type of economic activity that should be prioritised within Africa that would ensure the achievement of goals of economic growth and poverty alleviation. However rather than make blanket recommendations he focused on the diversity within Africa. He divided countries into three categories dependent on their resource endowments and proximity to the sea and argued that these characteristics affected the importance of agricultural development in enabling countries to achieve middle income status. Unlike Peter Hazell, Paul Collier suggested that agricultural development was not the key sector that would potentially achieve economic growth and poverty alleviation.

Paul Collier separated African countries into 3 categories, each consisting of about a third of the continent's population;

  • natural resource rich,
  • resource scarce and coastal,
  • resource scarce and land-locked countries.

Once separated, he examined the economic opportunities that could raise these countries to middle income status. For the first group of resource-rich countries, he argued that natural extractive resources other than agriculture should be the main economic priority. To move towards middle income status these countries should aim effectively to harness and efficiently spend the revenues from such resources - which has historically proved so difficult. He praised current schemes such as the Extractive Industries Transparency Initiative (EITI) which aims to tackle these problems, although stating that they currently did not go far enough.

The second group of countries which are resource scare but at least coastal were, according to Paul Collier, easier to strategise for, largely because many non-African countries in the last 25 years with these characteristics have grown very quickly and hence there are success stories to follow. Paul Collier argued that the success of such countries lay in their breaking into global markets for labour-intensive manufacturing exports and that this strategy needs to be prioritised for most African countries in this second group if middle income status were to be achieved. To date in Africa, only Mauritius has successfully followed this path. However, such a path is not easy, and with increasingly fierce competition from China and Asia, African countries will find it progressively more difficult to successfully break into global markets and gain from such economic activities. In order to tackle this problem, Paul Collier advocated the role of temporary trade protection, and while clearly critical of what he termed traditional protectionism "where African economies protected their own markets from the rest of the world", he supported current schemes such as the European 'Everything but Arms' scheme and the United States' 'African Growth and Opportunity Act' (AGOA) which protect African goods and services from Asian competition in developed country markets. However, he argued that current schemes did not go far enough, highlighting one criticism of the AGOA where short time-frames of three years discourage present investment in African businesses and hence undermine future expansion. AGOA-led investments in Madagascar textiles were cited as one pertinent example of footloose investment generating enormous - but possibly temporary - employment opportunities.

Paul Collier then addressed the potential achievement of middle income status for countries within the last group: resource-scarce and landlocked. This, he stated, seemed to present the greatest challenge, largely because no country to date has achieved middle income status with such characteristics. He argued that even for these countries, agricultural development may not be sufficient to achieve middle income status. Instead he discussed the benefits of growth spillovers between countries: improvements in a country's economic growth rate associated with improvements in their neighbours' economic growth rate. Outside Africa, these growth spillovers account for 0.6% of countries' growth, but within the African continent on average no such spillovers have occurred in the last 40 years. Therefore, beyond agricultural development, the economic priority should be to encourage the development of countries neighbouring resource scarce and landlocked countries, as well as improving the ability of the latter group to harness these growth spillovers more effectively.

Finally Paul Collier, in contrast to Peter Hazell, suggested that there should be a greater role for large-scale agriculture relative to small-scale agriculture in Africa. In attacking what he referred to as the 'celebration of the peasant', he argued that large scale farms should be prioritised as they were more capable of funding large-scale investments necessary in the agricultural sector and more able successfully to absorb the considerable costs incurred from extensive legislation, such as European health standards. Furthermore the prioritisation of large-scale farming would improve the current situation which impels the majority of the population of Africa into precarious entrepreneurial roles.

In the discussion that ensued, the following points were raised:

In response to Paul Collier's presentation, Peter Hazell argued that successes in high-value manufacturing export sectors in Africa, although very promising, would fail to address the scale requirements of broad based development he had referred to. He also argued that even if resource-rich countries spent their revenues very effectively, in a country like Nigeria where about a third of the population are employed in agricultural activities, it would be a long time before poor people directly benefited from such growth unless petroleum royalties and revenues where channelled directly into agricultural investments as has been the case in Indonesia. Furthermore, he argued that if large farms were created prematurely as a result of their prioritisation, there would be a considerable immediate increase in poverty as large numbers of people would be pushed off their land and into poverty.

In response Paul Collier noted that very fast growth in the labour intensive manufacturing sectors, as experienced in Bangladesh and Madagascar, has been associated with significant employment creating opportunities which benefit the poor immediately. In the case of Nigeria, he argued that most of the non-oil population live in Lagos rather than in rural areas and that it would be logistically easier to transform Lagos than Nigerian agriculture.

The issue of training was addressed by Paul Collier who argued in favour of both short term measures of technical assistance and longer term developments of capacity building. He argued that despite current criticisms of technical assistance, the initiatives are complementary rather than alternatives.

Peter Hazell responded to comments about the dependency of Africa on northern countries, suggesting that Africa had unfortunately become the "plaything of donors" and that expectations and restrictions surrounding economic development, such as views that African economies should industrialise under very competitive conditions, never achieved elsewhere in the world, raised issues for concern.

Some views were expressed on the importance of encouraging closer relations between businesses and governments, and between big business and peasant farmers in Africa. Further comments were made about initiatives to help small scale farmers and rural inhabitants to develop bottom up farmer associations and small village and town development. Moreover, the economic potential of different types of agriculture such as livestock as an alternative to food production was also discussed, particularly for arid or semi-arid countries.

Description

Accelerated agricultural growth, based on increasing land and labour productivity, has been a cornerstone of successful poverty reduction. With increasing productivity, millions of poor people in Africa benefit through cheaper food and higher rural incomes, but also linkages mean that rapid agricultural growth stimulates economic diversification to other activities where growth is generally faster and labour productivity and wages are higher.

Growth in other sectors may not match agriculture in the immediate term in achieving broad-based poverty reduction and stimulating wider economic growth, but there is no single ‘key’ to unlock agricultural growth – interventions have to take place simultaneously in a number of areas.

Speakers from IFPRI and Oxford University/World Bank will discuss whether African government policy and the major share of investment should focus on smallholders and staple crops or on large farms and high value crops.

Committee Room 9