Wake-up time

Wake-up time

The World Development Report (WDR) 2008, where the World Bank returns after 25 years to hawking agriculture as the main cure for poverty, is not a pretty confessional. The apology comes too late for several sub-Saharan African nations, which spent decades, on the Bank’s advice, pushing big infrastructure investment and cutting agriculture spending in the guise of economic reform.

In India, too, the Narasimha Rao government hacked farm investment from 1991, compromising vital R&D and extension work, while elevating subsidies. Rao’s finance minister, now heading the current government, has recently unveiled a Rs25,000 crore package for the farm sector in what seems a desperate attempt to make up for two decades of neglect.

It is surprising that the Bank took 25 years to realize that agriculture is two to four times as effective in cutting poverty as growth generated in industry or services. In China, an average of 4% growth in farm GDP for 28 long years has helped cut rural poverty by 90%! Vietnam prioritized food security before opening up to market-based reforms, against the Bank’s advice. The challenge in some transition countries such as India, where agriculture gives less than one-fifth of growth, is that the livelihoods of the poor still depend on the farm economy, which is in shambles.

But more worrisome are the two factors that prompted the report. First is the realization that without revival of the rural economy, much of the developing world, including China, would not meet the millennium development goals of cutting poverty, malnutrition and inequality. Second, and more important, is the rising prices of commodities, especially food. The report predicts that world demand for crops—whether for food, livestock feed or biofuels—will double in the next 50 years, even as farming gets more energy-intensive and natural resources become scarce or degraded owing to climate change. To meet this, cereal and meat production must grow by almost 70%, but yields have remained stagnant except in China, where hybrid rice has spiked productivity.

Global prices have reflected this anomaly for some time, with countries such as India and China suffering from agflation since 2006. The 2007 Trade and Development report of the United Nations Conference on Trade and Development says that over 2002-06, rice prices went up by 58%, wheat, 32%, coffee, 100% and, thanks to the ethanol craze, sugar by 114%. This has hurt more countries whose farm sectors are less open to trade.

The obvious solution, as the WDR also suggests, is to open up and strengthen the product and input markets of the transition as well as agrarian (mainly African) countries and change governmental policies to support such changes. India, as a country that has raised fertilizer and food subsidies for the past two decades, comes in for expected flak, as “agricultural subsidies have a way of becoming deeply entrenched politically".

Yet, if rich countries removed all tariffs and subsidies for cotton, soya bean and oilseeds, the share of poor countries in those global markets would rise from about 50% to about 80% and benefit smaller farmers who have been killing themselves. A new report released recently by the Organization for Economic Cooperation and Development showed that governments of the world’s 30 industrialized countries were providing 27% of total farm receipts in 2006, or $268 billion in subsidies.

The Bank has been candid enough to admit that its 1982 report perhaps neglected the issues of complex management of political economy of agricultural policies and investment. So has India, resulting in a per capita annual average growth of food production of only 0.9%, compared with China’s 4.4%, during 1990-2004—the period after the Green Revolution.

There is no easy way to make small farmers shift to high-value agriculture or food processing. But the WDR explains why India must find one, and soon.

Will agricultural growth help remove poverty in India? Write to us at views@livemint.com