Report finds farmers need help improving productivity to survive

Farmers in developing economies need help improving productivity to survive, while some will need help finding an alternative income source, according to a new report by the Organisation for Economic Co-operation and Development.

In a three-pronged blueprint, unveiled yesterday the Agricultural Policies for Poverty Reduction report also suggests helping households in developing countries to diversify their sources of income. The Paris-based global think-tank also proposes facilitating shifting labour from the agricultural sector to better-paid non-farm jobs.

Editor of the report, Jonathan Brooks, said: “Policymakers need to accept that rising opportunities will lead many smallholder farmers to leave the agricultural sector. Governments need to smooth, rather than impede that adjustment.

“This means strengthening opportunities within agriculture for farmers with commercial potential, while supporting balanced development that allows labour to be pulled — not pushed — out of farming.

“For those who get to stay in farming, the main life-enhancing reforms are actually located outside the farm sector. Improving rural education and primary healthcare is central. Equally important is the overall investment climate, which depends on peace and political stability, sound macroeconomic management, strong institutions and good governance.”

The pace with which people exit agriculture also needs careful management. In Korea, agriculture’s share of employment fell from 40% to 16% in just 14 years over the 1977-1991 period. A similar transition took 53 years in the US and 68 years in Britain.

Interestingly, the OECD says market interventions, such as price guarantees and input subsidies, should be a last resort, as they treat the symptoms rather than the causes of underdevelopment.

Other than strategic subsidies for seed and fertiliser, the report states that market interventions are a poor alternative to targeted social programmes when it comes to protecting incomes.

In a related OECD study, entitled Agricultural Progress and Poverty Reduction, Joe Dewbre, Dalila Cervantes-Godoy and Silvia Sorescu suggest that removing export taxes and currency adjustments can be more helpful than any grant or subsidy.

The three authors cite a World Bank growth report that singles out trade openness as the most characteristic shared by stronger economies. They also say that “trade-friendly” reforms of most existing state policies generally offer a speedier result than rewriting the book.

The three authors said: “We found that governments seem to have helped farmers more by reforming policies that discriminated against the sector — export taxes, overvalued exchange rates, restrictions on access to domestic and export markets and so on — than by the introduction of new ones. And these reforms were frequently implemented simultaneously with reforms that substantially improved the macroeconomic and socioeconomic context in which farmers operated.

“The share of total budgetary expenditures allocated to agriculture in the study countries averaged only around 5% and was generally declining — a finding that puts in question the wisdom of policy prescriptions that call for diverting scarce budgetary resources from spending on public goods: health, education and infrastructure towards agriculture as a way of achieving rapid progress in reducing poverty.”