Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN) Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN)
 


Investing in African agriculture to halve poverty by 2015
February 2008
Shenggen Fan, Michael Johnson, Anuja Saurkar, and Tsitsi Makombe
International Food Policy Research Institute (IFPRI)

Acknowledgements: FANRPAN acknowledges the IFPRI website as the source of this report: http://www.ifpri.org/pubs/dp/IFPRIDP00751.pdf


Introduction

Developing countries and the international development community are presently increasing and redirecting their resources in order to achieve various development objectives such as reductions in poverty, hunger and malnutrition. At the United Nations Millennium Summit in September 2000, world leaders made a huge commitment to reducing poverty. As part of the process, specific indicators were adopted for measurement of quantifiable progress, and an agenda was enacted for reducing poverty, and its causes and manifestations.1 At the Monterrey Conference of 2002, rich countries renewed their pledge to increase their development assistance, raising it from 0.4 percent in 2004 to 0.7 percent of their GDP. In 2005, the UN Millennium Project, headed by Jeffery Sachs, also called for a ‘big push’ in donor support to meet the MDG challenge. In the same year, the Commission for Africa asked rich countries to double their aid to Africa and cancel the debts of poor African countries.

Many developing countries have also adopted the concept of the Poverty Reduction Strategy Papers (PRSPs) or an equivalent, in order to formulate strategic plans and earmark financial resources for achieving their poverty reduction goals. In 2001, the New Partnership for Africa's Development (NEPAD) was formed by the Assembly of Heads of State in Africa as part of an explicit political and resource commitment to foster growth and development and address the challenges facing the African continent.

However, despite these international, regional and national efforts, several key questions remain. For example, it is yet unclear whether the pledged resources are sufficient to achieve the stated objectives of growth and poverty reduction, nor is it clear how and under what conditions these resources should be allocated in order to have the largest impact on growth and the poor. Several studies have attempted to estimate the overall amount of resources required across all MDGs. However, no prior study has explicitly focused on examining the required spending in agriculture and breaking it down by individual country.

The importance of the agricultural sector in reducing poverty and serving as an engine of growth was demonstrated throughout the Green Revolution in Asia, particularly in India and China. Africa cannot bypass this development pathway, as the bulk of the African population lives in rural areas.2 Recent evidence from the International Food Policy Research Institute (IFPRI) showed that promoting higher agricultural growth will be key in reducing poverty, promoting overall economic growth and achieving the first MDG goal of halving the number of poor people (Diao et al., 2007).

There are a range of instruments that governments and donors can use to promote the required agricultural growth in Africa. Among them, government spending is one of the most direct and effective methods, yet agricultural spending in Africa remains very low when compared with that in other developing regions. For example, Africa still spends only 4-5 percent of its total national budget on agriculture, compared with 8-14 percent in Asia. During the Green Revolution period in Asia, this share was even larger (upwards of 15 percent). Agricultural expenditure as a percentage of agricultural GDP is a more appropriate measure of a government’s support for agriculture, as it measures agricultural spending relative to the size of the sector. However, even by this measure, African countries spend only 4-5 percent compared to 8.5-11 percent in Asia (Fan et al., 2008).

The importance of increasing government spending for agriculture has been recognized by African leaders as a fundamental pre-requisite for achieving a 6 percent annual growth rate in agricultural GDP, a goal that has been adopted by NEPAD through the Comprehensive Africa Agriculture Development Programme (CAADP). This is evident in the Maputo Declaration, wherein African leaders called for a 10 percent budget allocation to agriculture by 2008, as part of their commitment to the MDG1 and CAADP goals. These well-intentioned efforts have generated debate in the international development community regarding the level and utilization of resources, especially given that agriculture is a neglected sector, with problems that may be exacerbated by drought, insecurity and unfavorable policies towards farmers. The objective of this paper is to develop a simple approach for estimating the financial resources required to achieve the MDG1 through agricultural growth. This is accomplished by first calculating the required agricultural growth rates using elasticities of poverty reduction with respect to agricultural growth. The calculated required growth rates are then used to estimate the necessary financial resources, using growth with respect to expenditure elasticity. Because growth in the non-agricultural sector will also contribute to poverty reduction, either directly or indirectly through growth linkages with agriculture, the additional poverty reduction effects from this sector are also considered in the analysis.

The paper is organized as follows: We first review various approaches in assessing the resources required for achieving the MDGs. We then develop our own approach and focus on the estimation of agricultural growth and financial resources required for achieving the MDG1, followed by a discussion of our estimated results. We conclude the paper by pointing out future research directions and remaining knowledge gaps.


Footnotes:
  1. The eight goals include cutting poverty and hunger by half, improving education, health and nutrition, and enhancing development partnerships.
  2. At least 70 percent of the workforce is at least partially engaged in agriculture and earns an income of between $0.33 and $0.80 per day (UNDP Report; 2002, and Ashley and Maxwell, 2001).

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