Livelihood protection and promotion in agriculture: making the connection

1. Livelihood protection and promotion in agriculture: making the connection John Farrington Department for International Development London

2. Impacts of agricultural growthon poverty – in theory • Through: • profitability gains for farmers • labour market gains for labourers • product prices for consumers • “knock-on” effects on demand (inputs, processing, marketing), leading to “second round” investments • increase in tax yields and formal transfers • Increased informal transfers to those chronically unable to engage in the productive economy

3. Impacts - evidence Large body of evidence on impacts of agricultural productivity growth: • Irz et al, 2003: “each 1% growth in agricultural productivity generates a decrease of between 0.6% and 1.2% in those living on less than $1/day” • Hazell and Haddad, 2001: including discussion of pro-poor agricultural research prioritisation • Dorosh and Haggblade, 2003: “investments in agriculture generate the highest impacts on the poor [in sub-Saharan Africa]”

4. Transmission mechanisms through growth and markets - questions and issues • How well do markets work? For whom? “market failure is the norm, not the exception, in many parts of Africa” (Omamo, 2003) • conventional features of market failure – transaction costs raised through lack of transport and communications infrastructure, weak contract enforcement, moral hazard, inadequate insurance markets, high risks which cannot be insured against, externalities, increasing economies of scale, highly imperfect competition….. • overall: overhasty liberalisation in SSA – neoliberal “facilitating and regulating” not enough • not enough attention given to segmentation and interlocking

5. Impeded transmission via markets: segmentation • “any form of non-economic discrimination” – does not include discrimination by skills, productivity, actuarial risk (in finance and insurance markets), but does include: • Gender discrimination – paying less to women than can be justified on productivity grounds; intra-household constraints on women’s choice • Discrimination on basis of religion or ethnicity (e.g. against tribals in India) • Discrimination on basis of social status (e.g. caste system in India)

6. Improving transmission by reducing entrepreneurial risk: “trampolines” Risks are shocks and stresses either external or internal to the HH; vulnerability is the HH’s capacity to withstand or cope with these World Bank Social Risk Management Framework as a means of reducing risk and vulnerability, covers covariate and idiosyncratic risk; covers prevention, mitigation and coping. Covers different policy levels, stressing that even the highest level policies (fiscal, investment….), and sector-based policies (e.g. agriculture) can combine growth and protection

7. SRM framework: suggestedmodifications • Needs first to insist on “mainstreaming” of risk reduction in high-level economic management and….. • ….in the identification of appropriate trade-offs between growth and protection within the productive sectors • This then defines the scope for additional measures such as insurance, or “pure” SP via Welfare Depts to cover the residual • Even then, there may be trade-offs within SP that are more or less growth promoting • Need to be explicit about treating entrepreneurial and domestic shocks and stresses coherently • Needs to differentiate responses by type of rural household

8. Transmission via transfers to the chronically poor • Many examples: food for work, pensions, allowances…. • transfers in food or in cash? • cash transfers have advantage of enhancing demand in local markets; food transfers may diminish it – even the chronically poor engage as consumers • robust transfer mechanisms involve automated payment of small amounts with minimal scope for discretion by local officials • evidence that some transfers (e.g. social pensions in S Africa) are used in part for productive purposes (investment in ag; investment in grandchildren’s education….) AND release informal transfers for productive investment

9. Operationalising SRM – 1 12 Guidelines: • Identify how far is impact on R and V considered in high-level policy (fiscal, trade, MTEFs, infrastructure…)? • Ditto re policies in the productive sectors • Identify how/how far can e.g. insurance complement production-focused measures? • Ask who is covered by the above? Who is not, and what do they need? Transfers? • Ask how does risk, and the factors affecting it, vary across provinces (consider agro-ecological conditions, market integration, ethnicity, social networks…) • Ask how and how far do gender, age, marital status, asset status etc influence vulnerability?

10. Operationalising SRM – 2 • Identify how coherence in reducing risk and vulnerability between domestic and entrepreneurial spheres can be achieved? • Use donor fora and PRSPs to discuss options • Experiment with new ways of making growth policies more “protecting” and SP policies more “growth promoting” • Generate new knowledge (eg on changing role of informal transfers) • Build capacity • Identify policy processes (windows, pegs, champions) in relation to all the above

11. Conclusions • Agricultural growth is important for poverty reduction, BUT “facilitating and regulating” not enough, AND…. • Market imperfections are pervasive and need to be addressed to enhance the poverty-reducing impacts of agriculture. High risk is paramount among these • New ways of managing risk and vulnerability (across domestic and entrepreneurial spheres) need to be found. • Efforts in this direction need to be differentiated according to type of rural household

12. References: • Deshingkar, P and Farrington, J (forthcoming) Market segmentation and interlocking in Andhra Pradesh and Madhya Pradesh, India. Natural Resource Perspectives Paper. London: ODI • Dorosh, P and Haggblade, S (2003) Gropwth linkages, price effects and income distribution in sub-Saharan Africa. Journal of African Economies, 12 (2) 207-235 • Duncan, A et al (2003) Drivers of Change: reflections on experience to date. Paper for DFID workshop, Oxford, June 23 2003. DFID: Drivers of Change Team • Farrington, J (2004) Social protection and livelihood promotion in agriculture: towards operational guidelines. Paper for OECD Povnet. DFID NR and Agriculture Team, London • Hazell, P and Haddad, L (2001) Agricultural research and poverty reduction. 2020 Brief #70. Washington DC: IFPRI. • Hess, U (2003) Innovative Financial Services for Rural India: Monsoon indexed lending and insurance for smallholders. Agriculture and Rural Development Department Working Paper 9, Washington DC: World Bank • Irz, X, Lin Lin, Thirtle, C and S Wiggins (2001) Agricultural productivity growth and poverty alleviation. Development Policy Review 19(4) 449-466. • Omamo, SW and Farrington, J (2004) Policy research and African agriculture: time for a dose of reality? Natural Resource Perspectives No. 90. London: ODI