Introduction

1. Millennium Development Goal of Halving Poverty in Asia and the Pacific Region: Roles of Agriculture and InstitutionsGanesh Thapa and Raghav GaihaInternational Fund for Agricultural Development (IFAD)RomeAgricultural and Rural Development for Reducing Poverty andHunger in Asia: In Pursuit of Inclusive and Sustainable Growth: Policy Forum Organized by IFPRI at ADB, Manila, Philippines, August 9-10, 2007

2. Introduction • Achievement of MDG 1 in Asia/Pacific Region is of considerable importance, as the region accounted for 64% of the world’s 982 million poor in 2004 • Extreme poverty in the developing world is overwhelmingly rural  rural and agricultural development has a vital role in poverty reduction. • Although various MDGs are interrelated, IFAD study focuses on halving the proportion of the dollar poor.

3. Poverty Income Level Integration Institutions Income Inequality Agricultural Income lagged Geography (region, share of coastal population) Historical Factors (e.g. European settlers’ mortality rate, indigenous population density) Inequality in Land and Human Capital Determinants of Poverty Endogenous Exogenous or predetermined [Adaptedfrom: Rodrik et al. (2002), Hoff (2003), and Bardhan (2005)]

4. Methodology • Stage 1: identification & assessment of determinants of income inequality (e.g. land inequality), institutions (historical & geographical factors), and openness (e.g. institutions, geographical factors). • Stage 2: determinants of per capita income (such as lagged agricultural income per capita, openness, geographical factors, institutions). • Stage 3: analysis of determinants of dollar poor (e.g. income, income inequality, institutions, and geographical factors).

5. Methodology (continued) • Model estimated using a database compiled from FAO, World Bank, UN, and other research studies • 5 institutional quality indicators used include: voice and accountability, political stabilityand absence of violence, control of corruption, rule of law, and an aggregate index of institutional quality. • Simulations carried out to deepen understanding of policy choices in attaining MDG 1. • These include enhancing agricultural productivity and overall growth, reduction of income inequality, and institutional improvements.

6. Findings • Poverty elasticity with respect to GDP per capita ranges from -0.69 to -0.92, depending on the institutional quality variant. • Required growth rates range from 3.01 to 4.02 (actual growth rate of 0.86 during 1985-98) • East Asia: actual growth rate > required rate under different institutional variants • South Asia: actual rate < what is required, in all cases  need for growth acceleration is thus greater

7. Findings (continued) • Agricultural income per capita, through its contribution to GDP per capita, makes a substantial contribution to poverty reduction. • Required rates of agricultural growth >> actual rates (entire sample, East Asia, South Asia) • Institutional quality impacts poverty through income, and not directly. • Openness ceases to have any effect on income (after allowing for variation in index of openness due to institutional quality and geographical factors)

8. Findings (continued) • Even modest improvements in institutional quality are associated with significantly positive effects on income and, consequently, on poverty • Head-count index declines markedly, assuming voice and accountability index of top 30 performers, and historic growth of agri. income (China, Bangladesh, India, Sri Lanka, Indonesia) • Both South and East Asia record substantially lower head-count values for 2015, relative to base line • An alternative formulation points to the importance of human capital in influencing institutional quality, which in turn has a positive impact on income

9. Nature of Poverty in Asia/Pacific in 2015 • Even when Asia/Pacific region achieves MDG 1 by 2015, the bulk of remaining poor will be indigenous peoples, women and other marginalized groups living in less-favoured areas • Vietnam: share of ethnic minorities in total poor is projected to increase to 42% by 2010, up from 20% in 1993 • China: ethnic minorities are 9% of population but 40% of poor; concentrated in most remote mountain areas, with difficult agro-ecological conditions • India: poverty level for scheduled tribes projected to decline from 51% in 1994 to 29% in 2015 (2.56% annual decline) compared to 31% and 8% for others (6% annual decline)

10. Towards a Strategy of Pro-Poor Growth & Institution Building Agricultural Productivity • The analysis points to the important role of agri. growth in overall growth process and in reducing poverty • Although agriculture’s share of GDP has fallen over time, it continues to be important for employment • Agriculture’s success in less favoured areas conditional on significant policy and institutional reforms that ensure equitable access to land, markets, credit, extension

11. Towards a Strategy of Pro-Poor Growth & Institution Building Agricultural Service Delivery • Need to focus on improving responsiveness of technology innovation system to needs of poor farmers in LFAs, rather than on promoting specific technologies • Strong prospects for improving farmers’ productivity and livelihoods through conventional approaches, investments in biotechnology can be complementary • Develop capacities of farmer organizations to enable smallholders to voice their technology needs

12. Towards a Strategy of Pro-Poor Growth & Institution Building Agricultural Service Delivery • Promote vertical integration of smallholders in value chains in a manner that protects their interests (e.g. contract farming for supply to supermarkets) • Promote policy reforms and enabling legal framework for private sector participation in agri research, extension, seed and marketing • Support PPP, esp. in infrastructure development

13. Towards a Strategy of Pro-Poor Growth & Institution Building Institutional Quality • Domestic institutions of conflict management can mitigate severity of economic hardship due to external shock (Korea, Thailand vs. Indonesia after Asian crisis) • A rigid view of institutional reforms may be too demanding in some contexts (e.g. China) • Maintaining reform momentum, and political and institutional continuity make a significant difference to growth and poverty reduction (Vietnam)

14. Towards a Strategy of Pro-Poor Growth & Institution Building Institutional Quality • Capture of local governments in a context of acute inequality of endowments • Mechanisms of informal cooperation work well in some activities and not in others, even when the group size is small and members are family related • Strengthening of social capital (norms of equity, productivity and participation, and creating space for new roles at the grassroots) has a high payoff

15. Towards a Strategy of Pro-Poor Growth & Institution Building Institutional Quality • Greater attention must be given to conflict prevention through a more inclusive process of rural development • A major priority is to reallocate resources to build social infrastructure, expand livelihood options and strengthen local institutions of conflict management

16. Some Issues for Discussion • Primacy of institutions in a pro-poor strategy of growth  sharper focus of development projects on institutional quality • Greater clarity in linking and adapting locally appropriate poverty indicators to dollar-a-day criterion for impact assessment • Need to ensure that the poor are able to seize income-earning opportunities in a globalized environment  need for policies that facilitate effective linkages with market  focus on infrastructure, research, extension, deregulation

17. Some Issues for Discussion • Sequencing of policy reforms  creating more competitive environment for farm and non-farm activities, without causing severe hardships to disadvantaged groups (indigenous peoples, women) • Cost-effectiveness of investments in less-favoured areas in roads, markets, etc. and their production and poverty impacts not well understood (given diversity of such areas in pop. Density, livelihood options, vulnerability) • Creation of conditions for disadvantaged groups to benefit from non-farm activities (e.g. through acquisition of new skills, easier access to credit, marketing networks)

18. Some Issues for Discussion • Need to strengthen voice and accountability mechanisms for the poor (e.g. through easier access to official records, producer groups, women’s associations) • Need for public-private partnerships to overcome coordination failures (govt, NGOs, markets)