The Escape From Persistent Poverty and the Need to Stimulate Agricultural and Rural Transformation

1. The Escape From Persistent Poverty and the Need to Stimulate Agricultural and Rural Transformation Chris Barrett Cornell Adult University guest lecture July 21, 2009

2. The conundrum • Persistent poverty over the past generation: • no fall in poverty rates in OECD countries • number of poor in Latin America has grown • population living <$1/day doubled in Africa • …. Increasing belief that there exist “poverty traps” • But also unprecedented upward mobility: • 750 mn fewer East Asians live on <$1/day • sharp fall in poverty rate in South Asia • half the world has become “middle class”, with all regions’ populations in the $2-13/day range growing • … Globalization and “great escape” from mass poverty

3. The conundrum Extreme poverty has fallen rapidly in east Asia and worldwide, but only proportional gains in South Asia and none in Sub-Saharan Africa, where >50% still live on less than $1.25/day. Source: Chen and Ravallion (2008)

4. Heterogeneous dynamics • Longitudinal data tell a still-richer story. • - Rates of intergenerational earnings and educational • transmission appear to be high and growing throughout • the world, elasticities commonly ≈ 0.40-0.70. • In the US, the median poverty spell length is only 4.5 • months. Most US poverty is transitory, related to • unemployment spells. But for ~25%, it persists for years. • And food insecurity spells appear more persistent. • We don’t know the median spell length in rural Africa! • Most poverty is chronic, with very complex etiology.

5. Heterogeneous dynamics The prevalence, depth and persistence of poverty differ radically among groups – defined by geography, race, gender, educational attainment, etc.

6. Africa: The challenge Ultra-poverty is especially persistent and prevalent in sub-Saharan Africa Ultra-poor (income per capita< 2005US$0.54/day) Source: IFPRI (2007)

7. Africa: The challenge Hunger: The 2nd half of MDG #1 The WHO identifies undernutrition as the biggest risk factor for disease and death worldwide … and 30/47 SSA countries have macronutrient availability shortfalls .

8. Poverty traps Why such persistence? • Two key features of poverty traps: • Initial conditions matter • “It takes money to make money” … investment is the engine of growth and exit from poverty. • In SSA, ultra-poor are heavily rural and depend on meager (and degrading) natural resource base and have little access to key infrastructure. • Risk matters • Direct loss of productive assets to disease, conflict, climate variability, etc. • Responses: ex post coping (e.g., school drop-outs, distress asset sale) and ex ante risk management (e.g., low-risk, low-return livelihoods).

9. Poverty traps Reinforcing feedback: Low productivity causes poverty. Poverty causes hunger and natural resource degradation. But hunger and degraded natural resources also cause poverty and low productivity. Hence the vicious cycle of poverty traps, hunger and natural resources degradation.

10. Agriculture: the key driver Persistent poverty and hunger are closely tied to agricultural stagnation Cereal yields and extreme poverty move inversely. South Asian progress Sub-Saharan African stasis Source: World Bank (2007)

11. Agriculture: the key driver Agriculture’s demands on renewable resources are huge and growing: • 70% of worldwide water use is for irrigation, (82% in LDCs), with 15-35% of withdrawals unsustainable (WBCSD). • Conversion into cropland is the main cause of deforestation worldwide; fuelwood use is second. • Soils losses due to erosion and leaching are huge: in Africa alone, ~$4bn/yr in soil nutrient losses! • Habitat destruction due to land conversion and overharvesting in unregulated rural areas are leading causes of biodiversity loss worldwide.

12. Resources and poverty traps Why such persistence? Strong links between poverty traps and ecosystem collapse, with shared concepts of “tipping points”. Example: Soil degradation poverty traps in Kenya Marginal returns to fertilizer application low on degraded soils; and poorest farmers are on the most degraded soils. Soil degradation also feeds a striga weed problem ($7bn/yr in crop losses) and mycotoxin contamination of >25% of food. Above red line: fertilizer profitable Value of maize from 1 kg of nitrogen Cost of 1kg nitrogen Below red line: fertilizer unprofitable Kenyan rural poverty line (Source: Marenya and Barrett, American J. Agricultural Economics, 2009).

13. The result is pockets of productive, seemingly sustainable agro-ecosystems amid broad-scale economic and ecological problems

14. Need to StART Need to stimulate agricultural and rural transfor-mation (StART) to break out of the ultra-poverty/ hunger/resource degradation trap: Reason 1: location, livelihood and asset holdings • Most ultra-poor live in rural areas (the rural-urban poverty gap increases in poverty depth). • >75% of ultra-poor work in agriculture. • Increasing the productivity of the assets controlled by the poor (and the stock of assets they control) is fundamental to any strategy to break out of the poverty/hunger trap. So must increase the productivity of the rural poor’s labor, land, livestock and other assets.

15. Need to StART Reason 2: Budget dependence Food is 65-80% of the ultra-poor’s total expenditures. Most African farmers are net food buyers, not net sellers. So the food price effects of agricultural productivity growth reinforce gains to the rural poor by reducing cost of living. Hence the seriousness of the recent global food price crisis for the poor, including most small farmers!

16. Need to StART An example from Madagascar: A doubling of rice yields: • reduces the share of food insecure households by 38% • shortens the average hungry period by 1.7 months (1/3) • increases real unskilled wages in lean season by 89 % (due to both price and labor demand effects) • All the poor benefit: unskilled workers, consumers, and net seller producers … the poorest gain most. (Source: Minten and Barrett, World Development, 2008).

17. Need to StART Result: • World Bank estimates that real GDP growth from agriculture is 2.7 times more effective in reducing extreme poverty headcount in poorest countries, vs. non-ag sectors. • Historically, advances in food system productivity have been the foundation of poverty reduction and modern economic growth throughout history. • Agricultural growth has strong multiplier effects on the rural non-farm economy … generating both local demand and investible resources, as well as ensuring the food security of those who leave the farm.

18. Key StART principles No one size fits all approach is viable. Need to contextualize. But there exist several key principles for targeting StART interventions: Principle 1: Build and protect productive assets. Multiple assets matter: Human capital, land (incl. soil fertility), water, livestock, investible funds (savings, credit) Interventions include direct provision (e.g., free education) or subsidies for asset accumulation or insurance of existing assets For privately held assets (land, livestock, equipment, education, businesses, etc.), mainly need to improve investment incentives. Also need to conserve common pool assets (rangelands, water, forest, etc.) through better governance and incentives.

19. Key StART principles Principle 1: Build and protect productive assets. How to improve incentives? • More secure property rights (tenure, police). • Resolve financial market failures. • “Crowding-in” investment in complementary inputs (e.g., physical and institutional infrastructure). • Provision of productive safety nets. • Clear conservation rules, authority w/o burdening the poor.

20. Key StART principles Principle 2: Improve the productivity of the poor’s current asset holdings. • Improved production/processing technologies • More efficient/remunerative marketing channels Uptake/participation turns on assets, so don’t forget #1! Key concern 1: Agricultural research in SSA Avg returns ~35%, but only 4% of public expenditures are on ag and a small fraction of that goes into research. Key concern 2: Changing agrifood supply chains Who is participating, on what terms, w/ what effects?

21. Key StART principles Principle 3: Improve risk management options for the ultra-poor. Regressivity, multidimensionality and context-specificity of uninsured risk exposure make this a serious challenge. Risk reduction: Improved crops and livestock, better water control, diversification, peace, disease control Risk transfer: Improved markets, index-based risk finance, global humanitarian response

22. Key StART principles Principle 4: Facilitate favorable transitions out of agriculture. Must equip the next generation to transition into remunerative non-farm employment. Keys are (i) supporting physical and institutional infrastructure; (ii) early childhood health, nutrition and education, especially for disadvantaged children. Closely tied to improvements to parents’ productivity, risk management and asset holdings. Global + local (“Glocal”) Solutions

23. Conclusions • There is real reason for hope: • Real agricultural output growth is accelerating in South Asia and SSA at long last … back to positive per capita rates of food output growth. • Renewed and innovative initiatives and attention (e.g., AGRA, July G8 commitment), and turn-around in both public aid and private investment in low-income countries. • Exciting new innovations in technologies (e.g., micronutrient-rich staple crops, drought-resistant cultivars), advances in finance (e.g., index insurance), and improvements in policies (e.g., rule of law, tenurial security, global food aid, safety nets and CCTs). Global + local (“Glocal”) Solutions

24. Thank you Thank you for your time, interest and comments!