65346 Evaluative Lessons for Agriculture and Agribusiness ECG Paper #3 ABOUT ECG The Evaluation Cooperation Group (ECG) is a network of evaluators of multilateral financial institutions (MFIs) established in 1996 to strengthen the use of evaluation for greater MFI effectiveness and accountability; share lessons; harmonize performance indicators and evaluation methodologies and approaches; enhance evaluation professionalism within the MFIs and collaboration with the heads of evaluation units of bilateral and multilateral development organizations; and facilitate the involvement of borrowing member countries in evaluation and build their evaluation capacity. ECG members include the African Development Bank Operations Evaluation Department, Asian Development Bank Independent Evaluation Department, European Bank for Reconstruction and Development Evaluation Department, European Investment Bank Operations Evaluation, Inter-American Development Bank Office of Evaluation and Oversight, International Fund for Agricultural Development Office of Evaluation, International Monetary Fund Independent Evaluation Office, Islamic Development Bank Group Operations Evaluation Department, and the World Bank Group Independent Evaluation Group. The United Nations Development Programme Evaluation Group and the Evaluation Network of the Development Assistance Committee of the Organisation for Economic Co-operation and Development are observers. Black Sea Trade and Development Bank Independent Evaluation Office and Council of Europe Development Bank Ex Post Evaluation Department are aspiring members. Other evaluations and more information about the ECG can be found at: http://www.ecgnet.org. Evaluative Lessons for Agriculture and Agribusiness ECG Paper 3 January 2011 Washington, D.C. ©2011 Independent Evaluation Group Communications, Learning, and Strategy The World Bank 1818 H Street, NW Washington, DC 20433 E-mail: ieg@worldbank.org Telephone: 202-458-4487 Fax: 202-522-3125 http://www.worldbank.org/ieg All rights reserved This publication is a product of the Evaluation Cooperation Group. The findings, interpretations, and conclusions expressed here do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denomina- tions, and other information shown on any map in this work do not imply any judgment on the part of the World Bank or IEG concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. IEG encourages the dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to ieg@ worldbank.org. Cover: Top: Crops from a farm in Colombia. Photo by Edwin Huffman, courtesy of the World Bank Photo Library. Left: Milk production in South America. Photo by Edwin Huffman, courtesy of the World Bank Photo Library. Center: Farm work in Ghana. Photo by Curt Carnemark, courtesy of the World Bank Photo Library. Far right: Cotton crop in Sudan. Photo by Arne Hoel, courtesy of the World Bank Photo Library. Bottom left: Madagascar market. Photo by Yosef Hadar, courtesy of the World Bank Photo Library. ISBN-13: 978-1-60244-165-1 ISBN-10: 1-60244-165-0 The lead author for this paper is Xubei Luo. Input was received from James Oehmke and Dave Weatherspoon. Contents v Abbreviations vii Preface 2 Agriculture and Agribusiness in Perspective 3 Decline in Focus and Renewed Challenges 6 The Critical Role of Productivity 9 Regional Differences 9 Agriculture-Based Economies 11 Transforming Economies 12 Urbanized Economies 12 Differentiation of Rural Households and Development Strategies 13 Six Action Areas 14 Research and Extension 18 Access to Water 20 Access to Credit 21 Access to Land and Formalization of Land Rights 22 Transport and Marketing 23 Policies, Markets, and Agribusiness 25 Institutional Factors 25 Coordination within Organizations 26 Coordination among Donors 27 Monitoring and Evaluation 28 Conclusion 31 References Abbreviations ADB Asian Development Bank AfDB African Development Bank CGIAR Consultative Group on International Agricultural Research CURE Consortium for Unfavorable Rice Environments EBRD European Bank for Reconstruction and Development ECG Evaluation Cooperation Group FAO Food and Agriculture Organization GDP Gross domestic product IDB Inter-American Development Bank IEG Independent Evaluation Group IFAD International Fund for Agricultural Development IFC International Finance Corporation IFI International financial institution IFPRI International Food Policy Research Institute MDB Multilateral Development Bank M&E Monitoring and evaluation NARS National Agricultural Research System R&D Research and development WBG World Bank Group v Preface This paper represents a collaborative effort of Group). The main author was Xubei Luo (World the Evaluation Cooperation Group (ECG) of a Bank Group); input was provided by James number of multilateral development banks and Oehmke and Dave Weatherspoon (consultants). international financial institutions. The report team benefited from consultations with colleagues from the evaluation team and This paper synthesizes recent work by the agriculture and agribusiness teams of the African independent evaluation agencies of the ECG Development Bank, Asian Development Bank, and incorporates lessons from related research Inter-American Development Bank, International by multilateral development banks and from the Fund for Agricultural Development, International academic literature on agriculture and agribusi- Food Policy Research Institute, and the World ness. Evaluative findings indicate that increasing Bank Group. Valuable comments and contri- productivity—through attention to research and butions were provided by Mohamed H. Manaï extension, access to water, access to credit, land and Detlev Puetz, African Development Bank; issues, transport, policy, markets, and institutional Ramesh B. Adhikari, Asian Development Bank; development—is vital for improving agricultural Horst Wattenbach, Council of Europe Develop- performance. Functional monitoring and evalua- ment Bank; Tom Bartos, European Bank for tion systems, lacking in most settings, are needed Reconstruction and Development; Andrew David to help ensure project performance and to draw Brubaker and Luciano Lavizzari, International lessons from experience. The paper suggests Fund for Agricultural Development; and Miguel that, to ensure better outcomes from the recent Angel Rebolledo Dellepiane, Ade Freeman, substantial increase in agriculture and agribusiness Nalini Kumar, and Jiro Tominaga, the World investment, four dimensions of efforts should be Bank Group. Editorial support was provided by emphasized: fostering public-private partnership, William B. Hurlbut and Heather Dittbrenner of drawing on cross-sector synergies and comple- the Independent Evaluation Group of the World mentarities, strengthening intra- and interinstitu- Bank Group. tional coordination, and improving environmental sustainability. The synthesis team greatly appreciates the efforts of all of these people in helping complete The synthesis was undertaken at the request of this report. The successful coordination among ECG members. Encouragement to the study team the members of the ECG in producing it is an has been provided by Colin Kirk, Fredrik Korfker, important step toward achieving the ECG’s H. Stephen A. Quick, H. Satish Rao, and Vinod mission of fostering collaboration and harmoni- Thomas. Overall guidance and oversight have zation of evaluation work among the evaluation been provided by Vinod Thomas. The steering units of its members and disseminating evalua- committee consisted of Patrick Grasso, Monika tion findings to help maximize the relevance and Huppi, and Stoyan Tenev (the World Bank effectiveness of development assistance. H. Satish Rao Chair, Evaluation Cooperation Group and Director General, Independent Evaluation Department, Asian Development Bank January 2011 vii Evaluative Lessons for Agriculture and Agribusiness A gricultural investments made by developing countries and multilateral development banks (MDBs) have declined in recent decades. This decline is associated with a slowdown in the growth of agriculture productivity. Most development institutions have recognized the damage caused by this past neglect—in part evident in rising food prices—and re- newed attention to agriculture and agribusiness is emerging. But this renewed interest will need to deliver results, especially in Sub-Saharan Africa, where the MDBs have had the least success but where the needs and opportunities are enormous. This paper synthesizes recent work by the ing public-private partnership, drawing on independent evaluation agency members of cross-sector synergies and complementarities, the Evaluation Cooperation Group (ECG) and strengthening intra- and interinstitutional coordi- incorporates lessons from related research by nation, and improving environmental sustain- MDBs and from the academic literature on ability. agriculture and agribusiness. The objectives of the • The extent to which interventions have used paper, in addition to distilling evaluative lessons linkages between government and private pro- for agriculture and agribusiness, are to examine ducers makes a difference in performance. The the key constraints on the sector and to provide public goods nature of agricultural services, evaluators, operational staff, and policy makers such as research or infrastructure, obliges with an evaluative perspective on interventions governments and international institutions to in countries at different stages of development. intervene, but the impact of their interventions will only be as good as the links made with Evaluative findings indicate that increasing private producers. productivity—through attention to research • Synergies and complementarities across and extension, access to water, access to credit, sectors—such as infrastructure, education, land issues, transport, markets, institutional and health—influence the effectiveness of development, and policy—is vital for improving interventions. The strong interdependence agricultural performance. In addition, functional between agriculture and various other sectors monitoring and evaluation (M&E) systems, indicates that a cross-sectoral approach would lacking in most settings, are needed to help be appropriate. ensure project performance and to draw lessons • Committed leadership that sees the priority from experience. need for sustained agricultural improvement to ensure growth and poverty reduction is im- To ensure better outcomes from the recent and portant. The involvement of donor organiza- substantial increase in agriculture and agribusi- tions brings benefits, but greater coordination ness investment, this synthesis suggests that within and among them to get positive interac- four dimensions should be emphasized: foster- tions is a prerequisite for adding value. 1 ECG PaPEr 3 • Climate change increasingly affects agricul- will have to grow by almost a billion tons (from tural production. The success of agriculture 2.1 billion tons today; meat production must and agribusiness depends on addressing en- grow by more than 200 million tons to reach a vironmental and climate change issues in an total of 470 million tons in 2050. Seventy-two integrated manner. percent of the additional production will be consumed in developing countries, up from 58 Agriculture and Agribusiness percent today (FAO 2009a). The demand for in Perspective biofuels could further increase the demand for agricultural commodities (for example, corn), Agriculture is the main source of live- depending on energy prices and government lihood for 2.5 billion people, including 1.3 policies. billion smallholders and landless workers. Seventy-five percent of all poor people live in Agribusiness projects have widespread rural areas, 86 percent of whom rely on agricul- impacts on private sector and rural ture for a livelihood. Hence, enhancing agricul- development. The contribution of agribusi- tural growth and productivity is essential to ness to GDP increases as an economy grows meeting the worldwide demand for food and (Figure 1). For example, from a low GDP per to reducing poverty, particularly in the poorest capita level of $150 to a higher level of $8,000, the countries. Gross domestic product (GDP) share of GDP attributable to agriculture declines growth originating in agriculture is about four from 40 percent to 10 percent. But agribusiness, times more effective in raising incomes of the comprising production, marketing, logistics, very poor than GDP growth originating outside processing, and distribution, has a large and the sector (World Bank 2007). The demand for rising share of GDP. The share of agribusiness to food is expected to continue to grow as a result GDP typically rises from about 20 percent to 30 of both population growth and rising incomes. percent before declining as economies become Demand for cereals (for food and animal feed) is industrialized. The development of competitive projected to reach some 3 billion tons by 2050. agribusinesses and agro-industries is crucial for To meet that demand, annual cereal production creating employment and income opportuni- Figure 1: Share of Agriculture and Agribusiness in GDP Change as Incomes Rise 60 Agriculture Agribusiness 50 Thailand Percentage share of GDP 40 Malaysia Indonesia Chile 30 Agribusiness Brazil Argentina Uganda Côte d’Ivoire Kenya 20 Agriculture Nigeria 10 0 150 400 1100 3000 8100 GDP per capita, 2000 US$ (log scale) Source: World Bank 2007. 2 EvaluativE lEssons for aGriCulturE and aGribusinEss ties, as well as for enhancing the demand for Public investment in agriculture has farm products. been low, particularly in Africa. In many countries, governments operate under tight Decline in Focus and fiscal constraints and tend to spend less of their Renewed Challenges own resources on agriculture (Foster, Brown, and Naschold 2000). In aggregate, African Public investment in agriculture decreased public spending on agriculture accounted for gradually for two decades from the 1980s. In 5–7 percent of the total national budget from part because of the impression that food shortages 1980 to 2005, compared with 6–15 percent were a thing of the past and in part because of some in Asia (Fan, Mogues, and Benin 2009). As a less-than-satisfactory outcomes of previous interven- percent of agricultural GDP, African agricul- tions, support from governments and donors tural spending was only half that of Asia in declined. This relative neglect also was rationalized 2005 (Fan and Saukar 2008). Nearly half of by views that associated agriculture with underde- African countries reduced budget shares in the velopment and industrialization with development. sector during this period. Only a few African countries—Burkina Faso, Ethiopia, Malawi, Agricultural expenditure in the developing and Mali—have surpassed the Comprehensive world as a proportion of total government Africa Agriculture Development Programme spending also declined over a long period threshold of 10 percent of budgetary spending (Fan and Saukar 2006). Although in real terms, on agriculture in recent years (Fan, Mogues, public expenditure for agriculture increased from and Benin 2009). $111.8 billion in 1980 to $225.6 billion in 2002 (constant 2000 dollars), expenditure for agricul- After an increase in the 1970s and 1980s, ture as a share of agricultural GDP fell from 10.8 bilateral and multilateral assistance to percent in 1980 to 8 percent in 1990; that share agriculture fell after the mid-1980s (Figure increased to 10.3 percent in 2002. 2). From its peak at that point, aid to agriculture Figure 2: Trends in Aid to Agriculture 9,000 DAC countries, annual figures 8,000 7,000 DAC countries, moving average 6,000 USD million 5,000 4,000 3,000 2,000 Multilateral agencies, annual figures 1,000 Multilateral agencies, moving average 0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Source: OECD 2010. Note: Commitments, 1973–2008, five-year moving averages and annual figures, constant 2007 prices. 3 ECG PaPEr 3 fell by 43 percent.1 The amount of aid to agricul- tural operations in lending sharply declined ture from Development Assistance Committee in the 1990s. During 1961–90, lending for countries and from multilateral agencies declined agriculture accounted for 22 percent of the by half in the early 2000s compared with the total, while in the 1990s the share was just mid-1980s. As total aid has increased substantially over 4 percent. IDB approved 123 rurally tar- in recent years, the share of aid to agriculture has geted projects totaling $6.382 billion during declined even faster than its real dollar amount. 1990–2001.This is at odds with agriculture’s For Development Assistance Committee countries, contribution to regional GDP (more than 20 the share reached a peak of 17 percent in the late percent, counting agro-industry) and with its 1980s and has fallen from 13 to 6 percent since the share of export trade in the region (more than mid-1990s, revealing relative neglect of the agricul- 50 percent of export sales in some countries). ture sector (OECD 2010).2 This drop in percentage share is also evident in IDB’s rurally targeted support generally. In The following discussion summarizes the activity short, the agriculture sector had ceased to be of a number of MDBs in agricultural areas. an IDB priority (IDB 2003). • The World Bank Group (WBG): Support • Asian Development Bank (ADB): From for projects that focused on agricultural growth 1968 to 2008, ADB loans for agriculture and and productivity declined from 1998 to 2003, natural resources totaled $18.6 billion, or in line with the World Bank’s shift toward rural approximately 13 percent of total approved development. The share of commitments for loans. Investments were made in the form projects focused on agricultural growth and of loans, technical assistance, and grants. A productivity declined from 71 percent of the total of 528 programs and projects were sup- portfolio in 1998 to a low of 25 percent in ported during the period. The proportion of 2003; it then picked up to 39 percent in 2008. ADB lending to the agriculture and natural re- During 1998–2008 the World Bank and Inter- sources sector was, however, on a downward national Finance Corporation (IFC) together slide, from 28 percent in 1980s to 12 percent committed $23.7 billion in finance for agricul- in 1990s; the low of 8 percent was reached in tural activities in addition to analytical work the years 2000–08 (ADB 2010). and advisory services. This was less than half of • African Development Bank (AfDB): The the commitments in the agricultural portfolio importance of newly approved investments for (an even lower share in Sub-Saharan Africa), agriculture declined in recent years from about with the rest directed to other rural activities. 13 percent of all loan approvals in 2004–06 to An additional $3.8 billion was committed by about 8 percent for 2007–08. This is because of the World Bank and $1.6 billion by IFC in 2009 the rapidly increasing overall volume of lending (IEG 2010). at the AfDB over the past decade, whereas lend- • The Inter-American Development Bank ing for agriculture remained relatively constant. (IDB): For IDB, the share of rural and agricul- The volume of investments for agriculture since 2001 stabilized at around $350 million annually. As a share of official development assistance, the 1. This statistic might be slightly distorted. Since Agenda proportion allocated to agriculture and rural de- 21 in 1992, many agricultural programs and projects velopment in Africa declined from 11.8 percent have been reclassified as environmental by interna- tional financial institutions (IFIs) and development to 3.5 percent between 1995 and 2005 (AfDB- agencies to better fit new national and IFI strategies, IFAD 2010). which are now focused on environmental improve- • European Bank for Reconstruction and ment and climate change. Moreover, some programs Development (EBRD):3 An EBRD evaluation classified as infrastructure also benefit agriculture, (EBRD 2008a) rates as successful the EBRD’s such as water supply in rural areas, and enable irriga- tion and contribute to improved crop yields. 3. EBRD’s strategy focuses primarily on support- 2. The statistics from different MDBs are not directly ing agribusiness projects with strong backward comparable. linkages, rather than pure primary agriculture. 4 EvaluativE lEssons for aGriCulturE and aGribusinEss response to the challenges of the agribusiness data in the study by the Independent Evaluation sector transition during the 1991–2007 period. Group (IEG). In addition to the usual sponsor, market, and investment climate risks, agribusiness and ag- Because of the food, fuel, and financial riculture generally involve other risks, such as crises, the number of people living in hunger weather, diseases, short-term price volatility of over the past two years increased rapidly. commodities, and government interventions, Sudden increases in food prices in 2008 drove an which affect both the domestic and interna- estimated 100 million more people into poverty tional markets. The relatively small average (Ivanic and Martin 2008). Before the food price size of investment operations has also been a crisis, 923 million people were undernourished. major challenge for EBRD, especially in terms This number is estimated to have increased to of efficiency. Standalone operations have an 963 million people as a result of soaring food average size of e15.9 million, compared with prices (FAO 2008a). The global economic crisis the EBRD average of e20 million. may have further strained the already stretched • International Fund for Agricultural De- coping mechanisms of the poor, though this velopment (IFAD): Since 1978, IFAD has impact varies considerably by region. According invested nearly $12 billion in 673 projects in to the Food and Agriculture Organization (FAO), developing countries. Over the past five years the global economic crisis pushed the number of its work program has been expanding. For undernourished to more than 1 billion. example, in 2009 IFAD’s work program grew by 19 percent, with approved loans and grants The food crisis placed agricultural growth totaling $717.5 million (IFAD 2010). and food production issues back on the development agenda. From 2005 to 2008 food The Millennium Development Goal of prices rose dramatically across the board and halving poverty by 2015 will not be doubled or even tripled in some categories. During achieved without a large additional invest- the first three months of 2008, international prices ment in agriculture. The additional annual of major food commodities reached 30-year highs investment needed is estimated to be $14 billion (FAO 2008b). That spike ended a 30-year period of for developing countries and $3.8–$4.8 billion gradual decline in real terms. Following the onset for Sub-Saharan Africa (Fan and Rosegrant of the financial crisis, international food prices 2008). An evaluation of World Bank assistance declined, but they have remained high compared to agriculture in Sub-Saharan Africa (IEG 2007c) to 2005 levels, and in many countries domestic finds, however, that bilateral and multilateral prices have not declined to the same extent. Prices donor aid for development of African agriculture of domestic staples in several countries experi- declined from $1,921 million in 1981 to $997 enced double-digit increases in 2009, particularly million in 2001 (in 2001 dollars). When donor in Sub-Saharan Africa. support to agriculture declines, countries may not have the capacity to maintain or replace past First the food and fuel crises and then the donor-funded capital investment. Lending from economic crisis have revealed the fragility bilateral and multilateral donors rebounded with of food systems. The world’s poorest suffer the the increasing focus on African development. most: families in developing countries spend up Organisation for Economic Co-operation and to 70 percent of their income on food, compared Development statistics show that the disburse- with 5–10 percent in the United States. AfDB’s ments of agriculture-focused aid from all donors Annual Report estimates that Africa’s cereal to Africa were $1,907 million (in 2007 dollars) per import bill increased by 49 percent during 2009, year for the period 2006–08.4 But this number is compared with rises of 25 percent in Asia and not directly comparable with the 1981 and 2001 31 percent in Latin America (AfDB 2008). The World Bank food benchmark index increased 23 4. http://www.oecd.org/document/44/0,3343,en_264 percent between January and December 2009. 9_34447_43817324_1_1_1_1,00.html. 5 ECG PaPEr 3 Global grain prices rose sharply again in The private sector arms of the MDBs and mid-2010. The summer of 2010 brought erratic bilateral agencies have also recently boosted weather with a deadly heat wave affecting wheat their investments in this sector. In total they output in Russia and severe floods eroding vegeta- have invested about $12 billion with private tion in Pakistan. Abnormal weather patterns in agribusiness companies during 1998–2008. Central Europe, China, Greenland, and India The largest investors are IFC, with a 48 percent have also affected the global food supply. market share, the EBRD, with 31 percent, and Moscow’s recent decision to ban grain exports the AfDB with 7 percent. IFC agribusiness invest- sent shockwaves through global commodities ments have increased sharply since they became markets as concerns mounted that traders would a corporate priority in 2007. At ADB, commer- hoard their stockpiles. Speculation on wheat cially oriented projects in the agriculture and substitutes (for animal feed, for example) such natural resources sector increasingly focus on as corn, other grains, and soybeans have started agribusiness development. to put upward pressure on the prices of these commodities. These higher prices are likely to With the increase in demand for production feed into price rises for retail products such as and high food prices, agriculture is facing bread and beverages. a unique opportunity. The renewed attention and the increase in investment could launch the The spike in food prices added momentum agricultural sector on a path of sustained growth. to an emerging renewal of attention However, it will be important to use limited to agriculture and agribusiness. Official resources effectively to achieve greater and development assistance in this area jumped to better-distributed growth and poverty reduction about $8 billion in 2008 and even higher in 2009. outcomes. The World Bank alone increased its lending from $1.5 billion in 2008 to $3.8 billion in 2009. The The Critical Role of Productivity largest donors have been the World Bank, the European Union, Japan, and the United States; Considerations of the effectiveness of invest- on a regional basis, the largest donors are the ments and of environmental sustainability AfDB and the ADB. The WBG Agriculture Action place the focus squarely on the critical Plan (World Bank 2009) projects an increase role of agricultural productivity. Increasing in support (from the International Develop- agricultural productivity can help attack poverty ment Association, the International Bank for through three channels. First, it increases the Reconstruction and Development, and IFC) to incomes of agricultural laborers, the majority of agriculture and related areas from an average of whom are poor. Second, it reduces food prices, $4.1 billion annually in fiscal 2006–08 to between which in turn increases real incomes and lowers $6.2 and $8.3 billion annually over fiscal 2010–12. poverty in urban areas. Third, it boosts the This would be 13–17 percent of projected WBG development of the entire economy through assistance. backward and forward linkages. In Africa, in 2008, IFAD approved agricul- In most parts of the world agricultural ture and rural development financing growth will need to come from intensive of $235 million (loans and grants) in 13 rather than extensive growth. Given the countries. AfDB provided $360 million to 17 limits on cultivable and fertile land and associ- countries. During the same year, ADB approved ated inputs, future growth in agriculture can only 14 agriculture and natural resources loans totaling exceptionally rely on expansion in farmed area. $607 million. In recognition of Asia and the Intensification of production and improvement Pacific’s sustainable food security, ADB allocated in efficiency of input use are therefore important $2 billion annually for the 2010–12 period for its and were identified (along with diversification) as own regions. key strategies by a global farming systems study 6 EvaluativE lEssons for aGriCulturE and aGribusinEss (Dixon, Gulliver, and Gibbon 2001). The differ- in Nigeria. Developing countries could experi- ence between actual and technically feasible ence a decline of 20 to 40 percent in potential yields for most crops implies large potential agricultural productivity if temperatures rise by for increasing food and agriculture production more than 2° C (FAO 2009b). Changes in agricul- through improvements in productivity (Zepeda tural systems are needed to make them more 2001). Some 80 percent of the increases in food resilient to climate change (CGIAR 2009). production in the developing world will come from increases in yields and cropping intensity But the growth of agricultural productiv- and only 20 percent from expansion of arable ity has stalled. The per capita production land (FAO 2009c). of cereals did not increase after the mid-1980s (African Green Revolution Conference 2009). Intensification is vital not only to meet Globally, the growth rates in yields of major increasing demand but also to reduce grains declined from around 3 percent in 1980 deforestation, environmental devastation, to 1 percent recently (World Bank 2007). Figure and global warming. Agriculture contributes 3 shows an example of the slowdown in develop- about 15 percent of annual greenhouse gas ing countries. emissions (forestry contributes an additional 19 percent), compared with 13 percent from Global trends mask large differences across transportation (World Bank 2007). The Millen- countries and regions. Labor productivity nium Ecosystem Assessment (2005) finds that ranges widely between the agriculture-based 15 of the planet’s 24 natural ecosystems are in economies and the transforming and urbanized trouble or in decline, in large measure because ones (categories used in the 2008 World Develop- of land and water degradation—mainly due ment Report)—$599 versus $1,398 versus $3,357, to agriculture. Environmental degradation has respectively, in 2005 in 2000 dollars (IEG 2010). resulted in agricultural productivity loss. Wolman The great strides in cereal production in South (1985) reports significant agricultural productiv- Asia in 1961–2001 were mainly the result of yields ity losses due to soil erosion of up to 40 percent that increased by 50 percent from 1987 to 2002, in Europe and Central Asia, 25 percent in the when poverty declined by 30 percent (World United States, 30 percent in Haiti, and 25 percent Bank 2007). In Latin America and the Caribbean, Figure 3: Growth Rates of Yields for Major Cereals Are Slowing in Developing Countries 6 5 Average annual growth rate, % Wheat 4 3 Maize 2 Rice 1 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Source: World Bank 2007. Note: Data smoothed by locally weighted regressions. 7 ECG PaPEr 3 agricultural productivity (unit yields of core A suitable combination of program and project commodity crops) climbed steadily as farmers loans that complement and reinforce productiv- brought in improved technologies (IDB 2003). ity gains needs to be established, with country differences built in (ADB 2008). In Africa, production of cereals and root crops rose mainly because more land was However, support from international organi- brought under cultivation; crop yields zations for projects that focus on produc- were largely stagnant. The average farmer tivity in agriculture has declined, and the in Sub-Saharan Africa harvests at most 2 metric performance of projects has been mixed: tons of grain per hectare, which is half of what an • Based on a performance evaluation of 25 loans Indian farmer gets, a quarter of what a Chinese (14 projects and 11 programs) completed by farmer gets, and a fifth of what an American its Independent Evaluation Department from farmer gets (AfDB-IFAD 2010). Low growth rates January 2000 to July 2009, ADB’s performance in cereal yields and production in Africa have in promoting agricultural productivity growth, translated into falling per capita food production employment, and returns on investment was and increased imports (Forum for Agricultural mixed. Productivity growth was achieved in 51 Research in Africa 2006). percent of these loans, 62 percent were suc- cessful in generating employment, and only 30 Women produce most of the food that percent were considered economically viable. is consumed locally in many countries. • Lack of a focus on agricultural productivity lim- Blackden and Canagarajah (2003) calculate that ited the performance of AfDB interventions. In agricultural productivity in Sub-Saharan Africa line with the new corporate thematic priority could rise by 20 percent if women had equal areas, the AfDB’s Department of Agriculture access to land, seeds, and fertilizers compared and Agribusiness developed a new business with men. Failure to recognize women’s roles plan in 2007–08. One focus of the depart- in agriculture is costly. It results in misguided ment’s interventions is supporting growth in policies and programs, forgone agricultural crop productivity, particularly through water, output and income flows, higher levels of poverty, rural roads, and fertilizer. and food and nutrient insecurity. • Only a share of World Bank interventions that included support for agricultural activities fo- Agricultural growth also was hampered cused on improving agricultural productiv- by factors outside the sector. In the 1990s, ity in poor agriculture-based economies. The overvalued exchange rates, credit access difficul- World Bank’s strategic focus had shifted in the ties, and asymmetries in market liberalization early 1990s from a narrower focus on agricul- impeded agricultural growth in Latin America ture to a broader focus on poverty and rural and the Caribbean. As a result of subsidized sales development, leading to a focus beyond agri- of agricultural commodities from the industrial- cultural production in rural areas. This trend ized nations, the growth in agricultural import was particularly pronounced in Sub-Saharan values outpaced that in exports in the region Africa, which had one of the smallest shares (IDB 2003). among regions of rural projects focused explic- itly on improving agricultural productivity. IFC Supporting interventions that lead to rapid investments, although focused on agribusiness productivity growth is fundamental. Such growth and development, were concentrated project interventions consist mainly of providing primarily in urbanized and transforming econ- suitable improved technologies that overcome omies in Latin America and Europe and Central constraints on production and information. For Asia. programs and interventions, these technologies • EBRD focuses on supporting projects up- relate to the creation of an enabling environ- stream in the agricultural value chain. How- ment through policy and institutional reforms. ever, backward linkages to primary agriculture 8 EvaluativE lEssons for aGriCulturE and aGribusinEss feature prominently in projects and are often Asia and North Africa and the Middle East), and addressed through covenants requiring food urbanized (mostly in Eastern Europe and Latin processors to work closely with farmers to America and the Caribbean) economies. In increase farming efficiency. For instance, in the agriculture-based category, development 2010, EBRD’s Evaluation Department found of the agriculture sector is essential to growth that sugar plant modernizations in Ukraine and poverty reduction, yet productivity is low, and Croatia dramatically improved sugar beet constrained by limited access to modern inputs, yields by setting yield increase targets, which irrigation, communication, and transport. In provided incentives to sugar plant managers transforming economies, the sector’s contribu- to finance high-quality extension services to tion to economic growth is comparatively less sugar beet farmers (EBRD 2010b). important, and land and labor productivity are much higher, but poverty is still predominantly The development of agribusiness and of a rural phenomenon. In the urbanized category, agriculture is closely linked. Agribusiness poverty is no longer primarily rural, and agricul- investment is required for increasing the produc- ture contributes relatively little to growth (IEG tivity of the agricultural production activities, 2010). improving market opportunities for smallholders, increasing employment opportunities, deliver- Increasing global agriculture produc- ing affordable and nutritious foods to growing tion and addressing food security require urban populations, and ultimately improving effective interventions. The agriculture-based the economic growth of developing countries. economies, particularly those of Sub-Saharan Agribusiness activities also provide seeds, Africa, are where support is most needed and agricultural chemicals, and pesticides—inputs of success has been lowest. Other countries and critical importance for sustained improvements regions also have important needs, given that the in agricultural productivity. increased demand for global food production also has to be met. However, greater effective- Nonagricultural organizations are also ness in the poorest countries is the most critical increasing their focus on agribusiness as challenge. a key strategy for poverty reduction. For example, the United Nations Industrial Develop- Agriculture-Based Economies ment Organization has an Agribusiness Develop- ment Branch that is a vitally important pathway World Bank projects in agriculture-based for poverty reduction. economies performed significantly worse than those in urbanized economies on Regional Differences extension and significantly worse than projects in transforming economies on The engagement and performance of research (IEG 2010). Figure 4 shows that, among international institutions in agriculture all World Bank interventions over the 1998–2008 and agribusiness vary widely, depending period, outcome ratings of agriculture-focused on the conditions and priorities of regions projects in Africa are the lowest (with only 56 and countries. The focus of donor agencies’ percent satisfactory) and sustainability ratings the interventions, the balance of agricultural produc- second lowest (with 64 percent satisfactory). tion and poverty reduction in agriculture and agribusiness, vary depending on the stages The performance of WBG interventions has of development of the countries where they been well below average in Sub-Saharan operate. Three categories developed in the 2008 Africa, and IFC has had little engage- World Development Report highlight the differ- ment in agribusiness in the region. Many ences: agriculture-based (mostly in Sub-Saharan countries—particularly transforming and Africa), transforming (mostly in South and East urbanized economies—have benefited from the 9 ECG PaPEr 3 Figure 4: Ratings for Agriculture-Focused Projects versus All Other Projects, by Region (1998–2008) A. Outcome ratings B. Sustainability ratings 100 96 100 88 87 90 85 84 90 80 80 82 80 79 78 78 80 80 76 77 73 71 69 70 70 67 Percent satisfactory Percent satisfactory 63 64 64 63 60 56 60 54 50 50 40 40 30 30 20 20 10 10 0 0 Europe East Asia Latin South Middle Sub- Europe East Asia Latin South Middle Sub- & & America Asia East & Saharan & & America Asia East & Saharan Central Pacific & the North Africa Central Pacific & the North Africa Asia Caribbean Africa Asia Caribbean Africa Region Region Agriculture-focused projects Bank-wide non-agriculture projects Source: IEG 2010. Note: Differences are statistically significant for South Asia. Note: Differences in ratings are statistically significant for Sub- Saharan Africa and Europe and Central Asia. Sub-Saharan Africa performs below average for both types of projects, but particularly so for agriculture-focused projects. exposure to improved management practices and Other organizations share the challenges of production technologies that come with WBG addressing agriculture in Africa. The perfor- interventions, but it has been more difficult for mance of IFAD projects in Africa was lower than agriculture-based economies in Africa to benefit in other regions. The performance of AfDB’s commensurately (IEG 2010). The World Bank’s agriculture and rural development operations limited and until recently declining support for was found to be less successful than in other addressing the constraints on agriculture has not sectors. Benchmarking evidence indicates that been strategically used to meet the diverse needs the performance of other agencies working in of the sector. agriculture and rural development in Africa was at a similar level (AfDB-IFAD 2010). The World Bank has recently increased support for agriculture-related public The experience of agriculture operations in expenditures. This is an important step, Africa is linked to the special difficulties in particularly for Sub-Saharan Africa, given high the region. First, resource endowment in Africa dependency on donor funding and the sustain- is poor. Not only is the environment for agricul- ability problems that have plagued many donor- tural development less favorable in Sub-Saharan funded projects in the region. Difficult business Africa’s agriculture-based economies—with poor environments, a shortage of indigenous entrepre- road and market infrastructure, underdeveloped neurs, the small size of the potential invest- financial sectors, difficult business environ- ments, lack of access to markets, and the dismal ments, a shortage of indigenous entrepreneurs, experience with small-scale sponsors have all and higher weather-related and disease risks— constrained IFC engagement and performance but country capacity and governance have been in Africa. weaker as well. 10 EvaluativE lEssons for aGriCulturE and aGribusinEss A majority of Africa’s poor people live in summarized as (i) improving the investment rural areas and engage in some form of climate, through better incentives for farmers and agricultural activity. They are small landowners private-sector engagement; (ii) infrastructure, who produce both for subsistence purposes and including irrigation; (iii) innovation, the primary increasingly for the market. As shown by research motor for productivity growth and competitive- and field experience in the past two decades, ness; and (iv) institutional capacity. smallholder development in Sub-Saharan Africa is one of the main ways to reduce poverty and Transforming Economies promote growth. The AfDB and IFAD already focus on smallholders, yet future efforts by the Better results have been achieved in two organizations will need to ensure that the transforming economies than in agricul- needs of smallholder farmers are adequately ture-based economies. IEG has found that considered so that they can improve their low in Bank work in regions where transforming productivity and incomes (AfDB-IFAD 2010). or urbanized economies dominate, although aggregate lending commitments are lower, Several African countries have achieved there is greater focus on agricultural growth and success in the past, indicating significant productivity than in the World Bank’s overall potential for growth. For the past 40 years portfolio (IEG 2010). The share of World Bank cotton production in Mali has grown at 9 percent lending commitments primarily focused on per year. Kenyan horticultural exports have agricultural growth and productivity is highest in increased fivefold since 1975 (Haggblade and transforming economies—45 percent versus 39 Hazell 2010). More recently, Malawi transformed percent in urbanized economies and 37 percent itself from a recipient of food aid in 2005 to a net in agriculture-based economies. The World Bank exporter of maize in each of the past four years. also carried out more agriculture analytical and Rwanda increased its food production by 15 advisory activities in transforming economies percent in 2007 and 16 percent in 2008. Ghana is than in agriculture-based economies. on track to becoming the first country in Africa to achieve the MDG of halving poverty and hunger For IFC, the transforming economies (AGRA 2009b). achieved better outcomes than urbanized or agriculture-based economies.5 Its food and Africa’s agriculture and agribusiness has agriculture projects in South Asia and Europe and enormous potential. Africa has 60 percent of Central Asia have achieved the highest develop- the world’s uncultivated arable land. A recent ment outcome and investment outcome ratings study (McKinsey 2010) estimates that, if Africa (IEG 2010). could overcome its complex barriers, its agricul- tural output could grow in value more than The ADB operational plan for sustain- threefold, from $280 billion today to $880 billion able food security is based on its Strategy by the year 2030. This growth would increase 2020. That strategy emphasizes a multisec- demand for upstream products such as fertiliz- toral approach to transforming Asia’s rural and ers, seeds, and pesticides, while spurring growth agriculture sector. It calls for synergy and value of downstream activities such as grain refining, addition in the backward and forward linkages biofuels, and other types of food processing. along the food and agricultural value chain. Together, these could be worth an additional The operational plan identifies ADB’s role and $275 billion in revenue by 2030. contributions in addressing the three binding constraints to achieving sustainable food security: A joint AfDB-IFAD evaluation (AfDB-IFAD (i) stagnating food productivity and production; 2010) suggests that increasing agricul- tural growth and productivity in Africa will 5. The outcomes of the urbanized economies were require a range of actions. Priorities can be negatively affected by poor-performing invest- ments in fiscal years 1998–2001. 11 ECG PaPEr 3 (ii) lack of access to rural finance, infrastruc- primary agriculture (a cooperative in Kyrgyz- ture, technology, markets, and nonfarm income stan) has been evaluated as unsuccessful, but in opportunities; and (iii) threat of climate change response to market demand, EBRD financed a and volatility of food prices. In addressing these farming project in Ukraine in 2010. This project constraints, the operational plan focuses on benefits from a strong private sector sponsor three areas of influence—productivity, connec- and enhanced extension services, giving it a tivity, and resilience. better chance for success. The International Food Research Policy There is considerable scope for the IDB Institute (IFPRI) has worked to develop to increase involvement in projects (IDB viable strategies in five areas to assist in 2003). IDB finds that supporting production East Asia: making growth pro-poor, revital- chain improvements specific to certain crops or izing agricultural research and technology products has the potential to yield high economic dissemination, managing land and water scarcity and social returns, particularly with trade liberal- and degradation, managing globalization, and ization and integration processes. One item building good governance. In East Asia, invest- to consider for the IDB’s agriculture agenda is ment in both infrastructure and marketing and support for programs to improve the produc- distribution systems will provide significant tivity of crops that are household staples. This benefits to those who depend on agriculture. would be particularly important in low-income However, a reliance on market forces alone may countries undertaking trade liberalization, which mean that many poorer regions and poor people operate in a context where a sizable percentage are likely to be left in poverty. of the rural population works small holdings and agricultural research systems are weak. Urbanized Economies Differentiation of Rural Households and Productivity is higher in urbanized Development Strategies economies. World Bank interventions during the period evaluated by IEG were distributed Overall, effective intervention tailored to the relatively evenly across the agriculture-based, specific contexts of recipient countries in transforming, and urbanized economies. improving agriculture performance is key. IFC interventions were concentrated in the The 2008 World Development Report suggests urbanized category, with investments in only that in agriculture-based countries, a productivity eight agriculture-based economies. Transform- revolution in smallholder farming is required. In ing and urbanized country borrowers tended transforming countries, shifts to high-value agricul- to have clear strategic visions for agricultural ture, decentralization of nonfarm economic activi- development that directed resources for agricul- ties to rural areas, and direct assistance to moving tural sector development to the areas where they people out of poverty are among the measures were most needed (IEG 2010). to be considered. In urbanized countries, agricul- ture can help reduce the remaining rural poverty EBRD’s operations supported skill transfer, if smallholders become direct suppliers in modern demonstration, and improved standards food markets. (EBRD 2008a). In recent years, EBRD increased its operations in connection with new hypermar- An ongoing IFAD study (IFAD forthcoming) kets and supermarkets. This important modern- suggests that, although the classification ization of the retail sector creates new challenges of the national economies is necessary and for a largely fragmented and inefficient agricul- helpful in providing policy guidance, it is tural system, which also has to move toward also useful to examine the differentiation at higher standards for food safety and hygiene. the household level. The current production So far only a single EBRD-financed project in priorities in the international community follow- 12 EvaluativE lEssons for aGriCulturE and aGribusinEss ing the price spike in commodities tend to see labor—intensify farming by improving transport, all rural households as specialized in agriculture, facilitating access to inputs and credit, investing in no matter what assets they have. There may be technology, and farmer organization; (ii) stepping a broad consensus that developing small farms out: for households with labor but not necessarily is both feasible and desirable in most parts of land—move into the nonfarm economy through the developing world, but doubts emerge when more education and skills, better health care, and looking at the differentiation in the rural popula- providing potential migrants with information on tion. Those who are optimistic that intensified opportunities, conferring on them transferable and increasingly commercialized small-scale rights as citizens and facilitating remittances; and farming can be achieved usually have in mind (iii) hanging in for chronically poor households farmers with two, three, or more hectares, with that lack labor—provide social protection for some assets, and located in areas of medium to those who have few assets and options, invest- high potential. It remains obscure how the rest, ing in technology for food staples to allow them who are subsistence farmers or the vulnerable, to make best use of their small plots, and making will benefit. sure that the next generation gets a better start than its parents through primary health care, infant Smallholder farmers are a very heteroge- nutrition, and schooling. neous group (for example, commercially viable, subsistence, vulnerable). OECD/DAC Six Action Areas (OECD 2006) identifies five different “rural worlds�: (i) commercial producers, globally competitive with The agriculture production chain is a complex large-scale agriculture operations; (ii) agricultural system (Figure 5). For example, once a crop is households that produce for the market but also to produced and harvested, a range of agribusiness meet subsistence needs; (iii) subsistence producers activities link farmers to consumers. Underinvest- with small landholdings; (iv) agricultural laborers, ment in research and extension, water constraints, mainly dependent on casual, unskilled labor; and (v) underdevelopment of rural transport infrastruc- those unable to engage in regular productive activity ture, limited access to credit, land issues, market (very elderly, sick, disabled, and the very young), all support, and agribusiness activities often are of whom rely on informal transfers of food, shelter, major constraints to agricultural productivity (IEG and clothing. It includes the households that are 2010). Interventions on many factors can make a chronically poor with few assets and having little or difference. Actions can range from land reform to no labor because the adults are elderly, disabled, or technology adoption support, rural finance, public- chronically sick. They have little hope of working private partnerships, and improving access to risk their way out of it. management mechanisms. Agricultural and rural development strate- This section focuses on six areas: research gies need to include a menu of options for and extension; access to water; access to credit; households with different possibilities as access to land and formalization of land rights; different target groups requiring different transport and marketing; and policies, markets, project strategies. The 2008 World Develop- and agribusiness. ment Report presents a scheme for differentiating household livelihood groups based on their prime Weakness at any point in the crop production sources of income and identifies three trajecto- chain can hinder agriculture and agribusi- ries out of poverty for farm households: agricul- ness productivity. Investment in research and ture, rural labor, and migration. Dorward (2009) extension and road infrastructure has some of the links the OECD/DAC scheme with the World largest returns (Fan 2008). Irrigation investments Development Report categories, envisaging three also have made significant contributions to increas- development strategies for rural households: (i) ing crop production (Fan, Hazell, and Thorat 1999; stepping up for those households with land and Fan and Hazell 1999; Fan, Zhang, and Zhang 2002), 13 ECG PaPEr 3 Figure 5: Crop Production Chain Roads and Research and input and extension, irrigation output Improved marketing Areas of World and improved harvesting infrastructure, Bank Group soil and water Agribusiness Marketing techniques, credit support management, activities support storage, credit credit Inputs and Access to roads Land, labor, cultivars, Labor, harvesting and transport Agro-industry Marketing and activities that fertilizers, water, techniques, services; retail make the food disease control storage marketing infra- distribution production chain measures, financing structure, including possible telecommunications Crop harvest To market to Crops sell surplus to Sold as Crop production and storage Processing planted consumers or processed chain for home and grown industry for product consumption or market processing Source: IEG 2010. and water management is important to improving market incentives for farmers and agribusinesses food production under increasingly stressed water are the key determinants of outstanding agricultural resources (IEG 2006c). Improving access to credit performance. Countries face unique conditions and is crucial for development programs (World Bank donors and governments have different priorities. 2004; Conning and Udry 2007). Secure rights to Carefully targeting public spending and leverag- land can encourage farmers to invest in irrigation ing private investments to high-priority sectors to and drainage, soil conservation measures, and release the binding constraint, along with coordi- other natural resource management practices nated spending in complementary areas, are to improve the productivity of their land (World important steps to maximize development impact. Bank 2003). Efficient markets allow farmers and agribusinesses to capitalize on market opportuni- Research and Extension ties and benefit from increased farm productivity (World Bank 2004). Research and extension are essential to improving agricultural productivity. The rate It is critically important, given the large cross- of return to investment on developing and extend- sectoral impact on agriculture, to prioritize ing agricultural technology is high. In a survey of the allocation of scarce resources and to studies on Asia, Pray and Evenson (1991) find that coordinate. The FAO World Food Summit of rates of return to national research and extension 2009 recognized that achieving a safe, reliable, and investment, though variable, were high, ranging affordable supply of food is a multifaceted project: from 15 to 220 percent. Evenson and McKinsey technology, trade, markets, and aid all need to be (1991) find that public investment in agricultural addressed (Financial Times 2009). Fan, Mogues, research in India accounted for 30 percent and and Benin (2009) suggest that the contribution of extension for 25 percent of growth, with rates of rural road infrastructure to agricultural productivity return of 63 percent and 52 percent, respectively. may be substantial and may sometimes dwarf the sectoral impacts of spending directly in agriculture. Research is effective when the appropriate Haggblade and Hazell (2010) argue that sustained technology reaches farmers and they adopt productivity-enhancing research and favorable it. Agricultural research and development (R&D) 14 EvaluativE lEssons for aGriCulturE and aGribusinEss that helped semidwarf and high-yielding variet- relatively good rainfall, soils, infrastructure, and ies of rice, wheat, and maize evolve resulted in markets would help agricultural development rapid yield increases throughout Latin America innovations. and Asia. The knowledge was communicated directly through extension or outreach services Focusing on the right technologies is and was embodied in improved inputs such as important for improving agricultural hybrid varieties. This led to further yield increases productivity. For example, the level of fertil- through the application of chemical fertilizers izer use in Africa is lowest in the world, averaging and, in Asia, the Green Revolution. Between only 8 kilograms per hectare, compared with the 1961 and 2001 in South Asia the area planted with global average of more than 100 kilograms per cereal increased less than 20 percent, whereas hectare. Because of extensive agricultural land use cereal yields increased 145 percent. Most of this practices the rate of deforestation in Africa is two yield increase came between 1981 and 2001, times greater than the global average. Africa loses when input delivery systems, output marketing an estimated $4 billion worth of soil nutrients systems, and other assets complementary to annually (AGRA 2009a). An African Green Revolu- high-yielding varieties were put in place. tion must also revive the soils. The success in cassava transformation is a good example. In the However, optimal technologies differ past three decades, a stream of improved cassava across countries and regions. The conditions varieties—the Tropical Manioc Selection series— of soils, climates, water availability, and related has increased on-farm yield gains by more than pests and diseases are different for Africa than for 40 percent across Africa through breeding and Asia. Thus, a Green Revolution in Africa will need pest control efforts without purchased inputs to begin at the opposite end from Asia’s (Box 1). (Haggblade and Hazell 2010). Challenges to African agricultural growth include poor soils and seeds, lack of finance and markets, Various country cases show the importance and weak policy support. These challenges have of research generated by credit and been compounded by climate change and threats extension. ADB’s agriculture and natural to biodiversity and natural resources, which have resources research was relevant, and the modali- compromised soil health and water availability. ties used in supporting the research were effec- Starting with a focus on the “breadbasket areas� tive in achieving ADB objectives (ADB 2010). and optimizing food production in areas with IDB’s Farm Modernization and Development Box 1. Africa’s Agricultural Revolution Will Need to Be Different than Asia’s A Green Revolution in Africa will need to begin with improving formation from traditional to modern agriculture, which involves the productivity of rain-fed crops such as millet, sorghum, and both technical change and the presence of input, seasonal finance, cassava (Thomas 2008). Much of Africa is akin to the drier and marketing systems to increase farm production and deliver it regions of Asia, yet only 5 percent of the cultivated area is to consumers at a competitive price (Poulton, Kydd, and Dorward irrigated, compared with South Asia’s 40 percent. Africa’s 2006, 2007). As the conditions of soils, climates, water availability, highly varied agroecological zones imply that it cannot simply and related pests and diseases are different for Africa than for Asia, replicate Asia’s transformation, which was based on the use of optimal technologies are also different. In addition, releasing the reliable irrigation, fertilizers, and improved seeds, beginning in bottleneck constraints in many places of Africa—such as underde- fertile regions and eventually moving to arid areas. It will need veloped transportation facilities, weak property rights, poor security to begin its revolution where Asia’s ended. conditions, weak supporting markets, especially for fertilizers, and In Africa, increasing agricultural productivity implies a trans- low human capital—can improve productivity. Source: IEG 2009c. 15 ECG PaPEr 3 Program in Uruguay was useful for providing Building capacity facilitates productiv- incentives to adopt specific technologies, as well ity increases. One way to address research as for crop-specific technical assistance like plant and extension is to establish a strong public health (IDB 2003). The effects on productivity, education and research system (Evenson and however, vary by crop (Cerdan-Infantes, Maffioli, Pray 1991; Pray, Fuglie, and Johnson 2007). R&D and Ubfal 2009). In the Dominican Republic, in agricultural-based countries is most effective effects of the technologies financed through the when oriented toward increasing the productiv- Program for Technical Support in the Agricul- ity of on-farm assets, including land, labor, and tural Sector vary by crop—the productivity of smallholder human capital. R&D in transform- rice producers and breeders improved, whereas ing countries needs public sector R&D institu- the effect on the productivity of other producers tions and projects that partner with both input was insignificant (Gonzalez and others 2009). A suppliers and the food supply chain. R&D in recent evaluation of several World Bank projects urbanized countries may need to focus on (IEG 2009a) finds that, in Brazil, Colombia, Peru, providing appropriate technology to smallhold- and Nicaragua, competitive research funds can ers such that they can access the growing urban help better mobilize available research capacity, markets in a sustainable way. stimulate scientific creativity, and promote efficiency in the national research system. However, agricultural research is underfunded in the developing world, with EBRD’s Competitive Grant Schemes large variations across regions. In 2000, complement traditional “block� funding developing countries spent an average of 0.5 allocated annually to specified public percent of agricultural GDP on R&D, whereas research organizations for their core developed countries spent 2.4 percent (Oxford research programs, infrastructure, and Policy Management 2007). The average rates of human resources. They can be used to return on investment in agricultural research accomplish objectives that may be difficult to and extension—in the range of 35 percent in achieve through block funding, such as funding Sub-Saharan Africa and 50 percent in Asia, for to specific research topics. EBRD’s recent example—far exceeded borrowing costs. But evaluation of the Tajik Agricultural Finance growth rates of public agricultural R&D expendi- Facility indicates the importance of providing tures fell noticeably in the past decades after a affordable and timely financing for working rapid expansion in the late 1970s. This is in part capital for cotton growers (EBRD 2009). due to the winding down of the Green Revolu- tion and donor fatigue with agriculture. Asian Public research and private research are countries spent nearly five times what countries in complementary. Public funding of research and Sub-Saharan Africa spent on agricultural research extension services will be needed because of the per hectare over the period 1980–2003 (Alene public good nature of the services. Poor farmers and Coulibaly 2009). Agricultural investment in and smallholders are generally unwilling and R&D increased by barely a fifth in Sub-Saharan unable to pay for advisory services that deal with Africa in the past 20 years, with a decline in about public knowledge and information (Swanson and half of the countries there. Rajalahti 2010). Although farming is essentially a private sector activity in which farmers apply their International institutions should more labor and capital to land to produce crops, the actively facilitate an improvement in public good nature of a wide range of support research and extension. Evaluative evidence services they require implies the need for public suggests that MDB interventions in supporting support, which will not be provided in sufficient research and extension can be improved: quantity or quality only by market institutions. • WBG interventions have had limited success in R&D performance can be improved through ensuring adequate support for research and ex- better public-private collaboration. tension activities after project close (IEG 2010). 16 EvaluativE lEssons for aGriCulturE and aGribusinEss Links between the Consultative Group on Inter- delivery (notably animal health and plant protec- national Agricultural Research (CGIAR) centers tion) and has provided support for the explicit and national programs are weak; research find- use of matching grants and business plans to spur ings from CGIAR institutions need to be main- technology change (IDB 2003). However, de- streamed consistently in country-level World velopment efforts in research program systems Bank projects. Sustainability has been an issue have been hurt by decreases in spending and in the World Bank’s support for research and limited funding commitments. Special attention extension because of insufficient government to outcome tracking, sustainability of the mod- funding and limited cost recovery, whereas IFC’s els adopted, and promotion of the requisite ad- trader-processors can recover costs through justments is needed in view of recent structural farmers’ crops. The World Bank’s agriculture overhauls of agricultural research and extension analytic and advisory activities have generally systems in the region covered by IDB. been of sound quality, and the lending that it • AfDB and IFAD’s investments in agricultural informed had better outcomes than lending that research have achieved good or promising re- did not; but insufficient attention has been given sults. Examples include the IFAD roots and tu- to enhancing the impact and sustainability of bers program in West Africa, AfDB funding for those activities at the country level. IFC advisory Nerica rice, and control of animal diseases and services have been largely supply driven and locusts by AfDB and IFAD (AfDB-IFAD 2010). have lacked a focus on relevant agribusiness IFAD has also established a partnership that subsectors. Few advisory services leveraged out- enables IFPRI research in IFAD-funded proj- comes by linking with investments. ects. But the knowledge and innovation gaps • ADB experience in this area has been more are large in Africa. The joint AfDB-IFAD evalu- positive, as indicated by its Special Evaluation ation finds three reasons for the inadequate Study on Policy Implementation and Impact of resources for research in Africa: (i) inefficient Agricultural and Natural Resources Research and underfunded science and technology in- (ADB 2000). For example, some activities initi- stitutions; (ii) a lack of effective identification ated by ADB have been incorporated in other and extension of innovations that work; and follow-on projects or have received continued (iii) rapid changes in the international research support from other development partners. environment toward biotechnology and pri- Some activities were also absorbed into the core vate agricultural research. agendas of international agricultural research centers. Major collaboration developed involv- Many IFIs are not set up to support agricul- ing government, international agencies, and the tural research. Nonetheless, they should private sector in rain-fed areas, where there is better coordinate their projects and strengthen much need for investment (Box 2). However, cooperation with research-supporting organi- the success of extension services in contributing zations, such as CGIAR or the International to higher yields has been limited in ADB proj- Development Research Centre (Canada). Those ects (ADB 2010). Crop yields (including live- organizations in turn could benefit from follow- stock) achieved under some of the evaluated up projects financed by the IFIs. projects have been lower than expected. Poor extension services also resulted in low levels of Access to Water project acceptance and beneficiary participa- tion. Extension services would be more effec- Access to water is a major determinant of tive if they were integrated with other support agricultural productivity and the stability services, such as inputs delivery, credit, supply, of yields. Advancing technology can raise yields and marketing, most importantly involving the further in irrigated areas and help farmers deal private sector in improving the value chain. with a more variable future climate. More attention • IDB has helped develop ways of partnering the is required for improving productivity in rain-fed public and private sectors for agricultural services areas. Water management interventions need to 17 ECG PaPEr 3 Box 2. Consortium for Unfavorable Rice Environments The Consortium for Unfavorable Rice Environments (CURE), knowledge distilled into decision tools, management principles, established in 2002 with the support of ADB regional techni- and operational guidelines that are extension ready; (ii) capacity cal assistance, builds on the knowledge gained, technologies building for national agricultural research systems (NARSs) for developed, and partnerships established over the past de- implementing integrative and participatory technology develop- cade. CURE has 10 developing country members—Bangladesh, ment and dissemination; and (iv) acceptability to farmers and vi- Cambodia, India, Indonesia, Lao PDR, Myanmar, Nepal, the ability of innovative rice-based production systems based on their Philippines, Thailand, and Vietnam—and is coordinated by the biophysical performance and socioeconomic circumstances. International Rice Research Institute. Specific technologies for the fragile rice ecosystems were de- CURE emphasizes bringing technologies and knowledge to veloped and tested. farmers using a participatory mode of identifying problems and CURE activities continued even after the completion of the working out solutions. Consultations among CURE partners and ADB project. The International Rice Research Institute and NARS stakeholders were frequent during implementation of the regional partners have realized the value of CURE and support its operation technical assistance. Three major rain-fed lowlands (drought, with their own funds. The member countries believe that “star submergence, and salt-affected lowlands across monsoon Asia) technologies� developed from CURE and validated under local and three distinct highland environments (drought-affected conditions could provide opportunities for improving rice pro- plateaus in South Asia, drought-prone and mountain areas of ductivity in the most adverse production systems and for improv- Southeast Asia, and the rainy but intensively cultivated uplands ing the livelihood of the poor and subsistence households. The of Indonesia and the Philippines) were identified for CURE to collaboration with NARSs has enhanced capacity in extending focus on. Outputs of the project include (i) cropping innovations knowledge, technologies, and skills to nongovernmental organiza- that combine complementary technologies for increasing rice tions, local communities, and farmers and is expected to ensure productivity and reducing risk in rice-based cropping systems; (ii) realization of impact. Source: ADB 2008. address three interconnected issues: improving AfDB and IFAD in Africa. A joint AfDB-IFAD access to water, enhancing recovery of operation analysis (AfDB-IFAD 2010) of project effective- and maintenance costs, and improving water use ness finds that more than 80 percent (the highest efficiency. percentage of satisfactory rating of all subsectors) of AfDB’s and more than 60 percent of IFAD’s Irrigation benefits millions of people (Box irrigation development projects have satisfactory 3). About 80 percent of the World Bank’s irriga- performance. The attention devoted to promot- tion projects increased farmers’ access to water by ing participatory processes for the management of meeting their targets for physical infrastructure activities is a common element in those successes. development. Sustainability, however, has been an issue because of the lack of reliable funding for However, cost recovery of irrigation operation and maintenance. Irrigation projects projects has been difficult. Political and also report positive agricultural outcomes, partic- institutional factors—including difficulties associ- ularly when supported by complementary activi- ated with imposition and enforcement of pricing ties (IEG 2010). An earlier IEG study on water policies, lack of capacity or motivation of collec- management in agriculture (IEG 2006b) noted tion agencies to enforce water charges, and a the scope for increasing complementarity among vicious cycle of low operations and maintenance irrigation investments and credit, extension, and expenditure—lead to poor performance and marketing services. increase farmers’ reluctance to pay for irrigation. The WBG needs to devote more attention and Financing irrigation systems as well as other resources to helping governments implement local infrastructure has been a priority for politically and institutionally feasible mechanisms 18 EvaluativE lEssons for aGriCulturE and aGribusinEss Box 3. Cases of Effective Water Management Support IEG evaluations have cited some successful cases of water Pradesh increased the demand for labor, particularly for women management. During 1994–2004, World Bank agricultural water (IEG 2008). For three decades, the World Bank has been Egypt’s projects benefited up to 12 million households (IEG 2006b). Mali’s principal partner in irrigation and water, and the renewed irriga- Office du Niger invested in the maintenance and reform of irriga- tion system has contributed to increases in agriculture produc- tion, almost tripling rice production (IEG 2007b). A small-scale tivity (IEG 2009c). An IFC study (IFC 2008) found that investment irrigation project in Nigeria benefited more than 2 million rural in the irrigation system in India allowed an additional 1 million households (World Bank 2008). A World Bank-supported irriga- hectares of farmland to be irrigated over four years. tion project in Peru led to agricultural improvements in the rural coastal area (IEG 2009a). Irrigation investments in India’s Andhra for cost recovery, to foster an environment in and 1 pound of packaged beef requires about which public-private partnerships can succeed 16,000 kilograms of water.6 IFPRI developed a and to monitor results (IEG 2010). global model of supply and demand for food and water that shows that if current water policies Although there is potential to increase continue, farmers will find it difficult to meet the irrigation, the availability of water is a world’s food needs. growing constraint. Agriculture accounts for 70 percent of fresh water use globally, 71 Climate change is likely to make water percent in Latin America, 81 percent in Asia, sources more variable, and increased and 86 percent in Africa (AQUASTAT 2010). droughts and floods will further stress Only a small percentage of agricultural land—4 agricultural systems. Meeting future food percent in Sub-Saharan Africa, 29 percent in East demand will also require development of crop Asia, and 39 percent in South Asia—is irrigated. varieties and livestock that respond reasonably In Tanzania, of the 44 million hectares suitable well in a range of production environments rather for agricultural production, only 10 million are than extremely well in a narrow set of climatic under cultivation and only 200,000 irrigated. This conditions (IFPRI 2009). Agribusiness is being represents a mere 2 percent of total cultivated pushed to reduce its water footprint throughout area in the country (Makki and de Jong 2008). the food supply chain and to reclaim wastewater, There is definitely potential to increase irriga- particularly in fragile ecosystems. tion in Sub-Saharan Africa: only 18 percent of the potentially irrigable land is under irrigation Addressing the challenge of agriculture (Peacock and others 2004). productivity requires wider implementation of management practices in water use (FAO Water scarcity is also a key constraint to 2009a). Greater attention to water use efficiency agribusiness. Agribusiness and beverage firms and its monitoring is critical. Rainwater harvesting use an enormous amount of fresh water and are and runoff farming are low-investment technolo- concerned about shortages of clean potable water gies under certain circumstances (Pacey and as they compete with demand from growing Cullis 1986). Irrigation water should be treated populations. Increases in the demand for all foods as an economic good to reflect its true social result in an increase in the demand for water, costs rather than as a public good with underesti- and increases in demand for high-value foods— mated price, and farmer participation in irrigation such as meats and dairy—and for processed management should be increased. But farmers foods increases water demand from produc- must have incentives to diversify crops or invest tion systems. For example, 1 kilogram of maize in improved technologies. In Africa, given the requires approximately 900 kilograms of water, 6. See http://www.waterfootprint.org. 19 ECG PaPEr 3 poor record of investments in large-scale public World Bank country studies and rural finance irrigation schemes, the focus should be on small- reviews reveal that financial sector interventions scale schemes that can be managed by groups of may affect the availability of agricultural credit, and farmers themselves (AfDB-IFAD 2010). agricultural and community support interventions may affect the quality of the participating financial There needs to be more attention to water institution’s loan portfolio. However, sustainability management in rain-fed agriculture. remains a challenge. IFC has supported farmers’ Although productivity is lower, most agriculture access to credit with investment and advisory production occurs in rain-fed areas. The litera- services focused on traders and processors; in a few ture notes the greater marginal impact on agricul- cases it has resorted to financial intermediaries. For tural production and poverty alleviation from an example, providing small amounts to thousands of additional unit of investment in rain-fed areas individual farmers through large trader-processors compared with irrigated areas (Fan and Hazell can make a big difference; sometimes involving 1999; Fan 2008). An IEG evaluation recommends commercial lenders and buyback arrangements that the World Bank track its water management has demonstrated effectiveness in improving the activities separately in rain-fed areas so it can take livelihood of small-scale farmers. stock of what works in addressing water manage- ment issues in these areas and contribute strate- IDB supported rural financial services gically to their development (IEG 2010). through its agriculture sector programs. In the first half of the 1990s, a serious distor- Access to Credit tion in agricultural credit relating to state-owned agricultural banks was removed. But no parallel Access to credit is a major constraint to improv- initiatives were fostered to develop an alternative ing agricultural productivity. Inadequate institutional apparatus to fill the void left when incomes and limited access to credit often impede existing systems were dismantled. There was growth, especially in agriculture-based economies. little appreciable improvement in the availability Facilitation of accessible and financially sound credit of credit or financial services for small farmers. facilities is important in all countries. In agricultural Hence, an IDB evaluation recommended that countries, access of farmers or farmers’ groups and the IDB revisit its approach to rural finance (IDB women’s groups to microcredit helps farmers and 2003). A preeminent focus should be financ- women accumulate productive assets. As countries ing for small and medium-sized agricultural transition, small and medium enterprise credit operations; that should further the development becomes more important. In urbanized countries, of enabling regulatory environments and institu- one expects a reasonably well-developed private tions for the growth of rural finance institutions sector credit market. and for adapting financial technologies in urban microfinance programs for a rural clientele. International institutions have played a role in facilitating access to credit through EBRD’s recent evaluation of Tajik Agricultural their rural finance programs. But sustainabil- Financial Facility confirmed the effective- ity beyond project duration remains a challenge, ness of support to primary agriculture and greater synergy is needed between financial through the provision of credit to farmers sector interventions and agriculture lending. (EBRD 2009). Lessons from this evaluation show Addressing risks related to weather and prices the importance of providing proper incentives to in the agriculture sector also requires synergies local banks participating in such a program, as well among agriculture, the financial sector, and as to the consultants. The evaluation also stressed disaster and risk-management lending. the need to better coordinate the program with local banks to ensure compliance with conditions The World Bank’s rural finance approach before the planting season starts; it also stressed appears to be benefiting the agriculture sector. the importance of providing not only agronomic 20 EvaluativE lEssons for aGriCulturE and aGribusinEss but also financial training to farmers who are to features. First, with secure land tenure, the become borrowers, often for the first time. landowner can invest in land improvements with less fear of losing the land and therefore being A study by the Independent Evaluation unable to recoup the investment. Second, the Department of ADB (ADB 2009) provides landowner can use the land title as equity to leverage a different perspective with a focus on credit for further investment in income-generating microfinance. It suggests three things. First, opportunities. Projects promoting access to land the majority of existing clients, new clients, and can increase agricultural production by bringing nonparticipating households deemed qualified underutilized land under cultivation. for the program are not really poor by official definition. Second, microfinance has a positive Access to land and formalization of land and significant effect on income and expendi- rights are thought to contribute to both ture. However, the effect is regressive, which poverty reduction and improvements in implies that poorer households do not feel the agricultural productivity, and the World Bank effects of the intervention as much as the richer and IFC have been active in both—most notably households. Third, the interventions indicated land administration—in recent years. Evidence no significant impact on household assets or on of the impacts of these efforts on agricultural human capital investments such as health and productivity is sparse, however, particularly education. It appears that the mild impacts on for land administration, because these projects income and expenditures were insufficient to do not typically have agricultural productivity change either accumulation of household assets as a core objective to be monitored. Given the or human capital investments. multifaceted nature of agricultural development, in some settings it may be important to combine It is crucial that increased public spending land administration with other support services in agriculture leverages private initiatives. to achieve productivity gains (IEG 2010). More Market-based private sector investments can be attention and evaluation work is required in this major drivers of technical change. Such invest- area. ments can generate new sources of demand for innovation. Rural financial market development Uncertain land tenure or limited private deserves priority attention. AGRA’s Innovative use rights can greatly restrict the efficacy Financing Program (AGRA 2009a) assembles of a variety of rural development activi- “loan guarantee funds� to insure against some ties. One reason that formalization of land rights proportion of loan defaults. It provides credit can achieve positive agricultural outcomes is for smallholder farmers and small agricultural that they have supported on-farm investments. businesses previously considered too risky for To provide incentives for investments into lending. With additional partners, the program improved productivity of primary agriculture, aims to leverage up to $2 billion in low-interest well-functioning agricultural land markets are loans for smallholder farmers and small to important (EBRD 2008a). medium-sized African agricultural businesses. International institutions can capitalize on the IDB has supported operations to finance opportunities for agriculture and agribusiness community-based physical, social, and by bringing partners together to deliver practical production infrastructure investments for market-based solutions. settlements of campesinos who are in the process of securing ownership of the parcels Access to Land and Formalization of they farm. Modernization of land registries and Land Rights of cadastres is the most frequently mentioned objective of the land administration and titling Land tenure essentially gives rural farmers programs reviewed. Evaluative evidence also rights to an important asset with two critical suggests that land administration programs are 21 ECG PaPEr 3 technically complex and politically difficult to productivity. World Bank transport interven- administer, which explains the frequent delays tions have generally been successful, but results in implementation (IDB 2003). have varied by region. Available data point to high average success rates in these projects. As EBRD supports access to land through the in other sectors, rates are lower in Sub-Saharan policy dialogue conducted by its Legal Africa. Department under the Law in Transi- tion program (EBRD 2010a). The focus is on IFC has helped bridge infrastructure and central Asia, where farmers still do not have land logistics gaps. Investments in railway systems, ownership rights and therefore have limited trucks, barges, ports, and warehouses have access to more substantial credit financing helped relieve constraints along the supply-value because they lack collateral. chains. IFC has focused on market infrastruc- ture, integration of farmers into modern supply Transport and Marketing chains, commodity supply, and standards. IFC’s investment and advisory services have concen- The greatest returns for agricultural produc- trated on traders, processors, and logistics client tivity often result from investments in roads companies. Projects have addressed infrastructure (IEG 2007c). In Ethiopia, access to all-weather bottlenecks along the supply-value chain related roads decreased poverty by 6.9 percent and to transport, distribution, and primary produc- increased food consumption by nearly 17 percent. tion inputs. Investments in logistics companies In an ADB occasional paper (Rauniyar and have facilitated their integration of procure- Kanbur 2009), rural roads were cited as among ment, transport, warehousing, distribution, and the most effective investments for reducing rural forwarding of agribusiness inputs and outputs. poverty. However, rural roads are not sufficient The projects have provided logistics solutions for inclusive development. Adequate enabling to client companies and their competitors. IFC investments and support services are required. investments in agribusiness had above-average In most of the road corridors, there are opportu- development outcome ratings in Latin America nities to provide backward and forward linkages and the Caribbean and Europe and Central Asia, for adding value to agricultural production. but ratings were weak in Africa. Given the low rates of market access in Sub-Saharan Africa, the Although half of the rural population of World Bank and IFC need to continue to seek south Asia lives within one hour of a market, innovative ways to support the development and nearly half of African farmers still live five maintenance of transport and market infrastruc- hours or more from a market. Not only are ture in the region through both public and there few rural roads, but transport costs in Africa private investments. are among the highest in the world, reaching as much as 77 percent of the value of exports. Rural The joint AfDB-IFAD evaluation corrobo- and trunk roads constitute a significant challenge rates the point that in Africa extremely to agriculture and agribusiness in Africa (AfDB high transportation costs and access to 2010). markets are impediments to private sector development (AfDB-IFAD 2010). In some cases The World Bank has been engaged new or improved roads alone are enough to have extensively in building roads, storage, ports, a significantly positive impact on market access, forwarders, and trading platforms. During particularly where the underlying supply and 1995–2005, about 15 percent of road projects demand conditions are favorable. The Annual consisted of rural roads (IEG 2007a). Two-thirds Report on Results and Impact of IFAD Operations of the projects in the reviewed portfolio indicated (IFAD 2009) identified impact on market access that the transport component would contribute as an area in which IFAD-supported projects and to improvements in agricultural production or programs need to be improved. 22 EvaluativE lEssons for aGriCulturE and aGribusinEss Maintenance and scant cost and benefit farmers often cannot compete with imports tracking are some of the most serious weak of subsidized cereals and meat (AfDB-IFAD points in rural roads. In Latin America and the 2010). Some exports—often those of promis- Caribbean, some programs in the 1990s launched ing nontraditional items such as horticultural new arrangements involving the community and products and high-value fish—run into nontar- local microenterprises, which offer promise iff barriers, such as very demanding sanitary and from an operational standpoint despite frequent phytosanitary regulations. Agro-industries in funding and institutional constraints (IDB 2003). Africa considering exports run into tariff escala- tion on processed goods whereby there may be Policies, Markets, and Agribusiness free access for unprocessed produce, but tariffs rise rapidly with any additional processing. There is a positive correlation between good governance and economic growth, Market failures in rural areas are acute in as well as between good governance and Africa. Potential suppliers of inputs and capital satisfactory project outcomes. A recent and buyers of produce often know little about report, Distortions to Agricultural Incentives: A farmers, particularly small farmers, and vice Global Perspective, 1955–2007 (Anderson 2009), versa. Rural financial systems are underdevel- finds that the incentives farmers face are affected oped because formal agencies face high transac- not only by direct protection or taxation of tion costs in dealing with a new clientele of small primary agricultural industries but also indirectly farm households scattered over large areas. Both by policies assisting nonagricultural industries, as AfDB and IFAD recognize the importance of the the latter can have an offsetting effect by drawing private sector in promoting access to markets, resources away from farming. Nonagricultural but their efforts have not matched the important distortions can also have a negative impact on role of the private sector in agriculture and rural farmers. development. The IFAD Strategic Framework 2007–2010 includes promoting access to markets The effects of liberalization on farmers’ and engagement of the private sector. welfare depend on the accompanying policies. The ability of smallholders to compete The “imperative of regionalization� is in expanding markets can be limited by high important for Africa (AfDB-IFAD 2010). Many transaction costs; insufficient access to credit, issues in agriculture and agribusiness, particu- inputs, and extension; the need for training larly for small, poor, and landlocked countries, to meet food safety and international sanitary can best be solved through a regional approach. standards; and procurement practices that favor For example, regional trade in agriculture and larger transactions (World Bank 2007). In Latin food products is good for growth, farmers’ America, asymmetric market liberalization has incomes, and regional food security. Efforts to hurt agriculture. In the 1990s, policy reform augment regional trade and food security will moves failed to take into account the adverse be aided by the harmonization of standards and effects of sharp exchange-rate appreciations sanitary measures and bolstered by subregional once capital accounts were opened or of inflex- and regional capacities for their implementation. ible exchange-rate policy management. This Similarly, for small countries, regional infrastruc- opened the way for imports (often of subsidized ture—roads, communications, ports—is critical Organisation for Economic Co-operation and for access to each other’s and external markets. Development products), discriminating against local farmers and making export agriculture less Recent country strategies and operations competitive (IDB 2003). have emphasized commodity value-chain approaches, the provision of rural finance, Nonreciprocal trade reforms have also and the commercialization of small harmed African agriculture, as African farmers. AfDB focuses on enhanced marketing 23 ECG PaPEr 3 through better postharvest technologies, rural improving the functioning of the market as one market infrastructure, and agribusiness develop- of their objectives. Most of these loans were ment, lately through its private sector window. programs loans directed toward correcting fail- A joint AfDB-IFAD evaluation finds that develop- ures in agricultural markets or reforming poli- ing institutional measures to remedy multiple cies. Approximately half of these loans reported market failures is a major challenge for agricul- important achievements in improving market ture in Africa. Solutions have been found to some conditions. Most of the policy changes—such of the failures. Examples include (i) contract as removal of subsidies and taxation at various farming, public training, and underwriting of stages of production systems and better access input suppliers; (ii) brokering by third parties to market services—were directed toward im- for deals between groups of small farmers and proving market functions. buyers; (iii) the formation of farmers’ associa- • World Bank projects recognize the importance tions; and (iv) group lending. of collective action and assist farmers to form producer organizations and build links with Agribusiness, agro-industry, and market exporters. IFC is exploring a business model in activities are integral to agricultural and Eastern Europe that seeks to achieve integra- rural development. They connect farmers tion of farming and food retailing by reducing to input and output markets and economic barriers and costs to exchange and encourag- opportunities and enhance linkages between ing greater market integration between rural agricultural and nonagricultural economic activi- and urban areas. Commodity roundtables have ties. Farmers are increasingly being integrated not yet developed international standards for into the industrialized farm-processor-market supply chain certification. chain through contract growing arrangements • EBRD’s Agribusiness Operation Policy eval- with primary processors. uation, completed in 2008, indicates that a new agribusiness sector operations policy is Increasing the productivity of the assets required to more clearly address processors used throughout the supply chain can and marketing companies and enhance their increase the profit potential. Accumula- backward linkages (EBRD 2008b). It also finds tion of productive assets throughout the supply that EBRD has been more successful in ad- chain allows greater flow of product, promoting dressing competition and market expansion food security in the country or region as well than in addressing institutions and policies. as increases in income. The competitiveness of More attention to the food supply chain, finan- modern supply chains depends on the ability to cial services, and logistical services is needed. understand and instantly respond to changing The evaluation recommends some renewed consumer demands. Information and communi- initiatives in the area of improved markets and cations technologies are central to transforming transparency from primary production to end and urban economies as they attempt to become users. more competitive globally. Successful supply chain investments may need to simultaneously Donors should better monitor and evaluate resolve inefficiencies at multiple leverage points. project impact along food supply chains. These leverage points include input supply, Just because smallholders are involved in a large producers, market linkages, processing, transpor- growing scheme does not automatically mean tation, cold chains, wholesaling, and retailing. that rural incomes increase. In fact, they could be squeezed further if farmers have to adopt technol- International institutions have engaged in ogy packages and meet higher grading require- facilitating the improvement of markets and ments and production standards yet receive no supply chains with success to various extents. additional compensation. Being able to keep • ADB finds that 60 percent of the loans included the contract and having a guaranteed market in a synthesis study (ADB 2010) indicated that may be the main reason farmers in this situation 24 EvaluativE lEssons for aGriCulturE and aGribusinEss remain faithful suppliers. As liberalization may for setting and monitoring policy and financing exclude small and asset-poor farmers who do or providing services for small farmers remain not have the capacity to respond to require- largely ineffective. A number of recent reforms ments of quality, consistency, and volume and at IFAD and AfDB have been oriented toward to transaction specifications demanded by the improving lending agency performance, and modern food industry, small and medium-size evaluation of recently approved country strate- enterprises could be captured by multinational gies, programs, and projects found signs of organizations in the increase in vertical integra- improvement in quality. However, little attention tion. It is important to measure the impact and has been given to improving government perfor- track the beneficiaries. mance. There is, consequently, an urgent need to strengthen government capacity to achieve Institutional Factors successful results. Strong political will supporting agriculture and rural development is generally Institutional factors have overarching lacking in Africa, but such support is essential impacts on performance. Coordination within to ensure that donors align their interventions and among institutions plays an important role within the overall priority areas defined by in the effectiveness of interventions. Commit- national policies. ment, capacity, and country governance have been found to be associated with borrower The joint AfDB-IFAD evaluation concludes performance and project outcomes, regardless that there is a large policy gap: significant of whether the borrower is a sovereign govern- shortcomings in policies, institutions, and ment or a private company (IEG 2010). ultimately leadership are constraining success- ful development of the agriculture and rural WBG project performance is strong in some development sector. Related to the policy gap is a urbanized countries but weak in some knowledge gap, where public goods are underin- agriculture-based countries with lower vested. An appropriate policy environment has capacity (IEG 2010). Bank agricultural projects yet to tap into and exploit the full potential of were less likely to achieve their objectives in African agriculture. It is important to embed countries with weak governance (where 72 training in broader programs that address organi- percent were rated moderately satisfactory or zational and institutional capacity constraints so better) than in countries with a more favorable that trained individuals can apply their training governance environment (where 82 percent were in the workplace. The joint evaluation also finds rated moderately satisfactory or better). Projects that lack of incentives posed a particular problem in countries with high levels of corruption—one to civil service training in low-capacity countries. aspect of weak governance—performed even worse, with 67 percent moderately satisfactory Coordination within Organizations or better. IFC’s agribusiness portfolio review confirms that strong client commitment and Inadequate coordination within interna- capacity have underpinned positive outcomes, tional institutions as well as among partner and a paucity of indigenous entrepreneurial institutions affects the effectiveness of capacity is key to weak outcomes. interventions. Potential synergies among sectors such as transport, finance, and agriculture Many countries in Africa need to build have sometimes been missed within the World capacity to lead development, especially Bank and IFC, and synergies between the comple- rural development (AfDB-IFAD 2010). mentary public-private sector roles of the World Whereas most governments have decentraliza- Bank and IFC have not yet been fully exploited tion initiatives under way, administrative and (IEG 2010). Inadequate coordination between fiscal decentralization lags far behind political the transport and agricultural sectors was noted decentralization. The institutions responsible as a limitation for strategically developing rural 25 ECG PaPEr 3 roads (IEG 2007a). And the World Bank’s matrix Coordination among Donors management structure does not seem to encour- age staff to work across sectoral boundaries (IEG Challenges to effective coordination arise 2006b). Interdepartmental coordination issues because many donors provide support to also exist in IFC, which lacks a cross-department agriculture and agribusiness. Donors are strategy to cover the supply chain from inputs and accountable to constituencies in their home farms to markets, processors, retail stores, and countries and hence have an incentive to support consumers (IEG 2010). IFC investment depart- projects and programs that can be attributed to ments have been working globally in various them. This can lead to duplication, fragmen- aspects of the agribusiness supply chain without tation, and sometimes contradictory donor a strategic approach to supply chains at country interventions (World Bank 2008). An FAO study7 and regional levels. Yet a lack of coordination finds that the large number of donor projects, has impaired the ability of the WBG to deliver poorly coordinated and lacking a common the maximum impact from its agricultural invest- policy framework, was seen as imposing high ments in terms of contributions to economic costs on government capacity, leading to weak growth and poverty reduction. ownership, poor sustainability, and uneven service provision. Foster, Brown, and Naschold Efforts at World Bank-IFC collaboration in (2000) find evidence of only modest improve- the agricultural and agribusiness sector have ments from sector approaches in agriculture and picked up recently. This bodes well for the rural development. Sectorwide approaches have increased emphasis on agriculture, provided there been bogged down at the policy development is adequate follow through. The May 2008 Country phase and, where donors have tried to push their Partnership Strategy for Brazil mentioned prepara- views onto government, ownership of the sector tion for increased coordination between IFC and strategy has remained limited. the World Bank. Likewise the Tamil Nadu Irrigated Agriculture Modernization and Water Bodies The ADB finds that design flexibility, Restoration and Management Project (fiscal 2007) improved donor coordination, and joint sought strengthened collaboration with IFC in the implementation can fill funding gaps and marketing sector. A recent World Bank document provide other support while protecting notes the effort made in the context of the Tajiki- against changes in donor priorities (ADB stan Country Assistance Strategy to place IFC in 2010). Most of ADB’s agriculture and natural the lead for designing the WBG program for one resources operations were executed with of three pillars—improve business opportunities additional support from and in close coordination in rural and urban areas (IEG 2010). Collaboration with other development agencies. This included also appears to be emerging in response to the a wide range from cofinancing, implementation global food crisis. of advisory technical assistance, follow-on activi- ties by other development agencies in ADB’s The IDB evaluation (IDB 2003) finds that completed projects, and general information coordination of the IDB group products is sharing among development agencies. vital. This is particularly true in areas that are being addressed through multisector operations, EBRD’s Agribusiness Operation Policy where the selection of sector-neutral instru- evaluation finds that more intensive ments can mean access difficulties for agriculture cooperation among financial institutions and rural areas. A shared assessment and greater and small and medium enterprise teams is coordination of the work of IDB group institu- needed to achieve linkages (EBRD 2008b). In tions could yield considerable positive externali- many cases the main obstacle is lack of access to ties and synergies in rurally targeted programs. To achieve this coordination, a stronger internal 7. http://www.donorplatform.org/component/ organizational commitment will be needed. option,com_docman/task,doc_view/gid,314/. 26 EvaluativE lEssons for aGriCulturE and aGribusinEss finance in rural areas. This may require a strength- zations, not including community-based organiza- ening of the multidisciplinary approach in EBRD tions, which could number in the millions. involving different teams and providing appropri- ate incentives for all participants. The evaluation Donors’ entrepreneurial drive and ability indicates that EBRD can only have an impact on to raise and deploy resources should be the sector framework in coordination with the encouraged without taxing government development community. It recommends that capacities (Binswanger-Mkhize and McCalla the coordination and EBRD’s own sector policy 2008). Donors are bringing additional resources, dialogue to be more specifically targeted and but they also come with high government documented. transaction costs for coordination and dialogue, including receiving donor missions and following The joint AfDB-IFAD evaluation indicates up on their reports and recommendations. The that in many African countries, cooperation study draws out the implications of the increas- among institutions involved in agriculture ing number of organizations in the sector and and rural development needs to be strength- the need for a sensible division of labor based on ened. Effective partnerships among the public, comparative advantage and specialization. private, and voluntary sectors have high payoffs. International donors have also not realigned Increased donor participation in cofinanc- their priorities to promote agriculture and rural ing, parallel financing, and post-project development in Africa. African governments need support is an effective way of mobiliz- trusted, knowledgeable, and competent develop- ing resources (ADB 2010). Such participation ment partners who will work with them to address leverages partners’ areas of expertise. Improved the agriculture and rural development challenges donor coordination, backed by contingency and build on opportunities. The evaluation finds planning in case donors change their priorities and that the partnership between AfDB and IFAD was funding commitments during implementation, is weak and that an action plan, backed by adequate needed to ensure that key program components resources and focused attention to management, are adequately supported and implemented in can channel efforts more effectively. a timely manner for synergy. Such contingency plans should be sufficiently flexible to accommo- The agriculture-based and poorer date unanticipated eventualities that adversely economies are heavily dependent on donor affect the program performance. support and generally have weaker capacity to coordinate. In Nepal, an agriculture-based Monitoring and Evaluation economy heavily dependent on donor assistance, donors dominate design and implementation Projects with good M&E quality are more programs. In Ethiopia almost 20 donors were likely to have satisfactory outcome and supporting more than 100 agricultural projects sustainability ratings. IEG evaluations have in 2005, with high transaction costs and duplica- found that more than 90 percent of the projects tion of efforts (World Bank 2007). rated high and about 80 percent of those rated substantial on the quality of their M&E systems The proliferation of donors in Africa is between 2007 and 2009 were rated satisfactory causing severe strain on national systems or better on their development outcomes. But and resources. The number of donors who claim those with M&E ratings of modest had satisfactory a legitimate interest has exploded (Kharas 2007). outcomes or better in only 56 percent of cases. There are 233 multilateral development agencies, Those with negligible ratings for M&E had satisfac- 51 bilateral donor countries (most with multiple tory ratings or better in just 32 percent of cases. official agencies), several hundred international M&E is also important for measuring impacts of nongovernmental organizations, and tens of specific actions and examining the beneficiaries. thousands of national nongovernmental organi- As discussed, poor farmers do not automatically 27 ECG PaPEr 3 benefit from trade liberalization if no appropriate of problems early enough to implement suitable accompanying policies in place. The same is true mitigation measures. The climatic variability in for investment in the supply chain connecting the agriculture and natural resources operations small and medium enterprises to multinational puts an additional dimension of risk that increases retailers. the importance of M&E. Although ADB has been adhering to the formulation of a design and monitor- However, M&E in agriculture and agribusi- ing framework to accompany project propos- ness projects is weak. Incomplete reporting als, full compliance must be ensured to improve on outcomes constrains assessment of project project tracking and performance. There is a need effectiveness and inhibits institutional learning to ensure that M&E activities are well funded and (IEG 2010). The poor state of M&E in agricul- managed as an integral part of implementation. ture and agribusiness projects is not just a case of poor data entry, missing files, and confus- Conclusion ing or cross-cutting categories. The apparent correlation between poor M&E and poor project Agricultural production can be greatly outcomes almost certainly implies a systematic improved worldwide. By one estimate, by 2030 problem at the stage of design and implemen- it could triple in Africa alone. This could lead to an tation. By region, Sub-Saharan Africa had the increase in the regional economy of nearly $900 lowest percentage of projects with good M&E; billion. As discussed, improving road infrastruc- East Asia and the Pacific had the highest. The ture and strengthening research and extension main weaknesses found in the country studies are among the most important challenges for included design of agricultural productivity agriculture and agribusiness development. indicators, questions about the generally satisfac- tory carry-through of objectives into indicators, Investment in agriculture and agribusi- delays, and weaknesses in livestock indicators. ness is poised for a substantial increase, with greater support from the MDBs than There is little information on the impact of the in recent decades. Along with the sustained IDB’s projects in the agriculture sector, and increase in demand and high food prices, the tracking is inadequate (IDB 2003). Of a total of renewed attention by governments and donors 123 agriculture projects financed between 1990 and provides an opportunity for the sector to turn 2001, only one ex post evaluation was conducted. around from the stagnant growth of the past There were problems of missing information, decades. The crucial question is how well new primarily because only one in four projects financing will be used. Clearly, a variety of made progress toward an operation’s develop- factors need to come together to ensure better ment objectives being tracked and documented. outcomes in the future than were seen in the past. The situation with regard to component-specific This synthesis, drawing on the works of various objectives was better but still far from satisfactory: organizations, emphasizes four dimensions: only 4 in 10 projects had adequate information to • Public-private partnership: A prerequisite substantiate the component-specific performance for promoting public-private partnership is for assessments. This suggests that there is large room governments to provide a policy environment for improvement in project structuring to facili- that will induce private sector participation. tate M&E and in substantiating monitoring system Unless this condition is present, generating ratings. interest from the private sector is futile. One factor that differentiates effective use of public Similarly, ADB emphasizes the importance investment in agriculture relates to the link of functional M&E systems in project and it fosters with private investments and activi- program success. It argues that functional ties. Public-private partnership is necessary not M&E systems are needed, not only for promoting only for an effective linkage in the production institutional learning but also for detecting signs chain between agriculture and agribusiness 28 EvaluativE lEssons for aGriCulturE and aGribusinEss but also for the provision of complementary fragmentation, and sometimes contradiction services. One example is basic human capital in interventions, but it also further stretches and physical infrastructure. Public funding is the already limited capacity of the recipient needed because of the public good nature countries and reduces overall effectiveness. of much of that infrastructure. Public-private Transaction costs also increase from inade- partnership in research and dissemination of quate coordination. research results can improve technologies for • Sustainability and beyond: Finally, recog- the small-scale sector, and capacity building nizing how much more precarious the natu- can help farmers meet new quality and safety ral environment has become, the success of requirements. Public-private partnership is any agricultural strategy depends on how it important for sustainability as well. integrates environmental and climate change • Cross-sector synergy and complementarity: issues. Climate change threatens agricultural A second overarching element of effectiveness production through higher and more variable concerns the extent to which complementa- temperatures, changes in precipitation pat- rities and synergies across sectors, infrastruc- terns, and increased occurrences of extreme ture, education, health, the environment, are events such as droughts and floods. The costs leveraged. The strong interdependence and of adapting to climate change in developing backward-forward linkages between agriculture countries are estimated at tens of billions of and various sectors indicate the need for cross- dollars. The importance of risk management sector approaches. Further exploiting cross- is increasing, given the volatility of agriculture sector synergy and complementarity helps production and climate change effects. It is capture and respond to the needs of farmers essential to address agriculture and the envi- and entrepreneurs and promotes growth in the ronment issues with an integrated approach agriculture and agribusiness sector. that makes agriculture more resilient to climate • Intra- and interinstitutional coordination: change and reduces the sector’s environmental In a sector where so many players are involved, footprint. User rights for access to water should results depend vitally on how well diverse ef- be managed to prevent further environmental forts are coordinated. Lack of collaboration degradation and strike a balance between pov- between the public and private arms within erty reduction and resource use. Actions and an organization leaves constraints in the value solutions are required at the global, national, chain unaddressed and lowers the effective- and local levels, with inclusive participation that ness of interventions. 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Social Development Paper #148. 34 ECG Papers 1 The Nexus Between Infrastructure and Environment (June 2007) 2 Making Microfinance Work: Evidence from Evaluations (November 2010) 3 Evaluative Lessons for Agriculture and Agribusiness (January 2011)