Paper presented to the World Bank Seminar on Rural and Agricultural
Growth and Poverty Reduction in
January 2004
Steven Kyle
January 2004
Steven Kyle
I. Introduction
This paper examines the political choices confronting the government as
it tries to promote rural development in
This is what politics everywhere revolves around. Indeed, if there were easy ways for
everyone to win and nobody to lose then politics wouldn’t be contentious at
all. The key fact for development
is that there are some activities which will promote growth faster than others
and this necessarily means that the benefits cannot be spread evenly over the
population. To try to spread the
benefits evenly is to forego growth potential.
This is not to say that it is not possible to have growth with
equity. Quite the
contrary. What it says is
that in an activity like agriculture which relies directly on the natural
resource base, there will be some locations more favorable and others less so to
growth of particular kinds. It is
also true that as the economy as a whole grows, there will be structural changes
which have implications for agriculture in terms of where resources flow, and
for who even remains a farmer at all.
This paper does not attempt to be exhaustive. Rather, the object is to try to provoke
discussion of issues which will arise as
II. MADER - Inside
and Outside
A. Proagri I and the Renovation of MADER
There is no doubt that MADER has benefited enormously from the first
phase of Proagri and that it is now capable of
operating effectively in a way that was not imaginable previously. The improvements in bureaucratic process
are important, but perhaps the most important is the visible effect on the
morale and overall work atmosphere that is evident in even a short visit. All evaluations of Proagri have noted the inward focus of this first phase but
have emphasized the need to reorient the focus of the next phase so that there
is more impact “in the field” and less focus on core functions in the capital
city.
What exactly does this mean?
Clearly, there is a link between the often touted concept of
“decentralization” and the need to have a “field impact”. However, it is extremely important to
understand that these two terms are not synonymous and in fact may well
translate into very different targets for the second phase of Proagri. It is
essential that these distinctions not be blurred and that the goals of the next
phase be made explicit. Several points can be made which relate
to this:
1.
Decentralization can be taken by many to mean that funding should shift
away from the central ministerial functions and flow toward provincial and
district bureaucracies instead.
This is already happening to some degree, but we should realize that a focus on provincial or district level
bureaucracies still amounts to an inward looking bureaucratic focus and is not
the same as a focus on farmers themselves.
While there is no doubt that lower levels need more money to be
effective, and need to be strengthened and reorganized, we should not confuse
ability to administer budgets at the district level with ability to affect farm
level outcomes. The bureaucracy is
a means to an end, not an end in itself.
2. It is
essential that a reorientation of Proagri not result
in a loss of the gains already made in core functions in the Ministry. These gains need to be consolidated and
made permanent. They are a
necessary support to what comes after, not one side of an either/or choice. This means that adequate funding to
support these functions must still be guaranteed in the next
phase.
3. A
corollary of the second point above is that some activities are best pursued at
a decentralized level but others are not.
That is to say, there are some things which ought not be
decentralized. To take an
example, nobody would recommend that, e.g. construction or rehabilitation of a
national highway be directed by district level officials. Similarly, some agriculture sector
functions need support/direction from the national level as well. One example is research, where the
public good attributes of the activity together with the low critical mass of
researchers dictate a national level process of funding allocation, research
prioritization and goal setting even though the process of research itself must
necessarily involve direct farm level contact. Another example is the national price
information system, which requires central gathering and dissemination of
information. Other examples exist,
but the point is that some evaluation of the proper location of different
ministerial functions needs to occur, and the appropriate funding should flow
accordingly.
4. If farm
level impact is the goal of the second phase of Proagri, then targets and goals need to be set
accordingly. This means that while
bureaucratic efficiency may be an intermediate goal to be achieved, the outcome
on the ground will be the test of true impact at the end of the day. The overall guide to direct goal setting
is, of course the PARPA, which supports the idea that indicators of success
should/must be far broader than targets for production or marketed surplus,
important as these may be.
To focus attention on results rather than process, some of the indicators
might include measures of household welfare (income, nutrition, etc.),
production related measures such as yield increases, or technology
related indicators such as adoption of new varieties, crops or agricultural
practices. Given the broader
mandate of rural development as opposed to agriculture per se, measures of
household welfare can include such things as education and health, while at the
same time it must also be acknowledged that off-farm activities such as
marketing are the key to growth and commercialization of the agricultural
sector.
Politics and Priority Setting in Proagri II
The first phase of Proagri focused on improving
ministerial performance across the board.
Difficult political decisions which would tend to favor some stakeholders
over others were avoided to a great extent, but this will not be possible in the
next phase if the desired results are to be achieved. Simply put, Proagri II is intended as an investment program and as such must
focus on costs and benefits in its
allocation of resources. Field
level impacts that are sustainable
are the ultimate goal and this necessarily implies that activities which are
capable of making money should be emphasized since those that don’t will fade
away when donor funding ends.
This immediately becomes a political issue since it is obvious that there
will be winners and losers. It is
the role of the ministerial leadership to promote allocations which maximize
returns even though political pressure to spread the money around to all will be
strong. Some of the dimensions
along which choices will have to be made are:
1.
Spatial - Agriculture depends on the natural resource base and
some provinces are better endowed than others. This means that more resources should go
to those areas with greater agroclimatic potential
since there will be a greater return on the investment in those areas. This implies that provinces with better
rainfall and soils will be favored.
Other considerations include proximity to markets or roads, but the
political process must be guided by a rational assessment of investment
returns. A cursory look at
Mozambique’s resource base indicates that some of the central and northern
provinces have greater agricultural potential than the drier south, where crop
potential is more limited and cattle raising more
prevalent.
2.
Ministerial function - If the goal is to generate a field impact
then those parts of the ministry most directly related to this should be favored
above others. As a general
statement, this means that the research institutes and the extension functions
should NOT be treated merely as yet another national directorate competing for
funds. They need to be prioritized
and given a larger share of the pie since it is these functions that will
actually work to change on-farm conditoins most
directly. It should be noted that
this does not prejudge the question of whether extension should be done in-house
or outsourced to NGO’s or other entities.
Rather, it indicates that extension services (however delivered - see
below) and the research results they are intended to convey need to be invested
in as priority items.
3.
Crop - While it is not necessarily the job of the government to
promote particular crop choices, it IS the job of the government to set
priorities for national agricultural research. While various assessments have correctly
emphasized the need for a demand driven approach to agricultural research, this
begs the question of exactly which of all the competing demands will be met
first and which will not. Here, the
government needs to be clear in setting priorities according to the goals of the
PARPA and the potential for research to generate increases in marketable crops
on a large scale. It is likely that
staple grains (e.g. rice, maize) which are widely grown by
smallholders will have the potential for the greatest impact though other
horticultural or cash crops may also be important. It should be noted that export potential
is an important part of the calculation for any decisions and that food crops
are high on this list.
Given the low yields obtained in Mozambique compared even to neighboring
countries with similar agroclimatic conditions,
together with the lack of even basic screening and adaptation of existing
varieties of many important crops, there is are several areas where relatively
quick and large gains can be made.
Focusing the limited capacity of the research system on these will be
important even though this means that some constituencies will not be
happy.
Tables 1, 2 and 3 show recent estimates of potential
returns to yield improvements in major crops. It is immediately obvious
that the potential is larger in some cases than others. Relating to point 1 above, it is also
obvious that some provinces weigh more heavily than others. Table 4 shows average yields for
important crops in
4. Farm
type - In colonial times, an explicit distinction was made between
commercial and family farms, and little effort was expended on improving
conditions on the latter. To
recreate or perpetuate such a bimodal division in the MADER bureaucracy would be
a mistake given the problems inherent with bimodal systems everywhere else in
the world through history. Even so,
everyone is aware that there do exist alternative farm
types and there will be continuing choices to be made regarding such
issues. It is clear, however, that
the low level of technology used on small farms means that the potential gains
are all that much greater while at the same time, the distributional
consequences of improving welfare of smallholders is in keeping with the goals
of the PARPA. The tradeoff is often
one of time: Quick results in terms of output can often be achieved by importing
large scale commercial growers even though the results achieved may be less
widespread across the population.
The role of the government is not necessarily to favor one type and
discourage another. Rather, given
the likelihood that any probable future scenario will contain both large farms
and small, the questions for the government are two:
-
Which government priorities in funding research or investing in improved
infrastructure will generate the highest returns over the long
run?
-
Which among these will not/cannot be done by the private sector on its own?
5.
Location in production/marketing chain - A more expansive view of
agriculture and rural development requires a vision which includes off-farm
activities broadly conceived.
Accordingly, the question then must be asked, where do the most important
constraints to progress occur?
While many of these are undoubtedly production-oriented, it is clear to
most observers that marketing is the
most important bottleneck in many cases.
This means a broadened focus not just toward activities such as formation
of producer associations, but also toward agribusiness more
generally.
III.
Structural Transformation and the Politics of Agricultural Investment and
Taxation
Let us presume that
First, such growth will not occur if there is not a sustained level of
investment in the agricultural sector.
This investment MUST come from both the government and the private
sector. While experience both
within
If the average farm inhabitant today feeds himself and perhaps one other
person, in the future each farm resident will have to feed an additional two,
three, or more people. This fact
stems from the often observed and never violated patterns of development seen in
every country in history as per capita income increases:
1.
Agricultural output grows in absolute terms
2.
Agricultural output as a share of total GDP
declines
3. The
agricultural labor force as a share of the total goes down
4.
Rural-to-urban migration raises the share of population in cities while
the share in rural areas goes down.
There are several important considerations which follow directly from the
points above:
-
Success in promoting development means that not all farmers today will
remain in the farm sector in the future.
Many will migrate to urban areas while others will engage in non-farm
activities in rural areas. This
means that there will be some “winners” and some “losers” as more successful
farmers expand and continue producing while less successful farmers leave
agriculture in search of other pursuits.
In other words, a lot of the farmers we see today won’t be farming in
twenty years, or at least their children won’t.
One implication of this is that if not all farmers are created equal,
then not all farmers will provide the same return on investment. It is to be expected that more
successful farmers will (and should) have access to more investment funds than
ones who are not able to remain profitable. Such changes may well be because of
inherent differences in abilities which exist in any group of farmers (or anyone
else) here or anywhere else in the world.
However, even if all farmers really were equal in terms of endowments and
abilities, the realities of structural transformation would result in a
significant change in the labor force away from agriculture and toward other
sectors.
-
If most of the population of the country is non-farm, then they will need
to buy their basic food requirements rather than growing them. This means that ALL crops will be cash
crops in the future. There will be
no artificial division between those grown “for export” and those grown for
own-consumption. Indeed, in
developed countries farmers themselves buy most of their basic food requirement,
and don’t know or even care if the crop they grow is consumed domestically or
exported. All that matters is that
they are paid for it and that the local market functions well enough for them to
buy what they need.
-
If it is to be expected that a large part of the current rural population
will leave agriculture, then it is all the more important to make sure that they
have the education needed to succeed in other kinds of work. Let us be clear: Farmers are more
productive when they are educated and more educated parents have been shown to
have better nourished and healthier children, so there is already reason to
favor a policy of educating rural populations. However, the adaptability and skills
needed to change occupations reinforces this policy, and underscores the need to
promote education as a basic part of the rural investment
program.
-
We have noted above that both public and private investment are needed in agriculture and rural areas
generally if development is to succeed.
However, it is equally true that agriculture must necessarily be taxed in
some manner if the government is to have the wherewithal to make the investments
required. That is, the first
decision is where to invest - and the answer for any economist is to put the
money where it will earn the highest return. The second decision is what to tax - and
here the answer is to tax those activities which will least distort the
decisions of producers and consumers.
This often leads economists to recommend lump-sum taxes of some
description, but regardless of the particular form of the tax, it is virtually
inevitable that at early stages of development such as that in which Mozambique
presently finds itself, it is as a practical matter unavoidable that agriculture
will be taxed in some manner simply because that is where most of the people
are. The most important point to
remember here is that it is essential that the utmost care be taken to avoid
discouraging those activities we are trying to promote. It is entirely possible that the optimal
course would be to invest in an activity since it generates a high return and
then to tax that same activity once the money is made. The key is to keep the taxation at a
level which does not discourage continuation of or reinvestment in moneymaking
sectors.
Any observer of Mozambican agriculture over the period since independence
is aware of the debate over revision of the Land Law and the intensity of
feeling that this debate can arouse in many participants. The author of this paper is an economist
and therefore has fairly predictable opinions as to what a “good” land law
should look like. In a nutshell,
such a law would be one that would best support a well functioning land
market.
However, there is much to recommend that all stakeholders should accept the current Land Law as it now
stands, at least for the short term.
There are several reasons for this:
1. The
political capital needed to effect further change in the land law would be huge
and could well be wasted anyway.
This is particularly true given the fact that the next elections will
result in a new President who will likely not want to re-engage in this debate,
at least not as a first order of business.
In addition, many stakeholders like the current law and would strongly
oppose change.
2. One of
the reasons often advanced for a revised law is the need for smallholders to use
land as collateral for credit.
However, lack of a particular form of land tenure is not the only or even
the biggest barrier to smallholder rural financial services. Smallholders could have officially
recognized tenure of any form at all and would still not get credit from the
formal financial system.
3.
Unofficial land markets operate anyway. This is known to be true in areas with
substantial land pressure (e.g. the environs of
Rather than expend political capital in a probably fruitless effort to
change the law it would be far more productive to focus on getting smallholders
officially recognized tenure under the current legal regime. Some form of recognition is far superior
to no recognition at all. Once small farmers have any kind
official recognition, they will become a political force in their own right (or
at least a more effective one than at present) and this will do more to protect
their rights than the difference between one form of tenure and another.
Small Farms, Large Farms, and the Rural Economy and
Society
Perhaps one of the biggest issues facing authorities now and into the
future is the question of to what extent large commercial farms should be
allowed or encouraged as opposed to small farms. There is a very important point to be
made at the outset. To encourage a
dualistic farming system where there is one favored sector of large farms
coexisting with a much poorer and less favored sector of family farmers is a very bad idea.
Who among us would want to replicate the disaster that is happening
across the border in
Having said this, there is definitely a role for large farms in the
country’s rural development strategy.
Large farms can serve as sources of wage income for surrounding areas,
and in some cases are the scale most appropriate to the
crop grown. These cases, though,
are rare, which is one of the main reasons contract farming with smallholders
has become a popular mode of production.
What, then, to do with proposals for large scale commercial
operations? First, it should be
noted that the eventual goal for small farmers is to become larger commercial
operations themselves, since that is what success will inevitably mean. (Success
certainly can’t mean that they will stay small and poor) The real test
for the ability of a large operation to contribute to rural development is the
extent to which it links with other domestic entities both on the input side and
on the output side.
So, operations which demand raw materials from smallholders (as contract
farming operations do) or which feed into local processing operations (mills,
etc.) are
increasing the degree of integration of the rural economy while raising
incomes. Enclave production units
which have little or no interconnection to any local entity will not help
promote development. They will
simply compete for resources (land in particular) while doing little else to
raise welfare.
It should be noted that the observations in the paragraphs above say
nothing whatsoever about the nationality of entrepreneurs who engage in large
scale contract farming (or other large) operations. This is because from a purely economic
point of view it matters little what passport a capitalist has. A capitalist will put his or her money
wherever it is safe and can earn the highest return, and this is true for
citizens as well as foreigners.
While there may be valid reasons for wanting local participation in large
projects, from the point of view of rural
development it is less important who the entrepreneur is, than what type of
project they propose and how it will benefit the country. A foreigner, no less than a citizen,
will keep any profits in the country if there are good investment opportunities
creating the incentive to do so.
Foreigners too are subject to taxation on income, thus providing the
government with any needed leverage to change behavior or increase
revenue.
V. Cash
Crops, Food Crops and the Role of MADER in Promoting Them
Research
It was noted above that it is NOT the role of the government to decide
who should grow what crops and where.
However, it IS the role of the government to decide what national
research policy is. There is no
substitute for a rational process of economic analysis to decide which crops can
generate the highest levels of returns (i.e. profits) for the broadest segments
of the population. Here, it is
important to remind ourselves of one of the most basic lessons of the section on
structural transformation above: ALL crops become cash crops in a
successful strategy of rural development.
In the short run, however, there is much to recommend a public research
strategy emphasizing basic staple food crops. Among the reasons for this
are:
-
Staple grains such as maize and rice are already widely grown by smallholders so
that even if off-farm markets are adverse they can still eat their
output.
-
Given that they are widely grown, their culture is well understood and
technological advances can be widely disseminated, spreading the benefits over a
very large population
-
International research efforts have generated an enormous backlog of advances in
new varieties as well as other areas which have yet to be adopted or adapted to
Mozambican conditions. Given the
extremely low levels of Mozambican yields a relatively small investment in
research and extension can double or even triple yields of these
crops.
-
Crops such as maize and rice are already exported, and so production increases
have a positive macroeconomic impact as well as a local one.
Perhaps the biggest reason to concentrate on a few crops with the biggest
potential impact is the fact that the national research capacity is still
extremely limited. There simply
isn’t enough of a critical mass of trained researchers to spread their efforts
across all of the research goals which appear viable. It is essential to pick those which are
most important and to do this as a matter of national priority setting rather
than leaving it to negotiation with donors.
In fact, there is a real danger in inviting cooperation from the entire
range of international agricultural research centers or even the entire range of
departments within bilateral partners such as EMBRAPA. To do so would spread resources so thin
that there would be only scant progress in any one area. The country cannot afford this, and
equally cannot afford to take a passive role in the decision process. Neither the IARCs nor bilateral partners will make the decision to
promote some part of their range of expertise at the expense of others since
they too have their own internal political imperatives. Rather than agreeing to “Christmas tree”
projects with every conceivable ornament hung on them, the Mozambican government
must itself prioritize activities and then seek international assistance in
accord with those priorities.
None of the above should be taken to mean that horticultural or other
high-value crops should be ignored.
They shouldn’t. However, the
government needs to take care that it does not dissipate its efforts in areas
where the private sector is active.
Among these areas are obviously those where large scale operations (e.g.
sugar) or contract farming are the dominant forms (as
in cotton or tobacco). Even in some
smallholder horticultural crops there is sufficient NGO activity that the
government need not duplicate efforts.
A final caveat is the observation that it is not always the case that
farm level technology is the most important constraint. Marketing is probably the most important
constraint to progress in many areas, and is discussed in more detail
below.
Seed Supply Systems
At the present time,
Fertilizers and Other Purchased Inputs
In large areas of
Evidence from
Accordingly, there is ample scope for increasing output through increased
applications of nutrients. This is
particularly true in areas where population growth is creating pressures for
intensification, as is the case in the South and in peri-urban zones. Eventually it will be true throughout
the country. In fact, one recent study suggests that 50-75% of the maize yield
increases in developing countries outside of
- Fertilizer represents the largest cash outlay for
those who use it. This is a
prohibitive problem for many smallholders, who can only use purchased inputs if
rural traders are willing to extend credit.
- Given the erratic nature of rainfall in some areas,
risk increasing inputs such as fertilizer will be applied in sub-optimal amounts
by risk averse smallholders
- Fertilizer is bulky, and both transport and storage
costs are high.
Government can usefully assist by promoting infrastructure development to
reduce transport and storage costs, promote group purchases where possible at
local and higher levels through cooperatives or other mechanisms as a means to
exploit economies of scale, and sponsor research into appropriate use of high
analysis fertilizers such as urea, diammonium phosphate and triple
superphosphate as a way to bring prices down. Fertilizers are more likely to be cost
effective on horticultural crops at the present time; indeed, examples of this
can be found in some areas. In the
long run field crops such as maize, which can be very responsive to fertilizer
application, are also likely to provide additional demand.
A note on producer associations is appropriate. There is a history of government-created
and supported producer associations with a distinct political purpose. The history of
Cashews
Cashew is a crop of such historical and widespread importance to the
smallholder sector and to the country’s balance of payments that it would be a
mistake not to mention it in this paper.
Cashew has been the subject of intense political debate in the past over
government policy toward processing and export taxes. It good that these debates are largely a
thing of the past - it would be a mistake to reopen these issues in light of the
fact that there are several important initiatives that ought to be supported in
the cashew subsector regardless of government policy
toward taxes or exports.
The fact that cashew is a widespread smallholder crop that can contribute
significantly to the balance of payments is sufficient reason for the government
to take a particular interest in its cultivation. Relatively small gains translate
into large ones when spread over hundreds of thousands of producers. Given the very low incomes of most of
these producers, it is clear that private sector initiative cannot be relied on
to provide what is needed to poverty stricken
smallholders.
The appearance of a devastating disease, oidium, makes development of
resistant varieties an urgent task.
There are apparently resistant strains that can be used as input to such
a research program, which would feed into a much needed program of seedling
multiplication and replanting. The
growth of manual technology processing plants, when combined with rejuvenated
plantings, has the potential to provide significant cash income for households
while at the same time providing an important export.
Extension