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Agricultural Policy For Developing Countries: Back To Basics

While many in the U. S. see single-desk marketing boards controlled by farmers as problematic, one needs to consider the nature of the markets into which farmers sell their products.

Agricultural policy in developing countries has been an ongoing concern since the end of the Second World War and the dismantling of colonial European empires. Over that period of time, the models that were used to guide agricultural development have changed several times.

Early on, the policies included the use of international commodity agreements to manage overproduction and protect the prices received by farmers, the establishment of tariff barriers to protect local producers, the development of extension programs to aid farmers, the provision of subsidized inputs, and the establishment of marketing boards for major export crops. Government-sponsored, cooperative-like structures were put into place to house trained personnel who delivered production information and input-purchasing and product-marketing services.

CHRONIC HUNGER

By the 1970s, the emphasis had turned toward the problem of chronic hunger and low yields in developing countries when compared to developed countries. Building on the work that began much earlier, the Green Revolution took off.

The 1970s also saw the availability of petrodollars and other expanded sources of funds that were used by the leadership of many countries to purchase foodstuffs for their population and fund various development projects. Eventually the debt level rose to the point where the repayment of those loans became a burden for many developing countries.

When these countries were unable to promptly repay, they were forced into Structural Adjustment Programs (SAPs) as a condition for obtaining lower interest rates and further support from the World Bank and the International Monetary Fund. The basic policies of the SAPs included privatization of state enterprises, deregulation, and the reduction of trade barriers.

The government-sponsored, co-operative-like, agricultural services structures were on the top of the SAP list for elimination.

PRIVATIZATION

Gone also were fertilizer subsidies and the extension service.

The multinationals had little to no incentive to provide the kind of general production and marketing extension services most needed by smallholder agriculturalists. It would primarily involve providing low-tech production and basic marketing information. While that would be very helpful for smallholder farmers, it would result in limited or negative commercial opportunities for individual multinationals.

The reduction of trade barriers left farmers at the mercy of the same low prices that plagued farmers in developed countries. But in contrast, they lacked the financial resources to compensate their farmers.

Another of the SAP directives dealt with which commodities farmers were incentivized to produce. The intent was to focus less on producing commodities consumed domestically and more on expanding trade as the basic tool for generating farmer prosperity through market access programs and the development of an export-oriented agriculture.

In the utopian world of free trade theory, all would be better off. But the revenue generated from agricultural exports does not always flow back to those who used to grow their own food or had ready-access to locally grown staples.

In the end, farmers in developing countries are as insecure as ever, and rural poverty and chronic hunger are rampant.

BACK TO BASICS

Developing the agriculture in

a developing country – done in a way that does not severely disrupt the economic and social fabric of the country – is a long-term endeavour.

First and foremost, it involves making agriculture sufficiently productive so that farmers increasingly produce more than can be consumed by their households.

There are two basic policy categories.

The first policy set reduces the cost, increases the availability, or improves the quality of inputs used by agriculture. We did that in spades in the U. S. We made land available at nearly zero cost for homesteaders and for financing local (one-room) schools. We subsidized the expansion of railroad networks in rural areas and built farm-to-market roads. We invested in land grant universities, a vast network of publicly sponsored agricultural research stations, an extension service that provides county-level information services nationwide, and a network of low-cost agricultural credit institutions.

All of this was designed to lower the cost, increase the supply, or improve the quality of important inputs used in production agriculture. Other important “inputs” like the availability of low-cost credit

and free, locally specific, production-practice information and marketing information services were also provided.

In the U. S. much of this was done through the extension service.

The second set involves ensuring dependable and reasonably stable prices for their output. This helps stabilize income in the short run, but just as importantly, it provides the security needed to invest (especially via loans) in technologies to increase long-term productivity.

These policies could also involve the reinstatement of marketing boards.

MARKETING BOARDS

While many in the U. S. see single-desk marketing boards controlled by farmers as problematic, one needs to consider the nature of the markets into which farmers sell their products. A significant portion of exports and thus prices for domestic supplies are in the hands of fewer than five firms who have access to market information that is unavailable to farmers in the U. S., let alone farmers in developing countries. The presence of marketing boards could balance out the power of these large institutions to the benefit of farmers everywhere.

As we noted in last week’s column, it is critically important to consider policies that are sensitive to the cultures and needs of farmers.

Too often in the recent past, we in developed nations have thought developing countries can skip some steps – for example going directly from an agricultural-based economy to an economy that is highly industrialized or importing staples and producing crops for export. The results have been mixed at best, especially in the lowest of low-income developing countries.

Well, we have tried that. Is it now time to go back to tried and true?

Daryll E. Ray holds the Blasingame Chair of Excellence in Agricultural Policy, Institute

of Agriculture, University of Tennessee, and is the director of

UT’s Agricultural Policy Analysis Center (APAC). (865) 974-7407; Fax: (865) 974-7298; [email protected];www.agpolicy.org.Daryll

Ray’s column is written with the research and assistance of Harwood D. Schaffer, research associate with APAC.

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