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

TransformationChris Barrett

Cornell Adult University guest lectureJuly 21, 2009

Persistent poverty over the past generation:• no fall in poverty rates in OECD countries• number of poor in Latin America has grown• population living <$1/day doubled in Africa …. Increasing belief that there exist “poverty traps”

But also unprecedented upward mobility:• 750 mn fewer East Asians live on <$1/day • sharp fall in poverty rate in South Asia• half the world has become “middle class”, with all regions’ populations in the $2-13/day range growing… Globalization and “great escape” from mass poverty

The conundrum

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1980 1985 1990 1995 2000 2005

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East Asia Sub-Saharan Africa South Asia

Bubble sizes reflect number of people living in extreme poverty (2005US$1.25/day-person)

East Asia: 1.1 bn (79%) in 1981, 0.3 bn (18%) in 2005

Worldwide: 1.9 bn (52%) in 1981, down to 1.4 bn (26%) in 2005

SSA: 0.2 bn (51%) in 1981, 0.4 bn (50%) in 2005

South Asia: 0.5 bn (59%) in 1981, 0.6 bn (40%) in 2005

Source: Chen and Ravallion (2008)

Extreme poverty has fallen rapidly in east Asia and worldwide, but only proportional gains in South Asia and none in Sub-Saharan Africa, where >50% still live on less than $1.25/day.

The conundrum

Longitudinal data tell a still-richer story.

- Rates of intergenerational earnings and educational transmission appear to be high and growing throughout the world, elasticities commonly ≈ 0.40-0.70.

- In the US, the median poverty spell length is only 4.5 months. Most US poverty is transitory, related to unemployment spells. But for ~25%, it persists for years. And food insecurity spells appear more persistent.

- We don’t know the median spell length in rural Africa! Most poverty is chronic, with very complex etiology.

Heterogeneous dynamics

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

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Continuous years in poverty

Comparative Poverty Dimensions

United States 1993-94 ($15.05)

Poverty line levels are all in inflation-adjusted 2002 US dollars.

Ngambo, Northern Kenya 2000-2 ($0.25)

Fianarantsoa, Southern Madagascar 1997-2002 ($0.25)

Vakinankaratra, Central Madagascar 1997-2002 ($0.25)

Heterogeneous dynamics

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1990 1993 1996 1999 2002 2004

Middle East & North Africa

Europe & Central Asia

Latin America & the Caribbean

East Asia & Pacific

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Sub-Saharan Africa

48% African in 1990, 75% in 2004

Source: IFPRI (2007)

Ultra-poverty is especially persistent and prevalent in sub-Saharan Africa

Ultra-poor (income per capita< 2005US$0.54/day)

Africa: The challenge

Hunger: The 2nd half of MDG #1

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Per Capita Nutrient Availability (shaded areas below minima)

10.3%

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70.3%

Source: Barrett & Maxwell (2005), data: FAO food balance sheets

The WHO identifies undernutrition as the biggest risk factor for disease and death worldwide … and 30/47 SSA countries have macronutrient availability shortfalls .

Africa: The challenge

Why such persistence?

Two key features of poverty traps:

1)Initial conditions matter- “It takes money to make money” …

investment is the engine of growth and exit from poverty.

- In SSA, ultra-poor are heavily rural and depend on meager (and degrading) natural resource base and have little access to key infrastructure.

2)Risk matters- Direct loss of productive assets to disease,

conflict, climate variability, etc.- Responses: ex post coping (e.g., school

drop-outs, distress asset sale) and ex ante risk management (e.g., low-risk, low-return livelihoods).

Poverty traps

Reinforcing feedback:Low productivity causes poverty.

Poverty causes hunger and natural resource degradation.

But hunger and degraded natural resources also cause poverty and low productivity.

Hence the vicious cycle of poverty traps, hunger and natural resources degradation.

Poverty traps

Source: World Bank (2007)

Persistent poverty and hunger are closely tied to agricultural stagnation

Agriculture: the key driver

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Poverty (right axis)

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Cereal yields and extreme poverty move inversely.

South Asian progress Sub-Saharan African stasis

Agriculture’s demands on renewable resources are huge and growing:

Agriculture: the key driver

-70% of worldwide water use is for irrigation, (82% in LDCs), with 15-35% of withdrawals unsustainable (WBCSD).

- Conversion into cropland is the main cause of deforestation worldwide; fuelwood use is second.

- Soils losses due to erosion and leaching are huge: in Africa alone, ~$4bn/yr in soil nutrient losses!

- Habitat destruction due to land conversion and overharvesting in unregulated rural areas are leading causes of biodiversity loss worldwide.

Why such persistence?Strong links between poverty traps and ecosystem collapse, with shared concepts of “tipping points”.

Resources and poverty traps

Example: Soil degradation poverty traps in Kenya Marginal returns to fertilizer application low on degraded soils; and poorest farmers are on the most degraded soils. Soil degradation also feeds a striga weed problem ($7bn/yr in crop losses) and mycotoxin contamination of >25% of food.

Cost of 1kg

nitrogen

Value of maize from 1 kg of

nitrogen

Above red line: fertilizer profitable

Below red line: fertilizer unprofitable

(Source: Marenya and Barrett, American J. Agricultural Economics, 2009).

Kenyan rural poverty line

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

Need to stimulate agricultural and rural transfor-mation (StART) to break out of the ultra-poverty/

hunger/resource degradation trap:

Reason 1: location, livelihood and asset holdings- Most ultra-poor live in rural areas (the rural-urban poverty

gap increases in poverty depth).

- >75% of ultra-poor work in agriculture.

- Increasing the productivity of the assets controlled by the poor (and the stock of assets they control) is fundamental to any strategy to break out of the poverty/hunger trap. So must increase the productivity of the rural poor’s labor, land, livestock and other assets.

Need to StART

Reason 2: Budget dependence

Food is 65-80% of the ultra-poor’s total expenditures.

Most African farmers are net food buyers, not net sellers.

So the food price effects of agricultural productivity growth reinforce gains to the rural poor by reducing cost of living.

Hence the seriousness of the recent global food price crisis for the poor, including most small farmers!

Need to StART

An example from Madagascar:

A doubling of rice yields:- reduces the share of food insecure households by 38%- shortens the average hungry period by 1.7 months (1/3)- increases real unskilled wages in lean season by 89 % (due to both price and labor demand effects)- All the poor benefit: unskilled workers, consumers, and net seller producers … the poorest gain most.

(Source: Minten and Barrett, World Development, 2008).

Need to StART

Result:

- World Bank estimates that real GDP growth from agriculture is 2.7 times more effective in reducing extreme poverty headcount in poorest countries, vs. non-ag sectors.

- Historically, advances in food system productivity have been the foundation of poverty reduction and modern economic growth throughout history.

- Agricultural growth has strong multiplier effects on the rural non-farm economy … generating both local demand and investible resources, as well as ensuring the food security of those who leave the farm.

Need to StART

No one size fits all approach is viable. Need to contextualize. But there exist several key principles for targeting StART interventions:

Principle 1: Build and protect productive assets.Multiple assets matter: Human capital, land (incl. soil fertility), water, livestock, investible funds (savings, credit)

Interventions include direct provision (e.g., free education) or subsidies for asset accumulation or insurance of existing assets

For privately held assets (land, livestock, equipment, education, businesses, etc.), mainly need to improve investment incentives.

Also need to conserve common pool assets (rangelands, water, forest, etc.) through better governance and incentives.

Key StART principles

Principle 1: Build and protect productive assets.

How to improve incentives?

1)More secure property rights (tenure, police).

2)Resolve financial market failures.

3)“Crowding-in” investment in complementary inputs (e.g., physical and institutional infrastructure).

4)Provision of productive safety nets.

5)Clear conservation rules, authority w/o burdening the poor.

Key StART principles

Principle 2: Improve the productivity of the poor’s current asset holdings.

1)Improved production/processing technologies2)More efficient/remunerative marketing channels

Uptake/participation turns on assets, so don’t forget #1!

Key concern 1: Agricultural research in SSAAvg returns ~35%, but only 4% of public expenditures are on

ag and a small fraction of that goes into research.

Key concern 2: Changing agrifood supply chainsWho is participating, on what terms, w/ what effects?

Key StART principles

Principle 3: Improve risk management options for the ultra-poor.

Regressivity, multidimensionality and context-specificity of uninsured risk exposure make this a serious challenge.

Risk reduction: Improved crops and livestock, betterwater control, diversification, peace,disease control

Risk transfer:Improved markets, index-based risk finance, global humanitarian response

Key StART principles

Global + local (“Glocal”) Solutions

Principle 4: Facilitate favorable transitions out of agriculture.

Must equip the next generationto transition into remunerative non-farm employment.

Keys are (i) supporting physical and institutional infrastructure; (ii) early childhood health, nutrition and education, especiallyfor disadvantaged children. Closely tied to improvements to parents’ productivity, risk management and asset holdings.

Key StART principles

Global + local (“Glocal”) Solutions

Conclusions

There is real reason for hope:- Real agricultural output growth is accelerating in South Asia and SSA at long last … back to positive per capita rates of food output growth.

- Renewed and innovative initiatives and attention (e.g., AGRA, July G8 commitment), and turn-around in both public aid and private investment in low-income countries.

- Exciting new innovations in technologies (e.g., micronutrient-rich staple crops, drought-resistant cultivars), advances in finance (e.g., index insurance), and improvements in policies (e.g., rule of law, tenurial security, global food aid, safety nets and CCTs).

Thank you for your time, interest and comments!

Thank you