2020 BRIEF 16 - APRIL 1995: DECLINING ASSISTANCE TO DEVELOPING-COUNTRY AGRICULTURE: CHANGE OF PARADIGM?
GDresrs Director of the
Sub-Department Agriculture, Forestry and Emergency Aid at the Deutsche
Gesellschaft fur Technische Zusammenarbeit (GTZ), Eschborn, Germany.
This brief is based on an article, "Decreasing Assistance to
Agriculture in Developing Countries: Change of Paradigm or Temporary Sag?" in
Agriculture and Rural Development 1 (1), 1994.
Is the agricultural sector in developing countries now facing
the same neglect that it did in industrial countries some 200 years ago? This
concern arises because agricultural investments are declining and donors are
paying scant attention to agriculture in their development strategies. Is the
neglect of agriculture a one-way trend or is it a cyclical issue? Or is it
simply a symptom that can be quickly remedied by new policy orientations? An
important step in examining this issue is to identify phases in the
macroeconomic and political thinking that have guided the actions of those
concerned with developing countries since the 1950s.
PARADIGMS OF DEVELOPMENT ASSISTANCE
Paradigms of development models have served to justify different
strategy priorities to induce economic growth in the past. During the 1950s and
1960s, when development assistance relied on the neo-Keynesian development
model, an emphasis on industrialization and import substitution systematically
led to neglect of the agricultural sector, or at least reduced it to a
contributor to - and not the driving force of - growth.
In the 1970s, there was a swing to a demand-oriented approach.
Labor was discovered to be a decisive growth factor. As it became clear that all
of the labor from the agricultural sector would not be absorbed by the
urban/industrial sector, there was a push to base development on agriculture.
The basic needs approach, which advocated small-scale, labor-intensive
technologies and development initiated from the grassroots, ensued. A glut of
oil funds during this period played havoc with various developing countries'
economies as their governments carelessly invested in risky projects. Even if
official aid was still focusing on agriculture, there was little coordination
and efforts were partly rendered inefficient by huge parallel investments of
private bank money in spectacular and risky projects, many of them socially and
The 1980s were marked by a conceptual swing toward a more
supply-oriented approach to development, relying on market forces to regulate
the economy. Many developing countries were heavily in debt by this time, with
ruined and disintegrating financial and political systems, which provided an
apparent justification for fundamental changes to curb their steep economic
descents and to put them back on their feet. In the process, the agricultural
sector was often institutionally dismantled, and many rural subsidies and
services were cut. Parallel to this change in paradigm was a reduction in
institutional capacities. This trend was further fostered by the failure of many
rural development approaches, belatedly providing evidence for the need for
greater prudence in preparing future investments in agriculture.
Do these changing paradigms result from the efforts of
policymakers, scientists, donors, and recipients to identify the causes for
failing growth models, and subsequently to develop and implement modified or
more appropriate ones? Or do changes in growth paradigms for developing
countries simply follow paradigm changes brought about by economic adjustments
in the industrial world? Perhaps it is not the paradigms that fail, but rather
the implementation of theories since there are cases of successful agricultural
development in Europe and some developing countries.
By the year 2020, an additional 2.8 billion people will have to
be nourished. Since the potential for land expansion is limited, the necessary
food production increases will have to be generated by productivity increases
and technical progress. Will research and development be able to provide
technology to areas where production increases must be achieved without
destroying the resource base? Will there be enough financial and technical input
to activate this necessary second Green Revolution?
There is growing evidence that this will not be the case in many
developing countries. Official development assistance (ODA) and official
development finance (ODF) have hit a plateau or even begun to decline during the
past decade. This should not lead to declining growth potential for agriculture
in developing countries unless national public or private investment also
declines or accelerated technical progress cannot compensate for these declines.
However, in many countries, ODA and ODF are the main catalysts for investments
CAUSES FOR DECLINING ODA/ODF
There is no single cause for the decline of ODA/ODF; the reasons
1. Some development theories bluntly reject the
positive role of investments in agriculture as a precondition for economic
development; where this type of developing thinking prevails, investment will be
2. Agricultural projects have a discouragingly bad record in
evaluations, generally ranking considerably below projects in other sectors.
Only now is there growing awareness that although most of the economic growth in
many countries stems from agriculture, many policy decisions for this sector are
external to the sector (budget decisions, for example). Moreover, structural
changes in agriculture require time; if decisionmakers do not understand from
the outset that it may take a decade or longer to induce changes in sustainable
systems in agriculture, they may suffer from fatigue.
3. During the 1980s, development assistance increasingly
diverted finance to projects in environmental protection and natural resource
management. When looking into causes of declining agricultural investments, the
link between environmental programs and investments and increasing agricultural
productivity has been overlooked. For example, where productivity is high,
farmers will refrain from cultivating marginal areas, which is an essential part
of the sustainable management of the resource base.
4. Structural adjustment programs in many developing countries
have led to a drastic reorganization of institutions: wasteful, inefficient, and
overstaffed institutions and systems have been dismantled to increase factor and
resource productivity. However, these changes, which have led to considerable
disinvestment in the agricultural sector, have systematically reduced the
ability of these institutions to function effectively.
5. This structural transition requires mainly "software"
(planning, programming, and legal and economic frameworking) to make full use of
existing private investment to stimulate investment in new "hardware" (creation
of irrigation schemes, supplies of materials, construction), further reducing
6. Poverty alleviation programs that are almost disconnected
from agricultural production also divert funds away from agriculture. Generally,
these programs are focused on gender, social, and institutional democratization
and liberalization issues rather than on increased production.
7. Changes in multilateral and bilateral aid systems have led to
intersectoral distribution conflicts such that funding for agriculture no longer
ranks first. Different requirements within a changing assistance environment are
associated with a breakdown in traditional assistance patterns. For example, for
political, organizational, and budgetary reasons, financial and technical
assistance, which is usually provided to populations not involved in immediate
food crises, is continued even if entire economies fall into a semipermanent
emergency status (Sudan, Somalia, and Mozambique are examples).
8. Economic recession and tight public budgets have prevented
bilateral and multilateral assistance from generating enough funds to serve
simultaneously the enormous financial requirements of both the developing
countries and the former Soviet countries and Eastern Europe. Agricultural
finance has been further pressured by these developments.
9. Growing emergencies contribute to further compression of
funds available for agricultural development.
In summary, the agricultural sector is not only a victim of its
intrinsic problems in seeking adequate finance, but it is also a loser in the
present aid distribution struggle.
THE WAY OUT
The above requirements, as well as those emerging from the
structural adjustment of a number of economies, have led to a complete
restructuring of assistance in most bilateral and multilateral development
organizations: changes include a shift from projects to programs; insistence on
policy changes first; and downgrading of technical issues in favor of
sociopolitical issues such as gender issues, poverty alleviation,
democratization, and decentralization. Although these are all necessary changes,
it is the equilibrium of the aid system that is important. There is no doubt
that questions of resource management and considerations of social factors play
a decisive role in the development of the economy. If the shift of emphasis,
however, leads to a neglect of the underlying sources of stress, the problem may
be only reversed, not solved.
One way to alleviate growing pressures on aid funds would be to
increase their efficiency for the agricultural sector. Preparing the sector to
be more dynamic and to solicit investment from sources other than public and aid
entities may be the right way. Apart from setting sector policy priorities and
properly linking the sector with macro policy strategies, this would mean
introducing a number of organizational measures, such as a framework in which
formal and informal rural financial intermediation systems based on market
interest rates and competition can mobilize the necessary capital. Further,
decentralization and establishment of a continuous flow of information could
intensify the dynamism of the sector by increasing flexibility to respond to
domestic or international market changes and could allow for more demand-driven
What can and should be done, however, if there is an overall
change in paradigm? This is not too far-fetched; perhaps never before in history
have there been more investments in agriculture than at present, if one
considers the current investment in developing biotechnology innovations. Will
biotechnology bring about the next Green Revolution and fill the production gap?
Or will it marginalize small-scale food production? Who can predict whether
there will be an agricultural revolution and, if so, who will be the winners or
the losers? Most of the biotechnology research is carried out by the private
sector and subject to intellectual property rights. Transnational companies,
with budgets larger than those managed by governments in many developing
countries, anxiously protect the results of their research. Thus, contrary to
historical "agricultural revolutions," innovations are no longer public goods.
Under these conditions, the developing world could be the loser in this
selection process by market forces and competition, unless increasing investment
in agriculture provides adequate facilities to the developing countries.
If this foreseeable change in paradigm is realized, the pattern
of food and other primary agricultural production will be transformed
dramatically over the next decades. The changing paradigm will have to be
monitored and conquered by the developing countries for their future