|Foreign Assistance to Agriculture: A Win-Win Proposition - Food Policy Report (IFPRI, 1995, 24 p.)|
Aid to developing countries for long-term development is currently being squeezed from all sides. Several donor countries are reviewing their foreign assistance programs, and a few, including the United States and Canada, are cutting back on such assistance. At the same time, with limitations on total aid, the increasing need for emergency relief in many developing countries reduces the funds available for long-term development assistance. It is widely recognized that these decreases in development assistance will reduce economic growth and human well-being in developing countries, exacerbating poverty, food insecurity, and malnutrition as well as raising health and mortality risks. Less well recognized, however, are the likely effects on the donor countries themselves: increasing international instability, mounting pressures on donor-country borders from people fleeing poverty and environmental degradation, rising health and environmental risks for the populations of donor countries, and reduced employment and economic growth in donor countries due to lost opportunities for exports.
This report addresses one of these effects: the link between foreign assistance to agriculture and export opportunities for donors of such assistance. The evidence shows that foreign assistance can effectively expand export earnings and associated employment in donor countries. If foreign assistance is properly targeted to activities that promote broad-based income growth in rural areas of developing countries, such as agricultural research, the gains to donor countries can be very large. IFPRI research shows that each dollar invested in agricultural research for developing countries generates $4.39 of additional imports by these countries. This dollar also leads to an increase of $1.06 in agricultural imports and $0.45 in cereal imports.
While expanded export opportunities do not assure that a particular donor country expands exports, all donors have the potential to increase exports and employment. This potential is especially great for countries that depend heavily on developing countries for their exports. In the United States, for example, 40 percent of all exports and half of all agricultural exports go to developing countries.1
Developing-country markets are growing much faster than markets for exports in the industrial world. From 1990 to 1993, exports from the European Union to developing countries grew at an annual rate of 6.3 percent, and are now worth almost US$300 billion a year. From 1990 to 1994, U.S. exports to developing countries rose by almost 40 percent, from US$140 billion to US$197 billion. This increase alone has created more than 1.1 million jobs in the United States.2
Developing countries are also important and rapidly expanding markets for agricultural exports from industrial countries. About 20 percent of agricultural exports from developed market economies go to developing countries, and these exports are increasing by almost 6 percent a year.3 Growth in U.S. agricultural exports to developing countries over the next few years is expected to average 9 percent a year, almost twice the growth of sales to developed countries.4 Given the strong relationship between effective foreign assistance and export opportunities, cuts in foreign assistance are likely to increase unemployment in donor countries.
Aid donors have sometimes hesitated to support agriculture because they fear that rising production in developing countries will lower donor countries agricultural exports.
Research and real-world experience show just the opposite. This report examines the reason for the paradoxical finding that assistance to agriculture that leads to agricultural growth increases overall and agricultural imports by developing countries. Step by step, it estimates the effects of agricultural research on agricultural growth, of agricultural growth on overall economic growth, and of overall economic growth on total, agricultural, and cereal imports. It then calculates the value of additional imports created by foreign assistance to agricultural research. The analysis shows that foreign assistance is not a drain on the national treasuries of donor countries, but rather a win-win proposition for both donor and recipient.