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Centre for Development, Environment and Policy

P534

Project Planning and Management

Authors: Laurence Smith John Macartney Susie Turrall Revised in 2011 by Mike Stockbridge and Laurence Smith ©SOAS | 3736

P534 Project Planning and Management Introduction

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MODULE INTRODUCTION

ABOUT THIS MODULE

This module is about the modes and mechanisms through which development assistance is channelled, via investment in developing countries, for the promotion of agricultural and rural development. It is thus primarily about the rationale, context, and methods of planning, appraising and evaluating development projects and programmes.

Projects and programmes are widely used when attempting to allocate limited resources for specific development purposes as effectively as possible, and a core part of the module is on methods for appraising the financial and economic efficiency of rural and agricultural development projects. These methods of appraisal are informed by economic theories and, in particular, those of applied welfare economics.

While the module emphasises financial and economic efficiency, other important issues in assessing project design and impact are presented. Planning and management techniques for the project cycle are covered; including project identification and logical framework analysis. Approaches for social and environmental appraisal of projects are also reviewed. Finally a guide to project and programme monitoring and evaluation is provided.

It is important to remember that a single module of this kind can cover only part of a large and sometimes controversial subject area – inevitably it has to be selective. It was decided to emphasise financial and economic appraisal because it is essential to understanding why and how projects are chosen and designed. This does not mean that other aspects of the planning and implementation of investment are less important.

This module is aimed at development practitioners – from private business, government departments, international development agencies and non-governmental organisations (NGOs) – who work in the delivery and management of development assistance and public sector investment for agricultural and rural development. You may be involved directly with project work in one way or another. Even if not directly involved, you are likely to have contact with particular projects and need to know something about how they work. The emphasis we have selected does not mean that you can become an expert in project design or appraisal simply by doing this module alone, although it does aim to provide a solid initial basis for project work, and to make you an effective member of a project or programme design team.


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STRUCTURE OF THE MODULE

The module begins with an introduction to the current ‘aid architecture’ and to the role of the agricultural sector in social and economic development. Unit 2 then introduces the project cycle as a logical and natural sequence for the planning and management of investment, while Unit 3 explores key techniques for project identification and design. Unit 4 covers the key concepts and techniques of cost-benefit analysis and investment appraisal, laying the foundation for more detailed study of financial analysis in Unit 5 and economic efficiency analysis in Unit 6. Unit 7 then deals with the treatment of risk and uncertainty in cost-benefit analysis.

Unit 8 considers the possible environmental impacts of development projects and programmes, and how environmental appraisal should be an integral part of the project cycle. The use of economic valuation methods for environmental effects is critically reviewed and recommendations made for best practice. Similarly, Unit 9 assesses the social dimensions of development investments, moving from narrow consideration of distributional issues to broader questions of social impact. Again, integration of social appraisal in the project cycle is discussed, with recognition that social analysis moves the debate from appraisal of project designs to questions about the nature of the development process itself. Social inclusion, participation and empowerment are key issues that are discussed here.

Unit 10 concludes the module by providing a guide to monitoring and evaluation. From a tool for better project management to a means to provide feedback in the project cycle, effective M&E is a vital element in achieving more successful and sustainable investments for agricultural and rural development.


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WHAT YOU WILL LEARN

Module Aims • To explain and illustrate development projects and programmes, and the

project cycle.

• To present the basic analytical techniques for project identification and design and for the financial and economic appraisal of projects.

• To present the basic concepts of project monitoring and evaluation.

• To stimulate a critical awareness of wider social and environmental issues relevant to the design, appraisal and evaluation of projects and to consider how to integrate these insights into planning and management.

Module Learning Outcomes By the end of this module, students should be able to demonstrate:

• Familiarity and critical understanding for current ‘aid architecture’ and the modalities of development assistance

• Ability to selectively use tools for project identification and design, including logical framework analysis

• Capacity to selectively apply key concepts in project analysis, including investment criteria and the valuation of costs and benefits over time

• Knowledge and appropriate use of core techniques of project appraisal, including the calculation of:

– farm budgets

– discounted cash flows

– net present worth of projects

– internal rates of return

• A critical understanding of key aspects of monitoring and evaluation, as an intrinsic part of project design and management, and how to exploit the benefits of this

• Recognition of critical project-related social and environmental issues, as well as knowledge and critique of approaches for their appraisal and evaluation.


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ASSESSMENT

This module is assessed by:

• an examined assignment (EA) worth 20%

• a written examination in October worth 80%

Since the EA is an element of the formal examination process, please note the following:

(a) The EA questions and submission date will be available on the Online Learning Environment.

(b) The EA is submitted by uploading it to the Online Learning Environment.

(c) The EA is marked by the module tutor and students will receive a percentage mark and feedback.

(d) Answers submitted must be entirely the student’s own work and not a product of collaboration. For this reason, the Online Learning Environment is not an appropriate forum for queries about the EA.

(e) Plagiarism is a breach of regulations. To ensure compliance with the specific University of London regulations, all students are advised to read the guidelines on referencing the work of other people. For more detailed information, see the User Resource Section of the Online Learning Environment.


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STUDY MATERIALS

There are two key texts for this module.

• Belli P, Anderson JR, Barnum HN, Dixon JA, Tan J (2001) Economic Analysis of Investment Operations: Analytical Tools and Practical Applications. The World Bank, Washington DC.

This book provides detailed technical explanation of the core methods of financial and economic cost–benefit analysis. Methods are well illustrated with examples from the lending portfolio of the World Bank. This is a valuable handbook for project work practitioners, and a standard exposition of best international practice.

• Snell M (2011) Cost–benefit Analysis: A Practical Guide, 2nd edn. Thomas Telford, London.

This book has been written as a practical guide for non-specialists. It provides a clear and comprehensive exposition of the fundamental principles of project analysis and the methods of financial and economic appraisal. Students should find the concise appendices and worked examples to be of value.

For each of the ten units, Key Readings are provided. These Key Readings are drawn from a wide range of sources including books, journals and the internet; authored by individual researchers and analysts, and also through the collective efforts of diverse national and international organisations. They have been selected to provide a range of perspectives and more depth on the unit subject matter.

A number of Further Readings and References are also listed. These texts are not provided but many are available on the internet. Students are not expected to follow up each and every Further Reading, but can follow up specific points of interest. The e-study guide also includes interactive, video and audio material.


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INDICATIVE STUDY CALENDAR

Part/unit Unit title Study time (hours)

Unit 1 The current aid framework; agriculture and rural development investments

15

Unit 2 Investment and the project cycle 10

Unit 3 Project identification formulation and design 15

Unit 4 Concepts of cost–benefit analysis (CBA) and investment appraisal

15

Unit 5 Financial analysis at farm and project level 15

Unit 6 Economic analysis 15

Unit 7 Treatment of risk and uncertainty 10

Unit 8 Tools for environmental analysis 15

Unit 9 Tools for social analysis 10

Unit 10 Monitoring and evaluation 15

Examined Assignment

Check the online learning environment for submission deadline

15

Examination entry July

Revision and examination preparation September

End-of-module examination October


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ACRONYMS AND ABBREVIATIONS

AAA Accra Agenda for Action

ADB Asian Development Bank

BCR benefit–cost ratio

CAS Country Assistance Strategy

CBA cost–benefit analysis

CCF consumption conversion factor

CEA cost-effectiveness analysis

CF conversion factor

CIDA Canadian International Development Agency

CIF cost, insurance, freight

COD cash on delivery

CSP Country Strategy Paper

DAC Development Assistance Committee

DFID Department for International Development

EA environmental assessment

EC European Commission

EIA environmental impact assessment

EOP effect on production

FAO Food and Agricultural Organization (of the United Nations)

FOB free on board

GDP gross domestic product

GNP gross national product

GTZ Gesellschaft für Technische Zusammenarbeit (German agency for technical co-operation)

HC human capital

HIPC heavily indebted poor countries

IEG Impact Evaluation Group (the World Bank)

IFAD International Fund for Agricultural Development

IFI international financial institution

IPSA initial poverty and social analysis

IRR internal rate of return

LDC less developed country

M&E monitoring and evaluation


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MDG millennium development goal

MIS management information system

MoV means of verification

NGO non-governmental organisation

NPV net present value

NPW net present worth

ODA official development assistance

OVI objectively verifiable indicators

PBA programme based approach

PE preventative expenditure

PRA participatory rural appraisal

PRS Poverty Reduction Strategy

PRSP poverty reduction strategy paper

PSA poverty and social analysis

RC replacement cost

RCT randomised control trial

RRA rapid rural appraisal

SCBA social cost–benefit analysis

SEA strategic environmental analysis

SER shadow exchange rate

SGN strategic gender needs

SPRSS summary poverty reduction and social strategy

SPSP Sector Policy Support Programme (of the EC)

SWAp sector-wide approach

SWOT strengths, weaknesses, opportunities, threats

ZOPP Zielorientierte Projektplanung

Unit One: The Current Aid Framework: Agriculture

and Rural Development Investments

Unit Information 3

Unit Overview 3 Unit Aims 3

Unit Learning Outcomes 3 Unit Interdependencies 3

Key Readings 4

Further Readings 5

References 7

Multimedia 10

1.0 The current aid framework 11

Section Overview 11 Section Learning Outcomes 11

1.1 Introduction: international agreements 11 1.2 Programme-based approaches 14

1.3 Poverty reduction strategy papers (PRSPs) 15 1.4 Sector-wide approaches (SWAps) 16

1.5 Direct budget support 18 1.6 Cash on Delivery (COD) 19

1.7 The role of projects in the new aid framework 20 Section 1 Self Assessment Questions 25

2.0 Agriculture, pro-poor growth, and poverty reduction 26

Section Overview 26

Section Learning Outcomes 26

2.1 Reversing underinvestment 26

2.2 Agriculture and its contribution to poverty reduction 28

2.3 Agricultural productivity 29

2.4 Current challenges for the agriculture and rural development sectors 30

2.5 Understanding rural diversity 30 Section 2 Self Assessment Questions 33

P534 Project Planning and Management Unit 1

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3.0 Reducing poverty: agriculture and rural development strategies 34

Section Overview 34

Section Learning Outcomes 34 3.1 Introduction – MDGs, PRSPs, agriculture and rural development 34

3.2 The policies of development agencies towards agriculture and rural

development 36

Section 3 Self Assessment Questions 41

Unit Summary 42

Unit Self Assessment Questions 43

Key Terms and Concepts 44


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UNIT INFORMATION

Unit Overview

This unit reviews the international context to, and modalities of, investment in the

agricultural and rural development sectors. It considers the nature and role of

projects in comparison to development assistance provided as direct budgetary

support. In this unit we also consider the important linkages between development in

the agricultural sector, economic growth and poverty reduction. This provides the

rationale for our focus on agricultural and rural investment. In the third and final

section we try to build on the two previous sections by exploring how agricultural and

rural development can contribute to both national and international objectives for

development and poverty reduction.

Unit Aims

To ‘set the scene’ for the module by describing and critically assessing the

current context for investment in agriculture and rural development.

To provide greater familiarity with the key actors, aid instruments, and

challenges in the sector.

To highlight the links between agriculture, pro-poor growth, and poverty

reduction.

Briefly to describe some of the agricultural and rural development strategies

followed by multilateral and bilateral development agencies.

To describe some of the key challenges in the sector.

Unit Learning Outcomes

By the end of this unit, students should be able to:

understand the role of agriculture in the context of economic development,

poverty reduction, and pro-poor growth

have an understanding of the current aid framework, the role of the state, and

the aid instruments which are available and in use

explain the reasons why agriculture has an important role to play in poverty

reduction

have an awareness of the trends in agricultural productivity in recent years and

the importance of improving productivity

have a deeper understanding of the changing rural environment and current

issues

understand the current policies and strategies of funding agencies, including

one in your own country

Unit Interdependencies

This unit provides the context for this module and should be studied first.


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KEY READINGS

DAC (2006) Promoting Pro-Poor Growth: Agriculture. Development Assistance

Committee, Organisation for Economic Co-operation and Development (OECD).

Available from: http://www.oecd.org/dac/povertyreduction/37922155.pdf

This DAC report is an extract from the publication Promoting Pro-poor Growth: Policy Guidance

for Donors. It focuses upon the contribution of agriculture to pro-poor growth, highlighting the

contribution that agricultural growth can play in enabling poor countries to take the first steps

toward economic transformation. It identifies four principles of engagement: adapt approaches

to diverse contexts; build institutions and empower stakeholders; support pro-poor international

actions; foster country-led partnerships. It also identifies the key priorities for action in the new

agenda: enhancing sector productivity and market opportunities; promoting diversified

livelihoods; and reducing risk and vulnerability.

IFAD (2011) IFAD Strategic Framework 2011–2015: Enabling Poor Rural People to

Improve their Food Security and Nutrition, Raise their Incomes and Strengthen

their Resilience. IFAD, Rome

Available from: http://www.ifad.org/gbdocs/eb/102/e/EB-2011-102-R-2-Rev-1.pdf

IFAD is the United Nations International Fund for Agricultural Development. It funds agricultural

and rural development projects and programmes in developing countries, and has traditionally

focused on the rural poor, especially those living in more marginal and remote regions. This

reading outlines IFAD’s strategic objectives for 2011 to 2015. As you read, make a note of the

changing context of rural development as well as the changing architecture of development

assistance. Pay particular attention to the key strategic objectives outlined in Section V and the

way that IFAD proposes to pursue these, noting the different levels (macro as well as

programmes and projects) at which it will strategically engage with them.

http://www.oecd.org/dac/povertyreduction/37922155.pdf

http://www.ifad.org/gbdocs/eb/102/e/EB-2011-102-R-2-Rev-1.pdf


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FURTHER READINGS

Birdsall N, Savedoff W (2011) Cash on Delivery: a New Approach to Foreign Aid.

Center for Global Development, Washington DC.

Available from: http://www.cgdev.org/content/publications/detail/1423949/

Booth D (2005) Missing Links in the Politics of Development: Learning from the PRSP

Experiment. Working Paper 256, Overseas Development Institute.

Available from: http://www.odi.org.uk/publications/working_papers/wp256.pdf

Cabral L (2006) Poverty Reduction Strategies and the Rural Productive Sectors:

What Have we Learnt, What Else do we Need to Ask? Natural Resource Perspectives

100, Overseas Development Institute.

Available from: http://www.odi.org.uk/nrp/nrp100_web.pdf

DFID (2005) Growth and Poverty Reduction: the Role of Agriculture. A Department

for International Development (DFID) Policy Paper, DFID, London.

Available from:

http://collections.europarchive.org/tna/20100423085705/http://dfid.gov.uk/Docum

ents/publications/growth-poverty-agriculture.pdf

Dijkstra G (2011) The PRSP approach and the illusion of improved aid effectiveness:

lessons from Bolivia, Honduras and Nicaragua. Development Policy Review

29(s1)s111–s133.

Available from: http://onlinelibrary.wiley.com/doi/10.1111/j.1467-

7679.2011.00522.x/pdf

Evans A, Cabral L, Wiggins S, Greeley M (2007) Formulating and Implementing

Sector-wide Approaches in Agriculture and Rural Development. ODI, London

Available from: http://www.odi.org.uk/resources/details.asp?id=3005&title=sector-

wide-approaches-agriculture-rural-development

FAO, IFAD, IMF, OECD, UNCTAD, WFP, World Bank, WTO, IFPRI, UN HLTF (2011)

Price Volatility in Food and Agricultural Markets: Policy Responses. The World Bank,

Washington DC.

Available from:

http://www.worldbank.org/foodcrisis/pdf/Interagency_Report_to_the_G20_on_Food

_Price_Volatility.pdf

IFAD (2011) Rural Poverty Report 2011. International Fund for Agricultural

Development, Rome.

Available from: http://www.ifad.org/rpr2011/index.htm

http://www.cgdev.org/content/publications/detail/1423949/

http://www.odi.org.uk/publications/working_papers/wp256.pdf

http://www.odi.org.uk/nrp/nrp100_web.pdf

http://collections.europarchive.org/tna/20100423085705/http:/dfid.gov.uk/Documents/publications/growth-poverty-agriculture.pdf

http://collections.europarchive.org/tna/20100423085705/http:/dfid.gov.uk/Documents/publications/growth-poverty-agriculture.pdf

http://onlinelibrary.wiley.com/doi/10.1111/j.1467-7679.2011.00522.x/pdf

http://onlinelibrary.wiley.com/doi/10.1111/j.1467-7679.2011.00522.x/pdf

http://www.odi.org.uk/resources/details.asp?id=3005&title=sector-wide-approaches-agriculture-rural-development

http://www.odi.org.uk/resources/details.asp?id=3005&title=sector-wide-approaches-agriculture-rural-development

http://www.worldbank.org/foodcrisis/pdf/Interagency_Report_to_the_G20_on_Food_Price_Volatility.pdf


http://www.ifad.org/rpr2011/index.htm


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IMF (2011) International Monetary Fund Factsheet – Poverty Reduction Strategy

Papers.

Available from: http://www.imf.org/external/np/exr/facts/pdf/prsp.pdf

Lavergne R, Alba A (2003) CIDA Primer on Programme-Based Approaches.

Available from: http://www.undg.org/archive_docs/6899-Primer_on_Programme-

Based_Approach.pdf

Programme-based approaches are explained within this Canadian International Development

Agency (CIDA) primer. It provides a basic introduction to the topic and a review of the

literature. It also highlights how a change in focus from projects to programme-based

approaches has implications regarding how donor agencies function.

Leader N, Colenso P (2005) Aid Instruments in Fragile States. PRDE Working Paper

5, Poverty Reduction in Difficult Environments Team/Aid Effectiveness Team, Policy

Division, UK Department for International Development.

Available from: http://ageconsearch.umn.edu/bitstream/12818/1/pr050005.pdf

Melamed C, Scott L (2011) After 2015: Progress and Challenges for Development.

ODI Background Note, Overseas Development Institute, London.

Available from: http://www.odi.org.uk/resources/download/5671.pdf

OECD (2005/2008) The Paris Declaration on Aid Effectiveness and the Accra Agenda

for Action. Organisation for Economic Co-operation and Development.

Available from: http://www.oecd.org/dac/effectiveness/34428351.pdf

OECD (2008) Accra Agenda for Action. 3rd High Level Forum on Aid Effectiveness.

Accra, Ghana. Organisation for Economic Co-operation and Development.

Available from: http://siteresources.worldbank.org/ACCRAEXT/Resources/4700790-

1217425866038/AAA-4-SEPTEMBER-FINAL-16h00.pdf

OECD-DAC (2010) Measuring Aid to Agriculture. Organisation for Economic Co-

operation and Development.

Available from: http://www.oecd.org/dac/stats/44116307.pdf

Severino J-M, Ray O (2010) The End of ODA (II): The Birth of Hypercollective

Action. CGD Working Paper 218, Center for Global Development, Washington DC.

Available from: http://www.cgdev.org/content/publications/detail/1424253

This is a lengthy paper, but it provides both an overview and a thorough critique of

contemporary aid, ie Official Development Assistance (ODA).

http://www.imf.org/external/np/exr/facts/pdf/prsp.pdf

http://ageconsearch.umn.edu/bitstream/12818/1/pr050005.pdf

http://www.odi.org.uk/resources/download/5671.pdf

http://www.oecd.org/dac/effectiveness/34428351.pdf

http://siteresources.worldbank.org/ACCRAEXT/Resources/4700790-1217425866038/AAA-4-SEPTEMBER-FINAL-16h00.pdf

http://siteresources.worldbank.org/ACCRAEXT/Resources/4700790-1217425866038/AAA-4-SEPTEMBER-FINAL-16h00.pdf

http://www.oecd.org/dac/stats/44116307.pdf

http://www.cgdev.org/content/publications/detail/1424253


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REFERENCES

Cabral L (2006) Poverty Reduction Strategies and the Rural Productive Sectors: What

Have we Learnt, What Else do we Need to Ask? Natural Resource Perspectives 100,

Overseas Development Institute.

CGD (2011) Cash on Delivery: a New Approach Financing Foreign Aid. Publisher’s

Notes, Centre for Global Development, Washington DC.


[Accessed 20 May 2013]

Collier P (2008) The politics of hunger. Foreign Affairs November/December 2008 67–

79.

DAC (2006) Promoting Pro-Poor Growth: Agriculture. Development Assistance

Committee, Organisation for Economic Co-operation and Development (OECD).

DFID (2005) Growth and Poverty Reduction: the Role of Agriculture. A Department

for International Development (DFID) Policy Paper.

Ellis F (1999) Rural Livelihood Diversity in Developing Countries: Evidence and Policy

Implications. ODI Natural Resource Perspectives 40.

EuropeAid (2007) Support to Sector Programmes. Covering the Three Financing

Modalities: Sector Budget Support, Pool Funding and EC Project Procedures. Tools

and Methods Series, Guidelines Number 2, European Commission, Brussels.

Available from:

https://ec.europa.eu/europeaid/sites/devco/files/ec-guidelines-support-to-sector-

prog-2007-final-en.pdf [Accessed 8 October 2014]

Evans A, Cabral L, Vadnjal D (2006) Sector-Wide Approaches in Agriculture and Rural

Development Phase I: A Desk Review of Experience, Issues and Challenges. Global

Donor Platform for Rural Development, Bonn.

FAO, IFAD, IMF, OECD, UNCTAD, WFP, World Bank, WTO, IFPRI, UN HLTF (2011)

Price Volatility in Food and Agricultural Markets: Policy Responses. The World Bank,

Washington DC.

Available from:

http://www.worldbank.org/foodcrisis/pdf/Interagency_Report_to_the_G20_on_Food_

Price_Volatility.pdf [Accessed 20 May 2013]

FAOSTAT (2011) Website.

Available from: http://faostat.fao.org/ [Accessed 20 May 2013]

Foster M, Leavy J (2001) The Choice of Financial Aid Instruments. Working Paper

158, Overseas Development Institute.


https://ec.europa.eu/europeaid/sites/devco/files/ec-guidelines-support-to-sector-prog-2007-final-en.pdf

https://ec.europa.eu/europeaid/sites/devco/files/ec-guidelines-support-to-sector-prog-2007-final-en.pdf



http://faostat.fao.org/


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Haggblade S, Hazell P, Reardon T (2002) Strategies for Stimulating Poverty-

Alleviating Growth in the Rural Nonfarm Economy in Developing Countries.

Environment and Production Technology Division, Discussion Paper 92, IFPRI,

Washington DC.

Available from: http://ifpri.org/divs/eptd/dp/eptdp92.htm [Accessed 20 May 2013]

IFAD (2011a) IFAD Strategic Framework 2011–2015: Enabling Poor Rural People to

Improve their Food Security and Nutrition, Raise their Incomes and Strengthen their

Resilience. IFAD, Rome.

Available from: http://www.ifad.org/gbdocs/eb/102/e/EB-2011-102-R-2-Rev-1.pdf


IFAD (2011b) Rural Poverty Report 2011. International Fund for Agricultural

Development, Rome.

IMF/World Bank (1999) Introduction. In: Poverty Reduction Strategy Papers –

Operational Issues. Approved by Boorman J, Ahmed M.

Available from: http://www.imf.org/external/np/pdr/prsp/poverty1.htm


Lavergne R, Alba A (2003) CIDA Primer on Programme-Based Approaches.

Available from: http://www.undg.org/archive_docs/6899-Primer_on_Programme-

Based_Approach.pdf [Accessed 08 October 2014]

Meinzen-Dick RS, Gregorio MD, Dohrn S (2008) Pro-Poor Land Tenure Reform and

Democratic Governance. OGC Discussion Paper 3, UNDP Oslo Governance Centre.

Available from:

http://www.rightsandresources.org/publication_details.php?publicationID=827


Mensbrugghe D, Osorio-Rodarte I, Burns A, Baffes J (2009) Macroeconomic

Environment, Commodity Markets: a Longer Term Outlook. Proceedings of the Expert

Meeting on How to Feed the World in 2050, 24–26 June 2009, FAO Headquarters,

Rome.

Available from: ftp://ftp.fao.org/docrep/fao/012/ak542e/ak542e00.pdf


Morardet S, Merrey D J, Seshoka J, Sally H (2005) Improving Irrigation Project

Planning and Implementation Process: Diagnosis and Recommendations. Final report

submitted by International Water Management Institute.

OECD-DAC (2010) Measuring Aid to Agriculture. Organisation for Economic Co-

operation and Development.

Available from: http://www.oecd.org/dac/stats/44116307.pdf

[Accessed 11 December 2013]

http://ifpri.org/divs/eptd/dp/eptdp92.htm

http://www.ifad.org/gbdocs/eb/102/e/EB-2011-102-R-2-Rev-1.pdf

http://www.imf.org/external/np/pdr/prsp/poverty1.htm

http://www.undg.org/archive_docs/6899-Primer_on_Programme-Based_Approach.pdf

http://www.undg.org/archive_docs/6899-Primer_on_Programme-Based_Approach.pdf

http://www.rightsandresources.org/publication_details.php?publicationID=827

ftp://ftp.fao.org/docrep/fao/012/ak542e/ak542e00.pdf

http://www.oecd.org/dac/stats/44116307.pdf


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OECD-DAC (undated) Website of the OECD’s Development Assistance Committee

(DAC).

Available from:

http://www.oecd.org/document/18/0,3343,en_2649_3236398_35401554_1_1_1_1,0

0.html#Paris [Accessed 20 May 2013]

Severino J-M, Ray O (2010) The End of ODA (II): The Birth of Hypercollective Action.

CGD Working Paper 218, Center for Global Development, Washington DC.

Available from: http://www.cgdev.org/content/publications/detail/1424253


Thirtle C, Irz X, Lin L, McKenzie-Hill V, Wiggins S (2001) Relationship Between

Changes in Agricultural Productivity and the Incidence of Poverty in Developing

Countries. Report 7956 commissioned by Department for International Development,

London.

UNDP (undated) Millennium Development Goals. Website.

Available from: http://www.un.org/millenniumgoals/ [Accessed 20 May 2013]

World Bank (2005) Agriculture Investment Sourcebook. The International Bank for

Reconstruction and Development/The World Bank, Washington DC.

Available from: http://go.worldbank.org/CCC68JMIZ0 [Accessed 20 May 2013]

World Bank (2009) Implementing Agriculture for Development: World Bank Group

Agriculture Action Plan: FY2010–2012. The World Bank, Washington DC.

Available from:

http://siteresources.worldbank.org/INTARD/Resources/Agriculture_Action_Plan_web.

pdf [Accessed 20 May 2013]

http://www.oecd.org/document/18/0,3343,en_2649_3236398_35401554_1_1_1_1,00.html#Paris

http://www.oecd.org/document/18/0,3343,en_2649_3236398_35401554_1_1_1_1,00.html#Paris

http://www.cgdev.org/content/publications/detail/1424253

http://www.un.org/millenniumgoals/

http://go.worldbank.org/CCC68JMIZ0

http://siteresources.worldbank.org/INTARD/Resources/Agriculture_Action_Plan_web.pdf

http://siteresources.worldbank.org/INTARD/Resources/Agriculture_Action_Plan_web.pdf


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MULTIMEDIA

Barder O (2009) Beyond Planning: Markets and Networks for Better Aid. Working

Paper 185, Center for Global Development, Washington DC.


CGD (2010) What’s Not to Like About the Millennium Development Goals? Global

Prosperity Wonkast Center for Global Development. Duration: 21 minutes.

Available from:

http://blogs.cgdev.org/global_prosperity_wonkcast/2010/09/18/whats-not-to-like-

about-the-millennium-development-goals-todd-moss-and-michael-clemens/

Review and critique of the Millennium Development Goals.

CGD (2010) Good Aid? Bad Aid? QuODA Tracks How Donors Stack Up. Global

Prosperity Wonkast Center for Global Development. Duration: 26 minutes.

Available from:

http://blogs.cgdev.org/global_prosperity_wonkcast/2010/10/04/good-aid-bad-aid-

quoda-tracks-how-donors-stack-up-interview-with-nancy-birdsall-and-homi-kharas/

Discussion with co-creators of the Quality of Official Development Assistance (QuODA)

assessment, a new tool that tracks and compares donor programs against four dimensions of aid

quality.

Development Drums (2009) Beyond Planning. Episode 19. Duration: 38 minutes.

Audio file available from: http://developmentdrums.org/278

Transcript available from: http://developmentdrums.org/wp-

content/uploads/DD19transcript1.pdf

Alison Evans, Director of ODI, interviews Owen Barder about his new paper, Beyond Planning:

Markets and Networks for Better Aid, and Roger Riddell, author of two key books on aid.


http://blogs.cgdev.org/global_prosperity_wonkcast/2010/09/18/whats-not-to-like-about-the-millennium-development-goals-todd-moss-and-michael-clemens/

http://blogs.cgdev.org/global_prosperity_wonkcast/2010/09/18/whats-not-to-like-about-the-millennium-development-goals-todd-moss-and-michael-clemens/

http://blogs.cgdev.org/global_prosperity_wonkcast/2010/10/04/good-aid-bad-aid-quoda-tracks-how-donors-stack-up-interview-with-nancy-birdsall-and-homi-kharas/

http://blogs.cgdev.org/global_prosperity_wonkcast/2010/10/04/good-aid-bad-aid-quoda-tracks-how-donors-stack-up-interview-with-nancy-birdsall-and-homi-kharas/

http://developmentdrums.org/278

http://developmentdrums.org/wp-content/uploads/DD19transcript1.pdf

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1.0 THE CURRENT AID FRAMEWORK

Section Overview

This section reviews the international context to, and modalities of, investment in the

agricultural and rural development sectors. It considers the nature and role of

projects in comparison to development assistance provided as direct budgetary

support.

Section Learning Outcomes

By the end of this section, students should be able to:

understand the key factors that have influenced the current aid framework

be familiar with the main approaches and instruments used by development

actors including programme-based approaches, sector-wide approaches, and

direct budget support

comprehend the role of projects in this context

1.1 Introduction: international agreements

In the current aid framework, international development approaches aim to promote

strategies that address both poverty and sector-wide programmes of investment and

policy reform, at least nominally, developed and implemented by developing

countries themselves. These changes have been driven by many factors including

recognition of the importance of harmonising and aligning development assistance

behind developing countries’ own poverty reduction goals, and agreement by many

countries to work towards a set of common goals – the Millennium Development

Goals.

Each country that contributes development aid is unique in the way it manages and

implements development co-operation. The institutional support structure for

delivering foreign assistance also differs in each recipient country. Thus, the way

donors tackle challenges in development co-operation varies significantly. Greater

harmonisation of donors’ efforts has emerged as a development priority given the

past lack of co-ordination, risk of duplication of efforts, high transaction costs and

multiple reporting systems. The Paris Declaration on Aid Effectiveness in 2005,

agreed to by more than 90 countries, represented a change in past aid practices and

set out the following principles for making development assistance more effective

(see 1.1.1, below)


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1.1.1 Paris Declaration on Aid Effectiveness

(1) Ownership: Developing countries set their own strategies for poverty reduction, improve their institutions and tackle corruption.

(2) Alignment: Donor countries align behind these objectives and use local systems.

(3) Harmonisation: Donor countries coordinate, simplify procedures and share information to avoid duplication.

(4) Results: Developing countries and donors shift focus to development results and results get measured.

(5) Mutual accountability: Donors and partners are accountable for development results.

Source: OECD-DAC (undated)

The Accra Agenda for Action (AAA) was drawn up in 2008 and builds on the

commitments agreed in the Paris Declaration. It aimed to deepen implementation of

the Paris Declaration and respond to emerging aid effectiveness issues. It identified a

number of areas in which further improvement was needed (see 1.1.2)

1.1.2 The Accra Agenda for Action

Designed to strengthen and deepen implementation of the Paris Declaration, the Accra Agenda for Action (AAA 2008) takes stock of progress and sets the agenda for accelerated advancement towards the Paris targets. It proposes the following three main areas for improvement:

Ownership: Countries have more say over their development processes through wider participation in development policy formulation, stronger leadership on aid co-ordination and more use of country systems for aid delivery.

Inclusive partnerships: All partners — including donors in the OECD Development Assistance Committee and developing countries, as well as other donors, foundations and civil society — participate fully.

Delivering results: Aid is focused on real and measurable impact on development.

Capacity development — to build the ability of countries to manage their own future - also lies at the heart of the AAA.

Source: OECD-DAC (undated)

The well-publicised Millennium Development Goals created ambitious targets for

reducing poverty by 2015. They were agreed by world leaders at the United Nations

Millennium Summit in 2000 and have also served to encourage enhanced efforts to

achieve greater co-ordination and effectiveness of aid (recognised as necessary

elements for achievement of goal number 8).

http://www.oecd.org/document/13/0,3746,en_2649_3236398_46893901_1_1_1_1,00.html


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The eight targets are shown in 1.1.3.

1.1.3 Millennium Development Goals

(1) Eradicate extreme poverty and hunger

(2) Achieve universal primary education

(3) Promote gender equality and empower women

(4) Reduce child mortality

(5) Improve maternal health

(6) Combat HIV/AIDS, malaria and other diseases

(7) Ensure environmental sustainability

(8) Develop global partnerships for development

Source: UNDP (undated)

You can find out more about the MDGs by going to the United Nations

Development Programme website (UNDP undated).

Have a look at this site and see what you can learn about the goals and

progress towards achieving them.

The international agreements and commitments outlined in this section have helped

to shape the aid framework which can be seen today. However, it should be

recognised that this is only part of the current ‘picture’. In the last decade

‘traditional’ international development assistance channelled from donor states to

recipient governments through bilateral aid programmes and through a small number

of multilateral development organisations has become paralleled by an expansion of

financial and technical assistance provided through a diversity of new private and

civil society organisations. These seek to promote poverty reduction and

development, often focusing in particular on provision of both national and

transboundary ‘public goods’ in the fields of health, environment and governance.

The international aid architecture is now in a continual state of change. There are

new sources of financing, new aid modalities and a new mix of donors, leading to

new dynamics and new capital flows between donor and recipient countries. Some of

these changes are illustrated in 1.1.4, below.


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1.1.4 Changing aid architecture

Source: Severino and Ray (2010) p. 10.

1.2 Programme-based approaches

Compared with the mainly ad hoc project based approaches of the past, many

donors (such as The World Bank and the UK’s DFID) now emphasise the support of

government budgets and programmes which fit with a country’s priorities.

Programme-based approaches encompass a wide array of different programmes –

they may be at the national level or focus upon a particular sector. They are driven

by a recognised need for donors to co-ordinate their aid provision and activities. The

extract in 1.2.1, below, from Lavergne and Alba (2003) provides more details as to

what a programme-based approach comprises. It is worth noting that the OECD’s

Development Co-operation Committee (DAC) who help to co-ordinate aid from

bilateral donors have adopted this definition of programme-based approaches

(PBAs).


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1.2.1 Definition and principles of PBAs

‘PBAs emphasise comprehensive and co-ordinated planning in a given sector or thematic area of intervention, or under a national poverty reduction strategy (PRS). PBAs are intended to support locally owned programs of development, so the word ‘program’ in the expression refers to the program of a developing country government or institution, which one or more donors have agreed to support. In CIDA’s understanding (2002a), that program may be a PRS, a sector program, a thematic program (such as an environmental strategy), or the program of a specific organisation such as a non-governmental organisation (NGO).

A program and a PBA can be defined as follows.

A program is an integrated set of activities designed to achieve a related set of outcomes in a relatively comprehensive way.

A PBA is a way of engaging in development co-operation based on the principle of co-ordinated support for a locally-owned program of development. The approach includes four key elements.

o Leadership by the host country or organisation

o A single program and budget framework.

o Donor co-ordination and harmonisation of procedures.

o Efforts to increase the use of local procedures over time with regard to program design and implementation, financial management, and monitoring and evaluation.’

Source: Lavergne and Alba (2003) p. 2.

Programme-based approaches can be used at many levels – national, sectoral or

sub-sectoral for example. One widely-used national level programme which falls

under the PBA category is Poverty Reduction Strategy Papers (PRSPs).

1.3 Poverty reduction strategy papers (PRSPs)

Poverty Reduction Strategy Papers set out an analysis of a country’s poverty

situation and define a government’s strategy as to how to tackle it over a three- to

five-year period. PRSPs were introduced by the World Bank as an aid instrument in

September 1999 as the new focus for its, and the IMF’s, assistance to developing

countries. The intention was to aim for greater partnership, and a ‘country-owned’

process.

Five core principles were identified to underlie PRSP development and

implementation, below.


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1.3.1 Key principles of PRSPs

– country-driven: involving broad-based participation by civil society and the private sector in all operational steps

– results-oriented: focusing on outcomes that would benefit the poor

– comprehensive: recognising the multidimensional nature of poverty

– partnership-oriented: involving co-ordinated participation of development partners (bilateral, multilateral, and non-governmental)

– based on a long-term perspective for poverty reduction

Source: IMF/World Bank (1999)

In the late 1990s and early 2000s, many multilateral and bilateral donors sought to

align their development goals and strategies for each partner country with PRSPs and

develop their own country assistance strategy paper which defined their role and

objectives as they fell under the country’s PRSP. For example, the World Bank and

IMF linked their development assistance to the preparation of PRSPs, and the Heavily

Indebted Poor Countries (HIPC) initiative which was launched in 1996 by the IMF and

the World Bank aimed to ensure that no poor country faced a debt burden that it

could not manage, and used PRSPs as the operational basis for deciding upon debt

relief.

Although PRSPs have now been used for a number of years, commitment to them as

a process by aid donors has somewhat dwindled. Experience has shown that, in

reality, there are variations in the degree of ownership, the participatory nature of

the development and implementation of the PRSP and the adequacy of monitoring

and evaluation systems. Some specific criticisms have been that:

they are naive about domestic political processes

they state what governments think the major donors want to hear

stakeholder participation is rather superficial

they over-emphasise social sectors and infrastructure sectors and do not give

sufficient emphasis to the productive sectors (including agriculture)

1.4 Sector-wide approaches (SWAps)

SWAps are one type of PBA, and are supported by donors in different ways including

budget support to the sector, pooled funding, NGO support, and project support.

Historically, SWAps preceded PBAs and lent their principles to PBAs. They were

developed in the 1990s to address the problem of poor performance and high

transaction costs in some sectors. They have been more prevalent in the education

and health sectors but have also been used in productive sectors such as agriculture.


© SOAS CeDEP 17

A working definition for a SWAp is:

‘A SWAp is a process in which funding for the sector – whether internal

or from donors – supports a single policy and expenditure programme,

under government leadership, and adopting common approaches across

the sector. It is generally accompanied by efforts to strengthen

government procedures for disbursement and accountability’

Source: based on Foster and Leavy (2001)

SWAps aim to achieve:

institutional capacity building with long-term benefits

a common system for planning, monitoring, evaluating, and accountability

therefore reducing transaction costs

promote coherence between policy, budgeting, and actual results

overall greater co-ordination and effectiveness in the allocation of donor and

government resources

broadened ownership by partner governments over decision-making regarding

sector policy, strategy, and spending

It is useful to contrast the sector approach with a conventional project approach (see

1.4.1).

1.4.1 Contrasts between a conventional project approach and the sector approach

Unco-ordinated project approach Sector-wide approach

Narrow focus on projects with narrowly defined objectives

Bilateral negotiations and agreements

Donor—recipient relationships with unbalanced power

Parallel implementation agreements

Short-term disbursement and success of projects

Blue-print approach

Country holistic view on entire sector

External partners co-ordination and collective dialogue

Partnerships with mutual trust and shared accountability

Increased use of local procedures

Long term capacity/system development in sector

Process-oriented approach through learning by doing

Source: EuropeAid (2007)

The experience of SWAps has been mixed. See 1.4.2, below, for a summary of a

review about the performance of SWAps.


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1.4.2 The experience of SWAps

‘In summary, while there is tangible evidence of progress with SWAps, that progress has often been slow and has sometimes resulted in unintended consequences for the balance of power within and between government institutions and between government institutions and donors. Donor and recipient behaviours have been slower to change than initially expected. While SWAps have provided a vital forum for discussing and resolving some key policy differences (eg over user fees in primary education), disagreements continue to persist particularly in areas involving a reduction of state action. This appears to have been most evident in sectors where public-private roles are still evolving, as in health, agriculture and rural development. Slow progress in the preparatory phases has also kept donors heavily involved in the micro-management of SWAps with consequences for the extent of country commitment to the process and for transactions costs.’

Source: Evans et al (2006) p. 11.

1.5 Direct budget support

There are many instruments through which donors channel funds to developing

countries. It is important for the context of this course to distinguish between two

types of instruments: direct budget support and off-budget support.

When donor funds are channelled into government budgets through the normal

budgeting and financial management process, it is referred to as direct budget

support. It is typically linked to the PRSP process, given that government’s

commitment to a poverty reduction strategy is usually required in order to attain the

funds.

There are two types of direct budget support: general budget support or sector

budget support.

Sector budget support – funds are earmarked to finance an agreed

expenditure plan for a sector and disbursed and accounted for through

government systems, sometimes with some additional sector-specific

reporting. It often entails sector conditions usually requiring agreement

between government and donors on the sector’s policy.

General budget support – this is provided as part of the national budget and

there is relatively little specification as to expenditure purposes or priorities by

donors.

The decision as to whether to channel funds into government budgets depends upon

factors such as accountability, trust, the strength of government financial

management and systems. Some donors have been more open to direct budget

support than others (for example, the World Bank and DFID).

Before continuing to read, take a few minutes to think about the benefits

and drawbacks of direct budget support.


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Benefits of direct budget support

Some of the benefits of direct budget support include:

leads to more efficient use of resources through pooling of funds

reduces the transaction costs involved with aid planning and delivery

helps to build the capacity of government institutions to deliver

shows trust of government systems and builds partnership

provides greater predictability and clarity of funding

There are clearly issues over the financial management systems of partner

governments, so that donors can show that their funds are being used appropriately.

It may well be that direct budget support should be complemented by capacity-

building in areas of administration, government effectiveness etc.

Off-budget support for programme-based approaches (PBAs) includes pooled funding

by various donors, support for NGOs, and project support.

1.6 Cash on Delivery (COD)

Many recent developments in aid delivery aim to provide greater ‘ownership’ to

recipient countries and help ‘build the capacity’ of recipient countries to design and

implement development strategies. One of the most recent initiatives with these

aims in mind is ‘Cash on Delivery’ aid as explained in 1.6.1

1.6.1 Cash on Delivery: a new approach financing foreign aid

‘Public and private aid can improve lives in poor countries, but the willingness of taxpayers and private funders to finance aid programs depends more than ever on showing results. COD Aid is a funding mechanism that hinges on results. At its core is a contract between funders and recipients that stipulates a fixed payment for each unit of confirmed progress toward an agreed-upon goal. Once the contract is struck, the funder takes a hands-off approach, allowing the recipient the freedom and responsibility to achieve the goal on its own. Payment is made only after progress toward the goal is independently verified by a third party. At all steps, a COD Aid program is remarkably transparent: the contract, the amount of progress made, and the payment are disseminated publicly to highlight the credibility of the arrangement and improve accountability to the public. COD Aid is a new approach to foreign aid, but one that complements other aid programs and would ultimately encourage funders and recipients to use existing resources more efficiently.’

Source: CGD (2011)

COD is not yet in widespread use although a number of donors and developing

countries have expressed interest in trying out the approach.

Before continuing to read, take a few minutes to think about the sorts of

goals that might be pursued under a COD approach and the challenges

that might be faced in implementing COD.


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There are numerous goals that could be subject to COD, including those relating to

education outcomes, health outcomes, poverty reduction etc. However, the

contribution that a recipient government makes to achieving them will be harder to

verify for some goals than for others and there is a risk that, unless goals are chosen

carefully, governments may seek to fulfil them in ways that do not really have a

development impact, for example, increasing school enrolment at the expense of

education quality. Additionally, since COD is only paid when the goal has been

achieved, it does not provide the finance that may be needed actually to achieve the

goal. This will have to come from other sources. Nevertheless, the COD approach

does seem to address the ‘ownership’ and ‘capacity-building’ issues that have been

central to much of the aid debate in recent years.

1.7 The role of projects in the new aid framework

The move towards direct budget support does not mean that projects do not have a

role. Projects will continue to be important, but will have different starting-points: ie

programmes and strategies led by partner countries rather than donor-identified

priorities.

The change in approach has resulted from reflections of the project format. There

have been various criticisms of conventional donor-funded projects:

Projects often exist outside of the structures and systems of a country’s public

sector administration. As such, they do not contribute to strengthening

systems such as a country’s budgeting and planning processes.

For countries with a large number of aid projects and a multitude of donors,

each with their own reporting schedules and accounting requirements, the

transaction costs of delivering aid through projects can be unacceptably high. A

lack of co-ordination across projects can lead to duplication in project

administration and activities. Donors are able to impose their own priorities for

investment upon governments as well as their management requirements for

project implementation.

The funding of multiple investments by donors often lacked an overall vision

and clear priorities, leading to unbalanced sectoral development.

Projects often attract skilled personnel away from the public sector’s routine

activities:

the use of donor-specific mechanisms of accountability potentially corroding

the normal structures of democratic accountability

projects can be costly to administer and manage, both for governments and

the donors that finance them

The new role of projects differs from the conventional idea of a project, in that:

they are not standalone projects that are managed by donors

they are intended to be locally-owned development programmes

donors co-ordinate their efforts within the projects

success is assessed in terms of a project’s role in contributing to programme

goals


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The role that projects will continue to play is apparent from 1.7.1 which discusses

projects emerging from different systems.

1.7.1 Projects in the current aid framework

‘Project aid using government systems

Project aid provides more specific earmarking of expenditures to a discrete set of activities for which coherent objectives and outputs and the inputs required to achieve them can be defined. The donor supported project can still be part of the Government budget, can be subject to policy conditions related to the project and the sector in which it is situated, and the resources can be disbursed and accounted for using Government systems. World Bank projects are often implemented in this way, though additional statements of expenditure and specific project accounts may need to be added to standard Government financial procedures. DFID projects make limited use of Government systems, mainly in cases where UK funding is reimbursing local cost expenditures by Government.

Project aid using parallel systems

Project Aid using parallel systems refers to those spending proposals where the donor has taken the lead in design and appraisal, has decided the inputs which will be provided, and uses its own disbursement and accountability procedures. In these circumstances, the donor is usually in a weaker position for insisting on project or sectoral conditionality, and the donor project operates as an enclave not fully integrated in the budget. This is likely to be true so long as the donor retains management control, even if log frame workshops and other techniques have been used to develop ownership and participation.

Project aid through NGO/private providers

In principle, in a good policy environment, Government would define its own role in relation to the private and not-for-profit sectors and, if there is a case for subsidising an activity carried out via these non-Government routes, the resources could be financed via the budget. In practice, Government Departments often resist resources being spent on outside organisations, while NGOs may be undertaking activities which, though important, do not map neatly onto the budget responsibilities of specific public sector organisations. There can therefore be a strong case for direct support to non-Government actors even in good policy environments, whereas the non-Government route may be the only feasible one in weak environments.

The rationale for donor involvement would need to be based on some form of market failure or on a distributional argument. The distributional case would be that the proposed project is a cost-effective way to provide better access by the poor to a socially desirable service. That is, a specific poor and vulnerable population requires subsidy before a service will be provided, and the proposed project is a cost-effective way to reach them. Issues of sustainability and of exit strategy will be especially important in looking at the case for subsidising goods or services provided by bodies outside Government, for whom the growth of taxation revenues does not provide a clear pathway to eventually reducing reliance on donors.

For support via the private sector, a critical issue is to ensure that the competitive market is not undermined as a result of the involvement of concessional finance. This implies using competition and good procurement practice to ensure that any subsidies benefit the end user rather than accruing as 'rent' to private sector operators. Where a long-term case for subsidised provision by non-Government service providers exists, there is a strong case for engaging Government in dialogue on eventually providing the necessary funding via the Government budget.’

Source: Foster and Leavy (2001) pp. 5—6.


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The diagram in 1.7.2, which was developed by Foster and Leavy (2001), is a

decision-making tool for choosing appropriate aid instruments and provides a useful

reference.

1.7.2 Decision tree for choosing aid instruments

Source: Foster and Leavy (2001) p.23.

Macro

/G

en

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up

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Level

Secto

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achie

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benefits

, eg

aid

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low

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cost,

polic

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execute

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for

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expenditure

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with

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udget

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Have d

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(eg

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Yes

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Yes

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© SOAS CeDEP 23

Before concluding this section, it is interesting to look at insights from projects and

programmes about the advantages and disadvantages of some of the approaches

discussed. The table in 1.7.3 highlights insights from the irrigation sector regarding

projects, sectors and budget support. (Note that IFIs mentioned in the table refer to

International Financial Institutions).

1.7.3 Advantages and drawbacks of different funding mechanisms of development assistance

Source: Morardet et al (2005) p. 41.

Instruments Advantages Drawbacks

Project

approach• Allows for innovation

• More clarity of use of funds and their

direct outcomes

• Mobilises resources focused on

specif ic objectives

• Poor co-ordination of dif ferent IFI’s

interventions

• High costs of implementation and

monitoring for IFIs

Sector

approach• Helps governments to provide

adequate resources for project

implementation and functioning (in

particular, extensions services,

capacity building, statistical systems,

research and education systems ...)

• Opportunities for harmonisation, up-

scaling and replication

• Governments can develop and apply

own procedures rather than trying to

please multiple IFIs

• Governments can avoid spreading

resources among too many different

projects

• Reduced opportunities for innovation

• More diff icult to document linkages

between investments and outcomes

• Dependence on government processes

for f inancial accountability

Budget

approach• Better ownership of development

strategy

• Help government to provide its

f inancial counterpart

• Impose more transparency on the

use of funds from government

• Risk to lose focus on agricultural

development in general and agricultural

water development in particular (Eicher

2004)

• Risk of a shift of funds from the

agricultural sector to other sectors

• Risk of a top-down and opaque process

of fund allocation, weakening the

empowerment of local stakeholders, and

therefore the sustainability of irrigation

projects

• Risk to implement projects only in the

most accessible and best-known regions

• Risk of inappropriate transfer of funds

from national government to local

governments and of competitions

between urban and rural areas (with

clear bias towards the former)

• Risk of more dependency on external

assistance


© SOAS CeDEP 24

Section Summary

The new aid framework has come about for a number of reasons including

aspirations of greater harmonisation of donors’ efforts and a commitment to

the Millennium Development Goals by many countries.

Programme-based approaches are prevalent today and aim to be an integrated

set of activities which harmonise donors’ activities and are led by the host

country or organisation.

Poverty reduction strategy papers set out a country’s strategy to reduce

poverty. Introduced by the World Bank and IMF, they intend to foster

partnership-oriented, country-led approaches to which donors align their

efforts.

Direct budget support is when funds are channelled through government

budgets and signify commitments by donors to trust and strengthen a

country’s national processes and accountability systems.

Cash on delivery aid pays recipient countries for achieving pre-defined goals.

The aim is to give recipient countries ownership of development initiatives and

help them build their capacity to innovate and design solutions to development

problems.

Projects have a role in this context, but not as stand-alone initiatives, rather as

co-ordinated efforts towards programme goals.


© SOAS CeDEP 25

Section 1 Self Assessment Questions

uestion 1

A recent shift in the aid framework has been:

(a) harmonisation of donors efforts

(b) an increase in projects

(c) a move away from budget support

(d) donors working with different goals and objectives

(e) a move away from poverty reduction strategies

uestion 2

General direct budget support is:

(a) capacity building for budget management

(b) funds allocated for specific government activities

(c) funds for which expenditure priorities are relatively unspecified and contribute

to the national budget

(d) financial support towards a specific sector

(e) funds which are focused towards education and health

uestion 3

Projects have a role in current development approaches as:

(a) stand alone projects

(b) projects developed and implemented by donors alone

(c) projects which are developed from a country’s national or sectoral priorities

(d) projects to administer budget support

(e) the need for projects has not changed

Q

Q

Q


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2.0 AGRICULTURE, PRO-POOR GROWTH, AND POVERTY

REDUCTION

Section Overview

In this section we consider the important linkages between development in the

agricultural sector, economic growth and poverty reduction, and the importance of

rural livelihood diversification.



articulate the key reasons why agriculture is considered to be important for

poverty reduction, and the linkages between agriculture, pro-poor growth and

poverty reduction

understand why agriculture is vital to a country’s development not only for the

sector itself, but for the ‘multiplier effect’

be aware of the trends in agricultural productivity over recent years, and the

importance of improving productivity particularly in sub-Saharan Africa

be familiar with the challenges that the rural poor, and the sector as a whole

currently face

2.1 Reversing underinvestment

Following two decades of decline in investment in the agriculture and rural

development sectors, investments are now increasing. Official Development

assistance to the sector reached a low point around 2006, but now the trend is

upwards (see the figure in 2.1.1, below).

This dramatic change in policies and donors’ priorities reflects the recognition of the

critical contribution of agriculture to pro-poor growth, and awareness that the

majority of the world’s poor live in rural areas. It also reflects growing international

concerns about food security following recent hikes in global food prices (see the

figure in 2.1.2, below) and increasing anxiety about the potential effects of global

warming on global food production. The latter in combination with growing demand

could lead to permanently high prices that will affect the poor the most.


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2.1.1 Trends in aid to agriculture (constant 2007 prices)

Source: OECD-DAC (2010) p. 1.

2.1.2 Changes in the real price of commodities (1948—2008)

(based upon index of 100 in year 2000)

Source: The World Bank in Mensbrugghe et al (2009) p. 15.


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For a few minutes, write down some of the ways in which you think

agriculture can contribute towards poverty reduction. Divide your

responses into: (a) farmers, households and their communities (b) a

developing country’s route to poverty reduction and economic growth.

2.2 Agriculture and its contribution to poverty reduction

There is a lot of evidence that agriculture can contribute to poverty reduction beyond

a direct effect on farmer’s incomes. Agricultural development can stimulate economic

development outside of the agricultural sector, and lead to higher job and growth

creation. Increased productivity of agriculture raises farm incomes, increases food

supply, reduces food prices, and provides greater employment opportunities in both

rural and urban areas. Higher incomes can increase the consumer demand for goods

and services produced by sectors other than agriculture. Such linkages (or the

‘multiplier effect’) between growth in the agricultural sector and the wider economy

has enabled developing countries to diversify to other sectors where growth is higher

and wages are better.

Diversification outside of agriculture is important to a country’s development. This is

particularly true in rural areas where about 70% of the world’s poorest people live

(IFAD 2011a). Haggblade et al (2002) estimate that across developing countries, as

many as a quarter of the rural population is employed full time outside of agriculture,

which constitutes 35–40% of rural incomes. This is not only a pattern amongst the

wealthier rural population – the poorest 20% of the population earn an average of

30% of their incomes from non-farm sources (DFID 2005).

2.2.1 The agricultural sector in economic growth and transition

The general pattern for least developed countries who diversify and reduce poverty is:

Early stage: agriculture is a large share of gross domestic product (GDP) and food is a high percentage of the poor’s expenditure.

As agricultural productivity increases, the non-farm sector develops and countries are less dependent on agriculture for their economy (although this may not occur in all areas of the country, where the non-farm sector is not as well developed).

Agricultural growth contributes to wider growth and poverty reduction, to what degree is dependent on the changes in productivity and the size of farms. Increases in land and labour productivity can be central to pro-poor growth. Initially land and labour productivity must rise to reduce poverty, but land productivity should rise faster... to create additional employment on farms which benefits the poor and leads to demand for non-farms goods and services.

As growth increases, there are more employment opportunities outside of agriculture, and labour moves outside of agriculture thus wage rates for farm labourers rise. At this stage, it is important to increase labour productivity to maintain food supply and prices.

Source: adapted from DFID (2005)

Agricultural productivity can therefore be seen as a first step or engine of growth

leading to greater income for a country. It is interesting to note that historically no

poor countries have reduced poverty only through agriculture, but almost none have

achieved it without increasing agricultural productivity in the first instance.


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Agricultural growth is an essential complement to growth in other sectors (DFID

2005).

2.3 Agricultural productivity

For most developing countries, improved agricultural productivity is essential to

growth. One estimate is that, on average, a 1% increase in agricultural yields

reduces the number of people living on less than a dollar a day by 0.83% (Thirtle et

al 2001). However, agriculture’s performance in recent years has been disappointing.

It is critical to reverse this in order to increase growth and reduce poverty.

It is useful to look at past performance across different regions. In Asia, gains in

productivity and poverty reduction were made in the 1960s through the ‘green

revolution’ but the rate of growth of agricultural productivity has reduced in recent

years with implications for the poor. In sub-Saharan Africa, the situation is more

extreme – growth in agricultural output has not met increasing population levels.

2.3.1 Africa and Asia: a contrasting picture of agricultural performance

‘Between 1961 and 2001, per capita production of cereals rose by over 50% in the developing world as a whole. But this overall picture masks great regional differences. In sub-Saharan Africa, output barely kept pace with population growth, increasing from 40 to 116 million tonnes. Most of this (probably 80%) came from expanding the area farmed: cereal yields increased by just 50%, from around 0.8 to 1.2 tonnes per hectare, and soil fertility has fallen dramatically. This contrasts sharply with Asia, where cereal output tripled from 309 to 962 million tonnes over the same period. This was far above the increase in population, and mostly came from higher yields, which rose from an average of 1.2 to 3.3 tonnes per hectare. The farmed area increased by just 40% over the same period.’

Sources: IFPRI (2002), FAOSTAT (2004) quoted by DFID (2005) p. 6.

2.3.2 Per capita cereals production trends

Source: unit author based on FAOSTAT (2011)


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It is likely that the rate of agricultural productivity growth achievable in future will be

slower than that of the green revolution and will vary according to countries and local

conditions. If agricultural output is to keep pace with growing demand, in the face of

a possibly dwindling supply of fertile land and water due to climate change, then the

productivity of these scarce resources will need to rise significantly. This will require

investment in improved technologies and policies that encourage more efficient

resource use.

2.4 Current challenges for the agriculture and rural

development sectors

The challenges faced by rural households today are very different to those faced by

the producers in the ‘green revolution’ who increased agricultural productivity

dramatically in the 1960s.

The decline in investment in agriculture and the rural development sector over much

of the last two decades has meant reduced public sector support for agriculture, and

reduced supply of inputs and services to producers. For many rural producers, the

state was their only source of inputs and links to markets. In today’s globalised world

in which there is much greater economic integration, small farmers are competing in

markets that are more sophisticated with demanding standards in terms of quality

and safety. Rural households are subject to risks from greater economic integration

such as depressed commodity prices. Furthermore, international trade in agricultural

commodities presents a number of challenges to developing countries.

Agricultural protectionism and farm support in OECD economies has tended to

protect farmers in those countries while reducing trade opportunities for small

farmers in the rural areas of developing countries.

A further challenge faced by rural households particularly in sub-Saharan Africa is the

HIV/AIDs pandemic. The evidence about its impacts on agriculture is contradictory

but it is certainly changing the demographic composition in many rural communities,

disrupting the transfer of knowledge from one generation to another and affecting

the ability of the government to deliver services. Families are having to focus on

surviving, rather than improving agricultural productivity and their livelihoods.

Climate change is also affecting the rural population and placing additional pressures

on often resource constrained agricultural systems and fragile natural resource base.

Conflict, which result from or are triggered by poverty reduce the resilience of the

rural poor further.

2.5 Understanding rural diversity

The rural poor are of course not a homogeneous group that can be treated as such.

There is considerable variation in access to assets, access to markets and the way in

which institutions hinder or promote their interests for example. There needs to be

an understanding of the rural context and people’s livelihood strategies in any

development policies and programmes. Two key areas are briefly discussed here.


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Gender

In many rural areas women play a large role in agriculture as farmers, processers

and selling at market for example. 2.4.1 provides an example from Cambodia.

2.4.1 Cambodia: agriculture feminised

‘In Cambodia 65% of the agricultural labour and 75% of fisheries production are in the hands of women. In all, rural women are responsible for 80% of food production. Half the women producers are illiterate or have less than a primary school education; 78% are engaged in subsistence agriculture, compared with 29% for men. In rural areas only 4% of women and 10% of men are in wage employment.

Households headed by women are more likely than households headed by men to work in agriculture, yet they are also more likely to be landless or have significantly smaller plots of land. Policies, programmes and budgets for poverty reduction must thus address the situation of Cambodian women.’

Source: Gender and Development Network and NGO Forum on Cambodia (2004) quoted by DAC (2006) p. 17.

Many women have poor access to resources, insecure land rights and poor returns in

labour markets.

Given the importance of women as agricultural producers, initiatives aimed at

increasing agricultural productivity need to reduce differential access to and control

of resources by women and support women’s effective participation in decision-

making processes.

Livelihood diversification

Livelihood diversification is more and more prevalent amongst rural households as a

way to mitigate risk and make a living as recognised in the late 1990s (see 2.4.2,

below). Many households pursue a number of different activities such as farming,

non-farm enterprises and seasonal migration for paid employment. The result can be

an increasing dependency on alternative sources of income to farming, with

contribution to total income found to be more than 50% in some rural areas. Policies

and programmes need to take account of this diverse portfolio and understand

livelihood strategies, migration patterns and labour markets. Such livelihood

diversification and broader multiplier effects in the economy have already been

shown to contribute to poverty reduction.


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2.4.2 A change in thinking: beyond farming to livelihood diversification

The tendency for rural households to engage in multiple occupations is oft remarked, but few attempts have been made to link this behaviour in a systematic way to rural poverty reduction policies. In the past it has often been assumed that farm output growth would create plentiful non-farm income earning opportunities in the rural economy via linkage effects. However, this assumption is no longer tenable; for many poor rural families, farming on its own is unable to provide a sufficient means of survival, and the yield gains of new technology display signs of levelling off, particularly in those regions where they were most dramatic in the past.

The causes of the adoption by rural families of diversified income portfolios are better understood than the policy implications. Considerations of risk spreading, consumption smoothing, labour allocation smoothing, credit market failures, and coping with shocks can contribute to the adoption, and adaptation over time, of diverse rural livelihoods. However, livelihood diversity results in complex interactions with poverty, income distribution, farm productivity, environmental conservation and gender relations that are not straightforward, are sometimes counter-intuitive and can be contradictory between alternative pieces of case study evidence.

Future rural poverty reduction policies need to be better informed on the nature of these interactions. For example, it is fairly well known that the poor diversify more in less advantageous labour markets than the better-off, ie in casual, part-time and unskilled work compared to full-time work or substantive self-employment. These findings are related to the asset status of the poor (eg low human capital) and barriers to entry resulting from low assets (need for skills, ability to navigate bureaucratic hurdles, etc). It is possible that facilitating the poor to gain better access to opportunities (or to create their own opportunities) may turn out to be substantially more cost-effective for poverty reduction than attempting, artificially, to support particular sectors or sub-sectors of rural economic activity.

Source: Ellis (1999)

Section Summary

The linkages between agriculture, pro-poor growth and poverty reduction are

substantial and important. There is now recognition that agriculture and its

multiplier effect to the wider economy has scope for poverty reduction. With

70% of the world’s poor living in rural areas, it is critical that rural poverty is

addressed.

Agricultural productivity has been in decline in recent years. It is important to

reverse this for substantial gains in poverty reduction to be made.

Current challenges facing rural households include risks from a more globally

integrated economic system, the HIV/AIDs pandemic and climate change.

It is vital to build in to any policy on agriculture and rural development, the

heterogeneous nature of the rural population and livelihood diversification.


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uestion 4

Agriculture can contribute to poverty reduction through:

(a) an increase in farmers’ incomes only

(b) a reduction in food prices for consumers only

(c) increases in farmers’ incomes, food prices and a stimulation of the wider

economy through the multiplier effect

(d) an increase in farmers and their communities incomes only

(e) the multiplication effect

uestion 5

Agricultural productivity has been:

(a) high in sub-Saharan Africa and Asia in the 1960s due to the Green Revolution

(b) low in Asia for the last fifty years

(c) higher in sub-Saharan Africa than in Asia

(d) always lower in sub-Saharan Africa and now not rising as fast in Asia as it has

in the past

(e) difficult to know

uestion 6

Which of the following statements is true?

(a) 70% of the world’s poor live in rural areas

(b) 30% of the world’s poor live in rural areas

uestion 7

Which of the following statements is true?

(a) An increase in agricultural productivity can often be a necessary first step in

poverty reduction.

(b) Almost all rural households depend on farming alone for their livelihood.

Q

Q

Q

Q


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3.0 REDUCING POVERTY: AGRICULTURE AND RURAL

DEVELOPMENT STRATEGIES

Section Overview

In this section we try to build on Sections 1 and 2 by exploring how agricultural and

rural development can contribute to the MDGs and to the goals of PRSPs.



know about the perceived role of agriculture and rural development in the

MDGs and PRSPs

understand the current policies and strategies of funding agencies, including

one in your own country

3.1 Introduction – MDGs, PRSPs, agriculture and rural development

Investing in agriculture and rural development with the aim of promoting pro-poor

agricultural growth is not easy. It is subject to risks from many sources, ranging

from market uncertainty and variation in prices to impacts of unfavourable weather.

Many investments, while providing high payoffs, can take years, and even decades to

fully materialise. And because the population directly affected by rural development

is widely dispersed, and often has little political voice, the results are often not visible

to influential decision-makers. However, the fact that 70% of the world’s poor live in

rural areas and the importance of the linkages between agriculture and growth,

combined with rising global food prices and climate-related food security concerns,

have led to renewed interest in investing in agriculture and rural development.

It is worth questioning whether this is always recognised in national and international

policies and processes. In this section, we look at some of the policies which directly

affect agriculture and rural development.

Spend a few moments thinking about the eight Millennium Development

Goals (MDGs) – which ones relate to agriculture and natural resources?

(As a reminder the eight MDGs are: eradicate extreme poverty and

hunger; achieve universal primary education; promote gender equality

and empower women; reduce child mortality; improve maternal health;

combat HIV/AIDS, malaria and other diseases; ensure environmental

sustainability; develop global partnerships for development.)


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Answer.

Few contries will substantially reduce poverty, and the world will not achieve the Millennium Development Goals unless agriculture and rural development challenges are addressed. MDG 1 ‘to eradicate extreme hunger and poverty’ will not be achieved unless the needs of the 70% of the world’s poor that

live in rural areas are met. MDG 6 regarding ‘environmental sustainability’ needs to involve the rural poor who largely live in and rely on natural resources. Furthermore, other MDGs such as child nutrition and gender equality depend directly or indirectly on pro-poor agricultural growth (World Bank 2005).

Poverty reduction strategy papers and the rural sector

Given the importance of PRSPs within the current aid framework, it is vital that

PRSPs take account of the circumstances, priorities and challenges for the rural poor.

However, a review of PRSPs from various studies has shown that there have been

serious shortcomings in the ways that rural poverty and the agricultural sector are

addressed across PRSPs.

3.1.1 PRSPS — rural poverty inadequately addressed

‘Various studies have suggested that PRSs, or at least the first generation of them, are weak in terms of the analytical content of policies. Studies focusing on the rural dimensions of poverty and the rural economy conclude likewise and identify at least four types of problems: deficient poverty diagnoses, lack of correspondence of diagnosis to policy recommendations, bias to activities that concern public spending, and failure to explore the links between growth and poverty reduction.

Taking these in turn: In PRSs, the rural poor are frequently treated as a homogeneous group with little discussion of the determinants of their poverty status (World Bank 2005). The neglect of dynamic aspects of poverty–opportunities for the poor to participate in economic growth as well as the risks of the non-poor descending into poverty – has also been noted (Shepherd and Fritz 2005).

An additional concern is the extent to which poverty diagnoses, or indeed participatory assessments involving the poor, actually inform the setting of policy priorities and targets. The links between poverty assessments and policy are seldom straightforward. The World Bank review notes, for example, that half of the 32 PRSs analysed included water-related issues in the poverty diagnosis, but only one-quarter included actions related to this sector. Livestock provides a similar example. By contrast, decentralisation and local governance were linked to rural poverty in only 28% of the PRSs but considered a priority area of intervention in 72% of them (World Bank 2005).

PRSs seem to have failed to draw from poverty diagnoses, or to explore the rural dimensions of poverty, and so convey little understanding of the poverty reduction potential of the rural productive sectors.

PRSs have a strong public expenditure focus, and pro-poor policy prescriptions are greatly determined by the prevailing pattern of public sector intervention. This is said to have created a bias in PRSs — a bias reflected in the MDGs also — against the productive sectors (Shepherd and Fritz 2005; Cromwell et al 2005). The public expenditure focus is not surprising given the initial tight link between the PRS process and debt relief, and the fact that PRS processes have often been co-ordinated by ministries of finance. This might have left little space for considering enabling (and less expenditure-focused) public sector measures and for exploring linkages between the public sector and the


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profit and non-profit non-state sectors with great poverty reduction potential.

Nor have the linkages, or trade-offs, between poverty reduction and growth been adequately explored (World Bank 2004). There are sectors, such as tourism, where considerable scope for poverty reduction exists but has rarely been explored in PRSs (Shepherd and Fritz 2005). Often, the implicit pro-poor growth model in PRS is one of ‘trickle-down’, which tends to treat growth and poverty reduction as one and the same thing, overlooking the connections between the two (Cromwell et al 2005).’

Source: Cabral (2006) p. 2.

Briefly summarise some of the key issues which need to be included in

PRSPs in the future in order to address rural poverty and agriculture

adequately.

3.2 The policies of development agencies towards agriculture and rural development

The context for agriculture has changed in the last few decades, as has the approach

to aid to address agricultural and rural development challenges. The following table

highlights some of the changes which have occurred in the rural context and

livelihood strategies of the rural poor and the policy responses to them.

3.2.1 An evolving agenda towards rural development

Evolving agendas Policy responses

From ... To ...

Focus on commodity production and increasing farm productivity

Focus on household productivity through diversified production and off-farm work

Build household assets, reduce market related barriers and expand access to local, national and international markets

One work location Multiple work locations Support diversified livelihoods

Smallholders are marginal

Reduce risk and vulnerability to increase market participation

Secure assets (land, water, finance) and mitigate shocks (new forms of insurance)

One size fits all technologies

Technologies that respond to the very diverse needs of a wide range of small producers

Target research and development investments to smallholders

Agriculture is synonymous with the farm

Agriculture contributes to growth and poverty reduction at the field level all the way to the table

Promote a holistic approach to rural poverty reduction in country PRS’s

Source: based on DAC (2006)


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The ‘triple-f’ crisis

The table in 3.2.1 is based upon the findings of a report written in 2006. Since that

time the world has experienced some major shocks in the form of a financial, fuel

and food crisis (the so called ‘triple-f’ crisis). Higher prices for food and fuel (see the

figure in 2.1.2) combined with slower growth in many parts of the world have pushed

many people back into poverty. The crisis has highlighted the vulnerability of poor

people to commodity price shocks and once again drawn attention to the agricultural

sector, although the precise implications of the crisis for development policy and the

aid agenda remain to be seen.

The fear that we might now have shifted from an era of continuously falling food

prices to one in which the long term price trend is upwards has put the focus back on

productivity and yields and the question of how to raise domestic and international

food supplies fast enough to reduce the pressure on prices. In this regard there are

heated debates in the development community about the respective roles of large

farms and smallholders, and also about whether food security is best served by

furthering the spread of high-tech external inputs (including controversial GMOs), or

by promoting resilience to climatic shocks through technologies that have more in

common with organic farming and ‘sustainable agriculture’ than with the input-

intensive strategies of the past (IFAD 2011b, Collier 2008).

Recent global price shocks have also strengthened calls for greater self-sufficiency in

food production, both at the household level and at the national level. Rural

households that are self-sufficient in food (and perhaps also less dependent on

external inputs) will be less vulnerable to international price hikes. The same goes for

individual countries, although this will depend to some extent on their trade policies,

and the degree to which these allow international price movements to be transmitted

to the domestic market. However, the food security of households with access to

land is not necessarily served by the same policies as those who are landless. The

latter are a growing proportion of a country’s poor, in rural, as well as urban, areas.

Their interests are best served by low food prices, which in turn depend upon rising

domestic food production and easy access to international markets when domestic

harvests fail.

Debates about farm size, technology, and trade policy and the way these debates

shape donor funded development programmes will be influenced by both consumers’

and producers’ interests. Development interventions will need to minimise the trade-

offs between these interests whilst maximising the synergies that we mentioned

earlier between growth in farm and non-farm incomes.

The World Bank’s strategy

The strategies of individual donors and development agencies towards the rural and

agricultural sectors can usually be found in various policy and strategy documents. At

the time of writing the most recent one for the World Bank is its Agricultural Action

Plan for 2010–2012 that updates previous statements in the light of the ‘triple-f’

crisis that we mentioned earlier. See 3.2.2, below, for more details.


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3.2.2 World Bank Agricultural Action Plan 2010—2012

‘The World Bank Group has made a renewed commitment to agriculture: this document presents the World Bank Group’s Agriculture Action Plan, FY2010—2012. It follows on from the World Bank agriculture and rural development strategy: Reaching the Rural Poor 2003—2007, and operationalizes the World Development Report 2008: Agriculture for Development.’ (p. xiii)

The plan puts greater emphasis on increasing productivity than was previously the case, particularly for smallholders in sub-Saharan Africa and those parts of Asia in which agriculture remains an important driver of growth and poverty reduction. However, the plan recognises that developing countries are no longer a homogenous group and that in Latin America and rapidly growing parts of Asia rural poverty reduction needs to focus on a different set of priorities, including ways of enabling the poor to exit from agriculture and find work in other sectors. The main goals of the plan as far as agriculture is concerned are as follows:

– ‘Raise agricultural productivity — including support to increased adoption of improved technology (eg seed varieties, livestock breeds), improved agricultural water management, tenure security and land markets, and strengthened agricultural innovation systems.

– Link farmers to market and strengthen value addition — including continued support for the Doha round, investments in transport infrastructure, strengthened producer organizations, improved market information, and access to finance.

– Reduce risk and vulnerability — continued support for social safety nets, for better managing national food imports, innovative insurance products, protection against catastrophic loss, and reduced risk of major livestock disease outbreaks.

– Facilitate agricultural entry and exit and rural nonfarm income — including improved rural investment climates, and upgraded skills.

– Enhance environmental services and sustainability — including better managed livestock intensification, improved rangeland, watershed, forestry and fisheries management, and support to link improved agricultural practices to carbon markets (eg through soil carbon sequestration).’ (p. vii-viii)

Source: World Bank (2009) pp. Xiii and vii—viii.

From market liberalisation to resilience?

The World Bank’s agenda for development has long been associated with market

liberalisation and privatisation – the policies of the so-called ‘Washington Consensus’.

The efficacy of these policies were already being criticised prior to the ‘triple-f’ crisis,

but the crisis has certainly lent additional weight to these criticisms. Although the

World Bank and other donors continue to emphasise market-led development, there

is now greater acknowledgement of market failures and of the need to correct them

by building both private and public sector capacity and by fostering public-private

sector partnerships.

Tackling market failure was one of the key objectives in DFID’s 2005 Agricultural

Policy paper.


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‘Poorly functioning markets continue to hinder agricultural development

in many poor countries. State intervention, particularly in Africa, has a

poor track record, but when markets have been liberalised, the private

sector has often failed to fill the gap left when government withdraws.

Building effective markets that are accessible to poor people needs

actions to reduce the transaction costs and risks that inhibit the private

sector. This involves improving infrastructure and communications, and

removing burdensome regulations or inconsistent policies. Where

markets are very weakly developed, governments may need to play a

more direct role in encouraging private sector participation by using

targeted and time-bound guarantees or subsidies’

Source: DFID (2005) p. 3.

Trade liberalisation, another donor-led policy objective, has also become more

controversial since the ‘triple-f’ crisis. The recent volatility in food prices has

highlighted the risks of full exposure to global markets. Recent hikes in international

food prices led many countries that had previously liberalised agricultural trade to re-

introduce export controls to protect domestic consumers. The effect on regional and

global markets of such interventions is to push prices up further still, exporting

domestic price volatility onto the global market instead and further increasing the

vulnerability of importing countries. Standard economic analysis treats trade

restrictions as a net cost to the economy, with the benefit of export controls to

consumers outweighed by the associated losses to producers (and vice versa in the

case of import controls) However, extreme price volatility also has a cost that is now

better appreciated than it was before the triple-f crisis (FAO et al 2011).

Although most donors still recognise the benefits of markets and free trade, the

emphasis in many donor policy documents seems to have shifted somewhat from

‘market liberalisation’ (partly because this has already been done) to one of ‘building

resilience’ and ‘reducing vulnerability’. See, for example, the five main strategic

objectives listed in IFAD’s most recent Strategic Framework document in 3.2.3.

3.2.3 IFAD Strategic Framework 2011—2015

‘IFAD’s overarching goal is: enabling poor rural people to improve their food security and nutrition,4 raise their incomes and strengthen their resilience. This goal is underpinned by five strategic objectives:

– A natural resource and economic asset base for poor rural women and men that is more resilient to climate change, environmental degradation and market transformation;

– Access for poor rural women and men to services to reduce poverty, improve nutrition, raise incomes and build resilience in a changing environment;

– Poor rural women and men and their organizations able to manage profitable, sustainable and resilient farm and non-farm enterprises or take advantage of decent work opportunities;

– Poor rural women and men and their organizations able to influence policies and institutions that affect their livelihoods; and

– Enabling institutional and policy environments to support agricultural production and the full range of related non-farm activities.’

Source: IFAD (2011a) pp. 16—17.


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Property rights

Resilience depends upon to a large degree on security of property rights, which has

long been emphasised by donors, particularly in relation to the access that poor

people have to land

‘Ownership and access to land in many poor countries remain

inequitable, reducing agriculture’s contribution to poverty reduction.

Efforts are needed to help poor people to buy land and to encourage

large landowners to sell it. This may be done by simplifying legal and

administrative procedures and strengthening the financial position of the

poor. In addition to measures aimed at increasing poor farmers’ land

ownership, attention should be given to new approaches to land

administration that can help provide secure access to land through, for

example, leasing arrangements. Special attention should be given to

improving access to land for the most marginalised people, particularly

women and indigenous communities.’

Source: DFID (2005) p. 4.

Land rights are, however, complicated and there is still considerable debate about

the extent to which land privatisation and formal titling programmes actually benefit

the poor and whether the poor may in some circumstances be better served by

lending greater weight to traditional land tenure arrangements (Meinzen-Dick et al

2008)

For your own country, or one with which you are familiar, investigate the

agricultural ministry or a development agency’s strategy. Summarise the

key points of the strategy, and the emphasis of the approach.

Section Summary

If we are to achieve poverty reduction and meet the MDGs, agriculture and

rural development will play an important role directly and indirectly.

The experience so far of the sector within PRSPs shows that agriculture and

rural development have been inadequately addressed.

Policies are having to evolve to reflect the changes in the rural environment.

Policy responses include a shift in focus from commodity production to

household productivity and livelihood diversification, and from a view that

smallholders are marginal to market participation to strategies that reduce

their risk and vulnerability and increase their participation in markets.

Different funding agencies have their own approaches to agriculture and rural

development, but in common they focus upon the enabling environment for

rural growth, agricultural productivity, reducing risk and vulnerability, and the

sustainability of natural resources.


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uestion 8

True or false?

(a) A concern regarding agriculture in Poverty Reduction Strategy papers is that

they treat the rural poor as a homogenous group.

(b) The World Bank’s Rural Strategy does not encourage non-farm economic

growth.

(c) IFAD’s Rural Strategy emphasises the importance of building up the poor’s

resilience to shocks, such as those that have occurred as a result of the ‘triple-

f’ crisis.

uestion 9

Choose the correct answer or answers from the list below.

Which of the following will help to reduce the transaction costs and risks that may

inhibit private sector participation in agricultural input and output markets in

developing economies?

(a) an increase in regulation

(b) investment in infrastructure and communications

(c) reduced funding for agricultural research

(d) information dissemination

(e) time bound and well targeted subsidies

(f) macro-economic instability

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UNIT SUMMARY

This unit sets the scene for the module by providing an overview of the current aid

framework in the context of agriculture. It shows how over the last two decades

there has been a significant shift in international development approaches towards

the promotion of strategies to address poverty and sector-wide programmes of

investment and policy reform that are developed and implemented by developing

countries themselves. This has been driven by factors including aligning development

assistance behind developing countries own goals, and the signing up of many

countries to work towards the Millennium Development Goals.

In recent years, many donors (such as the World Bank and the UK’s DFID) have

moved towards supporting government budgets and programmes which fit with a

country’s priorities. New aid modalities have developed including programme-based

approaches, sector wide approaches and budget support. Poverty Reduction Strategy

Papers have been used by many countries to set out the poverty situation and define

a government’s strategy as to how to tackle it over a three to five year period. The

move towards these different aid modalities does not mean that projects do not have

a role. Projects will continue to be important, but will have different starting-points:

ie programmes and strategies led by partner countries rather than donor identified

priorities.

There are renewed efforts by donors and higher levels of investment aimed at

developing agriculture as a means to provide pro-poor economic growth. There is

evidence that agricultural development can stimulate economic development outside

of the agricultural sector, and lead to higher job and growth creation. However

challenges remain in ensuring that policy is translated into action and that agriculture

is sufficiently represented within current aid modalities.


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UNIT SELF ASSESSMENT QUESTIONS

uestion 1

List the eight Millennium Development Goals.

uestion 2

Fill in the gaps on the table below which compares a project approach, programme-

based approach and direct budget support.

Projects Programme-based approach

Direct budget support

Results and accountabilities

Targeting or earmarking of funds

Local ownership and division of responsibilities

Collaboration between donors

uestion 3

Explain the general sequence of events for developing countries to reduce poverty by

agriculture and diversification.

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KEY TERMS AND CONCEPTS

cash on delivery aid payments made by donors to recipient governments as a

reward for progress towards achieving pre-defined

development goals

general budget support support that contributes to the national budget in which case

there is relatively little earmarking by donors.

livelihood diversification the tendency for households to engage in multiple

occupations

millennium development goals

the MDGs are a set of development goals agreed by the

United Nations at the Millennium Summit in September 2000.

They include the goal of halving the number of people living

on less than a dollar a day and the number suffering from

hunger by 2015

programme a set of interventions, including projects, designed to meet

policy objectives. Typically characterised by longer term

commitment, and wider geographical or sectoral scope,

compared to projects

programme-based approach (PBA)

new focus for donor aid to developing countries based upon

the support of programmes designed and led by recipient

countries

project discrete investment initiatives that are usually of fixed and

pre-determined duration

project cycle a logical sequence of stages through which projects pass

including: identification, planning and appraisal,

implementation and evaluation

sector budget support support that is earmarked for a particular sector by being

channelled to the ministry or department responsible for that

sector

sector-wide approach (SWAp)

involves a sector level programme and follows the same

principles as PBAs more generally – can be supported by

donors in various different ways, including via sector budget

support, pooled funding, NGO support, and project support

triple-f crisis the financial, fuel, and food crisis and associated price shocks