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A RENEWED STRATEGY FOR RURAL DEVELOPMENT

REACHING THE RURAL POOR

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A RENEWED STRATEGY FOR RURAL DEVELOPMENT

REACHING THE RURAL POOR

THE WORLD BANK

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© 2003 The International Bank for Reconstruction and Development / The World Bank1818 H Street, NWWashington, DC 20433Telephone 202-473-1000Internet www.worldbank.orgE-mail [email protected]

All rights reserved.

1 2 3 4 06 05 04 03

The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governmentsthey represent.

The World Bank does not guarantee the accuracy of the data included in this work. The boundaries,colors, denominations, and other information shown on any map in this work do not imply any judgmenton the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

Rights and Permissions

The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination ofits work and will normally grant permission promptly.

For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA,telephone 978-750-8400, fax 978-750-4470, www.copyright.com.

All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422,e-mail [email protected].

ISBN 0-8213-5459-0

Library of Congress cataloging-in-publication data has been applied for.

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iii

Foreword v

Acknowledgments vii

Acronyms and Definitions ix

Executive Summary xiii

Introduction 1

1. Development Context:Why A Strategy Update Is Necessary 5

2. Framework For a Renewed Rural Development Strategy 15

3. Fostering an Enabling Environment for Broad-Based and Sustainable Rural Growth 23

4. Enhancing Agricultural Productivity and Competitiveness 39

5. Fostering Non-Farm Economic Growth 57

6. Improving Social Well-Being, Managing Risk, and Reducing Vulnerability 61

7. Enhancing Sustainable Management of Natural Resources 69

8. Implementing the Strategy: Key Thrusts and Challenges 75

Bibliography 89

Annex 1: Lessons in Implementing From Vision to Action for Reaching the Rural Poor 96

Annex 2: Consultations in Strategy Preparation 98

Annex 3: Regional Strategy Summaries 99

Annex 4: Water 141

Annex 5: Physical and Social Infrastructure 150

Annex 6: Natural Resources 158

Annex 7: Successful World Bank Operations in Agriculture and Rural Development 166

CONTENTS

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Today three out of every four of the world’s poor live in rural areas.There will beno success in the war on poverty unless we take the fight to where those peoplelive. Yet, over the last decade lending to rural development, and especially to

agriculture, has been in unprecedented decline – both at the World Bank and among ourdevelopment partners. This situation cannot continue. We must renew our focus onagriculture and rural development.The new rural development strategy presented in thisdocument outlines our ‘battle-plan’ for such a renewed focus, and our commitment toreverse the downward trend in rural lending.

FOREWORDv

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The core of our new rural development strategy consists of a commitment to: a) focus on those that are themost disadvantaged – the rural poor; b) address rural areas in their entirety and promote broad-based ruralgrowth and service provision both on- and off-farm; c) forge alliances with all stakeholders – with the rural poor,with governments, civil society, academics, international organizations and leaders, and with the business com-munity; and d) refine our approach to respond to changes in the ever-evolving global arena that have a directimpact upon our clients – including changes in trade policies, climate, agricultural science, and technology.

The World Bank’s new strategy draws upon the lessons of our past experience and on From Vision to Action,our previous strategy published in 1997. Preparation for the new strategy began with the very people wehope to reach – the rural poor.We developed regional action plans and engaged in extensive dialogue withour clients, civil society organizations, the business community, academics, other international agencies and pol-icy leaders. We identified much that has changed in the global arena as a result of the ongoing process ofglobalization. What we have learned from our development partners in this process has been distilled intothis strategy.We are pleased that during the development of this strategy we have witnessed the beginningsof a new commitment to rural and agricultural development in the international community as a whole.Thisrevitalized commitment was amplified when more than 100 world leaders met at the World Summit forSustainable Development in September 2002 and pledged to make rural development a priority.We sharein this commitment.

In addition to highlighting the need for our client countries to continue their reform agendas and give greateremphasis to rural development, we also recognize the need for policy change within the developed world.The livelihood of most rural inhabitants in our client countries is connected to agriculture, directly throughfarming, or indirectly through activities such agro-processing, marketing, and providing services or inputs.Thus,increasing agricultural productivity in those countries is critical to achieving rural economic growth and pover-ty reduction. Protection of the agricultural sector in OECD countries creates significant barriers to agricul-tural exports from our client countries, and hampers their ability to grow their way out of poverty throughincreased agricultural production.

We recognize that success in rural development will require agreement among, and active support by, gov-ernments, civil society, and the private sector in both developed and developing countries. We must worktogether.We will assist our clients to develop their own national rural development strategies.These will bebuilt from the ground up, enabling the rural poor to identify their own priorities and action plans.These strate-gies will provide critical input to the articulation of the country’s poverty reduction strategy, and inform thebroader policy dialogue between the Bank and our clients in terms of country assistance strategies.

Among our development partners, the Bank will promote a Global Forum for Rural Development to ensurerenewed attention to agriculture and rural development.The forum will serve as a focal point for action and advo-cacy, for analytical and policy work, for coordination, and co-financing.The goal will be to keep agriculture and ruraldevelopment at the heart of the development agenda until we have won the war against rural poverty.

James D.WolfensohnPresident

The World Bank

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Preparation of Reaching the Rural Poor wasoverseen by the Rural Sector Board of theWorld Bank, chaired by Robert L. Thompson,followed by Kevin M. Cleaver, Directors ofAgriculture and Rural Development Department(ARD). Messrs. Thompson and Cleaver, togetherwith Ms. Sushma Ganguly (ARD Sector Manager) provided guidance throughout thepreparation process. All members of theAgriculture and Rural Development SectorBoard actively contributed: Joseph Baah-Dwomoh (Africa Region), Mark D. Wilson (EastAsia and Pacific Region), Laura Tuck (Europe andCentral Asia Region), Mark E. Cackler (LatinAmerica and Caribbean Region), Petros Aklilu(Middle East and Nor th Africa Region),Ridwan Ali (South Asia Region), Jean-Paul Pinard, (International Finance Corporation),Francisco J. Reifschneider (Consultative Groupon International Agricultural Research), GershonFeder (Development Economics), Ridley Nelson(Operations Evaluation Department), Michele E.de Nevers (World Bank Institute).

Csaba Csaki (ARD) managed the Bank-widerural strategy update process and the prepara-tion of Reaching the Rural Poor. He is the prin-cipal author of this document, with significantinput from Cornelis de Haan (ARD). The CoreStrategy Drafting Group also included JockAnderson (ARD), Harold Alderman (ARD),Malcolm Bale (EAP), Shawki Barghouti (ARD),Derek Byerlee (ARD), Gershon Feder (DEC),Antonio Nucifora (ARD), Eija Pehu (ARD),Felicity Proctor (ARD), Mona Sur (ARD),Eugene Terry (ARD), Wallace Tyner (PurdueUniversity), Cornelis van der Meer (ARD), andAlan Zuschlag (ARD). Material for specific sec-tions of the strategy document was receivedfrom Sanjiva Cooke (ARD), Louise Cord(PREMPO), Abdel-Dayem Safwat (ARD), ArielDinar (ARD), Merlinda Ingco (ARD), ChristinaMalmberg-Calvo (TUD), John Nash (ARD),Nwanze Okidegbe (ARD), Andrea Pape-Christiansen (ARD), Patrick Verissimo (WBI),Melissa Williams (ARD), and Jacob Yaron (ARD).

Regional Teams which organized the strategyupdate process at the regional level and pre-pared the regional strategies and action plansincluded: Karen Brooks, Ernst Lutz (AFR); LauraTuck, Marjorie-Anne Bromhead (ECA); MalcolmBale, Angela Chen (EAP); Mark Cackler, LuisCoirolo, Isabelle Tsakok, Adolfo Brizzi (LCR);Petros Aklilu, M. Salah Darghouth, Douglas W.Lister (MNA); and Ridwan Ali, Dina Umali-Deininger, Jeeva Perumalpillai, Manish Bapna(SAR).

Technical coordination of the rural strategyupdate process was undertaken by a SteeringCommittee composed of the ARD Core Teammembers as well as the members of theRegional Teams listed above.Additional membersof the Steering Committee include: OdinKnudsen (ESSDVP); John Heath (OED); LynnBrown, Christin Cogley, Fernando Gonzales,Jason Jacques Paiement, Roland Schurmann(ARD); and Philippe Dongier (SD).

General guidance was provided by the ESSDCouncil, chaired by ESSD Vice President IanJohnson, and included: Richard Ackerman (SAR);Hans Binswanger, Roger Sullivan (AFR); KevinCleaver, Jane Holt (ECA); Zafer Ecevit (EAP);Doris Koehn, Salah Dargouth (MNA); JohnRedwood, and Teresa Serra (LCR). Of theCouncil members, Kevin Cleaver (prior to hisappointment as Director of ARD) and HansBinswanger provided direct input in the strategyformulation.

Internal and external peer reviewers providedvaluable comments at several stages in the draft-ing process. They include: Alain de Janvry(University of California - Berkeley), GeoffreyFox (Consultant), Stanley Johnson (Iowa StateUniversity), Joachim von Braun (University ofBonn), Simon Maxwell (ODI), and Bruno Vindel(Ministre des Affaires Etrangers, France).

Marisela Montoliu-Munoz, (OPCS); John Todd,(SRM); Ridley Nelson, John Heath (OED); Odin

ACKNOWLEDGMENTS

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Knudsen, Rita Hilton (ESDVP); Steen Jorgensen(SD); Jim Douglas (ARD); Magda Lovei (ENV);Keith Oblitas (SAR); David Forbes-Watt, AndrewMcMillan, Maximiliano Cox (FAO), ManfredShultze (Free University of Berlin), Holger Kray(Consultant), Derek Poate, Doug Smith (ITAD); allprovided thoughtful comments, advice, and inputto the strategy.

Editorial support in the drafting of this documentwas coordinated by Alan Zuschlag with assistancefrom Wallace Tyner, Antonio Nucifora, AndreaPape-Christiansen, Andrew Goodland, andNadine Hasevoets-Tarwater. Administrative sup-port for the strategy update was provided byChristin Cogley and Joyce Sabaya. The graphicdesign, layout, and typesetting of this volume wasdone by Patricia Hord Graphik Design.

A series of consultations held in 2001-2002 in allsix Bank regions provided an opportunity forlocal organizations and individuals from nationalgovernments, the private sector, NGOs, and aca-demia to contribute the revised corporate strat-egy, and ensured that the Bank, its clients, and fel-low donor agencies were in agreement on the

focus of the regional strategies. Many otherorganizations and individuals outside the Bankcontributed to the organization of the regionalconsultations, and provided constructive oral andwritten comments. Because of space constraintsit is not possible to acknowledge all of them indi-vidually, but their contributions were invaluable.

A detailed portfolio analysis, and background stud-ies on global and regional issues, were completedto support the strategy update process. The titlesof these studies and their authors are listed in thebibliography of this strategy. The FAO has under-taken a study to provide an agricultural focus toReaching the Rural Poor. The overall results aresummarized in a joint FAO-World Bank bookFarming Systems and Poverty: Improving Farmers’Livelihoods in a Changing World by John Dixon,Aidan Gulliver, and David Gibbon.

The Bank would also like to thank the governmentsof the Netherlands (Bank Netherlands PartnershipProgram), the United Kingdom (DFID), France,Germany, and Greece for their financial support forthe preparation of the strategy and which made theregional consultations possible.

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ix

ACRONYMS AND DEFINITIONS

AAA Analytical and Advisory ActivitiesAfDB African Development BankADB Asian Development BankAFR Africa RegionAI Agricultural IrrigationAIDS Acquired Immunodeficiency SyndromeAPL Adaptable Program LoansARD Agriculture and Rural Development DepartmentAusAID Australian Aid AgencyBB Bank BudgetBNPP Bank-Netherlands Partnership ProgramCAS Country Assistance StrategyCBO Community Based OrganizationsCEM Country Economic MemorandumCDD Community Driven DevelopmentCDF Comprehensive Development FrameworkCGA Country Gender AssessmentCGIAR Consultative Group on International Agricultural ResearchCSO Civil Society OrganizationDEC Development Economics and Chief EconomistDFID Department for International DevelopmentEAP East Asia and Pacific RegionEBRD European Bank for Reconstruction and DevelopmentEC European CommissionECA Eastern Europe and Central Asia RegionESSD Environmentally and Socially Sustainable DevelopmentESW Economic and Sector WorkEU European UnionFAO Food and Agriculture OrganizationFAO/CP Food and Agriculture Organization Cooperative Program (with the World Bank)FDI Foreign Direct InvestmentFPSI Finance and Private Sector InfrastructureFY Financial YearGDP Gross Domestic ProductGEF Global Environment FacilityGTZ Gesellschaft fuer Technische Zusammenarbeit (German Aid Agency)HACCP Hazard Analysis Critical Control PointHD Human DevelopmentHDI Human Development IndexHIPC Highly Indebted Poor CountriesHIV Human Immunodeficiency VirusIADB Inter-American Development BankIBRD International Bank for Reconstruction and DevelopmentICSID International Center for Settlement of Investment DisputesICR Implementation Completion Report

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REACHING THE RURAL POOR A RENEWED STRATEGY FOR RURAL DEVELOPMENT

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ICT Information and Communications TechnologyIDA International Development AgencyIFAD International Fund for Agricultural DevelopmentIFC International Finance CorporationIFI International Financial InstitutionIFPRI International Food Policy Research InstituteIITA International Institute for Tropical AgricultureIMF International Monetary FundIPM Integrated Pest ManagementLIL Learning and Innovation LoansLCR Latin America and Caribbean RegionMDG Millennium Development GoalsMIGA Multilateral Investment Guarantee AgencyMIS Management Information SystemMNA Middle East and North Africa RegionNARS National Agricultural Research SystemNGO Non-Governmental OrganizationNRM Natural Resource ManagementODA Overseas Development AssistanceOECD Organization for Economic Cooperation and DevelopmentOED Operation Evaluation DepartmentOP Operational PolicyOPC Operations Policy and Country ServicesOPCS Operations Policy and Care ServicesPA Poverty AssessmentPAD Project Appraisal DocumentPAL Programmatic Adjustment LendingPCD Project Concept DocumentPER Public Expenditure ReviewPPF Project Preparation FacilityPREM Poverty Reduction and Economic ManagementPRSC Poverty Reduction Support CreditPRSP Poverty Reduction Strategy PaperPTI Program of Targeted InterventionsQAG Quality Assurance GroupQER Quality Enhancement ReviewR&D Research and Development RFI Rural Financial InstitutionRNFE Rural Non-Farm Economy RPO Rural Producers’ OrganizationS&T Science and TechnologySAC Structural Adjustment CreditSAL Structural Adjustment LendingSAP Software Administration ProgramSAR South Asia RegionSDP Strategic Direction PaperSDV Social Development DepartmentSECAL Sectoral Adjustment LoanSFP Strategic Framework Paper

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ACRONYMS AND DEFINITIONS

xi

SIL Sector Investment LoanSME Small/Medium Sized EnterpriseSPS Sanitary and PhytosanitarySSA Sub-Saharan AfricaTF Trust FundsVtoA From Vision to ActionVPU Vice-Presidential UnitUNAIDS Joint United Nations Programme on HIV/AIDSURAA Uruguay Round Agreement on AgricultureUSAID United States Agency for International DevelopmentWBG World Bank GroupWBI World Bank InstituteWDR World Development ReportWIRPI World Bank – IFAD Rural Partnership InitiativeWTO World Trade OrganizationWUA Water Users’ Association

Throughout this report, except where otherwise noted, the term “agriculture” includes all agriculturallyrelated Bank activities (including agricultural adjustment, agricultural research and extension, agriculturalcredit, agro-industry and marketing, community based rural development, livestock, fisheries and aquacul-ture, forestry, agency reform, and perennial and annual crops).“Rural development” includes agriculture plusall other investment activities in the rural space, including natural resource management, rural transport,water and sanitation, telecommunications, education, health and other social services. “Rural space” refersto the geographic area, including small towns designated by each country as rural.

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More than a half century of persistent efforts by the World Bank and others havenot altered the stubborn reality of rural poverty, and the gap between rich andpoor is widening. Most of the world’s poorest people still live in rural areas and

this will continue for the foreseeable future. The day when the goals for internationaldevelopment will be met is still far off in many parts of the world.

What is more, with globalization, the “poverty challenge is getting bigger and harder,”according to World Bank President James D. Wolfensohn. “Many of the benefits of anincreasingly interconnected and interdependent global economy have bypassed the leastdeveloped countries, while some of the risks—of financial instability, communicabledisease, and environmental degradation—have extracted a great price.”

EXECUTIVE SUMMARYxiii

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FROM VISION TO PRACTICE:THE CASE FOR A REVITALIZED STRATEGY

From Vision to Action, the Bank’s previous ruraldevelopment strategy launched in 1997, had a deci-sive influence on global thinking—but disappointingresults on the ground. In 2001 lending for agricul-tural projects was the lowest in the World Bank’shistory (box 1).

The new strategy is results oriented. Reaching the Rural Poor stresses practice, implementation,monitoring, and empowerment of the people it is designed to help. The strategy responds tochanges in:

The global environment – changes broughtabout by the forces of globalization and persist-ent trade distortions

Client countries – challenges of unfinished poli-cy reforms, decentralization, institutional devel-opment, poor governance, the expanding rolesof the private sector and civil society, and pro-liferating national and regional conflicts

The World Bank – to apply the lessons learnedin the past four to five years while implement-ing From Vision to Action. Work on Reaching theRural Poor began in mid 2000. Starting with thedevelopment of regional action plans andextensive consultations at the regional level, thenew strategy was designed to respond to thelocal circumstances and needs of the peoplewho have the greatest stake in its implementa-tion (box 2). Regionally drafted strategiesbecame the framework for the new corporatestrategy.This process was followed by intensivedialogs with individuals and with international,national, and local organizations.

Reaching the Rural Poor also reflects and reinforcesthe Bank’s commitment to the UN MillenniumDevelopmentGoals (www.developmentgoals.org),which will be met only through increases in ruralincomes and broadened opportunities for ruralinhabitants. The strategy assigns great weight todeveloping, establishing, and supporting appropri-ate implementation and monitoring mechanismsand processes at the national, regional and inter-national levels.

THE KEY FEATURES OF REACHING THE RURAL POOR

Reaching the Rural Poor will revitalize World Bankactivities in rural areas by adjusting the strategicframework and formulating a program of concreteand attainable actions.The strategy calls for raisingthe profile of rural development efforts andextending Bank endeavors to reach the rural poor.The strategy:

Focuses on the rural poorFosters broad-based economic growthAddresses rural areas comprehensivelyForges alliances of all stakeholdersAddresses the impact of global developmentson client countries

Focusing on the Rural PoorWho are the rural poor? Where do they live?What challenges does poverty pose in theirrespective localities? Answers to these questions

Rural investment is under-represented in the World Bank’s lend-ing. The Bank’s lending to rural areas in Fiscal Years 1999–2001amounted to a total of US$15 billion (about $5 billion annual-ly). This represents around 25 percent of the Bank’s total lend-ing and therefore is not congruent with the greater incidence ofpoverty in rural areas. Figures from Fiscal Year 2002 (FY02) showthat this situation has not changed. The situation is particularlyacute for agricultural lending, which has declined markedly overthe past 20 years, both absolutely and as a proportion of totalBank lending. Of the US$5 billion lending to rural areas in FY02,total investment in the agriculture sector (including agro-industryand markets) was US$1.5 billion. This equates to just 7.9 percentof total Bank lending, whereas in the early 1980s it accountedfor more than 30 percent.

a. The term “rural areas” as used throughout this publication includes small and

medium sized towns, according to the national definitions. Investment in rural

areas covers investments in all sectors (agriculture, natural resource manage-

ment, rural transport, water and sanitation, telecommunications, education,

health, and other social services).

Recent Bank Operations in Rural Areas 1

REACHING THE RURAL POOR A RENEWED STRATEGY FOR RURAL DEVELOPMENT

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EXECUTIVE SUMMARY

xv

are the basis for an effective rural developmentstrategy.The rural poor include the landless, indi-viduals and households with few assets, small-holders, pastoralists, rural women (especiallywomen-headed households); ethnic minorities,and indigenous populations. The rural poor arenot a homogeneous group. Understanding theneeds of such different groups is central to thesuccess of the Bank’s new strategy.

Fostering Broad-Based Economic Growth Reaching the Rural Poor makes broad-based eco-nomic growth its primary objective. Rural povertyis as diverse as are the rural poor in their livelihoodstrategies, but in most of the poorest developingcountries agriculture is the main source of ruraleconomic growth.That is why improved agricultur-al productivity and growth are central to the Bank’sstrategy for reducing poverty.At the same time, theBank recognizes the importance of nonfarm eco-nomic activities in rural development, so their pro-motion is another key feature.

Addressing Rural Areas in Their EntiretyTo reduce rural poverty, the Bank must work withclients to address rural areas in their entirety—allof rural society and every economic, social, andenvironmental aspect of rural development. Pastapproaches identified most pieces of the puzzle butfailed to put them together in a way that attainedobjectives. Sustainable rural development requiresmultidisciplinary and pluralistic approaches topoverty reduction, social and gender equity, localeconomic development, natural resource manage-ment, and good governance. The Bank is movingaway from short-term, sector-by-sector approach-es and toward coherent cross-sectoral approachesfor the sustained reduction of rural poverty.

While the poor have much in common with eachother wherever they live, rural areas are distinctlydifferent from urban ones. For this reason, theapproaches in addressing the needs of the ruraland the urban poor must be tailored specifically toeach group. However, the Bank’s rural strategy rec-ognizes that urban and rural areas are inextricablylinked in the process of development and that thestrategy must take into account the diverse rangeof interactions between urban and rural economies

when crafting future development efforts.As devel-opment progresses, all countries undergo a transi-tion from a predominantly rural to a more heavilyurban economy. Urban and rural areas are a con-tinuum, but they are also internally heterogeneous.

Forging Alliances of All Stakeholders To broaden stakeholder participation in project andprogram design and implementation, the Bank isworking with clients to overcome the shortcomingsof earlier top-down, non-inclusive approaches. TheBank will work with others (governments, develop-

More than 2,000 people (government officials, civil society,nongovernmental organizations, academics, private sector, anddonor agencies) were involved in the consultations for the ruralstrategy. Consultations involved four major stages:

Consultations on the regional strategies and the initialframework of the corporate strategy. Eleven regional con-sultations were held in early 2001 (Nepal, Philippines,China, Lebanon, France, Kenya, Senegal, Russia, Panama,Belgium, and Japan).

Consultations and seminars focused on the corporate strat-egy and its implementation. In 2002 a series of consulta-tions and seminars on implementation were held in coun-tries including Vietnam, Nigeria, and Ethiopia and at region-al development banks.

Presentations, seminars and panel discussions at majorinternational gatherings with broad-based stakeholder par-ticipation. These venues included the International FoodPolicy Research Institute 2020 Conference in 2001, and in2002, the Food and Agriculture Organization CouncilMeeting, the United Nations Conference on Financing forDevelopment, the United Nations PrepComm for the WorldSummit on Sustainable Development, the EuropeanSustainable Development Conference, the 35th World FarmerCongress, the World Food Summit—Five Years Later, andthe European Rural Development Forum.

Rural strategy website and internet consultations on the finaldraft of the strategy. A website was created early in the strat-egy-development process with drafts and all relevant materialposted for comment. Numerous comments were received fromacademics, civil society groups, donors, governments, non-governmental organizations, and private individuals.

2Reaching the Rural Poor:The Consultative Process

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ment agencies, civil society, private sector, academia)in a broad-based global coalition to make the reduc-tion of rural poverty a major thrust for the comingdecade.Through enhanced partnerships and otherlinkages, the development community will increaseadvocacy for rural development and share experi-ences in best practices and innovation.

Addressing the Impact of GlobalDevelopments on Client CountriesThe process of globalization has brought about a“shrinkage” of spatial distance and a lowering oftransaction costs that has resulted in growing inter-dependence of the world’s economies, markets,and people. Globalization encompasses more openinternational trade in goods and financial services,growth of multinational companies, more uniformlabor and environmental standards, and growingglobal sourcing in supply chains.This expanded mar-ket in goods, services, and information providesnew opportunities for rural development andpoverty reduction. But globalization and economicliberalization carry risks as well as opportunities

and create losers as well as winners. Finding waysto harness the growth opportunities while manag-ing risks and compensating losers is a challenge forpolicymakers everywhere. Reaching the Rural Poorreflects the World Bank’s increased emphasis onhelping countries meet these challenges, addressingglobal issues such as international trade policy, sub-sidization of agriculture, and global climate change.

THE STRATEGIC OBJECTIVES OFREACHING THE RURAL POOR

The Bank’s objectives in rural poverty reduction,and for rural development in general, are geared tohelping clients accelerate economic growth so thatit is shared by the poor. The strategy thereforefocuses on:

Fostering an enabling environment for broad-based and sustainable rural growth Enhancing agricultural productivity and com-petitiveness

0 1 2 3 4 5

Static

Dynamic

Static

Dynamic

Static

Other Sectors

Agriculture and Food

Dynamic

Low- and middle-income

countries

High-income

countries

World Total

Figure 1: Potential Gains from Full Multilateral Trade Liberalization (percentage of income)

Note: Static gains refer to results holding productivity constant. Dynamic gains allow productivity torespond to sector-specific export-to-output ratios.Source:World Bank, 2001f.

REACHING THE RURAL POOR A RENEWED STRATEGY FOR RURAL DEVELOPMENT

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Fostering nonfarm economic growth Improving social well-being, managing and miti-gating risk, and reducing vulnerabilityEnhancing the sustainability of natural resourcemanagement.

Fostering an Enabling Environment forBroad-Based and Sustainable Rural GrowthAn appropriate macroeconomic policy environ-ment and a supportive institutional framework areessential to growth and poverty reduction and forthe success of World Bank supported activities inthe rural sector.

World-wide trade policy reform. Because somany of the poor derive their livelihood directlyor indirectly from agriculture, developing coun-tries have a huge stake in the full integration ofagriculture under multilateral trade rules. Amajor reason both for the limited growth ofagricultural trade and for the inability of devel-oping countries to enlarge their share of thistrade is high protection in the large markets ofthe industrial world. High subsidies and otherforms of trade protection impair developingcountries’ ability to compete in global marketswith farmers from the industrial world.They alsoencourage surpluses that have been sold onworld markets, depressing world prices andundermining the potential contribution of agri-culture to global prosperity.

The potential economic welfare benefits of globalagricultural trade reform for the developing worldare estimated at US$140 billion annually. For thedeveloping countries, the impact of agriculturaltrade liberalization by the industrial countries aloneamounted to more than 50 percent of the officialdevelopment assistance given to developing coun-tries in 2001 (figure 1). These countries are thedeveloping world’s largest potential market foragricultural products. Considering the potential forsignificant increases in income in developing coun-tries from agricultural trade, it is crucial that theindustrial countries liberalize their agricultural mar-kets by removing trade barriers to open marketaccess for developing countries’ products and byphasing out subsidies.

The World Bank will continue to assist its clients inimproving their own trade policies using the systemof multilateral trade rules to expand their trade,thereby enhancing their development prospects.The Bank’s comparative advantage is that it cancombine trade policy analyses with significantexpertise for a comprehensive view of the waysagricultural trade liberalization, globalization, andmarket integration can promote growth and ruraldevelopment.This capacity can be used to supportbetter agricultural and trade policies through:

Increased advocacy for trade liberalization inboth industrial and developing countries

Bulgaria elected a new government in 1997 with a strong commit-ment to market reform. The government eliminated export bans andcontrols on profit margins on agriculture and food products, eliminat-ed most import quotas and duties on cereals, and liberalized markets.The Bulgarian adjustment program had the full support of the elect-ed government and Parliament.

World Bank provided sector adjustment loans were designed to pro-mote efficiency in the agricultural sector, generate rural jobs, raise liv-ing standards, and enlarge consumer choice by:

Promoting a land market, including restitution of 80 percent ofthe designated land area and enactment of several administrativemeasures to facilitate land transactions

Developing a private grain market by privatizing the grainmarketing agency and limiting the state grain reserves to agreedamounts

Privatizing state agricultural enterprises, including agreed numbersof grain mills, seed, and food industries

Privatizing irrigation systems through decentralization bytransferring management of operation and maintenance to wateruser associations on at least 100,000 hectares

Improving agricultural financing according to agreed criteria

Liberalizing trade in most agricultural products

Improving forest legislation and increasing community-basedparticipation in forest management.

3Bulgaria:Agricultural SectorAdjustment Loans I and II

EXECUTIVE SUMMARY

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Mainstreaming agricultural trade liberalizationand trade-capacity development in the Bank’scountry assistance and operationsFacilitating capacity building through technicalassistance and training on trade-related issues Increased assistance in the area of standards andsanitary and phytosanitary regulations Conducting analytical work at both global andcountry levels to identify key areas for futurepolicy reform.

Sound policy environment in developing countries.The developing countries, too, have work to do ifthey want to gain long-run benefits from trade liber-alization.Their domestic policies must allow domesticproducers to respond to changing domestic and for-eign conditions. The World Bank will continue toassist its clients in their efforts to improve their ownpolicy environment for rural development and there-by enhance their development prospects (box 3).The nature and degree of the reforms will be influ-enced by the extent of agricultural trade and subsidyreform in the industrial countries. The Bank’s policyagenda will focus on:

Improving the macroeconomic framework foragricultural and rural growth by correctingremaining biases in the macroeconomic envi-ronment Espousing the principles of nondiscriminatorytaxation and reform credibility in both theoryand practiceSupporting an enabling policy environment foragricultural trade and market access by reduc-ing trade barriers and anti-export bias in orderto promote growth in agricultural trade, bywidening access to foreign markets, by reducingprotection for nonagricultural goods, and bydeveloping policies to minimize the effects ofdeclines in world commodity prices on farmersIntroducing sound food and agricultural poli-cies; supporting the development of effectivemarkets for agricultural inputs, outputs, andservices; removing obstacles to effective mar-ket operationsDesigning and targeting safety nets that direct-ly protect the poor, particularly rural dwellers Assisting in the establishment of complementa-ry legal and regulatory frameworks that sup-port private enterprises Improving the operation of land markets andland administration, promoting land reform forcountries with inequitable land distribution, andpromoting equal access to secure land holding,especially by women.

Good governance and institutions. Good gover-nance and institutions are indispensable for soundrural development; poor governance inhibits devel-opment. Overcentralized institutional structures char-

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Latvia’s emerging private rural economy has received supportfrom the Agricultural Development Project (ADP) and the RuralDevelopment Project (RDP).

No commercial banks in Latvia were interested in serving smallprivate farmers when ADP was launched in Fiscal Year (FY) 1994.The Agricultural Finance Company (AFC) was set up with a squadof mobile credit officers who took financial services to the farm-ers instead of waiting for them to come to a site, often faraway. The idea of “taking the bank to the clients” eased farm-ers’ transportation problems. In four years, with only 42 staffmembers, AFC approved US$43 million for 2,860 subloans, withhigh repayment rates at around 93 percent. The loans wereoffered at market interest rates in the local currency, Lat, andU.S. dollars. The AFC, now merged with a commercial bank inLatvia, continues to serve the rural population.

The RDP supports a wide variety of rural entrepreneurs. Approvedin FY98, the project was directed at helping the governmentbuild its rural policymaking capacity in preparation for mem-bership in the European Union. One of the RDP’s innovations wasthe “special credit line” with a government bonus of a match-ing grant for small farmers and rural entrepreneurs borrowingfor the first time. First-time borrowers received a small portionof the loan as a bonus after they had fully repaid their loan.Some 1,300 of these small loans have been made, each for amaximum of US$4,000 equivalent. Most of these loans went torural, nonfarm entrepreneurs—tourist services, hairdressers, tai-lors, doctors, and other service providers—and only 20 percentto farmers. Repayment performance is outstanding at around 98percent. The RDP also successfully introduced participatoryapproaches to rural development by creating Local ActionGroups. Two group leaders received a United Nations Award ofExcellence for community-led development.

Latvia: Agricultural Development Projectand Rural Development Project4

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acteristic of many government administrative systemsalso sap the effectiveness of development invest-ments and policies. That is why, based on empiricalevidence, the Bank has made institutional reform cen-tral to its new strategy.

In the decentralization process, local governmentsmust be given sufficient fiscal resources to dischargetheir new responsibilities. Political decentralization isalso necessary, as it promotes accountability and gov-ernance reforms at the local level. This is especiallyimportant for rural areas because most rural peoplehave had a weak political voice at the national level.

The Bank will encourage governments to concen-trate on: providing public goods; establishing legal,administrative, and regulatory systems that correctfor market failures; facilitating efficient operation ofthe private sector; and protecting the interests ofthe disadvantaged. Decentralization offers greatscope for improving delivery of public sector func-tions. Facilitating further decentralization in ruralareas is an important part of the policy agendaoutlined in the strategy.To promote the develop-ment of effective institutions for rural develop-ment, the Bank will support:

Strengthening of local administrative capacity Transfer of responsibility for services to theadministrative level closest to the users Enhanced accountability for public administra-tion at every levelParticipatory approaches, including increasedpolitical space and participation in decision-making bodies for womenEconomies of scale in government functions Appropriate private sector involvement in thedelivery of public services, with publicaccountability.

Rural financial services. To achieve broad-basedeconomic growth and reduce vulnerability, peopleand enterprises in rural areas need access tofinancial services. Many developing countries haveno formal financial institutions to provide services.Supply-driven agricultural credit has provenunsustainable and unsuccessful and is no longersupported by the Bank, although many countriesstill use it.

To ensure new and innovative approaches, theBank will strengthen its support for the develop-ment of financial products and institutions that fillthe special needs of poor rural clients. This willinclude financial instruments for income generationand reduction of financial risk and recognize themultiplicity of potential delivery mechanisms, sup-pliers, and users of rural financial services (box 4).To this end, the Bank will:

Continue to expand its menu of instruments inrural finance and test them for effectiveness,replicability, and sustainabilityContinue to support provision of credit to farmand rural nonfarm enterprises where marketfailures inhibit the flow of liquidity, while observ-ing sound market development approaches anddiscipline in financial intermediationWork to narrow gaps in knowledge about therelation between financial services and poverty.

A 1 percent increase in agricultural GDP per capita led toa 1.6 percent gain in the per capita incomes of the poor-est one fifth of the population in 35 countries analyzed.a

A 10 percent increase in crop yields led to a reduction ofbetween 6 percent and 10 percent in the number of peo-ple living on less than US$1 a day.b In Africa, a 10 per-cent increase in yields resulted in a 9 percent decrease inthe same income group.

Wheat prices would have risen 34 percent, and rice prices41 percent, more between 1970 and 1995 in the absenceof international agricultural research.

The average real income of small farmers in southern Indiarose by 90 percent and that of landless laborers by 125percent in 1973–1984, as a result of the “GreenRevolution.”c

Sources: a. C.P. Timmer, 1997. How Well Do the Poor Connect to the Growth

Process, Consulting Assistance on Economic Reform Discussion Paper 178

(Cambridge, Mass.: Harvard Institute for International Development); b. Irz , L. Lin,

C. Thirtle, and S. Wiggins, “Agricultural Productivity Growth and Poverty

Alleviation,” Development Policy Review 19(4): (2001); c. P. Hazell and C.

Ramasamy, 1991. The Green Revolution Reconsidered: The Impact of High-Yielding

Rice Varieties in South India (Baltimore, Md.: Johns Hopkins University Press).

5The Agricultural Growth –Poverty Reduction Connection

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Enhancing Agricultural Productivity and Competitiveness With so many poor rural residents and changes inthe agricultural sector—compounded by the dete-riorating natural resource base—agriculture hasnever been more important than it is today inachieving Bank goals. International experience hasdemonstrated the direct relation between agricul-tural growth and rural poverty reduction (box 5).Agricultural development also induces economicgrowth in other rural sectors by generatingdemand for inputs and providing materials for pro-cessing and marketing industries. Future Bank activ-ities will therefore focus on:

Providing an enabling policy and institutionalenvironment to foster agricultural growthSupporting sustainable intensification of pro-duction through the use of new technologiesEnhancing the quality of food producedEncouraging, partly through demand-drivenextension services, more efficient use of farminputs and reduction of post-harvest losses

Increasing the productivity of water useSupporting agricultural diversification, especiallyinto high-value productsStrengthening farmer-to-market linkagesEnhancing food safety and addressing competi-tiveness through quality control and supplychain managementApplying differentiated strategies to fit variousfarm typesSupporting the development of physical andservices infrastructure.

A Refocused Agenda for AgricultureThe new agenda set by this strategy expands andrefocuses the Bank’s existing support program foragriculture with a number of important new fea-tures.These include shifting the emphasis from:

a narrow agricultural focus to a broader policycontext—including global factors;a focus on crop and livestock yields to marketdemands and incomes;staples to high value crops;primary production to the entire food chain;a single farm type approach to heterogeneity;public to public-private partnerships, includingcommunity driven development;avoidance of issues to a head on approach(biotechnology, forestry, water).

Policy and institutions. Reaching the Rural Poortreats agriculture as the leading productive sectorwithin the rural economy and closely linked to non-farm activities.The strategy recognizes that the pro-duction of staple foods is the main source ofincome for many poor rural households, but that—to get out of the poverty trap—they must diversifyinto livestock, higher value crops, and nonfarm activ-ities.The Bank’s experience has shown that agricul-tural investments are more effective if set withinappropriate policy and institutional environmentswith adequate infrastructure and market develop-ment. In their design, future Bank–supported activi-ties in agriculture will incorporate successful aspectsof the lessons learned (box 6).

Agricultural science and new technology.Beyond providing an enabling policy and institu-tional environment, Bank support for agriculture

Policies must neither discriminate against agriculture nor give itspecial privileges. This means, for example, that agricultureshould be taxed lightly, using the same progressivity and instru-ments as for other sectors.

The economy should be open, employment-sensitive, and oriented toward smallholders.

The importance of external markets, including specialty andniche markets, should be fully recognized and exploited.

Foreign direct investment should be recognized as an integralpart of the agricultural development process.

Land reform is essential where land is very unequally distrib-uted.

Rapid technological progress is needed, and both the private andpublic sectors have important roles in research, extension, andfinancing.

Rural areas need substantial investment in education, health, andinfrastructure, such as roads.

The needs of women—a neglected group of farmers and farmlaborers—must be built into programs.

Underlying Factors of Success inAgricultural Development6

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will stress sustainable intensification through theapplication of science. Since most high potentialagricultural areas have reached the limits of theirexploitable land and water resources, much of theirfuture growth in productivity depends on inputs ofknowledge. Public and private investments in sci-ence and technology will receive continued Banksupport.The Bank will also invite global policy dia-log to ensure fair access to new technologies andwill continue to provide leadership and financing tothe system operated by the Consultative Group onInternational Agricultural Research (CGIAR), amajor provider of international public goods in agri-culture. The Bank remains committed to helpingdeveloping countries assess, explore, and safely usebiotechnology and other new technologies and topromote environmentally sustainable pest manage-ment systems (box 7).

Agricultural extension services. To bring newtechnology to farmers, agricultural extension servic-es are crucial and can also play an important role indelivering information on rural development, busi-ness development, and marketing. In the poorestcountries, government will have a role in financingextension. Elsewhere, the private sector, nongovern-mental organizations, and universities can competeto provide extension services subject to periodicreview by local institutions.

Water productivity. Water is becoming a scarceand precious commodity, and agriculture is a majoruser. Getting “more crop per drop” is thereforeessential. Future investment priorities for agricul-tural water use will concentrate on making existingsystems more productive, because irrigation man-agement is often poor and the potential for con-structing new irrigation systems is limited.This willrequire: ensuring the integrity of infrastructure, forexample, repairing leaks in irrigation canals;addressing adverse environmental impacts; provid-ing demand-driven irrigation to improve the liveli-hoods of poor producers; and improving manage-ment and cost-effectiveness. Irrigation anddrainage development and improvements will beviewed in the context of integrated watershed andcatchment systems. Bank–supported investmentsin irrigation will be on a smaller scale than in thepast, with the emphasis on water use on farms,

rehabilitation of existing irrigation systems, andpar ticipation by farmers and other privateinvestors in management.

Market expansion and diversification. Marketsare now the driver for agricultural growth. Foodretailers and processors today source from aroundthe world. Consumer demands and market andtrade liberalization are opening new niches andspecialized markets for agricultural produce, offer-ing farmers an opportunity to diversify into high-value, high-quality items such as fresh fruit and veg-etables, fish, and flowers. Therefore, the Bank willfocus on strengthening farmers’ connections tomarkets through supply-chain management struc-tures, improving product quality, establishingappropriate post-harvest systems, and assistingclients in refining methods of product certificationand improving food safety.

Farm-type tailored strategies. Better technology,access to inputs, and product markets improvepoor farmers’ income-earning capacity. But they doit in different ways, depending on farm types, pro-duction systems, and market opportunities. Future

Cotton is a basic higher value crop and a main source ofexport revenues for Mali. About 90 percent of Mali’s pesticideimports are used on cotton. In the 1990s, due to pesticideresistance and inappropriate use, pesticide costs crept upsteadily while yields stayed flat or declined. Evidence of occu-pational health problems and pesticide residues in foodmounted. Based on a comprehensive status report produced bya local research institution and a stakeholder policy workshop,an Integrated Pest Management (IPM) Special Initiative wasdeveloped. The Initiative takes a problem-focused view, cuttingacross project components.

Policy reform elements include expanding participatory farmertraining for IPM, strengthening regulatory controls, buildingcapacity for monitoring environmental and human healthimpacts, and adjusting fiscal and economic incentives (eliminat-ing hidden subsidies for cotton and food crop pesticides, pro-viding sustainable funding for regulatory and training activitiesby eliminating import duty exemptions for pesticides).

Mali: IPM Special Initiative-CapacityBuilding and Policy Reform 7

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productivity increases therefore depend on tailor-ing technologies to specific groups of farmers in

more narrowly defined production and marketenvironments. Accordingly, the Bank is committedto using a different strategy for each major farmtype: commercial, family, and subsistence. Extensionand advisory services will be strengthened andbroadened to address the knowledge and man-agement services needed by farmers and otherrural households.To link farmers to input and tech-nology providers, strong producer organizationsand community-driven groups should worktoward and increasingly function in an inviting envi-ronment for private investment.

Physical and services infrastructure. Farms,households, and other components of rural sys-tems need a minimum bundle of rural infrastruc-ture services to function efficiently. These basicsinclude:

An adequate supply of safe drinking water.Unsafe water is a major contributor to diar-rhea, a frequent cause of death among childrenin rural areas.Health and education infrastructure. Clinics andschools are needed to ensure quality healthcare and education.Transportation infrastructure and services.Without roads and railroads, farmers cannotsend their produce to markets outside theirlocalities, and trade cannot expand.Information systems. Marketing today dependson adequate information about what peoplewant, at what price, and who can supply it.Adequate and dependable energy supplies.Energy is essential for virtually all activities inrural areas.

Adequate infrastructure of every type is impera-tive for agricultural and rural development. TheBank thus intends to enhance its support toclients’ efforts to put in place the basic physicaland social infrastructure for rural economicgrowth (box 8).

Fostering Nonfarm Economic GrowthIf poverty is to be reduced, a flourishing agricul-tural sector is essential in most developing coun-tries, but agriculture alone cannot do the wholejob. Rural communities also need nonfarm

New roads in the Sierra countryside, built under the Peru RuralRoads project, have made the outside world and its markets moreaccessible for the area’s 3 million poor.

The program’s design was innovative with a strong poverty focus,grassroots participation, and collaboration among key players—the Ministry of Transport and Communications, the Inter-AmericanDevelopment Bank, the World Bank, and more than 20 non-governmental organizations. An institutional collaborative frame-work was set up to make the most of each stakeholder’s besttalents.

The program reduced the isolation and facilitated the integrationof the beneficiary communities, enhanced economic opportunities,and spurred local entrepreneurship. More than 11,000 km of ruralroads were rehabilitated, and 32,300 seasonal unskilled, and 4,700permanent, jobs were created in 410 local road maintenanceenterprises. This innovative partnership program received a 2001World Bank President’s Award for Excellence.

Peru: Roads Bring Markets to the Rural Poor8

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Aqualma, a shrimp-processing and export company in a remotecorner of Madagascar has become one of the country’s top pri-vate enterprises, with exports of US$26 million in 2000.

Established in 1992 with support from the International FinanceCorporation, the company has had a profound impact on the localeconomy and living conditions. Of Aqualma’s 1,200 employees in2001, 80 percent had never previously held a wage-paying job.

Employees and local villagers gained access to education andhealth services through the primary school and clinic establishedby the company. The project generated many connections withsmall local enterprises during the construction and operationalphases.

Future plans include expanding production on a new site, forwhich a community development plan and a conservation man-agement plan to protect biodiverse habitats are being developed.

9 Madagascar: Rural NonfarmInvestment Benefits the Poor

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income-producing activities. Nonfarm activities,often with linkages to agriculture and naturalresources, have important multiplier effects (box 9). They are also an important source ofemployment for rural women. Developing effec-tive support to the rural nonfarm economy istherefore an essential part of the Bank’s ruralstrategy. The Bank will work with clients and oth-ers to exploit current opportunities, seek newones, and tackle the removal of barriers thatexclude rural people from diversified employmentand business activities. Its interventions willaddress the institutional support needed by adiversified rural economy at the national, subna-tional, community, and local levels.

Strengthening skills and organization capital.The Bank will support future labor market andenterprise development in rural communities.Skills needed range from functional literacy andnumeracy, to specific labor-market skills, to mana-gerial and administrative skills for enterprisedevelopment, including market assessments anddetection of business opportunities. Close atten-tion will be paid to women’s demands and needs.Research links growth in nonfarm activities todeclining poverty for both male- and female-headed households, but the drop is faster forwoman-headed households. Trade, professional,and other common interest associations, andcooperatives will also be promoted.

Promote local economic development andintersectoral linkages. Recognizing that manyministries and private players share sectoralresponsibility for the rural economy, the Bank willsupport formation of cross-ministerial and otherworking groups nationally and locally, with bothpublic and private participation. Such groups atthe subnational and local levels should addresslocal-level competitiveness and the wider enablingenvironment of both the farm and nonfarm sec-tors and identify and seek means to remove bar-riers (legislative, regulatory, taxation, infrastruc-ture, and financial).

Strengthening the supply chain and productlinkages. Trends in consumer markets, qualityrequirements, and competition require better

planning and coordination of supply chains frominput suppliers, primary producers, traders, andprocessors, to retailers. Competitiveness dependson effective and flexible logistics and low transac-tion costs within the chain.The public sector’s roleis to create adequate conditions for the develop-ment of efficient private sector supply chains, pro-mote investment in physical infrastructure, andsupport effective subcontracting systems andquality inspections through appropriate legalframeworks and enforcement systems.

Support micro-, small, and medium enterpris-es. The development of small rural enterprisesrequires first and foremost a good investment cli-mate. This will be promoted through assessmentand policy dialog. Especially in rural areas, thedevelopment of small and medium enterprises(SMEs) is inhibited by lack of a skilled labor forceand public and private financial, technological, andother services.The Bank will promote SME devel-opment by suppor ting commercial businessdevelopment services (box 10), and, through smalland medium enterprises, efficient service delivery,especially in rural infrastructure services.

The Kenya Micro and Small Enterprise Training andTechnology Project, an innovative World Bank project witha rural component, has been using vouchers since 1998 toenable small, local rural entrepreneurs to purchase skillsand management training. As a demand-side instrument,the voucher project departs from the old approach of sup-porting public training institutions. Now, diverse suppliersare packaging their services for rural entrepreneurialclients. Skilled craft workers have emerged as the leadingproviders of training. Local private agencies handle vouch-er allocation.

More than 25,000 vouchers have been issued, 60 percentof them to women entrepreneurs. Among training recip-ients , employment and income have increased 50 per-cent. The project subsidizes up to 90 percent of the costof each voucher, but cost-sharing percentages rise with sec-ond and third vouchers. Rural entrepreneurs now frequentlypurchase training without vouchers from providers whohave demonstrated the value of their services.

Kenya: Entrepreneurs Build Market forBusiness Services 10

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Recognize and support labor mobility. Migrationand labor mobility are essential aspects of eco-nomic development, job creation, and povertyreduction.Therefore the Bank will support policiesthat increase mobility through information on, forexample, labor legislation, communications, andskills development as well as on welfare and enti-tlements. Particular attention will go to policies thatminimize the potential for social tensions and envi-ronmental damage.

Improving Social Well-Being, Managingand Mitigating Risk, and ReducingVulnerabilityTo improve social well-being and minimize the vul-nerability of the rural poor, the Bank will endeavorto improve access to nutrition and health services,help mitigate the effects of HIV/AIDS, increaseaccess to rural education and improve its quality,and help improve food security for the rural poor.To achieve these objectives and foster broad-basedgrowth and sustainable management of naturalresources, the Bank will also promote inclusivenessand removal of barriers that exclude individuals onthe basis of gender or ethnicity from economic andsocial opportunities.

Health and nutrition. The Bank will stress govern-ments’ obligations to ensure that resources forhealth care reach the rural poor.The Bank will alsoemphasize the importance of improving dietaryquality and micronutrient status. Supplementationand fortification, including biofortification throughpurposeful plant breeding, are important strategiesto combat micronutrient deficiencies.

HIV/AIDS. HIV/AIDS is threatening the progressmade in agricultural and rural development in thepast 40 years, particularly in developing countrieswhere 95 percent of the infected population live.Combating the disease is therefore a core elementof the Bank’s strategy to support rural development,especially in Africa. The Bank gives high priority tostopping the spread of HIV/AIDS, helping communi-ties cope with its impacts, and mainstreamingHIV/AIDS issues in Bank operations.

Rural education. Universal primary education withgender equality and quality improvements will be theBank’s top priority in education. In addition, the Bankwill promote literacy and training opportunities forunschooled rural youth and adults and ensure thatinvestments in agricultural and vocational trainingprograms are in line with current needs. It will alsosupport development of curricula appropriate tothe needs of rural and agricultural populations andpiloting of new approaches to private education.

Food security and risk. As articulated in theWorld Development Report 2001 on poverty, a

Providing more and better information. Soundinformation on markets, weather, and technologies can reduceuncertainty in a risky world.

Insurance. Insurance is a device that allows the insurer topool risks among many clients in return for a fee or premi-um. New mechanisms for insuring against commodity pricerisks are being explored in a donor-supported initiative oper-ated out of the Agriculture and Rural DevelopmentDepartment of the World Bank (the Commodity RiskManagement Program). Still experimental, price insurancearrangements will operate—possibly in conjunction withcredit instruments—to reduce downside risk to both lendersand small-scale borrowing producers. To overcome some ofthe problems associated with traditional crop insurance, theWorld Bank and several partners are testing novel rainfall-based insurance policies. The International FinanceCorporation is investing in a global facility to develop weath-er-index insurance in emerging economies and financing theestablishment of a weather-based insurance scheme inMorocco. The Bank is testing a weather-based insurancescheme for poor pastoralists in Mongolia.

Contract marketing. Marketing arrangements allowfarmers in many countries to reduce price risks for com-modities not yet produced or for inputs needed in the future.The most important alternatives, from a risk-managementperspective, include cooperative marketing with price poolingand forward contracts for commodity sales or input delivery.

Income diversification. To reduce fluctuations inincome, a variety of cropping practices, investments in live-stock and nonfarm income, and migration can help farmersdiversify their income sources. Traditional risk-coping strate-gies may also serve this function.

11 Some Management and CopingStrategies for Crop-Related Risk

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workable strategy for reducing poverty mustenhance security by reducing the risk of natural,financial, and health shocks and by enabling house-holds to mitigate their consequences. But policies,institutions, and investments still have to bedesigned and adapted to directly manage, reduce,or counteract the special risks of rural residents,particularly the poor. In addition to deepening theunderstanding of household and community riskand vulnerability, the Bank is promoting new poli-cies and instruments for managing and coping withrisk (box 11). In doing so, it will seek to avoidpotential market distortions and disincentives fromrisk management. Instruments that can play a rolein this strategy include new types of insurancebased on weather rather than yield outcomes andnovel mechanisms for commodity price insurance.New instruments being assessed for their effective-ness include market-based financial products notyet readily accessible to many of the poor—such asforward contracting, hedging, and pool pricing.TheBank is also exploring ways to help poor peoplelearn about and use insurance and to reduce costsfor primary insurers and reinsurers.

Targeted transfers are one way of reducing incomeand health uncertainties for the poor and vulnera-ble. However, such programs face special challengesin rural areas due to difficulties in defining targetingcriteria, collecting beneficiary contributions, andadministering programs in sparsely populated com-munities with undeveloped infrastructure. Thepoorest countries, the ones that need poverty pro-grams the most, also have the greatest need to beselective to avoid compromising macroeconomicstability or reducing investment in human and phys-ical capital.

World Bank–supported programs and policyadvice are based on the experience that many tar-geted food security programs are more cost-effec-tive than generalized food subsidies. Today, foodinsecurity for most households boils down to lackof access or purchasing power for an adequate dietand lack of complementary inputs such as safewater to maximize the nutritional impact of thefood eaten. Food assistance may be given to fami-lies (rather than individuals), but any food assistanceshould be a part of a comprehensive nutrition pro-

gram for vulnerable children or health programs forpregnant women. The Bank is also emphasizingstrengthening informal support programs buildingupon traditional rural community structures.Although these informal safety nets frequently failin times of shared hardship, this risk may bereduced with support from government.

Social inclusion. An important priority of therural strategy is to help make institutions moreresponsive to the rural poor, thereby improvingsocial well-being and reducing vulnerability. Bankactivities in this area focus on institutional reform toestablish minority rights and opportunities and to strengthen the political voice of women, refugees,ethnic minorities, the landless, and the disabled. It isnow widely acknowledged that one of the mostcritical factors in revitalizing rural development is toraise the productivity of women farmers. In mostof the developing world, women do most of theagricultural work. Women are usually in charge ofhousehold food security, yet in some areas they areconstrained in their access to, and ownership andcontrol of productive resources such as land andfinances. Decentralized development efforts suchas community driven development (CDD) offerthe potential for increased community participationin all aspects of rural developent as well as offeringgreater inclusion of all social groups in rural deci-sion making.

Enhancing Sustainability of NaturalResource ManagementAgriculture, as a heavy consumer of naturalresources—especially water and soil nutrients—has an obligation to play a commensurate role intheir conservation. Many producers are alreadyconcerned about the deteriorating land and water base in their areas, and public awareness of envi-ronmental issues adds urgency to the search forsolutions to conservation issues—many of themglobal in nature. Increasing the efficiency and sus-tainability of water use in agriculture and improvingirrigation system performance are key strategicconservation goals. Ensuring sustainability of inten-sive agricultural production systems will take, as apriority, careful management of natural resources,especially in fragile production environments. Topromote conservation and restoration of natural

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assets in rural areas, the Bank has developed guide-lines and strategies for the environment, forestry,and water. Devoted entirely to sustainable devel-opment, The World Development Report—2003was released at the World Summit on that topic inAugust 2002.The Bank will link rural development,especially in agriculture, to effective sustainableresource management.The Bank’s objectives in thisregard include:

Reducing desertification and other types of landdegradation Improving water management Enhancing sustainable fisheries managementSustaining production of forest products whileprotecting the environment Protecting biodiversityIncorporating knowledge about climate changeinto rural development planning.

The strategy promotes innovative approaches tousing natural resources most efficiently to meetagricultural productivity goals while protecting thelong-term productivity and resilience of naturalresources. Such approaches take into account theinteractions among soil, water, solar energy, plants,and animals as well as the social and economicwell-being of the people who use these resources.

STRATEGY IMPLEMENTATIONThe new strategy provides guidelines and focal pointsfor maximizing the results of World Bank support toclients’ rural development efforts. The approach isflexible, action oriented, and client driven.The goal isto transform rural development activities in the Bankfrom compartments of sector departments and divi-sions into a coherent, multisectoral effort, supportedby internal budgetary and planning frameworks con-ducive to efficient implementation.

Key Thrusts in Implementation

Raising the profile of rural development innational policy. The Bank will support the devel-opment of locally organized national rural develop-ment strategies and capable client-country institu-tions that articulate and work to fulfill the needs ofrural inhabitants, specifically the rural poor.To have

an impact, such efforts must be aligned with nation-al development strategy processes and supportedby high-quality and focused analytical work by clientcountries, the Bank, and other development part-ners.The main thrust of this joint effort will be tostrengthen the voice of the rural poor in nationalplanning processes. The Bank will recommend theparticipation of all stakeholders in rural areas andfoster a holistic approach reflecting the multisec-toral dimensions of a sustained drive to reducepoverty. The Bank will provide analytical work todeepen and expand the understanding of ruralareas in client countries. The improved analyticalplatform will be a foundation for better decision-making on resource allocation—and more effectiveadvocacy by rural representatives in client coun-tries, members of the Bank's rural developmentstaff, and other development partners.

Scaling-up innovations and successful invest-ments in rural development Reaching the RuralPoor pays close attention to identifying and scaling-up good-practice investments both within coun-tries from pilot initiatives and from one country toother countries or continents (Box 12).

Scaling-up good practices must become an integralpart of national rural development strategies. Goodpractices are acquired after years of developmentexperience and often gained through pilot projects.Innovation through pilot projects will therefore alsobe supported. Effective intervention—with itssocioeconomic and gender impacts—must belocally validated and adapted. Scaling-up does notmean the Bank will apply the same approach every-where. Innovative methods of learning and infor-mation sharing among countries and developmentpartners need support. Mechanisms for capturing,validating, disseminating, and adapting good prac-tices have to be developed concurrently. Key les-sons learned from this process and good and inno-vative practices will be shared with developmentpartners as an essential part of this effort.

Improving the impact of bank operations inrural areas. To improve the impact of projects atcompletion and the quality of project and programpreparation, major attention will be given to identi-fying and sharing improved procedures to sharpen

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EXECUTIVE SUMMARY

the focus on poverty and the long-term develop-ment impact of Bank–supported rural operations.This will include reviewing both the qualityenhancement and assessment of projects for theirpro-poor features, as well as supporting new andinnovative work addressing both poverty impactsand sustainability of interventions. The Bank hasestablished a task force to improve the guidelineson the different aspects of project sustainabilitynow being applied throughout the Bank and theirapplication. The task force will work closely withongoing Bank-wide initiatives to enhance povertyimpacts and the alignment of rural interventionswith the Millennium Development Goals.

Pursuing the bank’s global and corporate prior-ities. High-quality, high-impact operations toreduce rural poverty will require continuing inter-national commitment to key global public goodsand a constant awareness of their connections torural poverty.This can be done by ensuring that: theinterests of the rural poor are safeguarded in anincreasingly global world; new and appropriatetechnology for poor farmers and rural communi-ties is readily accessible; and the poor countries candeal with the challenges of global climate change.The Bank will help build the capacity of client coun-tries so they can take full advantage of opportuni-ties in the ongoing Doha Round of trade negotia-tions of the World Trade Organization. TheConsultative Group on International AgriculturalResearch complements the Bank’s efforts to enabledeveloping countries to realize their full agricultur-al technology and production potential.The Bank’scurrent support for the CGIAR will be broadenedto programs to meet the new challenges in scienceand technology for the benefit of poor farmers indeveloping countries.

Operational Levels for ImplementationReaching the Rural Poor outlines the framework foraction at three different levels of current Bankoperations.

The corporate strategy provides the conceptualunderpinnings and macroeconomic foundationas well as the overall implementation thrusts.Based on the Bank’s track record and analysis ofbest practice, the corporate strategy identifies a

menu of interventions and instruments that maywork under different country conditions andperformance indicators that the Bank can use togauge its progress in aligning its resources andpromoting rural development. The corporate

Policy and institutionsAgricultural policy reform Development of rural strategiesInstitutional reform and capacity buildingParticipatory planning

Agricultural productivity and competitiveness

Land reform and administrationResearch and extensionInformation technology—marketing and knowledgeIrrigation and drainageSupport for producer organizations and user groupsFood safety and agribusiness

Nonfarm rural economyRural finance, including microfinanceDevelopment of the rural nonfarm economy includingbusinesses Private sector role in service deliveryInfrastructure and local economic redevelopment, including small towns

Strengthening social services and reducing riskand vulnerability

Rural health and education service provisionsCommunity-driven development and district programsSocial inclusion with focus on women and girlsCommodity, climate, and disaster risk managementEmergency reconstruction

Sustainable natural resource management

Soil fertilityWatershed developmentCommunity natural resource managementCommunity forestsFisheries

Possible Areas for Scaling-Up andInnovation 12

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strategy also provides a vehicle to convey theBank’s message on rural development to externalpartners and audiences and garner interest andcollaboration of partners around rural povertyreduction efforts.

The regional action plans, built upon local con-sultations, differentiate region-specific needs inline with the overall message of the corporatestrategy (box 13).The plans provide a differenti-

ated framework for actions at the individualcountry and subregional levels. At the country-program level, the strategy emphasizes strength-ening of the analytical underpinnings for countrydialog and a framework and incentives forimproving cross-sectoral support to povertyreduction interventions in the context of theCountry Assistance Strategies (CASs).

Within countries, the national rural developmentstrategies will be locally developed and driven,reflecting national priorities for rural areas andagriculture.The process of national dialog, togeth-er with these national strategies, will guide therural development aspects of the CASs, as well asthe Poverty Reduction Strategies, and provide thespecific demand for further Bank operations.

Strategy implementation relies heavily on stimulatingthe demand for rural development from the twomain groups of decisionmakers, the clients and theBank-country teams.At the client level, the Bank willsupport the preparation of national rural strategiesthat integrate the needs of the rural poor in nation-al policy dialogs. At the level of the country teamsand other decisionmakers, it will seek to improve thequality and the impact of Bank operations in ruralareas by sharpening the focus on poverty, using themost appropriate instruments, seeking economies ofscale, and scaling-up investments that have proveneffective in reducing rural poverty. Several donorshave indicated their interest in cooperating with theBank. Though probably slower to materialize, anapproach that relies on stimulating demand andmonitoring lending trends closely is more appropri-ate to the country-driven nature of Bank programs,and more sustainable in the long term, than relyingon preset lending targets.

What the Bank Needs to Change

Enhancing bank-wide multi-sectoral cooperationin the rural space. One of the greatest challengeswill be to ensure that rural poverty is truly reflectedin Bank-supported programs and operations in themanner and form envisaged in this strategy. Eachlevel of the Bank decision making structure mustbecome an integrated part of the implementationprocess.This will entail new and innovative relations

The six regional action plans reflect rural development agen-das fully consistent with the overall Bank rural developmentstrategy. Each has a poverty reduction focus and a multi-sec-toral approach with increased emphasis on the private sector,yet they all maintain a region-specific character. The diversity in these plans is a major strength of this undertak-ing. The Africa action plan places major emphasis on theinstitutional foundation for reducing rural poverty. It advo-cates support for government efforts to decentralize, andenhance the participation of rural communities. The EastAsia and Pacific regional plan calls for financing pro-grams that directly attack poverty through targeted produc-tivity enhancing investments in very poor areas. TheEurope and Central Asia region focuses on sustain-able rural productivity growth and the completion of the tran-sition process in the rural areas. In the Latin Americaand Caribbean region, the action plan puts specialemphasis on rural and urban dynamics, and adopts a LocalEconomic Development approach to addressing rural develop-ment built around increased participation of local actorsincluding local and sub-national governments, private sectorand organizations of civil society. The Middle East andNorth Africa action plan places a high priority on ration-alizing water management and policies. The focus of theSouth Asia regional action plan is the enhancement ofhuman and social capital development in rural areas, as wellas decentralization. Major gender concerns across the regionsare women’s illiteracy, lack of access to social services, eco-nomic infrastructure and resources.

For further details, see: From Action to Impact: the Africa Region’s Rural Strategy

2002; Reaching the Rural Poor in East Asia and the Pacific Region 2002; Reaching

the Rural Poor in Europe and Central Asia 2002; Reaching the Rural Poor in the

Latin America and the Caribbean Region 2002; Reaching the Rural Poor in the

Middle East and North Africa 2002; South Asia Strategy and Action Plan for Rural

Development 2002.

13 Regional Priorities

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EXECUTIVE SUMMARY

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between all Bank units active in rural areas. Theimplementation of this strategy also requires thatoperations in rural space are designed in a multi-sec-toral fashion and that self-standing sectoral opera-tions are coordinated within an overall strategy.Specific regional organizational arrangements areproposed to improve coordination of activities in therural space and to achieve the strategy’s objectives.These arrangements would operate within theframework of existing management structures.

Improving the application of instruments.Addressing rural poverty in a comprehensive fashionrequires that an evolving set of instruments, with theright focus, are applied to Bank operations in ruralareas.The balance between the different instrumentsis a complex implementation issue. There is clearlyno one “golden rule” as to the optimal distributionbetween different Bank instruments of programmat-ic, adjustment or investment lending, or betweeneconomic, social or natural resource outcomes.Nevertheless, some general directions for Bankoperations in rural areas are:

The diversity of needs within rural areas betweenregions, countries, and sub-country regionsrequires the use of a broad set of instrumentssupporting a number of sectoral interventions,within the framework of the Country AssistanceStrategies.

Traditional investment projects will continue toplay an important role, however they should beblended with the new type of operations such asthe Learning and Innovation Loans, the AdaptableProgram Loans, and the Poverty ReductionSupport Credits, etc., according to countryrequests and new conditions;

The broader use of new instrument modalities,such as programmatic lending, should be pur-sued after careful assessment of lessons fromfield experience and assurance of an adequaterural focus.

Improving linkages to development partners.There is growing consensus among internationaldevelopment partners—including the Bank, FAO,IFAD, EC, regional development banks, and major

bilateral agencies—that national and global povertyreduction targets will not be met unless poverty inrural areas is reduced. Understanding what it takesto meet the needs of the rural poor has never beencloser, as many agencies have recently taken stock oftheir experiences and redefined their approachesand commitments to poverty reduction in ruralareas. The further development of relations withinternational partners aimed at improving the distri-bution of labor among the various partners is basedon the Bank’s and the partner’s specific comparativeadvantages. Coordinated support to client countriesfor the development of national rural developmentstrategies, in conjunction with Poverty ReductionStrategies and Country Assistance Strategies, will bea major focus of the Bank’s interactions with inter-national partners.

Improving linkages to the private sector andcivil society. Increasing links and improving rela-tionships with the private sector and civil societywithin a country framework are among the top pri-orities for the Bank in each region.The Bank’s linksto representatives of civil society and nongovern-mental organizations have increased dramaticallyover the past ten years. Internet websites andinformation sharing now provide the opportunityfor increased direct dialogue and interactionbetween the Bank and NGOs. The consultationprocess on regional action plans and the new cor-porate framework for the rural strategy proved tobe a valuable and productive means of enhancingrelationships with both large numbers of NGOs aswell as with the private sector across all regions. Ina rapidly globalizing world, links with multinationalcompanies that have an impact on rural develop-ment are also essential.

Monitoring Implementation Progress andManaging Risks.This strategy presents a program for revitalizingBank activities in rural areas and increasing theeffectiveness of the Bank’s work in reducing ruralpoverty. Reaching the Rural Poor pays close attentionto monitoring and evaluation of strategy imple-mentation. The targets and benchmarks will beused against the current baseline for evaluatingprogress over a five-year period. TheImplementation Monitoring framework is designed

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around results-based management principles,expressed as inputs, outputs, outcomes, andimpacts. The Bank’s Agriculture and RuralDevelopment Sector Board will work closely withsenior Bank management to ensure alignment ofthe rural strategy implementation framework withemerging Bank work on results-based management.

Several risks are inherent in implementing thestrategy. Some of these depend on events that arebeyond the control of the Bank and of the coun-tries concerned.The main risks perceived are:

Not all sectors operating in rural areas take upthe challenge of rural poverty reduction.The necessary institutional arrangements, incen-tives framework, and appropriate staff skills mixare not addressed.The opportunities do not materialize for theinstitutional learning and innovation that areexpected to emerge in the context of a sharp-ened focus on programmatic lending operations.The Bank, its country partners, and other stakeholders cannot mobilize countrybuy-in to intensifying emphasis on attacking ruralpoverty.The client countries do not achieve long-termgrowth and do not address issues related toenhanced and more equitable access to assetsfor all.

The successful implementation of the new strat-egy is a challenge for both the Bank and for itsclients and partners. The Bank recognizes that itcannot work alone. It will deepen relationshipswith client countries, strengthen existing alliancesand forge new ones with other developmentpartners, the private sector and organizations ofcivil society to broaden the understanding ofrural development issues, share experiences,build capacity, and mobilize the necessaryresources to overcome rural poverty.

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In 1996 the World Bank began developing a comprehensive rural development strategyentitled From Vision to Action (World Bank, 1997). Approved by the Board in March1997, this strategy identified rural poverty reduction, improvement in the well-being

of rural people, and the elimination of hunger as the main strategic objectives in theBank’s rural development activities. From Vision to Action, provided a solid conceptualfoundation for the Bank’s rural development activities and resulted in a new generationof rural development programs. In general, however, implementation of From Vision toAction has not brought about the anticipated results.

INTRODUCTION1

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Bank lending for projects in the rural space duringFY99-01 was approximately 25% of total Bank lend-ing. This includes lending to agriculture, which inFY01 was the lowest in the Bank’s history, both inabsolute and percentage terms. A similar trend canbe seen in most other international agencies.This isparticularly disconcerting when 75% of the peoplewho live on less than one dollar per day live in ruralareas, and most of them are farmers.The Bank willnot be successful in its overall poverty reductionobjective unless it helps reduce rural poverty at anaccelerated rate.

The Agr iculture and Rural DevelopmentDepartment, in close cooperation with the regionsand other sector units active in rural areas, has pre-pared an updated rural development strategy torevitalize IBRD/IDA activities in rural areas by: a)adjusting the strategic framework; and b) formulat-ing a program of concrete and implementableactions. This revision of the strategy responds tochanges in the development context:

in the global environment, especially to changesbrought about by the forces of globalization andremaining trade distortions;

in client countries, especially the challenges ofunfinished policy reforms, decentralization, insti-tutional development, still inadequate gover-nance, the increased role of the private sectorand civil society, as well as the rising number ofconflicts; and

within the Bank and especially through lessonslearned in the past five years in the implementa-tion of From Vision to Action.

The world confronts major challenges in ruraldevelopment as it enters the 21st century. Most ofthe world’s poverty is in rural areas, and will remainso, yet there is a pro-urban bias in most countries’development strategies, and in their allocation ofpublic investment funds. Rural people, and ethnicminorities, in particular, have little political clout toinfluence public policy to attract more public invest-ment in rural areas.The Bank recognizes that, to besuccessful in reducing rural poverty, the Bank mustfocus on the entire rural space, meaning the entire

rural society and both farm and non-farm aspects ofthe economy.The Bank is convinced that five criticalcomponents of a rural development strategy willcontribute most to accelerated growth in ruraleconomies and, consequently, to measurable pover-ty reduction: a) fostering an enabling environmentfor broad-based sustainable rural growth b) enhanc-ing agricultural productivity and competitiveness; c)fostering non-farm economic growth; d) improvingsocial well-being, managing risk, and reducing vul-nerability; and e) enhancing sustainable manage-ment of natural resources.

This document outlines a holistic and spatialapproach that tackles some tough and long-ignoredissues and also addresses old issues in new ways.Most importantly, it recognizes that while top-down, non-inclusive approaches in the past, such asintegrated rural development, identified most ofthe necessary pieces of the puzzle, they failed toput them together in a way that resulted in suc-cessful attainment of the Bank’s objectives. Whilethe main focus of the strategy is on rural povertyreduction, at the same time it includes key ele-ments of a strategy for the food and agriculturesector. This sector remains a crucial and centralcomponent of rural growth and it is vital to successin reducing rural poverty.

The revised action-oriented strategy providesguidelines and focal points for enhancing the effec-tiveness of the World Bank’s rural developmentefforts. Strategy implementation is based on fourmain thrusts:

Raising the profile of rural development innational policy.

Scaling-up innovations and successful invest-ments in rural development.

Improving the impact of Bank operations inrural areas.

Pursuing the Bank’s global and corporate priorities.

The implementation of the strategy will transformrural development activities in the Bank from acompartmentalized activity of various sector

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INTRODUCTION

3

departments and divisions, into a coherent, multi-sectoral discipline, supported by conducive internalbudgetary and planning frameworks necessary fora more efficient implementation.The new approachis flexible, action-oriented, and client-driven. Thestrategy provides a platform for locally-owned and participatory, national priority-setting. Within that context it allows for a substantive rural development contribution to ComprehensiveDevelopment Frameworks (CDFs), Countr yAssistance Strategies (CASs), and country-ownedPoverty Reduction Strategy Papers (PRSPs). It alsocreates a framework for multi-sectoral cooperationin client countries, within the Bank, and amonginternational donors.

The basic foundations of the updated strategy arethe six regional action plans.1 Each of these wasprepared by a regional team of cross-sectoral oper-ational staff.The regional action plans indicate someshared overall priorities that are reflected in thecorporate strategy even though the sequencing ofthe priorities may differ for specific regions.A seriesof nine regional consultations involving representa-tives of the respective governments, private sector,NGOs and academia were organized to ensurethat the Bank, its clients, and fellow donor agenciesare in agreement on the focus of the strategy andthat they have had the opportunity to contributeto its formulation.

A detailed portfolio analysis and a number ofstudies on both global and regional issues werecommissioned to support this process. Thesestudies provide a rich empirical foundation for theregional action plans and the corporate strategy.Other sectoral strategies dealing with environ-ment, forestry, water, and private sector develop-ment were considered in creating a coherentrural development strategy. A rural strategy semi-nar series was organized to discuss the findingsand conclusions of the most important back-ground studies. These seminars also provided anopportunity for the rural staff to interact withsome the world’s leading experts on rural devel-opment and poverty reduction. The Bank’s RuralWeeks in 2001 and 2002 provided a forum for in-depth discussion of the emerging strategy and itsimplementation within the Bank’s Rural Family.

Each chapter in this volume deals with a majorbuilding block of the revised rural developmentstrategy. Chapter One presents an overview ofthe current development context, which providesa foundation for the revision of the Bank strategy.Chapter Two outlines the conceptual foundation,objectives, and strategic priorities of the revisedrural development strategy. Chapter Three dis-cusses the enabling policy and institutional envi-ronment for broad-based rural growth. ChapterFour provides a discussion of the Bank’s renewedapproach to agricultural productivity and compet-itiveness. Chapter Five concentrates on fosteringnon-farm rural economic growth. Chapter Sixenumerates the improvement of the social well-being of rural peoples, managing risk, and reducingvulnerability. Chapter Seven focuses on fosteringsustainable natural resource management.Chapter Eight deals with the implementationthrusts and provides a framework to monitorimplementation progress.

Annexes to the strategy provide more in-depthanalysis of the issues discussed in the corporatestrategy. Annex One gives a review of lessonslearned from the implementation of the Bank’sprevious strategy From Vision to Action. Annex Twoprovides an overview of the consultation processthat led to the new strategy. Annex Three includessummaries of the regional strategies. Annex Fourfocuses on water in rural development.Annex Fivepresents background material on physical andsocial infrastructure. Annex 6 concerns naturalresources. Annex 7 gives examples of successfulWorld Bank operations in agriculture and ruraldevelopment.Throughout the main text in this vol-ume there are references to further informationavailable in these annexes.

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ENDNOTES

1 From Action to Impact: the Africa Region’s Rural Strategy 2002; Reaching the Rural Poor in East Asia and the Pacific Region 2002;

Reaching the Rural Poor in Europe and Central Asia 2002; Reaching the Rural Poor in the Latin America and the Caribbean

Region 2002; Reaching the Rural Poor in the Middle East and North Africa 2002; South Asia Strategy and Action Plan for Rural

Development 2002.

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DEVELOPMENT CONTEXT: WHY ASTRATEGY UPDATE IS NECESSARY

Simply put, a revision of the rural development strategy is necessary because theenvironment in which the Bank operates has changed. Globalization opens newdoors and poses new threats.The needs of client countries have evolved, as has the

way the Bank approaches its mission of “fighting poverty with passion.” This sectionbriefly describes the nature and importance of some of these changes at the global, clientcountry and Bank level, and focuses on the developments since the Bank’s ruraldevelopment strategy From Vision to Action was adopted in 1997.

15

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THE EVOLVING GLOBAL CONTEXT

Persistent Poverty and Food InsecurityOne of the most frustrating moral contradictionsof our time is the persistence of poverty. Morethan a billion people are desperately poor. Thenumber of people living on less than $1 per day hasdeclined only slightly in the 1990s, and best esti-mates indicate that 1.2 billion persons still livebelow that poverty line (World Bank, 2001b).Other social and poverty indicators over the sameperiod demonstrate that some regions are a longway from the day when the goals for internationaldevelopment will be met.

Poverty is predominantly a rural phenomenon.Approximately 75% of the poor reside in rural areas,and the rural poor will outnumber their urban coun-terparts for at least another generation (Alderman,2001). By most quality-of-life indicators, people livingin rural areas, on average, have a lower quality of lifethan urban residents (Box 1.1). Rural public services,as measured by per capita public expenditure areapproximately one-half that of urban areas.

There is a disturbing paradox in recent develop-ments: the existence of pervasive malnutrition in aworld of abundant food supplies. Growth in globalfood production over the past four decades hasmore than kept pace with growth in population.

While global production has grown faster thandemand, hunger and malnutrition persist.This enigmahas been addressed by many eminent economistswho conclude that hunger is less strongly related tothe level of food availability than to householdincome, or as Amartya Sen puts it, the “entitlement”to sufficient resources to purchase enough food tolive (Sen, 1981b).

The persisting high share of poverty and food inse-curity in rural areas has important implications forpublic policy and in the design of any strategy for itsreduction (Binswanger and Landell-Mills, 1995).Because of the geographic dispersion of the ruralpoor, it is more expensive on a per capita basis forcentral governments to provide them with publicinfrastructure, social services, and safety nets equiva-lent to those provided to urban residents. A willing-ness to spend more public resources targeted to therural poor, and decentralizing decision making tolocalities and communities are first steps, but theseare limited by a lack of political voice and influencein many rural areas.

GlobalizationThe concept of globalization captures the growinginterdependence and linkages of the world’seconomies, markets, and people. It concerns moreopen international trade in goods and financialservices, growth of multinational companies, moreuniform labor and environmental standards, andgrowing global sourcing in supply chains. In the con-text of rural development and poverty reduction,globalization presents both emerging challengesand new opportunities. The process of globaliza-tion, including increasing inter-linkages across coun-tries, lower transaction costs, and expanded trade,financial, and information flows, provides some ofthe key ingredients for rural development andpoverty reduction. But globalization and economicliberalization carry with them risks. There are win-ners and losers in globalization, and the challengefor policymakers is to provide adjustment assis-tance or at least partially compensate losers.

Urbanization and Demographic ShiftsDespite higher rural birthrates, between 2000 and2030 virtually all net population growth in the worldwill be concentrated in urban areas, as a result of con-

To craft an effective rural development strategy focused on the ruralpoor requires a clear understanding of who the rural poor are, wherethey live, and the challenges posed by the prevailing poverty levels intheir respective habitats. This is because the rural poor are not ahomogeneous group, and behind the aggregate numbers are the vari-ous diverse entities that make up the rural poor. They could be broad-ly classified into five categories: a) the landless (those without any cropland); b) those with a low asset base, or smallholders (farmers withup to two hectares of cropland); c) pastoralists (those who are notsettled in any specific area and who derive most of their income frompastoral livestock); d) rural women (especially women-headed house-holds); and e) ethnic minorities and indigenous populations.

Source: Okidegbe, 2001

1.1 Who Are the Rural Poor?

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tinued rural migration to urban centers. This migra-tion is driven by the desire for higher incomes. Thepace of urbanization will be most rapid in developingcountries, where the urban population is forecast toincrease from 1.94 billion to 3.88 billion in the nextthirty years. Rapid urbanization has been accompa-nied by increasingly strong links between rural andurban economies, and the dichotomy between ruraland urban is beginning to blur. Rural households aremore and more likely to participate in non-farmemployment opportunities available in small townsand cities. Seasonal employment in urban areas, andremittances from household members working inurban areas, frequently enable rural residents to sup-plement their agricultural incomes. Resulting changesin intra-household division of labor also affect the sta-tus of women. In an area of male out-migrationwomen may manage the entire farm often withoutlegal ownership of the assets. In other areas, off-farmemployment is an income-generation opportunityfor women.The interdependence of rural and urbaneconomies and strong linkages at household levelsimplies that effective policies to reduce rural povertyalso need to be concerned with growth and eco-nomic development in urban centers, and particular-ly with the linkages between smaller cities and mar-ket towns in more isolated areas.

Growing Scarcity of the Rural NaturalResource Base with Global Climate ChangeWhether the world continues to be able to feeditself depends in large part on the condition of theworld’s natural resource base in the future, and thisdepends, in part, on whether poverty will be greatlyreduced. Poverty and environmental degradationare closely linked, often in a self-perpetuating spiralwhere poverty accelerates environmental degrada-tion and degradation exacerbates poverty. Poorpeople live at the margin of subsistence and aremore vulnerable to adverse events than others.Concern by policy makers over environmentaldegradation is driven by growing scarcity and con-tinued degradation, in both developed and devel-oping countries.

There is consensus among climatologists that theglobal climate is changing. There is, however, con-siderable controversy over the nature and extentof climate change, and potential impacts, both pos-

itive and negative. Climate change will affect foodproduction, ecosystem function, and farmer vulner-ability in many areas of the developing world, espe-cially in Africa and parts of Asia.These changes arelikely to have a disproportionate impact on thepoorest countries, and the poorest people withinthose countries, thereby exacerbating inequities inhealth status and access to adequate food, cleanwater and other resources.

Clearly the concerns over environmental degrada-tion and global climate change and their links withrural poverty and agricultural development are wellplaced. Continuing to neglect vulnerable areaswhere many of the world's poor live will only makedegradation and misery worse—continuing pres-ent trends is simply not a long-term option.

The Revolution in Biological andInformation Sciences

Biotechnology based on molecular biology is gener-ating revolutionary advances in genetic knowledgeand the capacity to change the genetic makeup ofcrops and livestock, which have the potential to ben-efit poor producers and consumers. Despite thispotential, the complex issues of biosafety and foodsafety, bioethics, and accessing proprietary science forthe benefit of the poor must be addressed.Also, earlyadopters may incur significant risk. Although biotech-nology strategies will vary with each country’s tech-nological capacity and level of agricultural commer-cialization, all countries need some amount of invest-ment in public-sector research and regulatory frame-works.The biotechnology revolution in agriculture isonly beginning and presents policy makers with aunique set of challenges. There are ethical, safety,health, and property rights issues.Yet the promise ofthis technology to assist in coping with increasingfood demand is enormous—so large that the chal-lenges mentioned above must be addressed.

New information and communication technolo-gies (ICTs) with lower costs combined with theincreasing literacy and sophistication of farmers havethe potential to revolutionize rural information sys-tems, providing more and better informationdirectly to farmers, extension agents, agribusinesses,and other intermediaries.Application of ICTs in rural

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areas may increase the flow of information of alltypes, and facilitate market transactions, changes inemployment, emergence of new industries, and social development, but such advances are dependentupon telecommunications reaching remote ruralareas and diverse populations, including rural women.

CHANGES IN CLIENT COUNTRIES

Progress in Policy Reform: Unfinished Agenda.Thepast decade has seen much progress on policy andinstitutional issues throughout the developingworld, yet the policy reform agenda in many coun-tries is still far from complete. Developing countries’own policies may: a) create terms of trade unfavor-able to agriculture; b) have higher levels of protec-tion against agricultural imports than developedcountries; c) have a prevailing urban bias in publicexpenditures; and d) create an unattractive envi-ronment for private economic activity.

Governance: Decentralized and Improved, butstill Inadequate. In the past decade, there hasbeen increasing recognition among developmentstakeholders that good governance is crucial forachieving sustainable development and povertyreduction. This recognition has brought aboutimprovement in many aspects of governance, butthe impact of these improvements has been rela-tively limited in rural areas.

Increased Role of the Private Sector. One of the most visible signs of change in client countriesis the increased role of the private sector in ruraldevelopment, and the growing recognition thatnew jobs in the private sector will do the mosttowards reducing rural poverty.The incentives forprivate investment depend greatly on the enablingenvironment. Markets are the vehicle for ruraleconomic development and allow for specializa-tion and diversification into new products.However, markets can be inefficient because ofexternalities, difficulty in achieving economies ofscale, asymmetric information, non-excludability,and excessive transaction costs.

Increased Role of Civil Society. In recent yearscivil society (including local and transnational

NGOs) has become a major force in internationaldevelopment. The civil-society organizations par-ticipating in international development serve avariety of functions ranging from service provisionto advocacy on issues as diverse as water, forestry,food security, human rights and humanitarian assis-tance. It is recognized that NGOs/CBOs can beeffective in reaching poor communities andremote areas at low cost, as they are moreinclined to identify local needs and promote par-ticipation, and that engaging these groups in proj-ects and policy dialogue can improve projectdesign, implementation and sustainability.

Continuing Regional and Local Conflicts. Thepast decade has been characterized by the resur-gence of conflicts in several regions. Most of thephysical and economic damage resulting fromthese conflicts takes place in the poorest areas ofthe countries and regions involved. Many of therecent conflicts have been fought over the use ofcertain natural resources or have an ethnic origin.These conflicts bring additional hardship to therural population, particularly women, who are themost vulnerable to their negative impacts.

CHANGES WITHIN THE BANK

The changing global environment has also shaped theBank and its approach to development.This changehas become especially pronounced in the periodsince the Bank’s last rural development strategy, FromVision to Action was completed five years ago.

New Approach to Development AssistanceA new approach to development assistance, the“Comprehensive Development Framework”(CDF) was initiated by the Bank and the develop-ment community.The CDF builds on lessons con-cerning development aid effectiveness, such as theneed for social inclusion, better governance, andunderstanding of the complementary roles of civilinstitutions, the private sector, and donors. It offersan opportunity to approach rural developmentchallenges holistically, by catalyzing local initiatives,taking a long-term perspective on development,and focusing on coordinated “country-driven”strategies among development partners.

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The Bank’s Strategic Framework Paper (SFP) iden-tifies two main pillars of the Bank’s assistance toclients in fighting poverty: (a) building a climate forinvestment, jobs, and sustainable growth; and (b)empowering poor men and women to participatein development.Together these pillars embody thekey elements of sustainable development.The SFPalso calls for selectivity: (i) within countries based onthe CDF principles; and (ii) across countries, guidedby income, poverty, and performance æ focusing oncountries where the overall policy environmentfavors aid effectiveness; and (iii) at the global level,based on clear linkages to the Bank’s core institu-tional objective, its leveraging and catalytic effect,and a balancing of resources and risks.

Sharpened Poverty FocusOne of the most visible changes in the Bank overthe past several years has been the increasingpoverty focus combined with a growing emphasison meeting the Millennium Development Goals(MDGs) articulated in 2000 (Box 1.2). In late 1999finance ministers of World Bank and IMF membercountries called for Highly Indebted PoorCountries (HIPCs) to draft Poverty ReductionStrategy Papers (PRSPs) as a condition of HIPCdebt relief. In Bank practice, these PRSPs havebecome central to the preparation of CountryAssistance Strategies (CASs) for all IDA countries.

MIXED RESULTS IN IMPLEMENTINGFROM VISION TO ACTION

The Bank’s performance in rural development dur-ing the past several years can be best analyzed inlight of the main principles and objectives set outby From Vision to Action. It was expected that FromVision to Action would revitalize the lending programfor rural areas into a vibrant, broad-based, andbroadly focused high-quality rural developmentprogram.The major thrusts of From Vision to Actionwere clear : the Bank’s rural development strategywould shift from a narrow agricultural focus to abroader rural development approach, incorporat-ing long ignored issues such as land reform andnutrition, and finding new ways to address oldissues, such as rural financial services and commu-nity driven development. Above all, From Vision to

Action sought to integrate rural development moreclosely into CASs.To implement those thrusts, themain priority actions included increasing economicand sector work, enhancing knowledge manage-ment and agricultural research programs, andstrengthening alliances with other internationalorganizations, for example, FAO and IFAD. In termsof major outcomes, the Bank was to be seen by2000 as the world leader in the fight against ruralpoverty, to have significantly contributed to freerand fairer world trade in agriculture, and to have

1. ERADICATE EXTREME POVERTY AND HUNGERHalve the proportion of people with less than $1 a dayHalve the proportion of people who suffer from hunger

2. ACHIEVE UNIVERSAL PRIMARY EDUCATIONEnsure that boys and girls alike complete primary schooling

3. PROMOTE GENDER EQUALITY AND EMPOWER WOMENEliminate gender disparity at all levels of education

4. REDUCE CHILD MORTALITYReduce by two-thirds the under-five mortality ratio

5. IMPROVE MATERNAL HEALTHReduce by three-quarters the maternal mortality ratio

6. COMBAT HIV/AIDS, MALARIA AND OTHER DISEASES Reverse the spread of HIV/AIDS

7. ENSURE ENVIRONMENTAL SUSTAINABILITYIntegrate sustainable development into country policies and reverse loss of environmental resourcesHalve the proportion of people without access to potable waterSignificantly improve the lives of at least 100 million slum dwellers

8. DEVELOP A GLOBAL PARTNERSHIP FOR DEVELOPMENTRaise official development assistanceExpand market accessEncourage debt sustainability

source: www.developmentgoals.org

1.2Millennium Development Goals(1990-2015)

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revitalized rural development in a number ofunder-performing countries. In conjunction withFrom Vision to Action, at the request of the Bank’sPresident, a special action program was launched infifteen focus countries, and a budget allocation fromthe Strategic Compact was made available to sup-port rural development in these countries.

Main OutcomesFrom Vision to Action has had a significant influence onglobal thinking on rural development, induced astronger participatory approach in Bank rural lendingand non-lending activities, and, within the agriculturalsector, promoted a broadening of the scope of lend-ing. Moreover, the current portfolio, in terms of themix of instruments, and key quality aspects, hasimproved, although there has been a slight decline inFY01. Valuable experiences in critical investmentsaffecting the livelihoods of the poor have also beengained.The improvements in project quality achievedunder From Vision to Action provide a strong platformfrom which to launch Reaching the Rural Poor andmove to “scaling-up” quality rural operations.

While significant progress in rural development hasbeen made, major challenges still lie ahead.The revi-talization of the lending program for rural areas intoa vibrant, broad-based, and high-quality rural devel-opment program has not materialized. Although therole of the private sector was recognized, little wasdone to support the non-farm private sector. Ruralneeds are still not adequately taken into account innational and Bank decision-making processes. Manyinternal and external constraints to multi-sectoralapproaches to rural poverty reduction still exist.Finally, the agricultural development portfolio has notyet met the 80% satisfactory development outcomerating at completion, as targeted by From Vision toAction. The quality of the poverty focus, and the sus-tainability and quality of the institutional developmentstill leave much to be desired. Reaching the Rural Poorwill address these concerns. One particular concernis the strikingly low resource allocation to supportrural women. In the 2001 rural portfolio, 23% of theprojects addressed gender issues, but only 2.8% ofthe funds were allocated towards gender-responsivecomponents (World Bank, 2002b, FY01 RuralPortfolio Review).

Trends in Lending for Rural Development While From Vision to Action did not set specific lend-ing targets, the underlying assumption was thatlending for rural development would grow.However, the contrary has occurred. While thereare no long-term trends available for total lending inrural areas, a special analysis carried out for thisreview showed that in FY99-01 (aggregated), the

1.3 Bank Operations in Rural Space(FY99-01)

Total annual average investment in rural space: $5 billion, [$2.7billion IDA (46% of total IDA) and $2.4 billion IBRD lending (17%of total IBRD)

Share of total investment in rural space: SAR 41%, AFR 39%, MNA38%, and EAP, ECA and LCR between 16% and 23%

INSTRUMENTS (PERCENT OF NUMBER OF PROJECTS WITH ANY INVEST-MENT IN RURAL SPACE)

Eighty-five percent of the Bank’s APLs include investment in ruralspace (this is equal to 55% of all APL lending)

Sixty-eight percent of the Bank’s LILs include investment in ruralspace (equal to 55% of all LIL lending)

Ninety-eight percent of projects with components in rural space areInvestment lending

Eighty-three percent of Emergency Recovery projects include invest-ment in rural space

Seventy-one percent of Financial Intermediary Loans include invest-ment in rural space

Twenty-six percent of the rural space projects used community-driv-en approaches (FY01)

POVERTY ORIENTATIONTwenty-nine percent of lending focused predominantly on poor peo-ple [“focused operations” (see footnote 6)], 52% involved broadactions, which improve services and opportunities, including forpoor people (“inclusive operations”) and 19% covered overall pol-icy changes, such as sound economic management, governance andsocial policies (“enabling operations”)

Sixty-five percent of lending on ‘focused’ operations is from IDAsources, compared to 49% and 42% respectively, of lendingtowards ‘inclusive’ and ‘enabling’ operations

Only sixty–one percent of the IDA interventions in rural space werelabeled with the PTI flag*

*A project is identified as a Program of Targeted Intervention (PTI), if it has a specificmechanism for targeting the poor, and/or the proportion of the poor among project ben-eficiaries is significantly larger than their proportion in the overall population.

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Bank invested $15 billion (about $5 billion annually),or 25% of its total lending, in rural space1 (Box 1.3)Out of the $5 billion annual World Bank invest-ments in rural space, more than half were IDAinvestments ($2.7 billion in FY99, and $3 billion inFY01). Projects coded for urban development are11% of total lending.The remaining national opera-tions cannot be spatially attributed, but experienceindicates that these operations are predominantlyfocused on city dwellers. Taking these two factorstogether, lending to rural space as a proportion ofoverall Bank lending is not congruent with thegreater incidence of poverty in rural areas. OEDalso reported a rural under-representation in invest-ment (World Bank 2001c). According to prelimi-nary analysis, this situation has not changed forFY02. Using comparable methodology, total invest-ment in rural space in FY02 amounted to about $5billion (or 25% of total lending) (Box 1.4).

Lending for agricultural activities declined dramat-ically as a proportion of total Bank lending, fromabout 31% in 1979–81 to less than 10% in FY00and FY01 (Figure 1.1). The reasons for this declineare many; and some are, in fact, positive. A clearerunderstanding of public and private roles, marketfunctioning and the need for institution buildingresulted in a shift away from big (but unsuccessful)investments in public infrastructure and governmentbureaucracies, to more effective inputs into com-prehensive rural institution building, which requiresless funding. For example, comparing the nature andscope of lending approvals from FY79–81, withthose of FY99-01, the largest declines are in the sec-tors of (a) perennial crops and agro-industry,because of the shift away from support for paras-tatal enterprises, (b) agricultural credit, because of ashift away from targeted credit, (c) irrigation anddrainage, because of the shift away from large newirrigation schemes to institution building and opera-tion and maintenance; and (d) agriculture adjust-ment operations, because of a much more gradualapproach in the Bank’s policy dialogue in the sector.

It is highly unlikely that the Bank will revert tothose types of investments, and it therefore alsounlikely that the Bank will attain those levels again.However, there has been further decline in agricul-tural lending over the past five years, since From

Vision to Action was launched. Between FY96-98 andFY99–01, lending for agriculture declined by morethan 30%.The decline was particularly strong in EAP,SAR, and ECA, which experienced an average dropof 40%-50%, over that period. LCR declined byabout 13%, while AFR and MNA showed increasesof 15% and 74%, respectively, over this period.Preliminary results for FY02 confirm this decline(Box 1.4).This cannot be explained by the shift awayfrom the costly and outmoded agricultural and ruraloperations of the past. Part of the decline in rurallending is due to the perceived burden of safeguardpolicies for projects predominantly in rural space.

Rural Space Lending and the MillenniumDevelopment Goals2

In undertaking the rural portfolio review, effortswere made to align ongoing (FY99-01) activities tothe MDGs (Table 1.1). The bulk of lending in ruralspace (46%) is allocated towards Goal 1, povertyreduction and the elimination of hunger. Support tosocial sector goals total 18% of overall rural spacelending, with Goal 2 of primary education receiving8%, and Goals 4–6, the health sector related goals, at10%.3 The current information management sys-tems, however, are not yet adequately refined toalign or attribute fully the Bank’s contributions to theMDGs. For example: lending towards Goal 1includes all economic activities, access to, and quality

Total investment in rural space in FY02 was US $5 billion,or 25% of total lending. Of this, $3.2 billion was IDA invest-ments (40% of total IDA), and US $1.8 billion IBRD lend-ing (15% of total IBRD)

Instruments: Adjustment operations, 17%; Investment, 83%

Total investment in the agriculture sector (including agro-industry and markets was US $1.5 billion (or 7.9% of totalBank lending). Lending to the Crops sub-sector amounted to32% of Agriculture Sector lending, while Irrigation andDrainage received 22%, and Agriculture Markets and Tradereceived 14%. These figures were derived using the newproject coding system introduced in July 2002.

1.4Current Bank Operations in RuralSpace – FY02 Update

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of, infrastructure and assets and may not be exclu-sive to the poverty reduction objective. Similarly,systematic tracking of lending to rural women(MDG 3) has not been possible with the presentportfolio analysis tools. Bank-wide systems are nowbeing put in place to achieve better alignment andit is anticipated that the work undertaken in FY99-01 will form part of the baseline for monitoring therural sectors’ contribution to the MDGs.

Improved Leadership Role of the Bank in Rural DevelopmentThe Bank has made progress toward achieving aleading international role in rural developmentas was envisaged by From Vision to Action, as it hassignificantly influenced thinking on the holisticnature of rural development, decentralized deci-sion making, and greater stakeholder participation.Several international agencies developed similarstrategies afterwards.

In regard to developing fair and freer trade andincreased access to OECD markets for client coun-tries, the record has been disappointing. The Bankhas not taken a forceful position on this untilrecently, when more active support to client coun-tries in their preparation for WTO negotiations hasbeen offered. Additionally, the Bank’s senior man-

agement has spoken on the need for freer trade inseveral international fora. The Bank’s impactremains limited, however, as the Bank has no directinfluence over OECD countries in addressing suchissues as subsidies and market access.

Why From Vision to Action Did NotCompletely SucceedEarlier approaches to rural development ofteninvolved significant government intervention fre-quently leading to inefficiencies, reduced institutionalsustainability and pricing and marketing policies thatwere adverse to farmers. From Vision to Action rec-ognized the deficiencies in these approaches andattempted to find new avenues for rural develop-ment assistance. Approaches such as communitydriven development, pluralistic rural service provi-sion and support to producer organizationsemerged and have been piloted. The major chal-lenge for the future is to scale up the best practicesamong these pilot projects.

Why did the envisaged rural development programnot materialize? Why were the results under FromVision to Action mixed? The Bank has analyzed thisquestion thoroughly. Some reasons are associatedwith decision making at the client level. Earlier polit-ical interests in rural development (for example

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REACHING THE RURAL POOR A RENEWED STRATEGY FOR RURAL DEVELOPMENT

12Figure 1.1: IBRD/IDA Agriculture Sector Approvals, FY70-01:

FY01 $ million; Percent of Total Bank Approvals

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securing food for urban areas) have now been metin most regions, and more focus should be placedon the neglected political voice of the rural poorwith appreciation for the ethnic, age, and genderdiversity of this group.The PRSP process offers newopportunities to get the needs of the rural poorbetter recognized. A preliminary review of the firstset of PRSPs and Interim PRSPs prepared during2000 and 2001 showed that in all these docu-ments, rural development was stated as a priority(Cord, 2001a). However, the actions were oftennarrowly defined and tended not to address thebroader needs of rural development. The involve-ment of agencies often considered to be champi-ons of rural development in the PRSP processessuch as the Ministries of Agriculture or RuralDevelopment, rural NGOs, and community basedgroups was felt to be weak.

Systematic implementation of From Vision to Actiondid not last long.With the exception of Africa, afterthe initial adoption of the strategy, it was neverdeepened and taken forward by the regions.Whilethis strategy was reasonably well known within rural

departments of the Bank, , it was not integrated intothe strategies of most Bank client countries.The lackof baseline data and clear outcome indicators forFrom Vision to Action limited the value and impact ofthe monitoring and review processes.

Other reasons for the mixed results of From Visionto Action are more internal to the Bank and aremainly concerned with relative costs, resource lev-els, and resource allocation mechanisms. Over thepast few years, the Bank has been called to attendto an expanded mandate, thus increasing competi-tion for resources. Against this background, ruralprojects are perceived as more costly, more com-plex, riskier, and smaller and slower disbursing. Inaddition, staff responded to an apparent decline indemand from client countries for rural operations.

Annex 1 presents the major achievements and les-sons learned of From Vision to Action as derivedfrom OED’s rural strategy review (World Bank,2001c), the Rural Portfolio Review, and internaldeliberations within the rural sector units withinthe Bank.

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Millennium Development Goals Total Bank Total Bank IDA IDALending Lending ($m) %($m) %

Goal 1. Eradicate extreme poverty and hunger 6,998 46 3,215 40Goal 2. Achieve universal primary education 1,134 8 751 9Goal 3. Promote gender equality and empower women1 n/a n/a3 n/a n/aGoal 4. Reduce child mortality2 178.5 1 132 2Goal 5. Improve maternal health2 178.5 1 132 2Goal 6. Combat HIV/AIDS, malaria and other diseases 1,251 8 729 9Goal 7. Ensure environmental sustainability 1,289 8 689 9Goal 8. Develop a Global Partnership for Development 2,421 16 1,340 17Rural Space investment ($m) FY99-01 directly aligned to MDGs 13,450 88 6,989 88Contributing to multiple goals 1,768 12 981 12Total Rural Space Investment ($m) FY99-01 15,218 100 7,970 100

Notes:1 The portfolio review ranked this activity but did not differentiate funding allocated.2 The portfolio review marked Key Components supporting the two Goals (5 and 6) in a combined manner. Due to the methodology used, it is

not possible to allocate the actual shares of lending to these Goals.The lending amount for the Key Component has therefore been divided arbi-trarily and allocated equally to the two Goals

3 This can be calculated at 3% using a different data set.

Table 1.1: Alignment of Rural Space Lending of the Rural Portfolio with the MDGs (FY99-01) ($m)

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ENDNOTES

1 In this report, the term “rural space” includes small and medium sized towns, according to the national definitions and applies to all

sectoral investment i.e., social sectors as well as agriculture, natural resources management, infrastructure etc, in rural space.

2 Source:The Rural Portfolio Review FY2001 Investment Profile of the World Bank’s Rural Portfolio—Synthesis Document. The document

provides further details on the analysis and the lending breakdown.

3 When using only the Bank’s sector codes and methodology used for defining rural space against Goal 2—achieving universal pri-

mary education—a share of some 49% of total Bank lending was estimated as allocated to rural space and for the combined

health sector Goals (Goals 4–6) some 54% of Bank lending was estimated to be allocated to rural space.

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This chapter presents the overall approach of the World Bank’s strategy in reachingthe rural poor and reducing poverty in rural areas. At the outset, it must berecognized that reducing poverty requires a strategy flexible enough to be adapted

and adopted by individual regions, countries, and even sub-regions within countries.Thischapter also describes the Bank’s priorities in rural policy and institutional development.While building on previous strategies, the new strategy has five distinct features:

FRAMEWORK FOR A RENEWED RURALDEVELOPMENT STRATEGY 2

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Focusing on the poor. The Bank is moving to holistic pro-poor rural development and the enhancement of returns to labor, land and capital.

Fostering broad-based growth. While reaf-firming its commitment to agriculture as themain engine of rural economic growth, the Bankrecognizes the importance of non-farm eco-nomic activities and the private sector.

Addressing the entire rural space. The Bank ismoving to cross-sectoral approaches for thelonger term—and away from short-term sector-by-sector approaches—yet addressing directlythe shortcomings of earlier top-down, non-inclusive approaches.

Forging alliances of all stakeholders. The Bankis increasing broad-based stakeholder participa-tion in design and implementation, away fromworking mainly with central governments inproject and program design.

Addressing impact of global developments onclient countries. The Bank is placing increasedemphasis on global development issues, includinginternational trade policy, the subsidization ofagriculture and global climate change.

These features are threaded throughout the strat-egy discussion that follows.

A HOLISTIC APPROACH TO RURALDEVELOPMENT WITH A FOCUS ONPOVERTY REDUCTION

The Bank’s revised rural strategy focuses onimproving the well-being of rural people andreducing rural poverty in the widest possible sense.Figure 2.1 provides a conceptual overview of thisstrategy revision. Rural poverty focus entails muchmore than increasing the average income of ruralpopulations—it envisages improving the quality ofrural life. Accordingly, the Bank’s vision for thedeveloping world is one in which:

Figure 2.1: Organization of the New Rural Development Strategy

Context: Global Challenge Regional Strategies Lessons Learned

Mission: Rural Poverty Reduction

Strategic Objectives:

Fostering an Enabling Environmentfor Broad-Based Rural Growth

Enhancing AgriculturalProductivity andCompetitiveness

Encouraging Non-Farm RuralEconomic Growth

Improving Social Well-Being ManagingRisk & ReducingVulnerability

Enhancing SustainableManagement ofNatural Resources

Actions: Implementation

Strategic Partnerships Overall Thrusts Regional Action Plans

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Rural residents enjoy a standard of living and aquality of life that is not significantly below thatavailable to urban residents.

Rural communities offer equitable economicopportunities for all of their residents regardlessof income, status, gender, or ethnicity.

Rural communities become vibrant, sustainableand attractive places to live and work.

Rural areas contribute to national developmentand are dynamically linked to urban areas.

Rural areas adapt to on-going economic, social,cultural, environmental and technological change.

The overall vision of the new strategy, which hasbeen endorsed by the Bank’s clients via a number ofconsultations, requires a clear shift in governmentand international donor priorities to increaseresources available for holistic rural developmentefforts. Some of the key elements of the holisticapproach are as follows:

Sustainable rural development requires multi-dis-ciplinary and pluralist approaches to poverty, socialand gender equity, local economic development,natural resource management, and governance.

An agricultural focus is necessary, but not suffi-cient for sustainable rural development. Moreintegrated approaches are also needed—inte-grating infrastructure and agricultural technolo-gies, institutions and capacity building, non-agri-cultural job creation, and human capital.

Solutions in rural development must be basedon participation, empowerment, and rural gover-nance; address directly the shortcomings of ear-lier top-down, non-inclusive approaches; andmust also foster growth of the private sector, andthe use of market mechanisms.

Developing rural institutions and capacitiesrequires long-term efforts.

Piloting and experimenting are desirable, butreplicability must be a design objective.

THE RURAL-URBAN INTERFACE INRURAL DEVELOPMENT

The poor have much in common with each otherwherever they live. Nevertheless, rural areasaround the world share a number of characteristicsthat are distinctly different from urban areas. Forthis reason it is necessary to examine the specificapproaches required to address the needs of therural and urban poor separately. The Bank’s ruralstrategy recognizes that urban and rural areas areinextricably linked in the process of development,and that the strategy must take into account thediverse range of interactions between urban andrural economies when crafting future developmentefforts. All countries experience a transition from apredominantly rural to a more heavily urban char-acter of their economies as development pro-gresses. Urban and rural areas are a continuum, butthey are also internally heterogeneous.

Development strategies need to be differentiatedfor urban and rural areas. However, there should bean overall coherence between urban and ruraldevelopment. Economic development is a dynamicprocess potentially affecting all areas of a society,and urban growth can be a catalyst for rural eco-nomic activities. Population flows are ongoing, notstatic, so the actual boundaries of rural and urbanareas are constantly shifting. In fact, despite highrural birthrates, most population growth in thenext decades will be in urban areas, largely as aresult of continued rural to urban migration. Ruralareas can often be more prosperous and produc-tive when they are close to, or integrally linked to,urban centers which provide opportunities foragglomeration, major markets, financial resources,and employment options. At the urban peripheryand in small and medium towns, the “rural” and“urban” distinctions can be blurred. Non-farmemployment (small manufacturing and services) isimportant in rural economies, and urban agricul-ture (household plots) is a significant source offood and incomes in many cities.

Migration is an integral part of rural and nationaldevelopment and societal change. It allows individu-als to respond to economic opportunity and helpsto manage risks and accumulate assets. Mobility is

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frequently adopted as a critical livelihood strategyfor many households. Patterns of migration arethemselves diverse ranging from rural-urban, rural-rural and urban-rural and may be daily, seasonal,annual, or permanent. Part or all of the householdmay migrate. Much migration remains circular andmany migrant household strategies remain based intheir villages of origin.The multi-locational nature oflivelihood strategies necessitates policies that bothunderstand and recognize population mobility, andwhich aim to minimize any negative consequencesand build on opportunities (de Haan, 1999).

Rural enterprises are generally small and sufferfrom diseconomies of scale (Table 2.1). Rural areasat low levels of development face specific marketfailures. In most poor rural areas, transport, energy,and telecommunications and business services aredeficient and expensive, if available at all.These defi-ciencies often have different impacts on male andfemale farmers. In Sub-Saharan Africa, crops such ascocoa and coffee, marketed by men, are often col-lected from the farm gate whereas food crops mar-keted by women have to be transported to themarket. Studies in Ghana and Tanzania revealed thatwomen spend nearly three times as much time intransport activities compared with men, and trans-

port about four times the volume. Health and edu-cation are almost inevitably quantitatively and qual-itatively less developed than they are in urbanareas.There are typically low volumes of trade, highmargins on goods purchased from distant centers,few competitors, and high transaction and informa-tion costs. Many rural markets are highly seasonaland require storage capacities and financial servicesthat are seasonal as well. This restricts trade andemployment in the off season. Because of theseconstraints, the private sector finds rural areas lessdesirable than urban ones. Therefore, rural infra-structure services must be seen as public goodsrequiring public support.

SELECTIVITY AT THE REGIONAL ANDCOUNTRY LEVELS

To support rural development effectively, theprinciple of selectivity has to guide implementa-tion. The Bank’s strategic framework paper (SFP)and strategic direction paper (SDP) provide guide-lines for selectivity at corporate, regional, and coun-try levels. The selectivity criteria outlined belowindicate that the Bank does not intend to work onall components of the strategy in all regions, and

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Characteristic Rural Areas Urban Areas

Scale of enterprises Predominantly small Small, medium and largeIntermediary providers of inputs, Few private providers Many private providerscredit and servicesPublic services and infrastructure Scarce, unreliable, and expensive Relatively favorableMarkets for products and labor Highly seasonal Year-round Access to markets Poor access to markets, Good access

especially for the poorCompetition Thin markets, many nearly natural Most sectors have competitive markets

monopoliesTransaction costs in markets High due to poor infrastructure, Relatively low

and many small dispersed buyers and sellers

Table 2.1: Characteristics of Rural and Urban Enterprise Environment and Markets inDeveloping Countries

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especially, in all countries. Rather, the program hasa focused hierarchy of priorities that lead to a tai-lored and selective program for each of the individ-ual regions and countries. CASs will reflect the spe-cific decisions by national governments and theBank regarding the degree of support for ruraldevelopment to be provided by the Bank.

Corporate PrioritiesAt the corporate level the priorities are set to ful-fill the Bank poverty-reduction mandates. Theglobal strategy provides overall priorities for coun-tries at all stages of development. The corporatepriorities are also geared to programs supportingglobal public goods that convey shared benefitsworld-wide (such as support to CGIAR and agri-cultural trade advocacy).

Regional PrioritiesAt the regional level, the strategies exhibit a greaterlevel of selectivity and diversity. Each regional strategyand action plan reflect the specific conditions, stages,and lessons learned in the given region, and the Bank’scomparative advantage in that region. The regionalaction plans also provide region-specific implementa-tion guidelines and concrete programs for deliveringBank support in rural areas.

The foundations of the revised strategy are the sixregional action plans, each the product of intensiveconsultations with the full range of stakeholdersincluding local organizations, national governments,private firms, NGOs, academics, and fellow donoragencies. The six regional action plans reflect ruraldevelopment agendas fully consistent with theoverall Bank rural development strategy. Each has apoverty reduction focus and a multi-sectoralapproach with increased emphasis on the privatesector, yet they all maintain a region-specific charac-ter. The differing foci of the regional action plansreflect the varying conditions and the tailored appli-cation of the corporate rural development strategyto reduce rural poverty and contribute to achievingthe MDGs.

The Africa action plan places major emphasis on theinstitutional foundation for reducing rural poverty. Itadvocates support for government efforts to decen-tralize, and enhance the participation of rural com-munities.The East Asia and Pacific regional plan callsfor financing programs that directly attack povertythrough targeted productivity enhancing invest-ments in very poor areas.The Europe and CentralAsia region focuses on sustainable rural productivitygrowth and the completion of the transition process

Table 2.2: Country (or regions within countries) Priorities by Level of Development

Least Developed

Promote agricultureIntegrate subsistence farmersinto market economyDevelop rural infrastructureand basic institutions

Basic social servicesIntroduce safety netsDevelop social capital

Property rightsReduce soil degradation anddeforestation

Less Poor

Improve agricultural productivity and diversificationNon-farm private sector developmentImprove access to markets

Expand social servicesPromote improved risk management

Getting resource prices rightWatershed management

Middle Income

Promote competitiveness of the commercial rural sectorPromote high-value cropsExpand private sector provision of semi-public services

Specialist medical services andhigher educationComprehensive national safety nets

Environmental regulationReduce negative externalities of agriculture

Broad-based Market Growth for agriculture and non-farmeconomic activity

Improving social well-being,managing risk, and reducingvulnerability

Sustainable management ofnatural resources

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in the rural areas. In the Latin America andCaribbean region, the action plan puts specialemphasis on rural and urban dynamics, and adoptsa Local Economic Development approach toaddressing rural development built aroundincreased participation of local actors including localand sub-national governments, private sector andorganizations of civil society. The Middle East andNorth Africa action plan places a high priority onrationalizing water management and policies. Thefocus of the South Asia regional action plan is theenhancement of human and social capital develop-ment in rural areas, as well as decentralization (seeAnnex 3 for more information on the regionalaction plans).

Country Level PrioritiesThe differences in emphasis among the regionalstrategies are critical to their ultimate success inimplementation. The participation of stakeholdersfrom each individual country ensures that thetranslation of the regional action plans into countryimplementation plans will reflect the unique char-acteristics of each country. For East Asia and Pacific,Middle East and North Africa, and South Asia, theregional priorities have already been translated tocountry-specific priorities and action programs. ForAfrica, Europe Central Asia, and Latin AmericaCaribbean, detailed action plans have been devel-oped for major country groups.

At the country level, the priorities and the mix ofBank assistance instruments are determined bymany factors, including progress in policy reforms,the size and state of the rural economy, and theaccess to external finance and markets. Countrypriorities reflect greater selectivity than the region-al objectives.At the country level, the developmentof country-owned rural development strategieswill provide the framework for translating the cor-porate strategic framework into reality for thegiven country.

The country and sub-regional priorities obviouslyreflect regional and country conditions, but, at thesame time, they share common features across theregions corresponding to their levels of develop-ment, their policy and institutional environments,and their natural resource endowments (Table 2.2).

THE COMPARATIVE ADVANTAGE OF THE WORLD BANK IN RURALDEVELOPMENT

The World Bank is the largest single provider ofloans for rural development, including 60% of allagricultural lending by the international financialinstitutions. Because of this substantial involvementand experience with rural development, the WorldBank has a comparative advantage in rural develop-ment. Bank support to agriculture equals roughlyone-third of total official development assistance(ODA) to agriculture specifically, and about 20% ofall assistance to agriculture-related activities. It is esti-mated that the Bank also provided at least the sameamount ($2.5 - $3 billion) of resources to otherthemes in rural areas (including, infrastructure,health and education). The Bank’s strong partner-ships with most of the major bilateral and multi-lat-eral development agencies, and key UN Agenciessuch as the FAO and IFAD in supporting ruraldevelopment, gives it a depth of knowledge andexperience in assisting the world’s rural poor.Specifically, the Bank has comparative advantages inthe following areas:

Power to Convene. The Bank is the only globalinstitution capable of bringing together all stake-holders and donors, including the private sector,to discuss important issues and set objectivesfor assistance strategies. This convening powerallows the Bank to play a catalytic role in bring-ing forth new directions and agendas in ruraldevelopment programs globally, regionally, andfor individual countries, and lever the efforts ofdonors and other international institutions.

Ability to Provide Both Finance and PolicyAdvice. The diversity of instruments available tothe Bank enables it to provide policy-orientedtechnical assistance and also to support theimplementation of Bank-endorsed policiesthrough a variety of investment programs.

Ability to Approach Rural DevelopmentHolistically. As a multi-sectoral institution, theBank is able to provide a cross-cutting and holis-tic perspective to the truly multi-dimensionalnature of rural development (including agricul-

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ture, non-farm economic production and ruralphysical and social infrastructure), and integratethese into a broader, comprehensive develop-ment framework and PRSPs.

Depth of Knowledge and Experience. TheBank’s physical presence in almost every clientcountry provides an unmatched depth of knowl-edge.The economic and sector work producedby the Bank in individual countries, in the regions,and globally provides an invaluable knowledgebase for donors and governments alike.

Ability to Provide Clients with Advice Basedon World-Wide Best Practices in RuralDevelopment. The world-wide scope of Bankoperations, as opposed to regional, or nationaldevelopment efforts, allows for the diffusion ofknowledge and experiences on a global basis.This also allows for the development of part-nerships and communities of interest and prac-tice that cut across countries and regions.

Impartial Long-Term Development Agenda.The Bank is a collectively owned internationalinstitution that is not driven by narrow profitmaximizing objectives. This reality allows theBank to provide its clients with impartial, multi-year support to rural development, even whenpolitical or economic conditions, or conflicts in agiven country do not provide immediate busi-ness opportunities attractive to private financialinstitutions.

STRATEGIC OBJECTIVES

The strategic objectives are now addressed byreturning to the Bank’s objectives in rural povertyreduction (Figure 2.1), which are geared to accel-erate broad-based rural growth by:

fostering an enabling environment for broad-based and sustainable rural growth;

enhancing agricultural productivity and compet-itiveness;

encouraging non-farm economic growth;

improving social well-being, managing and miti-gating risk, and reducing vulnerability; and

enhancing sustainability of natural resourcemanagement.

The elements of the strategic objectives conceptu-ally all fall under the two key headings identified asthe critical foundations for successful povertyreduction (Stern, 2001), namely, creating an invest-ment climate conducive to rural growth, andempowering the poor to share in the benefits ofgrowth.The entire strategy approach, as well as itsspecific strategic objectives, are fully consistentwith the 2001 World Development Report onpoverty and the 2003 World DevelopmentReport on sustainable development. Addressingrural space in its entirety naturally draws on theprinciples underlying the ComprehensiveDevelopment Framework.The rural strategy mustemphasize and utilize the linkages and coherenceamong all sectors operating to meet the needs ofthe rural poor and rural communities, such asHealth, Education, Transport, Infrastructure andCommunications, Agriculture, Public SectorReform, Private Sector Development, and SocialProtection. As such, it recognizes and draws uponthe many sectoral strategies of the Bank includingthe links between urban and rural strategies.

The five objectives represent individual compo-nents of rural development that must be imple-mented in an integrated fashion, tailored to eachparticular situation.The successful implementationof these objectives in each country requires acoherent institutional and public policy environ-ment for rural development.The five objectives arediscussed in turn in the five following sections. Aholistic set of strategies and actions must be devel-oped for each setting.

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The strategy From Vision to Action correctly recognized that the rural developmentchallenge could be met only if international and domestic policies, institutionalframeworks, and public expenditure patterns were conducive to sustainable rural

development. In spite of progress in our client countries, the process of policy andinstitutional reform is far from complete.This strategy stresses the need to complete thetraditional policy reform agenda and to address new policy issues in client countries. Inaddition, rural financial services and good governance are also essential components ofan enabling environment for successful rural development.

FOSTERING AN ENABLINGENVIRONMENT FOR BROAD-BASEDAND SUSTAINABLE RURAL GROWTH

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The Bank will continue to place emphasis on theenabling policy and institutional environment forrural development, fully embedded within thewider country economic policy and institutionalframework. In addition, however, no amount ofprogress will be sufficient for agriculture to fulfill itsrole as an engine of economic growth until a globalenvironment conducive to commerce is estab-lished, with the elimination of high internationaltrade barriers to agricultural products.The Bank willthus also enhance its role in, and contribution to,international policy for dealing with agriculturaltrade and subsidy issues.

OECD AND DEVELOPING COUNTRYTRADE POLICY REFORM CRITICAL TODEVELOPING COUNTRIES

Developing countries have a huge stake in the fullintegration of agriculture under multilateral traderules. In many of the least developed countries agri-culture often constitutes the single most importantsector in the economy. Many developing countrieshave a comparative advantage in agriculture becauseof their relatively large endowments of land and/orunskilled labor. Furthermore, a large number of thepoor derive their livelihood directly, or indirectly fromagriculture. Agricultural trade, therefore, is crucial for

poverty reduction and economic growth in thedeveloping world. However, while the volume ofglobal merchandise trade grew by a factor of 17, thegrowth in agricultural trade has been relatively mod-est, approximately matching the six-fold increase inworld production. Further, although developing coun-tries as a whole have increased their share of worldtrade in manufactures, this has not been the case inagriculture (World Bank, 2001b).

OECD Trade and Domestic Subsidy Policy -a Major Barrier to Agricultural Growth inDeveloping CountriesA major reason both for the limited growth of agri-cultural trade and for the inability of developingcountries to capture a larger share of agriculturaltrade is that protection, especially in the large OECDmarkets, has remained high (OECD, 2001a). Barriersto imports in OECD countries, together withexport-limiting policies in a number of developingcountries, have limited the volume of trade. At thesame time, high levels of farm support in OECDcountries have led to surpluses that have beenexported (sometimes with the use of export subsi-dies) onto world markets, depressing world prices,and further undermining the ability of agriculture tocontribute to global prosperity (Box 3.1).

Total agricultural support amounted to $311 billion inOECD countries in 2001 (OECD, 2002). Thisamounts to 1.3% of their own GDP, and is roughlyequivalent to the GDP of all of sub-Saharan Africa.On average, prices received by OECD farmers were31% above world prices (compared to 58% in1986–88) and almost one-third of total farm receiptsoriginated from government programs. Of this sup-port, 69% is administered via price support and out-put payments, mechanisms that are the most distor-tionary for production and trade (compared to 82%in 1986–88).

Reflecting current levels of support, agricultural tariffsin OECD countries remain extremely high, in spite ofthe reductions introduced with the Uruguay RoundAgreement on Agriculture (URAA).Recent estimatesindicate average agricultural tariffs are about six timesas high as industrial tariffs.Tariffs of over 50% exist for60 tariff lines in Canada, 71 in the EU, 14 in Japan and8 in the United States (McCullock et al, 2001).These

Producer support levels (PSEs) vary widely across countries with-in the OECD. PSEs for farmers ranged from 1% in New Zealandand 4% in Australia to 60% or more for some countries (forexample Japan, Korea and Norway). For the US, the average PSEis about 20%; for the EU 35%. PSEs also vary greatly amongcommodities: rice 81%; sugar 45%; wheat 36%; beef and veal36%; poultry 16%. The highest levels of support are directed attemperate products, and it is sometimes argued that these arenot the products of greatest interest to developing countries.However, not only are these products significant in some devel-oping countries, but the heavy subsidies discourage growers oftropical products from diversifying into these temperate crops.

Source: OECD, 2002.

3.1Current Farm Support Levels in OECDcountries as measured by the ProducerSupport Equivalents (PSEs)

REACHING THE RURAL POOR A RENEWED STRATEGY FOR RURAL DEVELOPMENT

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cover nearly US$5 billion of developing countriesexports (despite the high rates) and are almostexclusively focused on agriculture. Given theseextreme levels of OECD countries’ trade barriers—for example, 129% for sugar in the United States and162% for grains in the EU (Elbehri et al., 1999)—improved market access offers the potential for hugeincreases in income in developing countries that cansupply these products.

Protection also escalates with the level of processing,particularly in markets for processed tropical prod-ucts, reducing the scope for profitable developmentof value-added activities in developing countries.Tariffescalation essentially taxes developing countries fortrying to process their products.

High levels of export subsidies in some OECD coun-tries remain a major factor in world food marketsand have wide effects on world prices and marketconditions. Between 1995 and 1998, global exportsubsidies amounted to over $27 billion cumulatively,of which over 90% is from the EU (Elbehri andLeetma, 2002). For potential agricultural exportingcountries OECD export subsidies reduce prices andmake it difficult for them to compete. For importers,they can bring short-term benefits in terms of lowerimport prices. But for both groups of countries theycan be detrimental to agricultural development in thelonger run.

In addition, agricultural imports into OECD countriesand other major markets face an array of health con-trols, referred to as sanitary and phytosanitary (SPS)barriers.While ostensibly designed to protect human,animal and/or plant life, such measures can potentiallyrestrict trade and pose major market access prob-lems for developing country suppliers. Further, evenwhen legitimate standards are imposed, developingcountries may have serious difficulties proving thattheir exports actually meet these standards, due tothe high cost of some testing and certification proce-dures. Technical capacity constraints—both in thepublic and private sectors—may also seriously hinderdeveloping country compliance, as testing proceduresare very expensive. Current rules do not recognizethe real difficulties that developing countries have inimposing the standards with the emerging array ofinternational standards and technical requirements.

Policy Bias Against Agriculture in ManyDeveloping CountriesPolicies of developing countries also discriminateagainst their own agricultural sectors. Krueger,Schiff and Valdes (1988) found that in the pastdeveloping countries have typically taxed theiragricultural sectors, to some extent directly (forexample by taxes on exports or controlled foodprices), but even more so, indirectly, through tradebarriers and macroeconomic policies that overval-ued the exchange rate, turned the internal termsof trade (manufactures prices vis-à-vis agriculturalprices) against agriculture, and kept the prices ofagricultural inputs high. These indirect policiesaffected production incentives by making agricul-ture relatively less attractive than other sectors ofthe economy. This tends to draw resources awayfrom the agricultural sector towards the manufac-turing sector, diverting resources away from thesector that has comparative advantage.

Many of the direct measures have also been equiv-alent to a tax on agriculture, depressing the pricesreceived by agricultural producers below levelsthat would otherwise prevail. Commodity andinput markets have been characterized by heavygovernment interventions through centralizedprocurement measures (government parastatalsand marketing boards), input subsidies, quotas onexports of agricultural commodities, direct taxa-tion of such exports, and various regulatory rulesand decrees. Other direct interventions haveattempted to hold down the costs of food forurban consumers. Some direct interventions havebenefited agricultural producers, however.Governments have often subsidized the costs offarm credit and important agricultural inputs, suchas fertilizer.

During the 1990s many of these interventionshave been eliminated or reduced in scope.Developing countries have reduced the explicitand implicit taxes on the sector and have oftenreformed marketing arrangements. In addition,exchange rate overvaluation and high industrialsector tariffs are less prevalent. In many countries,tariffs on industrial products have been loweredmore than in agricultural products, reducing rela-tive distortions against agriculture.

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Although the magnitude of the bias has beenreduced, it still remains significant. Average tariff onagricultural products remain high—at 113% inSouth Asia, 75% in sub-Saharan Africa, 71% inNorth Africa, 54% in Central America, 49% inEastern Europe and 48% in the Middle East(Gibson et al., 2001)—and continue to create bar-riers to greater South-South trade in agriculturalproducts, which has the potential to improve pro-ductive efficiency based on true comparativeadvantage. Most reforming countries have eliminat-ed export taxes, but there are still some cases ofexport restrictions.Also, the operation of inefficientstate-owned marketing enterprises for key agricul-tural exports continues in some countries. Despitesignificant improvements in their macroeconomicand trade policies in the last two decades, manydeveloping countries still retain a policy bias againstagriculture.

Large Potential Gains from AgriculturalTrade LiberalizationA recent World Bank study on the potential eco-nomic welfare benefits of global agricultural trade

reform estimates that the increase in aggregatewelfare of the developing world could be some US$142 billion annually.This does not include any eco-nomic welfare gains from liberalization of trade inservices, or investments, or reductions in imperfectcompetition. Most of these gains would come fromtrade policy reforms within the developing coun-tries themselves (about US $114 billion), while theimpact of liberalization in OECD countries upondeveloping countries is about US $31 billion—amounting to more than 50% of the official devel-opment assistance given to developing countries in2001. When more dynamic effects of liberalizationare considered including productivity gains, thebenefits are potentially much larger (Table 3.1).

Overall, the potential gains from liberalization ofagricultural markets are estimated to be substan-tially higher than the potential benefits from liberal-izing manufacturing, even though agricultureaccounts for a much smaller share of total worldmerchandise trade. For the most part this is due tothe relatively higher level of agricultural protection(Figure 3.1).

Liberalizing Region Benefiting Region Static gains: Dynamic gains:fixed productivity endogenous productivity

High Income High Income 73 144Low Income 31 99Total 104 243

Low Income and High Income 23 53Middle Income Low Income 114 294

Total 136 346

All Countries High Income 106 196Low Income 142 390Total 248 587

Source: World Bank, 2001, p.171 Note: Static gains refer to the results holding productivity constant. Dynamic gains allow productivity to respond to sector-specific export-to-output ratios.

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Table 3.1: Gains from Multilateral Trade Liberalization in Agriculture and Food,billions of 1997 US dollars

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Developing countries themselves would net 83% ofthe benefits from liberalizing their own agriculturaltrade policies. And the gains from developing coun-tries’ liberalization contribute almost half of the gainsfrom those countries’ overall merchandise tradereform.These large shares reflect not only the sig-nificant distortions in those countries but also thefact that the food and agricultural sector is such alarge part of the economy of developing countries.

From the scale of these numbers, it is clear thatthere are big potential welfare gains from a suc-cessful negotiation of the Doha round, for devel-oping and developed countries alike. The impor-tance of the multilateral approach to liberalizationcannot be overemphasized.The model simulations,in fact, assume that in achieving these gains unem-ployment is fixed, so that, once market barriers arelowered in a given country, all the farmers whowere producing the now imported foodstuffs willshift to producing export crops or to work in non-farm occupations. With other markets closed, theformer cannot happen, and the latter is difficult toachieve. In other words, if only one country liber-alizes, foreign producers would enter that newmarket causing a need to shift production. If tradebarriers in other markets and have not been low-ered, however, there is little chance of entering

new activities, and liberalization results in unem-ployment and lower incomes. It is especially impor-tant, therefore, that OECD countries, which repre-sent the largest market for developing countries,remove first their trade barriers.

In addition, developing countries have extra reasonsto support the full integration of agriculture undermultilateral rules. First, and most basic, are thepotential gains from the strengthening of a “rules-based” global trading system. Developing countriesas a group would benefit most when all tradingcountries play by a common and more liberal set ofrules. Second, multilateral agreements and tradenegotiations should help developing countries toundertake and “lock-in” their own trade anddomestic policy reforms needed to advance theirdevelopment objectives. Reciprocal trade agree-ments can facilitate the political economy of policyreform in developing countries by enlisting the sup-port of other sectors of the economy that wouldgain from trade reforms, thus helping to sustain thepressure of domestic lobbies for protection. Third,the new round of trade negotiations should expandtrade in agricultural products, thus reducing thevolatility of world prices that is so high partiallybecause of the current thinness of markets. Sinceproducers and consumers in poor countries are

27

Note: Static gains refer to results holding productivity constant. Dynamic gains allow productivity to respond to sector-specific export-to-output ratios.Source: World Bank, 2001.

Figure 3.1: Gains from Full Multilateral Trade Liberalization, as a percentage of income

0 1 2 3 4 5

Static

Dynamic

Static

Dynamic

Static

Other Sectors

Agriculture and Food

Dynamic

Low- and middle-income

countries

High-income

countries

World Total

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especially vulnerable to large price fluctuations, theyhave a special interest in the reduction of interna-tional commodity price volatility.

World Bank Actions in the Trade ArenaThe World Bank will continue to assist its clients toimprove their own trade policies, and to use the sys-tem of multilateral trade rules to expand their tradeand thereby enhance their development prospects.The Bank’s role is particularly important in integrat-ing the complex multilateral and sectoral trade pol-icy issues (especially on agriculture) with economicgrowth and poverty reduction objectives.The Bank’s

comparative advantage is that it can combine tradepolicy analyses with significant sectoral expertiseinto a comprehensive view of how agricultural tradeliberalization, globalization, and market integrationcan promote growth and rural sector development.This capacity can be used to support better agricul-tural and trade policies through:

Advocacy of trade liberalization in both OECDand developing countries. The Bank supportsdeveloping countries in their efforts to increasetheir market access for agricultural products inOECD countries. This will, first of all, require that the Bank be clear and outspoken in regardto market liberalization in the OECD countries.It should also advocate that the removal of cur-rent protection levels not be replaced by non-tariff barriers.

Mainstreaming agricultural trade liberalizationand trade capacity development in the Bank’scountry assistance and operations (for examplein national rural development strategies, CASs,and PRSPs).

Facilitate capacity building through technical assis-tance and training on trade-related issues. TheBank will support developing countries in equip-ping themselves with policy and institutional toolsto manage their integration into the global econ-omy. Bank programs in trade capacity building aregeared towards: institutional capacity building;development of country specific statistical data-bases for policy monitoring; and, providing trainingto participate effectively in trade negotiations anddevelop national trade capacity necessary to cap-ture the benefits from trade integration.

Increase assistance in the area of Standards andSPS regulations. In addition, improvements indeveloping countries’ food safety and sanitaryconditions is a prerequisite to be able to takeadvantage of any trade liberalization.The Bank isengaged in different capacity building programs,including: analytical research on the costs of regu-lation and compliance, and quantitative assess-ment of standards and regulation as barriers totrade; diagnostic assessment of the current situation in country supply systems and regulato-

In 1999, a new and reform-minded Government came to powerin Turkey. The Government formulated a wide-ranging programof macro-economic stabilization and adjustment. TheGovernment’s agriculture reform program encompasses threemain initiatives designed to reduce the heavy burden on thebudget and Turkish consumers, while promoting agriculturalgrowth. The first is to introduce a unified national program ofdirect income support to improve the access of smaller farmersto budget support and to encourage new income generation ini-tiatives by farmers. Second, the Government is phasing out thesystem of subsidies for fertilizer, credit, and price supports, whichdisproportionately benefit large farmers and regressively tax con-sumers. The third initiative is to privatize state enterprises inagriculture to reduce Government involvement in the marketingand processing of agricultural products.

The Bank has been supporting adjustment in agriculture andother sectors through a separate Economic Reform Loan (ERL),approved by the Bank’s Board in May 2000. Agreement on oper-ationalizing the recommendations made by the Bank on agri-cultural policies (in agricultural support policy notes) wasreached during ERL preparation. However, full implementationrequires financial support over a time horizon extending wellpast ERL. This is being provided through the Agricultural ReformImplementation Project (ARIP) approved by the Bank in 2001.This operation, not only supports the policy reform describedabove, but also includes components to assist in setting up thedirect income support system, to transform the government-dominated cooperative system into a true member-operatedcoop network, and to help farmers switch crops as price sup-ports are removed and the crop-specific state economic enter-prises are privatized.

3.2Turkey - From the Economic Reform tothe Agricultural Reform ImplementationProject

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ry/certification arrangements, including the prepa-ration of country-specific action plans; and, pro-duction of toolkits to help countries and donoragencies identify problems and formulate actionplans in the area of food safety issues.

Analytical work at both global and country levelsidentifying key areas for future policy reform.TheBank is conducting rigorous research on theimpacts of WTO agreements, agriculture tradeliberalization and the implications of new tradeagenda issues on developing countries. Furtherquantitative research will be carried out to assessimpediments to agricultural trade integration anddevelopment at the country level, and to meas-ure the impacts of trade reform on food securityand rural poverty reduction.

CREATING A DOMESTIC POLICYFRAMEWORK TO STIMULATE RURALDEVELOPMENT:THE UNFINISHEDAGENDA

For long-run benefits from trade liberalization toaccrue, it is also essential that developing countriesadopt domestic policies that facilitate adequate sup-ply responses. This includes an overall macroeco-nomic policy environment conducive to agriculturalgrowth and investment, a sound set of agriculturalsector policies, and the development of comple-mentary markets for credit and agricultural inputsand services. In addition, the ability to translateimproved market access for agricultural productsinto significant poverty reduction depends signifi-cantly on having a structure of land ownership thatencourages increased productivity.

In spite of major improvements over the past decade,many developing countries still need to introduce sig-nificant policy reforms in agriculture.The nature of thereforms will be influenced by the degree of agricul-tural trade and subsidy reform in OECD countries.The World Bank will continue to assist its clients intheir efforts to improve their own policy environ-ment for rural development and thereby enhancetheir development prospects.The Bank’s role is par-ticularly important in combining macroeconomicpolicy analyses with significant sectoral expertise into

a comprehensive view of how agriculture can pro-mote growth and rural sector development, buildingon its knowledge of international experience andbest practice.The Bank can support its policy-orient-ed technical assistance with provision of finance for avariety of investment programs (Box 3.2).

Improving the Macroeconomic Contextfor Agricultural and Rural Growth The major areas of domestic policy reform aremacroeconomic policy, sectoral price and trade poli-

A new government was elected in 1997 with a strong com-mitment to market reform. Government eliminated export bansand controls on profit margins of agriculture and food, elimi-nated most import quotas and duties on cereals, liberalizedmarkets and abolished subsidies for cereal products. The gov-ernment also has a program with the IMF. The objectives of thesector adjustment loans were to promote efficiency in the agri-cultural sector, contributing to rural employment generation,better living standards and more consumer choice through:

Promotion of a land market, including restitution of 80%of land area eligible and several administrative measuresto facilitate land transactions.Development of a private grain market by privatizing thegrain marketing agency, and limiting the State Grainreserves stock levels to agreed amounts.Privatizing agricultural enterprises including agreed num-bers of grain mills, seed, and food industries.Privatizing irrigation systems through decentralizationtransfer of management of operation and maintenance towater users associations on at least 100,000 ha.Improving agricultural financing according to agreed criteria.Liberalizing trade in most agricultural products.Improved forest legislation and increased community basedparticipation in forest management.

Each loan was a one-tranche operation, supporting a medium-term program. The Government took all of the designated stepsbefore each of the loans went to the Board. A key feature ofthe Bulgaria adjustment program is that it had the full sup-port of the elected government and Parliament. Another fea-ture was the willingness of the Bank to adjust the statereserves condition in response to perceived risks of food short-ages by the Government in light of tensions in Kosovo overthe period of the loan.

3.3Bulgaria - Agricultural SectorAdjustment Loans I&II

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cies, land market policies, policies in other input mar-kets, and legal and regulatory policies (Box 3.3 sum-marizes the Bulgarian agricultural adjustment loanwhich supported a comprehensive reform program).Specifically, the World Bank will assist its clients in theimplementation of the following policy agenda:

Correct remaining biases in macroeconomicenvironment. Economic growth in rural areasrequires an undistorted exchange rate policy that does not discriminate against agricultural exports and/or imports of agricultural inputs.Macroeconomic and trade policies should seek toeliminate remaining implicit taxation from cur-rency overvaluation and high tariff and non-tariffbarriers to improve agricultural production andinvestment incentives.

Adopt the principle of non-discriminatory taxa-tion. Agriculture taxes should not be higher thanthose for other sectors, and should be integratedwith general value added, profit, income andwealth taxes. Output and input taxes should beminimized. High levels of agricultural taxation

need to be reduced and taxation instrumentsneed to be made explicit.

Stabilize macroeconomic policy and enhancethe institutional framework and the credibilityof rules. While macroeconomic polices haveimproved significantly in many countries, macro-economic stability remains fragile and uncertain.Evidence suggests that the credibility of reformsin many developing countries is poor due tounpredictable changes in rules and policies(Brunetti et al, 1998).This instability and fragilityhas an adverse effect on investor confidenceand growth. Improving credibility or the reliabil-ity of the institutional framework within a coun-try is a critical requirement to encourage pri-vate sector activity and investment in all sectors,including agriculture.

Supporting an Enabling Policy Environmentfor Agricultural Trade and Market AccessTrade policy measures need to foster agriculturaltrade and create an institutional environment thatfacilitates exports, while protecting the poor fromsudden price fluctuations:

Reduce trade barriers and anti-export bias tofoster growth in agricultural trade. Despitereforms, average tariffs on agricultural productsremain very high in developing countries, andthere are still some cases of export restrictions.Torealize the potential benefit of greater agriculturaltrade, developing countries must liberalize theirown agricultural trade policies.This must be donecarefully, and not unilaterally, however; with morerapid liberalization possible if OECD countriesreduce trade barriers and subsidies. If OECDcountries do not liberalize, the pace and structureof liberalization needs to take into account thepace of change in the global trade regime.

Improve access to foreign markets. Developingcountries need to be prepared to play agreater role in international trade negotiationsto promote international agreements thatachieve their market-access goals. Developingcountries will also need to build their capacityin meeting the international sanitary and phy-

Create a level-playing field for the rural private sector byremoving anti-rural biases in the investment climate.Tune the methods for surveying investment climate to suit theneeds of rural areas, include the rural private sector in coun-try-level surveys as well as in detailed surveys in rural areasand use the results for policy dialogue and interventions toimprove rural investment climates.Conduct pilot operations in rural areas with market solutionsas alternatives to public services, and with Output-BasedApproaches for delivery of agricultural services, infrastructuralservices and social services; promote mainstreaming whereintervention is proven effective.Promote access to markets for the poor.Facilitate expansion of privately operated financial services toall rural areas.Promote private associations and public-private cooperationthat can help in solving market failures and in reducing hightransaction costs of public services.

3.4Strengthening Private-SectorDevelopment and Market Approaches in Rural Areas

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tosanitary standards, which will become moreimportant to gaining market access.

Reduce protection on non-agricultural goods.Developing countries need to re-examine theirtrade policies beyond agriculture. Large importtariffs on transportation equipment, machineryand agricultural materials impose higher costson exporters who use these imports as inter-mediate inputs in production. This cost disad-vantage erodes competitiveness and inhibitsgrowth. Non-tariff barriers in fertilizer marketscontinue to be widespread and inhibit privatesector entry and competition in these markets.High average import duties create a generalanti-export bias for the economy discouraginggains in efficiency and diversification in general,including in agriculture.

Cope with world commodity price decline andfluctuations. Commodity price volatility impliesa need to complement liberal trade policieswith policies to provide an adequate safety-netfor the poor. Useful strategies to cope with thecyclical trends include adopting prudent mone-tary and fiscal policies, avoiding higher exporttaxes, avoiding cartels, using hedging instru-ments and prudent financial management intimes of commodity price booms. Some coun-tries have avoided reform largely out of fear ofdomestic repercussions from food price vari-ability.This reality brings to the fore the impor-tance of accompanying measures such as safetynets and compensation. Useful strategies tocope with secular trends include export diver-sification and more rapid adoption of newtechnologies.

Introducing Sound Food and AgriculturalPolicies, and Supporting Effective Marketsfor Agricultural Inputs and ServicesIn addition to removing the anti-agriculture bias ofpolicy, there are also large long-term gains to bemade from improving competition in agriculturalinput and commodity markets:

Food subsidies and social safety nets need to bemore effectively targeted towards the poor. Inmany developing countries, food prices are

maintained at a low level largely to benefit urbanconsumers. Because everyone benefits from thelow food prices, the subsidies are very expensivestraining government budgets while not target-ing the poor. The Bank will work with develop-ing country policy makers to design safety-netand compensation policies that are more effec-tively targeted.

Removing remnants of marketing boards.Controlled marketing systems continue to distortmarket price signals in many countries. Substantialgains are attainable through careful introductionof foreign and domestic competition into thedomestic markets for marketing, distribution andimport/export services. Governments, however,need to ensure that the institutions are replacedby satisfactory arrangements, that trader entry isnot constrained and that newly liberalized mar-kets function adequately.

Remove other obstacles to effective operationof input markets. Much progress has beenmade in the past two decades in reducing gov-ernment intervention in these markets. Themain area where additional progress is neededis in creating a market-friendly environmentthat will permit the private sector to provideagricultural inputs without excessive govern-ment regulation. Fertilizer is one input that wasoften heavily subsidized in the past.Governments need to establish labeling regula-tions for grades and standards (for example forfertilizers and animal feeds), but the privatesector should be permitted to deliver inputs tofarmers in a competitive market environment.The Bank will continue to work with govern-ments to create a policy environment that willbe conducive to private sector participation inagricultural input markets and does not restrictfarmers’ choices of seed and other inputs togovernment-approved varieties.

Sequencing is important to successful reforms.In the short run there can be large adjustmentcosts associated with improving the competi-tiveness of domestic firms by liberalizing markets.But in the long term improved competitionencourages faster growth of the sector than

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would have otherwise occurred and releasespublic resources for investment in other neededactions. Nonetheless, where reforms are likely tohave immediate negative effects, choosing anappropriate sequencing and speed of reformsmay mitigate the impact on the poor and allowtime to design compensatory policies to safe-guard the livelihoods of the poor during the tran-sition period. Careful sequencing of subsidy

removal and liberalization is therefore a key issuefor a successful reform process.

Complementary Legal and RegulatoryFrameworks that Facilitate PrivateEnterprises

Promotion of Efficient Markets and PrivateEnterprise. In addition to correcting the remainingurban biases in the enabling environment and pro-moting a level playing field, governments are respon-sible for creating an environment that is conducive tothe development and functioning of markets, busi-ness enterprises and farms. Governments need toadopt policies, and legal and regulatory frameworksthat facilitate private enterprises and marketingcooperatives and improve the investment climate forfarmers and other private sector entrepreneurs.TheBank’s Private Sector Strategy provides evidence ofthe importance of private-sector solutions forboosting growth and poverty reduction. In line withthat strategy, actions of particular importance torural areas are given in Box 3.4.

Introducing Effective Legal and Regulatory Policiesfor the Efficient Functioning of Markets. Manydeveloping countries have complicated systems ofbusiness regulations that increase costs of privatesector operation and open up avenues for corrup-tion.These regulations need to be streamlined, andtraining is needed for judges and lawyers on themodalities of the streamlined systems.The problemof efficient and fair adjudication of contract disputesis one of the major issues in many developing coun-tries. To achieve development success, an efficientand fair contracting system is essential. Contractenforcement is required for the efficient functioningof markets. The Bank will work with developingcountries to help create a legal framework andenforcement mechanisms for contracts to enableefficient market transactions.

Continuing Land Reforms and ImprovingLand Administration

Improve the Operation of Land Markets and LandAdministration. Land is a key input in the ruraleconomy and functioning land markets are impor-tant for the development of agriculture. For land to

The BThe Bank has accumulated broad expertise and a good trackrecord in the policy dialogue and investments dealing with landadministration. The main focus of these operations is formalizing andregistering land rights to provide security of tenure, improve accessto credit, and thereby reduce the vulnerability of rural poor, partic-ularly for women. Comprehensive, public sector managed, free regis-tration, as now promoted in Central and Eastern Europe on a largescale, ensures that security of tenure is available to everyone, notonly to those who can afford to pay for the service, as is the casein demand-driven systems. There is also extensive Bank experiencewith land reform and land administration in Latin America and EastAsia. The ongoing portfolio of 50 projects has a 96% satisfactorysupervision rating as far as expected development impact is con-cerned, compared with 89% for the overall agriculture portfolio.

3.5 Good Practice in Land Tenure andAdministration

There is also a gender dimension to land ownership, because landtends to be held predominantly by men in most countries. For exam-ple, in much of Sub-Saharan Africa conflict between customary andstatutory law in land rights is common. Women’s use rights to landare generally guaranteed through customary channels, but custom-ary prejudices against women owning land mean that they are gen-erally denied titles to land. Even where local norms give womenrights to use land, these rights are acquired through men—thusthese rights are precarious and contingent on a woman’s maritalstatus (Engendering Development, World Bank, 2001a). In Cameroonjust 3.2% of land titles, representing just 0.1% of the registeredland mass, were issued to women. (Fsiy 1992). This often has theconsequence of depriving women access to credit and security in oldage, and where women farm land independently of men, also dis-courages them from investing in productivity improvements. TheBank will seek to promote equal access to secure ownership forwomen in its rural operations.

3.6 Promote Equal Access to SecureOwnership for Women

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be allocated and used efficiently, it is essential thatland markets operate. But for land markets to func-tion, owners need to have secure tenure; tenantsneed to have secure tenancy rights; rental fees andcontractual arrangements should be freely negotiat-ed; titling and recording of land transactions shouldbe in place; and a court system to enforce rightsshould function. Much progress has been made on these issues during the 1990s, and World Bank lend-ing for land administration has grown several fold(Box 3.5).

Promote Land Reform for Countries withInequitable Land Distribution. Some countrieshave a highly unequal pattern of rural land owner-ship. For example, in Brazil, for the year 2000 thewealthiest 5% of the farmers owned 69% of thenation’s agricultural land, while the poorest 40%owned only 1.2% of the land. A more equal distri-bution of land can produce greater social harmony,higher productivity, and poverty reduction. Landownership has a significant gender dimension aswell (Box 3.6). But the record of land reforms hasbeen poor. Several countries (notably Brazil,Colombia, South Africa) have been experimentingwith community-managed agrarian reform pro-grams that are often referred to as “market-assist-ed.” Under such programs, groups of landless peo-ple negotiate directly with willing would-be sellersof land, and then, with credit and follow-up infra-structure investment provided by the state, pro-ceed to establish a smallholder farming structurebacked by strong community organizations. Theexperiment with this approach for land reform,which in some countries is sponsored or financedby the Bank, is still ongoing.The Bank is also activein supporting land reform and the transformationof the farming sector of transition economies,focused on the provision of secure land tenurerights and creating a system of land administration.

DEVELOPING EFFECTIVE RURALFINANCIAL SERVICES

In order to achieve broad-based economic growthand reduce vulnerability, people and enterprises inrural areas need access to a range of services for sav-ing, borrowing, remittance transfers, transaction pay-

ments and insurance.There is also need for a widerange of service providers, formal as well as informal(Box 3.7).Many rural areas are poorly served. Supply-driven agricultural credit has generally proven unsuc-cessful and is no longer supported by the Bank,although still pursued in many countries. Althoughnew approaches to rural finance are emerging, it isgenerally felt that these approaches only partiallymeet the immediate challenges of broad-basedrural growth and poverty reduction. The Bank willstrengthen its support for the development of adiversity of products and institutions that fill the finan-

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There is a growing consensus on rural finance:Credit cannot compensate for urban bias.Credit subsidies almost never reach the poor.Providing financial services to poor people can be goodbusiness.Rural financial systems and institutions must be judged byoutreach and self-sustainability.

There is also consensus on the characteristics that makerural finance institutions successful. Successful institutions are:

Rural-based but not specialized on agriculture.Autonomous.Able to charge market interest rates.Able to mobilize savings and reduce reliance on donor orstate funds.Able to collect on loans and have few losses.Able to provide staff incentives.

The range of rural finance services includes many forms of savings,such as membership of a savings and credit association or a funer-al society, savings accounts in a bank, and holding financial papers.People can borrow from relatives, friends, money lenders, micro-cred-it institutions, savings and credit cooperatives, banks, processors,traders and shopkeepers. Equity participation may be available asan alternative source for investment. Remittance transfers and trans-action payments can be made through banks, postal offices, or spe-cial services. Insurance can be obtained through policies for healthand other hazards, but also through forms of risk sharing in pro-duction, buying and selling.

3.7Diversity in Rural Financial Services

3.8New Approach to Rural Finance

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cial needs of low-income rural clients in income gen-eration and reduction of vulnerability. The Bank willalso try to reduce knowledge gaps about the relationbetween financial services and poverty and about theeffectiveness of various instruments.

Financial services develop in interaction withdemand. In a subsistence economy informal institu-tions generally suffice and modern financial institu-tions often are not viable. In a developing marketeconomy, however, modern financial services areessential to enable farmers and enterprises to flour-ish (Box 3.8). In all societies households need access

to safe saving facilities and insurance mechanisms tosmooth consumption, diversify risk, and cope withvulnerability. In a developing market economydemand for formal forms of savings, credit andother financial services increases.This means that liq-uidities have to be generated in rural areas and allo-cated to evolving priority uses for production, inno-vation and managing risks.The Bank’s objective is tosupport the institutional and economic factors thatplay a role in this process.

The development of modern financial institutions inrural areas meets serious obstacles: (a) high transac-tion costs due to spatially dispersed population andweak physical infrastructure; (b) high probability oflarge income fluctuations and the prevalence ofcovariate price risks as well as yield risks; (c) smallsizes and volumes of savings, loans, payments andinsurance contracts; and (d) difficulty of contractenforcement and lack of physical collateral for lend-ing. Often informal providers of services and non-financial enterprises can cope better with theseobstacles. But they face limitations in providing effi-cient support to the commercial sector because oftheir small scale and limited geographical reach. Giventhe inherent constraints to developing sustainablefinancial markets in rural areas, government policymay need to specifically address these obstacles.

In many developing countries financial institutions arepoorly functioning. Many countries still look at theirfinancial sector as a political instrument that can beused to influence the political landscape and favorallies in business. Often the policy and regulatoryenvironment hinders the development of commer-cially viable financial institutions. Common featuresare targeted credit and interest rate caps. Formalfinancial institutions are often not or hardly availablein rural areas. Policies to use state-owned institutionsto provide subsidized credit have produced at best avery modest development impact. Subsidized creditis often appropriated by wealthy farmers, and repay-ment is poor. Consequently, directed credit drainspublic resources and is counter-productive for thedevelopment of viable financial institutions.

Alternative approaches to rural finance are emerg-ing. In recent years, innovative micro-finance meth-ods have been successful in helping households to

These two projects have supported the newly emerging privaterural economy in Latvia. When ADP was launched, there were nocommercial banks in Latvia with interest in serving small scaleprivate farmers. The Agricultural Finance Company (AFC) was setup with a flying squad of mobile credit officers who took finan-cial services to the farmers rather than waiting for them to cometo a fixed and often far away site for such services. The conceptof “a bank coming to the clients” helped overcome the trans-portation problem frequently faced by farmers. During four yearsof implementation, with only 42 staff, AFC approved a total of $43million for 2,860 sub-loans including reflows, and the repaymentrates remain high at around 93 percent. The loans made at mar-ket interest rates offered both in Lat and US $. AFC was subse-quently merged with a commercial bank in Latvia and continuesto serve the rural population today.

RDP, approved in 1998, supports a wider range of rural entrepre-neurs and was aimed at helping the Government to build its ruralpolicy making capacity for EU membership. A particular innovationwas the “Special Credit-line” with government subsidy of a match-ing grant for small-scale farmers and rural entrepreneurs borrowingfor the first time. First time borrowers received a small portion ofthe loan in grant form, once they had repaid their loan amount infull. To date, some 1,300 of these small loans, each for a maximumof $4,000 equivalent, have been made. The bulk went to a widerange of rural entrepreneurs, including rural tourism, hairdressers,tailors, doctors, and other rural service providers with only 20%going to farmers. RDP also successfully introduced participatoryapproaches to rural development by creating Local Action Groups(LAGs). Two leaders of LAGs in Latvia received a United NationsAward of Excellence for community-led development. Repayment per-formance continues to be good, at around 98%.

3.9Latvia -Agricultural DevelopmentProject (ADP) and Rural DevelopmentProject (RDP)

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smooth their consumption and support their eco-nomic activities. They have been able to overcomelack of collateral, and often achieve high repayment.However, their spread into less densely populatedareas is limited, and their role in agricultural andterm credit almost negligible. New approaches tocrop and livestock insurance are being based onreadily monitorable indicators such as rainfall andcommodity prices, though coverage so far is limited.Information technology and credit scoring areenabling commercial institutions to better reachsmall enterprises and lower-income clients, thoughmore in urban than rural areas.

The Bank Group will continue to support credit inrural areas to farm and non-farm enterprises wheremarket failures inhibit the flow of liquidity, whileobserving sound market development approachesand discipline in financial intermediation (Box 3.9).The Bank recognizes that there are many suppliersand demanders for rural finance, and a range ofmechanisms. Strategic priorities for rural finance are:

Pursue a proper enabling environment for theprovision of financial services. Policy reform forthe financial sector is a high priority for manycountries.This may include removal of supply anddemand constraints, privatizations and contractmanagement for state owned financial institutions,and appropriate licensing and supervision of awider range of financial institutions. Good com-mercial laws and effective enforcement are nec-essary for all providers of financial services.Communication and infrastructure services facili-tate the supply of efficient financial services.

Support the development of efficient, viable finan-cial institutions and products.The development offinancial markets requires viable financial institu-tions.This often involves improved management,organization, and human capital of the financialinstitutions. Development of financial instrumentsis important as well. Generating local savings is asuccess factor, both in providing services to thepoor and in providing a sustainable source offunds for investment. Institutions with activitiesdiversified over various sectors can better copewith agricultural risks than agricultural develop-ment banks.The Bank Group will support capac-

ity building of private institutions by helping themto overcome market failure and providing publicgoods. Matching grant-based programs are oftenneeded.The Bank will develop good practices inusing matching grants.A basic requirement for theway grants are given is that they enhance and notdestroy market development.

Promote investment in social and economic infra-structure. A new focus on capacity building facili-tates greater access by lower-income and poorerclients through training in business culture andfinancial management skills, building up businessdevelopment services, assistance in group forma-tion and in the creation of viable savings andcredit associations. Alternative interventions maybe needed for extremely poor clients and com-munities that lack an adequate economic base forcredit and financial institutions to succeed. TheBank will work flexibly with poverty-focused pro-grams to develop packages of grant, credit, andsavings-based programs that are suited to the cir-cumstances and economic potential of clientcommunities, while pursuing the discipline needed for viable financial institutions.

The Bank will develop indicators of access to finan-cial services in rural areas and financial performanceof intermediary institutions, and monitor progress.Basic knowledge about the relation between reduc-tion of rural poverty reduction and the role of finan-cial services is still thin. Consequently, knowledgeabout effectiveness of interventions is limited. Forthis purpose, the Bank will produce a strategic paperto fill these knowledge gaps.

SUPPORTING EFFECTIVE INSTITUTIONSAND GOOD GOVERNANCE FOR RURALDEVELOPMENT

Good governance and institutions are needed tosupport rural development. Empirical analysis hasconfirmed that poor governance significantly lowers development achievements (Kaufmann et al,2000). Similarly, there is increasing recognition thatthe highly centralized institutional structure thatcharacterizes many government administration sys-tems can lead to losses in effectiveness of develop-

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ment investments and policies.An adequate transferof resources must accompany administrative decen-tralization, so that local governments have the fiscalresources needed to carry out decentralized func-tions effectively. Political decentralization is also nec-essary, as it leads to better accountability and gover-nance reforms at the local level.

Improved, But Still Inadequate Governance In the past decade, there has been increasingrecognition among development stakeholders thatgood governance is crucial for achieving sustainabledevelopment and poverty reduction. This recogni-tion brought about improvement in many aspectsof governance in general. However, the speed andimpact of these improvements in governance hasnot been felt as much in rural areas due to thelower average level of education, the lower averagequalification of civil servants, the smaller enforce-ment ability of governments, and more widespreadtraditions of paternalism. In general, several factorscontribute to determine the quality of governancein Bank’s client countries:

Better processes by which governments areselected, monitored and replaced: Moreaccountability and public representation, greatercivil liberties, more political rights, better proce-dures for disclosure, and greater independenceof the media, which serves an important role inmonitoring those in authority and holding themaccountable, lead to more effective public devel-opment activities.

Improved capacity of government to effectivelyimplement sound policies: Such capacitydepends on the quality of services provided bythe public sector, the quality of the bureaucracy,and the competence of civil servants, and theirindependence from political pressures. Higherquality was achieved in many countries byadopting personnel policies based on merit,rules of conduct that entail checks and balances,and budgetary processes that limit waste.

Media and civic organizations have increasinglyexposed and battled cronyism and favoritism, andhave championed non-tolerance of corruption.Allthese improved the ability of a society to develop

an environment in which fair and predictable rulesform the basis of economic and social interactions.

Administrative Decentralization andDevelopment of Effective InstitutionsThe delivery of public sector functions that are nec-essary to achieve rural development in our clientcountries is hampered by the fact that many differentsectoral ministries or agencies operate within ruralspace (for example, agriculture, health, education, pub-lic works, water resources and environment) eachwith a high degree of centralization. Furthermore, theformulation and implementation of effective ruraldevelopment strategies is also hampered by the factthat public administration in the rural sector typicallyhas lower capacity, poor personnel training, and inad-equate budgetary resources, and that rural institutionsgenerally have a low level of transparency, responsibil-ity, and responsiveness to clients.

Experience shows that decentralization offers greatscope for more efficient delivery of public sectorfunctions. Decentralization allows local decision-makers to make better decisions based on theirsuperior knowledge of local conditions and needs,and allows greater local participation in the decision-making process. Local government has a greaterstake at being responsive to local priorities andneeds (especially if elected in some popular or dem-ocratic manner). For that reason, it is more likely toengage in participatory procedures that can identifylocal priorities, and that provide feedback on actualimplementation progress and difficulties.

In recent years, the Bank has increased its emphasison institution building and related capacity develop-ment, with special attention to the Africa region.

Fiscal Decentralization is an EssentialComponent of an ImprovedAdministration SystemFinancial responsibility is a core component ofdecentralization. If local governments and privateorganizations are to carry out decentralized func-tions effectively, they must have an adequate levelof revenues—either raised locally or transferredfrom the central government—as well as theauthority to make decisions about expenditures.Anadequate decentralization of resources is particu-

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larly important for rural development, as it is gen-erally associated with a net increase in the amountof resources benefiting rural areas. Fiscal decentral-ization can take many forms, including: a) self-financ-ing or cost recovery through user charges; b) co-financing or co-production arrangements throughwhich the users participate in providing servicesand infrastructure through monetary or labor con-tributions; c) expansion of local revenues throughproperty or sales taxes, or indirect charges; d) inter-governmental transfers that shift general revenuesfrom taxes collected by the central government tolocal governments for general or specific uses; ande) authorization of municipal borrowing and themobilization of either national or local governmentresources through loan guarantees.

Political DecentralizationPolitical decentralization is also important as it leadsto better accountability and governance reforms atthe local level. Political decentralization aims to givecitizens or their elected representatives morepower in public decision-making. It is often associ-ated with pluralistic politics and representative gov-ernment, but it can also support democratizationby giving citizens, or their representatives, moreinfluence in the formulation and implementation ofpolicies. Political decentralization has a great impor-tance for rural areas in light of the fact that therural people generally have a weaker political voice.Decisions made with greater participation will bebetter informed and more relevant to diverseinterests in society than those made only bynational political authorities.The selection of repre-sentatives from local electoral jurisdictions allowscitizens to know better their political representa-tives and allows elected officials to know better theneeds and desires of their constituents.International experience has shown that when localinstitutions are empowered, within a democraticsystem, they become more responsive to localdevelopment needs and more effective at support-ing a favorable business climate.

The Role of the World Bank in SupportingDevelopment of Effective Institutions andGood GovernanceIn spite of the progress achieved, the institutionalreform agenda in many countries is still far from

complete, and the environment for private eco-nomic activity is still unattractive.The developmentof good rural institutions is of particular impor-tance, since, in general, rural areas have populationsthat are less assertive politically, and often do nothave a tradition of participatory government.

Good public institutions are characterized by trans-parency, accountability, responsiveness to clients,checks and balances, participatory approaches, andconcern for the interests of the disadvantaged.Theyalso practice independent audit procedures forboth financial and substantive affairs and adoptmonitoring and evaluation systems as part of themanagement system.The Bank will encourage gov-ernments to concentrate on the provision of pub-lic goods and on the establishment of supportinglegal, administrative, and regulatory systems thatcorrect for market failures, facilitate efficient opera-tion of the private sector, and protect the interestsof the disadvantaged.

Facilitating further decentralization in rural areas isan important component of the policy agenda out-lined in the strategy, which incorporates futureWorld Bank assistance programs to supportdecentralization efforts in the rural areas of clientcountries. In order to promote the development ofeffective institutions for rural development theBank will support the following actions:

Upgrading local administrative capacity. Localgovernments often lack the skilled staff, equip-ment, and working methods needed to imple-ment complex programs efficiently. A history oflimited funds has deprived local governmentsfrom gaining knowledge and skills in designingand managing interventions.This implies that theBank should support investment in capacitybuilding in a well-coordinated sequence alongwith decentralization.

Transferring responsibility also requires a trans-fer of resources and power. Fiscal decentraliza-tion must accompany the decentralization ofinstitutions and administrative functions. Banksupport for decentralization should include athorough assessment of the likely local financialrequirements associated with decentralization,

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and installing a realistic capacity (and authority)to raise revenue and retain it locally.

Enhancing accountability. Where democracyand transparency have not been traditionallypracticed at the local level, it cannot be takenfor granted that local government is moreaccountable to the local constituency. In suchcases, the transfer of responsibilities, budget, andpower, coupled with the absence of checks andbalances, can produce very undesirable out-comes, where the benefits of public activitiesare captured by narrow interest groups domi-nated by the wealthy and influential, to thedetriment of the poor. Some of the activities incapacity building discussed above could amelio-rate these risks.

Support Participatory Approaches. Participationis the process through which stakeholders influ-ence and share control over priority setting,policy-making, resource allocations and accessto public goods and services. Participatoryprocesses or civic engagement in the adminis-trative process allows authorities to share infor-mation with other stakeholders and therebyincrease the transparency of their decision-making. This in turn will improve governmentaccountability to the people and, as a result,increase the overall governance and economicefficiency of development activities. The WorldBank is increasingly relying on participatoryapproaches as an instrument towards bettergovernance.

Retaining economies of scale in certain govern-ment functions. Training of public employeesand updating their knowledge are easier toaccomplish when they all belong to a centralorganization.The establishment of training cen-ters is not efficient if compartmentalized.Similarly, some procurement and requisitionfunctions are easier and more efficient whenhandled centrally, as well as the development ofmonitoring and control systems. The Bankshould facilitate the improvement and retentionof functions of this nature under central gov-ernment responsibilities.

Involve private sector as much as possible inprovision of public services. Many governmentfunctions can be carried out more effectively by contracting specialized private sector firms and NGOs under competitive bidding. Certainfunctions that need to be performed by publicagencies can be better accomplished if theagencies are organized as financially autonomousentities, capable of securing much of their fund-ing through the recovery of costs from users.This is typically the case with “toll goods” and“natural monopolies” such as water utilities,power suppliers, and land registration and titlingbureaus. Some services may prove too expen-sive for the poor, and require graduated tariffs,direct income subsidies, or targeted vouchersfor the needy. The financial viability of these public service entities requires that commercialand social objectives must be kept separate and distinct.

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There are 900 million poor people living in rural areas in the world today. Ruralpoverty is as diverse as are the rural poor in their livelihood strategies.While acknowledging this diversity, certain common threads can be identified.

In many poorer developing countries agriculture is the principal source of overalleconomic growth and agricultural growth is the cornerstone of poverty reduction.1 Agriculturaldevelopment, however, needs to be undertaken in a sustainable manner.

4ENHANCING AGRICULTURALPRODUCTIVITY AND COMPETITIVENESS 39

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AGRICULTURE’S ROLE IN RURALPOVERTY REDUCTION

Agriculture is faced with fundamental change.Human population growth, improved incomes andshifting dietary patterns are increasing the demandfor food and other agricultural products. At thesame time, however, the natural-resource baseunderpinning agricultural production is under threat,with growing threats to genetic diversity and thedegradation of land and water resources.Revolutionary advances in biological and informa-tion sciences offer great potential to address theseresource constraints. However, making their benefitsavailable to small-scale farmers is a major challenge,especially women with limited access and control ofproductive resources. International trade is increas-ing rapidly bringing with it a set of global governance

treaties and regulatory frameworks whose imple-mentation requires local capacity. How to leverthese shifts so that small and impoverished farmersreap the benefits is a major challenge.

Agriculture employs nearly one-half of the laborforce in developing countries. Indeed, a high share ofrural communities and especially the rural poor aredirectly or indirectly dependent on agriculturethrough farming, food processing, fishing, forestry,and trade. A paradigm shift is underway from agri-culture being an often protected and sometimesclosed sector highly influenced by state interven-tions toward an open, diversified and highly com-petitive sector, tightly interlinked with other eco-nomic sectors and more strongly influenced bymacroeconomic policies.This shift is occurring onlyslowly, however.

To reach the millennium goals of cutting hunger andpoverty, agricultural growth must be put back on topof the development agenda—but ‘business as usual’will not suffice.The dynamic changes now influencingagricultural production, diversification and competi-tiveness require a thorough re-analysis to developbetter ways to support tomorrow’s agriculture.

Given the poverty-reduction focus of the WorldBank, agricultural growth and competitiveness areseen in the context of broad-based rural growthwith the following overall objectives:

improve the income-earning capacity of familyfarmers through improved technology and better access to input and product markets;

boost rural employment creation through com-petitiveness and access to global markets; and

enhance the availability and quality of food produced in rural areas, through increased supply, sustainable production methods, and efficient markets.

Agriculture’s Multiple Contributions toAchieving Development Goals Given the number of poor in rural areas and thechanges in the agricultural sector—all compoundedby the deteriorating natural resource base—the

Cassava is the most important food staple in Nigeria. TheNigerian Roots and Tubers Research Institute in collabora-tion with IITA introduced improved cassava varieties in the1980s that resulted in yield increases of about 30% on50% of the cassava area. Falusi and Afolami, 1999 estimatedthat consumers captured 72% of the benefits of thisresearch through lower prices. In addition poorer consumerscaptured a disproportionate share of these benefits. Andsince poor farmers consume most of their produce, theygained relative to larger farmers.

4.1Distribution of Benefits of EnhancedCassava Productivity in Nigeria

0

2

4

6

8

10

> 108–106–84–62–4< 2

% increase in household income

Income level ('000 Naira)

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ENHANCING AGRICULTURAL PRODUCTIVITY AND COMPETITIVENESS

41

role of agriculture in achieving Bank goals has neverbeen larger. Agriculture impinges on the followinggoals: a) economic growth; b) poverty reduction; c)food security: and d) the conservation of naturalresources. Subsistence agriculture is the ultimatesafety net for many of the poorest rural people.

Reducing poverty through economic growth. Inlow-income countries, the agricultural sector is theprimary engine of overall economic growth, due toits size and its important growth linkages to the restof the economy. Agriculture is by far the largestemployer in these countries, providing 68% of thelabor force and 25% of GDP. In middle-incomecountries the share of GDP falls to 10% but agricul-ture still accounts for one quarter of total employ-ment. Many of the world’s poor depend directly onagriculture for their livelihoods. Increased agricultur-al productivity also provides cheaper food, whichmakes up a high share of expenditures of poorhouseholds (Box 4.1). In addition, an evolving agri-cultural sector creates jobs in agricultural processingand marketing, input supply and consumer productsand services, and indirectly generates jobs for thoseleaving the farm. Finally, for the poorest ruraldwellers, subsistence agriculture often provides asurvival strategy in the absence of jobs, and in theabsence of commercially viable agricultural activity.

Improving food security. Future food and feedneeds are large and expanding, driven by populationand income growth and rapid growth in demand forgrain for livestock feed. Projections by Rosegrant(2001) indicate that unless there is a renewed com-mitment to agriculture through increased public andprivate investment and favorable policies, the long-term trend to lower food prices will not be main-tained to 2020, and millennium targets for povertyreduction and malnutrition will not be met.Agricultural growth also makes important contribu-tions to other dimensions of food security (Box4.2)—access to food (by increasing incomes of thepoor who depend on agricultural production fortheir livelihoods), and utilization of food (throughmore nutritious, higher quality and safer foods).

Conserving natural resources and the environment.Agriculture depends fundamentally on naturalresources and has an important role in their conser-

vation.The deteriorating land and water base in manyregions presents a concern for many producers, andwider public awareness of environmental issues isbringing urgency to conservation issues æ many glob-al in nature. Protecting natural resources and theenvironment will require greater efforts to ensuresustainability of intensive agricultural production sys-tems, and to manage natural resources in less-favor-able and more fragile production environments.

PAST FAILURES AND SUCCESSES INAGRICULTURE: UNDERLYING FACTORS

There have been significant achievements in terms ofglobal agricultural productivity in recent decades.Commodity prices on world markets have shown adecline as a result of productivity gains and theincreased availability of food from industrial coun-tries that subsidize agriculture (Figure 4.1). Rapidtechnological progress in the production of themajor staples across much of the developing worldhas brought impressive results: low food prices,improved farm income, and the generation ofemployment in the farm and rural non-farm sector.

A 10% increase in crop yields leads to a reductionbetween 6% and 10% of people living on less than $1a day, according to a recent study (Irz, et al., 2001). ForAfrican countries, a 10% increase in yields leads to a9% decrease in the percentage of those living on lessthan $1 a day Wheat prices would have risen 34%, and rice prices 41%,more between 1970 and 1995 in the absence of inter-national agricultural research efforts (World Bank, 2001d)The average real income of small farmers in southernIndia rose by 90% and that of landless laborers by125% between 1973 and 1994, as a result of the GreenRevolution (World Bank, 2001d) One percent increase in agricultural GDP per capita ledto a 1.61% gain in the per capita incomes of the low-est income fifth of the population in 35 countries ana-lyzed (Timmer, 1997)

4.2Empirical Illustrations ofRelationships Between AgriculturalGrowth and Poverty Reduction

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Over the past three decades, irrigated area doubledand fertilizer use increased 18-fold, resulting in a 20%increase in per-capita food production. Increasedagricultural productivity and lower unit costs of foodproduction have led to a sharp decline in real pricesof cereals in world markets, providing significant ben-efits to poor consumers. The major ingredients forthis Green Revolution-led growth were publicinvestments in irrigation and roads, public researchon high-yielding varieties, and reliable (sometimesprivate but often public) supply of inputs such as fer-tilizer. Returns on these investments have often beenhigh, especially in agricultural research (often over40%), but variable. However, the yield growth expe-rienced since the 1970s has slowed sharply in the1990s due to diminishing returns to further inputuse, the rising cost of expanding irrigation, a slow-down in investment in infrastructure and research (inpart induced by declining commodity prices), andresource and environmental constraints.

The agricultural development track record in devel-oping countries is rather uneven. In many develop-ing countries, especially in sub-Saharan Africa, agri-

cultural performance has not kept pace with otherregions, and is a major cause of continuing, or evendeepening rural poverty. The sector has been sub-ject to policy and institutional failures, in particular :

agriculture suffers from quantitatively inadequatesupport, excessive taxation, and discrimination inmacro, trade, and industrial policies;

agricultural marketing institutions, particularlyparastatals, providing services to farmers, havebeen inefficient, uncompetitive, and poorly linkedto international markets;

reform of parastatals has been incomplete andsupport to alternative private sector structureshas been inadequate;local and regional markets are underdevelopedand hampered by poor infrastructure, lack ofsecurity, and bureaucratic obstacles;

rural financial systems have failed to stimulateand capture agricultural savings and channelthese into agricultural investment;

Figure 4.1: Index of Global Food Availability per Capita and Food Prices, 1959–1997

REACHING THE RURAL POOR A RENEWED STRATEGY FOR RURAL DEVELOPMENT

42

Food Price Food per Capita

200

180

160

140

120

100

80

60

40

20

0

Inde

x (1

961=

100)

Source: IFPRI & WRI, 2001

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political institutions are weak, both within gov-ernment and in civil society (e.g., farmers’organizations);

insecure property rights have inhibited invest-ment in land improvements; and finally,

OECD agricultural and trade policies have lim-ited market access, depressed world marketprices, caused greater price volatility and inhib-ited processing to add value within poorercountries.

In terms of agricultural development, the majority ofsuccessful examples are found in East Asia. Hereagricultural development created a dynamism inrural areas, which, in later stages, was combined withrapid industrialization.The major lessons of this suc-cess are as follows:

policies must not discriminate against agriculture,nor give it special privileges and agricultureshould be taxed lightly, using the same progres-sivity and instruments as for other sectors;

the economy should be open, employment sen-sitive, and oriented towards smallholders;

the importance of external, including specialtyand niche markets, should be fully recognizedand exploited;

FDI should be an integral part of the agriculturaldevelopment process;

land reform is essential where land is veryunequally distributed;

rapid technological progress is needed, forwhich both the private and public sectors haveimportant roles in research, extension, andfinancing;

rural areas need substantial investment in educa-tion, health, and infrastructure; and

the needs of women, who constitute an impor-tant component of farmers and farm laborers,must be built into programs.

DIRECTIONS FOR FUTURE BANKOPERATIONS IN ENHANCINGAGRICULTURAL PRODUCTIVITY ANDCOMPETITIVENESS

This strategy treats agriculture as the leading sec-tor within the rural economy, with significant for-ward and backward linkages to the non-farmsector. Accordingly, agricultural productivityenhancement is considered as a crucial compo-nent in reducing rural poverty. The strategy rec-ognizes that the production of staple foods is theprimary source of income for many poor ruralhouseholds, but to get out of the poverty trap,diversification into livestock, cash crops, and non-farm activities is essential. In particular for thosehigher value products, experience has shownthat, for sustained development, it is essential tosuppor t backward and forward linkages.Agricultural development induces economicgrowth in other rural sectors by creatingdemand for inputs, and providing materials forprocessing and marketing industries. Experiencehas also shown that agricultural investments aremore effective if they are set within appropriatepolicy and institutional environments with ade-quate infrastructure and market development.This strategy, therefore, puts agricultural growthand competitiveness in the context of broad-based rural growth. In designing future Bankactivities in agriculture, the new strategy incor-porates the successful aspects of the lessonslearned and focuses on the following areas:

provide an enabling policy and institutional envi-ronment and advocacy and assistance for greatermarket access in the global trading system(OECD,WTO);

support sustainable intensification of productionthrough the use of new technologies and scien-tific advances;

encourage, in part through demand-drivenextension services, more efficient use of farminputs and a reduction of post harvest losses;

increase the productivity of water use in agriculture;

43

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support the diversification of agriculture andboost the share of high-value products;

strengthen farmer-to-market linkages;

enhance food safety and address competitive-ness through quality assurance and supply chainmanagement;

apply differentiated strategies to fit various farmtypes; and

support the development of rural physical andfinancial infrastructure2 services.

This agenda expands and refocuses the Bank’sexisting support program for agriculture with a

number of important new features. These includeshifting the emphasis:

from narrow agricultural focus to broader policycontext—including global impacts;

from agriculture to rural space;

from focus on crop and livestock yields to mar-ket demands and incomes;

from staples to high value crops;

from primary production to entire food chain;

from a single farm type approach to hetero-geneity;

from public to public-private partnerships, includ-ing community driven development;

from avoidance of issues to head on approach(biotechnology, forestry, water).

This chapter provides directions along these linesfor both the Bank and client countries. Supportto the preparation and implementation of nation-al rural development strategies is one of the pri-mary implementation thrusts of the strategy,providing detailed programs for agriculturaldevelopment in a national context. In manycases, agriculture will remain the key economicdriver in the rural economy and in reducing ruralpoverty. Agriculture will be reflected in the pri-orities of national rural development plans andcorrespondingly, in the Bank’s country assistanceprogram (which entails dialog, technical assis-tance, and financing). Additionally, to deepen theconceptual framework for agriculture and thepolicy directions of the future, the Bank will pre-pare an agricultural approach paper which willpresent greater operational detail to guide theBank’s future agriculturally-related interventions,with particular reference to scaling-up goodpractice and innovations. Together, these effortswill go a long way towards addressing the“micro” agenda required to support country-level agriculturally related planning processes andinterventions.

The Bank is promoting new models of partnershipsbetween the private and public sectors, through com-petitive and contractual resource allocation schemes,building producer organizations, and providing farmerswith a menu of technology options. In Brazil, Colombiaand Ecuador, national competitive funds have forged newresearch partnerships involving the national researchinstitutes, universities, farmer organizations, NGOs, theprivate sector and foreign and international organiza-tions. Projects in Venezuela, Uganda and Burkina Faso arebuilding the capacity of rural producer and communityorganizations and local governments to contract exten-sion services and monitor their implementation, result-ing in services that are responding to farmer demands,including information on marketing and business man-agement. Several projects are incorporating new tech-nologies, such as research in the new field of genomicsto more precisely target crop breeding in India, andmulti-media approaches with new information and web-based approaches to disseminating information, as inRussia. These models replace the pure public-sector deliv-ery model of the past, which had significant efficiency,relevance, and sustainability problems in many countries.

Agricultural Technology Generationand Dissemination4.3

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Providing the Enabling Environment forTransforming AgricultureDespite much progress in privatization and liberal-ization, many of the Bank’s client countries still donot provide a business-friendly environment for pri-vate investment. Clearly, macroeconomic stabilityand good governance are necessary conditions for apositive investment climate, including a climate that isfavorable to private farm investors.The Bank’s over-all approach to creating a pro-poor rural policy andinstitutional environment is discussed in Chapter 3.

Sustainable Intensification Through theApplication of Science

High Priority to Public and Private Investment inScience and Technology. Most high-potential agri-cultural areas have now reached the limits of landand water resources that can be exploited. Theclosing of that land frontier—not to mention theacute water scarcity in many areas, diminishingreturns and negative environmental effects fromhigh levels of external inputs—means that futuregrowth in these areas will largely depend on knowl-edge.This means that future agricultural growth inhigh-potential areas will be increasingly knowledge-based. The growth in total factor productivity thataccounted for about one-third of growth in thepast will now need to be the major source ofgrowth in the coming decades (Box 4.3).

Therefore, investment in science and technology willplay a larger role in the future, as agricultural sectorsin all regions face increasing land and water scarcity,and greater demand for quality assurance in nation-al and global markets. For very poor countries,increasing food staple productivity remains the mainopportunity for growth and poverty reduction.Science, technology, and knowledge-based invest-ments are also important to support market-drivendiversification into high-value crops and livestockproducts, and for the development of sustainableproduction and marketing systems.Therefore invest-ments need to support traditional research areassuch as crop and livestock breeding (Box 4.4), inte-grated crop management, and crop-livestock sys-tems, post-harvest technology and food safety, aswell as provide new funding for biotechnologyresearch in many countries and regions.

The Bank will continue to support institutionalreforms to promote demand-driven and financiallysustainable national research and extension sys-tems that include public research institutes, uni-versities, the private sector, NGOs, and producerorganizations. Strategic alliances with foreign andinternational public and private research institu-tions, including collaborative R&D activities withCGIAR centers and other global programs, will beemphasized to promote access to knowledge.Innovative financing arrangements will beexplored to develop mechanisms for regionalresearch programs.The Bank will also foster glob-al policy dialogue to ensure equitable access tonew technologies, and continue to provide theleadership and financing to put the CGIAR systemon a sustainable footing as a major provider ofinternational public goods in agriculture.

It will be impossible to achieve the level of researchinvestment needed from the public sector alone.

Projections by IFPRI (Delgado et al, 1999) shown analmost doubling of demand for animal products over thenext two decades. Along with the dramatic expansion ofdemand in developing countries has come major pres-sure for change. Traditional production systems fre-quently cannot compete with intensive, industrial pro-duction systems, especially for poultry, but also increas-ingly for swine, fish, and cattle. New intensive produc-tion systems confront serious issues regarding:

environmental sustainability, especially relating towaste management;animal health, both to maintain productivity and toavoid international spread of disease;food safety for livestock products;genetic diversity and loss of germplasm of localbreeds;animal welfare, a growing concern, at least in indus-trialized countries; and employment standards and conditions for employeesin processing plants.

Meeting the Challenge of the Livestock Revolution 4.4

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Increased private investment in agriculturalresearch is essential. To stimulate that investment,the Bank must contribute to the creation of aneconomic environment wherein the private sectorhas a reasonable chance of obtaining a return on itsinvestment. This requires protection of intellectualproperty rights, input market systems that permitintroduction of new varieties and technologies, andother policy reforms conducive to an efficient mar-ket system.

The Challenge of Biotechnology.The Bank is com-mitted to helping developing countries assess,explore, and safely use new technologies. There isan emerging consensus in the scientific communitythat biotechnology is likely to be a valuable tool inaddressing production and nutritional constraintsand to commodities important to poor producersand consumers.The Bank recognizes that strategiesand priorities for biotechnology will be specific to

individual countries and/or regions, and that bene-fits and risks will be specific to the country/regionin which it is applied. Therefore, where justified inthe context of CAS priorities and tradeoffs, thecentral pillar of Bank approach to biotechnologywill be to build capacity so that policymakers, sci-entists, consumers, and farmers in client countriescan make informed decisions about options for, andrisks of, research and technology release.The Bankwill participate in dialogue with partners on global,regional, and country-specific policy issues and, inselected cases, will provide leadership and leverage.Key issues include access to, and adaptive capacityfor, using proprietary tools and technologies, man-agement of biological assets, assessment of risk, andbenefits in food and environmental safety, especial-ly in regard to biodiversity and genetic integrity oflocal species. Other issues include models of tech-nology transfer, regional harmonization of regulato-ry frameworks, and development of internationalpublic goods.The Bank will look to current interna-tional protocols for guidance on the formulationand implementation of regulations and will contin-ue to contribute to discussions on internationalagreements on bio-safety, intellectual propertyrights, and genetic resources. In this regard, the Bankwill convene a consortium of interested institutionsto assess the status of agricultural science, includingbiotechnology.3 The Bank recognizes the criticalrole of public funding of research and development,including risk assessment and food safety, if biotech-nology is to meet the needs of poor producers andconsumers safely and sustainably.

Promotion of Environmentally Sustainable PestManagement Systems. Excessive use of chemicalpesticides can be a risk to human health and theenvironment. The Bank will continue to promoteintegrated pest management (IPM) systems toreduce the reliance on synthetic chemical pesti-cides. Accordingly the Bank will seek to enhancethe adoption of agro-ecological and biological plantprotection approaches guided by the framework ofits safeguard policies.The promotion of IPM in Bankoperations includes support to technology genera-tion in IPM (for example, through the CGIAR sys-tem and through lending for R&D), support tonational policy reforms (for example, elimination ofpesticide subsidies), and inclusion of IPM in exten-

Mali depends on cotton production as a cash crop for farm-ers and for export revenues. About 90% of the pesticidesimported into the country are used on cotton. In the1990s, due to pesticide resistance and inappropriate usepractices, pesticide costs increased steadily while yieldsremained stable or declined. Evidence of occupational healthproblems and pesticide residues in food was mounting.Based on a comprehensive status report produced by a localresearch institution and a stakeholder policy workshop, aSpecial IPM Initiative was developed. The initiative cutsacross project components and takes a problem-focusedview. Policy reform elements include the expansion of exist-ing participatory farmer training for IPM, the strengtheningof regulatory controls, capacity building for monitoring ofenvironmental and human health impacts, and the adjust-ment of the fiscal and economic incentive framework (elim-ination of hidden subsidies of cotton and food crop pesti-cides, provision of sustainable funding for regulatory andtraining activities through elimination of import dutyexemptions for pesticides).

Mali IPM Special Initiative—AComprehensive Approach to CapacityBuilding and Policy Reform

4.5

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47

sion and farmer education programs. The Bank isupdating its strategy and guidelines on pest man-agement and monitoring IPM implementation inthe lending portfolio.The demand for IPM technol-ogy can be served in research support projects, aswas done in Ecuador and the Uttar PradeshAgricultural Research Project, where comparativelylarge shares of project funding were allocated toIPM through competitive research grants. Anotherapproach in some countries has been to supportthe development of regulatory and economicframeworks to promote IPM (Box 4.5).

An Evolving Concept for AgriculturalExtensionAgricultural and rural development extension pro-grams will be critical to achieving the rural devel-opment objectives. Delivering scientific and techni-cal advances in most developing countries requireseffective extension programs. New approaches inextension services will be important in bringingtogether the rest of the ingredients for successfulproductivity gains in agriculture æ new technolo-gies, modern inputs, credit, and efficiently function-ing product markets. Some approaches need torecognize the specific requirements of small andpoor farmers, while other approaches which aredesigned to serve large and commercial farmersshould encourage the participation of the privatesector in delivering extension services and bebased on joint financing and monitoring amongstakeholders in order to improve efficiency andincrease cost recovery. But extension must bemore than just a delivery vehicle for agriculturaltechnologies. Extension can play an important rolein delivering social services such as information onrural development, business development and mar-keting, and other areas. Key principles in creatingextension systems to accomplish these objectivesare outlined in Box 4.6.

Increasing the Productivity of Water Use inAgriculture Fresh water is indispensable for agricultural pro-duction, yet this input is under increasing pressuredue to population increase and competition withother consuming sectors (Annex 4). It will be agreat challenge to meet growing food demands,which is expected to double during the next 50

years under such water constrained environment.Another challenge is that most of the availablequality land is already brought under irrigation andany further expansion would be in marginal landor at the cost of valuable forest resources.Therefore, future investment will need to focus onimproving the productivity of existing cultivatedland, meaning,‘more crop per drop’ and ‘more cropper land area.’ This would require promoting new

1. Productivity gains in agriculture are essential for reducing ruralpoverty, and technical agricultural extension (for example on adop-tion of new technologies, use of water retention technologies andfertilizers) is necessary to achieve these gains. Generally, demon-strations in farmer fields of new varieties and technologies areneeded to assure widespread and rapid farmer adoption.

2. Technical extension can be combined with information dissemina-tion in other areas such as HIV/AIDS, and especially for women farm-ers, information on health and nutrition. Priorities for extension deliv-ery should be determined and managed locally.

3. Extension services will have to be publicly financed in the poor-est countries. But in many cases they can be privately providedeven though they are publicly funded. Existing and new institutionssuch as NGOs, universities, private firms, and even public agenciescan compete for delivery of publicly funded extension services.

4. Modern information and communication technologies need to beemployed to ensure that most people are reached with a widerange of information.

5. To assure effective management of privately provided extensionservices, local institutions will need to be strengthened to minimizewaste and corruption. In many areas, this will require some assis-tance in developing local institutional capability and in assuring thatthe poor are adequately targeted.

6. As rural areas develop and agricultural productivity increases,some of the extension, especially the technical agricultural part, canmove towards private farmer funding.

7. Periodic review and quantitative evaluation of all programs shouldbe designed into the local operation and management systems.

Source: Alex, Zijp, and Byerlee (2002)

Key Principles in the Design of Effectiveand Efficient Extension Programs 4.6

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policies, institutional arrangements, technologiesand management practices, which lead toimproved water use efficiency and increased over-all agricultural productivity of the already landunder irrigation.To improve irrigation efficiency theBank will focus on: ensuring the integrity of exist-ing infrastructure that can be economically viable(primarily a challenge in low-income countries andin Central Asia); addressing adverse environmentalimpacts; providing demand-driven irrigation toimprove livelihoods of poor producers; and raisingimproving cost-effectiveness (Box 4.7).

Future irrigation projects must be designed in con-cert with agricultural policies and include user -ownership and incentives for efficient and equitablewater use, as well as cost recovery, and transfer ofsystem responsibilities to autonomous private usergroups or water users associations. The Bank willsupport innovations to improve water use efficiency,including, where appropriate, pricing of water, and

shifting from staple food production to higher valueproducts. The focus on the entire watershed,including attention to downstream environmentalimpacts, accountability and transparency mecha-nisms, knowledge and information systems, andmodernization and rehabilitation will help realizethe potential of existing irrigation systems andreduce the need for new construction. New sys-tems will generally be smaller scale, and existinglarger-scale systems will be renovated in conjunc-tion with management improvements. Attemptswill be made to focus management at the greatestlevel of decentralization possible. A poverty focusunderpinning new investments will use irrigationinvestments to increase the assets of subsistenceand small-scale family farmers.The IFC will explorefinancial structures that can attract private financingfor the development of irrigation systems.

Promoting Diversified and SustainableProduction Systems for Expanding MarketsThe food and agricultural systems of today facemore rapid changes than at any time in history.They also face greater opportunities than everbefore.These changes and opportunities are beingmade possible by consumer demands and by theliberalization of markets and trade.

With market liberalization taking hold in mostcountries, the private sector—traders, processors,and retailers—is expanding in many fields, includingtechnology, information, and marketing services.Markets are now the driver for agricultural growth,making cash crops attractive, and allowing special-ization and diversification into new products.Private investment is creating more value addedand employment in rural space, more competitionand thus better services for consumers, farmersand non-agricultural businesses. Technologicalprogress is central to competitiveness and canboost production for markets and promote spe-cialization and diversification. National food mar-kets are rapidly changing with urbanization andmore affluent populations who are demanding aricher, more diverse diet, with higher value prod-ucts. Increases in demand for meat, fruits, vegeta-bles, specialty and processed foods will providenew market opportunities to farmers, especiallythose who have sufficient access to resources, infor-

4.7 Egypt Irrigation and Drainage Program

The drainage program in Egypt represents a long term commit-ment towards growth and sustainability. The shift to a high intensive agricultural production system following the constructionof High Aswan Dam in the 1960s depended largely on a reliable irrigation supply and highly efficient water managementsystem. Adequate drainage has been timely planned and provided to mitigate the effect of the irrigation induced water-logging and salinity. The government of Egypt in a partnershipwith the Bank invested about US $3 billion (in FY2001 Dollars)since the 1970s to provide main and farm drainage systems to 5 million acres. The program is expected to continue till a full coverage of the irrigated area (about 6.5 million acres) isachieved by the year 2017. The government and farmers haveshown great commitment to the program through adopting appro-priate technologies, improving the irrigation system, transferringmanagement to WUAs and adopting a well functioning system ofcost recovery. With remarkable increase of the crop intensity(230%), the yield per unit area of crops in Egypt stands nowamong the highest in the world especially for wheat, rice, and cot-ton. The share of improved drainage accounts for 15-25% of theyield increase. Re-use of drainage water in irrigation guided byappropriate criteria and guidelines contributed to the raise of theoverall water use efficiency to one of the highest in the world.

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mation and skills. The dramatic shift in food con-sumption to urban areas will also place specialdemands on food supply chains, market infrastruc-ture and transportation.

Rapidly expanding export markets are providing anew source of rural growth, especially for middle-income countries and the more commercially ori-ented farmers. Many high-value products such asfresh fruit, vegetables, fish and flowers have createdan opportunity for developing-world farmers tocompete for a share in export markets.Diversification to high-value export commoditiesoffers farmers new opportunities to increaseincomes without increasing farm area. It also offersthem wage employment in processing and packingsites. Another new phenomenon is the fact thatlarge food retailers and processors are increasinglysourcing their supplies globally. As a result, interna-tional trade in high-value agricultural products isgrowing by some 7% annually compared to 2%annually for staple commodities. This expandingglobal market provides exciting possibilities forexport, but it also forces farmers to compete withthe world’s most efficient producers. In addition,the expansion of supermarkets and chain retail out-lets in many developing countries is already havingan impact on national production and market sys-tems. In Latin America and Southeast Asia, forexample, the supply of local commodities to localmarkets is having to compete with globally sourcedcommodities (Box 4.8).To achieve such gains fromdiversification requires adequate infrastructure andinvestment in research and extension.

Growing public awareness of environmental valuesis leading to new opportunities to produce envi-ronmentally friendly products at premium prices.These opportunities include such things as organicproduce, environmental services (such as carbonsequestration or biodiversity conservation), andnew products related to multi-functionality of agri-culture, including rural landscape management.

Coping with these new market opportunities willrequire technologies tailored to specific groups offarmers in more narrowly-defined productionenvironments. The Bank’s agricultural programswill emphasize technologies that promote more

precise use and efficiency of inputs, conservationtillage, and integrated nutrient management.Integrating livestock into small farm systems willprovide a means of recycling nutrients, and createincome generation opportunities, especially forwomen farmers and poor landless people. Forboth extensive and intensive livestock systems,special attention will be given to environmentaland food safety issues. Driven by market liberal-ization, urbanization, and income growth, there arerapidly expanding options for diversification ofagriculture and boosting the share of high-valueproducts, serving niche markets (for example,organic produce, cut flowers), and meeting thefast increasing demand for livestock products. Asindicated by international experience, theincreased focus on export crops does not imperilstaple food production or food security (Box 4.9).The Bank will focus on strengthening private ini-tiatives to export, implement post–harvest initia-tives to improve product quality and reduce post-harvest losses, diversify and develop new prod-ucts, and link poor producers to markets throughsupply-chain management systems and strength-ening producer and community developmentgroups. Public-private partnerships in science and

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Malaysia has achieved success by nurturing its export-oriented cashcrops, namely rubber and oil palm and pursued a three prongedstrategy encouraging rubber production on plantations, the develop-ment of an oil palm industry on small farms, and increasing riceproduction in fertile alluvial river basins. The post colonial govern-ment nurtured the rubber industry by developing rural infrastruc-ture and industry, supporting research that transferred knowledge tofarms and promoting credit and extension programs. The govern-ment also initiated world-class research in oil palm. The export earn-ings from rubber and containment of rice imports provided theresources that kicked off rapid industrialization. Poverty declined andthe Malaysian economy rapidly transformed itself into an industrialnation. In the case of Malaysia, political factors positively contributedto agricultural development since the majority of farmers and thegovernment were Malay while business people were Chinese. The onlyway to avoid income disparities between the two dominant ethnicgroups was to create a prosperous agricultural sector.

Export Oriented Agricultural GrowthBased on Cash Crops:The MalaysianExample

4.8

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technology will be supported to enhance andretain the momentum for competitiveness andsustainability of diversified production systems.Finally, the Bank will assist clients in developingarrangements for product certification (for exam-ple, for organic products).

Strengthening Farmer-to-Market LinkagesStrengthening farmer-to-market linkages is a crucialobjective in promoting agriculture. In implementingthis objective, the Bank will focus its interventionsin ways that maximize participation of the privatesector and impact on poverty reduction:

improving conditions for private investment andthe functioning of markets by helping overcomemarket failure;

improving the performance of agencies provid-ing key public goods and services that underpinthe productivity of agriculture, with a focus oncost-effectiveness, client-responsiveness, andsustainability;

promoting market solutions for service delivery,including co-financing and cost recovery mecha-nisms, where they are efficient and effective forpoverty alleviation;

empowering the poor, especially women,through collective action to profitably partici-pate in markets, manage their risks, and accesspublic services;

promoting selective direct support to groups offarms, farmers, small enterprises, and rural labor-ers, with a high potential for sustainable povertyreduction; and,

promoting supply chain management as a meansto secure market linkage, quality control, andreduction of logistic costs.

Strong producer organizations and community-driv-en groups can help to link farmers to markets andtechnology providers, combined with an enablingenvironment conducive to private investments.The strategy gives special attention to buildinglocal capacity through producer and communityorganizations. In this regard:

Bank lending will strengthen the capacity of pro-ducer organizations to link to markets andaccess technology, as well as provide a voice inpolicy formulation and governance.

Producer organizations will participate in newBank lending in roles ranging from consultationand advice to direct planning and implementa-tion of technology and marketing services.

Trade associations for exporters, processors,seed companies and others will be promotedand included as stakeholders in agricultural sec-tor development and contributors to consulta-tions on policy reforms, project design, and sec-tor development.

New information and communication technologies(ICTs) with lower costs, combined with theincreasing literacy and sophistication of farmers,have the potential to revolutionize rural informa-tion systems, providing more and better informa-

Countries should focus on producing the crops that they can growmost profitably. The International Food Policy Research Institutehas undertaken extensive research on this question. The mainresearch findings are:

Countries that treat agriculture and rural areas favorably tendto do well in producing both food and export crops.Where smallholders shift some land to export crops, they con-tinue to produce high levels of staple foods.Smallholders use their increased purchasing power to improvetheir farming operations overall, not just their export cropoperations.As employment (including hired labor) and incomes rise, childnutrition often improves.

Thus, what matters most for impoverished household food securityis income growth. It rarely matters whether the source of incomegrowth is higher production of food crops or export crops.

Source: International Food Policy Research Institute

Is it better to Focus on Food Crops orExport Crops?4.9

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tion directly to farmers or to extension agents,agribusinesses, and other intermediaries thatserve them. Application of ICTs in rural areas mayincrease the flow of information of all types, andfacilitate market transactions, changes in employ-ment, emergence of new industries, and socialdevelopment.

Enhancing Competitiveness and FoodSafety through Quality AssuranceInvestments in strengthening the capacity of insti-tutions and structures responsible for food safe-ty will play an important role in improving publichealth and facilitating access to export markets.Food safety, especially that relating to microbialcontamination and residues, is a major problemfor domestic consumers and is emerging as amajor issue in international markets. Poor countries need to improve their food sanitationstandards as an integral part of poverty reduc-tion efforts, and if they want to increase access tointernational markets. Food safety typicallybelongs in the public domain, as there are externalities and moral hazards involved.Where capacity exists, it is often good practice torely on private certification and investments,under government supervision. On the otherhand, the introduction of quality grades, in particular if it is linked to brand name develop-ment is a pure private good and should be left to the private sector. The Bank would support its clients in:

identifying the level of assistance in food safetyregulation to provide measures appropriate fordomestic and export markets;

strengthening legal frameworks, regulatory andincentive policy reforms related to pesticides,HACCP training, and food-chain management;

investments in basic hygiene, disease control anderadication campaigns, laboratory capacity forresidue testing, quarantine facilities, and systemsof product traceability; and

preventing the use of food safety issues frombecoming protectionist non-tariff barriers toexports from low-income countries.

Differentiated Strategies to Fit VariousFarm Types:The Transition to CommercialFarming In many developing countries, agriculture is alreadyin transition from subsistence orientation and gov-ernment dominance to a dynamic sector that iswell integrated into markets and has access tomodern technology. However, this transition isincomplete and varies enormously by region andlocality within countries. Most agricultural sectorshave a combination of farm types, with differentneeds for public services and investments. A usefulframework for analyzing different entry points forassistance delineates different farm types by theirasset base and level of access to markets(Berdegué and Escobar, 2001):

Commercial farmers who produce entirely forthe market, and who dominate some cash cropand livestock markets and increasingly someniche export markets, such as cut flowers.Thesefarmers prosper where there is a market-friend-ly enabling environment for private investmentand initiative, especially infrastructure, policiesthat provide a level playing field and protectionof property rights, and economies of scale in theproduction process.

Small producers on family farms who are linkedto markets, but have limited assets. Globally, theyproduce a large share of the developing world’sfood products including rice in Asia, vegetablesfor the domestic market all over the world, andmilk in India and East Africa. These farmers—often poor and operating in both favored andless-favored areas—generally rely on diversifiedproduction systems and may have importantoff-farm livelihood activities. With improvedmarket opportunities, many of these farmerscan build their asset base and make the transi-tion to commercially oriented farming.

Subsistence-oriented farmers frequently oper-ate in less-favored production environments andlack most types of assets.They have varied liveli-hood strategies, often operate outside of themarket and are prone to high levels of povertyand food insecurity.Within this group, part-timefarming is growing in importance accounting for

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a significant share of family income. Many ofthese farmers are also located in marginal areaswith limited infrastructure and few options foragricultural improvement. While many in thisgroup of farmers in middle-income countriesare exiting agriculture, many will remain simplybecause there are few other options.

The transition of farmers between the differentfarming types (Box 4.10) under liberalization offersunprecedented opportunities for small farmers to liftthemselves out of poverty. It may, however, also leadto more differentiation if the economic environmentdoes not enable family farms to become more mar-ket oriented, there is a policy bias toward large com-mercial farms, and if land markets constrain adjust-ment. Farm consolidation and expansion, allowingmore efficient farms to compete, is one way that thiswill occur in regions where good infrastructure anda conducive policy environment favor growth ofnon-farm employment so that less efficient farmerscan leave agriculture. Contract farming and out-grower schemes are other mechanisms for smallfarmers to link to input and product markets, credit,and technical expertise.

The Bank fully recognizes that the farmer is thelynchpin in rural development, and is committed toemploy differentiated strategies toward the variousfarm types to achieve the objectives of this strategy.These strategies are summarized in Table 4.1.

Development of Rural PhysicalInfrastructure and Infrastructure Services Both farms and households need a minimum level ofinfrastructure services to function efficiently. Lack ofsafe drinking water is a major contributor to diar-rhea, a frequent cause of death among children inrural areas.Trade requires transportation infrastruc-ture and services. Markets require information sys-tems. Adequate infrastructure is a sine qua non foragricultural and rural development (see Annex 5).

Despite widespread recognition of the potentialpositive impact of rural infrastructure investments,the availability of transport, energy, water supply, san-itation, and telecommunications services in ruralareas remains limited. A review of investments in 15developing countries reveals wide disparities in infra-structure availability between rural and urban areas(Komives, Whittington and Wu, 2000). Averageaccess to electricity, inside water supply, and tele-phones were two to five times higher in urban areasthan in rural areas. The rural-urban disparity existsacross all regions, except in the case of electricity inEastern Europe and Central Asia. In order toimprove the availability, quality, and affordability of

Essentially farmers have five possible means of improving their economicwell-being: a) get larger; b) become more efficient; c) do different thingson farm; d) engage in non-farm activities; or, e) exit from agriculture.Getting bigger means acquiring control of more land and other assets.Usually this requires efficient land markets and an enabling environ-ment for growth. Becoming more efficient means getting more produc-tive in existing farming operations. Doing that usually requires effectiveagricultural research and extension, efficient input and output markets,good marketing and market information systems, transportation infra-structure, etc. Doing different things (different mix of crop and livestockenterprises) requires some of these same support systems plus farmereducation in the new technologies. Adding non-agricultural activitiesrequires an economic policy environment conducive to new businessventures and a marketing and transport system that permits trade withlow transactions costs. Finally, the choice to leave agriculture and takeup other means of gaining livelihood requires that economic opportu-nities be available outside the farm.

Options for Farming Operations inDeveloping Countries4.10

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The Peru Rural Roads Program Team, through an innovativedesign that emphasized a strong poverty focus, grassroots par-ticipation, and collaboration among key players—the Ministry ofTransport and Communications, the Inter-American DevelopmentBank, the World Bank, and more than 20 NGOs— succeeded inimproving physical access to about 3 million poor inhabitants ofthe rural Sierra. The program reduced the isolation and facilitat-ed the integration of the beneficiary communities. It alsoenhanced economic opportunities and spurred local entrepre-neurship. Over 11,000 km of rural roads were rehabilitated, and32,300 seasonal unskilled, and 4,700 permanent jobs were cre-ated in 410 local road maintenance enterprises. An institutionalcollaborative framework was established to make most of thecomparative advantage of each stakeholder. This innovative part-nership program was one of the recipients of the 2001 WorldBank President’s Award for Excellence.

4.11Rural Roads Help Connect the Poorto Markets: Peru Rural Roads Project

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CommercialFarm Sector

Small,Market-OrientedFarm Sector

Subsistence-OrientedFarm Sector

Strategy

Assistance to develop and employ food andbiosafety regulations and systems for quality assurance,traceability and certification of agricultural pro-duce (labeling, organic certification, fair tradelabel, etc.).

Strengthening of legal frameworks for propertyrights to promote private R&D and secure ten-ancy.

Strengthening producer organizations to repre-sent member interests and promote initiativesin the industry.

Supporting development of diverse and com-petitive agricultural/agro-industrial innovationsystems based on user-financing and privateservice delivery.

Developing an efficient agricultural technologysystem to meet the needs of small farmers.

Supporting innovative communication systems tosupply relevant information on production, mar-kets and alternative crops.

Promoting small-farmers’ organizations to coordi-nate input and marketing needs.

Strengthening of local institutions and organiza-tions that can best support farmers with scarceresources.

Facilitating participatory development of localinfrastructure and technology in collaborationwith NGOs.

Supporting local organizations that hire supportservices to develop market-oriented enterprises.

Enhanced Poverty Impacts

Develop labor-intensive high-value systems to generate employment for the poor.

Increase productivity toreduce food prices for non-tradables.

Broad-based growth to generate income for small-scale farmers.

Increase productivity toreduce food prices for non-tradables.

Introduce participatoryresearch and extensionapproaches to build humanand social capital necessary to address wider problems.

Identify niche commoditiessuch as organic produce that are labor intensive.

Target investments to poorer regions.

Table 4.1 Strategies for Enhancing Poverty Impacts through Growth of Different Farm Types

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infrastructure services to rural households andenterprises, rural infrastructure constitutes a sub-stantial and growing component of Bank activities.This trend needs to be continued.

Transport and trade are initially the most impor-tant drivers for the rural economy (Box 4.11).Investment in infrastructure is important in reduc-ing the high costs of marketing for small producers.With improved transport services, markets devel-op and farmers and other rural households havethe opportunity to produce surplus for sale, tospecialize in producing those goods in which theyare most productive, and to diversify for distantmarkets. High returns to investment in rural roads,in particular in less-favored areas (Fan, Hazell, andThorat, 1999), reflect the potential of growththrough increased trade. Increased mobilitythrough transport and information also increasesparticipation of rural labor in income-generatingactivities that can add significantly to rural growthand poverty reduction.Therefore, the Bank intendsto provide an enhanced support to clients in theirefforts to improve rural physical infrastructure andensure that the basic physical infrastructure (roads,ports, telecommunication, electricity, drinking water,sanitation, etc.) needed for rural economic growthis in place (Box 4.12). Specifically, in implementingrural infrastructure projects, the Bank will:

support the formulation and implementation ofsound sector policies to enhance the sustainabil-ity of investment programs;

promote decentralized arrangements for pro-viding local infrastructure;

advocate participatory, gender inclusive, anddemand-driven approaches;

facilitate private sector involvement in the pro-duction and financing of infrastructure;

ensure accountability to users in rural infrastruc-ture projects; and

encourage adequate cost recovery and upfrontcontributions from users.

In the early 1990’s the Government of Ghana created the NationalCommunity Water and Sanitation Strategy and Action Plan (CWSP), theproduct of a national policy reform to which all donors signed. Thefirst Ghana Community Water Supply & Sanitation project was intend-ed to support the reform program and complement the existing activ-ities of the central government water authority, which would focus onbuilding larger systems.

The program evolved out of a set of national workshops on improv-ing water supply and sanitation in Ghana. These workshops, whichinvolved stakeholders from all sectors of society, produced a strategyand action plan for reorganizing the development of rural water sup-ply and sanitation (the CWSP). It used the community-driven, demandresponsive approach where rural communities identified their needsand the level of services they could manage and for which they werewilling to pay. The new institutional arrangements included all levelsof government, NGOs, communities, and the private sector to provideand co-manage services.

In terms of impacts, the rural water supply program more thanachieved its physical targets. Beyond that, it increased the capacity ofNGOs, so that they could provide technical assistance for water sup-ply. It also built capacity of small entrepreneurs to supply equipmentfor the infrastructure. The increased competition, created in responseto increased demand from communities, led to a 50 percent reduc-tion in the price of boreholes. The project also made specific achieve-ments in gender representation with women comprising 50% of waterand sanitation committees (WATSANs). In addition, the WATSANs begandiversifying into other areas – such as environmental services.

The follow-on project is helping the government scale up the approachto a national program. Progress began slowly with the first 18 monthsspent working with the government agencies and communities to learnand accept their new functions in the reformed system. Now two yearsinto implementation, the project has taken off and is working simul-taneously in 1000 rural communities. The program is also pilotingcommunity contracts (currently the local government contracts) basedon lessons learned at a World Bank international conference on CDDheld in April 2002. District level agencies manage the program andnow handle most of the procurement for infrastructure – now decen-tralized from the national level, and many districts are supporting theoperating costs for water supply themselves.

Ghana Community Water & Sanitation4.12

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ENDNOTES

1 Two studies that were completed as supporting documents for this chapter provide greater detail on the issues discussed in

this section.These are: Investing in Science for Food Security in the 21st Century, ARD 2001, and Farming Systems and Poverty,

FAO/World Bank, 2001.

2 Rural finance issues are discussed in section 3.3.

3 The consultations will include all relevant stakeholders, will discuss the full range of S&T issues and will not just focus on

transgenic crops.

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Sustainable rural development requires multi-disciplinary approaches to povertyreduction.The agricultural focus is necessary, but not sufficient for sustainable ruraldevelopment (Box 5.1).The Bank’s updated rural development strategy recognizes

the importance of non-farm economic activities, and the essential role of the privatesector in rural development, including rural infrastructure and financial services.

FOSTERING NON-FARM ECONOMIC GROWTH 5

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STRATEGIES TO SUPPORT NON-FARMENTREPRENEURIAL ACTIVITIES

In addition to agriculture, growth of non-farm ruralincome producing activities offers important oppor-tunities to reduce rural poverty. A common featureis the wide diversity of non-farm income sources atthe household level including income derivedthrough mobility of labor markets and remittances.

Many non-farm activities are derived from agricul-ture and natural resource use via upstream ordownstream linkages and they can have importantmultiplier effects (Box 5.2). Other activities areessentially similar to those in urban settings includingmanufacturing, services and commerce. With theopening of markets, many non-farm enterprises willfeel increasing competitive pressure and some willbe forced to adjust or abandon the activity.

To design proper supporting strategies for thedevelopment of the rural non-farm economy,linkages to agriculture and to the process of urban-ization must be fully taken into account. As is summarized by Ashley and Maxwell (2001), theserelations develop according to a four-stage model:

In pre-modern and subsistence societies, charac-terized by high rural remoteness and low urban-ization, the rural non-farm economy is small, andhas only local service provision;

In the next stage, as the agricultural economygrows, the rural non-farm economy is able tocapitalize and expand;

Later, as the urban economy grows and newroads connect rural to urban areas, the ruralnon-farm economy faces new competition andmay decline; and

Finally, in the fourth stage, as the economic andsocial costs of urban congestion grow, newforms of rural non-farm economic activity maydevelop, perhaps benefiting from new outsourc-ing or clustering arrangements, and the uniquecircumstances offered by a rural environment(tourism, etc).

Of course, such a model does not apply every-where and the poverty impacts of increased ruralnon-agricultural entrepreneurial activities are notevenly distributed.Many observers have pointed outthat the relatively high-return activities in the ruralnon-farm economy are usually accessible only tothose with capital or skills, while the low returnactivities are often the only ones open to the ruralpoor. It is essential, therefore, that the interventionsdesigned to support rural non-farm activities

In many cases, policymakers and donors call for more research onmarginal areas as a way of reducing poverty and arresting resourcedegradation. This is appropriate, as the situation is usually complex.In some of the most difficult areas, the rate of gain from improvedtechnology may be very slow. Providing infrastructure, education andnon-farm opportunities may bring earlier, greater and more sus-tainable benefit (to both poverty alleviation and the conservation ofnatural resources) than is possible with agricultural intensification.This is especially true for areas with high production risks and/ora fragile resource base. In addition, there are often substantialspillover benefits from productivity gains in favored areas throughthe operation of labor markets (migration from marginal areas, etc)and food markets (e.g., lowered cost of food).

Source: Renkow 1993; David and Otsuka 1994.

5.1 Rural Development Strategies: MarginalVersus Favorable Areas

Aqualma was established in 1992 to produce and process shrimpfor export in a remote area of Madagascar. The project was sup-ported by IFC. Aqualma has established itself as one of the lead-ing private companies in the country, with exports of US $26 mil-lion in 2000 and a profound impact on the local economy andliving conditions. Aqualma in 2001 has about 1,200 employees,80% of whom were never previously involved in wage-payingemployment. Employees and local villagers have been able to accesseducation and health services through the primary school and clin-ic established by the company. The project has generated manylinkages with small local enterprises during the construction andoperational phases. Future plans include expanding production ona new site, for which a community development plan and a con-servation management plan to protect biodiverse habitats arebeing developed.

Source:: Karmokolias, 1997.

5.2 Rural Non-Farm Investment Benefitsthe Poor: Madagascar Aqualma Project

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include actions needed to enable the poor to over-come entry barriers and allow them to participate inthe more productive aspects of non-farm economicactivities. The informal segments of the non-farmrural economy are especially important for the poorand should also be taken into account when design-ing assistance programs. Strategies to support ruralnon-farm economy activity can be grouped into fourmain types (Start, 2001): a) removing general con-straints to growth; b) facilitating urban-rural links; c)facilitating enterprise growth; and d) sector or sub-sector specific interventions (Box 5.3). Thecreation of an enabling policy and institutional envi-ronment for non-farm entrepreneurial activities isdiscussed in Chapter 3.

SPECIFIC BANK ACTIONS TO SUPPORTRURAL NON-FARM ENTREPRENEURSHIP

The development of effective methods of supportto the rural non-farm economy is an essential objec-tive of the rural strategy. Interventions will focus onstrengthening existing opportunities, seeking newopportunities and removing barriers to entry byrural people to diversified employment and enter-prise activity. Specifically:

Strengthening skills and organization capital.TheBank will help build the labor market and enter-prise development needs of rural communitiesand address the means whereby such capacitybuilding can be offered and accessed. Such skillneeds range from functional literacy and numer-acy, to specific skills in labor markets, and tomanagement and administrative skills for enter-prise development, including market assess-ments and detection of business opportunities.Specific attention will be given to the demandsand needs of women and to the rural poor.Common interest associations, trade and pro-fessional associations and cooperatives will bepromoted. Rural Producer Organizations(RPOs) will be encouraged and supported to beable to perform economic and social advocacy,information sharing, capacity building, and coor-dinating functions and to develop market andnegotiating power.The Bank should support theemergence of these organizations and developworking partnerships with them.

Promote local economic development andinter-sectoral linkages. Recognizing that the sec-toral responsibility for the rural economy fallsbetween many line ministries and private play-ers, the formation of cross-ministerial workinggroups and structures to support the ruraleconomy will be encouraged. These workinggroups need to be fostered at both national andlocal levels and should involve the participationof both public and private sectors. Such groupsat sub-national and local levels should aim toaddress local-level competitiveness and thewider enabling environment of both the farmand non-farm sectors, identify and seek meansto remove barriers (legislative, regulatory frame-works, taxation, infrastructure, financial institu-tions, etc) and address opportunity creation forthe community and the private sector.

REMOVING GENERAL CONSTRAINTS TO GROWTH; FACILITATING URBAN-RURAL LINK

Invest in transport, communication, education, and healthFacilitate labor movement and remittancesIncrease the flow of market and price information to rural areasSet regulations/standards that facilitate out-sourcing and sub-contractingDevelop rural recreational amenities for the urban populationIdentify options for increasing access to social-business networksFoster local economic development planning, combining ruraland urban administration

FACILITATING ENTERPRISE GROWTH Develop infrastructure in small towns Support producer associations for marketing & sourcingRemove regulatory or bureaucratic burdens on small/mediumenterpriseSupport business advisory services

SECTOR OR SUB-SECTOR SPECIFIC INTERVENTIONSSupport industrial clustersProvide incentives for industry relocationUse concessions to encourage local economic linkages

Source: Start, 2001

5.3 Strategies for Supporting the RuralNon-Farm Economy

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Strengthening the supply chain and product link-ages. Trends in consumer markets, qualityrequirements and competition require betterplanning and coordination of supply chains frominput suppliers, primary producers, traders andprocessors to retailers. Competitivenessdepends on effective and flexible logistics andlow transaction costs in the chain. The role forthe public sector is to create adequate condi-tions for the development of efficient private-sector supply chains and to promote investmentin physical infrastructure, to support effectivesub-contracting systems and quality inspectionsthrough appropriate legal frameworks andenforcement systems.

Support micro-, small-, and medium-scale enter-prises. Lack of a skilled labor force, and lack ofpublic and private services, including financialand technological services, are obstacles for thedevelopment of small enterprises, especially inrural areas (Box 5.4). The Bank will promotesmall rural enterprise development through sup-port for commercial business developmentservices.The Bank will promote efficient serviceprovision through SMEs, in particular, in ruralinfrastructure services.

Recognize and support labor mobility. Migrationand labor mobility are essential aspects of eco-nomic development, employment creation, andpoverty reduction. The Bank will provide sup-port to policies that increase mobility throughinformation on, for example, labor legislation,communications, skills development, andaddressing welfare and entitlements, includingaccess to services, and those policies that mini-mize the potential for social tensions and envi-ronmental damage.

The non-farm sector is an important source ofemployment for rural women. Research inGhana and Uganda has shown that non-farmactivities are linked to falling poverty rates forboth male and female headed households, butthe rate of decline is faster for woman-headedhouseholds. Increased women’s employment inthe non-farm sector is also a direct contributiontowards one of the MDGs.

In most countries knowledge about the rural non-farm private-sector is insufficient for effective devel-opment interventions. Surveys and sector work willbe carried out to obtain better information. For thispurpose, the Bank will include rural specificity insurveys on the investment climate, and to conductmore detailed surveys in rural areas, including ruraltowns.Where relevant, findings will be addressed ina rural section in country Private Sector Strategiesand CAS documents. In preparing rural strategies,surveys will be conducted to assess the investmentclimate, and findings will be analyzed to find possi-ble interventions for improving competitiveness.Outputs can also feed into the PRSP and othernational processes. More work will be done onrural labor markets and policy interventions forenhancing broad-based growth and employmentgeneration, including addressing the relationshipbetween the formal and informal sectors in a diver-sified rural economy. Efforts will be made to identifystrategies strengthening the poverty impact of non-farm private-sector development.

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60

Since 1998 an innovative World Bank project with a rural component,the Kenya Micro and Small Enterprise Training and Technology Project,is using vouchers to enable jua kali entrepreneurs to purchase skillsand management training. As a demand-side instrument, the voucherproject departs from the old approach of supporting public traininginstitutions. Now, diverse suppliers are packaging their services for juakali clients. Skilled craft workers have emerged as the leading providersof training. Local private agencies handle allocation of the vouchers.More than 25,000 vouchers have been issued, 60 percent of them towomen entrepreneurs. There has been a 50 percent increase inemployment and income among training recipients. The project cur-rently subsidizes up to 90 percent of the cost of each voucher, butcost-sharing percentages rise with second and third vouchers. Jua kalinow frequently purchase training without vouchers from providers whohave demonstrated the value of their services.

Source: Riley and Steen (2000).

Kenyan Entrepreneurs Build Marketfor Business Services5.4

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Improving social well-being, managing risk, and reducing vulnerability are key toimproving the quality of life of rural people. These investments will also makesubstantial contributions towards increasing productivity, promoting the rural non-

farm economy and enhancing economic growth. The Bank’s activities to improve socialwell-being and address and minimize the vulnerability of the rural poor will be focusedon: a) improving access to nutrition and health; b) HIV/AIDS; c) increasing access to andimproving the quality of rural education; and d) managing and coping with food insecurityand risk for the rural poor (Annex 5). To achieve these objectives, foster broad-basedgrowth, and enhance the sustainable management of natural resources, the Bank will alsopromote inclusiveness and remove barriers that exclude individuals on the basis ofgender or ethnicity from economic and social opportunities.

IMPROVING SOCIAL WELL-BEING,MANAGING RISK,AND REDUCINGVULNERABILITY 6

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IMPROVING ACCESS TO NUTRITIONAND HEALTH

Disease and illness are frequent consequences ofliving in poverty, while at the same time illness anddisease are leading factors pushing families intopoverty. Communities routinely mention that poorhealth is a characteristic of their poorest members(Narayan et al., 2000). Disease and illness also affectlabor productivity and economic growth. Currenthealth and nutritional status of adults affects partic-ipation in the labor force and the intensity of work-effort. Among children, nutrition and health statusaffect cognitive development and learning abilities.Childhood malnutrition can also affect future labor-force participation and work-effort since it is asso-ciated with increased risks of morbidity and mor-tality during adulthood.

The area of reproductive health—and in particularculture-specific family planning—is essential toachieve the goals of the rural strategy. For example,experience in Latin America shows that attentionto reproductive health care would have direct pay-offs by facilitating increased and effective participa-tion of women in productive activities. Lessonsfrom Bank projects including Ecuador andArgentina indicate that better development out-comes can be achieved if childcare and domesticresponsibilities are considered in projects address-ing agricultural and non-farm productivity.

Rural areas are also the scene of widespread mal-nutrition, which compromises natural immunity andcontributes to disease burdens. In 2000, an estimat-ed 32.5% of children under the age of five in devel-oping countries were stunted (ACC/SCN, 2000).While the global prevalence of stunting hasdeclined considerably during the past two decades,there are still unacceptable numbers of childrensuffering from malnutrition. There is mounting evi-dence that child malnutrition rates are static orincreasing in Sub-Saharan Africa. Micronutrient mal-nutrition also continues to be a significant problemaffecting both children and adults throughout thedeveloping world.

To improve health and nutrition outcomes theBank will:

advocate the interests of the rural poor toensure that government resources for health arenot biased toward urban constituents;

place greater emphasis on improving dietaryquality and micronutrient status (fortificationand supplementation are important strategies tocombat micronutrient deficiencies, howeverplant breeding may provide an alternative sus-tainable and affordable long-run solution);

promote community-driven multi-sectoralapproaches to improving health and nutrition asthese are more likely to yield high returns; and

promote the status of women in rural develop-ment to improve health and nutrition (as pri-mary care-givers, women are key to improvinghealth and nutrition but their ability to invest intheir own and their children’s health and nutri-tion is hampered by their lack of control overhousehold incomes, poor education, and thehealth risks arising from their reproductive role).

HIV/AIDS:A THREAT TO RURALDEVELOPMENT AND FOOD SECURITY

HIV/AIDS is threatening the progress made in thepast 40 years of agricultural and rural development,undermining gains in life expectancy and threaten-ing productivity. The disease is no longer just ahealth problem—it has become a major develop-ment issue, posing enormous challenges to govern-ments, NGOs, and the international community.

Of the 36.1 million people living with HIV/AIDS, anoverwhelming 95% live in developing countries.Thesituation is particularly dramatic in Sub-SaharanAfrica, where approximately 9% of all adults carrythe disease. Sub-Saharan Africa accounts for onlyone-tenth of the world’s population, but nine out often new cases of HIV infection. In nine countries inSub-Saharan Africa,more than 10% of the adult pop-ulation is HIV positive. In Botswana, Namibia,Swaziland and Zimbabwe, 20 to 26% of the popula-tion aged 15–49 is living with HIV or AIDS. Otherparts of the world are also hard hit, however. In India,around four million people are currently infected

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with HIV. Further, it is estimated that by 2010 Asiawill overtake Sub-Saharan Africa in absolute num-bers (Barnett and Rugalema, 2001).The incidence ofthe disease is high in several Caribbean countries,although the spread of the epidemic in LatinAmerica has been slower than in other regions andthe epidemic is concentrated in urban areas.

Although HIV/AIDS has traditionally been regardedas an urban problem, it is gradually being recognizedthat rural communities are perhaps more vulnera-ble to it (UNAIDS, 2001). In absolute numbers,more people living with HIV reside in rural areas.For example, more than two-thirds of the popula-tion of the 25 most-affected African countries live inrural areas (FAO, 2001). Information and healthservices are less available in rural areas than in cities.Rural people are therefore less likely to know howto protect themselves from HIV and, if they fall ill,less likely to get care. In addition, the costs ofHIV/AIDS are largely borne by rural communitiesbecause many urban dwellers, at least in Africa,return to their village of origin when they becomeill. At the same time, HIV/AIDS undermines agricul-tural systems and affects the food security of ruralfamilies. As adults fall ill and die, families lose theirlabor supply, as well as knowledge about indigenousfarming methods. Families spend more to meetmedical bills and funeral expenses, drawing downsavings and selling assets. HIV/AIDS undermines theincentives and the ability to invest in farms, infra-structure and education, threatening futureprospects for rural and national development.

HIV/AIDS disproportionately affects economic sec-tors such as agriculture, transportation and miningthat have large numbers of mobile or migratoryworkers. AIDS reduces productivity as peoplebecome ill and die and others spend time caring forthe sick, mourning and attending funerals.The resultis severe labor shortages for both farm and domes-tic work. Labor-intensive farming systems with a lowlevel of mechanization and agricultural input areparticularly vulnerable to AIDS. The FAO has esti-mated that, in the 25 most-affected African coun-tries,AIDS has killed seven million agricultural work-ers since 1985. Up to 25% of the agricultural laborforce could be lost in countries of Sub-SaharanAfrica by 2020. This is particularly worrisome

because more than one-third of the GNP of themost-affected countries comes from agriculture.According to a recent FAO/UNAIDS study, agricul-tural output of small farmers in some parts ofZimbabwe may have fallen by as much as 50 per-cent in the past five years, mainly because of AIDS.

In East Africa, labor shortages caused by HIV/AIDShave led to a range of farm changes, including areduction in land under cultivation, a decline in cropyields and a shift from cash crops to subsistencecrops. In general, farmers have shifted away fromlabor-intensive cash crops, such as bananas and cof-fee, to subsistence crops that demand less work,such as cassava and sweet potatoes. As a result,incomes have fallen.The impact of AIDS on farmingcommunities differs from village to village and coun-try to country.

The epidemic is tragic and made more so because itis preventable, through education, behavioral change,appropriate public policy, and treatment.The WorldBank has developed an instrument to makeresources available rapidly to countries wishing toimplement their own programs to prevent thespread of HIV/AIDS and to help communities copewith its impacts, including care for orphans. TheHIV/AIDS operations are a core element of theBank’s strategy to support rural development, espe-cially in Africa.The Bank will:

Give high priority to stopping the spread ofHIV/AIDS and helping communities cope withits impacts. Poor households facing HIV/AIDS areless able to cope with loss of labor and are morelikely to dispose of assets to meet medical andfuneral expenses than are more prosperous fami-lies. Governments and development partnersshould target assistance to the poorest house-holds, especially in the period immediately follow-ing death, when families are struggling to reorgan-ize their production systems. Programs managedby communities that allow rural people to designand implement their own approaches are provingeffective when they are linked to local and nation-al governmental structures. As costs of treatmentfor HIV/AIDS begin to fall and access to medica-tion increases, measures should be taken to assurethat rural people as well as urban can benefit.

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Mainstream HIV/AIDS in Bank operations.Because of the catastrophic implications ofHIV/AIDS for African development, preventionand mitigation of HIV/AIDS has been main-streamed into most of the projects in the Bank’sAfrica rural portfolio, either in the design stageor through retrofitting of components. In addi-tion, the Africa region has designed a genericrapid-response multi-sectoral intervention calledthe Multisectoral AIDS Program (MAP) thatmakes resources available through streamlinedapproval procedures to multiple countries insupport of rapid responses where commitmentto addressing HIV/AIDS is demonstrated. A sig-nificant portion of funds flows directly to com-munities to carry out programs of their owndesign under simplified procurement guidelines.

INCREASING ACCESS TO ANDIMPROVING THE QUALITY OF RURALEDUCATION

Education plays an essential role in reducing pover-ty. By enabling individuals and households to har-ness knowledge, increase and diversify incomes,manage risks, and increase social mobility, educa-tion offers the prospect of breaking through thecycle of poverty. In rural areas, education alsoimproves agricultural productivity and efficiency.Skills acquired though both formal and informaleducation enhance farmers’ ability to acquire anddecode market and technical information, selectoptimal cropping patterns, and purchase the rightmix of inputs. Education also plays a critical role infacilitating off-farm employment and economicdevelopment. In addition to the direct impact onincomes, there are significant positive externalitiesthat are associated with investments in education.Most notably, higher levels of women’s educationare associated with lower malnutrition, lower fer-tility and population growth rates, and better childsurvival rates.

There are two educational needs in rural areas.Thefirst need is for general education (primary andsecondary schooling), while the second, more spe-cific need is education for agricultural and naturalresource management.

The following Bank actions are envisaged to pro-mote rural education:

place top priority on achieving free universal pri-mary education;

advocate gender equality in rural education;

advocate quality improvements in rural schools;

ensure that public funds for education are dis-tributed equitably;

encourage greater community participation inrural education;

increase investments in rural secondary educa-tion, particularly in countries close to attaininguniversal primary education;

promote literacy and training opportunities forunschooled rural adults;

ensure that investments in agricultural trainingprograms are in line with current needs; and

support experiments with private delivery ofeducational services.

MANAGING AND COPING WITHHOUSEHOLD FOOD SECURITY ANDRISK FOR THE RURAL POOR

Managing the risks with which rural communitiesand individual residents must cope received onlybrief mention in From Vision to Action.Yet, as clearlyarticulated in the 2000/2001 WDR, an effectivestrategy for reducing poverty needs to enhancesecurity by reducing the risk of natural, financial andhealth shocks and by enabling households to miti-gate their consequences.

Many features of economic development indirectlyreduce the riskiness of rural incomes as they facili-tate growth (Anderson, 2001). For example, invest-ment in irrigation as well as improved roads,telecommunications, and modern banking systemsreduce vulnerability. But there remains a need to

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design and adapt policies, institutions, and invest-ments that directly manage, reduce, or counteractthe risks facing rural residents, particularly thepoor. This need may be evolving with climaticchange and with changing market structures.

In many areas, women have predominant respon-sibility for household food security. Removing con-straints and improving conditions that enablewomen to carry out their roles more effectivelywould promote food security both within thehousehold and outside.

Strategies to Manage and Cope with RiskManagement of risk can be seen as policies orother actions taken to deal with or reduce risksfaced by poor rural households, whereas copinggenerally implies actions after the fact to helphouseholds deal with shocks they have experi-enced.The Bank is promoting a number of policiesand instruments that help in managing and copingwith climatic and financial risks (Box 6.1), yet avoidmarket distortions. Among the new instrumentsbeing developed are a diverse set of financialproducts that are market-based but historicallyhave not been readily accessible to many of thepoor, such as forward contracting, hedging, andpool pricing. The Bank is also exploring means toassist poor individuals learn about and use insur-ance, and to reduce the costs to primary insurersand re-insurers.

Social Safety Net Policies and Strategies toMaintain Food Security. Targeted transfers serveto convey income to the poor and vulnerable.However, such programs face special challenges inrural areas due to the difficulties in defining tar-geting criteria, in collecting beneficiary contribu-tions, and in administering programs in communi-ties with low population densities and undevel-oped infrastructure. Many of the most successfulprograms in rural areas, such as Mexico’sProgressa and South Africa’s Old Age Pension, areadministered in middle-income countries (forexample, Cord 2001b). The poorest countrieswith the greatest need for poverty programs alsohave the greatest need to be selective to avoidcompromising macroeconomic stability or invest-ment in human and physical capital.

World Bank-supported programs and policyadvice are based on the experience that many tar-geted food security programs are more cost-effective than generalized food subsidies. Foodsecurity at the household level is essentially a mat-ter of access or purchasing power. In most situa-tions, cash transfers or the provision of voucherswill allow the recipients to purchase the food theyrequire using normal market channels, although ina few cases, mainly famine situations in Africa, itmay be necessary for outside agencies to trans-port food to remote areas. While food assistance

65

Providing More and Better Information: Accessto reliable information significantly reduces uncertainty in arisky world. Such information relates to markets and weather,as well as technologies.

Insurance: The principle of insurance as a risk-sharingdevice is that, by accepting appropriate premiums from a largenumber of clients, the insurance company is able to pool therisks. New mechanisms for insuring against price risks are beingexplored in a donor-supported initiative operated out of theAgriculture and Rural Development Department of the WorldBank (Commodity Risk Management Program). Such yet-experi-mental price insurance arrangements will operate in conjunc-tion with credit instruments to reduce downside risk to bothlenders and small-scale borrowing producers. To overcome someof the well-recognized problems of traditional crop insurance,the World Bank and several partners are testing novel rainfall-based insurance policies. IFC is investing in a global facility todevelop weather-index insurance in emerging countries andfinancing the establishment of such an insurance scheme inMorocco. The Bank is testing a weather based insurance schemefor poor pastoralists in Mongolia.

Contract Marketing: In many countries, farmers havethe opportunity to reduce price risks for commodities not yetproduced, or for inputs needed in the future, by various mar-keting arrangements. The most important alternatives, from arisk-management perspective, include cooperative marketingwith price pooling and forward contracts for commodity salesor for input delivery.

Income Diversification: This includes a range of crop-ping practices, investments in livestock and non-farm income,and migration that are used to reduce fluctuations in income.Traditional risk coping strategies may also serve this function.

Some Management and CopingStrategies for Risk Related toAgricultural Production

6.1

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may be given to families (as opposed to individuals),such transfers can be a small part of a broader pro-gram aimed at improving nutrition for vulnerablechildren or of health programs for pregnant women.These programs stress food utilization as much ashousehold food security.

Another principle to be emphasized by the Bank isthe strengthening of informal support programsthat build upon traditional rural community struc-tures. While these frequently fail in times of sharedhardship, this shortcoming may be reduced withsupport from a central government.The Bank alsosupports a third form of intervention for smoothingconsumption in times of economic crisis by havinggovernment provide employment in public-worksprograms. Such programs generally allow self-selec-tion by offering wages slightly below market rates.The value to the poor of such programs is notmeasured only in terms of income support but alsoin terms of the benefits they receive from the infra-structure created.

Disaster management. Many disasters have a lowprobability of occurring in any given area, yet incurhigh costs when they occur and, thus, are unsuited toprivate insurance. The Bank supports disaster pre-vention or relief programs, while facing the challengeof designing publicly funded programs that stabilizeincome or consumption without creating induce-ments that encourage excessive risk taking. Forexample, investments in afforestation reduce the riskof flooding.The Bank’s overall Social Protection strat-egy provides guidance that is also relevant to ruraldevelopment (Holzmann and Jørgensen, 2000).TheBank also assists in disaster early warning and hasrecently redrafted its Operational Policies and BankProcedures for emergency reconstruction to clarifyguidelines. An issue that is related to that of disastermanagement is that of reconstruction after conflicts.As with many types of disasters, rural areas may beparticularly vulnerable to devastation, since isolatedcommunities often are targets in insurgencies. It isimportant to understand the involvement of thelocal communities in their own reconstruction.Women have been recognized as critical but ofteninvisible players in post conflict societies. They alsohave been recognized as a force for peace, oftencrossing borders and ideologies.

SOCIAL INCLUSION, GENDER AND ETHNICITY

An important priority of the rural strategy is to helpmake institutions more responsive to the rural poorthereby improving social well-being and reducingvulnerability. One approach includes empoweringrural people through their increased participation inthe work of the Bank.This means that any barriersto inclusion must be removed. Particularly vulnerableto exclusion are refugees, ethnic minorities, indige-nous populations, women, landless and the disabled.

Principles of Bank actions in ensuring inclusivenessare envisaged as:

1. Reforming institutions to establish equal rightsand opportunities for both genders, marginalizedpopulations and ethnic minorities

Advocate legal reforms and regulations thatensure equitable ownership of assets (particu-larly, land and livestock) and user rights (includ-ing water use, forest management) and promoteequal opportunities (labor laws, corporate laws,equal opportunity laws).

Improve rural financing opportunities and mech-anisms for rural women and entrepreneurs andmarginalized groups.

Promote social safety nets and protection for vul-nerable groups.

2. Fostering equal access to resources for women,marginalized populations and ethnic minorities

Promote an enabling environment for ruralwomen and minorities to benefit from new eco-nomic opportunities.

Improve access to markets through improvedavailability of information by ICTs, better infra-structure services, especially transport and com-munication facilities.

Reduce the opportunity costs of women’s timeand energy in carrying out their multiple roles,through investments in water, fuel, transport etc.

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3. Strengthening the political voice of womenand ethnic minorities

Ensure equality of opportunity for women andethnic minorities in community and producerorganizations, and local, regional and nationalgoverning bodies.

Promote leadership training for rural womenand ethnic minorities.

Aligning the rural and gender strategies. The ruraldevelopment strategy of the World Bank is comple-mented by the Bank’s recent strategic document ongender and development.1 Gender disparities inpower and resources, gender-based division of laborand gender inequalities in rights and entitlementscontribute to poverty, undermine economic growthand reduce the well-being of men, women and chil-dren.The strategy calls for gender mainstreaming inthe Bank’s work by working with member countriesto identify gender issues important for povertyreduction and growth and by aligning Bank policies,processes and resources. The Bank’s rural develop-ment and gender strategies support and reinforceone another. It is now widely acknowledged that oneof the critical factors in revitalizing rural developmentis to raise the productivity of women farmers. In mostof the developing world, women do most of the agri-cultural work. Women are also in charge of house-hold food security, yet in some areas are constrainedin their access to, and control of, productiveresources such as land and money.

Decentralized development efforts such as commu-nity driven development (CDD) offer the potentialfor increased community participation and ensuringthe inclusiveness of all groups of society in rural deci-sion making, irrespective of gender, social class, or eth-nicity. In addition to devolving control and decision-making power to poor women and men themselves,these initiatives help communities build social capitalby expanding the depth and range of their social net-works (Box 6.2). Past experience reveals that decen-tralization is not always synonymous with participa-tion and that transparency in decision making and anoversight or review process that does not stifle com-munity initiative is necessary to ensure that all groupsparticipate in decentralized projects.

1. Empower communities: participatory decision making, resources and

authority to implement;

2. Empower local governments: fiscal and administrative decentralization;

3. Re-align service delivery of central government: policy and enabling

environment; information to communities for decision making;

4. Ensure transparency and accountability at all levels;

5. Make it a learning by doing process and build capacity along the

way; and,

6. Commit to long-term reform for the institutional development to take

hold and be sustainable.

6.2Community Driven DevelopmentPrinciples

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ENDNOTES

1 Integrating Gender into the World Bank’s Work: A Strategy for Action, January 2002

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ENHANCING SUSTAINABLEMANAGEMENT OF NATURAL RESOURCES

Natural resources provide fundamental support to life and economic processesin rural areas. Many of the natural resource issues have already been treatedin chapters 4–6, but this chapter adds some additional important

considerations related to the objective of enhancing sustainable management of naturalresources (see also Annex 6).

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THE BANK APPROACH

Soils are the foundations of agriculture, forests helpto protect water sources and provide income formore than 1.6 billion people, and water is essentialfor human life and agriculture. Biodiversity is thebasis for protecting and improving all domesticplant and animal varieties and safeguards foodsecurity. Inappropriate use of these resourcesthreatens rural livelihoods and creates formidablenew challenges, such as global warming.The degra-dation of the natural resource base affects the poormore than others, as they tend to rely on morefragile natural resources for their livelihoods.Sustainable natural resource management and agri-culture are generally quite compatible. Decisionson the use of natural resources are not made bygovernments or international organizations, but aremade daily by millions of farmers and rural inhabi-tants. In particular, women’s indigenous knowledgeof seed selection and preservation, medicinal andother special use of plants as well as geneticresources for food and agriculture makes themessential to the process of conserving agro-biodi-versity. Policies that do not consider the roles ofwomen and indigenous groups in NRM can resultin inefficiencies and non-compliance in policyimplementation.

The Bank’s recently developed environment strat-egy, the forthcoming water and forestry strate-gies, and the 2003 World Development Report(Sustainable Development in a Dynamic World),give overall guidelines in approaching rural naturalresource management (NRM) issues, and set theframework for linking rural development and theenvironment, as well as forest management. TheBank’s specific objectives in relation to rural devel-opment to improve the sustainable use of naturalresources include:

Reducing land degradation;Improving water management;Promoting sustainable production of forestproducts while protecting the environment;Supporting sustainable fisheries resource man-agement; and Incorporating global warming into rural devel-opment planning.

This strategy promotes an innovative approach toNRM based on ecosystem management. Thisapproach provides an opportunity for the Bank torespond to the lessons learned from past Bankexperiences in NRM and issues that have beenraised in Bank reviews of the NRM portfolio. Bothobjectives can be met by adopting an integratednatural resources management approach that opti-mizes the use of the natural resource base to meetagricultural productivity goals, protects the long-term productivity and resilience of naturalresources, and meets communities’ goals. (Izac andSanchez, 1999).These goals would include the wel-fare of future generations, poverty reduction andenvironmental conservation. This approach avoidsdealing with strategies that address the principalresources individually; rather it will focus on inter-actions between soil, water, solar energy, and plantand animal germplasm. For example, bad forestrypractices will have an adverse effect on water sup-ply and lead to land degradation. Land conversionfrom agriculture to urban use puts greater stress onmarginal zones that in turn leads to conversion offorests to agriculture and further erosion. Also,there is a confirmed relationship between femaleilliteracy and population growth, the latter being asignificant driver of rapid deforestation throughoutvarious ecoregions. All of these, in turn, haveadverse impacts on biodiversity. However, at theoperational level, natural resource managementstrategies will be broken down into manageableinvestment, institution building and policy pro-grams/projects, often at the single-sector level (forexample, forestry or water supply, fisheries, energy,or environmental protection projects).

FUTURE BANK ACTIONS

The Bank’s current natural resource managementportfolio includes three distinct types of projects, aswell as several combinations, each of whichaddresses technical, institutional and policy con-straints, as well as different implementation chal-lenges. Some projects combine production andconservation, or conservation and institutionalobjectives (Box 7.1).Virtually all have some institu-tional development component. By and large, theprojects were designed to: (a) promote sustainable

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agricultural, forestry, and fisheries developmentand/or water resource use through the use of envi-ronmentally sound resource management tech-niques; (b) conserve or protect specific ecosystemsand associated biodiversity (such as national parksand wildlife reserves); and (c) strengthen nationaland/or sub-national institutional capacity to achieveimproved NRM.

The strategy proposes future investments with thepotential to promote interventions and policyresponses to the major market and government fail-ures that are at the root of natural resource degra-dation.These investments will ensure the successfulapplication of the framework described above forintegrated natural resources management programsat the landscape and watershed level.

Under the revised strategy the Bank will supportcapacity building for the integration of indigenousland, water, forest, and biodiversity managementmethods with scientific knowledge, and the dissem-ination of the resulting knowledge to producers. Atthe community level, investments will also be madeto promote appropriate incentives for community-driven resource management programs. The Bankwill also promote incentive systems that influencehow resources are used by strengthening or estab-lishing property and tenure rights, removing gov-ernment-induced distortions, and piloting newmechanisms to deal with market failures, such assystems of payments for environmental services.

Specific investments in technical interventions forland, water, forest, and biodiversity will be directedas follows:1

Investments in land and water will be made tocover a number of crucial interventions suchas the restoration of soil structure and chemi-cal content, reducing the flow of water andwind over land surfaces, and reducing the min-ing of soil nutrients and carbon through recy-cling, fertilizer use, and crop residue manage-ment. Investments will also be considered toimprove the management of water quantityand quality within a watershed-managementcontext (upstream-downstream demand com-ponents), as well as investments in the devel-

opment of additional water supplies. An irriga-tion and drainage business plan will be pre-pared as part of an agriculture and foodreview paper in FY03.

With regard to forests, significant investmentswill be targeted toward scaling-up collabora-tive forest management and promotion of for-est products. Catalytic investments for sustain-able harvesting and forest management will beconsidered, but only in situations that havebeen independently verified or certified.

With regard to biodiversity, the promisingareas of future investment are in the conser-vation of the genetic variation within speciesand populations for crops and livestock, con-servation of the number of species for subsis-tence and cash income, and habitat preserva-tion, especially in modified habitats (farmland,rangeland and forests). Other potential areasfor investment are to promote synergiesbetween biodiversity conservation and agricul-tural development.

Highly satisfactory results (outperforming the average of theBank, with 90% satisfactory development objective, of which 17% highly satisfactory, compared with, respectively,89% and 4% for the overall rural portfolio) have beenobtained in the areas of community driven rehabilitation ofdegraded watersheds. The Bank’s OED rated 92% of the 42watershed development projects completed between FY90 and FY99 at least satisfactory in achieving their developmentobjectives. Projects such as the China Loess PlateauWatershed Rehabilitation project reduced erosion by 20-30 million tons annually, and improved the income of the poorest households by an average of 20%. The combined impact of project and non-project activities benefits6 million people and protects over 5.5 million hectares offorested land. Common key factors of success include high government and community ownership. Other examples of successful watershed development programs include theEastern Anatolia Project in Turkey and the TunisiaNorthwest Rural Development Program is anotherpositive example.

7.1Good Practice in WatershedDevelopment

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Investment in the area of climate change must beassociated with agriculture’s role in cost-effectiveapproaches for reducing greenhouse gases.Investments should be in three key areas: a) mitiga-tion of greenhouse gas emissions; b) reduction ofvulnerability and adaptation to climate change; and c)capacity building to promote and implement thesethemes. Actions would include: i) better manage-ment of agricultural soils, rangelands and forests; ii)improvement in the efficient use of fertilizer; iii)restoration of degraded agricultural lands and range-lands; iv) improving ruminant digestion through bet-ter feed; v) improving rice farming to reduce theamount of methane escaping into the atmosphere;and vi) slowing deforestation by reducing slash-and-burn agriculture and establishing appropriate treeplantations (CGIAR, 2000).

The World Bank has a long history of involvement inthe fisheries sector, focusing in the past on fisheriesdevelopment assistance intended to increase pro-duction and provide critical infrastructure. However,by the 1990s, experts confirmed that roughly two-thirds of the world’s major marine fisheries had beenfully or over-fished, and their exploitation is becom-ing less and less economically viable. Given theseadverse trends affecting marine fisheries throughoutthe world and the fact that 95% of the over 30 mil-lion people engaged in fisheries live in developingcountries, consensus clearly emerged that govern-ments and communities need assistance to sustain-ably manage fisheries resources. In response, theWorld Bank is now focused on strengthening coastaldeveloping countries’ capacity to sustainably managetheir fisheries sectors, through:

capacity-building and technical assistance for sus-tainable fisheries resource management, includ-ing support for reduction of fishing capacity, andinstitution building to improve the effectivenessof our client countries in international negotia-tions on fishing rights, fees;

coastal rural development, particularly the cre-ation of additional economic opportunities forartisanal fishermen; and,

assistance to encourage aquaculture production.

This strategy is currently being articulated in aFisheries Approach paper and is being implementedon a ‘pilot’ basis in several countries in East Asia,Latin America and West Africa, through technicalassistance to help improve these countries’ policyframework for fisheries management. The WorldBank expects to continue to learn from theseefforts in order to increase its own portfolio andcapacity for sustainable fisheries management andto respond to the growing demand from develop-ing countries around the world.

As critical as the investments in land, water, biodi-versity and climate change is the investment inhuman capital. Reducing the mining of soil nutri-ents and carbon through recycling, fertilizer use,and crop residue management demands trainingand education of the rural poor.The promotion ofsustainable forest products means the involvementof the men and women who harvest and marketnon-timber forest products. Investment in naturalresources requires an understanding of how ruralpeople use those resources and benefit from them.It means a respect for local knowledge. The Bankrecognizes the importance of investment in thepartnership of human and biological resources ifsustainable rural development is to be achieved.

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ENDNOTES

1 Some of these investments will be supported by the Global Environment Facility (GEF).

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IMPLEMENTING THE STRATEGY:KEY THRUSTS AND CHALLENGES

The previous chapters outline a framework and objectives for revitalizing Bankactivities to reduce poverty in rural space, which was endorsed by clients (Box 8.1). The four implementation thrusts discussed in this chapter outline

an agenda which enables the implementation of the strategic objectives of Reaching the Rural Poor. These thrusts are firmly embedded in the six regional strategies,reinforce and add incrementally to the value of global, regional, and national programs,and take into account the key constraints and lessons learned during theimplementation of From Vision to Action.

875

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THRUST 1—INTEGRATING THE NEEDSOF THE RURAL POOR IN NATIONALPOLICY DIALOGUES

One of the main characteristics of the developmentprocess, advocated by Reaching the Rural Poor, is itsstrong client-driven nature in national policy making.However, this policy making process often still has apro-urban bias. Redirecting national attention to theplight of the rural poor will only occur through inter-nal advocacy within the World Bank and moreimportantly in individual country capitals.The expe-rience of From Vision to Action shows clearly thatunless there is broad country ownership of the rec-ommendations, there will be little impact on thecountry programs. Under Reaching the Rural Poor thefocus will therefore be on fostering strong advocacyprocesses in the client countries. This can best bedone through support to the preparation of client-owned and client-driven national rural strategies and to enable client country institutions to betterarticulate and advocate the needs of rural inhabi-tants, and specifically, the rural poor. To have animpact such processes must be aligned with, andintegral to, national development strategy processes(for example Poverty Reduction Strategy Papers andnational development plans), and be supported byBank diagnostic, analytical and strategic documents(Poverty Assessments (PAs), Country EconomicMemorandums (CEMs), Country AssistanceStrategies (CASs), Country Gender Assessments(CGAs), etc). The principal focus of this thrust is tostrengthen the voice of the rural poor, in nationalprocesses for strategy formulation. This would beaccomplished through two related activities:

Rural institutions in client countries will be sup-ported in preparing broadly owned nationalrural development strategies focused on ruralpoverty reduction.To do so, the Bank will partnerwith all stakeholders involved in rural space; i.e.,organizations of producers, women’s organiza-tions, local NGOs, line ministries, academic insti-tutions, and the private sector, to support bothadvocacy and policy processes by nationalsthrough, for example, the organization of stake-holder workshops and consultation processes,the preparation of policy notes, undertaking diag-nostic, analytical and strategic work on rural issues

focused on poverty reduction. The Bank willencourage a holistic approach reflecting the multi-sectoral dimension of sustained rural povertyreduction. Such national rural developmentstrategies and associated policy and analyticalwork by nationals should be integrated into thenational processes and will be the key drivingforce in bringing the attention of Ministries ofFinance and the Bank’s Country Directors andCountry Teams back to rural development.Whensuch work is done by nationals, local ownership islikely to be enhanced.

Bank staff will support the national rural develop-ment strategy formulation processes, as well asprovide analytical work to acquire a better under-standing of the rural areas in client countries.Thiswould be done by supporting the enhancementof the rural aspects of Poverty Assessments,Public Expenditure Reviews, and the preparationof Rural Policy Notes. Such an improved Bankanalytical platform will be a condition forimproved decision making on resource allocationin rural space, more effective advocacy by bothrural representatives in client countries and mem-bers of the Bank’s rural staff, and in discussionswith other development partners.

This thrust is therefore envisioned as one of the keyactivities at the country level. Backing of nationalprocesses for the rural strategy formulation (Box 8.2)is the overall priority in this regard, and its supportiveanalytical work will concentrate on up to 12 coun-tries or themes per year. In selecting the countriesand themes, priority will be given to those with: a)widespread rural poverty; b) opportunity for impact,i.e., focus on countries with an overall policy environ-ment and rural development policy conducive topoverty reduction in rural space or willingness toestablish such policy; c) windows of opportunity forinfluencing the CAS, PER, PRSP, CGAs and othercountry-driven processes to ensure maximumimpact, accepting that there are many opportunitiesto ensure increased attention and improved qualityof decision making in country and donor-agencyprocesses; and d) opportunities to translate the ruralpoverty strategy into increased lending, learningthrough pilot operations, and/or close cooperationwith the other development partners. This thrust is

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based on the regional strategies.This initial group ofcountries in which national rural development strat-egy work will be focused does not exclude similar,though probably less intensive work in other coun-tries.The Bank will provide support for the develop-ment of improved rural development strategies inany client country requesting such assistance throughthe country assistance strategy process.

To take this thrust forward with the necessary levelof commitment and funding requires enhanceddonor collaboration to ensure coherence of work atcountry level following the principles of CDF withinthe rural space. Donors need to support theincreased national dialogue on rural development atnational and local levels, and undertake essential andsupportive analytical, diagnostic and policy work.Theinputs required from the Bank and its partners toassist the national rural policy formulation process

will include consultancy contracts with key stake-holders for the preparation of rural poverty-reduc-tion-focused strategies and key policy notes, and theorganization of national workshops and media con-tracts. For the economic and sector work, it mayinclude critical Bank or consultant staff inputs. TheBank will build upon its existing global and nationalalliances with other development partners to sup-port this effort.

Within the Bank, the Agriculture and RuralDevelopment Department will work with internalunits and external partners to provide training forBank-wide staff to help them acquire the necessaryexpertise in rural poverty reduction for both oper-ational and analytical work and the preparation ofenhanced tool kits and guidance and training materi-al for pro-poor rural development.A gender dimen-sion will be included in training materials.

Both the corporate and regional strategies reflect inputs based ona broad set of outreach activities and consultations conductedover eighteen months (see Annex 2).

The holistic approach towards rural development and theincreased focus on poverty, vulnerability, risk mitigation, and socialissues has been endorsed in consultations with the Bank’s stake-holders. There was widespread agreement among the stakeholderson the continued emphasis on agriculture in the new strategy. Atthe same time, the stakeholders endorsed the Bank’s holisticframework for rural development within which agricultural devel-opment will take place, including activities to promote a vibrantnon-farm economy; an increased role of the private sector, andsocial sector services. Some of the new directions for Bank oper-ations have also been strongly supported by the stakeholders.These included support for decentralization; community-basedimplementation; and increased flexibility in project and programdesign and implementation. Other issues emphasized by stake-holders included increased attention to political economy and gov-ernance, conflict and disaster management, and institutional devel-opment and capacity building.

There were requests that the new strategy should give consider-ation to the diversity of conditions among countries (and espe-cially inside large countries) and the heterogeneity of the poor.

There were strong calls for assistance in the development of coun-try driven rural development strategies and the underpinning eco-nomic sector work to support national processes, including thePRSP, and to raise advocacy at national levels. The importance ofthe human factor was emphasized, in terms of demographic trendsand their impacts, migration from rural areas to urban areas aswell as migration within rural areas, and education of rural peo-ple. While the increased emphasis on the private sector wasendorsed, the continued role of the public sector was also under-scored. It was felt that the previous Bank strategy did not prop-erly elaborate the new models for public/private partnershipwhich are required for rural development to succeed. Stakeholdersemphasized the need for the rural strategy to highlight Bank sup-port of the private sector, especially where rural SMEs and agro-processing development are concerned. Land reform and land pol-icy reform are important issues across all regions, and the activeparticipation of the Bank in this process is expected, beyond theefforts outlined in the previous strategy. The consultations con-firmed that natural resource management issues need attention.In this regard, smaller projects and community based implemen-tation was emphasized. It was clearly apparent from the consul-tations that stakeholders expect the Bank to implement the strat-egy in a more client-specific, more flexible, simpler, less bureau-cratic, more “bottom-up” fashion, and be more accepting of localexperience and expertise.

8.1Client Views on the Strategy

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Unlike From Vision to Action, where financing couldnot be strategically and systemically sustained, thisprogram will be supported by annually earmarked(“off the top”) funding, in part already secured by aspecific allocation by the Agriculture and RuralDevelopment Sector Board from the FAO/CPresources, and partly by a reallocation of thedepartmental budget. This will supplement Bankallocations made by the regional departments.Moreover, by not restricting the actions to a limitednumber of focus countries, as was done under FromVision to Action, but by opportunistically supportingkey activities at the national level in a variety ofcountries, a greater impact can be expected.

THRUST 2—SCALING-UP INVESTMENTSAND INNOVATIVE APPROACHES INRURAL DEVELOPMENT

The Millennium Development Goals will not bemet if greater numbers of rural poor do not havedramatically increased access to resources forproven investments. Reaching the Rural Poor willtherefore give particular attention to identifyingand scaling-up good-practice investments to otherregions within the country, to other countries, or toother continents. Recognizing that there are defini-tional issues surrounding the term “scaling-up” andthat more work needs to done to further clarifyboundaries, the Bank proposes as a working defini-tion of scaling up as “increase positive socio-eco-nomic impacts from a small to large scale of cover-age.” Neither the approach or type of interventionto be scaled-up, nor the regions listed are exclusiveand new interventions may be added over time.This thrust recognizes that where appropriateexperience in key development interventions hasdemonstrated to have sustained and positiveimpacts on rural poverty reduction, all reasonableeffort should be made to address wider applicationwithin and between countries and regions.

Scaling-up Rural Investments at theCountry Level Scaling-up good practices must be seen an integralpart of national rural development strategies. Goodpractices are acquired after years of developmentexperience. These should have been piloted suc-

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Alignment with wider national planning processes:provides direct inputs for PRSP; and, subsequently, CAS develop-ment.

Participation for broad stakeholder engagementand ownership: reflects wider moves toward democraticdecentralization.

Diagnosis: good analytical work , informative household sur-veys, review of past policies, understand causal linkages andtransmission, understand livelihood strategies, assets and vulner-ability, understand economic drivers, all these influencing ulti-mate content.

Content: naturally must be tuned to the specific sit-uation of the country but typically:

holistic, covering the entire rural space;

tune strategic options to locational specificity of differentareas;

favor livelihoods-strengthening diversification options formulti-occupational and multi-locational households;

advance market institution development in tandem with lib-eralization steps;

explicitly take on inequality, in assets and incomes, with tar-gets, timetables and concrete measures;

propose measures to take advantage of technical change, rec-ognizing the need for public support to research;

demonstrate that agricultural strategies, the cornerstones ofrural povety reduction efforts;

recognize the importance of investment in infrastructure andhuman capital;

respond to the ‘obligation’ to protect the poor, with cogentsocial protection measures, including for conflict areas and forHIV/AIDS; and,

propose pragmatic steps toward greater de-concentration anddevolution.

Targeted M&E: recognize multi-sectoral within rural anddisaggregation for monitoring (by local communities etc.) andlocal and national planning.

Priority actions: prioritization based on realistic assessmentof institutional capacity, macroeconomic feasibility, governancesituation and the policy environment.

Fostering partnerships: new instruments, sharing, public-private, – civil society organizations etc., fostering intersectorallinkages and coherence.

8.2 Essential Content for NationalRural Development Strategies

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cessfully before being scaled-up. Innovation andpilot projects will therefore be supported as well.Effective intervention must be locally validated andadapted including its socio-economic and genderimpacts. Scaling-up does not mean that the Bankwill apply the same approach everywhere.Innovative methods of learning and informationsharing between countries and among developmentpartners need to be supported. Mechanisms forcapturing, validating, disseminating and adaptinggood practices need to be developed concurrently.

A checklist for readiness for assessing the featuresof a practice and the policy and institutional con-text has been developed (Box 8.3). It will form animportant tool for assessing the readiness of apractice for wider scaling-up and will provide otherdevelopment partners, governments and commu-nities with a better understanding of the state ofthe practice and associated risks and opportunities.The Bank, with its partners and member govern-ments, will assess the fit of good practices withinthe national rural development strategies andprocesses, the PRSP and the CAS.

Broadly, the selection criteria for investments to bescaled-up are based on achieving the highest returnin sustainable poverty reduction per unit of invest-ment. The investments selected should: a) make aclear contribution to one or more of the objectivesof Reaching the Rural Poor; b) cover a large popula-tion of rural poor, which, in some situations, impliesan emphasis on, for example, remote areas, areaswith poor resources and women farmers; c) have alow investment cost per beneficiary so that coun-tries and beneficiaries can afford the requiredinvestment; d) have a good track record in terms ofdevelopment outcome; and e) be suitable for part-nerships with other donors, so that funding can beleveraged. Different weights need to be given tothe individual criteria in each region or country.

The Initial Program for Scaling-Up. The regionalstrategies set out the initial program for scaling-up.In strategy implementation, there will be a continu-ous process of selecting new projects for scaling-up,driven by the regional departments, based on coun-try programs.Table 8.1 shows the first phase in theregion/country good practice scaling-up program.

The selection for consideration in the first round isbased on regional demand and topics where theBank has accumulated solid experience (see alsoChapter 2).This choice is reinforced by the high per-

What is known about impact?

Level of social, environmental or economic impact

Cost of delivery of benefits

Nature of beneficiaries

Timescale

What is known about success factors?

Organizational process and institutional factors

Cultural, environmental and social factors

Characteristics of beneficiaries

Policy and sectoral environment

Technical aspects and inputs supply

What is the “state of practice”?

Innovation – minimal objective evidence

Promising practice – anecdotal evidence

Models – positive evidence in a few cases

Good practice – clear evidence from some settings

Best practice – evidence from multiple settings

Policy principle – proven in multiple settings

What are the organizational strategy options?

Direct organizational growth – internal replication; program expansion

Indirect organizational growth – catalyzing and supporting oth-ers; joint venture

Direct institutional mainstreaming – capacity building; partner-ships; replication by others

Indirect influence – diffuse concepts and models; policy advocacy

A Selected Checklist of Readinessfor Scaling-Up and TakingInnovation Forward

8.3

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Objective

Policy and Institutions

Agricultural Productivity and Competitiveness

Non Farm Rural Economy

Strengthening Social Services and Reducing Risk and Vulnerability

Sustainable Natural Resource Management

Theme

agricultural policy reform development of rural strategiesinstitutional reform and capacity buildingparticipatory planning

land reform and administrationresearch and extensioninformation technology – marketing and knowledgeirrigation and drainagesupport for producer organizations/user groupsfood safety and agribusinessrural finance – including micro finance

rural non-farm economy including business developmentprivate sector role in service provisioninfrastructure, including small towns

health and education: specific rural issuescommunity driven development/district programssocial inclusion, including women and girlscommodity, climate, and disaster risk managementemergency reconstruction

soil fertilitywatershed developmentcommunity natural resource managementcommunity forestryfisheries

Table 8.1: Potential areas for scaling up and innovation

centage of project in the current portfolio that arerated satisfactory or highly satisfactory in BankProject Supervision Reports for meeting theirdevelopment objectives. Annex 7 provides a collec-tion of successful Bank operations in rural areas.

The above list is not exclusive. Other types ofprojects demonstrating success in a particularcountry will also be scaled-up. Scaling-up goodpractices will require: (a) widespread advocacyfrom senior management to audiences beyondthe typical rural constituency, and with specialfocus on Finance Ministries, Central Banks, and theinternational media; (b) special incentives for proj-

ect preparation and supervision, through “off thetop” allocation of the budget of the CooperativeProgram with FAO, to be supplemented by Bankfunds,Trust Funds and partnerships; (c) the devel-opment of a structured learning process and pri-ority funding for knowledge management in theseareas; and (d) working closely with other partnersand clients in the identification and sharing ofgood practice and innovation.

Promoting New and InnovativeApproaches in Rural DevelopmentTogether with the scaling-up of good practices,Reaching the Rural Poor proposes to accelerate

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work on rapid learning in new ways of working andin innovative areas reflecting the dynamic andchanging economic, social, environmental and insti-tutional context of rural development and theincreasing potential for impact of externalities onthe rural poor. These themes are again based onthe demands from the regional strategies andinclude the priority need to develop effectivemeans to enhance multi-sectoral coordination andthe role of the private sector in rural development.The continuum between innovation, good practiceand policy principle is recognized and work oninnovation will be set within and tested against theframework as set out in Box 8.3.

THRUST 3—IMPROVING THE QUALITYAND THE IMPACT OF BANKOPERATIONS

The poverty focus, poverty impact, and sustainabil-ity of the Bank’s operations in rural space all needto be improved.This will require strengthening theunderstanding of the key characteristics of a pro-poor operation, improving sustainability, socialinclusiveness, and maintaining quality standards asset by the Bank’s Quality Assurance Group andOED, and achieving a better development out-come of completed projects. This thrust will havethree components.

Improve the Poverty Focus To improve the focus of the Bank’s operations inrural areas, effort is needed in the understandingof rural poverty and the application of that under-standing in the design of the Bank’s interventions.More specifically, this will include development ofmethods for poverty analysis initiated under thepreparation for Reaching the Rural Poor. Moreexplicit integration of gender-sensitive povertyanalysis and diagnosis in operational strategiesand project design, and the introduction of apoverty-related Monitoring and EvaluationFramework in the project documentation will besought. Poverty learning workshops, and at leasttwo regional clinics or training sessions per yearwill be organized around enhancing the ruralpoverty focus, in cooperation with the WBI andThematic Groups.

Improve the Sustainability andInstitutional Development Impact To improve the current low sustainability and insti-tutional development impact ratings of completedprojects, attention will be given to the identificationof improved procedures to enhance the long-term development impact of Bank rural opera-tions and guidelines on how to assess andimprove sustainability. This will include an initialfocus on financial and institutional sustainability,including institutional development (ID) as keydeterminants of lasting project impact. Beyond this,it will increasingly focus on how the Bank’s ruraldevelopment operations affect overall sustainabilityof livelihoods and poverty reduction in the ruralspace. Methodology for gender mainstreaming willbe included in the sustainability analysis.The guide-lines and standards now being used for sustainabil-ity analysis across the Bank will be improved. Issuesof trade-offs between different aspects of sustain-ability (for example, between environmental andeconomic sustainability), will be addressed. It willalso include the development of toolkits and stafftraining programs, in cooperation with WBI.

Continue to Improve Other QualityIndicators for Rural DevelopmentOperations

To continue to improve the key quality indicatorsfor the strategy’s objectives, such as the quality ofEconomic and Sector Work (ESW), Quality atEntry and Quality of Supervision, the Rural SectorBoard will expand the program for QualityEnhancement Reviews (QERs) and clinics for ESW,Poverty Analyses, Public Expenditure Reviews,Gender and Social Analyses. At least twenty suchevents will be sponsored per year.

THRUST 4—IMPLEMENTING GLOBALCORPORATE PRIORITIES ANDENHANCING PARTNERSHIPS

Increased Involvement in InternationalPublic Goods High-quality, high-impact rural poverty reductionoperations will require continued commitment andsupport to key global public goods in two critical

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areas: first, ensuring that the interests of developingcountries, and thus the rural poor, are safeguardedin an increasingly globalized world; and second,there needs to be ready access to new and appro-priate technology, which in particular is suitable forpoor farmers. Continued support for client coun-tries in dealing with global trade issues is importantin this regard. Support for the Consultative Groupon International Agricultural Research is also animportant component of support to the globalpublic goods dimension of Reaching the Rural Poor.The Bank will also assist client countries in adjustingto the consequences of global climate change as itaffects the rural space and work with colleagues inimplementing the Bank’s Environment Strategy.

Promote Trade Liberalization and WTOProcess Assisting developing countries in the WTO processand other international trade liberalization efforts ishigh priority in the implementation of this strategy.Specific actions envisaged in this area are discussedin Chapter 3.

International Agricultural ResearchThe Consultative Group on InternationalAgricultural Research (CGIAR) researches techni-cal and economic subjects vital to sustainable agri-culture, food security, and poverty reduction.Through these activities, the CGIAR complementsthe Bank’s efforts to enable developing countries torealize their full agricultural technology and pro-duction potential.

The Bank’s current support for the CGIAR is beingbroadened to a multi-stakeholder initiative, includ-ing private industry, advanced research institutions,international research institutes, national agriculturalresearch systems, and civil society, to harnessglobal advances in science and technology for thebenefit of poor farmers in developing countries.This will include:

continued dialogue between the developmentpartners and all other stakeholders, promotedby the Bank, in developing competitive instru-ments and achieving leverage of public sectorfunds for investments in science and technologyfor food security and poverty reduction;

progressively allocating the Bank’s contributionto up-stream research on global public goods,prioritized by share- and stake-holders, and car-ried out by consortia of the most competentinstitutions, under the leadership of the CGIAR.Considerable leverage of the Bank’s currentCGIAR funding could be achieved to increasecooperation and reduce competition betweenInternational Agricultural Research Centers andNational Agricultural Research Systems;

understanding and supporting policy adjust-ments in agricultural practices and technology asa consequence of anticipated impacts of globalclimate change; and,

understanding women’s role in agriculture tomake agricultural research more relevant towomen and other resource poor farmers.

Improving External LinkagesPartnerships can yield major benefits by harnessingthe Bank’s effectiveness in rural development. TheBank has a broad and intensive network of coop-eration and partnerships in activities related torural development. In addition to regular and wellestablished institutional engagements with otherinternational organizations and donors, the Bankhas over 30 rural-related collaborative agreementsand partnerships as of late 2001. Of these, 24 areglobal in nature and seven are concerned with spe-cific regions. The Bank’s Study on PartnershipSelectivity and Oversight discussed by the Bank’sBoard in April 2000, and an OED review (2001), aswell as the new ESSD partnership guidelines, pro-vide a framework for improving partnerships inrural development.

The development of this strategy has provided anopportunity to refresh and improve these rela-tions with the Bank’s traditional rural partners,such as the FAO and IFAD; the bilateral partnersincluding the Netherlands, USA, UK, Germany,France, Canada and Japan; various UN agencies;regional development banks especially with AfDB,ADB, IADB, and many others. The further devel-opment of relations with international partnerswas aimed at improving the distribution of laboramong the various partners based on the Bank

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and the partners’ specific comparative advantages.Coordinated support for the development ofnational rural development strategies, in conjunc-tion with PRSPs and CASs, will be a major focusof the Bank’s engagements with international part-ners. Through enhanced partnership arrange-ments and linkages with others, the Bank will alsobenefit from the experiences of best practice andinnovation and from analytical and policy work.These partners can also strengthen the Bank’scompetence in addressing gender issues in ruraldevelopment. Opportunities will be fostered toalign Trust Fund allocations to the implementationplan of Reaching the Rural Poor and to seek meansto establish multi-partner funding mechanisms totackle key strategic issues.

Collaborative arrangements include formal agree-ments with partner organizations to address con-crete issues in rural development, and/or areformed to implement a time-bound program.These arrangements, in which participating organi-zations allocate resources to achieve specific objec-tives, are considered to be essential components inimplementing this strategy and further enhanceBank effectiveness in rural poverty reduction. Newand revitalized collaborative programs will be insti-tutionalized.These will include enhanced collabora-tion between the Bank and USAID focusing in thefirst instance on global public goods specificallyagricultural trade and markets, environmentalchange including climate change, and science andtechnology; and with the European Commission onbroad-based issues of rural poverty reduction inparticular in support of the PRSP processes andkey thematic programs including land reform andaccess, and community driven development.

Corporate Partnerships are either legal entitiesestablished to address high priority issues, or rep-resent long-term programs between the Bank anda specific institution.They are the most visible com-ponents of the partnerships and high-level institu-tional commitments.

FAO and World Bank Cooperative Program(FAO/CP).The FAO is the Bank’s oldest partnerin rural development. The Bank entered into acooperative agreement with the FAO in 1964,

through which the FAO established and staffeda program to help countries design and prepareprojects and help the Bank with sector work.The FAO/CP has almost 100 professionals whocover a full range of disciplines. The Bank pro-vides 70% of the funding for the CP while theFAO provides the remainder (the Bank con-tributes about $10 million annually). TheFAO/CP resources are allocated among theregions, and the respective sector units develop

8.4An Outline for a Global Platform forRural Development

Mission:To contribute to the elimination of rural poverty and theenhanced economic development of rural areas throughdeepened global, regional and national cooperation andcollaboration

Principles:

Direct participants – development agencies, donorsand IFI

Fosters a range of interlinked formal and informalalliances and activities with stakeholder representatives

Places emphasis on action, flexibility and responsiveness

Light on overheads and bureaucracy

Outputs may include:

Raised awareness and advocacy

Sponsored policy and public debate

Increased levels of investment and development fund-ing including increased co-financing

Joint analytical and policy work on challenging issues

Shared lesson learning in good practice and innovation

Authorizing and enabling environment for relatedalliances

Joint monitoring and evaluation

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their programs with the FAO/CP directly. Thiscooperation is ongoing and both the FAO andthe Bank are aiming for a higher degree of inte-gration of the FAO/CP into core Bank activitiesand in particular in support of the implementa-tion of Reaching the Rural Poor.

World Bank – IFAD Rural PartnershipInitiative. This new partnership aims to build onthe complementary assets of the two institu-tions recognizing the shared commitment torural poverty reduction. It will specifically focuson rural advocacy, knowledge management, scal-ing-up of good practice, and resource mobiliza-tion to address structural issues at both countryand global levels. This initiative will work closelywith the FAO.

New alliances to raise the platform and enhanceglobal advocacy for rural poverty reduction—AGlobal Platform for Rural Development. There isgrowing consensus among international develop-ment partners including the Bank, FAO, IFAD, EC,regional development banks, and major bilateralagencies, that we will not be successful in meetingnational and global poverty reduction targets unlesswe reduce poverty in rural areas. A global under-standing of approaches to meet the needs of therural poor has never been closer, as many of theseagencies have recently taken stock of their pastexperiences and redefined their approaches andcommitment to poverty reduction in rural areas.TheBank will work with others in a broad-based globalcoalition to make the reduction of rural poverty amajor thrust for the coming decade. Efforts haverecently begun to establish a Global Platform forRural Development (Box 8.4). It is proposed thatsuch an alliance be a flexible consortium of interna-tional donors, interested in cooperating on the chal-lenges of rural poverty reduction, acting as advocatesand champions for the rural poor and specifically insupport to the strengthening of the rural focus inpolicy and investment decisions in our client coun-tries. Moreover, it will serve as a platform for jointlearning and identification of good practices.

Improved Links to the Civil Society and PrivateSector. The Bank’s links to citizens groups, producerorganizations, and other civil society organizations

(CSOs) and non-governmental organizations(NGOs) have increased dramatically over the pastten years. Internet websites and information sharingnow provide the opportunity for increased directdialogue and interaction between the Bank andCSOs/NGOs.The consultation process on regionalaction plans and the new corporate framework forthe rural strategy proved to be a valuable and pro-ductive means of enhancing relationships with bothlarge numbers of NGOs as well as with the privatesector across all regions. Improved linkages with theprivate sector in a country framework is among thetop priority objectives for each region. In a rapidlyglobalizing world, links with multi-national compa-nies active in agriculture and which have an impacton rural development are also important. As theprocess of scaling-up of good practice is furtherdeveloped it is anticipated that the CSOs, NGOsand the private sector will play a key role both inthe sharing of good practice and in support to scal-ing-up at the local level.

IMPROVING THE MIX OF INSTRUMENTS

In the past five years, the Bank has experienced amore significant change in lending instruments thanat any previous period in its history. In addition to thetraditional investment and adjustment operations, awide variety of new, and often more flexible, instru-ments have emerged. Some of these instrumentsrepresent improved versions of investment lendingsuch as Learning and Innovation Loans (LILs),Adaptable Program Loans and Credits (APLs);Community Based Rural Development (CBRD) andsocial funds. More recently, new instruments, such asPRSP-based programmatic lending and PovertyReduction Support Credits (PRSCs) have emerged.

Addressing rural poverty in a comprehensive fashionrequires that an evolving set of instruments areapplied to Bank operations in rural space.This is chal-lenge has also been reflected in the 2001 OEDAnnual Review of Development Effectiveness(ARDE) (World Bank, 2002a). There is clearly noone “golden rule” as to the optimal distributionbetween different Bank instruments. However, somegeneral directions can be identified regarding Bankoperations in rural space:

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the diversity of rural situations between regions,countries, and sub-country regions requires theuse of a broad set of instruments with increasedmulti-sectoral character set within the CASframework;

traditional investment projects will continue toplay an important role, however they should beblended with the new type of operations (i.e.,LIL, APL, PRSC, etc) according to countryrequests and conditions; and

the broader use of new instruments, such asprogrammatic lending, should be promoted onlyafter careful study and assessment of the actualfield experiences with these programs andassurance that there is adequate rural focus.

Ensuring an Adequate Rural Focus in ProgrammaticLending.The recent internal changes within the Bankindicate that the increased use of programmatic lend-ing tools, especially in the poorest countries (Box8.5), may have a profound impact on the way thatrural poverty can best be addressed. It is too early toevaluate the impact of programmatic lending in thisrespect, but there are both opportunities and risks inachieving rural poverty reduction objectives with thisshift. Programmatic lending could help to set a frame-work for improved rural spatial analysis leading toimproved cross-sectoral rural poverty design. It couldalso address overarching institutional and policy con-straints, provide a channel for systematic genderinclusion, support better national poverty monitoring,and improve donor coordination. At the same time,the broader framework of programmatic lendingmight lead to the result that the rural aspects and fea-tures of rural livelihoods are less well covered than insmaller projects.The best way to guarantee that pro-grammatic lending becomes an opportunity for ruralbeneficiaries is to provide the rural stakeholders inthe countries with the assistance necessary to createhigh-quality national rural strategies and to undertakeother well targeted analysis.

Expand Community Participation in ProjectDesign and Implementation. In FY00 one quarterof projects in the rural space were implementedwith community participation. The community-based approach is much welcomed and even

demanded by most of the Bank’s client countries.While the concept of community-based develop-ment is appealing and compelling (Coirolo et al.2001), the knowledge of how to do it properly andeffectively, is still evolving. Recognizing this state ofaffairs would suggest that the expansion of com-munity-based activities should be done with theflexibility to adjust and fine-tune designs as knowl-edge builds up. On the whole, however, it is desir-able to increase the involvement of communities inprogram design and implementation to the maxi-mum extent possible. It is equally important toassure that these processes are inclusive and takeinto consideration the specific time or cultural andsocial constraints of women.

MONITORING AND EVALUATION

This strategy presents a program to revitalize theBank activities in the rural space, and increase theeffectiveness in the Bank’s work in rural povertyreduction. Reaching the Rural Poor will pay consider-able attention to monitoring and evaluation of thestrategy’s implementation. A set of targets andbenchmarks will be used as the baseline for evalu-

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8.5Programmatic Lending: PovertyReduction Support Credits (PRSCs)

The first examples of Poverty Reduction Support Credits(PRSCs) involve a series of two or three programmaticoperations that correspond to the time horizon of thePRSP and CAS. They typically have one tranche and areprovided based on up-front completion of a set of pri-ority reform measures and public actions that demon-strate satisfactory progress with the country’s social andstructural reform agenda. Some PRSCs will focus mainlyon economy-wide policy or institutional issues, with lim-ited rural content. Others will focus on sectoral poli-cies, institutions, and regulatory actions. There is concernthat rural space will not be fully incorporated in pover-ty reduction strategies or in programmatic lending. Therural family will monitor the use of these instrumentsto ensure an appropriate rural focus.

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ating this progress over a five year period.These arepresented within a framework of results-basedmanagement principles, i.e., inputs, outputs, out-comes, and impacts. The Bank’s Agriculture andRural Development Sector Board will work closelywith senior management in the further alignment ofthe rural strategy implementation framework toemerging Bank work on results-based management.In conjunction with the implementation of theStrategy, an attempt will also be made, together withother international donors, to improve the moni-toring of regional and global progress in rural devel-opment and rural poverty reduction. The Strategyhas not proposed specific lending targets, as suchtargets no longer fit in the demand-driven nature ofthe Bank’s operations. It is expected, however, thatincreased national demands and improved quality ofthe operations in rural areas should generateincreased demands.

Implementation targets for rural operations willallow for continuous monitoring of strategy imple-mentation.Additionally information will be providedfor a selected group of key countries to gaugeprogress at the country level.The progress in imple-menting the strategy will be reviewed quarterlywithin the Bank, and annual reviews will be preparedfor the Board of Executive Directors. In addition topresentation of progress against these indicators,the annual review will also provide an overall assess-ment of progress on strategy implementation andhighlight any critical issues.

The impact of Bank operations by themselves onglobal rural poverty indicators, is difficult to attrib-ute. Monitoring overall and regional trends, as wellas country indicators in rural development andpoverty reduction, however, results in very impor-tant information that can be useful in analyzing theimplementation of the strategy in the evolvinginternational context (Millennium DevelopmentGoals). General rural development indicators, andindicators for the food and agriculture sectors arenot easily available, and improving the information-al basis for rural poverty reductions requires inter-national cooperation. The Bank has already estab-lished partnerships, such as the Africa initiative forenhancing the rural-related statistical database.Thiseffort should be continued and broadened to

include other major international organizationssuch as the UN regional centers, and the FAO.

RISKS IN IMPLEMENTING THEREVISED STRATEGY

It is recognized that there are several risks inherentin implementing the strategy:

That Reaching the Rural Poor is not acknowl-edged within the Bank as a multi-sectoral strat-egy and that substantive multi-sectoral collabo-ration does not materialize. The effective imple-mentation of the strategy necessitates that all sec-tors operating in rural space make appropriateefforts to embrace the opportunity offered (riseto the challenges of rural poverty reduction) andin particular engage actively with the establish-ment and operation of the regional implementa-tion and coordination arrangements.

That the Bank will not maintain the momentumestablished through the preparation of theStrategy, in the implementation phase, and fail toaddress the necessary internal institutionalarrangements, the incentive framework, fundingresource allocation, and creation of an appropri-ate staff skills mix. One of the failures of the FromVision to Action was the lack of capacity to main-tain commitment to the core principles andimplementation processes.

That the emerging new lending instruments andtrends in lending are not conducive to innova-tion and risk taking in the rural space. Withincreased interest in programmatic lending andlarge scale budget transfers, the incentive andopportunity to pay necessary attention to learn-ing and innovation within the country contextmay be reduced. In light of the urgency of deep-ening the understating of risk and vulnerability ofthe rural poor and tackling key structural andinstitutional issues, space must be given for com-munities and countries to adapt and learn withinan active investment framework.

That the Bank together with willing countrypartners and other stakeholders is not able to

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mobilize the voice of the poor rural women andmen, and other rural stakeholders. The strategyrecognizes the challenges of mobilizing nationaland international advocacy for the rural poor andhas in place a number of approaches to addressthis. However the time frame for change in givingstrength to such voices must be closely moni-tored and adjusted to meet the objectives. Everyeffort should be made to use the range of instru-ments available to meet this risk.

That overall long term growth is not achieved inclient countries. Long-term growth is a neces-sary but not sufficient condition for rural povertyreduction. This combined with continuedprogress towards maintaining a sound enablingenvironment including addressing long neglectedissues such as those relating to enhanced andmore equitable access to assets for example, land,are key factors contributing to desired outcomesfor the strategy.

That the Bank’s willingness to open up to, andcapacity to work with, a wide range of partners isinadequate to address the challenges. The Bankcannot address rural poverty reduction alone.Whilst there is broad consensus globally onapproaches to rural development, this consensusmust be fostered.The Bank should seek to workwith others to develop its own comparativeadvantage and gain from working with others inthose areas for which it is less institutionally ororganizationally suited. The transaction costs ofworking with others is recognized.However, if wellmanaged, the potential gains outweigh such costs.

The process of developing the new rural strategyfrom prioritized regional and country diagnoses,along with the proposed institutional arrangements(internal and global) should help mitigate these risks.The CDF, PRSPs and Millennium DevelopmentGoals provide the requisite framework within whichpoverty reduction is etched as a strategic objective.

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Vision to ActionObjectives Outcomes Comments

Lessons for Reaching the Rural Poor

ANNEX 1: Lessons in Implementing From Vision to Action for Reaching the Rural Poor

APPROACH

1. Shift from sub-sec-toral to broad ruraldevelopment focus andimprove coordinationbetween various actors.

2.Working with allstakeholders to inte-grate rural developmentin overall country devel-opment strategies.

PRIORITY ACTION

1. Enhancing portfolioquality

1.1 Increase ESW forthe rural areas.

1.2 Improve develop-ment outcome of ruralprojects to 80% satisfac-tory rating.

1.3 Reverse decline inlending for rural devel-opment (without indi-cating specific goals).

With a strong increasein such areas as com-munity driven develop-ment, and watersheddevelopment, the focusof operations hasbroadened.

Rural aspects increas-ingly treated in CASsand PRSPs.

ESW budget remainedstable at $9.5 m overFY 96-97 to $10.4 mover FY 99-00.

Investment in sectorwork for agriculture asa share of total lendingcosts declined frompre-VtoA amounts byabout 50%.

Development out-comes of rural projectsdeclined from 66% inFY 94-95 to 60% overFY 99-00.

Lending for agriculture,rural roads and water,and natural resourcesmanagement declinedover the period FY96-00.

Inadequately functioninginter-sectoral integratingmechanisms in the Bankstill constrains multi-sec-toral activities.

Rural poverty reductionissues are satisfactorilytreated in only 50% ofCASs.

Rural portfolio reviewindicated need toincrease both the qualityand content of ESW forbroad based pro-poorrural development.

Sustainability andInstitutionalDevelopment remaincritical weaknesses ofrural portfolio.

Weak rural advocacy inclient countries, andlack of incentives atcountry team level tofocus on rural poverty.

Strengthening the holisticapproach by emphasis on non-agricultural, physical andhuman infra-structure whilemaintaining a strong commit-ment to agriculture.

Develop internal institutionalmechanisms to supportmulti-sectoral coordinationand coherence.

Increased support for broadbased client driven process-es for national rural develop-ment strategies to strengthenadvocacy.

Enhance internal and partnerskills training.

Combine budgetary realign-ment with earmarked funds for increased ESW.

Enhance pro-poor focus offuture ESW and strengthenimpact of ESW on strategyand design of investmentlending.

Maintain the goal of 80% sat-isfactory rating and stronglyincrease attention toSustainability and InstitutionalDevelopment, during projectimplementation.

Support to rural advocacygroups, link incentives forcountry teams to focus onpoverty reduction.

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2. Enhancing knowledge management.

3. Strengthening alliances.

MAJOR OUTCOMES

1. Bank seen as a leaderin the fight to reducerural poverty by fiscal2000.

2. Freer and fairer worldagricultural trade.

3. Reversing the lowgrowth the trends ofunder-performing countries.

Focus on 15 countrieswith support to theirrural strategy.

15 Rural ThematicGroups (TGs).

The Rural Family isengaged in over 30rural partnerships andcollaborative agree-ments.

Bank remains a leaderin rural developmentthinking and in provid-ing development assis-tance to rural space.

The Bank has taken anactive role in assistingclient countries to pre-pare for the WTO.

Lending to focus coun-tries increased from54 % of total lendingfor agriculture over theFY 92-96 period(before they wereselected) to 64% afterthe initiative (FY 97-01), and Quality atEntry was 100% for allQuality Reviews.

Lack of base-line againstwhich to measure trendsin wider rural lending.

While shared learningclinics are felt to beeffective in improvingquality of project prepa-ration, there remained alack of a clear mecha-nism to assess impactand specific contributionto wider VtoA goals.

The rapid increase inpartnerships has raisedsome concerns aboutspreading resources toothin and diverting atten-tion from Rural Familypriorities.

Limited institutionalcapacity and lack of spe-cific institutional arrange-ments to champion ruraldevelopment has reducedpotential for widerimpact.

Decline in agriculturallending.

Authorizing environmentof the Bank in dealingwith OECD countriesand their subsidies andmarket access is limited.

Longer term concentra-tion on a limited numberof countries, which aresubject to politicalchanges, led to variableresults.

Annual monitoring of lendingagainst FY99-01 baseline forinvestment in rural space.

TGs need to be rationalizedand aligned strategically withnew strategic objectives toimprove their effectivenessand to contribute to contin-uous learning and innovationwithin the Bank, with part-ners, and clients.

Enhance partnerships withclear linkage to implement-ing the strategy.

More structured global ini-tiatives with clearer respon-sibilities.

Enhance role in advocacy atglobal and country levels.

Continued advocacy com-bined with focused supportto developing countries toenable them to becomebeneficiaries of trade liberal-ization.

Focus on more specificobjectives i.e., improvingnumber of rural poor affect-ed by the Bank operationsand tie activities with thePRSP/CAS processes.

Phase program of work onan annual basis with a largeroverall number of countriesand interventions.

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More than 2,000 people (government officials, civil society, academics, private sector, and donor agencies)have been involved at some stage in the consultation process surrounding the rural strategy development.This has involved four major processes:

Consultations on the regional strategies and the initial framework of the corporate strategy. Altogetherthere were nine regional consultations held in early 2001 (Nepal, Philippines, China, Lebanon, France,Kenya, Senegal, Russia, Panama, Belgium, and Japan).

Consultations and seminars focused on the corporate strategy and its implementation.Three consulta-tions specifically focused on implementation were held in 2002 (Vietnam, Nigeria, Ethiopia), and twomore are scheduled (Jordan and Peru).Additionally, seminars were held at the Asian Development Bankin March 2001, African Development Bank in June 2002, and at an EBRD workshop in March 2002.Seminar presentations were also made in Australia (February 2002),Tokyo (March 2002).

Presentations, seminars and panel discussions at major international gatherings with broad-based stake-holder participation. These venues include the IFPRI Conference – September 2001 (Bonn), FAOConference – November 2001 (Rome), Conference on Financing for Development – March 2002(Monterrey), UN PrepCo for World Summit on Sustainable Development – March 2002 (New York),European Sustainable Development Conference – March 2002 (Berlin), 35th World Farmer Congress– May 2002 (Cairo),World Food Summit – June 2002 (Rome), European Rural Development Forum –September 2002 (Montpellier).

Rural strategy website and internet consultations on the final draft of the strategy. A website was cre-ated early in the strategy development process. All relevant material has been posted on this site forcomment including background papers, seminar summaries, and early drafts of both corporate andregional strategies. From April to August 2002 the final stage pre – Executive Board draft was postedfor public comment.A significant number of comments from academics, civil society groups, donors, gov-ernments, NGOs, and private individuals were received.

ANNEX 2: Consultations in Strategy Preparation

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ANNEX 3: Regional Strategy Summaries

AFRICA

Sub-Saharan Africa’s population remains predomi-nantly rural (70%), and poverty is widespread. Theinternational community’s commitment to cuttingthe global incidence of absolute poverty in half by2015 implies a massive effort in rural Africa.

Regional ContextAgriculture remains important in rural Africa, andindicators of rural well-being are closely correlatedwith agricultural performance. Aggregate growthrates in African agriculture overall improved duringthe 1990s.While Africa’s agricultural growth laggedall developing regions in the 1980s, the gap nar-rowed in the 1990s due to improvement in Africaand deterioration elsewhere. Despite improvedgrowth, African rural poverty remains deeper andmore prevalent than in other regions.

General improvement in the 1990s masks wide dis-parities in the performance of countries throughoutthe region. The 48 countries of Sub-Saharan Africaare widely diverse in their resource and factorendowments and their abilities to commit politicallyto actions to increase growth and reduce poverty.During the 1990s 12 of the 48 countries of theregion were able to maintain agricultural growthrates of 4% or better. This is a large improvementover the 1980s, when only five countries achievedagricultural growth rates of more than 4% (Benin,Comoros, Mozambique,Togo and Cape Verde).

Agricultural growth in a second group of countrieshas been positive, but less than 4% per year onaverage, and in many cases less than populationgrowth. Rural poverty is gradually worsening inthese countries, although again the measures arenot complete. About half of African countries fallinto this category.

A third group of countries is still immersed in civilor international conflict or unrest with sharply risingpoverty and increasing desperation, particularlyamong rural people displaced by fighting. About100 million Africans, a fifth of the region’s total pop-ulation live in these countries. About 4 million

Africans are currently refugees, displaced from theirhomes and deprived of their livelihoods.The impactof conflict is clear from the statistics. Countries thatenjoyed high rates of agricultural growth during the1980s, including Burundi, Rwanda, Sierra Leone,Comoros and the Republic of Congo, all experi-enced low or negative agricultural growth whenoverwhelmed by conflict in the 1990s.

Growth of productivity has lagged that of agricul-tural output. Agricultural productivity per workerfor the region as a whole has stagnated during thepast ten years at an estimated $375 per worker(constant 1995 US$). This is 12% lower than in1980, when value-added per worker was $424.Moreover, agricultural yields have been level or havefallen for many crops in many countries. Significantly,yields of most important food grains, tubers andlegumes (maize, millet, sorghum, yams, cassava,groundnut) in most African countries are no highertoday than in 1980.

Low productivity has seriously eroded the compet-itiveness of African agricultural products on worldmarkets. Africa’s share of total world agriculturaltrade fell from 8% in 1965 to 3% in 1996.

The Historical Legacy: How Relevant is itto Today’s Agenda?African rural areas are severely undercapitalized, asreflected in the low use of fertilizers, tractors andother agricultural technologies, limited infrastruc-ture, inadequate education and health, and deple-tion of natural resources. Long secular persistenceof poor policies and institutions explains the under-capitalization. Much of this can be attributed to thelegacy of slavery and colonialism. Post-colonial poli-cies did not reverse the decapitalization of ruralareas, as governments pursued macroeconomicand agricultural policies that discouraged invest-ment in rural areas, weakened local governments,and suppressed the development of civil societyorganizations (including voluntary producers’organizations).

The legacy of scarce capital, poverty, and depend-ence is thus very relevant to the agenda of today.

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Rural areas still lack capital, including physical, human,infrastructure, natural resources, social and political(as in representation and influence) capital. Deepinstitutional and social changes are needed to rem-edy this multidimensional lack of capital. Changescannot be ordained from the top, and must bederived from stronger participation of rural com-munities and greater voice of rural people.

The strategy emphasizes community participation,strengthening of voluntary producer organizations,primacy of the private sector in production and trade,a stronger role for markets, greater attention to theneeds of women, enhanced activity of local govern-ments in provision of public services, and transparen-cy and accountability in the use of public funds.

The StrategyAlthough specific elements of the strategy areunique to countries and regions, the strategic inter-ventions fall into four broad categories:

Making governments and institutions work bet-ter for the rural poor;Promoting widely-shared growth;Enhancing management of natural resources; andReducing risk and vulnerability.

The strategic interventions apply differentiallydepending on circumstances of individual countries.Given the scarcity of resources, the fiduciaryresponsibilities of the World Bank, and lessonslearned regarding the efficacy of aid, preference isaccorded to countries that are performing well anddemonstrate a strong commitment to reducepoverty.This preference is reflected in the allocationof resources among countries and in increasedattention to systems of public procurement andmanagement of public finance.

Other factors that affect the emphases of nationalstrategies include:

Stability and strength of local institutions (forexample, presence or absence of conflict, andstatus of decentralization);Relative factor endowments (for example, abun-dance or scarcity of land and water);Potential for intensification through greater com-mercial integration of small-holders relative to

alternative farming systems for economicallymarginal areas;Prevalence of HIV/AIDS and other endemic dis-eases of people and livestock; andCultural traditions affecting dietary preferencesand livelihoods.

For example, in countries emerging from conflict,such as the Democratic Republic of the Congo, therural strategy will focus on rebuilding livelihood sys-tems at the community level through participatorydiagnoses and micro-projects. In large and diversecountries, such as Zambia and Tanzania, differentstrategies are appropriate for different regions. Inmany places the potential for intensification throughbetter linkages of producers’ organizations to mar-kets is substantial. In marginal areas far from mar-kets, intensification based on purchased inputs is notappropriate, but improved rotations and cultivationpractices can strengthen food security and stew-ardship of natural resources.

Making Government and Institutions WorkBetter for the Rural PoorIssues of governance, including the general frame-work for security, the rule of law, and probity inpublic expenditure are particularly important forrural areas, since the least empowered within apolitical system suffer most from poor governance.These issues are high on the World Bank’s corpo-rate agenda.

In addition to supporting improved governance, theAfrica rural strategy strengthens the institutionalfoundations for rural development by:

Supporting government’s efforts to decentral-ize, through technical assistance in design ofdecentralization, enhancing capacity of subna-tional governments, providing financing in sup-port of decentralization, and assisting with designof systems of monitoring and evaluation.Enhancing the participation of rural communi-ties in newly decentralized political and adminis-trative systems, and providing resources to com-munities to use to pursue their own priorities fordevelopment.Providing support for voluntary producers’organizations by assisting governments to create

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an enabling policy and legal environment withinwhich producers’ organizations can flourish, pro-viding organizational support and technical assis-tance, and giving matching grants to producers’organizations that have demonstrated capacityto manage funds and activities on behalf of alltheir members.Augmenting rural voice in discussions of priori-ties for public expenditure and national develop-ment. Each of the interventions noted above alsoserves to enhance rural people’s voice within thedomestic arena. The donor community can helpamplify rural voice in consultations and negotia-tions with partners and clients. The PovertyReduction Strategy Paper (PRSP) process and itslinks to the Highly Indebted Poor Countries(HIPC) initiative provide important opportunitiesfor the donor community to encourage partici-pants in national policy dialogue to give appropri-ate weight to the interests of the rural poor.

Promoting Widely-Shared GrowthAgriculture remains high on the agenda for ruraldevelopment in Africa—more so than in regionswith greater food security and income levels sup-porting a more diversified economic base. Whileagriculture is not the only source of rural growth(tourism, mining, forestry, fishing and others areimportant in some places), in Africa today agricul-ture is the most important rural enterprise, con-tributing an average of 30% of total gross domes-tic product in the Sub-Saharan countries (exclud-ing South Africa), and over 40% in one-third ofthose countries. Agribusinesses, which themselvesdepend on agricultural growth, are responsible foran additional 20% of GDP and about 25% of totalrural incomes.

Agriculture and related rural enterprises are prima-rily private sector activities. Interventions to gener-ate more income fall into five basic categories:

Continuing policy and regulatory reforms inOECD countries and within and among Africancountries to remove constraints to trade andbusiness activities. The faster growing Africancountries have made substantial progress onmacroeconomic and sectoral reforms.Continued assistance may be needed to consol-

idate reforms and to support budgets of publicentities fulfilling newly defined functions. Animportant part of the policy agenda lies outsidethe boundaries of African nations, in the evolvingrules of the WTO and decisions regarding subsi-dies and market access of the OECD countries.The World Bank assists in the area of trade lib-eralization by providing analysis and advocacy forAfrican countries, and by assisting their traderepresentatives to prepare for participation intrade negotiations.Improving provision of agricultural services,including research and extension. The techno-logical lag in African agriculture is primarily asymptom of under-investment and lack of adop-tion, not low rates of return on research. In thefuture,African institutions of research and exten-sion will need higher levels of support, strongeroutreach to beneficiaries, and closer linkageswith institutions working on the frontiers of sci-entific discovery.Increasing investment in infrastructure and thequality of services in rural areas. Access toinfrastructure, education and health servicesdeclined during the 1990s, and indicators ofwell-being (life expectancy, infant and child mor-tality, literacy rates) worsened in most countries.Models of delivery of rural services are in aperiod of transition, away from centrally con-trolled provision by the public sector, andtoward more decentralized, demand-driven, pri-vate sector approaches.Expanding access to rural financial services. Asustained process of income generationrequires improved access to rural financial serv-ices, including credit, savings, insurance, collater-alization of fixed and moveable property, trans-fer of funds, trade finance, and more complexfinancial instruments and transactions. A majorfocus of the rural financial strategy is to bringthe commercial institutions closer to ruralclients, and to make the clients more attractiveto providers of service.Improving water control systems. Over 95% ofcultivated land is rainfed. Many of these lands arein arid or semiarid areas where rainfall is unreli-able and crop failures are common.Yet, providingwater at critical stages of plant development(such as during the flowering stage of maize) can

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dramatically reduce risks of crop shortfalls.Increasing yields on rainfed lands by just 10%would have far greater impact on total agricul-tural output than doubling area under irrigation.Moreover, such improvements would benefitmainly poor farmers living on marginal lands.Expanding irrigated agriculture also offers con-siderable potential in Africa.

Enhancing Management of NaturalResourcesAfrica is very diverse—ecologically, socially andpolitically—and countries are using a variety ofapproaches to improve management of naturalresources. Important among these are efforts to:

Avoid harm, through prior screening and use ofenvironmental assessments;Mitigate adverse impacts through use of envi-ronmental assessments, environmental manage-ment plans and other measures;Empower communities and individuals to make asustainable living using local natural resourcesand to take responsibility for managing them;Mainstream environmental issues into broaderdevelopment programs through instrumentssuch as national environmental action plans, envi-ronmental support programs and others;Address past damage and assist communitiesimprove their management of natural resourcesthrough focused investments;Improve incentives for long-term environmentalstewardship rather than short-term exploitation,such as through introducing charges for naturalresources use; andEstablish regulations and laws to protect theenvironment and build capacity to enforce them.

Reducing Risk and Vulnerability of theRural PoorPoor rural Africans face multiple risks everyday, andhave few instruments for mitigation other than thetraditional ones based on family relationships andlivelihood strategies.The onslaught of HIV/AIDS hasexacerbated preexisting risks and disrupted tradi-tional coping mechanisms. Risks can be reducedthrough such measures as prudent macroeconomicmanagement, basic public health programs, includingwidespread immunization, cost-effective nutrition

interventions, educational policies that guaranteepoor children access, and actions to stop conflict andenhance security. Investment in infrastructure andmeasures to help farmers gain access to hardy cropvarieties can assist rural people to reduce the vari-ability of income. Improving access to rural financialservices (savings accounts and credit) is also impor-tant. Other strategic approaches to manage riskinclude efforts to:

Find alternatives to the most harmful copingmechanisms. Direct interventions to enable thepoorest families keep their children well nour-ished and in school. Help poor families build theassets they need. Programs must be designed toensure that they are well targeted and fiscallysustainable.Give high priority to stopping the spread ofHIV/AIDS and malaria and helping communi-ties cope with its impacts. Poor householdsfacing HIV/AIDS are less able to cope with lossof labor and are more likely to dispose of assetsto meet medical and funeral expenses than aremore prosperous families. Governments anddevelopment partners should target assistanceto the poorest households, especially in theperiod immediately following death, when fam-ilies are struggling to reorganize their produc-tion systems.Share risks and costs of adopting new tech-nologies by offering matching grants to pro-ducers’ organizations and other groups. Earlyadopters demonstrate to others the benefits ofnew technologies, but they also bear high risks.The public sector can share risks through match-ing grants to encourage recipients to adopt newtechnologies, and initiate their wider acceptanceby others.

Instruments and ActionsThe program is varied and covers 48 countries.The pipeline for the next three years consists ofabout 80 new lending operations per year. As theprogram evolves, the Africa region’s lending oper-ations increasingly fall into three broad categories:budget support, community driven developmentand capacity building. Among the products in thework program, the following are most relevant torural development:

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Analytical and advisory services. The AfricaRegion is increasing its commitment to analyti-cal and advisory services, and a portion of theincrease will focus on rural poverty.Multi-sectoral poverty reduction supportcredits (PRSCs). These are instruments to pro-vide budgetary support to countries imple-menting well defined strategies to reducepoverty, as expressed in PRSP’s.Projects supporting decentralization. Theseassist in developing the fiscal architecture fordecentralization, provide technical assistance tobuild capacity of public entities facing new chal-lenges, help put into place processes for partic-ipation and mechanisms to enhance accounta-bility, and support design of systems of moni-toring and evaluation.Community driven development projects.These are closely linked to decentralization, andfocus on community participation in setting ofpriorities, creation of financial architecture toget resources to community groups, strength-ening of local government, transfer of resourcesto the community level, and monitoring andevaluation.Rural finance. The newer generation of ruralfinance projects eschews lines of directedcredit, and focuses on regulatory reform,capacity building, and reducing the transactionscosts of linking providers and customers offinancial services in rural areas.HIV/AIDS. Because of the catastrophic implica-tions of HIV/AIDS for African development,prevention and mitigation of HIV/AIDS hasbeen mainstreamed into most of the projects inthe portfolio, either in the design stage orthrough retrofitting of components.Agricultural research and extension. Projectssupporting agricultural services are increasinglyresponsive to the needs and requests of pro-ducers, and incorporate innovative features infinance, such as competitive grants, cost recov-ery, and matching grants.Management of Natural Resources. Africa’snatural resources are valued at many levels,from the very local to the global.Environment. The Bank assists clients to main-stream environmental concerns into decisionson policy and investment, through advice on

policy and regulatory issues, technical assistanceto help ministries and departments of environ-ment increase their capacity, investment proj-ects, and grants for global environmental prior-ities. All projects are evaluated to ensure thatrelevant safeguards are met.Basic education and health care services. TheBank in the Africa region supports access tobasic health care and primary education with-out user fees, in recognition that these con-tribute substantially to the public welfare and topoverty reduction.Water management and irrigation. Watermanagement projects focus on simple designsthat can be implemented and managed bycommunities as part of CDD operations. Giventhe increasing importance of water in theregion, more will be done to help countries andcommunities manage shared water resources.Infrastructure. Infrastructure investments areneeded in roads, electric power, and telecom-munications. Cellular technology and newdesigns in off-grid power generation and non-traditional sources of energy, when coupledwith basic regulatory reform, offer exciting newopportunities to reduce the shortage of ruralinfrastructure.Land reform. Land reform is an important issuein the region, and one underrepresented in ourportfolio of assistance. Support for land reformaddresses issues of the distribution of owner-ship, tenure security, and resolution of conflict-ing claims.

The Africa Region is taking a number of stepsmore sharply to focus its programs on poverty,which implies a shift toward rural priorities.Poverty reduction strategies designed by thecountries are intended increasingly to be thefoundation for country assistance strategies of theBank.The process is still young, and not yet equal-ly embraced throughout the region, but familiarityis growing and the quality of the strategies improv-ing.The Region is using its commitment to increaseeconomic and sector work to assure that thePRSP’s of the future can draw on solid analyticalfoundations in the spatial dimensions and corre-lates of poverty and the implications for publicexpenditure.

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The Africa Region is streamlining the portfolio inorder to reduce the fragmentation of administra-tive budgets among many activities, a number ofwhich may not ultimately lead to lending or otherinterventions with substantial impact. As the num-ber of operations declines, the cost of supervisionwill also fall, allowing a shift toward more generousfunding for supervision of remaining activities andan increase in resources for preparation.

The Africa Region has drawn on its experience inaddressing the HIV/AIDS crisis, and is applying thelessons to other areas. In the early period,HIV/AIDS was perceived to be largely an issue forthose in the health sector. As long as theapproach was uni-sectoral, little progress wasmade. Health specialists did not have the expert-ise to address all of the dimensions of theHIV/AIDS crisis, and projects to address the pan-demic competed with others in the HumanDevelopment portfolio for space in country lend-ing programs. The region did not develop aneffective approach to the crisis until CountryDirectors recognized HIV/AIDS as an overarchingmulti-sectoral problem of such high priority that itwas incumbent upon them to seriously address it.Simultaneously, the region developed a new trulymulti-sectoral instrument (the MAP) designedand implemented by experienced task team lead-ers from various sectoral units. MAP operationsneed not be designed from scratch for eachcountry, since the basic elements can be adaptedfor country conditions. The MAP operations aremulti-sectoral, quickly designed and approved,flexible to adapt as lessons are learned duringimplementation, and, correspondingly, intensive insupervision costs.

Elements of the MAP experience are relevant torural development. The Country Directors musttake the lead in seeking interventions and in hold-ing themselves accountable for measuredprogress. In some fields, such as agricultural servic-es and the CDD operations, basic elements ofprograms can be treated as modular units taken“off-the-shelf ” and customized to suit countryconditions. Our traditional models of projectdesign have much in common with medieval arti-sanship—hand-crafted each time. Where circum-

stances do not require such an approach, ourresources can be more effectively used by incor-porating existing designs, and allocating moreattention to learning and revision while projectsare under implementation.

In order to facilitate the work of multi-sectoralteams, the Region is orienting its training activitiestoward teams, rather than individuals. This is partof a Bank-wide move, but it is especially relevantin the Africa region due to the evolution of thelending portfolio.

The Africa region is decentralizing functions to the country offices, along with a limited num-ber of additional staff formerly based inWashington. With decentralization of functionscomes a substantial additional need for trainingand new definition of working relationshipsbetween staff based in Washington and in coun-try offices.

Within the Africa Region’s Rural Developmentand Environment Unit, a process of reconfigura-tion and renewal was launched in 2001. Theprocess is intended to improve management ofthe units in order to better pursue multi-sectoraltasks, to integrate rural and environmental issuesmore fully in the PRSP processes, to facilitate moreseamless interaction between the various unitsand staff in Washington and in the country offices,and to move forward with the regional commit-ment to decentralize functions.

The rural and environmental units work in part-nership with other sectoral units within the Bank,with counterparts in government and civil societyin client countries, and with other donors. TheBank contributes to the already established Multi-Donor Hub for Rural Development underSouthern Africa Development Community locat-ed in Harare, Zimbabwe, and is working withother donors to establish a hub for food securityin the Horn of Africa.

With strong partnerships, a streamlined portfolio,renewal within the rural, environment, and socialfamily, and further decentralization, the AfricaRegion is well placed to make a significant contri-

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Central and Western Africa: Dakar, Senegal 7–9 May 2001

The workshop was organized in collaboration with CODESRIA (The Council for the Development of Social Science Research in Africa).Participants included representatives of NGOs and civil society, the private sector, academia, consultants, parastatal agencies, governmentalministries, and international organisations and came from Cameroon, Nigeria, Gambia, Niger, Mali, Ivory Coast, Sierra Leone, Benin, BurkinaFaso, Ghana, Guinea, Senegal. Participants noted that the plurality and diversity of Africa imply that no single strategy will be appropriateexcept at a very high level of generality. Participants underscored the importance of agriculture in Africa’s rural development and the needto improve agricultural productivity, through improved technology, improved access to markets at all levels, including those of the OECDcountries, and macroeconomic policies that do not overly tax agriculture. Issues related to water management need urgent and greaterattention in programs to address rural poverty. Other important issues include:

Conflict destroys present and future opportunities, and no rural strategy can show accomplishments until peace is secure.

Gender equity is integral to agricultural improvement, since women are major economic agents in Africa’s agricultural production andtrade.

Land issues and land reform merit increased emphasis.

Rural-urban linkages and the role of small towns should be better understood.

Workable mechanisms to mitigate economic risks should be explored, despite the well-known problems, since unmanaged risks can gen-erate high social costs.

More attention should be accorded to environmental issues.

Rural constituencies need more accountable governments. The concept of public service is not well developed, and decentralization doesnot always bring improved public service.

Rural development should be fully addressed in PRSPs (poverty reduction strategy papers) of individual countries.

Eastern and Southern Africa: Nairobi, Kenya 26–28 March 2001

The workshop was organized in partnership with the African Economic Research Council. Participants were invited from the public, private,and NGO sectors of Botswana, Burundi, Ethiopia, France, Guinea, Kenya, Madagascar, Malawi, Senegal, South Africa, Tanzania, Rwanda, Uganda,Zambia, Zimbabwe, and several international organizations.

Participants noted the importance of community-centered development, and argued in favor of emphasis on change at the community levelaccompanied by fiscal decentralization. Because African civil and political institutions are in many places weak, explicit measures are need-ed to constrain corruption. The role of the private sector should be explicitly recognized, and their input into formulation of specific strate-gies sought.

The supra-national organizations in Africa should devote more attention to rural development. Infrastructure is both a public and privatemandate, and better methodologies are needed to guide decisions about investment in infrastructure. Environmental issues should beaddressed in a context of sustainable utilization of natural resources.

The key issue of trade liberalization should be addressed; i.e., can African smallholders compete in a world of massive subsidies to pro-ducers in high-income countries and high marketing margins in their own? African producers could increase use the internet and otherinformation technologies to overcome high costs of communication and the legacy of poor integration into trading networks. Conflicts andHIV/AIDS pose enormous challenges that will require external assistance as well as strong national and local leadership.

Summary of Regional Consultations:Africa Region A3.1

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bution to reduction of poverty. Actual results,however, will require continued and strong lead-ership by the regional leadership team and a spe-cific focus on rural poverty. Without this overar-ching focus, the current and projected lendingprogram could fall short in efforts to reduce ruralpoverty.The existing lending program is one withhigh potential, but also considerable risk unlessthe regional leadership gives explicit priority torural poverty in the design of the various sectoraloperations.

ConclusionsAfrica’s rural people can contribute much moreto their own prosperity and to global growth inthe future than they have been able to in thepast. The dynamics of rural growth and the fac-tors that promote it are now better understoodthan before. Rural institutions are stronger inmany places and democratic forms of govern-ment create opportunities for rural people toexpress their views and priorities. National gov-ernments have tamed fiscal deficits and openedeconomies in ways that improve incentives inrural areas. Increasingly, people at all levels under-stand how to manage natural resources so thatthey provide long-term benefits. New invest-ments and developments in infrastructure linkonce remote areas more closely to their regionaland national contexts.

Africans are acting on these oppor tunitiesdespite formidable new obstacles. HIV/AIDSrequires changes in behavior and investment ofresources on a scale demanded of few societiesor treasuries in more prosperous regions. Thescourge of conflict creates new victims anddestroys wealth. Natural resources are still sub-ject to predation and degradation. Climatechange is likely to hit Africa hard. And manyOECD countries, despite rhetorical commitmentto liberalization of trade, keep their own marketsclosed to Africa’s most important exports. Thecommitment of Africans to reduce rural povertydespite these obstacles warrants dynamic andeffective support from their partners. The AfricaRegion of the World Bank is committed to moveon the actions noted above, and continually toseek new ways to assist.

EAST ASIA AND PACIFIC

Regional Context and Key IssuesRural East Asia has undergone an unprecedentedtechnological and economic transformation inrecent decades that has dramatically improvedfood security, reduced poverty, and raised incomes.Despite the 1997 Asian crisis, the EAP region as awhole experienced the fastest rate of economicgrowth in the world over the past 25 years (FigureA3.1). This transformation was partly initiated bythe application of Green Revolution methods toAsia’s agricultural problems.

But serious problems remain. Despite substantialrural-to-urban migration, East Asia’s rural popula-tion continues to grow, and the vast majority ofpeople still depend on agriculture, forestry, orfishing for their livelihood. These activities placegreat stress on natural resources and result indegradation that diminishes the income-generat-ing capacity of those resources. Agriculturalgrowth in the nine major countries of East Asialagged well behind growth in GDP during the1990s. Nonetheless, the agricultural sector stillemploys about 70% of the working populations ofthese countries, and 80% of the region’s poordwell in the countryside and the mountains.Meanwhile, overall economic growth has not ledto improved services, such as health, education,and infrastructure in rural areas, nor to a signifi-cant increase in non-agricultural rural jobs. Morerapid economic growth in urban areas has result-ed in most of the poor, and vir tually all of the“poorest of the poor,” being found in rural areas.The irony is that while rural East Asia provides thedominant share of employment and income, it isalso the area with the most unemployment,underemployment, and poverty.

The rural-to-urban transition in East Asia isincomplete. The number of excess workersremaining in rural areas is in the millions in almostall the countries of East Asia. Rural areas need thebenefit of policies, institutions, and infrastructurewhich encourage economic development andprovide non-farm employment while urban areasmust not be overwhelmed by rural migrants seek-ing job opportunities.

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There have been some improvements in ruralareas in terms of access to education, health care,transportation, and other public services. But it isalso estimated, for instance, that as many as a bil-lion East Asians in rural areas remain withoutaccess to safe water and sanitation. Imbalances likethese in the provision of public services that favorurban areas are often accompanied by policy bias-es against agriculture, such as price controls onfarm products and high tariffs on imported agri-cultural inputs.

The bias against the rural sector can also befound in national investment figures. Between1994 and 1998, for example, public investment inthe sector never exceeded 10% of all publicinvestment in any of the nine major East Asiancountries. In some, it is true, the percentageremained stable, but in others it drifted down-ward except in Indonesia. There, agriculturalinvestment rose from a mere 3.1% of all nationalinvestment in 1995 to 5.9% in 1997-98. Theincrease occurred in a context of political insta-bility in parts of rural Indonesia.

Yet despite the policy biases, low public investment,declining worldwide prices for agricultural products,and natural disasters such as floods and drought,cereal production in East Asia (mainly rice) hasalmost doubled since 1970.

Poverty in rural East Asia is also exacerbated by tra-ditional hierarchical forms of government that haveuntil recently largely resisted democratic reformswhile failing to provide the kind of governance that isnecessary to assure social harmony. In terms of com-merce and trade, what is frequently absent are suchthings as transparent legal and judicial systems thatguarantee both property rights and the fairness andsanctity of contracts for both rich and poor. Goodgovernance also means the absence of corruptionamong those in authority, whether elected represen-tatives or government bureaucrats. Corruption hasbeen endemic in East Asia, but public outrage againstit has swept through several countries since thefinancial crisis of 1997-98. It is often the rural poorwho have been victimized most by corruption. Manysteps—legal, judicial, institution—need to be taken inEast Asia to assure honest government at every level.

-4

-2

0

2

4

6

8

10

12 1999199519901980

VietnamPhilippinesP. NewGuinea

MongoliaLao PDR

IndonesiaChinaCambodiaEAPWorld

Source: Rural Development Indicators Handbook 2001

Figure A3.1: Annual GDP Growth (%) 1980-1999

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Lessons LearnedSince the From Vision to Action report we havelearned several important lessons that enhance theeffectiveness of our interventions in client coun-tries. Some lessons are to:

Work at the community level for many projectsrather than work at the central governmentlevel, thus giving rise to more projects modeledon community-driven development;Make more effort to consult with all interestedstakeholders, including ministries beyond thesectoral ministry, during all stages of projectpreparation and implementation;Incorporate natural resource management issuesinto projects where feasible, and to pay strictattention to fulfilling the requirements of safe-guard policies;Strengthen local implementation capacity andput good governance structures in place (espe-cially important since the onset of the AsianCrisis in 1997);Convince our partners on the importance ofviewing rural issues holistically, and using a holisticapproach when selecting and designing projects;Have a rural strategy and sufficient economicpolicy analysis undertaken in order to maintain acoherent country dialog and lending program;andPlace more emphasis on off-farm employmentcreation.

We have also learned that when the Bank places aspecial emphasis on a topic, our clients in countryrespond by making it a topic of special interest.Thus, the first vision to action paper and the com-pact resources that accompanied it spawned anincreased level of interest and activity in rural devel-opment.This was especially true in Vietnam wherethe rural sector became the central focus of devel-opment.

Strategic ObjectivesEASRD has developed four strategic objectives forits work that are relevant to a rural renaissance inEast Asia.They are:

Reducing rural poverty;Stimulating rural economic growth;

Providing food security; andSupporting natural resource management.

Each is emphasized to a different degree in eachcountry according to its particular circumstances.What follows are discussions of our four strategicobjectives and the chief actions needed to achievethem:

Reducing Rural PovertyIn order to reduce rural poverty, EASRD is takingtwo approaches. One is the financing of projects thatdirectly attack poverty through targeted, productivi-ty-enhancing investments in very poor rural areassuch as community development projects.The otheris the financing of projects that enhance agriculturalproductivity and create non-farm rural employ-ment—water management schemes, storage andprocessing facilities for agribusiness, research facilities.

Stimulating Rural Economic GrowthTo stimulate rural economic growth, EASRD willcontinue to encourage governments to engage inprojects and to carry out reforms that will createimproved conditions for private companies thatmay be willing to locate in rural areas, especiallythose where poverty is widespread. In the broadestsense, we are encouraging East Asian governmentsto redress any anti-rural bias that may exist in min-istries whose work affects both rural and urbanareas. This means establishing or improving ruralschools, healthcare facilities, electric power lines,telephone services, roads, and other facilities thatare normally the government’s responsibility.

Rural areas also need a local governance frame-work that establishes rules for the operation ofeconomic enterprises—land-titling and registration,honest systems of weights and measures, laws forthe resolution of commercial disputes, and standardregulations for permits and licenses. Instead ofestablishing such frameworks, many governments inEast Asia continue to carry out commercial activi-ties themselves through state-owned enterprisesthat provide fertilizer, seeds, agrochemicals, andother farm supplies, as well as financial services,including credit. Experience has shown that in mostcases these goods and services can be deliveredmore effectively and efficiently by private firms.

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Providing Food SecurityBecause of their experience with crop failures andhunger over the years, many East Asian countrieshave put in place policies designed to supportdomestic production and insulate it from thevagaries of the open market. Many have been reluc-tant to embrace the concept of free trade and haveinstead opted for subsidies for domestic food con-sumers. EASRD has placed increasing emphasis onexploring alternative and more efficient ways of pro-viding food security to vulnerable populations. Oneexample is the work done in Indonesia during theAsian crisis (which also coincided with a crop-reduc-ing El-Nino event). On very short notice EASRDassisted the Indonesian government build a targetedfood security program for Indonesia’s urban poor.Establishing similar targeted social safety net pro-grams in other East Asian nations as an affordablemeans of providing family food security is a goal.

Supporting Natural ResourceManagementIn many East Asian countries, the demand for food,fish, lumber, and other items obtained from naturalresources continue to overshadow the desire toconserve and protect natural resources.Nonetheless, the Unit will continue to try to con-vince all our clients that intelligent management ofland, forests, rivers, and oceans is essential to achiev-ing sustainable economic growth, and we havebegun placing much more emphasis on devisingpolicies and programs to protect these resources.All countries in the region have natural resourcemanagement issues to address, and these issues aremainstreamed into Bank projects and the policy dia-logue whether or not there are specific naturalresource management or conservation projects in aparticular country.

Some of the natural resource problems in East Asiaare quite well-known: the continuing clear-cutting offorests in certain countries; the destruction of coralreefs in the South Pacific; overexploitation of coastaland inland fisheries in many countries; and the dis-appearance of coastal zones and mangrove areas.Other environmental problems, such as conflictover water resources between urban, industrial, andagricultural users are in the offing and must also beaddressed.

In addition to funding traditional projects for landreclamation and flood control, EASRD has begun topromote conservation management of forests andbiodiversity conservation projects in several of ourclient countries. We have also begun to make sus-tainability of natural resources a condition forapproval of adjustment loans. We are adoptingcommunity-based approaches to natural resourcemanagement and we are processing a number ofgrants for projects to be carried out by such NGOpartners of ours as the World Wildlife Fund, TheNature Conservancy, and the World ConservationUnion.

Implementation PlansEASRD is developing an active and ambitious actionplan as a follow up to the consultation meetings onthe East Asia Rural Development Strategy.The con-sultation meetings with governments, bilateral andmultilateral donors, NGO’s, and private sector rep-resentatives held in March 2001 were very success-ful and elicited considerable commitment to moveforward with specific actions designed to advancerural development (Box A3.2, end of section). Theaction plan designed by EASRD builds on thatmomentum. In addition to a pipeline of projectsfounded on the individual country strategies, aseries of specific activities and actions are plannedfor each country. Several clients have indicated thatthey wish to participate as “focus” countries in theregion. EASRD plans a broader set of activities andactions for these countries and we will be seekingsupplemental resources beyond regional Bankbudget to support this effort.

In designing implementation plans for our countrywork, EASRD is making added efforts to ensurethat the process is participatory, involving not onlygovernment counterparts but also NGOs, localgovernment, communities, and other stakeholders,and is also placing added effort into engaging theprivate sector as a full partner. Since the lendingprogram and pipeline is a matter of record and thegeneral emphasis of that program has been out-lined earlier in this summary, the implementationplans described here are those for the focus coun-tries and for the region as a whole.The underlyingconcept is to work intensively with those countrieswanting to move forward aggressively with addi-

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CHINA

Agricultural and water development projects will be targeted at the poor interior provinces in the Western region and designed to meetthe needs of the poor in those areas.Remove any remaining barriers to rural migration; consolidate market information systems under a single agency; and invest more in ruralinfrastructure. Re-centralize taxation authority and establish reallocation mechanism that ensure resources are transferred to poor areas.Support continued commercialization and productivity increases through greater emphasis on research and extension, off-farm employmentcreation through villages and township enterprises and further liberalization of trade and marketing.In response to severe flooding and the subsequent decision to ban logging in the upper watershed of the Yangtze River, the Bank willsupport the government’s new comprehensive framework for sustainable management of forest resources, soil conservation and biodiver-sity protection.

INDONESIA

Delivering better public services for the poor through local government and community organizations.Encourage local revenue decisions that limit deterioration of the business environment. Establish a strategy that focuses on developing amarket-based financial system and decreases reliance on subsidized credit programs.Implement pro-poor rice price policy. Maintain open rice trade, with moderate tariff protection and no domestic restriction. Shift fromfloor price to procurement price. Establish interdepartmental policy team. Prepare strategy for future rice policy.Implement CGI forestry commitments. Strengthen marine resource management and public participation in forest and protected area man-agement. Establish policy framework for river basin management and irrigation management.

MONGOLIA

ESW to deepen understanding poverty and livelihood dynamics, including urban-rural linkages and bring rural people’s perspective to bearon national policy. Evaluation of lessons from experience under earlier National Poverty Alleviation Program through intensive learning ICR.Encourage fiscal decentralization whereby investments in community-level infrastructure are made with local participation. A coordinatedand sustainable strategy for pastoral risk management established and functioning well throughout the country.Amendments to land policy legislation to strengthen implementation and facilitate transferability of land rights.

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tional activities in rural development and use themto inspire other countries in the region.The imple-mentation begins with a country rural consultationpatterned after the Consultative Group processwhere donors and government officials meet todecide on: a specific and time-bound action plan;

which agencies will do what aspects; and who willfund which activities. It is to be followed perhaps sixmonths later with a regional meeting (smaller thanthe original consultation meeting) to monitor anddiscuss progress, and showcase the work to othernon-focus countries in the region.

Strategic Objective/ Cambodia China Indonesia Lao PDR Mongolia Papua Philippines Thailand VietnamCountry Action Plan New Guinea

Reduce number � � � � � � � � �of rural poor

Stimulating Rural � � � � � � � � �

Economic GrowthProviding Food

� � � � � � � � �Security

Supporting Natural � � � � � � � � �Resource Management

Individual Country Action Plans

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PAPUA NEW GUINEA

Sustain support for NARI and better-funded role for provinces in supporting agricultural development.Continue dialogue for better credit delivery.Improve rural infrastructure by coordinating with other donors such as ADB and AusAID.Improve governance at ward, district and provincial levels. Dialogue on providing an enabling environment.Improve and expand community participation in forest management; strengthen regulatory apparatus and prevention of illegal logging.Engage communities and NGOs to clarify possibilities in fisheries and work toward a new national fisheries policy.

PHILIPPINES

Promote community-driven agricultural and natural resources programs targeted to poor/marginalized provinces. Enhance smallholder pro-ductivity and diversification.Promote priority structural/policy reforms in rural development and natural resources.Expand access of rural people to productive assets.Strengthen institutional arrangements, coordination and capacities for planning and implementation with emphasis on devolution andcommunity participation.

VIETNAM

Intensify agricultural production by developing and transferring new technology. Continue to secure access to and develop market in,land-use rights.Diversify into higher value products and new markets.Promote off-farm employment. Reform rural SMEs, extend Enterprise Law to rural areas to promote rural SMEs.Target remote and upland areas by building rural infrastructure.Prevent and mitigate natural disasters by building on Central Provinces Initiative.

Three countries have indicated that they wish to befocus countries—Papua New Guinea (PNG),Philippines, and Vietnam. What follows is a briefdescription of additive activities that represent therural action plan.

Papua New Guinea. The Bank has a history ofunsatisfactory projects and programs in PNG. SincePNG is predominantly rural, most of the projectshave been in rural space. Recently a broad rural-development strategy has been completed byAusAID and the Bank.This work sought to diagnosethe sources of project failure in PNG and design anapproach that might result in improved outcomesfor the rural people of PNG.The document formsthe basis for a new relationship in the rural sectorwith the government of PNG (GOPNG) and givesdetails on the action plan.The plan is to commencediscussions with GOPNG and donors on the strat-egy at the CG meeting in late June.This will be fol-lowed with participatory consultations on rural

development and pre-identification of activities withlocal groups and stakeholders in PNG. It will resultin an agreement on an institutional framework fortaking the rural strategy forward and the modalitiesto implement the action plan.The next step will beto identify the operational instruments for donorsupport and the main components of a Bank oper-ation. This will involve consultation with GOPNG,but more importantly, discussions with local and vil-lage leaders who will be responsible for imple-menting the plan. Finally, a monitoring and reportingsystem will be put in place that will allow cross-comparison of performance from village to village(or locality to locality) and cross-fertilization of suc-cessful approaches and ideas.

Philippines and Vietnam. The additional activitiesdesigned to respond to the rural action plan in thePhilippines and Vietnam are oriented towardstrengthening the ability of the relevant agencies tomonitor and track rural development, which in turn

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will allow greater precision in targeting interven-tions and improved policymaking ability. The firststep is to strengthen the data-gathering and —analysis ability of the agencies responsible for ruraldata. Assistance will be provided to the rural statis-tics agency to set up a dedicated server on which acomprehensive rural database will be mounted.Thedatabase will use existing data on agriculture butwill enrich it with broader socio-economic datafrom rural space and rural households. Specific“rural development indicators” will be identified.The data will be updated periodically and will beavailable on-line to other agencies and the public.Seed financing to commence this step has alreadybeen obtained.The second step is to monitor and

track changes in the rural development indicatorsover time and use the data to improve decisionmaking both in terms of project design and location,and public policy. The third step, now being devel-oped in the Philippines and to be introduced laterin Vietnam, is a performance monitoring system forthe public institutions serving rural space and relat-ing performance of the institutions to performanceof key employees in those institutions.The objectiveof this step is to develop structured accountabilitymechanisms in government agencies and to pushthis accountability down to senior staff in thoseagencies who would have performance-basedemployment agreements. The concept is simply touse these agencies as examples to the rest of gov-ernment of modern public sector managementapproaches now in use in several industrial coun-tries. This approach has been enthusiasticallyembraced by the Ministry of Agriculture in thePhilippines and EASRD is working closely with themto develop and implement such a system. For someagencies, such as agriculture, data to implement thissystem is already available and performance indica-tors have been selected. For other agencies respon-sible for other aspects of service delivery in therural sector, appropriate indicators will be devel-oped as the third step in this process.

As part of our action agenda EASRD is also plan-ning to identify and appraise a completely new ruralproject from our action plan and deliver it to theBoard within a one-year period. This would be apilot to test the feasibility of speeding up the rurallending program in the Region. It is probable thatChina would be our first pilot country and that theproject would be one capable of being scaled-up. Ifsuccessful, this would open the possibility of a large-scale expansion of our lending in China (and othercountries where the model is applicable) in subse-quent years.

Initial discussions have been held with the AsianDevelopment Bank, AusAID, and JBIC regardingtheir interest and participation in a “Rural CG”meeting, seen as the focal point for coordinationand monitoring of specific rural development activ-ities. There is also a willingness among donors andagriculture agencies to design and allocate ruraldevelopment activities in a CDF-type framework so

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Two large consultation meetings with government, academic,NGO, international organizations (AusAID, ADB, DFID and FAO)and business stakeholders of the countries of East Asia andthe Pacific were held in March 2001, in Beijing, China, andCebu, Philippines. The objective was to gather feedback fromthe regional stakeholders on the Bank’s draft corporate andregional rural action plans. The consultation also sought reac-tions on the strengths and weaknesses of the Bank’s supportprograms and on how the Bank might improve the effec-tiveness of its services.

Main Comments from the consultation:

More focus on the rural poverty issue;

Strengthen policies that deal with rural poverty;

Improve access to social and economic infrastructure;

Facilitate agricultural growth and competitiveness;

Enhance the development of non-rural and private sectoractivities;

Improve natural resources and environmental management;

Pay more attention to gender and human resource devel-opment; and

Pay more attention to governance and institutions.

Box A3.2: Summary of RegionalConsultations: East AsiaA3.2

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that problems of overlap, duplication, and competi-tion, characteristic of previous interactions, can beminimized. Part of the function of successive “ruralCG” meetings would be to formally monitor andevaluate progress based on agreed performanceindicators and targets. The results of this exercisewould be used to improve project and programdesign and drive performance.The outcome of theentire “rural CG” process would be shared withother clients in a joint consultation in order todemonstrate to them a successful approach to ruraldevelopment.

EUROPE AND CENTRAL ASIA

Roughly 50% of the poor in ECA live in rural areas.This is a considerably lower share than in the restof the world. ECA also has the lowest poverty ratesof any of the Bank’s Regions. However, poverty andinequality have increased faster in this Region thananywhere else over the past decade, and theseaverage rates mask considerable differences acrosscountries and within countries between rural andurban areas. In more than half of ECA countries,there are more poor in rural areas than in urbanareas.Thus, making a dent on poverty in the Regionwill require continued work in rural areas.

Broadly, the share of ECA’s lending program aimedat improving rural livelihoods has probably beencommensurate with the share of poverty in ruralareas (unlike in many Regions of the Bank), but thisproportion needs to be sustained over time. In con-trast, rural ESW is generally inadequate. PRSPs donot adequately reflect the rural dimensions ofissues, and this will negatively affect our ability toensure rural issues are appropriately integrated intoCountry Assistance Strategies.

We have a number of models that work well andwhich can be scaled up to national level programsor replicated in other countries. These include,among others, farm privatization and restructuring;micro-credit; development of community-basedirrigation, institutions, forestry and watershed man-agement; forest policy reform; land administration(registration and cadastre); and dam safety andflood protection. We are doing some innovative

work on food quality and safety and on off-farmrural infrastructure. We are still struggling withdeveloping models for jump-starting the privatesector (off-farm employment creation, agro-busi-ness and marketing) but these remain priorities ofour clients and we are committed to helping themfind solutions.

We will continue to do investment lending to sup-port our program.We have found that our empha-sis on community-based approaches and creatinginstitutional capacity works best when supportedby LILs, SILs and APLs.We have also found that wecan support a number of policy reforms with theseoperations and that we gain more commitmentfrom stakeholders when reforms are accompaniedby investment. We will use SECALs sparingly, andonly when there is a broad reform agenda and trueownership by the Borrower.We will try to integratebroad policy issues into PALs and SALs/SACswhere leverage is greater.

Regional Context

EconomyThe Eastern Europe and Central Asia Region has415 million people (7% of the world’s total) ofwhom 35% live in rural areas (compared with 54%worldwide). It has 20% of the world’s arable landand 24% of its forests. The region is characterizedby its diversity, with its countries differing widely inclimate, natural resource base, income and progresswith economic and social reforms. Incomes varyfrom nearly $10,000 (Slovenia), with 10 countriespreparing to join the European Union, to $380(Tajikistan and Moldova). The economies in thenorth and west are heavily industrialized, with agri-culture contributing 10% or less to GDP, eventhough rural populations are 25-40% of total.Thosefurther south and east are more rural, with agricul-ture contributing 30% or more of GDP in mostCentral Asian countries, but also in Albania andArmenia, and most people living in rural areas.

All countries have struggled with the transition to amarket economy, and in all there were sharp dropsin GDP after 1990. In all transition countries, therural service economy was poorly developed; pro-duction and processing were closely integrated, and

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there was a focus on increasing output rather thanon responding to consumer preferences. While inCentral Europe GDP levels are now well abovethose of 1990, in many CIS countries they remainbelow their pre-transition levels (e.g., in Moldovaand Armenia they are less than one-third the levelsof the late 1980s) despite reasonable progress witheconomic reform.

Social IssuesWhile the Region is highly diverse, there are somecommon features. All countries of the regionexcept Turkey have experienced profound socialchanges over the last 10 years, following the break-up of the Soviet Union and the move to a marketeconomy. There has been civil unrest and war inseveral countries (Croatia, Bosnia, Yugoslavia,Tajikistan, Azerbaijan, the North Caucasus). Therehas been a deterioration in law and order withwidespread consequences, including protectionrackets bribery and extortion. Although absolutepoverty is lower in ECA than in other regions,poverty and inequality have increased faster thanelsewhere, even in the most successful economies.On average, only 50% of the poor live in rural areas,but rural poverty incidence is higher than urban inalmost every country, and there are more ruralpoor than urban poor in most countries.

Although poverty has increased, rural populationshave gained greater power and influence over deci-sions that affect their lives through improved accessto land, and freedom in how to use it, and by devel-opment of democratic local institutions.

ECA can be distinguished from other regions in anumber of other ways as well. Except in CentralAsia, population growth is stagnant or negative, lit-eracy is almost universal and basic infrastructure isreasonable though deteriorating. Health indicatorsare quite good, although there have been sharpdeclines in male life expectancy especially in Russianand Ukraine, and infectious diseases such as tuber-culosis are re-emerging as health systems havedeteriorated.

Policy IssuesPrices and trade in most countries have been liber-alized, industries have been privatized and land pri-

vatization is well advanced. It has been much moredifficult to build up the institutions, governanceframework and investment environment for busi-nesses, banking systems and land, labor and capitalmarkets to thrive.The “right” balance between pub-lic and private sector responsibilities is still emergingin most countries, and civil servants have seen largedeclines in real salaries.

The Central European countries, geographically andhistorically closer to Europe, have found it easier toreach consensus for economic reform than thecountries further east, which are also further fromwestern markets. For these Central Europeancountries, policy is now dominated by issues relat-ed to EU accession. For the CIS, the key issueremains property rights, especially in land and theability to engage in land transactions. In theCaucasus and especially in Central Asia waterresource policy is a key focus.

Agriculture and Rural EconomyWhile the north and west has in general amplerainfall and plentiful forest resources, soils are onlyof moderate quality and growing seasons are short.Livestock contributes 30-40% of GDP and forestsand forest industries are a major employer. TheCentral belt, stretching from Hungary through partsof Romania, Moldova, Ukraine, Southern Russia andNorthern Kazakhstan, has some of the most fertilesoils in the world.Together with the Southern Coneof Latin America, this area has the potential, if landis sustainably managed, to significantly increase pro-duction of basic food crops and to help meet theincrease in world food demand projected over thenext 25 years.

Agriculture has become an important social safetynet as industry has contracted and people havereturned to the land to survive. The share of agri-culture in GDP has increased in many countries.Land has been privatized over most of the region,in some cases in small, fragmented plots, and admin-istrative complexities with land titling have made itdifficult for land to be used as collateral, and fortransparent land markets to develop. A special fea-ture of Russia, Belarus and Ukraine is garden plots(of 1 ha or less) cultivated by both rural and urbanpopulations for subsistence, but also for small-scale

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commercial production. These produce the greatmajority of fruits, vegetables, potatoes and milk inthese countries; they are dependent for cheapinputs on the large-scale former collective farms,which have mostly been privatized but still face softbudget constraints.

Lessons Learned in the ECA RuralAssistance ProgramOur approach to helping our client countries withthe transition has evolved. Regarding policy reform,the focus in the early 1990s was on liberalizationand privatization of assets, on deregulation andreducing the role of government in the economy,with the main emphasis on growth and less directintervention for poverty reduction.We argued thatwe should support investments only when policyreforms were well advanced. Since then, we havelearned the following lessons:

Fundamental reform takes time, sequencing iscrucial, and privatization without a supportinginstitutional and regulatory framework does notnecessarily lead to development of a marketeconomy and prosperity. During regional consul-tations our stakeholders emphasized that ourreform agenda has often been too ambitious interms of pace. We have also learned that com-mitment to reform by technocrats and academ-ics is insufficient; and that without support fromelected representatives and civil society reformsare frequently not sustainable.Delaying investments until policies are right canhinder our ability to help large numbers of poorand can sometimes significantly increase theeventual costs of investments (e.g., for deteriora-tion of irrigation and drainage infrastructure).Support for modest investments, combined withmodest policy and institutional reform, is often asuccessful approach.Simple project design usually works best (andagain our regional stakeholders made this point).Successful projects should be geographicallyfocused if they support a complex agenda (e.g.community based watershed rehabilitation, ruralinfrastructure, land reform and farm restructur-ing with redesign of field irrigation systems) orshould support only one area for intervention ifthey are nationally focused (e.g., community-

based micro-credit). Complex, national-levelprojects have worked less well and this conclu-sion is supported by QAG and OED assess-ments of our projects.We have learned that the weakest dimension ofour projects in the past has been developmentof institutional capacity and sustainability of proj-ect activities after withdrawal of Bank financing.We have learned that improvements in theseareas can come through close work with localinstitutions and by supporting bottom upapproaches such as community-driven projectidentification and implementation. We have alsolearned that institutional capacity building andcommunity driven activities work best whensupported by LILs, SILs and APLs; this type ofdevelopment is difficult to nurture with SECALsand PALs.We have learned that there is little focus onrural energy, rural infrastructure (other thanwater supply and sanitation), rural health, ruraleducation, rural private sector development byour colleagues in other sector departments andthat it is difficult to create synergies betweensector units, despite the existence of countryteams.We have learned that we still do not have goodmodels for supporting private sector develop-ment, whether it involves SME developmentgenerically or whether it is aimed at revitalizingor creating critical enterprises serving the ruralsector, namely agro-businesses and marketingcompanies for delivering inputs and collectingoutputs.Yet this bottleneck is a critical constrainton agricultural development and our clients areeager for assistance in this area.

Objectives and StrategiesOur overriding objective is to help our client coun-tries pursue broad-based, sustainable growth ofproductivity and improved social well-being in therural economy.We have five strategic objectives:

Increased agricultural productivity and value-added;Off-farm rural enterprise growth;Development of physical and social infrastructure;Improved land, water and forest management; andRisk mitigation.

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To achieve these objectives, we have individual sub-sectoral strategies. Overarching these strategies, wehave certain themes that guide our work:

In general, reform of prices and trade, and priva-tization of farms and enterprises remain prereq-uisites for sub-sectoral investments. However,where the economic rates of return for aninvestment are good, where the investmentwould help substantial numbers of rural poor,where delays would further increase the costs ofthat investment, and where the rural sector is“net-taxed,” our strategy suggests that we sup-port modest investments.Community driven investments will be the pre-dominant approach to our work, but we recognizethat there may be a tension between publicly fund-ed investments selected in this manner and thoseselected using national efficiency criteria.We will tryto integrate the better of the two approaches.There are trade-offs between equity and effi-ciency considerations. In selecting investmentsfor support, we will accept that satisfactory,rather than optimal, economic returns to theeconomy may best reach poverty reductionobjectives. Our strategy also takes into accountpolitical economy and social well-being andacknowledges that some reforms may have tobe crafted differently or go more slowly thanpure efficiency considerations would dictate.There are also trade-offs between short-termsocial well-being and longer-term economic ben-efits, and between short-term production maxi-mization and sustainable natural resource man-agement. Our strategy aims at balancing theseconsiderations and not pursuing either extreme.Our borrowers have legitimate concerns thatthe move to a market economy from the previ-ous socialist system brings considerable risks anduncertainty that require specific attention, partic-ularly when many of the risk mitigation instru-ments of market economies are not yet avail-able. We will explicitly address these considera-tions in our work.We will seek to emphasize institutional develop-ment, capacity building, the involvement of localparticipation and sound governance in all of ourwork.Action Plans.

Sub-regional PlansOur assistance strategy by sub-region dependspartly on the regional context and priorities. Thelevel of emphasis given to each sub-region is deter-mined by a combination of three factors: (a) need(a function of per capita income, geographical andsocial endowment, and economic performance); (b)interest and willingness on the part of our clientcountries to work as a partners, and to borrow; and(c) the capacity, including the institutional frame-work and governance, of the client country to useBank support.

Table A3.1 below summarizes the proposed focusareas of our future assistance program by sub-region. In Romania, Bulgaria and Moldova we havean extensive program because there is a “congru-ence of need, willingness and capacity,” as well asinstitutions which operate with a reasonable degreeof transparency. In Central Europe, there is lessdemand for Bank assistance (with greater access toconcessional funds from the EU), in the “core” CIScountries and in Central Asia the levels of “willing-ness” and or “capacity” are in some cases lower.Over time we would aim to increase our assistanceto Central Asia, Ukraine, Russia and Belarus. OurIDA borrowers also have constraints on access toBank financing, while even in the IBRD countries theoverall country assistance envelope is determinedby agreements reached through the CountryAssistance Strategy process.

Thematic PlansOur priority interventions are aimed at five generalthemes where our clients have indicated they wantthe most support from the Bank and where theBank has a comparative advantage.

Increasing Agricultural Productivity and Value AddedIn most ECA countries, particularly those in theCIS, agriculture remains a key sector of the econo-my and interventions to increase inclusive growthwill require improvements in factor productivity inthe sector itself. Areas for intervention include: sup-porting continued policy reforms, pursuing transferof property rights through completion of land pri-vatization and farm restructuring, creation of secureproperty rights and development of land markets,

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reversing the deterioration of irrigation anddrainage systems and creation of community-basedinstitutions to own and manage the systems, devel-opment of knowledge and information systems, andestablishment of quality and safety standards.

Off-Farm Enterprise DevelopmentThe Bank historically been involved in agriculturalcredit.We have shifted our focus to development ofsustainable rural financial services, including savings,leasing and risk reduction instruments, as well asmicro-credit for all rural enterprises, not only farms.Aside from finance, we have done little to developa vibrant private economy off the farm. The non-existent or poorly functioning markets for inputsupply and output marketing and agro-processingindustries represent a major bottleneck for futureagricultural growth. SME development in these andother manufacturing and services to support rurallivelihoods are a necessary complement to a grow-ing agricultural sector which should shed labor as itbecomes more productive. Because of the criticalimportance of this issue to our clients, our strategy

involves a heavy emphasis on searching for success-ful models and reaching out more actively to ourpartners with expertise in this area (IFC, EBRD).We are testing some new approaches to off-farmemployment creation in Poland and will monitorthis experience closely for possible replication else-where.

Social and physical infrastructureWe are supporting improved water supply andsanitation in a variety of countries, focusing oncommunity-based approaches. Increasingly we aimto support rural infrastructure projects whichstrengthen local government’s implementationcapacity and local democratic institutions. We donot have a clear strategy for either rural energyand telecommunications, or for rural road infra-structure. We support “lifeline” energy tariffswhere poverty and rising energy prices have ledto increased use of biomass and land degradation,and to support increased internet connectivity.With regard to health and education, our strategyis to improve delivery of services while increasing

Table A3.1: Priority Actions for Rural Development in the Region

Priority Actions Central Romania Balkans Turkey Core CIS Caucasus Central

Europe, Bulgaria Asia

Baltics Moldova

Policy Reform � � � � � � �

Land Reform � � � � � � �

Irrigation and Drainage � � � � � � �

Knowledge/info Systems � � � � � � �

Quality and Safety � � � � � � �

Agricultural Marketing � � � � � � ?Rural Finance � � � � � � �

Roads, Telecommunications, Energy � � � � � � �

Water Supply & Sanitation � � � � � � �

Health � � � � � � �

Education � � � � � � �

Land Management � � � � � � �

Water Management � � � � � � �

Forests � � � � � � �

Regional Seas � � � � � � �

Natural Disasters � � � � � � �

Financial Risks � � � � � � �

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cost-effectiveness and rationalization of existingsystems, where necessary. We are also supportingan emphasis on primary health and outpatientcare and primary education, and improved sup-porting infrastructure (e.g., teachers’ housing, elec-trification of schools, ect.) with community partic-ipation. We support creation of incentives forproviders in rural areas and investments in basicequipment.

Land,Water and Forest Management(including landscape management andbiodiversity conservation)Land management. Our strategy involves increasingsupport for new technologies such as minimumtillage and support for better nutrient managementand more environmentally friendly farming meth-ods.We will replicate successful approaches in onecountry with appropriate adaptations to others,e.g., participatory natural resource management,where local communities work with local line min-istry staff to select from and implement a “menu” ofactivities that improve soils and moisture retentionand increase local incomes, which has been suc-cessful in Turkey. We will also aim to replicate else-where our successes with community range andforest management.

Water management. Our focus will continue to beon improved irrigation and drainage management,and we will also support dam maintenance. InCentral Asia, our priority will be on support forinvestments that improve local incomes and man-agement of the Aral Sea watershed.We will aim tosupport improved wetland management forecosystems management and protection of fish-eries’ spawning grounds. Our strategy will be tosupport improved river-basin planning to helpclients prioritize and balance water requirementinvestments at a country level.We will support therange of water resource investments where ERRsare adequate, the rural poor benefit and the envi-ronmental impacts are positive.

Forest management. Our strategy in the “forest-rich” countries is to improve public sector manage-ment, including fire and pest management, forestland-use planning, greater transparency in forestmanagement, and support for sustainable approach-

es to land restitution, in order to increase the “value-added” to the economy and society from sustainablymanaged forests. In the “forest-poor” countries wewill focus on community range, forest and water-shed management for poverty reduction and sus-tainable livelihoods. We will also help our clientsmeet commitments to global environmental con-ventions regarding biodiversity conservationthrough supporting improved protected area man-agement and landscape management in the produc-tion landscape.

Risk MitigationImproved security against man-made and naturaldisasters is one key element of human well-being.Our strategy, regarding natural disasters, has threemain elements: (a) helping our countries to recov-er and reconstruct quickly following natural disas-ters; (b) helping them put in place disaster plan-ning, preparedness and mitigation programs toreduce the impact of disasters when they dooccur ; and (c) through our regular lending, helpingour countries restructure elements of theireconomies to be less vulnerable to disaster (e.g.through more supplementary irrigation indrought-prone areas, dam rehabilitation, and sup-porting better pest and forest fire managementsystems).

We will also seek to introduce financial risk mitiga-tion instruments (e.g., new-style insurance programsand hedging) as part of our rural financial services.

Implementation

Internal World Bank ImplementationIssues and PlansIn order to implement our strategy we need towork closely with other sectors, especially theHuman Resources and Infrastructure Sector Units,but also Poverty Reduction and EconomicManagement, and Private and Financial SectorDevelopment. Few projects outside ECSSD areaimed specifically at rural areas. We aim to put aparticular emphasis on making sure that rural issuesare well treated in CASs and PRSPs in the future.This means ensuring that the appropriate level ofintervention is supported for the importance of thesector and the degree of rural poverty.

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Donor Coordination Issues and PlansWe are committed to working with other partners,recognizing the enormous strengths and assets theycontribute to our efforts.We have found, however,that this is not always easy and their priorities, pro-cedures (especially procurement, but also manyothers) and time horizons can be quite different. Inour strategy, we explicitly recognize that partner-ships, even with IFC, are not cost-free or easy, andwe adjust our expectations accordingly. We willstrive to maximize synergies with our partners,carefully balancing the costs and benefits of theserelationships for our clients. Partnership agreementsreached at high levels often do not have adequatebudget support at country level for effective imple-mentation and we will seek to ensure that expec-tations are clear in light of fiscal realities.

Implementation Arrangements andInstrumentsOur key instrument is lending but our ability to usethis instrument is limited for a number of reasons.For Central European countries, with increasingaccess to EU funds and to commercial capital mar-kets, our money is increasingly non-competitive. Onthe other hand, in the former CIS we are reluctantto lend to the slow reformers, and there are debtand IDA lending constraints on the poorest coun-tries. On some occasions Bank procedures, particu-larly those regarding procurement, financial man-agement and environmental safeguards, are regard-ed as cumbersome and expensive, and decreaseborrower interest, even if overall they increase cost-effectiveness, transparency and project design. Ourstrategy is to continue to use lending instruments tothe extent possible within these constraints, as webelieve the development impact of this toolremains significant, but to expand our use of non-lending instruments as a complement where thereis demand from the client.

Lending. We will continue to do investment lendingto support our program. We have found thatdeveloping community-based approaches and cre-ating institutional capacity works best in the form ofLILs, SILs and APLs.We have also found that we cansupport a number of policy reforms with theseoperations and that we gain more commitmentfrom stakeholders when reforms are accompanied

by investment. We will use SECALs sparingly, andonly when there is a broad reform agenda and trueownership by the Borrower.We will try to integratebroad policy issues into PALs and SALs/SACswhere there is more leverage. We find, however,that this type of adjustment lending needs to becomplemented by investments to achieve lastingimpact and to nurture the kind of local involvement,development of local institutions and capacity build-ing that we believe are critical.

In general we will emphasize project lending thatcombines investment with support for sub-sectorpolicy reform. Examples of success with thisapproach include: support to decentralization ofwater management and water users’ associationsthrough irrigation projects; involvement of localcommunities and local governments in design andimplementation of natural resources and local infra-structure improvement projects; improved forestmanagement policies through support to improvedforest inventories, planning, financing and protec-tion; land reform through support to farm restruc-turing; development of land markets through cadas-tre and land registration projects; and improvedrural financial policy through FILs requiring marketinterest rates and elimination of subsidies. Locallydriven development is frequently effective in over-coming the governance problems faced in manyECA countries and we will aim to use this approachas much as possible.

Non-Lending Services.We intend to continue to useIDFs to build institutional capacity. PHRD grants arean essential input into project preparation, and we willcontinue to use them to the maximum extent possi-ble.We will aim to work with the Financial Complexto restore their operational flexibility.

GEF has financed pilot investments in improvedecosystems conservation and management of inter-national waters. It has also often acted as a catalystfor Bank lending operations at a later date. Giventhe increasing financial and operational constraintswith GEF, we aim to work more closely with ourclients to persuade them to see the benefits of bor-rowing both for rural “public goods” (social servic-es, better land and water management, researchand extension) as well as for “global public goods.”

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We will put a high priority on doing country-specif-ic economic and sector work which is countryfocused and operational, learning from projectexperience. We will aim to complete our ESW

tasks more promptly, to have them carried out, tothe extent possible, by the person who is responsi-ble for lending in a particular country, and to havelocal ownership, to improve effectiveness. We will

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Consultation took place in Moscow (March, 2001) with over 80 participants from 22 countries. It provided valuable feedback and also anopportunity for members of the rural development community from so many countries of the region to meet one another. There wereinformal exchanges of views and a sharing of experience in several areas.

Overall approach:

There was support for a broader approach to Rural Development, to go beyond agricultural productivity and include off-farm enter-prises, physical & social infrastructure, natural resource management and risk mitigation.The strategy should address rural poverty especially the need for ECA to develop social safety nets to reduce growing rural poverty.Differences between countries were emphasized; there was a need for a strong sub-regional, country-specific and local focus in strate-gy development and implementation.The World Bank should be more sensitive to the political aspects of rural developmentThe group expressed frustration with the tough policy requirements and conditions set by the Bank.

Thematic Areas:

Western ECA region priorities emphasized EU accession, WTO, and market access, while eastern ECA region priorities emphasized landreform, institutional development, progressive pro-rural/farmer credit policies, and pursuing market reform.The Bank should support new emerging privatized farming structures and both small and big farms.Credit access is a priority, but there was concern at the lack of Bank support to the institutional development of private sector asidefrom credit.Development of agro-processing facilities as well as the private non-agriculture sector are critical to increased competitiveness of theregion.The Central Asian region identified natural resource management as critical to rural development; especially irrigation, forestry and bio-diversity.

Bank Instruments

The World Bank should be flexible, quicker, and less bureaucratic, and use more local experts and expertise from the region.Bank lending should be combined with pilot grants for the projects.There should be more focus on simple, small grass-root projects rather than complex large-scale projects (APLs and SALs).

A3.3 Summary of Regional Consultations: Europe and Central Asia Region

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also put an increasing emphasis on providing “just-in-time” sub-sector notes that respond to specificissues raised by our clients, and we will draw moreon international experience to provide our clientswith options as they pursue reform. We supporthaving country units hold a reserve for this type ofESW, for all sectors, not just rural.

Measuring the Success of our WorkOur individual investment operations generallyinclude outcome indicators. Broader indicators,such as the decline in the number of rural poor orincrease in off-farm employment in rural areas, canbe measured but are difficult to link to our assis-tance strategy We will measure the success of ourstrategy implementation in the following ways:

In the sub-regions summarized above, new lend-ing and CAS objectives should reflect the prior-ities outlined in the strategy;The priorities and approaches followed in thenew projects should reflect the sub-regionalstrategies; andNew ESW should focus on the priority objec-tives of the strategy and should be operational.

A regional consultation was held during March2001 to discuss this strategy. A summary of themajor conclusions from that consultation are pre-sented in Box A3.3.

LATIN AMERICA AND CARIBBEAN

Regional Context and Key IssuesThe Latin America and the Caribbean Region(LCR) is a middle-income region well endowed innatural resources. LCR is the wealthiest of thedeveloping regions with an average per capita GNPof $3,940 in 1998.At the regional level, it is also theleast dependent on agriculture—an average of only8% of GDP in 1998. However, this average ratiohides a great variation that ranges from 5% inMexico, 8% in Brazil, 15% in Colombia, and 24% inNicaragua.The region is also well endowed in natu-ral resources. It has abundant tropical and temper-ate natural forests, with more than half the world’stropical forests, major biodiversity reserves, andaround a third of the world’s fresh water.

LCR is a highly urbanized region. Of its estimated519 million inhabitants for the year 2000, 391 areurban, and 128 are rural. About one third of thepopulation is poor, and about one sixth extremelypoor. Poverty incidence in 1998 is lower than in1992 but it is only back to the level of 1986.Projections for the year 2020 show that while theurbanization trend will continue and the share ofthe rural population will decline, the absolute num-bers of people living in rural areas will remainroughly the same. Moreover, serious problems ofequity exist and are particularly evident withrespect to land distribution. LCR possesses thehighest GINI (inequity) coefficients in the world. Forexample, it is over 0.9 in Peru, Paraguay andVenezuela and close to those levels in Colombiaand Brazil.

During the 1990s, most countries in the regionmade a radical departure from heavy state inter-vention in prices and markets towards private sec-tor-led models of development, reducing barriersto competition in domestic markets, and accelerat-ing the process of trade integration with the globaleconomy. Several countries, however, lagged inthese reforms; e.g., Venezuela, Ecuador, Haiti, andJamaica. The region as a whole benefited as evi-denced by the return of macro economic stability,and the decline in the average public deficits.Growth resumed, but for many it was sluggish, notsustained and with recurrent crisis (Argentina,Brazil, Mexico). Growth of per capita GDP wasbelow 1.5% per year in the 1990s and was accom-panied by increasing inequality.

The high rate of urbanization notwithstanding, thestrategic importance of agriculture and the ruralsector remains for four major reasons.

Contribution to employment and to GDP.Despite their modest contribution to GDP, pri-mary agriculture accounts for a large share ofthe labor market: 20% in Mexico, 57% in CentralAmerica. However, when agriculture is broadlydefined to include agro-industry, its share ofGDP is much higher. For example, in Argentina,Chile, Brazil and Mexico (which togetheraccount for more than 70% of AGDP of LCR),agriculture accounts for around 40% of GDP

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(1996). Opportunities offered by the sector arestill large and untapped.Impact on the environment. Any growth at thecost of natural resource degradation is a short-lived victory. If nothing else, degradation weakensthe resource base, exacerbates the destructiveimpact of natural calamities, and worsens the vul-nerability of the poor. Agriculture is one of thesectors where the importance of integrating envi-ronmental and economic policies is most obvious.The rural sector contributes to the develop-ment of the other sectors of the economy.High-productivity agricultural transformation hasfuelled the growth of most high-income industri-alized countries. Urban demand for processedfoods is rising and so is the demand forprocessed goods of higher quality.Also, the qual-ity of urban development will be determined bya successful transformation of the rural sector.Higher incidence of poverty in rural LCR. Ruralareas have the highest incidence of poverty(63%). Social and economic indicators in ruralareas are low and much worse when comparedto urban areas. Also, rural poverty dispropor-tionately affects some groups.

Lessons LearnedMacro reforms were necessary but insufficient toremove the structural impediments constrainingthe rural poor. While the macro reforms helpedput in place a policy framework more conducive togrowth and private sector involvement, they werenot complemented by “second generation”reforms.These are measures to improve the com-petitive functioning of factor and goods markets,reduce the high inequalities and the deep-seatedstructural problems that severely limited access ofthe rural poor to economic assets, markets, servic-es, technology, and infrastructure. The macroreforms did not reverse the long history of un-egal-itarian development.The rural sector remained rel-atively disconnected from the rest of the economyand many structural distortions and regional dispar-ities were left untouched as the micro agenda wasoverlooked. In terms of its contribution to ruralpoverty, the structure of growth is as important asgrowth figures per se. In many cases agriculturalgrowth was concentrated in the commercial sectorand did not trickle down.

Sectoral policies and programs may skew incen-tives. Some countries implemented explicit orimplicit taxation policies towards the sector,through overvalued exchange rates regimes, indus-trial protection or taxation of export commodities(with strong comparative advantage) and protec-tion of import substituting food (with little compar-ative advantage).These protection and taxation pat-terns were highly inefficient. In a number of coun-tries the incentive framework for agricultureremained relatively unfriendly with negative protec-tion rates and negative real prices to producers formost crops, e.g., Mexico. Also, the use of subsidiesto address poverty had perverse effects. Subsidizeddirected credit through parastatals was highly ineffi-cient in terms of its fiscal cost, delinquency rates andoutreach capacity. It also crowded out and inhibitedthe development of local self-sustained savings andloans initiatives. Subsidies for investment and equip-ment are difficult to target and risk accruing dispro-portionately to medium and large commercialfarmers.This also drives up land prices, induces con-centration of land, and makes access to land by thepoor more difficult.Also, productivity improvementsshould be more closely associated to competitive-ness as subsidies may skew the incentive structureof the various crops.

Need to find the right balance. This rural actionplan argues that LCR cannot succeed in its povertyalleviation efforts without the contribution of therural sector. However, finding the right balance is stilla challenge.The development community has gonefrom one extreme to another, searching for theappropriate instruments and approaches to trans-late an holistic vision into effective actions. Toooften, implementation capacity falls short of con-ceptual sophistication or poor policies impededgood projects to bear fruits.

Integration through a territorial, decentralizedapproach. While the integrated rural developmentprojects of the 1970s were right about integration,they were wrong about the way they were carriedout. These projects were implemented top-down,with no participation, no decentralization and in anadverse policy environment.There is a lot that canbe recovered from the concept of integrated ruraldevelopment in the new context of decentraliza-

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tion, differentiation, democratization and better pol-icy framework which characterize most of LCRcountries today. There is a compelling need toaddress equity issues in the context of a rural devel-opment strategy repositioned in the context of its“rural space.” Under this approach, agriculture, off-farm activities, employment opportunities, socialcohesiveness, municipal development, access tomarkets and services, are seen as equally importantelements of a strategy that blurs traditional dividesamong sectors and among rural and urbanapproaches.

Need to build bridges beyond the communitylevel. Community participation approaches helpedbuild social capital and proved to be an effectivemechanism for delivering micro-projects and pro-ductive investments. However, to ensure institution-al sustainability, there is a need to link these com-munity-driven projects to local governments. Suchan approach should also build the bridges with therest of the economy, promoting producers’ organi-zations and providing the critical linkage to integrat-ed supply chains, where the private sector wouldplay an increasing role in the development of thefamily farms sector.

Need a culturally- and gender-sensitive approach.It is clear that the pervasiveness of poverty ratesamong ethnic minorities and the increasing role ofwomen in rural society raises the issue of socialinclusion and access to productive factors andassets. Government programs should deviseapproaches more adapted to cultural preferencesand gender needs.

Objectives and StrategiesMain objectives. The overarching objective of theproposed regional action plan is to reduce ruralpoverty and promote broad-based growth in thecontext of the sustainable management of naturalresources.

Strategic thrusts. The strategy revision processemphasizes the holistic nature of rural develop-ment, as opposed to focus on a single sector—agri-culture, and the urgency to go beyond vision intoaction.The strategy is to build on successful experi-ences and scale up what is working well, strengthen

the missing links, and work better together acrossnetworks so as to better balance the different ele-ments of a complex package and achieve synergism.A rural development strategy has to include sever-al differentiated elements directed at different pop-ulation groups while acknowledging that an ade-quate overall macro and policy framework is essen-tial. In addition, the strategy wants to convey themessage that while the rural sector confronts manychallenges, it also presents many opportunities thatmakes it potentially attractive to investors and torural dwellers, if the right mix of policies, institutionsand support programs can be put in place.

Better addressing the rural-urban dynamics. Whilean important preoccupation of policy makers is tomaintain rural-urban migration at manageable levels,this migration will continue. More training and edu-cation opportunities for the rural poor are impor-tant for facilitating their absorption into other sec-tors of the economy. However, outright promotionof migration as a rural poverty alleviation strategy isnot viable, because it would exclude from a ruralmodernization process a large smallholder sectorwith growth and employment potential and convertit to slum dwellers. For the millions who continue tostay in rural areas, improving living conditions willdepend on improvements on several fronts. Theseinclude intensifying small-holder agriculture andincreasing productivity; providing infrastructure andservices; improving access to assets such as land,education and financial services, and to markets;ensuring the sustainable management of the naturalresource base on which they base their livelihoods;and providing better risk management tools.

Integration through regional development and anew “institutionality.” A “rural space” approachbased on regional development will provide theunderlying vehicle to pursue sectoral integration.This requires improving the absorptive capacity ofsecondary towns in the context of increasing urban-rural integration and interaction. It also calls forinvestments in basic infrastructure, promotion ofnew off-farm opportunities, better integration withthe labor markets, continued emphasis on commu-nity-driven development, municipal strengtheningand the building of social and human capital. It alsoallows for better integration of environmental issues

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in an effort to build consensus around possible “win-win” opportunities. In this context a new “institu-tionality” will need to be built around the concept ofincreased participation of the local actors, farmers’organizations, civil society, local governments, andthe private sector. This means a revision of roleswhere beneficiaries of Government programsbecome clients and take leadership of regional plan-ning and priority setting, guide and negotiate localdevelopment processes, and create the conditionsfor more accountability and better governance.

Productivity, competitiveness and increased pri-vate sector involvement are key engines ofgrowth. Agricultural productivity, competitiveness,access to technology and markets will remain criti-cal for many producers independently of their size.However, in many cases the smallholder sectorworking for the domestic market should be subjectto more attention and support in view of its poten-tial and untapped contribution to growth andemployment. Conditions for increased private sec-tor involvement will need to be studied and barri-ers removed through private-public partnership.

Social safety nets for the severely marginalized.There is a group of rural poor who will remain mar-ginally productive and will not be able to benefit fromthe rural non-farm economy or to migrate.Membersof this group are typically older and female heads ofhouseholds and farms in poorly endowed areas. Forthis group, social safety nets and risk managementcombined with the promotion of income generatingactivities, both off-farm and on-farm, are critical toassure basic decent living standards.

The Action PlanThe proposed action plan contemplates a series ofpriorities organized along a two-pronged approach.The enabling factors can be considered as criticalunderlying elements in the implementation effec-tiveness of the strategy in any country.The prioritylines of actions describe the possible applicationssubject to country circumstances.

Enabling FactorsMaintain a supportive macro-economic and tradeenvironment. This advocates a more pro-activerole in the discussion of macro-economic and poli-

cy issues that affect the rural sector. It also supportsrenewed engagement in economic and sector workto provide better underpinning and understandingof the factors that determine rural poverty, theincentive framework, the functioning of land, laborand financial markets, the decentralization processfor the sector, etc.

Promote a new “institutionality” for the sectorand good governance. The combination ofincreased decentralization and the development oflocal democracy are key elements to progressivelycreate the conditions for greater participation andaccountability at the local level. The main debatearound the issue of how to better articulate thesocial demand for services with the institutionalsupply calls for a re-thinking of the respective rolesof the public sector (both central and sub-nationalgovernments), civil society, interest groups, privatesector, etc.

Develop a credible regulatory framework. Thisincludes a number of elements conducive to moreeffective private sector participation and betterfunctioning markets. It includes: a) establishing bet-ter-integrated price and market information sys-tems; b) developing appropriate regulatory frame-works and enforcement capacity as critical factorsfor secure transactions, inventory-based financing,crop insurance, non-bank financial institutions, con-tract farming, and “collateralization” of assets; and c)facilitating the development of commodity qualitystandards based on industry participation andneeds, and the development of food safety norms.

Lines of ActionRaise productivity and competitiveness as theengine of agricultural growth. This proposes topursue public/private partnerships for the deliveryof public goods and services (such as agriculturalresearch and extension, animal and plant healthcontrol), facilitate access to adapted technology andequipment, while improving quality and cost-effec-tiveness. It also promotes more efficient croppingpatterns and better vertical integration in the sup-ply and marketing chain. It argues in favor of basingfuture irrigation projects on a decentralized inte-grated approach to sustainable management anduse of water resources.

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Pursue a systematic approach to improve thecompetitive functioning of markets. This addressesthree essential markets. Land regularization andadministration are to increase access to land andpromote more efficient functioning of land markets.Rural financial services are in need of urgent revivaland rethinking in terms of both the efficiency ofexisting public or semi-public credit delivery mech-anisms and the importance of the non-bank sectorthrough savings and loans “mutualistic” approaches.Product and storage markets should be made morecompetitive and efficient through the developmentof farmers’ organization, higher value transforma-tion activities, better information system and inven-tory financing mechanisms.

Foster a “rural space” approach and regionaldevelopment. It proposes a more integratedapproach that blurs the traditional urban-ruraldivide and repositions rural development in theframework of a territorial approach.This approachwill foster better integration with the supply chain,labor and financial markets, the provision of basicinfrastructure and services, sustainable naturalresources management and will go a long way inrendering rural areas more attractive to migrantsand to the private sector. Community-driven devel-opment would be scaled-up as an effective vehiclefor building social capital, and delivering basic serv-ices and small infrastructure. However, the key linkswith local governments will be strengthened includ-ing more emphasis on building municipal capacitiesin the context of increasing decentralization.

Manage natural resources in a sustainable way.This is a key issue for the long-term sustainability ofdevelopment programs but one that presents con-siderable trade-offs between short-term benefitsand long-term social costs. A number of experi-ences exist in LCR that have developed win-win sit-uations and instruments capable of better integrat-ing productive, management, and conservation con-cerns. These initiatives are still relatively scatteredand will need to be scaled-up so as to demonstratetheir potential in ensuring a more sustainable use ofthe resource base.The Global Environment Facilityshould continue to play an instrumental role in facil-itating better mainstreaming between conservationand development.

Build human and social capital. Expanding thedelivery of basic education and health services arepowerful tools for poverty reduction in a regionwith high rural-urban migration. Education shouldbe seen as a priority for the rural population, andespecially education for girls. It improves employ-ment opportunities, prepares future migrants toaccess better jobs, and helps families to better plantheir own future. Development programs need topromote social inclusion, build social capital andrespect cultural diversity and preferences of minor-ity and ethnic groups which shoulder a dispropor-tionate burden of rural poverty.

Strengthen risk management and safety nets.Finally, a series of relatively new activities and instru-ments would be developed and expanded toreduce the vulnerability of poor people both toeconomic shocks and natural disasters. This coversa range of tools like early warning systems, preven-tion activities, price hedging tools, and crop insur-ance schemes. Also social security, safety nets andincome support programs can be very effectiveinstruments to reach the poor and they should bedeveloped according to local circumstances.

Implementation

Internal WB Implementation Issues andInstrumentsCross-network participation. A major departurefrom the past is developing systematic partnershipsbetween the rural network and other networks:

The Environmentally and Socially SustainableDevelopment (ESSD) network and the PovertyReduction and Economic Management (PREM)network would work jointly to ensure that theimpact of the macro policies would be sup-portive of rural development. PREM wouldcontinue to focus on promoting macro stability,adequate trade policies, competitive exchangerate regime, more supportive public expendi-ture programs, the removal of distorting gov-ernment policies in rural markets. In addition,they will develop decentralization strategies,and better understanding of the analyticalunderpinnings of poverty and of the incentiveframework for the sector.

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ESSD and the Human Development (HD) net-works would work jointly to elaborate more con-sistent programs in addressing social sector issues,participation of minorities and indigenous peopledevelopment.They would also promote the inclu-sion of culturally consistent components in thehealth and education programs.They would worktogether to ensure consistency of implementationof Social Funds and Rural Investment Funds, andstrengthening safety nets in rural areas.ESSD and the Finance and Private Sector andInfrastructure (FPSI) networks would developjoint strategies and programs on how best tohelp governments in the development of rural-urban linkages, deliver public goods and basicinfrastructure services in rural areas, especiallyat the level of municipalities. They would alsodevelop rural finance approaches that are con-sistent with the specificity of the rural sectorand with the overall financial sector policies andregulatory frameworks.

A holistic approach with a country focus. TheAction Plan recognizes that only a multi-sectoralapproach can work and offers the strategic direc-tions and actions to be undertaken. However, it rec-ommends a selective implementation at the countrylevel in view of the Bank’s added value, on-going dia-logue and local circumstances. It is not a “one-size-fits-all” approach. Country Directors and SectorLeaders will be instrumental in ensuring adequacyand adaptation of the action plan so that it is con-sistent with the country policies and developmentagendas.The comparative strength of each networkand family in each country context would determineleadership for the various initiatives and operations,but in most cases this will mean stronger inter-sec-toral teams. This in turn requires the key involve-ment of Sector Directors and Sector Managers thatwould revisit the strategic skill-mix required forimplementation of the action plan, guide the consti-tution of teams with adequate skills, and promotethe review of the current budgetary process whichhinders cross-network partnerships and support.

The high cost of safeguard policies may be adeterrent. While it is acknowledged that goodcompliance with safeguard policies is simply betterquality business, it needs to be recognized that proj-ects in the rural sector present a high level of com-pliance requirements which imply more resourcesand time to prepare.This may play as a disincentiveif transaction costs become excessive. Also, it isimportant to recognize the higher level of risk thatstaff confronts and to remove possible biasesagainst innovation and risk-taking.

Instruments for cross-network integration. CountryAssistance Strategies (CAS), Poverty ReductionStrategy Papers (PRSP), and poverty assessments willbe the ideal strategic instruments to ensure that ruralissues are fully incorporated and internalized. Withrespect to lending instruments, investment projectswill continue to play an important role especially forspecific poverty targeted approaches and innovativeinterventions, which require strong implementationsupport and field supervision. More effective integra-tion can be pursued through the use of lendinginstruments along thematic lines that require blurringthe “silos” and sectoral frontiers. New instruments toexplore are programmatic loans. By their nature

A regional consultation was organized in Panama City on April 3-4,2001, under the auspices of the International Center for RuralDevelopment (CIDER, the rural branch of the Inter-American Institutefor Cooperation on Agriculture, IICA), to discuss the draft Strategy andAction Plan. The workshop brought together a wide array of coun-tries and institutions including representatives from the Government,the National Congress, the Church, the private agro-business sector,producer organizations, academics, and all the donors active in theregion. The participants hailed the Bank’s initiative of reviving thediscussion on rural development, a sector that has experienced anincreasing neglect despite its importance. They recognized the remark-able convergence of opinion in the definition of the key strategic ele-ments of a renewed action plan for the sector. Some themes pre-vailed in the discussion such as: the importance to “operationalize”an holistic approach for the sector and to redefine the institutionalset-up through an effective participation of the key social and pri-vate actors in the decision making process; the necessity to maintaina strong link between the macro and micro agenda; the need todefine differentiated policies with special reference to the youth,women and marginal or excluded groups; the promotion of regionaldevelopment, urban-rural integration and off-farm rural employment;and how to pursue the concept of sustainable development. The con-sultation considerably enriched the final document and provided tothe document an invaluable client perspective.

A3.4 Summary of RegionalConsultations:The LatinAmerica and Caribbean Region

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(quick disbursing) they will require an adequate poli-cy environment for the particular sub-sector to befinanced, and solid institutions with sound proceduresand implementation rules in place.

Donor Coordination

Promoting partnership is good business. It is gener-ally felt that the strategic thrust of this rural develop-ment strategy for LCR countries is widely sharedamong donors.The Bank should continue to exploreand develop regular channels for communication andconsultations with other potential partners, to ensureconsistency of strategies, and to explore co-financingpossibilities. Partnerships should be sought on a coun-try-basis with the objective of learning and transfer-ring experiences and developing common ground inapproaches among partners. Better consistencyamong donors will enhance the chances to leveragethe establishment of a “rural constituency withinGovernments and pursue a coherent dialogue forincreased effectiveness.

Implementation Approaches

Strengthening client ownership. Without client own-ership this strategy and action plan are moot.Moreover, it has to be acknowledged that, in most sit-uations, development efforts take the form of pro-gressive quantum leaps that require considerable dia-logue and buy-in from various constituencies in thecountry. In some countries there is already a highdegree of convergence with the proposed action planand most of it may already be under implementation;in others, agreement and interest may be only partial.This strategy and action plan should be seen as a con-tribution to the on-going discussion on LCR ruraldevelopment issues and the way forward.Many of theelements of the proposed action plan are alreadyunder implementation in a country or another, andthe document essentially tries to coalesce and buildon what seem to be best practices and innovativesuccessful approaches. Countries in LCR could seizethis opportunity to provide momentum to their ruraldevelopment agenda and, as a priority, look towardsimplementation with a sense of urgency. The Bankcould contribute to a partnership that would offerrenewed commitment and support for action on theground. In addition, it could contribute with enhanced

implementation capacity, and more accurate and spe-cific analytical work to deepen the reciprocal under-standing around rural development issues.

Performance Indicators and Monitoring

Monitoring and evaluation indicators need to becountry-specific. In all operations and on a countrybase, the Bank will develop simple but effectivemonitoring and evaluation systems adapted fromMillennium Development Goals (MDGs) on whichinternational consensus already exists. While weshould maintain flexibility in implementation andadmit that trial and error will still be necessary aspart of the learning process, a minimum set ofrobust indicators that are reliable, user-friendly, andcost-effective will be developed.Indicators shouldbe built on the basis of the level of progressachieved by each country and the nature of the dif-ferent programs being supported, so as to increasetheir relevance and realism.

MIDDLE EAST AND NORTH AFRICA

In 1997 the World Bank issued its rural developmentstrategy, Rural Development: From Vision to Action. Thepurpose of this exercise is to update that strategy andto render it much more region specific and action ori-ented than the previous undertaking.

Our approach is to characterize the current situationin Middle East and North Africa (MNA) countries,examine the implementation of the Vision to Actionstrategy in MNA, develop a series of lessons learnedfrom Bank activities in recent years—and then use allthat material in developing the objectives, strategies,action plans and implementation approach for futurerural development in MNA. This process is illustratedin Figure A3.2.

Current Situation in MNA Countries

Economy, Policy, and AgriculturePer capita income in MNA (excluding the Gulfcountries) averages about $2000 and ranges from$350 in Yemen to $3700 in Lebanon.GDP growth has generally ranged between 2 and5% per year, but for Morocco, Jordan, and West

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Bank & Gaza, it has been zero or negative for thedecade of the 1990s.Variability in agricultural income from year to yearis high in MNA, with the standard deviation of theagricultural GDP growth rate reaching 33% and25% for Morocco and Jordan respectively. Thuscountries with high variability have been experi-encing negative growth or stagnation in agricultur-al value added over the decade.Following are production systems typical of theMNA region:

Rainfed mixed;Dryland mixed;Pastoral;Irrigated; andHighland mixed

Although water availability is crucial to all agricultural systems in MNA, variability, and thus vul-nerability, varies significantly across production systems.

Water policies are crucial in all MNA countries.Other important policy areas include naturalresource degradation, land tenure issues, food sub-sidies, and rural infrastructure

For the development of the irrigated and humidmixed system, access to export markets is alsoessential. The largest trading partner for mostMNA countries is the European Union (EU). TheEU’s policies are quite restrictive and limit exportexpansion by MNA countries.

SocialIlliteracy rates are high, especially for women. Onaverage, half of women are literate in the region. Inrural areas, literacy rates fall even from these levels.In Yemen and Morocco, only half of school-age chil-dren in rural areas are in school, as compared with80-90% in urban areas.

Access to safe drinking water and sanitation for therural population is quite low in many MNA coun-tries and well below access in urban areas.

Public social safety nets are generally quite weak inrural areas, a problem which is accentuated by thehigh variability in rainfall and agricultural production,

and which leaves a large fraction of the rural popu-lation vulnerable.

Lessons LearnedThe Bank has learned valuable lessons in its opera-tions over the past few years. These lessons con-tribute significantly to the formulation of strategiesfor improving success in future rural developmentoperations.

1. More attention needs to be paid to politicalconstraints and institutional capacities. There isa need for Bank activities to accurately assess thepolitical and institutional setting in planning andimplementing rural development projects.

2. Non-lending activities should have greaterimportance in some countries. By emphasizingits comparative advantage in analytical and poli-cy advice, the Bank can make strides in ruraldevelopment. Lending activities should have builtin flexibility, and analytical work should serve assupport to that flexibility.

3. Variability in climate and incomes has differen-tial effects on policy decisions in the MNAregion. Many governments seek consumer andproducer price stability as an objective, but theeconomic and agricultural policy frameworksmay not match the climatic variability and pro-duction conditions in the country.

4. Encourage private sector and mandate com-munity participation. A need for local participa-tion for sustained success is not a new theme.However, unsatisfactory project results acrossvarying rural development programs are oftencaused by a lack of community participation.

5. A greater emphasis on small-scale projects inrural infrastructure and natural resource man-agement is warranted. Small-scale rural infra-structure projects have at least four desirabletraits applicable to rural development in theMNA region:i) They often are more labor-intensive than

large-scale projects;ii) They tend to involve the community more in

the implementation;

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iii) They may be more sustainable in that ruralasso-ciations may have the ability to carry outoperations and maintenance; and

iv) From MNA experience, small-scale projectshave the advantage of generally being able totarget poorer quintiles of the population.

6. The Bank needs to be sensitive to the negativeimplication of accepting a status-quo stance onissues requiring long-term, re-institutionalizingefforts. Decades may be required in cer taininstances to implement policy change. Thus,the Bank should launch and continue dialogue

on issues, even when it is only marginally effec-tive in bringing about immediate change. Thismay par ticularly be the case for naturalresource management, but is also true in MNAfor regulatory and tariff reform. In the lattercases, the lesson may be that disbursementsmade that ignore compliance with an agreedreform agenda may send the same signal of alack of concern by the Bank.

7. The Bank’s awareness of the need for integrat-ed water management should be reflected inpolicy dialogue with governments and users.

CurrentConditions

Vision to ActionExperience

LessonsLearned

Reducing Vulnerabilityof Rural Population

Reducing Rural Poverty

Ensuring Sustainable Useof Natural Resources

RationalizingWater Use and Policies

ImprovingAccess to Social and EconomicInfrastructure

FacilitatingAgricultural Growth and

Competitiveness

Enhancing Rural On-Agricultural

and Private SectorEconomic Activity

Improving NaturalResource andEnvironmentalManagement

CountryAction Plans

Region-WideThematic Initiatives

ImplementationChallenges

Community-Driven Development and Policy Reform Instruments

Figure A3.2: Vision to Action Overview

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The Bank needs to ensure that all projectsinvolved with supply creation or restoration areintegrated with a participatory demand manage-ment element.

8. A lack of indicators for rural development isinhibiting project planning and evaluation. Oftenprojects cannot be adequately planned orimpacts measured because baseline data do notexist. The capacity to understand developmentneeds and to address policies to raise income inrural areas and in particular in remote locationsis hampered by such information deficiencies andmechanisms for on-going monitoring.

Objectives

Reducing rural poverty. Rural poverty reduction isour overall objective.This objective is the real guid-ing principle by which all other rural developmentobjectives and policies are implemented.

Reducing vulnerability in rural areas. Income vari-ability in rural areas is high, which means that thepercentage of the population that is vulnerable toincome swings is quite large. Reducing vulnerabilityis not synonymous with poverty reduction andgoes beyond policies that endeavor to bring thepoor to an acceptable minimum level of consump-tion. It also means putting in place a safety net toprevent the non-poor from falling below thepoverty line, along with the creation of opportuni-ties that will help improve living conditions for thepoor and non-poor.

Ensuring the sustainable use of natural resources.There are four important components of the natu-ral resource base of rural life to address – water,land, forests, and pastoral areas.These resources arescarce and fragile and our objective is to ensure thelong term sustainable use of these natural resources.

Strategies

1. Rationalizing water management and policies. InMNA, efficient and effective water use isabsolutely critical for success in rural develop-ment. Improving performance and productivity inwater management requires institutional, policy,

and planning system reforms. This strategy callsfor an examination and possible revision of leg-islative, policy, and institutional framework forwater resources, along with actions to strengthenthe role of rural communities, the public, and theprivate sector.

2. Improving access to social and economic infra-structure. Social infrastructure here encompass-es especially health care and education for ruralareas. Economic infrastructure includes ruralroads, rural water supply, and rural electrification,and today also access to information technology.To increase rural agricultural and non-agriculturalincomes, it is imperative to increase access toboth social and economic infrastructure in ruralareas. Particular attention needs to be paid toenhancing women’s access to these services.Egypt, Morocco and Yemen provide encouragingexamples where school enrollments in ruralareas, and for girls, are increasing.

3. Facilitating agricultural growth and competitive-ness. Reversing deteriorating agriculture per-formance and facilitating growth to increase ruralincome (farm and non-farm) is a fundamentalmeans of realizing poverty reduction. Policychange, secure land tenure, creation of economi-cally viable and efficient farms, facilitating theemergence of competitive and farmer-friendlyprocessing and marketing infrastructures, andsupport of farmer-induced technological changein agriculture are critical for the promotion ofcompetition in the region.

Increasing growth in agricultural exports, whichrequires the removal of anti export bias, namely highprotection of importable agricultural or industrialgoods and real exchange rates overvaluation. InMNA, increasing agricultural exports also willrequire changes in the protectionist policies of itsprimary trading partner, the European Union.

Formulating agricultural pricing and trade policiesthat consider reducing farm income variability asone of the strategic priorities (see lesson learnedthree). Agricultural policies must be better alignedwith the climatic reality of the region, which is highrainfall variability and frequent drought.

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Agricultural research and extension must beimproved especially in adapting crop varieties tothe drought-prone regions (and associated climaticvariability) plus research on efficient use of irriga-tion water and irrigation techniques appropriate toeach crop and region.

Land tenure reform. Land tenure issues in someMNA countries have become a major impedimentto agricultural productivity growth. Rural develop-ment programs must address these issues.

Investments are needed in developing the publicinstitutional capacity in policy analysis, particularlyrelated to agriculture and natural resources.

4. Enhancing rural non-agricultural and private sec-tor economic activities.A full integration of non-agricultural rural activities is one of the majorchallenges of this exercise. Following are someactions that can serve to effectively enhance thenon-agricultural rural economy:

Agricultural policies can promote non-farm activities such as agro-processing and the otherindustrial, commercial and service sectors thatcharacterize modern agriculture. Projects and poli-cies aimed at promoting the non-farm economyshould not just focus on improving the capacity ofhouseholds to become involved in the non-farmeconomy, but should also stimulate the engines thatpull rural households into the non-farm economy.Engines of non-farm growth that offer employmentto women in particular should be emphasized.

Local government and institutional participationwill have to be engaged in a whole variety of capac-ities, ranging from land-use planning, education pro-vision, infrastructure investment, regulation, trainingand financing.

Facilitating the growth of small urban poles forregional development may be an attractive meansof creating non-agricultural employment andincomes.

5. Improving natural resource and environmentalmanagement. Sustainable rural development isinextricably linked with sustainable natural

resource management. Examining the impacts ofprojects on the sustainable use of naturalresources must be a part of the design andimplementation of all of our activities. Water isvery scarce in MNA, and the productive agricul-tural areas, particularly pastoral zones, areincreasingly threatened by human interventions.

Action PlansIndicative action plans were produced for eachcountry and major theme in MNA. The countryplans are linked to the five strategies mentionedabove and will serve to guide Bank actions linkedto those strategies.The plans also include monitor-ing and performance indicators tied to the specificactions. In other words, the actions constitute thespecific implementation measures for the fivestrategies, and the monitoring and performanceindicators will help determine in what measure suc-cess has been achieved in future years.These actionplans will be further elaborated in line with evolv-ing issues, changing country priorities, and interven-tion by other donors.

The action plans are cross-sectoral; hence, success-ful implementation will depend upon strong sup-port for cross-sectoral units in the Bank, technicalministries in client countries, non-governmentalorganizations and other agencies.

While these plans were developed by Bank staff toguide Bank actions, they also are presented to stim-ulate discussion and collaboration with govern-ments and the development community as awhole.The Bank will need to look for synergies andpartnerships with other lenders and donors tocompletely implement the plans.

Monitoring implementation of action plans willdepend on having effective country teams withinthe Bank and client country support for acquisitionof data on rural social and economic indicators.

ImplementationIn implementing these plans, the Bank and otherdonors must recognize the diversity of situations inrural areas of MNA countries, both across coun-tries and even within the same country.This diver-sity means that instruments must be tuned to the

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specific region, with its unique economic, social, andcultural characteristics. Therefore, flexibility will beessential in developing programs tailored to eachunique region.

The evolving experience in allowing communities toparticipate effectively in seizing opportunities toimprove their well-being is an encouraging approachfor rural development. Our approach will be to pro-mote locally and spatially focused rural development(holistic approach to rural well-being) with strongcommunity participation. Sectoral interventionswould generate maximum development impact ifthey are appropriately coordinated and communi-ties are part of the decision-making process (FigureA3.3). For example, for a given region of a country,we might have an education project operated by theeducation sector in the Bank in conjunction with theMinistry of Education and local authorities in thecountry. At the same time and in the same region,there might also be irrigation, health, or other proj-ects.These projects will operate in parallel with col-laboration across sectors and country departmentsin the Bank and similar collaboration among lineagencies in client countries.Another approach is the

Rural Development Fund (RDF) being piloted inMorocco. Based on demand from the beneficiariesas expressed through a participatory planningprocess, the RDF would be used by the Governorsof selected provinces, on the advice of a ProvincialRural Development Committee composed of rele-vant line ministry representatives, to complement orfill gaps in existing sectoral programs in a coordinat-ed way, without any predetermination of funding byline ministry.These holistic, multi-sectoral approach-es constitute a major component of the MNAimplementation strategy for accomplishing our ruraldevelopment objectives. It will also entail improvinglocal institutional mechanisms for planning, coordi-nating, and implementing projects with greater com-munity participation.

Another important issue for implementation is theimplication for MNA staffing and resource allocation.We foresee a growing demand for MNA staff towork with government officials in strategic sectoralissues, economic policy analysis and knowledge shar-ing. For example, experience in other regions indi-cates that quick policy notes are increasingly provingvery effective compared with the traditional sector

Human Development

Sector

Agricultural Development

Sector

Infrastructure Sector

Other Sectors

World Bank Country Team

Social Ministries

Ministry of Agriculture

Infrastructure Ministries

Other Ministries

Spatially Coordinated Rural Projects at the Local Level

Government Ministries (LinkageChallenges)

Figure A3.3: Parallel Project Orientation

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reports. We may not need to build full in-housecapacity for all such services but to have theresources to be able to tap the best technical serv-ices on short notice. We also need to foster cross-sectoral task teams to address effectively our ruralpoverty reduction objective.

To enhance development assistance effectiveness,close collaboration among bilateral and internation-al agencies is imperative. Interagency collaborationcould take various forms. The most conventionalmethod is participating in financing operations.Many MNA countries have access to grant and con-cessionary resources from bilateral and internation-al agencies. The Bank is well positioned to avail itstechnical expertise for policy analysis and projectformulation with a view to developing a multi-donor financing plan for an agreed rural develop-ment program. Collaboration among the interna-tional community could also be enhanced byimproving the exchange of information on countrystrategies and programs.

A summary of the major conclusions of the region-al consultation to discuss this strategy is presentedin Box A3.5.

SOUTH ASIA

IntroductionThe South Asia Region (SAR) consists of eightcountries: Afghanistan, Bangladesh, Bhutan, India,Maldives, Nepal, Pakistan, and Sri Lanka. RuralSouth Asia is the home of over two-thirds of thepopulation in the region, representing about one-third of the total rural population in world. Theregion is characterized by highly diverse agro-cli-matic conditions across and within countries, rang-ing from the atolls of the Maldives to the desertsin western India, the tropical fertile Gangetic Plainto the temperate hills and mountains of theHimalayas in Nepal, which in turn also posediverse development potential and challenges. Forthe past decade, South Asia has been the secondfastest growing region in the world, after East Asia,its GDP growing at an average annual growth rateof 5.3%. The region has made some progress inimproving the social well-being of its population,

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Consultations took place in Beirut, Lebanon and Montpellier, France(March 2001). A summary of the major conclusions follows:

The scarcity and fragility of natural resources (mainly water) inMNA is the main characteristic of the Region and should consti-tute the basis for the design of rural development strategies inthe Region. Agriculture should continue to be considered as thedriving force of the rural economy, but given the rather lowpotential of natural resources in the Region, non-agriculturalincome generating activities should be introduced and developedat the local level which requires a competitive private sector.

Conditions in the rural areas of MNA are highly diversified, bothbetween countries and within the same country, a fact not ade-quately reflected in the regional development strategy document.

In general, the proposed strategy was accepted, although certainparticipants underscored the difficulty of implementing such amulti-sectoral approach, both in the Bank and borrower countries.

The need for participatory development was strongly endorsed,but many participants thought that the Bank’s approach did notadequately take into account the complexity of the social andinstitutional processes involved and the profound change in therole of the State that it implied.

Rural development is not receiving a level of support commen-surate with its importance for poverty alleviation, which createsa “credibility gap” for the Bank and other donors in this area.

In contrast to its declared emphasis on poverty alleviation, Bankprojects in rural areas where most of the poor live have declinedin recent years. This reinforced the perception that the Bank wasmore concerned with policy issues (e.g. removal of subsidies, fis-cal reform, trade liberalization) than development operations tar-geted to the poor.

There is a need for the Bank to strengthen coordination withother international and bilateral aid agencies to help developingcountries to increase their bargaining power in world bodies likethe WTO.

National rural development strategies would help formulate spe-cific and locally adapted solutions to a number of issues identi-fied as common to the whole MNA Region.

The participants expressed their deep appreciation for the oppor-tunity given to them to share their experiences in dealing withrural development issues, and asked the Bank to consider thepossibility of institutionalizing this kind of forum on an evenbroader scale.

A3.5Summary of RegionalConsultations: Middle East andNorth Africa Region

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especially as measured by the human develop-ment index (UNDP), although by world standards,they are still quite low. The agricultural sectorremains an important sector in the economy of allcountries, employing at least two-thirds of thelabor force and contributing from 16% to 40% ofthe gross domestic product. Sustained food pro-duction growth in the 1980s and 1990s enabledSAR countries to achieve on average, food self-sufficiency in cereals.

Despite strong economic performance, South Asiaremains among the most impoverished regions inthe world.About 500 million people are still living ina state of severe deprivation, lacking sufficient accessto adequate nutrition, health, housing, safe water,sanitation, and employment, the region is home toover 43% of the world’s poor. Moreover, the UNDPHuman Development Index (HDI) rates South Asialower than all other regions (except for sub-SaharanAfrica) in terms of average achievements in basichuman development.

Rural poverty is sizable and significant throughoutSouth Asia. Poverty in South Asia is largely a ruralphenomenon. While all SAR countries have madeprogress in reducing the levels of poverty, it remainshigh in rural areas. About one third to almost onehalf of the rural population is poor in all SAR coun-tries, except Maldives (22%). Based on national esti-mates, about 80% of the total 300 million poor inIndia reside in rural areas. In Nepal, the poverty ratein rural areas (44%) in 1995/96 is almost double therate in urban areas (23%).

Rural poverty goes beyond inadequate incomes.Interviews of poor people in India for example,reveal their acute vulnerability to disease, crop fail-ures, labor market fluctuations, domestic violence,natural disasters, floods and cyclones, which fur-ther exacerbate their sense of insecurity. Any onesuch event hits the poor particularly hard, causingthem to fall, or fall deeper, into poverty. A sense ofpowerlessness, alienation, and inability to influencethe environment in which they live, pervadesbeing poor.

Faster progress in reducing rural poverty in SouthAsia, however, has been hampered by inadequate

government priority to ensuring a holistic and inte-grated approach to rural development. While gov-ernments have implemented a large number ofprograms in key sectors such as the social, agricul-ture, natural resource, infrastructure, and non-farmsectors over the last few decades, several factorsundermined their effectiveness in fully achievingtheir objectives of fostering equitable rural growthand poverty reduction in rural areas.These includ-ed: (i) a predominantly centralized, top-downapproach in the design and implementation of gov-ernment programs, which undermined their longerterm sustainability and also often bypassed vulnera-ble groups in society (women, tribal groups and thelandless); (ii) the lack of coordination among varioussectoral programs in rural areas that hinderedgreater synergies in their development impact; (iii)the creation of a highly restrictive policy and regu-latory environment, which stifled private sector ini-tiative, participation and investments in the farmand rural non-farm sectors that is instrumental forgreater employment and income generation inrural areas; (iv) public expenditure patterns charac-terized by insufficient priority to social and humandevelopment in rural areas and an increasing shareabsorbed by highly distortive subsidies which tookaway resources for productivity-enhancing invest-ments and in some cases (i.e. fertilizer, fuel, andwater) are contributing to natural resource degra-dation; and (v) weak public sector institutionalcapacity which contribute to poor delivery of basicservices in rural areas, especially to vulnerablegroups. In recent years, the SAR countries havetaken some positive steps to redress some of theseconstraints, but a lot remains to be done.

The development agenda for achieving the goal offully eliminating rural poverty in South Asia andachieving social and economic well-being and broad-based rural development is enormous. It will requirethe strong and unrelenting commitment from ourclient governments, if this goal is to be achievedquickly this millennium. In support of this commit-ment, the South Asia Region of the World Bank, inclose partnership with government and other localstakeholders, and in coordination with other donorsand international agencies, has put together an assis-tance strategy and action plan for the short to medi-um term for moving this agenda forward.

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LessonsSeveral important lessons for achieving more rapidpoverty reduction in rural areas could be drawnfrom the Bank’s long involvement in the region.Themost critical is supporting an integrated and holisticapproach to rural development, bringing togetherefforts across critical sectors, including the social,agriculture, natural resource, infrastructure, and therural non-farm sectors. This approach requiresactions in several key areas, the most critical ofwhich are:

Defining and orienting the roles of Government(at all levels), communities, and private sector tobuild synergies among various sectoral develop-ment efforts, especially fostering community par-ticipation and rural decentralization to ensuregreater government accountability and effective-ness;Creating an enabling policy and regulatory envi-ronment (i.e. land, inputs, credit, output markets)and developing appropriate institutions toencourage private investments in rural areas andensure sustainable use of natural resources(water, marine, forests, land);Ensuring appropriate levels and composition ofpublic expenditures towards productivity-enhancing investments for sustained humandevelopment and long term rural growth;Supporting research and technological innova-tions to improve and sustain agricultural produc-tivity growth; and,Ensuring development initiatives are inclusive toalso benefit vulnerable groups (e.g. women, trib-als, landless).

Objective and StrategiesThe overarching objective of the World Bank’s RuralStrategy is to assist our client countries to eliminaterural poverty in South Asia. In view of the fact thatthe largest share of the poor in the world reside inthe rural areas in the region, the development agen-da for achieving the goal of eliminating rural pover-ty in South Asia and achieving social well-being andbroad-based rural development is enormous. It willrequire the strong and unrelenting commitmentfrom our client governments, if this goal is to beachieved quickly this millennium. In support of thiscommitment, the South Asia Region of the World

Bank, in close partnership with government andother local stakeholders, and in coordination withother donors and international agencies, has puttogether an assistance strategy and action plan forthe short to medium term for moving this agendaforward. This agenda also contributes to achievingthe Millennium Development Goals.

The World Bank aims to support an integrated,holistic strategy for rural development that wouldfoster sustained rural growth and poverty reductionin all countries of the South Asia Region. Thisregional strategy for eliminating poverty has threemajor objectives:

1. fostering rural growth and opportunities forrural households, especially for the rural poor;

2. empowering communities and the rural poor tomeet their priority economic and social needsand thus enhance their well-being; and

3. enhancing the capacity of rural households,especially the poor, to overcome and manageinsecurity and risks.

Action PlansTo achieve the above objectives, while recognizingthe wide diversity of development needs across ourclient countries in South Asia, the scope of, and pri-ority areas for, development assistance varies signif-icantly across countries.They also reflect the Bank’sstrengths and technical and financial capacity, rela-tive to our other development partners. Thus intranslating the rural development strategy intoaction, our program falls into four strategic priorityareas.They are:

Enhancing human and social capital developmentin rural areas. These include our program of assis-tance to improve the delivery and quality of thehealth, nutrition and education services in ruralareas, addressing the problem of HIV aids and othermajor diseases, and support for local governmentdecentralization and community driven initiativestargeted to the rural poor and vulnerable groups.

Facilitating rural and non-farm growth and com-petitiveness. These would involve support for: (i)improving the effectiveness of government throughfiscal and governance reform; (ii) the adoption of

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decentralized, participatory, and beneficiary-drivenapproaches designed to improve the delivery ofrural infrastructure and services (drinking water andsanitation, irrigation, extension, micro-credit); (iii) therationalization of expenditures in rural areas tofocus on investments that meet the social and eco-nomic needs of the poor, including improving accessto other key infrastructure (rural roads, electricityand markets); (iv) the reform of the policy and reg-ulatory environment to foster more efficient input(fertilizer, seeds, land, credit, etc) and output markets(trade, agro-processing, rural industries) and greaterparticipation of the private sector in rural areas; and(v) re-orienting public institutions for more socialinclusiveness across income, gender and ethnicgroups and to enhance their effectiveness in deliver-ing services in agriculture, water, forestry, energy,health, education, finance, and infrastructure sectorsand through government safety nets.These activitieswill build on supporting analytical work to draw les-sons from past and best practice experiences inIndia and other parts of the world.

Fostering efficient, sustainable and equitable use ofwater resources. We will continue our support tothe water sector, with increased emphasis on theadoption of a comprehensive and integratedapproach to planning and management of waterresources (surface and groundwater) on a multi-sectoral and river-basin level; fostering greater par-ticipation of users in the development and manage-ment of systems and in financing operations (costrecovery) to ensure longer term financial (and fis-cal) sustainability, particularly for surface irrigationsystems; and shifting the orientation of water agen-cies towards greater client orientation and thedelivery of high quality water services.

Improving natural resource and environmentalmanagement. We will continue to support jointgovernment and community management of natu-ral resources (joint forest management and water-shed management, fisheries) to ensure their sus-tainable development, use and management. Inforestry, the program aims to improve the liveli-hoods of the rural poor, while keeping as prioritiesforestry protection and the provision of environ-mental services (including conservation of biodiver-sity). In fisheries, we will support the development

of efficient fisheries management systems thatwould balance both economic and environmentalpriorities. This would also include assistance toreduce the risks from, and to assist rural householdsto cope with, the damages caused by natural catas-trophes such as floods, droughts and cyclones.

Notably, the above measures will also contributenot only to promoting growth and human develop-ment in rural areas, but to reducing the vulnerabili-ty and risks faced by the rural poor. In addition torisks brought about by natural catastrophes,increased reliance on markets, hastened byincreased globalization, exposes the rural poor to abroader range of risks of income and other shocks.The Bank’s assistance program described above willcontribute to reducing the vulnerability of the ruralpoor in several ways. Ensuring more reliable andsustainable delivery of surface irrigation and groundwater, drainage management, improved watershedmanagement, rural infrastructure and agriculturalsupport services will strengthen the capacity for therural poor to increase and/or diversify their incomesources as well as mitigate the risks brought aboutby droughts, floods and other weather relatedcatastrophes. Support for greater clarity of securityof property rights would permit greater access bythe landless and the rural poor to land through bet-ter functioning land sales and rental markets. TheBank’s assistance program would also involvereducing the vulnerability of the rural poor bysecuring access to forest resources and by diversi-fying the community asset base and sources ofincome. It would also include improved access tohealth services, education, nutrition, and safe waterand environmental sanitation services, which wouldreduce household shocks due of ill health or deathdue to disease.

India, by virtue of its large size, population, and num-ber of poor, occupies one end of the developmentassistance continuum.To meet its sizeable develop-ment needs, our program of rural developmentassistance to India is the most extensive in scopeand scale in the Region (Table A3.2). Adopting afocused approach to a number of reform-mindedStates, the Bank’s assistance program brings togeth-er a coordinated, multi-sectoral package of assis-tance at the State level, that aims to address in an

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Actions India Bangladesh Nepal Pakistan Sri Lanka Maldives Bhutan

Enhancing Social and Human Capital Development

Improving delivery of health, population and nutrition � � � � � � �

services

Improving access to and quality of education � � � � � � �

Supporting poverty targeted community driven programs � � � � � � �rural water supply) (self-help groups, credit, watershed and forest management,

Supporting socially inclusive decentralization and local � � � � � � �

governance

Enhancing effectiveness of safety nets for the rural poor � � � � � � �

Facilitating Rural Farm and Non-Farm

Decentralization and improved fiscal management and � � � � � � �governance

Liberalization of land, input and output markets � � � � � � �

Rationalizing public expenditures in agricultural sector � � � � � � �

Improving access to rural infrastructure: markets, roads, � � � � � � �

electricity/energy

Strengthening access to rural services: credit and � � � � � � �

telecommunications

Improving delivery of agricultural support services (research, � � � � � � �

extension, livestock services, etc)

Fostering Efficient, Sustainable, and Equitable Use of Water Resources

Strategic inter-sectoral planning and allocation of resources, � � � � � � �

policy reform and institutional restructuring of government agencies and greater user participation in management of systems, following a river basin approach

Supporting community based rural water and sanitation � � � � � � �

programs

Improving Natural Resource and Environmental Management

Sustainable development and management of fisheries � � � � � � �resources

Sustainable development and management of forest � � � � � � �

resources, watersheds, biodiversity

Disaster management/Coastal Management � � � � � � �

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Table A3.2: Summary of Short to Medium Term World Bank Action Plan for South Asian Client Countries

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integrated fashion the critical constraints to ruralgrowth, development and poverty reduction. Thisintegrated program rests on a package of sectorspecific interventions, that links investments to keypolicy and institutional reform, in tandem withadjustment assistance for overall improved state fis-cal management and governance to increase thedevelopment effectiveness of government where itis needed. The sectoral interventions are primarilytargeted at the poorest sections in rural areas ofthe state and attempts to reach the most vulnera-ble groups (women, children and scheduled castesand tribes). Our rural development and povertyreduction program for India would include non-lending and lending assistance for water, naturalresources management, rural infrastructure andenergy, agricultural support services, social (health,education, nutrition) and focused poverty reductionprograms. Our lending activities will involve individ-ual projects and multi-sectoral adjustment and/orinvestment operations. A common feature of theseoperations is the emphasis on community/benefici-ary empowerment to make decisions on designand implementation. The Bank will also supportselective assistance in critical areas (e.g. drinkingwater) in other States.

At the other end of the continuum are the smallcountries of Maldives and Bhutan. In coordinationwith other development partners and through non-lending and lending assistance, the Bank will be sup-porting fiscal and macro-economic reform andmore selective programs of the government in therural sector, focusing on rural infrastructure, andhuman development (education and health) andthe sustainable use of fragile natural resources (fish-eries in Maldives, land and forests in Bhutan).

In between are the medium-sized countries ofBangladesh, Nepal, Pakistan and Sri-Lanka, wherethe strategy for rural development and povertyreduction covers a broad range of non-lending andlending activities. In these countries, the Bank’sassistance program encompasses several sectors:health, education, nutrition, agriculture, forestry,water, and infrastructure sectors , while also sup-porting broad fiscal, governance and policy andregulatory reform.Assistance for disaster mitigationand coastal management will be key part of our

program for Bangladesh. For these countries, ourprogram will include non-lending and lending activ-ities. Our lending activities will involve individualprojects and multi-sectoral adjustment and/orinvestment operations.

The Bank will focus support on three critical areasof major regional concern.These are trade and foodsecurity, riparian water issues, and disaster manage-ment.We will provide technical assistance and sup-port forums for fostering joint initiatives among var-ious stakeholders.

Implementation

Implementation of Action PlansOne of the critical factors that has hamperedachievement of the desired development outcomesfrom Bank assistance is weak or lack of ownershipof the programs by country counterparts and proj-ect beneficiaries.This is a critical issue as the regionis politically volatile resulting in changes in govern-ment and which in turn often results in frequentchanges amongst senior bureaucrats/ tech-nocrats/practitioners. Future investments support-ed by the Bank will be preceded by joint Bank andclient government analytical and advisory activities(AAA) to understand the issues and to exploreoptions for addressing them, drawing on local andinternational best practice experience.A key aspectof the AAA work would be assisting governmentwith, and facilitating consensus building among allconcerned stakeholders on the sectoral develop-ment strategies. It will also involve developing com-munication strategies for our AAA and identifyingand working with “champions for change” whowould lead the change process. Our investmentassistance will be guided by these sectoral strategiesformulated and owned by our client countries. Inthe case of rural water supply in India, for example,the World Bank contributed significantly in facilitat-ing the process of consensus building on a sustain-able approach to rural water supply development.In 1999, such a consensus was achieved in what isnow known as the “Cochin Declaration.”

Building on lessons learned and best practiceapproaches developed, in past projects and innova-tive pilots, and mainstreaming these into new proj-

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ects, are critical elements of the Bank’s implementa-tion plan. The Bank will continue not only to sup-port innovative and best practice approaches, butalso to assist clients in scaling up successful andeffective programs. For example, two areas, whereconsiderable knowledge and successful experiencehave been accumulated and where there is consid-erable scope for replication and scaling up are thewatershed and rural water supply development ini-tiatives in India.

Within the Bank, we will work closely with otherSAR colleagues to ensure that the constraints to

rural poverty reduction are addressed adequatelyand in an integrated fashion in the Bank’s countryprograms. We will work closely with them in thepreparation of the poverty reduction strategypapers (PRSPs), country assistance strategies (CAS)and other ESW activities linked to rural povertyreduction and participate in the conceptualizationand preparation of multi-sectoral national and sub-national operations (adjustment operations, pover-ty reduction support credits, and investment proj-ects). It will also involve more active participation incountry teams and country management teamactivities (e.g. sectoral strategy and PCD/PAD

South Asia engaged in a broad process of consultations to help prepare the regional strategy and action plan. The approach focused first ondialogue between the rural staff and their counterparts in each country. These discussions led to the production of country-specific strategiesand action plans for rural development. These country-specific documents were then synthesized into a draft regional strategy and action plan,which was presented and discussed at a two-day workshop (February 28-March 1, 2001) in Kathmandu, Nepal. The workshop was attended by50 participants including officials from Government, academic institutions, NGOs, private industry, and other donors. A small delegation fromthe World Bank also participated and independent consultants were appointed to facilitate the workshop. The workshop consisted of presenta-tions of the global and regional rural strategies and action plans, country-specific and thematic breakout sessions, and a panel discussion onregional issues affecting South Asia. Open discussions (questions and answers) on these issues were interspersed throughout the two days.

Detailed proceedings from the workshop were prepared by the independent facilitators with support from the Bank. The main recommenda-tions emerging from the workshop are stronger emphasis on:

Empowering community level institutions and local governments: The regional and country strategies should be tailored (even morestrongly than is currently the case) around the themes of community-based development and rural decentralization. Participation,capacity building of local institutions, and issues surrounding sustainability are all areas that should receive high priority.Alternative service delivery mechanisms: Governments should focus on the delivery of public good and services and create an enablingenvironment for CBOs, private sector, and NGOs to deliver private goods and services. Efficiency and sustainability objectives would bebetter met with alternative forms of delivery.Stakeholder identification and negotiations for natural resource management: Sustainable management of land, water, and forestresources requires proper identification of local stakeholders and local capacity to make plans and negotiate between competing uses.The role of government, NGOs, and the private sector is to facilitate this process. The approach will vary based on biophysical andsociocultural conditions.River basin management and user participation in water resource development: A holistic approach to water resource development anduser participation in planning, implementation, and system operation and maintenance should characterize Bank support. Policy andinstitutional reforms and strengthening would be central to this assistance.Capacity building: Strengthening the capacity of central, state, and local government institutions was highlighted as an important com-parative advantage of the World Bank.Regional issues: The World Bank is also well positioned to help the region address cross-country issues (e.g. water basin management,trade, food security, etc.). The Bank’s role as a convener and honest broker between countries should be leveraged more effectively.

The final strategy and action plan incorporated these important findings.

A3.6Summary of Regional Consultations: South Asia Region

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reviews) to insure that rural issues receive ade-quate attention, including funding. The South AsiaRegion has had good success in knowledge sharingthrough AAA activities and in cross-sectoral partic-ipation in project preparation and implementation.We will continue to build closer cross-sectoral link-ages and collaboration with our other SAR col-leagues. We will also build closer links to the RuralAnchor and Thematic Groups, to draw on theknowledge-base on the experiences in other coun-tries and regions. This will also ensure that thedesign of projects and programs incorporate globalbest practices.

In implementing the country action plan, we recog-nize the importance of committing to a longer-termhorizon in some sectors, where significant policyand institutional reform is involved. This wouldrequire adopting a phased program of assistancethat will build towards achieving longer-term goals.For example, this is particularly relevant to therestructuring process occurring in the water andagricultural support services (e.g. research, exten-sion, livestock services) sectors.

We will encourage our clients to make more useof the project preparation facility (PPF) and techni-cal assistance in developing and implementinginnovative pilot activities that could eventually bescaled-up.The use of PPF in SAR has been negligi-ble in the past.

The ambitious action plans to deliver the countrystrategies would require close collaboration withour partners in development, i.e. UN agencies,Asian Development Bank (ADB), bilateral donorsand international and national NGOs.We will buildon our experience of successful models of intera-gency cooperation. While being selective in ourassistance (e.g. Nepal, Bhutan, and Maldives), we willaim to complement efforts of other donors.

Performance Indicators and MonitoringWe will assess the progress in implementing theaction plan by monitoring performance in the fol-lowing areas:

adequacy of treatment of rural issues in the CASand sectoral strategies;

composition of teams addressing multi-discipli-nary issues (lending and non-lending);completion of activities for building ownership(conferences, workshops, published reports andpace at which policy and institutional reformstake place); andprogress in meeting the performance outcomesand development objectives of our rural lendingprogram.

A regional consultation was held in March 2001 todiscuss the new rural strategy.The major conclusionsof that consultation are presented in Box A3.6.

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ANNEX 4: Water

Water is an essential input into the production offood as well as into the livelihoods of rural com-munities and into the health of the ecosystems onwhich those communities depend. This strategyencompasses all aspects of water as a resource: soiland land management, watershed management, irri-gation, drainage, environmental flows, and the man-agement of the water resource itself. However, thestrategy’s primary focus is the irrigation anddrainage subsector, which accounts for well overhalf the Bank’s investments in rural space.1

Re-Visioning IrrigationIrrigation is one key basis for agricultural develop-ment, which continues to be the main engine forbroad-based rural development.2 Irrigation wasinstrumental in the success of the Green Revolutionof the 1960s and 1970s when food security was theobjective. In the outcome, the Green Revolution notonly averted famine, but also stimulated real eco-nomic growth beyond the agriculture sector. Today,however, we face a different prospect: changing glob-al environment, declining performance of the irriga-tion sector, challenges emerging from outside thesector, and pressing social and environmental issuesdemand a new vision and a new strategy for irriga-tion and drainage. With the benefit of hindsight andthe perspective of foresight, our strategy embraceseconomic growth as the primary objective of futureirrigation investments but with the equally importantlinked goals of: (1) poverty reduction; (2) food secu-rity; and (3) environmental protection.

Irrigation, Food Security, and PovertyReductionOver the last three decades, the world’s net irri-gated area3 has increased by 73%, from 150 mil-lion ha in 1965 to 260 million ha in 1995.4 Indeveloping countries overall, the proportion ofthe total water supply that is utilized for agricul-ture exceeds 85% of total diversions.5 Today irri-gated agriculture represents only 17% of thecropped land but provides 40% of the world foodsupplies. In 50 years global food production willneed to double, yet there will be (at most) only10% additional land in which to grow this food.6

An increasing proportion of developing country

food supplies is likely to be imported as agricul-tural trade barriers are lifted in many countries.Yetthe efficient production of food for local con-sumption and for export will become even moreessential in safeguarding food security. Consideringpresent constraints on available physical and finan-cial resources, additional production has to comefrom improvement of existing irrigated agriculture.

In many regions, irrigated agriculture is the primarysource of rural employment. It offers higher pro-ductivity than rainfed agriculture and provides anopportunity to introduce higher intensity technol-ogy at lower risk. There are several ways in whichenhancing the productivity of irrigated agriculturecan benefit the poor both directly and indirectly.Firstly, targeting poor regions and focusing on farm-ing systems and technologies most critical to thepoor offers ways of delivering irrigation’s benefits tothose who are currently shut out. Secondly, greaterempowerment of the poor can result from partici-pation in management. Thirdly, new economicopportunities can be gained through increased pri-vate sector investments.

What Does the Current Bank I&DPortfolio Look Like?Trends in Irrigation and Drainage Lending. As ofJanuary 2001, there are 58 active irrigation anddrainage projects (agricultural irrigation (AI) classi-fication) with a total commitment of $5,736M.Thenumber of projects has remained stable during thelast three years, but at a level roughly half what itwas in the 1980s to early 1990s (Figure A4.1).Theportfolio, both in numbers of projects and in pre-project commitment is expected to decline evenfurther as the number of approved projects andthe per-project cost are declining. Irrigation com-ponents within projects outside the AI portfolio(e.g., social funds, area development, etc) repre-sent a growing feature, one that partly offsets thereduction in AI investments. A total of seven non-AI projects include an irrigation or drainage com-ponent totaling $368 million. Between 1975 and2000 the average number (5-year moving aver-age) of drainage projects dropped from 16 to 6,and investment levels of new project approvals

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Number of Projects by FYLoan Amounts by FY

$M n

79 80 81 82 8483 85 86 87 88 89 90 9291 93 94 95 9796 98 99 00 01

0 0

500 10

1000 20

1500 30

Figure A4.2: I&D in Active Portfolio, January 2001

Figure A4.1: Lending Approvals for Irrigation and Drainage Loans FY 1979–2001

Latin America

$579 – 10%

Africa

$195 – 3%

East Asia

$2240 – 39%

South Asia

East Europe & Central Asia

$334 – 6%

Middle East & North Africa

$630 – 11%

$1758 – 31%

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dropped from $1 billion (5 year average) to below$400 million.

The 1997 Irrigation Portfolio review indicated thatBank lending had shifted away from the develop-ment of new irrigated lands to rehabilitation andupgrading of existing systems. Many of the newprojects emphasized sustainability and institutionalissues in addition to infrastructure investments.Theregional distribution of investment varies consider-ably, with EAP and SAR regions alone accountingfor 70% of the total investment (Figure A4.2). Keyfindings from the active I&D portfolio reviewinclude the following.

Institutional Reform. The dominant reform whichwas introduced was federated water-user associa-tions (WUAs), based partly on the Mexico model.This is particularly popular in South Asian and LatinAmerican projects. Some transitional economiesprojects tend to emphasize financially autonomousutilities that sell bulk water to corporatized groupsof water users. Relatively less has been done onrestructuring of irrigation agencies and on private

sector participation within a context of broadernational reforms.

Economic Incentives. The most commonly usedincentives are water pricing (90% of projects) anduser participation (59% of projects). However, inmost cases ‘water pricing’ focuses mainly on variousdegrees of O&M cost recovery, instead of using it tosignal the scarcity value of water. Relatively little hasbeen done on recovery of investment cost. TheOED report7 acknowledged the role of water pric-ing (along with good management and appropriatefee collection) for ensuring efficient water servicedelivery by enabling system operation and mainte-nance—and thus meeting the Bank’s poverty allevi-ation objectives. However, the Bank’s water portfo-lio showed few pertinent examples, and most ofthose were outside the irrigation sector.

Poverty in the Irrigation Portfolio. Irrigation anddrainage projects are increasingly focusing onpoverty reduction as an explicit project objective.However, there is still a long way to go to integrateirrigation projects into the mainstream of the Bank’s

Figure A4.3: Drainage Objectives in Active and closed Projects (Aug. 2000)

Closed projects

Active projects

100806040200

Waterlogging Control

Salinity Control

Flood Control

Water Quality

Environment Measures

Planning (Master or Basin)

Research/ Pilots/ Studies

Institutions

M&E

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poverty reduction work. Of the 47 projects thatbecame effective after 1997, less than half (47%)include any data on basic poverty issues.8 Only 11%of the projects included special assistance compo-nents for the poor (usually in the form of matchinggrants for equipment purchases). Only 6% of theprojects monitored the impact on small-farmerincome, 23% included specific provisions to benefitwomen farmers. The OED report acknowledgedthat irrigation projects were effective in reachingthe poor, however the perceived success wasstrongly affected by macroeconomic conditions.

Infrastructure Investment. Such investments didnot address the changing needs of irrigation servic-es within the basin framework. Rehabilitations ofexisting systems were mostly carried out to restoreoriginal project objectives rather than meeting cur-rent and future needs.9 The declining investments indrainage can hardly be justified while many coun-tries (e.g. India, Central Asia, East Asia’s humid trop-ics and some countries of Latin America) have greatpotential to enhance their productivity throughimproved drainage.10 On the other hand, projectsin the active portfolio are becoming more environ-mentally strategic (Figure A4.3) with increasedinclusion of salinity control, water quality improve-ments, environmental measures, planning, research,institutional aspects, monitoring and evaluation.

Challenges and OpportunitiesDeclining availability of renewable freshwaterresources in terms of quantity and quality is themajor problem facing development in the future. Itis particularly so for irrigation, which consumesabout 85% of the available water. Growing compe-tition for the same resources from M&I and envi-ronment, combined with increasing trend of waterpollution and impact of projected climate change,aggravates this problem. A WWF report11 esti-mates that by 2025 countries in the Middle East,South Africa, parts of western India and northernChina will not have sufficient water to meet all theirirrigation needs.

Productivity and Irrigated Agriculture. In someexpectations, irrigation water requirements willincrease by 15% over the next 25 years.12 Thelargest share of increased water supply for agricul-

ture must come from within the sector by increas-ing “use efficiency” through improved managementpractices and new investments.These include:

More crop per drop.Water management on bothfarms and in delivery systems can be improvedthrough the use of new technologies, reforms inmanagement institutions, practices leading to realwater gains,13 greater attention to water rights, andthe use of economic incentives. Improvements incrop genetics as well as in cropping patterns, culti-vation methods, and soil-moisture managementpractices are also possible. Much of the increasedproduction and increased value of production perunit of water consumption will come from theseaspects. However, promoting deficit irrigation inwater-scarce areas and improving yields in rainfedareas will also contribute substantially to the morecrop per drop objective.

Pollution control. Reducing waste loads in returnflows from agricultural, municipal and industrialusers can improve the availability of water for alluses, including agriculture (through reuse of treat-ed effluent and agricultural drainage water).

Improving reliability of supplies. Developing new stor-age to replace capacity lost to sedimentation and tosave water lost during flood flows for use during timesof scarcity, adopting a broader economic, social andenvironmental approach covering several sectoral usesand improving water supply infrastructure and services.

Utilizing the rainfed option. Improving watermanagement in rainfed agriculture (through floodcontrol, drainage, water harvesting) can enhanceproductivity and in some cases obviate the needfor conventional irrigation development.

Institutional Reform. Water management improve-ments entail significant adjustment in the institution-al arrangements. Focus should be on identifying andcharacterizing institutional options that target:

Managing irrigation within the context of inte-grated water resources management at thebasin/sub-basin level. Priorities include theenabling policy environment, appropriate institu-tional structures, and land and water rights.

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Reforming public sector agencies that currentlymanage most of the world’s large irrigation sys-tems.This is arguably the number one priority forimproving overall performance of the sector.They need to change into autonomous and self-financed agencies more directly accountableboth to farmers and to civil society. In this con-text, benchmarking and related M&E, volumetricmeasurements, regulations, economic incentives,and water rights are key factors.

Promoting private sector participation in serviceprovision and irrigation investments guided byexperiences from other sectors (water-supplyand hydropower).

Up-scaling user participation in irrigation man-agement (notably through WUAs) and ensuringtheir professionalism and financial independence.

Building capacity to reform policies and organi-zational structures is an important part of thereform process. The linkages between the insti-tutional capacity to reform and the end result ofthe reform process are too important. In realiz-ing this strategy the inputs of the World BankInstitute and other capacity-building partners(e.g., CAPNET) will be critical.

Environmental Sustainability. The future of irriga-tion development is tied in with the environmentalproblems related to irrigation management. Boththe problems caused by irrigation and those thatimpact irrigation need to be addressed. Priorityissues in this area include:

Controlling waterlogging and salinity throughimproved water management and adequatedrainage.

Managing the disposal of drainage water to avoidmobilizing salts and agricultural chemicals, pollut-ing downstream water bodies, and damagingwetlands.

Regulating and monitoring abstraction of waterfor irrigation to ensure sufficient environmentalstream flows and to avoid “mining” groundwa-ter aquifers.

Establishing appropriate rules and standards formanaging the use/reuse of low quality water inirrigation.

Creating a supporting environment and capacityfor adaptation to climate change.

Adopting environmental planning in the designof new irrigation and drainage schemes as wellas in the modernization of existing ones.

Investments in Irrigation and Drainage Infrastructure.As a general rule, priority should be given to makingbetter use of existing infrastructure. In this regard, thefollowing issues should be addressed:

Investing in modernization, rehabilitation anddrainage to increase productivity and enhancegrowth without the need for additional land andwater resources to extend irrigation to newareas. Such plans require characterization of thecurrent systems to define the potential benefitsdue to improvement.

Considering the high-need areas, particularly inAfrica, and their urgent requirements for infra-structure development to provide access towater, as well as building the capacity to con-struct, maintain, operate and manage new andexisting infrastructure.The challenge, particularlyin Africa, is finding lower cost solutions that givegreater emphasis to local technologies and par-ticipatory management.

Using modern technologies that improve waterproductivity through more efficient conveyancesystems, and most importantly, through betteron-farm water applications and improved irriga-tion methods.

Promoting technologies tailored for small hold-ers. Affordable, small-scale technologies (e.g.,treadle-powered and small-engine poweredpumps and low-cost drip/sprinkler systems) havea particular role to play in the total effort toimprove productivity and reduce rural poverty.

Tapping the energy and dynamics of the privatesector is a high priority for stimulating a demand

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for information and services that will lead tolocal investments and technology adoption.

Economic Viability and Social Sustainability ofIrrigated Agriculture.This could involve the following:

Crafting economic incentives (prices, subsidies,taxes) that recognize the opportunity cost ofswater and water services as a key step in theoverall reform process. Both the infrastructure(capital costs, operation, and maintenance) andthe water itself require incentive systems toensure sustainability.

Giving greater attention to water rights thatincorporate principles of equity within the con-text of customary rights; generate desirable eco-nomic, employment and environment effects;and provide a workable basis for water transfersamong owners and uses.

Ensuring that investments in irrigation are linkedto the agricultural production systems in theclient countries and associated with sufficientdevelopment of the rural infrastructure. Accessto information and markets for agro-inputs andagro products, agricultural credits, farm roads,telecom services, etc. are basic requirements forrealizing the full benefits of irrigation anddrainage investments.

Addressing the food prices and trade issues thatprevent increases in productivity. Low globalcommodity prices depress the vibrant entrepre-neurial energy that is needed to foster ruraldevelopment. Implications of agricultural tradefor water use need careful evaluation (virtualwater). Trade arrangements should encouragewater scarce regions to focus on production andexport of high-value crops while importingwater intensive lower value staple crops.

Ensuring that marginalized segments of the farm-ing population (including the poor, women, andethnic minorities) stand to benefit from tech-nologies tailored to very small land holdings, aswell as from improving the performance andenhancing the productivity of large scale irriga-tion and through local decision-making arrange-

ments (e.g., WUAs and participatory projectdesign processes) that give greater voice to theirinterests.

Using irrigation development as an opportunityto support the interests of rural women whouse irrigation water directly (43% of the rurallabor force is female) and indirectly (for house-hold use and livestock).

Priorities for Bank AssistanceGiven its comparative strengths, where can theBank make a difference? Based on the experiencegained and challenges facing the sector, as well asthe demonstrated contribution of water users,NGOs, and the private sector to improving watermanagement, there is a great need to pursue signif-icant policy and institutional reforms. There is alsoan unprecedented opportunity for partnership insuch a pursuit. In this regard, the Bank can:

1. Promote Productivity for Growth andPoverty Alleviation

Facilitate the adoption of new technologies andwater application practices that will improve irri-gation efficiencies, sustain the resource base, savewater, improve incomes, and enhance food secu-rity, keeping in mind the need to save “real”water and improve overall basin efficiencies.TheBank should also invest pro-actively, at the tech-nical level in new approaches to irrigation andirrigated agriculture that will yield benefits dis-proportionately for the poor: small-scale dripand sprinkler systems and the knowledge for cul-tivating and marketing high value crops.Meanwhile, the Bank should continue to financerehabilitation and modernization of irrigationand drainage infrastructure within a strategicframework of linked reforms that address themanagement failures symbolized by the faultyinfrastructure and occurrence of waterloggingand salinization.

Facilitate the adoption of new irrigation manage-ment techniques and practices. These includemodernization of delivery and on-farm systemsto meet current and future needs, rather thanrehabilitation to restore the system to original

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objectives. Support adoption of much-neededwater measurement systems, benchmarking andperformance standards. Given monopoly serviceproviders in irrigation, measurement, M&E sys-tems and user feedback are critical. New watermanagement practices at the farm level includeimproved water application practices and instal-lation of water measurement systems.

Support drainage, flood control, and land reme-diation to improve output from low-productivityareas. Examples include lands that requiredrainage to permit double cropping of diversi-fied crops, and lands damaged by salinity thatrequire treatment to restore their productivity.Options and approaches that encourage theparticipation of local communities and farmersshould be encouraged (e.g., Sodic Lands Projectin Uttar Pradesh, India). Provide and disseminatebest practices and lessons (e.g. from Australia,Egypt, Pakistan, Western United States) ofdrainage and salinity control from R&D for bet-ter design of strategies and programs; in particu-lar, operating rules for water and salt manage-ment, drainage water disposal and reuse.

Help meet the new challenges of using marginalwater in irrigation through improving knowledge,institutional arrangements, building capacity,piloting and use of appropriate monitoring ofeconomic and environmental effects.

2. Promote Irrigation Reforms Within aBasin/Sub-Basin Framework

Help our clients address the competing interestsof the multiple sectors involved in waterresources development generally, and irrigationand drainage specifically. Improved managementof irrigation and drainage must begin with thislarger resource perspective. In this context, assistirrigation agencies to establish links with basinagencies, M&I and environmental interests to: a)jointly establish water allocation rules; b) prepareseasonal water management plans; c) negotiateagreed inter-sectoral re-allocation or watertransfers. In relation to water allocation, somecountries facing acute competition for waterwould require assistance in establishing water

rights and a forum for water users to negotiatemanagement plans and potential water trades.

Adopt a “demand-oriented” approach to helpingour clients develop the capacity to introduce andsustain institutional and management reforms.The Bank can help engage our clients in a con-structive policy dialogue to identify specific prob-lems and possible solutions, and then provideexpert assistance in formulating policies (e.g.,water rights, water pricing, etc) or restructuringagencies (e.g., utility arrangements instead ofdepartmental management). Through dedicatedfinancing of capacity building activities (includingstrengthening university curricula on irrigationoperations and management), or through techni-cal assistance within larger project loans, the Bankcan guide and accelerate the reform process.

Provide specific support for innovative institu-tional reform pilots aimed at enhancing account-ability of irrigation service provision, as well asthe adoption of new institutional arrangements.The reorientation of irrigation agencies to focuson overall resource planning functions and theinvolvement of the private sector through man-agement and service contracts, BOT or otherappropriate arrangements (country specific) inirrigation operations management are importantareas for study, piloting and sector-wide action.

There has been some success with the promo-tion of the concept of user management in irri-gation and drainage and thereby advancing oper-ational and financial sustainability. The Bank canhelp actions towards empowering WUAs andup-scaling participation of farmers and commu-nities in management and decision making.Further support can be extended throughorganized use of the wide network of consult-ants and international organizations with expert-ise in participatory irrigation management.

3. Stimulate the Reform Process Through:

Linking irrigation reforms to broader issues ofdevelopment and political economy. Irrigationand drainage reform efforts may have greaterimpact when linked to broader Bank (or other)-

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financed investments in governance reform anddecentralization. Internally this implies partner-ship with PREM, FPSI, and SDV (e.g., privatizationand decentralization). In terms of clients, it impliesgreater interaction with ministries of finance,planning, environment, etc. Creating a nationaldebate on search for options and adjustments inirrigated agriculture will provide the policy envi-ronment for specific interventions that bring irri-gation reforms to the broader context of eco-nomic and political reforms in the country.

Linking irrigation strategy with agricultural strat-egy. In many countries, choice of agriculturalstrategy has serious implications for water use inirrigation. For instance, promotion of agriculturalexport strategies results in “vir tual water”import or export. Systematic policy-orientedstudies of impacts of agricultural policy choiceson water consumption are critical for advisingpolicymakers. Often much more “real” watersavings can be achieved through focusing oncrop genetics, cropping pattern and agriculturaland irrigation practices that result in less evapo-transpiration, than can be achieved through irri-gation system efficiency improvements becausemuch of the existing water losses in inefficientsystems return to the surface or groundwatersystems and therefore is not lost to the hydro-logic system. The objective of achieving morecrop per drop requires very close linkagesbetween irrigation and agriculture strategies.

Knowledge and process. Designing reformsimplies careful analysis and, most importantly,dialogue and capacity building among the rele-vant stakeholders. National dialogue on “waterfor food and rural development in the contextof integrated water resources management” canbe facilitated by the Bank, and organized bynational agencies, institutes, or NGOs.The Bank’srole could grow out of the approach we bring tosuch stakeholder consultation and sector work.

Sequencing and blending investments.The targetsof irrigation and drainage investments include: a)policy adjustments; b) institutional reforms; and c)infrastructure and technologies.All three types ofinvestments are needed simultaneously but at dif-ferent intensities over time. Investments in infra-structure should be leveraged to advance institu-tional reforms over the short-term and beappropriately sequenced. Investments in policyneed to continue.The Bank has the comparativeadvantage to help the client countries to designprojects that are realistic in scope and objectivesand programmatic in nature.

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ENDNOTES

1 As used here, the terms “irrigation” or “irrigated agriculture” include the capture, use, disposal and/or re-use of water for agriculture.

2 Mellor, Keynote Address, Rural Week 2000.

3 The net irrigated area is defined as the area irrigated at least once during the calendar year (FAO 1999).

4 The State of Food and Agriculture 1997 (FAO 1998).

5 International Water Management Institute,Water for Rural Development, (IWMI 2001).

6 L.Thompson, Keynote Address, Irrigation Institutions Workshop, December 11, 2000.

7 Bridging Troubled Waters. Assessing Water Resources Strategy since 1993, OED, December 2000.

8 The relevant “poverty issues” include data on land ownership, special project components targeting the poor, selection of poor

regions for project benefits, monitoring income of the poor, focus on off-farm employment, a focus on livelihoods or well-being,

and a particular focus on including women as project beneficiaries.

9 W. Easter, H. Plusquellec and A. Subramanian. 1998. Irrigation Improvement Strategy Review.

10 Vast tracks of once prime agricultural lands have been taken out of production over the past few decades, while only a small pro-

portion of such lands have been treated and returned to agricultural use.

11 Vision Report on Water for Food and Rural Development. The Hague, 2000.

12 World Water Forum 2000, based on IFPRI and IWMI models.

13 For example, minimizing non-beneficial evapotranspiration in all water uses.

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The sustainable management of natural resourceshas traditionally been a basic pillar of the Bank’srural development strategy. This new strategy putsnew emphasis on the importance of improvedaccess to rural physical and human infrastructure.

Rural people of course have their own aspirations. Itis important that assistance programs do not imposechoices, but instead give rural people access to assetsand the tools to manage those assets. It is also impor-tant to assist them in making informed choices forsustainable livelihoods.The more access rural peoplehave to natural resources, infrastructure and humanassets, the more livelihood choices they can make,thus reducing their risks and vulnerabilities.

Access to Rural InfrastructureDespite widespread recognition of the potentialimpact of rural infrastructure investments, the ruralareas’ access to infrastructure remains low.A reviewof investments in 14 developing countries revealswide disparities in infrastructure availabilitybetween rural and urban areas (Figure A5.1).1

Average access to electricity in those countries is46% in rural areas, compared with 89% in cities. In-house water taps are available to only 12% of ruralhouseholds, compared with 59% of urban house-holds. And only 8% of rural households have tele-phones, compared with 38% of urban households.The rural-urban disparity is true across all regions,except in the case of electricity in Eastern Europeand Central Asia.

There are three challenges to providing universalaccess to rural infrastructure.

The first is how to ensure that infrastructure willbe maintained. Because of the small number ofbeneficiaries normally served in rural areas, eco-nomic considerations dictate that infrastructureinvestments be designed to fairly low standards.The second is how to ensure that financingarrangements can be scaled up to universal cov-erage.The third is determining how to ensure the rightbalance between cost sharing and reaching poorcommunities.

The Bank and Rural Infrastructure. Rural infra-structure constitutes a substantial and growing com-ponent of Bank activities. Currently, over one-fifth ofBank lending in the rural sector is spent on infra-structure.That is substantially higher than the 1994level of only 3% of total lending. Combined invest-ments in rural transport and in rural water supplyand sanitation account for 15% of rural sector proj-ects and 20% of the funds approved for rural activ-ities in FY 1999 and FY 2000. When other infra-structure sectors are considered—e.g., rural energyand rural telecommunications, as well as alternativemulti-sector delivery arrangements (including, socialfunds and rural development funds)—the propor-tion is likely to be significantly larger—as much as 50to 70% of total rural funding.2

That the actual value of investment is substantiallyhigher than indicated by single-sector investmentdata is supported by a detailed analysis carried outby the Bank’s Rural Development Group. Thisreview of 500 projects approved Bank-wide inFY99 and FY00 found that more than two-thirdsinvolved rural infrastructure or related activities,even though the majority of them were not identi-fied as rural infrastructure projects. Notwithstandingthis analysis, the Bank does not have a clear under-standing of the size of the rural infrastructure port-folio. Most projects are not coded. As a result, thetotal amount of investment in rural infrastructurecannot be captured.

The focus and type of Bank lending for rural infra-structure have also changed. After the failure ofcentralized integrated approaches in the mid-1970s, the focus shifted to building infrastructure,with little or no attention paid to how infrastructurewas to be operated and maintained in the longterm. This resulted in short-lived projects. Inresponse to the need to improve investmentlongevity, the concept of local participation wasincreasingly incorporated into rural infrastructuredelivery, whereby communities became activelyinvolved in project implementation. One studyfound that beneficiary execution of projects rosefrom nothing to 40% of rural infrastructure projectsbetween the mid-1970s and the mid-1990s.3

ANNEX 5: Physical and Social Infrastructure

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Figure A5.1: Access to Rural Infrastructure: Percentage of Households in the Bottom Decilewith Infrastructure in the Home

0

20

40

60

80

100

GhanaCoted’Ivoire

SouthAfrica

NepalVietnamPakistanNicaraguaEcuadorJamaicaPanamaKyrgyzRepublic

Albania BulgariaKazakhstan

Urban

Rural

0

20

40

60

80

100

GhanaCoted’Ivoire

SouthAfrica

NepalVietnamPakistanNicaraguaEcuadorJamaicaPanamaKyrgyzRepublic

Albania BulgariaKazakhstan

Urban

Rural

Electricity (Percentage of Households)

In-House Water (Percentage of Households)

Notes:The Urban and rural households in each country were separately divided into deciles based on the per capita consumption ofeach household.Albania does not include Tirana.Source:World Bank LSMS surveys, as cited in Komives, footnote 1.

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Increased emphasis on ’software’ issues—i.e., train-ing, capacity building, sustainability—has beenaccompanied by a shift to smaller subprojects,which increased from 20% to 60% of the portfolioduring the same period.The consequence has beena focus on local-level actors and growing realizationof the need to coordinate rural infrastructure proj-ects with national decentralization strategies.

Actions for Developing Rural Infrastructure.Institutional and financing arrangements for ruralinfrastructure should be tailored according to: thenature of the service in terms of its public goodversus private good characteristics (a rural roadtends to be public in nature, an in-house electricconnection a private good); and the scale of theservice—whether the service helps a single com-munity or many communities. As a rule, the poten-tial for private sector interest in providing infra-structure increases as the activity shifts from publicto private. A shift from smaller to more extensivecoverage also tends to transcend community-based solutions.

Institutional Arrangements for Managing RuralInfrastructure. The dispersed nature of most ruralinfrastructure means that decentralized arrange-ments are a necessity; there is little sense in tryingto manage the construction of village wells from thecapital. But rural infrastructure services are also het-erogeneous, ranging from energy grids to localhealth centers. Given this heterogeneity, decentral-ization cannot mean the same thing for all types ofinfrastructure. Similarly, the degree of decentraliza-tion may not be the same in all facets of the invest-ment cycle (i.e., while planning and allocation shouldbe highly decentralized, financing may need to becentrally driven).

To date, the involvement of the private sector in theprovision of rural infrastructure has been limited,but growing evidence suggests that private sectorpartners can increase the efficiency and effective-ness of service delivery. Moreover, private sectormanagement and financing of infrastructure servic-es can relieve overburdened public resources andadministrative capacity.Accountability is the key fac-tor that argues for preferring the private over thepublic sector and local communities over regional

or national governments. But accountability cannotbe taken for granted. Local communities are notless immune to corruption, incompetence andcronyism than central governments, and withoutcompetition and transparency the private sector isno guarantee of efficiency.

Financing Rural Infrastructure Services. Threebroad principles should be applied in determiningfinancing. First, adequate cost recovery is not onlythe simplest, but also often the only way to dealwith lack of resources. Cost recovery is also criticalto attracting ‘profit-seeking’ private sector investors.While subsidies to pay for operating and mainte-nance costs are often well-meaning attempts toaddress poverty, experience shows that they oftendo poor consumers more harm than good by forc-ing them to rely on alternatives that are moreexpensive than paying the full costs of adequateservice. Achieving cost recovery for the delivery ofsome types of infrastructure services, such as ruralelectrification and feeder roads, can be a formidablechallenge in rural areas with low populations densi-ties and low income levels. Second, upfront contri-butions from beneficiary groups should be maxi-mized, bearing in mind the affordability constraintsof the poorest. Community contributions are animportant component of any cost recovery strate-gy and increase the likelihood that decisions will bemade in responsible fashion.There is little incentivefor a community to turn down a cost-free invest-ment, but if it has to make a significant contributionto the cost, it is more likely to think seriously aboutrelative priorities. Third, promoting private sectorprovision of services must be complemented bysimple and fair regulatory mechanisms, as well aseffective financial intermediation.

Principles Behind Bank Actions in RuralInfrastructure. In the new strategy, Bank actions areenvisaged as:

promoting decentralized arrangements for pro-viding infrastructure;facilitating private sector involvement;ensuring accountability in rural infrastructureprojects; andensuring adequate cost recovery and encourag-ing upfront contributions from beneficiary

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groups to guarantee the sustainability of ruralinfrastructure investments.

Improved Education for Rural PopulationsThere are two educational needs in rural areas.Thefirst is general education (primary and secondaryschooling), while the second is education for agri-cultural and natural resource management.Empirical evidence shows that the social rate ofreturn to primary schooling in most low-incomecountries is high (23%) and is substantially higherthan the return on second and tertiary education(15 and 11%, respectively).4

Rural Primary Education. The divergence betweenthe global goal of universal primary education andreality is especially stark in the rural areas of devel-oping countries.There are also wide gaps in educa-tional attainment between rural and urban children.In countries where cultural factors undervalue girls’education, male/female differentials in educationalattainment create a further challenge. Girls inCentral Africa, North Africa, and South Asia are atparticular disadvantage.

Secondary Education. While universal primaryeducation is of paramount importance, extendingsecondary school opportunities to rural areas isalso critical and is likely to have high marginalreturns. Secondary education is essential to main-taining a well-qualified supply of primary schoolteachers and also provides an incentive for childrento complete primary school. But promoting sec-ondary education in poor rural areas is hamperedby the same supply and demand factors affectingprimary schools.The opportunity cost of schoolingincreases as children get older and labor marketopportunities increase. Since many rural communi-ties cannot operate secondary schools efficiently,children have to travel long distances to get sec-ondary schooling. Eliminating the gender gap in sec-ondary education in rural areas is also difficult.

Agricultural Education and Training (AET).Education specifically for the management of farmsand natural resources has played an important rolein rural economic growth. AET systems range fromthose providing degrees in agricultural knowledgeto extension services for farmers and extension

staff in-service training. As agriculture grows, qualitytraining is needed to maximize production efficien-cy and foster sustainable output. At the same time,it must be recognized that the value of extensionservices has diminished as farmers become moreable to obtain information from the private sector.

The Bank and Rural Primary Education. The Bankhas made appreciable contributions toward gettingmore children, both rural and urban, into school.Bank research has shown how to make betterinvestments in schools, and the Bank’s own invest-ments have enlarged small-scale projects. It is diffi-cult, however, to determine the volume of theBank’s educational investment. Project documentsin the education sector seldom separate rural fromurban data, and such analysis is further complicatedbecause rural and urban environments are oftennot clearly distinguishable.

The Bank is committed to achieving free universalprimary education. Rural development specialistsneed to ensure that the rural poor have access toa good primary education and better opportunitiesto get a secondary education. It is also important toensure that governments distribute public funds foreducation in an equitable manner. There is also aneed for closer collaboration between educationspecialists and rural development specialists. TheCDF and the Poverty Reduction Strategy Papersgenerally focus on community-driven development,which is effective in providing access to publicgoods within the management capacity of commu-nity organizations.

Principles behind Bank actions in rural education.In the new strategy, Bank actions are envisaged as:

placing great importance on achieving universalprimary education;advocating gender equality in rural education;advocating quality improvements in ruralschools;ensuring that public funds for education are dis-tributed equitably;promoting closer collaboration between educa-tion specialists and rural development specialists;encouraging greater community participation inrural education;

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0 30 60 90 120 150

Brazil 1996

Cote d’Ivoire 1988

Ghana 1987/88

Guyana 1992/93

Indonesia 1993

Morocco 1990/91

Nepal 1996

Pakistan 1991

South Africa 1993

Tajikistan 1999

Vietnam 1998

Urban

Rural

increasing investments in rural secondary educa-tion, particularly in countries close to attaininguniversal primary education;promoting literacy and training opportunities forunschooled rural adults; andensuring that investments in agricultural trainingprograms are in line with current needs.

Rural Nutrition and HealthDisease and illness are frequent consequences ofliving in poverty, while at the same time illness anddisease are leading factors in pushing families intopoverty. Communities routinely mention that poorhealth is a characteristic of the poorest.5 Diseaseand illness also affect labor productivity and eco-nomic growth. The health and nutritional status ofadults affect labor force participation and the inten-sity of work effort, while nutrition and health statusaffect the cognitive development of children.

A growing number of studies show the economicbenefits of improving nutrition and health. Otherstudies reveal the significant negative impact of dis-ease on economic growth. One study, for example,concluded that malaria reduces per capita GDP

growth rates by at least 0.25% in the Sub-Saharancountries most affected by the disease.6

Trends in Rural Health and Nutrition. In develop-ing countries the health and nutritional status ofrural residents continues on average to be worsethan that of urban populations (Figure A5.2).7

Combining evidence on the global burden of dis-ease with the fact that the majority of the poor stilllives in rural areas indicates that communicable dis-eases and maternal, perinatal, and nutritional condi-tions are the primary causes of disability and deathin rural areas. Non-communicable diseases,although on the rise, are less prevalent.

The prevalence of disease is closely related tosocioeconomic status. Low family income, crampedliving conditions, low maternal education, low occu-pational status, and unclean living conditions, forexample, have all been associated with increasedrisk of diarrheal morbidity and mortality.8 Malariaand tuberculosis are also closely linked to poverty.

HIV/AIDS is also a formidable challenge in ruralareas. There are currently 36 million people with

Figure A5.2: The risk of dying at a dollar a day—Under-five

Source: Alderman, H. 2001.What has Changed Regarding Rural Poverty Since Vision to Action? World Bank Rural StrategyDiscussion Paper 5.Washington, D.C.

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HIV/AIDS, of whom some 5.3 million becameinfected in 2000.9 Currently, the region mostaffected is Sub-Saharan Africa, where approxi-mately 9% of the adults carry the disease.However, it is estimated that by 2010 Asia willovertake Sub-Saharan Africa in absolute num-bers.10 Although HIV/AIDS has traditionally beenregarded as an urban problem, it is gradually beingrecognized that rural communities are perhapsmore vulnerable to the problem. In the 25 most-affected African countries, for example, more thantwo-thirds of the victims live in rural areas.11 Thecosts of HIV/AIDS are largely borne by ruralcommunities because many urban dwellers, atleast in Africa, return to their village when theybecome ill.

Rural areas are also the scene of widespread mal-nutrition, which compromises natural immunityand contributes to the disease burden. In 1995, anestimated 36% of children under 5 years of age indeveloping countries were stunted. It is predictedthat stunting will be reduced to 29% by 2005.Thiswould represent a decline from 182 to 165 millionchildren, which is still an unacceptable number, andthere is mounting evidence that child malnutritionrates are stagnating or increasing in Sub-SaharanAfrica. Childhood malnutrition rates are generallyhigher in rural than in urban areas.

Adult malnutrition in developing countries hasserious repercussions since the health of working-age adults is an important determinant of house-hold income. Recent evidence on fetal malnutri-tion and low birth-weight further stresses theimportance of adult health and especially maternalnutrition status. Regionally, adult malnutritionappears to be particularly widespread in SouthAsia and Sub-Saharan Africa. Data fromBangladesh, for example, reveal that 54% of ruralwomen were underweight. In Africa, the preva-lence of adult malnutrition appears to be consid-erably less than in Asia, ranging from 21% of ruralwomen in Madagascar to about 9% in Côted’Ivoire.12

Challenges to Improving Rural Health. Rural res-idents in developing countries typically have lessaccess to healthcare than urban populations. Data

from a survey in Ghana, for instance, reveals thatwhile the average distance to healthcare facilitiesin rural areas was 4.8 miles, it was 0.6 miles inurban areas.13 Many children in rural areas do notget basic immunizations. Large percentages ofwomen in rural areas do not receive antenatalcare and are not attended by skilled personnelduring childbirth.

Even when health services are accessible in ruralspace, they often offer low quality services andhence are underutilized. Income and time con-straints pose additional barriers to healthcare forrural people. Rural facilities generally have difficul-ty attracting staff and often fail to have essentialdrugs and other supplies available. A study com-paring geographic imbalances of physicians in 12least developed countries found that only 3 of the12 had a rural physician to population ratio thatwas better than 5% of the urban ratio. In 14 otherdeveloping countries included in the study, nonehad a rural physician to population ratio greaterthan 41% of the urban ratio.14

Poor rural infrastructure contributes to the bur-den of ill health in rural areas. Clean water andadequate sanitation are key to reducing the threatof waterborne diseases. Roads are critical in ensur-ing access. Electricity is essential for the operatingof health centers and maintaining the cold chainfor vaccines.

The World Bank and Rural Health. The Bank haslong recognized that effective health services arecritical links in the chain of events that allow devel-oping countries to break out of poverty. TheBank’s recent work in this area ranges fromimproving immunization and healthcare for chil-dren to improving access to clean water and sani-tation. As the Bank increases the poverty focus ofits projects, it is likely that the rural population willbenefit proportionately more.The traditional pre-scriptions for improving nutrition and food securi-ty, such as increasing agricultural productivity andensuring that national policies do not excessivelytax the agricultural sector, remain valid. However,the strategies recommended attempt to gobeyond the traditional solutions to improve healthand nutrition.

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Principles behind Bank actions in rural health. Inthe new strategy, Bank actions are envisaged as:

increasing collaboration with the health and nutri-tion sector as well as the education sector, so thatrural development specialists can help to improvethe health and nutrition of the rural poor;advocating the interests of the rural poor toensure that government resources for health arenot biased toward urban constituents;promoting community-driven cross-sectoralapproaches to improving health and nutrition asthese are likely to yield high returns;placing greater emphasis on food-based strate-gies to improve dietary quality and micronutrientstatus; andpromoting the status of women in rural devel-opment to improve rural health and nutrition.

This last point is of special importance. As primarycaregivers, women are key to improving health andnutrition, but their ability to invest in their own andtheir children’s health and nutrition is hampered bytheir lack of control over household incomes, theirpoor education, and the health risks arising from theirreproductive role. Currently, rural women producebetween 60 and 80% of the food in most develop-ing countries, but they continue to be disadvantagedin terms of access to land and non-labor inputs, suchas fertilizer, credit, and extension services.

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ENDNOTES

1 Komives, K.,Whittington, D., and Wu, X. 2000. Infrastructure Coverage and the Poor: A Global Perspective. Infrastructure forDevelopment: Private Solutions and the Poor. Conference Paper, 31 May–2 June 2000. London.

2 This value is extrapolated from a comprehensive study of the 1999 portfolio of rural water supply and sanitation projects.Thisstudy by the Bank’s Infrastructure group showed that 25 Rural Water Supply and Sanitation projects worth a total value of $700million were approved in 1999. However, only 4 (combined value $300 million) were focused single sector projects—the restwere under taken by a variety of sectors, predominantly as multi-sector social funds and rural development funds.This suggeststhat only 16% of the portfolio (by number of projects) and 43% of total funds (by project value) were single-sector projects, withthe weight of the portfolio ‘hidden’ as multi-sectoral interventions. It is likely that the same scenario exists in the other infrastruc-ture sectors, particularly in rural roads and to a lesser extent in rural energy and telecommunications.

3 Pouliquen, L. 2000. Infrastructure and Poverty.The World Bank.Washington, D.C.

4 Psacharopoulos, G. 1994. “Returns to Investment in Education: A Global Update.” World Development. 22 (9): 1325–43

5 Narayan, D.; Patel, R.; Schafft, K.; Rademacher, A.; Koch-Schulte, S. 2000. Voices of the Poor: Can Anyone Hear Us? Published for theWorld Bank, Oxford University Press, New York, N.Y.

6 McCarthy, F.D.;Wolf, H.;Wu,Y. 2000. Malaria and Growth. World Bank Policy Research Working Paper 2303.World Bank, PolicyResearch Department,Washington, D.C.

7 One should, however, be aware that looking at aggregate statistics on rural versus urban health masks the fact that the health ofthe urban poor is often as bad or worse than that of rural populations.

8 Jamison, D.T.; Mosley,W.H.; Measham, A.R.; Bobadilla, J.L. (eds.) 1993. Disease Control Priorities in Developing Countries: A Summary.World Bank.Washington, D.C.

9 UNAIDS (Joint United Nations Programme on HIV/AIDS). AIDS Epidemic Update: December 2000.[http://www.unaids.org/wac/2000/wad00/files/WAD_epidemic_report.PDF].April 2001.

10 Barnett, A.; Rugalema, G. 2001. HIV/AIDS, Health and Nutrition: Emerging and Reemerging Issues in Developing Countries. IFPRI 2020Focus 5 Brief 3. IFPRI Washington, DC.

11 FAO. 2001. AIDS a Threat to Rural Africa. [http://www.fao.org/Focus/E/aids/aids1–e.htm.] March 26, 2001.

12 World Bank. 2001. Country Reports on Health, Nutrition, Population and Poverty.[http://www.worldbank.org/poverty/health/data/index.htm] March 2001.

13 Lavy,V.; Strauss, J.;Thomas, D.; de Vreyer, P. 1996. Quality of Health Care, Survival and Health Outcomes in Ghana, Journal ofHealth Economics 15: 333–357.

14 Blumenthal, D.S. 1994. Geographic Imbalances of Physician Supply: An International Comparison. The Journal of Rural Health 10(2):109–118.

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ANNEX 6: Natural Resources

Lessons learned from past Bank Natural ResourceManagement (NRM) activities confirm the strongrelationship between resource degradation andpoverty. For one thing, natural resource degrada-tion significantly increases the level of poverty. Foranother, the lack of income sources for investmentsin natural resource management by the poor oftenleads to increased resource degradation. For themost part, though, these resource-degradationphenomena can be attributed to either market orgovernment failures. The following are brief sum-maries of the extent of the degradation of four ofthe principal resources (land, water, forests andbiodiversity). Also, included are projections relatingto the effects of climate change.

Land Most of the land available to meet current andfuture food requirements is already in production;any further expansion must necessarily involve frag-ile and marginal lands.This is particularly so in devel-oping countries where population growth is high,poverty is endemic, and existing institutional capac-ities for land management are weak.

Only about one-third of the world’s land is gener-ally suitable for sustainable arable cropping, withperhaps another third suitable for sustainablerangeland use. Land that is not really suitable foragriculture requires intensive labor or maintenance(as on slopes), or is highly prone to erosion,(steeply sloping), or is not amenable to mechaniza-tion (too stony, too steep). On these lands, agricul-ture may be feasible for a few years by people lack-ing alternatives, after which the topsoil will be lostor exhausted and the land will be abandoned. Forthese reasons there is a severe limit to the expan-sion of the land area suitable for agriculture. At thesame time, some suitable land is being lost in anirreversible manner by degradation.1

The sources of market failure involved in suchdegradation are several. Insecure property rights inthe land resource is a major problem in many coun-tries (such as Ethiopia), whereby the usual custodialroles of farmers are compromised by an obligation

to have exceedingly short planning horizons in theiruse of the land. In more arid areas where pastoral-ism may be a dominant land-use, and where regu-latory controls are limited, similar situations con-tribute to processes of desertification. Failures toproduce sufficient public goods in the form of bet-ter understanding of such processes is yet anothersource of market failure. Externalities associatedwith practices of farmers high in a catchment, withdisregard for the downstream consequences oftheir actions for other farmers and other waterusers, is another important source of market (andsometimes too government) failure frequentlyencountered. Such diverse sources of market failureprovide scope for cogent policy analysis and inter-vention, as is also noted for the other resource cat-egories discussed below.

Overall current trends indicate that land hasbecome a limited natural resource, and that it isbeing rapidly depleted. This depletion is still onlymoderate in AFR and LCR, strong in EAP, andsevere in MNA and SAR. In three of the regions,land that is not suitable for sustainable agriculturalproduction is currently being cropped, or will haveto be cropped in the future. While AFR and LCRhave still much land that could be brought into cul-tivation, major investments and socioeconomicchanges would be required to convert those landsto arable farming, and due account must be takenof the environmental costs of any such conversion.Many such lands are forests or wetlands with signif-icant option value for their biodiversity and otherenvironmental (including global climate-related) val-ues, and therefore they are candidates for conser-vation rather than conversion to agricultural land.

The review of regional land-use developments indi-cates that the situations in EAP, MNA and SAR callfor major interventions to reduce further degrada-tion, and that massive food imports are the onlyalternative to meet current and future demands.

In areas with marginal agriculture but where crop-ping could be sustainable, interventions arerequired to improve the prospects for economic

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returns to land management investments by farm-ers thus reducing land degradation. But on landswhere agriculture will be unsustainable in the longrun, non-farm employment and income generationprograms will be required.At the same time, strongintensification of production in favorable areas is aneffective way to increase food security and, in areaswhere most suitable land is already used, is the onlyreal food-supply option, in addition to internationalfood trade.

In AFR there is still adequate and suitable land foragriculture. However, there is the problem of inac-cessibility, and constraints to human settlement dueto climate and diseases. The situation in EAP indi-cates that the region as a whole is close to utilizingall suitable land for cultivation, and that since popu-lation distribution and activities are not homoge-neous, increasingly, land is being cultivated in a man-ner that is ecologically unsustainable.

LCR is, of course, a highly heterogeneous region. it’sthe relative size of South America means that itrather dominates Central America in the regionalpicture, although the degradation problems in thelatter are typically more severe.

WaterWater is the key ingredient for life, and its interac-tion with land and forests provides the refuge for allterrestrial species.Water use is often categorized asagricultural, domestic, or industrial. In recent yearsthe environmental use of water for aquatic habitatshas become important. Water is distributed acrosscountries and regions very unevenly. At oneextreme, LCR with only 8% of world’s population isendowed with 34% of the world’s total renewablewater resources, while at the other extreme, SARwith over 20% of the world’s population has only5% of the renewable water resources.An increasingnumber of countries are suffering from water stress(insufficient water supplies for sustainable use) aspopulations rise and aquifers are exploited at fasterrates than they are replenished.Water scarcity leadsto increased competition between sectors andincreases the potential risk of damage to ecosys-tems from which water is withdrawn and wherereturn flows are discharged. This situation raises

alarming concerns about managing the competingdemands of the different sectors in an integratedframework (Box A6.1).

Agriculture is the largest single user of water,accounting for 74% of the total amount withdrawnin 1995. Irrigation increases agricultural productivityand was a primary factor (along with high-yieldingvarieties and fertilizers) in the success of the GreenRevolution from the 1960s to the 1980s. It is perti-nent to pose the question, can today’s rural devel-

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Water is becoming a more and more scarce resource inmany countries, with growing demands and increasing com-petition across sectors and uses.With rapid growth in urban-ization and industrialization in most developing countries,there is increasing pressure to transfer water from agricul-ture to these sectors.

Water allocations to environmental sector, which received lit-tle attention in the past, are expected to increase with grow-ing recognition of the need and benefits of water in thissector.

Despite the expected large growth in water withdraws forthe above sectors, agriculture will remain the dominant wateruser in most developing countries.

Pollution due to return flows from agriculture, municipal andindustrial uses, as well as other wastes deliberately disposedor caught by floods, has begun to show far-reaching healthimpacts with serious economic and ecological implications.

Agriculture is expected to rely increasingly on treatedwastewater and agricultural drainage water which puts therural community at the forefront of environmental andeconomic risk.

Waterlogging and salinization are long-term problems thatcannot be treated adequately through the time frame ofordinary project cycles.

Economic incentives important as methods for addressing thetwin problems of water scarcity and deteriorated quality.

Climate variability will become and institutions for improvedmanagement at supplier and user levels will become increas-ingly an important factor, affecting both the supply and thedemand for water by the various sectors.

Key Issues Regarding the FutureGlobal Water Situation A6.1

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opment challenges be met through a second GreenRevolution? The countries most in need of help nolonger enjoy the surpluses of water that character-ized the period of the initial Green Revolution.Theopportunity cost of irrigation water is much highertoday, not only because of scarcity within the agri-culture sector, but because of much higher compe-tition from other sectors vying for the use of thesame water. Projections indicate that water with-drawal for agriculture will not exceed 67% of thetotal water supplies in 2025. The biggest challengewill be to increase agricultural productivity with lesswater available for irrigation.2

Environmental impacts of irrigation water are sig-nificant, and there are enormous potential payoffsfrom improved environmental management.Waterlogging and salinization are the most perva-sive threats from irrigated agriculture; about 80 mil-lion hectares of the world’s irrigated lands sufferedfrom salinization by the late 1980s. Discharges ofsaline effluent from irrigated lands have causedserious downstream environmental problems (asin the case of the Aral Sea Basin and Indus Basin).As agriculture is forced by other sectors to reduceits use of freshwater supplies, reuse of treatedwastewater and agricultural drainage water willcontinue to increase. In Jordan, 20% of the irriga-tion water is treated wastewater with a potentialto increase to 60% by the year 2025. Egypt reusesabout 7 billion cubic meters of agricultural drainagewater in irrigation. This trend involves economic,environmental and health risks due to the highcontents of salts, nutrients, sediments, agriculturalchemicals and pathogens.3

Since water is critical for human survival, it can becharacterized as a public good, and public authoritiesin most countries have assumed central responsibil-ity for its overall management. Reliance on marketforces alone will not yield satisfactory outcomes. Atthe same time, however, government actions oftencause serious misallocations and waste of waterresources. Three problems related to governmentactivities are of particular concern: (a) fragmentedpublic sector management that has neglected inter-dependencies among government agencies andjurisdictions; (b) reliance on overextended govern-

ment agencies that have neglected financial account-ability, user participation, and pricing while not deliv-ering services effectively to users and to the poor inthe particular ; and (c) public investments and regu-lations that have neglected water quality, health, andenvironmental consequences.

Problems related to scarcity of water resourcescontinue to increase. Policies for development ofwater resources are also undergoing change. Thecurrent environment for water resources policy canbe captured by the following key observations:

the best sites for the construction of large damsand reservoirs have already been developed;

the growing demands for fiscal austerity in mostcountries have stimulated interest in least-costalternatives for meeting water needs;

there is heightened public awareness and con-cern about the environmental impacts related tothe construction of hydraulic infrastructure, par-ticularly dams; and

increasing competition by various sectors forscarce water resources adds further pressure towater development decisions.

These changes have caused a fundamental shift inthe way that water resources development is con-sidered—a shift from relying on construction, as ameans for solving water needs to a reliance onimproved policies and management as the solution.The strategy of achieving substantive improve-ments in water-use efficiency and water qualitythrough better policies and management reliesheavily on detailed knowledge on which manage-ment decisions can be based, and on a system ofmanagement, which can implement the decisionstaken. Most developing countries are markedlydeficient in both respects. Information needs for effective management include data on howwater is presently used, interactions betweenwater-use sectors and users along a watercourse,equity/poverty considerations, conditions of watersupply, accurate and timely forecasts of meteoro-logical events, alternative institutions for water

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Europe

Temporal and BorealNorth America

Australia, NewZealand and Japan

Developed World

Developing Asiaand Oceania

Africa

Latin Americaand Caribbean

Developing World

-12 6-10 -8 -6 -4 -2 0 2 4

Percent

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management (e.g., basin planning organizations andwater markets), and conditions requisite for theireffective operation. Management needs include theinstitutional structures (policies, organizations) forimplementing water management and also thegovernance resources for reforming the existinginstitutional structures.

Forests Forests, woodlands, and scattered trees have provid-ed humans with shelter, food, fuel, medicines, buildingmaterials, and clean water throughout recorded his-tory. Forests have recently also become sources ofnew goods and service—including pharmaceuticals,industrial raw materials, recreation and tourism.Forests regulate water quality by slowing soil erosion,and filtering pollutants, and they help regulate thetiming and quantity of water discharge. In addition,protection of forests, afforestation and reforestationalso play very important roles in preventing andreducing land degradation.

Forests cover about 25% of the world’s land sur-face, excluding Greenland, and Antarctica. Global

forest cover has been reduced by at least 20% sincepre-agricultural times and possibly by as much as50%. Forest area has increased slightly since 1980 inindustrial countries, but has declined by almost 10%in developing countries. Tropical deforestationprobably exceeds 130,000 km2 per year, and per-haps the greatest threats to forests currently areconversions to other forms of land use. Theseinclude fragmentation by agriculture, logging, roadconstruction and mining. Mining is notably responsi-ble for opening up intact forests to pioneer settle-ments, and to increases in hunting, poaching, fires,and exposure of flora and fauna to pest outbreaksand invasive species.4

Although human actions have caused the world’sforest cover to shrink significantly over the past sev-eral millennia, precise measurements of this shrink-age are difficult to make. FAO in its 1997 forestassessment, attributes the principal causes of forestloss in the various regions of the world as follows:a) Africa—the expansion of subsistence agricultureunder pressure from rural population; b) LatinAmerica—large scale cattle ranching, clearance for

Figure A6.1: Changes in Forest Area from 1980–1995

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government-planned settlement schemes, andhydroelectric reservoirs; c) Asia—pressure fromsubsistence agriculture and economic developmentschemes, equally (Figure A6.1).

Growing road networks are a prime cause of for-est fragmentation, resulting in two significant areasof impact: a) the direct effect on species biodiver-sity by diminishing the amount of natural habitatavailable, blocking migration routes, providingavenues for invasion by non-native species, andchanging the microclimate along the remaininghabitat edge; b) the indirect effect by providingaccess for hunting, timber harvest, land clearing and

other human disturbances that further change thecharacteristics of the local ecosystem.

In addition to outright conversion and fragmenta-tion of forests, a third human-related pressure isfires.Wildfires are a natural and necessary phenom-enon in many forest ecosystems, helping to shapelandscape structure, improve the availability of soilnutrients, and initiate natural cycles of plant succes-sion. In fact some plant species cannot reproducewithout periodic fires. The human-related fires,however, greatly exceed naturally occurring fires intheir frequency and intensity. Some are set inten-tionally for timber harvesting, land conservation, or

Facilitating access to credit for beef cattle, mechanized agricul-ture, and large-scale forest and tree crop plantations in areaswith substantial natural forests promotes forest conversion andprovides limited long-term local employment.

Reducing poverty at the forest margin through improved mar-ket access, technology, and credit supply can potentially increaseforest conversion by attracting migrants to the forest frontier.

Agricultural research and technology transfer will tend toencourage forest conversion when it promotes innovations thatare: a) capital intensive, b) applicable to agricultural frontier sit-uations, c) for export products, and d) used by farmers whoface few labor or capital constraints.

Irrigation investments and infrastructure and support servicesfor labor-intensive fruit, vegetable, dairy, and flower productionoutside frontier regions can offer alternative sources of employ-ment and reduce migration to agricultural frontiers.

Policies favoring small-scale agriculture in areas with little nat-ural forest can discourage migration to the agricultural frontier.Forest fragments and planted trees in these areas often providesubstantial environmental services and forest products.

Eliminating fertilizer subsidies in regions where they influencefarmers’ decision whether to use more or less land-extensivecropping systems can lead to greater forest clearing.

Directed settlement not only leads to forest clearing but alsorarely appears cost effective in the medium-term. In the longer-term, it may raise small farm incomes and regional production.Long-term effects on land concentration and the sustainabilityof local agriculture vary.

Uneven land distribution associated with production systems thatprovide limited employment may encourage poor rural familiesto migrate to forested areas. Under these circumstances, pro-viding tenure security will only lock in existing inequalities.

Poorly designed agrarian reform policies can endanger forestremnants on large landholdings by either stimulating largelandowners to remove forest or transferring land to smallhold-ers under conditions that induce them to do so.

Tenure security promotes long-term investment. Whether thisfavors forests depends on what producers invest in. They mayeither invest in planting trees and managing natural forests orin converting forests to agricultural use. Making forest removalan explicit or implicit precondition to obtain ownership securi-ty promotes that activity.

Land taxes that favor reforestation, conservation, and intensiveland uses over extensive agriculture can promote sustainableland use, but are difficult to implement and most countriesexempt smallholders from payment.

Recognition of indigenous territorial rights reduces pressure onforests, at least in the short term. These groups lack the meansto engage in highly destructive agricultural and forest activitiesand may refrain from doing so due to cultural factors and localregulatory norms. Nevertheless, timber sales to external pur-chasers can lead to forest degradation.

Source: David Kaimowitz and Arild Angelsen. 1999. The World Bank and Non-Forest Sector

Policies that Affect Forests. Background Paper World Bank Forest Policy Implementation

Review and Strategy. Center for International Forestry Research (CIFOR), Bogor Indonesia.

A6.2 Effects of Land Tenure and Agriculture on Forests

162

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shifting agriculture. Fires also result from disputesover property and land rights.

There is no single answer to the question as towhat causes deforestation and forest degradation.Due to the complexity of the issues, the indirectnature of many of the causal relations involved andthe wide diversity of situations, it is difficult to gen-eralize. However, in many cases, inappropriate poli-cies and market failures often lead to inappropriateforest clearing and degradation of forest resourcesas well as increased poverty. Often those who usethe forest, or who cause negative impacts do nothave to pay, or pay too little for the use of thisresource or for the damage they cause.Governments have often not been effective inintroducing economic and institutional (regulatory)measures to tackle market failures (Box A6.2).5

Despite significant resource flows, international con-cern, and political pressure, the potential of foreststo reduce poverty, realize economic growth, and bevalued for their contributions to the local and glob-al environment has not been realized. A combina-tion of market and institutional failures has led toforests failing to contribute as significantly to ruralincomes, economic growth, or the local and globalenvironment as would be possible under goodeconomic and technical management. Instead, theforest sector often demonstrates the failure of mar-kets and governance to capture the full value.Forests have often been disregarded in economicpolicy or considered a resource to be plundered forshort-term gain and at the expense of rural peoplewho depend on forest resources for their liveli-hoods. It is not surprising that forest policy hasbecome one of the most controversial and heatedissues in development.

Biodiversity Biodiversity lies at the heart of sustainable agricul-tural systems.Agriculturists have created an impres-sive storehouse of knowledge through the devel-opment of landraces—genetically distinct varietiesof crops—and complex techniques to select storeand propagate valued species.The Tzetal Mayans ofMexico for example can recognize more than 1,200species of plants that can be used for agricultural,

medicinal and spiritual requirements. In the soil, awide range of organisms from fungi to beetles pro-vide nutrient cycling and the fertility crops require,while flying insects, bats, and other species performessential pollination services and help protect cropsfrom increases in pest populations.

The findings of a study entitled the “GlobalBiodiversity Assessment” suggest that the earth con-tains some 14 million different species, the majorityliving in tropical forests and marine systems. Despiterecent significant investments in biodiversity studies, itis believed, that decades, if not centuries, of furtherresearch will be required to provide anything morethan the most rudimentary level of informationregarding these species. Existing knowledge, however,provides some measure of appreciation of theextent of the diversity that exists, for example, rough-ly 3,000 bacteria have been scientifically described(although a recent study of one gram of forest soil inNorway uncovered 5,000 seemingly differentspecies), and barely eight million species of insectseven have a scientific name.

While our knowledge of nature’s diversity isextremely meager, there is enough evidence thatthis heritage is being rapidly eliminated, withadverse consequences for natural products andsustainable use for economic activities.There is evi-dence of an “extinction momentum” in the earth’sbiodiversity with present rates of losses in the rangeof one to ten thousand times higher than historicalrates. For example, 12% of all mammals and 11% ofall bird species are threatened with extinction.Also,52% of freshwater fish species are declining, whileonly 11% are increasing. With regard to habitatdegradation, there is evidence that 58% of the coralreefs are degraded, and over 80% of the world’smangroves have disappeared, while 50% of all wet-lands have been lost.6

It is important to recognize the root causes of bio-diversity and habitat loss, and the relationshipbetween specific socioeconomic factors and theenvironment.The consensus is that these root caus-es may fall into the following five categories: a)demographic changes; b) poverty and inequality; c)public policies, markets and politics; d) macroeco-

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nomic policies and structures; and e) social changeand development.7 It is important to emphasizethat the losses, generally speaking, are occurring atthe local level.They result from such things as farm-ers clearing trees for new land to plant crops, tim-ber companies opening forests for logging, andhunters gathering game meat for urban markets. Invarious ways the factors listed above lead to loss ofbiodiversity essentially because the value of biodi-versity, to the global society and the national socie-ty, is not recognized sufficiently by market forces. Inother words, those who make decisions affectingbiodiversity (farmers, logging companies, etc.) donot consider the loss as part of their cost.This mar-ket failure is not always fully resolved by govern-ment actions (e.g., conservation). In some cases,national government is reluctant to bear a high coston behalf of the global community, or on behalf offuture generations.

In the area of agricultural biodiversity, which is of pri-mary importance for agricultural growth and pro-ductivity, the past century has seen an erosion of thegenetic resources needed to sustain agricultural pro-duction, leaving the world’s food supply more homo-geneous and vulnerable to pests and diseases. Of theworld’s major food crops, just three—rice,wheat andmaize—account for 60% of the world’s caloricintake.The tremendous gains in yield since the GreenRevolution have come at a cost of greater depend-ence on fertilizers and pesticides, reduced diversity,and reliance on a narrower gene pool.

Climate Change With regard to agriculture and climate change, evi-dence shows that the past two decades have been thewarmest in the past 100 years. Climate change causedby human activities (primarily burning of fossil fuels,deforestation, and agricultural activities) is alreadyoccurring, and further climate change is inevitable.

There is evidence that manmade greenhouse gaseshave probably already contributed most of theobserved warming over the past 50 years. Unlessconcentrations of these gases are stabilized, theprobable rise in their concentrations in the atmos-phere could mean:

severe water stress in the arid and semi-arid landareas in Southern Africa, the Middle East andSouthern Europe;decreased agricultural production in many tropi-cal and subtropical countries resulting fromincreases in temperature;higher worldwide food prices as supplies fail tokeep up with the demand of an increasing pop-ulation;increased vector-borne diseases, such as malaria,in tropical countries;major changes in the productivity and composi-tion of critical ecological systems, particularlycoral reefs, and forests; andincreased risk of flooding and landslides due torising sea levels and increases in rainfall intensityin coastal areas.

Predictions that climate change will mean severeflooding of coastal areas, an increase in storms andheavy rains in some regions, and more rapid deser-tification in others have enormous implications foragricultural productivity, water resources and natu-ral ecosystems.8

Investments in programs for better managementof these and other major climate change effectsshould be in three key areas: a) mitigation ofgreen house gas emissions; b) reduction of vul-nerability and adaptation to climate change; andc) capacity building to promote and implementthese interventions.

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ENDNOTES

1 The International Board for Soil Fertility Research and Management (IBSRAM). 2001. Land Degradation in Selected Regions andSome Consequences for Rural Development. Background Study, IBSRAM Bangkok,Thailand, p20.

2 The International Water Resources Management Institute (IWMI). 2001. Water for Rural Development. A Background Paper pre-pared for the World Bank. IWMI, Colombo, Sri Lanka, p94.

3 S. Abdel-Dayem. 1999. Sustainability of Low Quality Water Use in Agriculture. Keynote address, International Congress onIrrigation and Drainage, Granada, Spain, September 1999.

4 The World Bank. 2001. Forest Policy Implementation Review and Strategy. Draft Discussion Paper,The World Bank, WashingtonDC USA.

5 D. Kaimowitz and A. Angelsen. 1999.The World Bank. And Non-Forest Sector Policies that Affect Forests. Background Paper,WorldBank Forest Policy Implementation Review and Strategy. Center for International Forestry Research (CIFOR), Bogor, Indonesia.

6 The World Resources Institute. 2000. World Resources 2000–2001; People and Ecosystems. World Resources Institute,WashingtonDC, USA, p389.

7 The World Wildlife Fund. 2000. The Root Causes of Biodiversity Loss. Wood, A. Stedman-Edwards, P. and Mang, J (Eds). EarthscanPublications Ltd. London and Sterling VA, p. 399.

8 CGIAR. 2000. The Challenge of Climate Change: Poor Farmers at Risk. CGIAR Annual Report,Washington DC, USA.

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ANNEX 7: Successful World Bank Operations in Agriculture and RuralDevelopment

Turkey

Agricultural ReformImplementation Project (ARIP)

2001

Thailand

Land Titling Projects

1984 – present

Bulgaria

Agricultural SectorAdjustment Loan I&II(ASAL I&II)

1999 – 2002

The ARIP is a hybrid operation with invest-ment and adjustment components. Investmentcomponents are: to help set up the directincome support (DIS) system; to mitigatepotential short-term adverse impacts of sub-sidy removal; to facilitate the transition to effi-cient production patterns; and, to build publicsupport for the reforms. Components of theadjustment portion include: the establishmentof the National Registry of Farmers; supportfor land registration; support for agriculturaldiversification; and, assistance in the implemen-tation of the Law on Agricultural SalesCooperatives.

The major objective of the program is to issueto all eligible landholders secure real propertyrights supported by title deeds registered indecentralized public offices. It has also focusedon strengthening the implementing agency, theDepartment of Lands. A secondary objectivewas to improve the real property valuationsystem mainly geared to boosting property taxrevenues and facilitating compensation forexpropriated properties.

The ASAL I&II sought to promote efficiency inthe agricultural sector, contribute to ruralemployment generation, better living standardsand more consumer choice through compo-nents including: promotion of a land market;development of a private grain market; priva-tizing agricultural enterprises; privatizing decen-tralizing irrigation system management; improv-ing agricultural financing; and, liberalizing tradeand market regulation in most agriculturalproducts.

A recent supervision report noted that theGovernment is on track in implementing the keyelements of the Program supported by the ARIPas outlined in the Letter of Sector Strategy onAgriculture Sector, and all specific conditions ofthe tranche release have been met.With pay-ments to over 2.18 million farmers, more than50% of all farmers eligible for DIS payments havebeen paid, exceeding by four-fold the require-ment that 12.5% of all farmers be paid. In 2001,direct and indirect agricultural subsidies are esti-mated to have totaled $2.02 billion, compared to$3.17 billion in 2000, and no new direct or indi-rect agricultural subsidies have been introduced.

As of 1998 about 5.5 million title deeds had beenissued to about 2 million households.This wasbeen achieved with massive community participa-tion in an innovative systematic, village by village,parcel by parcel, approach involving local govern-ment and community leaders, the landholdersand departmental staff. About 10 million people(16% of the national population) have directlybenefited from the program mainly as a result ofagricultural productivity increases and improvedhousehold incomes.The program has had ademonstration impact world-wide and served asan example for many of the 13 land titling proj-ects under implementation (with Bank support)plus for 10 more now under preparation.

Under the loans, Bulgaria has transformed intoone of the most open economies in the region.The loan has had significant institutional develop-ment impact through privatization in the areas ofgrain marketing, input marketing and farmer serv-ices. Grain crop production in 2002 was 4 millionmetric tons - the highest since the start ofreforms following increased access of farmers tohigh quality seeds and fertilizer.These achieve-ments are particularly significant given the poten-tially politically challenging nature of the reformsneeded.

Project Project description Impact on rural poverty

Fostering an enabling environment for broad-based and sustainable rural growth

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Vietnam

Rural Finance Project

1992 – 2001

Colombia

Agricultural TechnologyDevelopment Project(PRONATTA)

From 1995

Venezuela

Agricultural ExtensionProject

1995 to 2003

The Rural Finance Project had several keycomponents:1. assisting in the transition to a market

economy;2. strengthening the rural finance system

through finance targeted to agriculture andsmall and medium enterprises in rural areas,accompanied by technical assistance; and

3. reducing poverty by promoting growth andenabling the poor to respond to opportuni-ties to improve their welfare.

The project comprised the following compo-nents: a) a rural development fund; b) fund forthe rural poor; c) equipment; d) vehicles; e)training; and f) technical assistance.

The idea of the project was to bring appliedresearch and extension closer to the priorityproblems of the target beneficiaries, whoshould henceforth participate in characterizing,prioritizing, and solving their problems. Maincomponents:

A competitive fund in which resources areassigned to proposals responding to thetechnology needs of small rural producers.An institutional development component tobuild capacity of municipal and regional insti-tutional mechanisms in which a variety ofstakeholders participate, especially small pro-ducers.

Ensuring extension accountability to clients is afundamental premise of the new institutionalstructure supported by the project.

Services are planned and implemented atthe municipal level to ensure that activitiesaddress local problems and opportunities.Extension agents are contracted through pri-vate firms and NGOs to provide flexibilityand responsiveness to clients.Client participation is encouraged throughestablishment of Civil Associations forExtension (ACEs).Finally, co-financing by clients and local govern-ment ensures that recipients valued servicesbeing provided.

Since 1998, nearly 650,000 loans have been madeto 250,000 households throughout rural Vietnamthrough seven participating banks.Thirty percentof borrowers were women. Most loans weresmall, averaging VND 5.4 million, equal to $360,and applied to expand farm production (crops,livestock and aquaculture), agricultural processing,services and trading.The repayment rate recordedto date is 98%. A study of the socio-economicimpacts include: a) outreach to a large number ofhousehold borrowers; b) income of householdborrowers has been increased remarkably; c)Small and Medium Enterprises helped createabout 3,000 new jobs.

The competitive fund has expanded to all fiveregions of Colombia within two years, providingnational coverage. In total over 600 projects havebeen funded with an average expenditure perproject of about $50,000 of which nearly half isco-financed by beneficiaries and others.PRONATTA projects are demonstrating impactsin the field in terms of higher productivity, andadoption of sustainable management practicesamong small producers, especially throughreduced use of agricultural chemicals andimproved soil management practices. Projectsbased on similar principles have also been imple-mented in Peru, Ecuador, and Nicaragua, in differ-ent ways in Brazil, Mexico, and some countries inEastern Europe and Central Asia.

The new institutional structure has had a dramat-ic affect on extension services. Extension agentsare now in the countryside, accessible to and inregular contact with clients. Countrywide, 488extension agents deliver services to 43,000 farm-ers in 122 municipalities and have introducedover 4,000 innovations in different municipalities.Preliminary impact studies indicate that 73% ofmunicipal projects have had good to excellentimpacts on crops and livestock yields and 83% ofparticipants have increased family incomes. ACEsare the most obvious example of increased socialcapital with 78 established ACEs and a total ofover 10,000 members.

Project Project description Impact on rural poverty

Encouraging non-farm economic growth

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Côte d’Ivoire

Second NationalAgricultural ServicesSupport Project

1998 – ongoing

China

Mid-Yangtze AgriculturalDevelopment Project

From 1991

Egypt

National DrainageProject 1 & 2

1992 and 2000

The objectives of the project are to supportsustainable agricultural growth through increas-es in farm-level productivity by improving therelevance and cost-effectiveness of the nation-al research and extension system. By strength-ening farmers' associations, the project fosterstheir capacity to be effective partners of ruraldevelopment agents, including government,and provide services to their members andpromote private investment in agriculture andrelated activities.

This project aimed to increase production,productivity and marketability of fruit in thelow income areas of Sichuan and Hubeiprovinces and Chongqing Municipality.Theapproach included:

developing new orchards on heretoforeuncultivated hilly slopes and rehabilitatingexisting ones;increasing abilities to identify, propagate anddistribute healthy, disease-free plantingmaterial;providing technical assistance for researchand extension with staff training in fruitdevelopment and marketing; and establishing new and strengthen existing com-mercially independent Fruit DevelopmentCorporations.

The projects aimed to improve the technologyand management of irrigation and drainagesystems to improve agricultural productivity,reclaim land lost to water-logging and salinity,and increase the incomes of smallholder farm-ers in the country. Phase one targeted309,600 ha for drainage improvement.Thesecond phase will build on the successes andlessons of the first to target another 700,000hectares of irrigated land for improveddrainage. It will continue to build the capacityof the Egyptian Public Authority for DrainageProjects (EPADP) through a program of insti-tutional support.

Workshops designed by farmers' organizationsdeclared roaming herds as the primary issue forsustainable land management and agricultural pro-ductivity growth. In cooperation with scientists,the farmers' organizations developed a plan: thetechnology was not new, but the organizationwas.They decided to plant thorny hedges andshrubs around the crops to keep out herds.Within six months, they had planted an unprece-dented 60 kilometers of hedges. A similar chal-lenge had farmers' organizations establishingregional rules to prevent bush fires—applied andcontrolled by the farmers themselves.

The project supported the establishment ofalmost 12,000 ha of new fruit orchards and reha-bilitated a further 2,500 ha. New technologies forvirus-free fruit stock production were createdand successfully introduced, and profitable newmanagement systems were set up for fruit pro-duction and marketing. 300,000 farm families inthe project area have benefited from the project- incomes doubled from 1990 to 1995, includingthat of underemployed and landless farmers.Harvesting and post-harvest activities have, andwill increasingly, provide job opportunities in bothorchards and packing houses, where 30 percentof the workers are women.The project alsoreduced soil erosion by promoting the terracingof hilly land and by introducing vetiver grass tostabilize the soil.

Over 5 million acres [hectares?] have been pro-vided with subsurface drainage and 7 millionacres are now served by the main drainage sys-tem. Crop yields increased by up to 20% formajor crops on 7 million acres. Estimates showthat the share of improved drainage accounts for15-25% of the yield increase. Significant advanceshave been made in recovering the costs forinvestment and maintenance. Local users are alsobecoming more involved in operation & mainte-nance of subsurface schemes through DrainageUser Groups/Collection User Groups.

Project Project description Impact on rural poverty

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India

Shrimp and Fish CultureProject

1992 – 2000

Mexico

Irrigation and DrainageSector Project

1995 – 2000

Albania

Irrigation RehabilitationProject

1995 – 1996

The project sought to alleviate rural poverty infive states in India by increasing shrimp andinland fish production and employment.Theconcept was to tap the potential of generallyunder-utilized inter-tidal resources for shrimpproduction and expand fish production frominland water bodies. Activities were targeted onthe poorest segments of the rural populationsin Bihar,West Bengal, Andhra Pradesh, Orissaand Uttar Pradesh states.

The project aims to help the governmentmove from a centralized, grant-based systemof irrigation management to a decentralizedsystem based on water user organizations, util-ities, and bulk suppliers and a system of costrecovery.The project also sought to increaseefficiency of the irrigation system by rehabili-tating and upgrading existing schemes.

The project is an irrigation modernization pro-gram that deals with reforming institutions bychanging the roles of governments, users andprivate sector:

communities operate and maintain the irri-gation and drainage systems at the farmthrough secondary network level;government invests mainly in headworkinfrastructure, provide regulation and emer-gency assistance; and the local private sector is contracted to dothe work on most of the activities.

Fish catch has increased by up to 250% (up by200% in Bihar, 200% in reservoirs and 400% inox-bow lakes of Uttar Pradesh). In Bihar, AndhraPradesh and Orissa, approximately 15,000 fishermembers of the 118 project-assisted coopera-tives are actively engaged in the fishing activity.The per capita income of fishermen has risenby Rs. 6,000 (Uttar Pradesh) to Rs. 13,250(Bihar). Although the shrimp component wasbadly effected by an outbreak of White SpotDisease, in shrimp farms that did not developthe disease, the average production exceededthe appraisal target by 34%, with an output of1.3 tons/hectare/crop.

3.4 million hectares of irrigated land transferredto the management of farmers. Irrigated agricul-tural production increased from 0.4% (1982-1989) to 4.8% since the transfer program hasbeen in operation (1992-1998). Payment of userfees increased from 20% to 90%.Water userorganizations have federated and formed 10new companies working in the irrigation sector.The government has passed a new Water Lawallowing the sale of water use rights andaddressing other changes needed for transitionto a more commercial agricultural system

By 1998, the irrigation intensity had increasedfrom 20% in 1993 to 60%.The scope of wateruser associations (WUA) responsibility farexceeded what was planned. More than 200WUAs had been established over an area of100,000 hectares involving 50,000 families, and42 secondary irrigation canals covering about98,000 hectares had been transferred to theseWUAs.The WUAs collected funds from mem-bers for operation and maintenance of the sec-ondary canals. Staff numbers in the public waterenterprises were reduced within the project by40% and 6 federation of WUAs had beenestablished to manage irrigation canals.

Project Project description Impact on rural poverty

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Mali

Office du NigerConsolidation 1990 – 2000

Niger

Pilot Private Irrigation Project

1995 – 2001

Peru

Rural RoadsRehabilitation andMaintenance Project

1996 – 2001

The project sought to reduce poverty, increaseagricultural production, and reduce govern-ment subsidies and support for agriculture by:

providing strong incentives to farmers toincrease production,improving the efficiency of irrigation manage-ment and creating mechanisms for sustainable irriga-tion development.

The method included reforming the irrigationagency Office du Niger (ON), rehabilitation andmodernization of irrigation canals/structures,and agricultural policy reforms (rice price/mar-ket liberalization and land tenure).

Niger potentially has 270,000 ha of land thatcan be irrigated, however, only 22% of thepotential land is being fully or partially irrigat-ed.To address the situation a private sectorirrigation development strategy was launched.The project was implemented by a private irri-gation association—the ANPIP—which testedand evaluated new, low-cost technology forsmall-scale private irrigation and built localcapacity in the irrigation sector through privatesector development and access to credit

The overall objective of the project was toprovide a well-integrated and reliable ruralroad system through rehabilitation and mainte-nance of rural roads and key links connectingto the primary road system.The specific objec-tives were to reduce transport costs and raisethe reliability of vehicular access to expandmarkets for non-farm and agricultural productsand to build up institutional capacity and gen-erate employment for the rehabilitation andmaintenance of rural roads.

The government has liberalized the rice trade andmarkets and sustained that reform and restruc-tured the ON. Rice production increased from98,000 to 271,000 tons and the production ofnon-rice crops, such as onions (71,000 tons), garlic(800 tons) and pepper (600 tons) increased. Realper capita income increased by $70/annum. 57 kmof canals and main drains were rehabilitated andmodernized, and meter fee collection rateincreased from 60% to 97%.

The ANPIP grew gradually from a small group of tenpeople to 19 decentralized committees comprising13,500.A follow-up of this campaign facilitated theformation of 1,521 economic interest groups (GIE),comprising 15,000 farmers.The increase in areas cul-tivated was 63% in the case of the manual technolo-gies, and 24% in the case of the mechanized tech-nologies.The increase in yields of the farms moni-tored was around 27% for onion and 32% for sweetpepper.These two crops cover 70% of the landareas farmed in the sites covered by the surveys.

The project reached 2.8 million people living in390 villages, surpassing the target of 200 villages.Travel time have decreased markedly and trans-port tariffs have declined by 15% for freight onbusses and 8.6% for trucks on project roads.Improvements of tracks/footpaths to facilitatenon-motorized transport have brought the mostisolated and the most impoverished communitiesto the mainstream of economic activity.The proj-ect generated 32,300 seasonal unskilled jobsthrough the rural roads rehabilitation program,and about 4,700 permanent jobs through thedevelopment of micro-enterprises that routinelymaintain the rehabilitated roads.

Project Project description Impact on rural poverty

Encouraging non-farm economic growth

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Latvia

Rural DevelopmentProject

1998 – 2002

Bangladesh

Third Rural Electrification Project

1990 – 2000

Tunisia

NorthwestMountainous AreasDevelopment Project

1993

The project’s objectives were to lay thegroundwork for increasing incomes living stan-dards of the rural population by promotingdiversification and growth of economic activi-ties by:

strengthening institutional capacity for for-mulating rural developing strategy and policy;stimulating the flow of commercial bankfinancing to rural clients by improving theefficiency and self-sustainability of the finan-cial institutions; and facilitating rural business development andcontinuing support for land reform.

The goal of the Third Rural ElectrificationProject was to increase the use of electricpower through expanding the distribution net-work and rehabilitating old systems, and tostrengthen the institutional capacity for ruralelectricity delivery, including strengthening theperformance of the Rural Electrification Board(REB) and the system of rural electricity coop-eratives (RECs).

The project aimed to alleviate poverty andimprove natural resource managementthrough the use of a participatory approachthat emphasized community organization andtraining to increase local capacity to partici-pate.Through these processes, communitieswould identify development priorities. It rec-ognized the need to target special groupsincluding women, unemployed youth and thelandless because of the special challenges theyrepresented in terms of illiteracy, unemploy-ment and lack of access to basic infrastructureand social services.

The Commercial Credit Line (CCL) has providedworking capital and investment loans for ruralenterprises with commercially viable and bankableprojects with adequate collateral, financial rates ofreturn, and demonstrated repayment capacity.TheSpecial Credit Line (SCL) has provided small-sizeloans for diversified rural businesses at prevailingcommercial interest rates to first-time borrowers.The government has modernized the Land Book,which has resulted in a boom in property andland markets. From 1997 to 2001, the number ofproperties registered increased by four-fold, thenumber of transactions increased five times, andthe number of registered mortgages increasingmore than eight times.

Consumer connections in the existing and thefour new RECs were 60% higher than originalestimates, with an excellent mix of householdsand businesses. Eight times more km of lineswere taken over from parastatals (and rehabilitat-ed) than originally planned. Network losses forthese lines have fallen from the 30-50% range to25-30% within 18 months of transition from theparastatal system. Institutionally, all the coopera-tives met the financial covenants and manage-ment targets agreed and a system of perform-ance targets was put in place in which eachcooperative annually discusses and negotiatesacceptable targets with the national RuralElectricity Board.

Family incomes from agricultural production onsmall farms have recorded real annual growthrates of 6.3%. Increased agricultural productionalso raised on-farm employment opportunities.The proportion of target groups having difficultywith access to rural roads, potable water, andwater for livestock was reduced from the baselineestimate of 48% to 18% by project completion. Itis estimated that school building coupled withimprovements in rural roads contributed toreducing average illiteracy rates from baselineestimates of 60% to approximately 44% amongbeneficiary populations.

Project Project description Impact on rural poverty

Improving social well-being, managing and mitigating risk, and reducing vulnerability

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Benin

Borgou Region PilotRural Support Project

1999 – 2002

Indonesia

Village InfrastructureProject I & II

1995 – 19991997 – 2001

Brazil

North East Brazil Rural Development and Rural PovertyAlleviation Programs

1985 – present

Targeting about 250 villages in the Borgou, theproject sought to:

improve rural communities’ capacity to bet-ter manage their socio-economic environ-ment by supporting communities’ implemen-tation of sustainable development activities;meet the Borgou’s immediate needs in serv-ice delivery and productive and social invest-ment; andtest new resource mobilization and imple-mentation arrangements, as a prelude toBenin’s 1999 Decentralization Law.

The projects sought to reduce poverty inpoor rural areas in new ways, and morespecifically to:

promote village participation, empower vil-lagers to decide priority uses of a grant andto implement infrastructure works;provide public infrastructure needed in poorvillages;create jobs paid in cash for unemployed/under-employed villagers especially in the seasons oflow agricultural activity.

The NRDP/RPAP programs support commu-nity-managed investment in about 100 differ-ent types of subprojects in three categories:(a) rural infrastructure (water supply, power);(b) productive activities (minor irrigationschemes, manioc and corn mills, small livestockraising, communal tractors); and (c) social serv-ices (for example, day care centers, communitycenters).

Two years after implementation 229 communi-ties had completed 296 infrastructure subpro-jects, of consistently high quality, and made morethan 30 natural resource management improve-ments. Over 14,000 Borgou residents had partic-ipated in capacity-building activities, from 5,638people trained in basic literacy to the 22 womentrained as midwives.The construction of newschools brought 5,400 new students to school,representing a five percent increase in theregion’s school enrollment. By shifting procure-ment responsibilities to communities, almost allof the sub-project works were contracted tolocal firms, providing work to 70 to 80 informalenterprises.

The first project achieved, and in some cases sur-passed, its objectives. A total of 1,230 villagescompared to 1200 foreseen built a total of: 3,680km of rural roads; 7,790 meters of bridges; 2,427water systems; 1,230 communal sanitation units;and 2 piers totaling 61 meters.The benefits fromthe infrastructure are significant, in addition tothe construction having provided employmentfor cash to villagers.

The second project far exceeded its targets:Infrastructure was built in 7,044 villages comparedto the intended 2,600.The construction of 15,069km of roads and 42.5 km of bridges provided criti-cal access to poor communities.With new accessroads, transportation costs are estimated to havedecreased by 40%.Also, a few villages receivedelectricity connection. Clean drinking water avail-able through construction of 8,722 communalwater supply units not only improved health butalso reduced the time spent on obtaining water.

A total of 43,750 community subprojects havebeen financed at an average value of $26,000 ina total of 1,400 (of 1,665) municipalities, 30,000community associations and some 1.9 millionbeneficiary families in Northeast Brazil. Sub-proj-ects include 5,100 community water systems(600,000 families) and 8,000 rural electrificationsubprojects (320,000 households and 4,300schools connected). It is estimated that 38% ofpoor rural families in the region have benefitedwith at least one subproject from the program.

Project Project description Impact on rural poverty

Fostering an enabling environment for broad-based and sustainable rural growth

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Ghana

Community WaterSupply & SanitationProject

2000 – 2003

India

Uttar Pradesh SodicLands ReclamationProject I

1993 – 2001

India

Andhra PradeshForestry

1994 – 2000

The program evolved out of a set of nationalworkshops on improving water supply and san-itation in Ghana. It used the community-driven,demand responsive approach where ruralcommunities identified their needs and thelevel of services they could manage and forwhich they were willing to pay.The new institu-tional arrangements included all levels of gov-ernment, NGOs, communities, and the privatesector to provide and co-manage services.

The objective of the project was to build uponUttar Pradesh's programs by developing mod-els for environmental protection and improvedagricultural production through reclamation ofsodic lands. Additional objectives were to rein-force local institutions to enable effective man-agement of such programs and to improve theincomes of families managing sodic lands.

Primary project objectives were to increaseforest productivity and quality, protect theenvironment, alleviate rural poverty andstrengthen/streamline sector policies to beconsistent with these objectives.These were tobe achieved by (a) introducing local participa-tion in protection and management of publicforests; (b) supporting forest regeneration andrehabilitation; (c) supporting biodiversity con-servation; (d) increasing private participation insector development; and (e) improving publicforest management and development.

Now two years into implementation, the projecthas taken off and is working simultaneously in1000 rural communities. In addition, it increasedthe capacity of NGOs, so that they could providetechnical assistance for water supply and builtcapacity of small entrepreneurs to supply equip-ment for the infrastructure.The increased com-petition, created in response to increaseddemand from communities, led to a 50% reduc-tion in the price of boreholes.The project alsomade specific achievements in gender represen-tation with women comprising 50% of water andsanitation committees.

Project staff worked with farmers to divide theland into parcels and negotiate the complexprocess of ensuring clear title.Thousands of for-merly landless farmers have obtained titles toland.Within six months of the beginning of recla-mation activities, productivity and income beganto increase: yields of rice and wheat doubled orig-inal project estimates, wage rates doubled, andland values quadrupled. Farmers have continuedcultivating reclaimed lands even after the with-drawal of project assistance—a strong measure ofproject sustainability.

Under the project, 2,666 community groups(VSSs) have been established for protection andmanagement of forest resources and 849,000 hawere brought under improved management andprotection. Four new protected areas (PAs) werecreated; 11 PAs were brought under improvedmanagement and protection with positive effectson biodiversity conservation.There has been animprovement in family incomes (average increasein income within sampled VSSs was Rs. 5,600 perannum) and in the financial independence ofwomen (1,699 women's thrift groups wereformed).

Project Project description Impact on rural poverty

Enhancing the sustainability of natural resource management

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174

Turkey

Eastern AnatoliaWatershedRehabilitation

1993 – 1994

China

Loess PlateauWatershedRehabilitation Project

1994 – present

The project sought to restore sustainable land-use management to degraded watersheds inthree provinces of the Upper Euphrates RiverBasin, and increase the incomes of the localpopulation living in these areas, which areamong the poorest in Turkey.To do this it hadto help restore sustainable range, forest andfarming activities, reduce soil degradation, ero-sion and sedimentation in reservoirs.

Erosion causes 1.6 billion tons of sediment toflow every year from the Loess Plateau ofnorthwest China into the Yellow River, creatingtremendous downstream flood risk The objec-tives of the project were to increase agricul-tural production and incomes through a moreefficient and sustainable use of land and waterresources in tributaries of the Yellow Plateau.

The project has reached about 400,000 peopleliving in over 50 watersheds (and will now beadopted in up to 20 more provinces in a follow-up operation). Integrated management planswere prepared including improved managementand cultivation of fodder, reforestation, soil con-servation, improved arable farming and fruitfarming, construction of ponds for supplementaryirrigation, bee-keeping, and gully protection. Itimproved opportunity and access to resourcesthrough targeted interventions, was cost-effectiveand could be maintained despite a difficultmacro-economic environment.

Farmers not only provided knowledge and plan-ning, but also manual labor on their own lands.Today, the project has completed over 80,000 haof terracing. Farmers have replanted 150,000 hawith forest trees and income-generating shrubsand trees. Crop yields have doubled and eventripled in some micro-catchments due to the ter-racing and conservation techniques. Half a millionfarmers have improved their standards of livingas a result of this project.

Project Project description Impact on rural poverty

Page 206: reaching the rural poor

Absolute poverty is a condition of life so degraded by disease,illiteracy, malnutrition, and squalor as to deny its victims basichuman necessities . . . a condition of life so limited as to preventrealization of the potential of the genes with which one is born.. . . the problem is most severe in the countryside . . .

ROBERT S. McNAMARAPresident,The World Bank GroupJoint Annual Meetings, Nairobi, September 4, 1973

Eighty percent of our global population have 20 percent of theworld’s income . . . . Some 800 million people . . . go to bed

hungry every night, the majority of them in rural areas. Indeed,70 percent of the poor of our globe are in rural areas . . . why is

it that this year in the demand for World Bank loans, we’realmost at an all-time low in terms of the proportion of our

lending for rural and agricultural purposes . . . ?

JAMES D.WOLFENSOHNPresident,The World Bank Group

Rural Development Strategy Regional Consultations, 2001

Rural Development Strategy Background Papers prepared in conjunction with Reaching the Rural Poor(these documents can be viewed at http://www.worldbank.org/rural):

1 Long Term Prospects for Agriculture and the Resource Base

2 The Role of Agriculture in Economic Development and Poverty Reduction:An Empirical and Conceptual Foundation

3 Rural Poverty:Trends and Measurements

4 Rural Non-Farm Activities and Rural Development: From Experience Towards Strategy

5 What Has Changed Regarding Rural Poverty Since Vision to Action?

6 Community Based Rural Development: Reducing Rural Poverty from the Ground Up

7 Risk Management in Rural Development:A Review

8 The Role of Rural Producer Organizations in the World Bank Rural Development Strategy

9 Agricultural Extension Investments: Future Options for Rural Development

10 Rural Infrastructure, Development, and Poverty Reduction – Challenges, Linkages,and Actions

11 Land Degradation for Selected Regions and Some Consequences for Rural Development

12 Promoting Agro-Enterprise and Agro-Food Systems Development in Developing andTransition Countries

13 Scaling-Up Issues and Options: Supporting Good Practices and Innovation

14 Farming Systems and Poverty: Improving Farmer’s Livelihoods in a Changing World (FAO and The World Bank)

Page 207: reaching the rural poor

Absolute poverty is a condition of life so degraded by disease,illiteracy, malnutrition, and squalor as to deny its victims basichuman necessities . . . a condition of life so limited as to preventrealization of the potential of the genes with which one is born.. . . the problem is most severe in the countryside . . .

ROBERT S. McNAMARAPresident,The World Bank GroupJoint Annual Meetings, Nairobi, September 4, 1973

Eighty percent of our global population have 20 percent of theworld’s income . . . . Some 800 million people . . . go to bed

hungry every night, the majority of them in rural areas. Indeed,70 percent of the poor of our globe are in rural areas . . . why is

it that this year in the demand for World Bank loans, we’realmost at an all-time low in terms of the proportion of our

lending for rural and agricultural purposes . . . ?

JAMES D.WOLFENSOHNPresident,The World Bank Group

Rural Development Strategy Regional Consultations, 2001

Rural Development Strategy Background Papers prepared in conjunction with Reaching the Rural Poor(these documents can be viewed at http://www.worldbank.org/rural):

1 Long Term Prospects for Agriculture and the Resource Base

2 The Role of Agriculture in Economic Development and Poverty Reduction:An Empirical and Conceptual Foundation

3 Rural Poverty:Trends and Measurements

4 Rural Non-Farm Activities and Rural Development: From Experience Towards Strategy

5 What Has Changed Regarding Rural Poverty Since Vision to Action?

6 Community Based Rural Development: Reducing Rural Poverty from the Ground Up

7 Risk Management in Rural Development:A Review

8 The Role of Rural Producer Organizations in the World Bank Rural Development Strategy

9 Agricultural Extension Investments: Future Options for Rural Development

10 Rural Infrastructure, Development, and Poverty Reduction – Challenges, Linkages,and Actions

11 Land Degradation for Selected Regions and Some Consequences for Rural Development

12 Promoting Agro-Enterprise and Agro-Food Systems Development in Developing andTransition Countries

13 Scaling-Up Issues and Options: Supporting Good Practices and Innovation

14 Farming Systems and Poverty: Improving Farmer’s Livelihoods in a Changing World (FAO and The World Bank)

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A RENEWED STRATEGY FOR RURAL DEVELOPMENT

REACHING THE RURAL POOR

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