rural-urban linkages for growth, employment and poverty reduction

Rural-Urban Linkages for

Growth, Employment and

Poverty Reduction

Joachim von Braun

International Food Policy Research Institute

World Bank Rural Day Washington, DC

November 9, 2006

Joachim von Braun, IFPRI, Washington DC, November, 2006

Outline

1. Concept: Rural / urban “linkages” and

“divides”

2. Old and new rural-urban linkages

3. Ways forward


The development goals and economics

of rural-urban linkages

So what? Lack of r/u-linkages is divisive, bad for growth, & poverty, & equity

Goal: Facilitate resources to flow where they will have the largest growth and poverty reduction benefit

Economics of linkages:

• Cutting transactions- and transfer-cost

• Stimulating externalities and spill-over effects that foster well-being


Rural & urban:

on linkages, and externalities

AGRICULTURE OTHER SECTORS

RURAL URBAN

Infrastructure


Rural/Urban divide still exists

0

0.5

1

1.5

2

2.5

3

3.5

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

Ratio of Urban to Rural Capita Income

0

0.5

1

1.5

2

1951

1954

1957

1961

1965

1968

1971

1978

1988

1991

China

India


Small farms dominate world agriculture

Farm Size (ha) % of all farmsNumber of farms

(millions)

< 2 85 387

2 - 10 12 54

10 - 100 2.7 12

> 100 0.5 2

Total 100 456

Source: von Braun (2003)

The big transformation challenge: grow or diversify or exit


The Continuum under the “divide”

VERY RURAL

VERY URBAN(Metropolitan areas)

RURAL

SMALL TOWNS

PERI-URBAN

Spatial

flows

•Migration &

remittances

•Goods, services

& waste

•Information

•Resources/water

Sectoral

flows

•Crop/ livestock

for local use

•Input markets

•High value

agriculture trade

•Peri-urban &

multi-functional

agriculture


Outline

1. Concept: Rural / urban “linkages” and “divides”


3. Ways forward


The types of linkages

1. Technology opportunities

2. Trade, processing, and retail

3. Services and infrastructure

4. Human capital and migration

5. Environmental and natural

resources


1. Technology opportunities -

powerful and changing

1. Agriculture technology linkages (factor markets and inputs; output processing; consumption linkages)

2. ICT (and network externalities)

3. Energy (and biofuels)


1) The lasting “Green Revolution” story: National

agricultural growth multipliers

• Asia: 1.6 – 1.9

• Africa: 1.3 - 1.5

Source: a synthesis by Steven Haggblade, Peter Hazell,

Paul Dorosh 2006

…are driven by research, technology, policy


Cause for concern: Bifurcation in

agricultural R&D

• 80 developing countries spend a total of $ 1.4 billion on agricultural R&D = 6% of global agr. R&D expenditure

• China & India represent = 22%

• High income countries = 44%

Toward agriculture “R&D orphans”

Source: IFPRI/ASTI 2005


A green revolution:

pioneer and challenge

Mr. Harrar, Punjab farmer,

among first adopting Green

Rev. seeds in 1960s

Ethiopia: the technical

and institutional

challenges can be

addressed;

agr. growth 2001…04:

+11, -2; -13; +19%


2) ICT: Results at the macro level

• ICTs reduce transaction costs + open

markets + additional network externalities

• Tele-density is positively associated

with growth:

- 10 more mobiles per 100 people increse

GDP p.c. by 0.6% (Wavermann et.al. 2004)

- Minimum threshold: around 15% to get

strongest growth effects (actual is only

6% (Torero, von Braun 2005)


ICT: Results at the micro rural levele.g. households in Peru

Consequences of limited rural access

Estimated gains in welfare with respect to

alternatives:

US$ 1.62 to 2.91 per call

Rural households willing to pay more than

the prevailing tariff rates per local call:

US$ 0.25 to 0.35

Source: Torero and von Braun 2005


3) Energy and biofuels: markets and

technologies

Changing the world agriculture and food

equations and the rural - urban linkages?

• New opportunities

• Risks for the poor if investment in

technology lags behind


World food and energy prices

1998-2006 [1995 index=100]

0

50

100

150

200

250

300

350

1998 1999 2000 2001 2002 2003 2004 2005 2006

sugar

crude oil

maize

rice

wheat

Source: IMF World Economic Outlook 2006 and UNCTAD commodity price statistics database 2006*2006 figures were extrapolated from the difference between September 2005 and September 2006 prices.


Scenarios: Biofuels’ crop price effects?

Biofuel scenarios (not predictions) by 2020:

1. With current plans for expansion and notechnological change:

oilseeds ca. + 80%; maize ca. +40%

2. Like 1., but with second-generation cellulosic conversion and crop productivity increases:

oilseeds ca. + 40% ; maize ca. +20%

(source: IFPRI IMPACT-model scenarios, 2006, Rosegrant, Msangi)


2. Trade, processing and retail

Trends:

• Shrinking farms

• Growing food processors

• Even more growing retailers

Issue: Linking farmers and small processors to markets


Food

retailers

top 10:$777bln

• Wal-Mart

• Carrefour

• Metro AG

C o

n s

u m

e r s

$4

.00

0 b

illion

The corporate world food system, 2005

Food

processors

and traders

top 10: $363 bln

• Nestle

• Unilever

• ADM

Agricultural

input

industry

top 10: $37 bln

• Syngenta

• BASF

• Monsanto

Farms

Agricultural

value added:

$1,315 bln

450 million

>100 ha: 0.5%

< 2 ha: 85%

Source: von Braun 2005


High-value agricultural products

• Strategies for small farmers:

1. Producer-marketing cooperatives:

horizontal (coordinate, negotiate)

2. Contract farming schemes: vertical

Both

are information intensive;

need legal frameworks!

cost and quality of monitoring


400

500

600

700

800

900

1000

1100

1200

1300

Current situation Contract farming

Simulated effect of contract farming

Changes in per capita household expenditure related to contact

farming

(current taka of 2004)

Impact of contract farming on

households – e.g. in Bangladesh

Source: Chowdhury and Torero 2005


Small farms and small businesses

can participate

From a 2 ha. rice farm to fruit

processing firm

in Uttar Pradesh: training (her)

and banking was key;

and the road

+25 jobs


3. Infrastructure and services – linkages

• Infrastructure

- Capital intensive (transport,

communications, energy, water)

• Services:

- Finance & credit

- Insurance services in rural areas

(facilitating more risky employment)


When electricity comes to the village…


Returns to investment in roads in

China

Urban roads Rural roads

Total GDP (Yuan for

Yuan)

1.55 5.99

Urban poverty

reduction (persons

per 10000 Yuan)

0.05 0.19

Rural poverty

reduction (Persons

per 10000 Yuan)

0.31 5.67

Source: Fan et. al., 2005


Africa: Access to roads

Source: Torero 2006


More than one piece of infrastructure:

Complementarities e.g. Peru (2002)

Pipe water

0%

10%

20%

30%

40%

50%

60%

% c

ha

ng

e o

f P

C H

H I

nco

me

Water +

electricity

Water + elect +

phone

Water + elect +

phone + road

Source: Escobal and Torero, 2004.


4. Human capital conditioned

employment linkages

• Migration (seasonal and permanent)

• Nutrition and health linkages

• Education


BIG PICTURE: global employment

2005 – 2020 (Billions)

Farm Services &

Industry

Rural areas

Services &

Industry-

Urban areas

Total

2005 0.9 0.6 1.5 3.0

2020 0.6 1.0 1.9 3.5

Change

2005-2020

- 0.3 +0.4 +0.4 +0.5

Estimates based on ILO economically active populations projections

and own estimates of sector shares, 2005


Migration and exit from farming

• Migrations as a …

Risk management strategy

Ease liquidity constrains in absence

of insurance and credit market

• From rural to urban (e.g. China)

• From poor rural to more prosperous

rural (e.g. West Africa)

Does not work for all


Changing neighborhood:

Remittances and education

remittances ->

<-education grant

Next door poor and well


5. Environmental and natural

resources

Ecosystems changes to meet the growth in the

demand for food, water, timber, fiber, and fuel

Growing competition over water •70% used for agriculture; 15% - 35% of unsustainable

Declining soil fertility & expansion into marginal lands

Lack of investment in genetic resource conservation

Increasing urban sprawls

Source: Millennium Ecosystem Assessment 2005


Outline

1. Concept: Rural / urban “linkages” and “divides”


3. Ways forward


Actors & factors affecting the

nature of urban-rural linkages

Global level National level Local level

• Trade &

production

regulation and

liberalization

•IPR

•Science

•Macro policies

•Regulatory policies

(market, legal)

•Decentralization

•Choice of public

investments

•Access to ICTs

• Nature of

agricultural land

•Population density

and distribution

•Land use

•Roads and

transportation

•Water management

•Quality of local

government

•Social networks


What where?

For instance in remote areas

Emphasis on small scale agriculture that will fuel the diversification of the rural economy.

Investments in:

- Roads

- Investment in agricultural research and education

- Water management

- Electricity and telecommunications at local levels

- Activation of financial and land markets


Ways forward

1. Scaling up agriculture innovation together

with infrastructure investment

2. Decentralization to better determine and

meet local needs

3. Scope for public-private partnerships

4. Filling the knowledge gaps (multi-sector,

spatial, and institutional data)


Rural & urban: great investment potentials

in the linkages

AGRICULTURE OTHER SECTORS

RURAL URBAN

Infrastructure

rural-urban linkages for growth, employment and poverty reduction

Documents

washington dc

rural urban linkages

ruralurban linkages

biofuels joachim

economics of rural

policy joachim

new ruralurban linkages3

existsratio of urban