EnvironmentallySustainable AFTESWorking Paper No.18 DevelopmentDivision AgriculturalPolicy and Production

Public Disclosure Authorized 20567

AGRICULTURE AND ECONOMIC REFORM IN SUB-SAHARAN AFRICA Public Disclosure Authorized

By W. Graeme Donovan Public Disclosure Authorized January 1996 Public Disclosure Authorized

Environmentally Sustainable Development Division Africa Technical Department

The World Bank

AFTES Working Paper No. 18

AGRICULTUREAND ECONOMIC REFORM

IN SUB-SAHARAN AFRICA

JANUARY 1996

W. Graeme Donovan

Principal Economist, Agriculture and Environment Operations Division, Eastern Africa Department, Africa Region, World Bank The opinions and conclusionsexpressed herein are those of the author and do not necessarilyrepresent the views of the World Bank or any of its affiliated organizations. AGRICULTUREAND ECONOMIC REFORM

IN SUB-SAHARANAFRICA

Table of Contents

Executive Summary vii

Introduction 1

I. AGRICULTURE,ECONOMIC GROWTH, & POVERTYALLEVIATION 2

II. AGRICULTURE'SGROWTH LINKAGES 10

Ill. ECONOMIC REFORMAND AGRICULTURE 14

IV. EXCHANGERATE POLICY 21

V. FOOD MARKETING 37

VI. FERTILIZERPOLICY AND FERTILIZERDEVELOPMENT 57

VII. TECHNOLOGYFOR AFRICAN AGRICULTURE 70

Vil. RURAL FINANCE 85

IX. COUNTRY EXPERIENCE 95

Nigeria 95 Ghana 101 Cameroon 110 Ethiopia 116 C6te d'lvoire 120 Sudan 126 Zaire 130 Kenya 135 Uganda 145 Tanzania 151 Senegal 157 Niger 159 Guinea 161 Madagascar 163 Malawi 166 A cknowledgments

T his report's biggest debt is to scores of authors of World Bank reports - Country Economic Memoranda, Sector Studies, Staff Appraisal Reports, and Project Completion Reports in par- ticular -cited in the footnotes and, for the most part, listed in the Bibliography.

Ms. Bonni J. van Blarcom reviewed conditionality in adjustment operations up to 1991. Mr. Russell Lamb carried out econometric work to show the importance of a country's exchange rate for its agriculture. Mr. Alex Amuah reviewed progress in staple food crops, especially roots and tubers, and sorghum and millet. Ms. Caterina Betancourt provided invaluable assistance compiling coun- try-by-country data on World Bank adjustment lending from 1979 to 1994, IMF financial support during the same period, exchange rates, and consumer price indices. Final editing of the report was done by Lawrence Mastri.

Very helpful comments on an earlier draft were received from Peter Miovic, Charles Hum- phreys, Derek Byerlee, Jock Anderson, and James Coates. The latter was especially helpful in mat- ters relating to rural finance.

The author wishes to thank all of the above people for their assistance, while retaining sole responsibility for the uses to which their work and comments have been put, as well as interpreta- tions of data, and information.

iv Foreword

Elaborating an agriculturaldevelopment strategy for Sub-SaharanAfrica has been a key element of the work of the World Bank's Africa TechnicalDepartment, This strategy emphasizestwo themes: (i) governments need to treat agriculture much more seriously as the leading sector in economic growth and development;and (ii) for successful agriculturaldevelopment, a number of vital buildingblocks are needed to form a coherent package which includes policy, technology, infrastructure,rural social services, empowerment of farmers, and the wherewithalfor farmers to manage sustainablythe natural resources they use (soil, water, and natural pastures). Economic reforms are necessary for agricultural growth - but without the other critical buildingblocks, farmer response to reforms will be muted.

This report, by Graeme Donovan, originated as a study of the impact of adjustment on agriculture, and evolved into a wider review of agriculturalgrowth in Sub-Saharan Africa, includingagricultural technology, rural finance, and other factors which may have constrained growth. A special feature of the report is an assessmentof economic reforms and agriculturalperformance in 15 individualcountries which together account for more than 80 percent of the agriculturalvalue added of the entire region.

This review is part of an effort to define the actions needed to accelerate agriculturalgrowth in Sub-SaharanAfrica, in order to address pressing concerns about the failure of food production to keep pace with population increase, and the reported degradation in the quality of natural resources in the sub-continent. It is being published as an AFTES Working Paper in order for its findingsto reach a wider audience, both within and outside the Bank. The review should be useful to those who are formulating agriculturalstrategy and are engaged in the debate about prioritiesin economic development.

an H. Doyen ivision Chief EnvironmentallySustainable Development Division Africa TechnicalDepartment

Agriculture and Economic Reform in Sub-Saharan Africa Executive Summary

E conomic reforms impacting on agriculture Laissez-faire does not mean no role for in Sub-Saharan Africa have seldom been government. In fact, one of its strongest and most carried through completely, and have rarely important roles is protection of person and prop- been designed as part of a strategic package, erty in order to create a climate in which invest- which aims to "get agriculture moving." In par- ment is productive. ticular, economic reforms related to agriculture have rarely been designed together with, and as Agriculture is of overwhelming impor- complements to, technologies and infrastructure. tance in Sub-Saharan Africa, and its slow devel- opment is one of the main reasons for slow eco- While having a positive effect on agricul- nomic growth in the continent as well as continu- tural growth, reforms not part of a strategic pack- ing poverty over a long period. Therefore, the age have run up against technology and infra- bias in economic policy and investment programs structure limitations, which largely have not been against agriculture, and against rural areas in addressed. However, reforms undertaken in general, has been tremendously detrimental to many countries are likely to have raised the rates growth. More importantly, this bias has slowed of return to investments in technology and infra- progress against poverty. structure. Agriculture has been more heavily taxed EconomicGrowth and Poverty Alleviation in Sub-Saharan Africa than in other regions. The main taxation instruments have been producer Technical progress is the single most im- prices fixed at lower than market levels, over- portant cause of economic growth. And there are valuation of domestic currencies, and protection changes in attitudes and institutions that facilitate of the industrial sector. The growth of agricul- the application of science or technology to eco- tural value-added sagged under this burden and nomic life. The economic reform programs under- began to rise again only in recent years as taxation taken in Sub-Saharan Africa in the past fifteen has been eased as part of economic reforms. years have been an attempt to change social atti- tudes, and economic characteristics of institutions The results of the deprivation in rural ar- in directions more conducive to adapting tech- eas are partly reflected in the characteristic inequi- niques for economic growth. table distribution of income between agriculture and the other productive sectors in the economy. At the beginning of their modernizing Agriculture, which employs around 67 percent of periods, many African economies were dominated the labor force in Sub-Saharan Africa, earns 32 by low-productivity agriculture. If a laissez-faire percent of the GDP. Poverty is overwhelmingly approach to economic management had been es- concentrated in rural areas. poused, it is likely that most would have followed their comparative advantage and developed agri- Agriculture'sGrowth Linkages culture first. Kenya - one of several countries to do this - achieved considerable success in the Agriculture's most important develop- decade 1963-1973. But in too many other coun- ment benefit is the diffusion throughout the econ- tries, what happened was a misplaced focus on omy of lower real prices for farm goods, espe- industrial development, which included heavy cially food. When real food prices fall, real wages taxation of agriculture. rise without raising nominal wage levels. This

VII Executive Summary

increases the competitiveness of other sectors Agriculture and Economic Reform throughout the economy. The central aim of policy reforms affect- An addition to agricultural growth of one ing agriculture is to deliver to farmers an income percentage point would provide additional net incentive. Price incentives, although often central resources to the economies of the region equiva- to policy reform discussions, are only one part of lent in size to the increase each year in all official improvements to income. development assistance (ODA), and greater than all the development assistance to agriculture from When the program of economic reforms bilateral and multilateral donors. was launched in Sub-Saharan Africa at the be- ginning of the 1980s, projections were maut of All recent studies on growth linkages in possible growth rates based on a program of in- SSA show the superiority of agriculture over other vestments (in infrastructure, education, health, in- sectors in stimulating economic growth. A study dustrial and agricultural production), supported in Kenya estimated the growth multiplier from by substantial increases in aid accompanied by agriculture to be almost three times the multiplier policy reforms. The projections were for 5 percent from non-agriculture. One comprehensive study per year growth in GDP, 2.1 percent per year in Western Africa concluded that agriculture's growth in GDP per capita, and 3.8 percent per growth linkages in Sub-Saharan Africa were much year growth in agriculture. higher than previously thought, with additional income arising from the initial .(exogenous) In light of these expectations, the results stimulus at least as great as the initial stimulus have been very disappointing: GDP in constant (i.e.. multipliers typically greater than 2.0, and in a prices (of 1987) grew at 1.1 percent per year from case study in Burkina Faso, as high as 2.88). One 1980 to 1985, and 1.9 percent per year for the rest of the important lessons from this study is that the of the decade. Value-added in agriculture grew at initial stimulus should be to tradable agricultural 0.2 percent per year 1980 to 1985, and 1.5 percent commodities, which by definitions usad in the per year for the rest of the decade. The appalling study are those exported from the region of inter- consequences in per capita terms weigh heavily on est, be it an area within a country or the country everyone concerned about Africa. itself. The Economic ReformEffort To get the best out of these growth link- ages, it is vital to increase the price-responsiveness From 1979 to mid-1994, 35 countries of the of agriculture and other rural enterprises. This is 48 in Sub-Saharan Africa undertook adjustment typically achieved through research, ready sup- programs supported by the World Bank, which plies of inputs, and good support services (on the financed 145 adjustment operations in these production side), and by investments in infra- countries. All of them, at one time or another structure, friendly institutions, and making it eas- during this period, also received assistance from ier to obtain imports (on the trade side). The role the International Monetary Fund through Stand- of public goods, such as agricultural research, is a by Arrangements or Structural Adjustment Facili- key part of this process. For an agricultural de- ties. Only 19 percent of the adjustment operations velopment strategy to have its maximum impact, started before 1985, and 42 percent started be- all its main components must be in place more or tween 1990 and 1994. less simultaneously. This not having been achieved, or even attempted in most cases, is a There was a gradual movement through major reason for the only modest agricultural the decade from SALs (Structural Adjustment growth and the measurable, but so far con- Loans) to SECALs (Sector Adjustment Loans) - strained, response to the policy reforms under- that is, the focus changed from the general macro- taken. economy to sector specific issues. Virtually all the SALs (66 in number) contained conditions which

viii Agriculture and EconomicReform in Sub-SaharanAfrica

had an impact on agriculture, so they must be as- keting), and depreciating the exchange rate of the sessed along with the 23 specific agricultural sec- domestic currency. tor operations which were implemented during the 1980-1994 period. Two thirds of the countries succeeded in reducing the taxation of agriculture. Those coun- Between January 1979 and August 1994 tries which had a "larger" degree of economic re- (see Table A.2) the World Bank invested almost form achieved a "turnaround" of 2.2 percent in the US$13 billion in adjustment operations in Sub- rate of growth of valued added in agriculture- Saharan Africa, and the International Monetary i.e., they added 2.2 percent to the growth rates Fund provided support totaling about US$16.4 achieved without reforms; those countries with a billion. In addition, various other bilateral and medium degree of policy improvement achieved a multilateral donors cofinanced many of the ad- growth turnaround of 0.3 percent; and those justment operations. They probably invested countries in which economic policies deteriorated much more than US$3 billion throughout the pe- experienced a growth turnaround of -0.8 percent. riod. In some individual operations (e.g., the first AGSECAL in Kenya) other donors collectively In 18 of the 29 countries reviewed, the invested more than the Bank itself. marketing of at least one major export crop was "loosened" in some way by eliminating a monop- As a proportion of the World Bank's total oly marketing board (a scattered few commodities commitments for adjustment lending worldwide, in four countries), linking producer prices to 1980-91, SSA took about one quarter of the funds world prices (about 15 instances, some of which, committed, but had about 45 percent of the op- however, retained poor exchange rate policies, erations, which means that the average adjust- thus not benefiting their export crop producers as ment operation was smaller in Africa than in other much as they might have) or by allowing private regions. Of the World Bank's total commitments traders to compete, either in exporting or in do- to SSA 1980-91 for all projects in all sectors, mestic purchase of the commodities. structural adjustment lending made up 31 per- cent. It was thus a leading part of the lending In 17 of the 29 countries reviewed, the program, but there was also very large financing marketing of a major food crop was "loosened" in of the more traditional project operations, and the some way, and food crop liberalization appears to structural adjustment operations themselves ad- have proceeded more quickly than that for export dressed issues in most sectors. crops, perhaps because of the tremendous fiscal burden of failed food marketing boards. The Impact on Agriculture In 16 of the 29 countries reviewed, fertil- Out of 29 countries examined in the face izer subsidies were reduced or eliminated, and of declining international prices for exports, ten virtually total decontrol of fertilizer marketing countries improved policies by increasing or al- achieved. Although the uptake of fertilizer does lowing increases in real producer prices for ex- not appear to have been substantially affected by ports enough to more than offset the international the reduction in subsidies, fertilizer use remains decline. A further nine countries raised real pro- extremely low in Sub-Saharan Africa, at just over ducer prices for exports, but not enough to over- 15 kg of plant nutrients per hectare of arable land, come the international decline. In eight countries, compared with over 74 kg/ha in India and 300 deterioration in policies reinforced the price de- kg/ha in China. Part of the reason for this is irri- clines experienced in world markets. The ten gation, which is much higher in Asia. Serious countries which increased real export prices for fertilizer supply constraints are still in place in farmers achieved this by a combination of lower- many countries of SSA. ing export taxes, raising administered producer prices, reducing marketing costs (usually by de- When changes in overall macroeconomic regulation and de-monopolization of export mar- policies are considered for 26 countries, the rela-

ix Executive Summary

tionship with agricultural growth rates is more of their real effective exchange rate from mid-1982 obvious. The group rated as having a "large im- onwards (in Ghana's case this was especially steep provement" had a weighted average agricultural between mid-1982 and mid-1986, slowing subse- growth rate between 1986 and 1993 of 3.5 percent quently). p.a.. Those countries with a "small improvement" attained a weighted average agricultural growth Kenya, with one of the most flexible ex- rate of 2.5 percent p.a. And those countries with a change rate systems of all through the period, "deterioration" in overall macroeconomic policies maintained its real effective exchange rate rela- achieved a weighted average agricultural growth tively steady from 1980 to 1985, thereafter engi- rate of 0.3 percent p.a. neering a decline at a moderate rate; with an al- most complete transition to full convertibility and ExchangeRate Changes an open market by 1993-94, both nominal and real effective exchange rates began to appreciate, the Although the exchange rate is the price latter more slowly than the nominal rate. that affects most other prices in the economy, there is not a close correlation between success in The sharpest appreciation 'spike" was exchange rate policies alone and agricultural experienced by Sudan as its economy ran out of growth. One of the main reasons is that the po- control in the period mid-1988 to mid-1992; Mo- tential benefits to farmers of an exchange rate zambique experienced a similar "spike" between change must be passed all the way to the farmer if 1982 and 1987, Ghana between 1980 and 1984, and any response is to be expected, and that failed to Zaire in the early 1980s. happen in a number of countries. Adding to the lack of correlation is the different mix of tradables One of the biggest concerns in maintain- and non-tradables in the agricultural sectors of ing a realistic exchange rate is a country's competi- different countries, and external factors such as tiveness in foreign trade, since market share can be the impact of droughts. Furthermore, more is re- lost very rapidly by a country's becoming less quired of policy than to "get the exchange rate competitive. The overall effect of real deprecia- right." tions of their domestic currencies was for some countries an effective way to increase (or restore) At the beginning of the reform period, their trade competitiveness, and conversely, for most countries in Sub-Saharan Africa needed a those whose currencies appreciated, an unhappy real devaluation of their currency to adjust for way to reduce their trade competitiveness. Many deteriorating terms of trade. For a devaluation to countries in SSA succeeded through exchange rate work, a nominal devaluation must be translated changes and other policies in reducing taxation into a real devaluation. Of 35 countries examined, and keeping up prices to producers in spite of se- by mid-1993 all had achieved an equal or lower vere declines in international prices. But market real effective exchange rate than that of 1980; most shares continued to decline anyway, pointing to of these (30 out of 35) had achieved this by 1988. other problems which prevented the maintenance of competitiveness. Many countries in the CFA franc zone suffered from an appreciation of their real effec- During the past 25 years, Sub-Saharan tive exchange rates from mid-1985 onwards, as Africa lost market share in virtually all of its im- the value of the French franc, to which their do- portant agricultural exports, which is the final mestic currencies were tied, appreciated against word on its failure to maintain competitiveness. the U.S. dollar, and other currencies, and they For cocoa the market share fell from 60 to 40 per- were unable to adjust effectively to this change. cent, for groundnut oil from over 60 to less than By contrast, Nigeria and Ghana, with whom some 35 percent, for coffee from 30 to 23 percent [for of the West African countries in the CFA franc robusta coffee from 78 to less than 44 percentl, for zone compete in agricultural export markets, were palm oil from 19 to less than 2 percent, for cotton able to achieve an almost continuous depreciation

x Agriculture and EconomicReform in Sub-SaharanAfrica

from 16 to 12 percent, and for bananas from 7 to whose competitiveness had been boosted by the just above 2 percent. currency realignment.

The palm oil example shows most graphi- Lessons from Maize MarketingReforms cally how production shifted from Sub-Saharan Africa elsewhere - in this case South-East Asia. The pre-reform policies commonly In stark terms, 93 percent of all additional pro- adopted for maize marketing, beside placing tre- duction over the last 25 years was accounted for mendous strains on the exchequer, were reckoned by the Asia region, which took 86 percent of addi- to have resulted, in some countries, in a substan- tional gross exports during the period. They did tial shift in maize production from low-cost re- this by doing better than Sub-Saharan Africa on gions close to the urban consumption centers, to economic policies, technology, infrastructure, and higher cost regions further away. Policy reforms farmer participation. It is important to note that have already begun to reverse both of these dis- all of these factors played a role in the greater tortions. competitiveness of Asia, not just exchange rates, and not just general economic policies. By the end Maize marketing reforms, without excep- of the period, average palm oil yields in the lead- tion, have taken much longer, and proven sub- ing Asian producing countries were 75 percent stantially more difficult to implement than their higher than yields in the two largest Africa pro- designers foresaw. The slow progress has meant ducing countries. that the expected benefits of reform have also been slow to materialize, increasing the difficulty The global effect on agriculture of a of maintaining momentum. change in exchange rates may mask a number of profound local impacts, some initially negative, The easiest measures to implement have some initially positive, and others changing from been moving producer prices towards export or negative to positive over time, or vice versa. In import parity; the hardest, restructuring parasta- Senegal, while most observers had considered that tals and negotiating their withdrawal from a the main negative impact of the devaluation mainstream commercial role. would be on urban households spending a large share of their income on imported rice, a study The typically intense and comprehensive showed there would also be a negative impact on vested interests in current marketing arrange- rural households in certain regions of the country. ments mean that developing ownership of reform This negative impact had not been foreseen, be- programs is difficult. None of the programs so far cause it was thought that rural producers of ex- has tried mobilizing support among the main portable peanuts would be beneficiaries of de- beneficiaries - namely, commercial producers valuation. Instead, when the various demand- who benefit from higher prices and more timely side and supply-side effects worked through, the payments. It would be worth trying. overall result was negative for households in some peanut growing regions. More work is also needed to build up consensus and support within sector ministries For regions in Senegal benefiting from the and agencies, which perceive the financial benefits devaluation, many households would have more of structural adjustment as flowing largely to- cash in hand, and the second round effects of wards Ministries of Finance. spending the additional income generated would amplify the benefits of the devaluation. To realize In spite of almost universal agreement the potential of the devaluation to stimulate long- (among donors at least) that the goal for a parasta- run economic growth, however, the government tal cereal marketing agency should be to become a would need to maintain political stability, con- buyer and seller of last resort, fulfilling price sta- strain inflation, stimulate employment creation, bilization and food security functions, in no case and raise production of the agricultural products has this been achieved to provide a model for

xi ExecutiveSummary

study. And among analysts of agricultural policy velopment is one factor in this. Nevertheless, reform there also remain differences of opinion rainfed areas of India receive at least three times about the wisdom of encouraging such arrange- as much fertilizer per hectare as those in SSA. On ments. Therefore, the ultimate fate of restructured the demand side, farmers have not been able to grain marketing parastatals has still to be worked get large enough yields from their crops, or large out over time. enough financial gains from these yields (often because governments have held down crop Proper sequencing of reforms is important prices), to persuade them to use very expensive to maintain consistency of goals and coherence of fertilizers. For many farmers, fertilizers are results. Maize reforms cannot be implemented in scarcely available at all, because of very weak de- isolation from other farm enterprises which com- livery systems, and undeveloped private market- pete with maize production and can have unex- ing. In such cases, fertilizer prices may be effec- pected effects on farmers' production decisions. tively infinite. But even where available, fertiliz- In Zimbabwe, maize was stimulated, and then ers are generally expensive, as a result of small undermined prematurely, when production in- procurement lots, weak bargaining positions, high centives for controlled and uncontrolled com- shipping, handling and domestic transport costs, modities got out of sequence. and inefficient marketing by public agencies. For farmers subject to many risks, especially from Private sector development only begins - drought and sickness that prevent them from and does not end-with price liberalization and putting enough labor into their crop husbandry to removal of movement controls. Problems com- take full advantage of fertilizer, the effective crop monly observed include continuing restrictions on responses have been too low and the effective and harassment of private traders, severe road fertilizer prices too high to make them affordable. and transport constraints, lack of access to credit, lack of good market information systems, and the Governments can respond in various need for management and financial training of ways to such circumstances. They can invest in potential entrepreneurs. Moving from a restric- research to develop more fertilizer-responsive tive to a strong and supportive regulatory frame- crops, with higher and more stable yields. They work - with clear guidelines and enforcement can invest in infrastructure and improvements to thereof and transparency and consistency of pur- transportation and marketing to bring down the pose - is especially important. prices of fertilizers at the farmgate. They can en- courage procurement in larger lots from overseas Unpredictable events, such as droughts, to reduce shipping costs and gain bulk discounts can play havoc with reform programs, and in (a study in Southern Africa showed that reduc- particular weaken an already fragile political re- tions in fertilizer costs of up to one third could be solve on the part of governments. Reversal of re- achieved by a package of such measures). They forms is always a possibility. can remove price distortions on the output side. They can take steps to promote fertilizer use, and Large increases in the efficiency of mar- to tailor fertilizer recommendations more closely keting, which would allow producer prices to be to farmers' needs. Many governments have, in- maintained at incentive levels while consumer stead, subsidized fertilizer sales, only to find that prices were reduced, remains the most important the subsidy bills became fiscally unsustainable, goal of reform programs. Evidence of the impact and were hard to phase out. Public funds which of even the partial reforms so far achieved con- could have been used to get higher crop yield re- firms the possibility of moving towards this goal. sponses, or lower costs in marketing on a more sustained basis, have been diverted into subsidies, Lessonsfrom FertilizerMarketing Reforms which did not provide permanent solutions to the problem, and reached only a limited number of Fertilizer use is extremely low in Sub- farmers, usually those better off or with larger Saharan Africa, and a low level of irrigation de- land holdings, who could actually obtain fertilizer

xii Agriculture and Economic Reform in Sub-Saharan Africa

at the subsidized prices and/or had access to Technology for African Agriculture credit. Successful economic reforms in many The experience reviewed here was of a set countries of Sub-Saharan Africa have raised the of countries, most of whom entered the 1980s with rates of return to investments in agricultural tech- public distribution systems for fertilizers, exten- nology generation and dissemination. On the sive controls on fertilizer imports and domestic other hand, the response of agriculture to eco- sales, and systems of subsidies, either general or nomic reforms has been blocked or muted by the targeted. These countries moved towards liber- lack of improved technologies available to farm- alization of their fertilizer importing and market- ers. The need for a markedly increased flow of ing, reducing over time the restrictions on access product from African agriculture has coincided to foreign exchange and attempting to phase out with a simultaneous decline in the productivity of subsidies. An important lesson of that experience its two main inputs, land and labor. This puts an was that to be effective, reforms relating to fertil- even higher premium on technology generation izer had to be implemented in close harmony with and dissemination for accelerating agricultural more general reforms relating to agricultural pro- growth. Because the basis for increasing crop duction and marketing. A second lesson was that yields in Africa is improving moisture and nutri- beside subsidies, continued donor in-kind fertil- ent availability, and controlling biotic stress, better izer aid also kept governments heavily involved management of soils is at the heart of the im- with fertilizer importing, pricing, marketing and proved technology needed. distribution, hindering private sector develop- ment in these areas. A third lesson was that lib- Many of the economic reform packages eralization of marketing was not enough to ensure adopted in the past fifteen years in Sub-Saharan that an efficient, competitive private sector would Africa have included budget-trimming exercises. emerge to deal with bottlenecks on the supply Under these, the effectiveness of all personnel-rich side. Explicit encouragement was needed to es- public institutions have suffered, because of the tablish such a private sector over time, including tendency to cut operating costs first, and person- addressing their needs for training, credit, and a nel last. In particular, this has struck institutions, supportive regulatory framework. such as agricultural research and extension, which work in rural areas, and depend for their effec- The most comprehensive attempt to foster tiveness on their staff traversing long distances. such development and implement a coordinated Although there have been large investments in set of measures to address fertilizer supply and agricultural research in SSA, these have fallen far uptake is the program in Ethiopia, which is only short of levels of investment in Asia and Latin just beginning. Among other things, it includes America, and are inadequate to support the rate reducing subsidies, decontrolling prices, access to of technological change needed. Furthermore, in foreign exchange, procuring imports at the most the decade from 1981 to 1991, the rate of growth competitive prices, training of dealers and farm- of full-time researchers slowed to just over 3 per- ers, financial assistance to the private sector in- cent per annum, from rates of 6-8 percent p.a. in cluding cooperatives, a program of on-farm fertil- preceding decades. More significantly, real agri- izer trials, investments in dockside facilities, cultural research expenditures shrank in the roads, and soil laboratories, and various means of 1980s, after two decades of fairly steady growth. promoting fertilizer use. In all of this, a final im- For sixteen countries, spending per scientist in portant lesson is that inorganic fertilizer alone is 1991 averaged less than half of the 1961 level. As not a solution to the problems of fertility experi- a share of agricultural GDP, research expenditures enced in African soils. Programs to promote fertil- fell from 0.84 percent in 1981 to 0.55 percent in izer use must also encourage means of building 1991, below the level reached twenty years previ- up organic matter in soils. ously. Some of the expenditure declines came from replacing expensive expatriate researchers with local staff - but much of the reduction rep-

xiii Executive Summary

resented lower expenditures on equipment, vehi- come a major constraint on increasing productiv- cles and other operating costs, thereby reducing ity of maize (along with other crops), and that the effectiveness of the increased numbers of re- technologies for enhancing soil fertility have not search staff in the institutions. kept pace with adoption of improved maize va- rieties. As a result, fertilizer use becomeseconomic at The successes in agricultural technology higher yields in SSA than it does in other regions, and in the past thirty years included improved cassava the efficiency of fertilizer use is lower in SSA than in in Nigeria, climbing beans in Rwanda, and in other regions. The low use of fertilizer implies that particular maize, whose success has nevertheless even the limited yield gains realized may not be been constrained by the adoption of improved sustained. varieties for commercial but not home use, and a big lag in the uptake and increased application of Possibly as much as 40 percent of the inorganic fertilizers. As a result of the spread of value-added in agriculture in Sub-Saharan Africa improved maize varieties, especially hybrids, the comes from "slash-and-burn" agriculture, or share of maize in total cereal production rose from "shifting cultivation," which is the dominant 25 percent in the 1950s to 36 percent in the 1980s, mode of agricultural production in one third of and is projected to rise by 3.2 percent per year in the countries. A central issue for agricultural de- the next two decades. In 1990 there were 270 velopment in many of these countries is the tran- maize researchers in the public sector, and 38 in sition from shifting agriculture to settled cultiva- the private sector in SSA, and from 1966 to 1990, tion, a vital step forward if agriculture is to be in- almost 300 new varieties of maize were released tensified in a sustainable way. The problem is not from the public sector, 175 open-pollinated, and that these countries have run out of land, but that 120 hybrids. In 20 countries surveyed in 1990, the technologies central to its development are accounting for more than 90 percent of the maize nearing the limits of their potential and need to be growing area in SSA (excluding South Africa), it replaced with technologies appropriate for inten- was estimated that between 34 and 49 percent of sive cultivation. The transition between the two the area was sown to improved varieties, roughly sets of technologies, which has already begun, is half of which was in hybrids. likely to be completed only over a substantial time period and involve a complex set of changes in However, the data on uptake of improved farming systems. maize varieties may give an exaggerated impres- sion of the success of research and extension in In spite of the centrality of this issue, maize. The uptake data, in particular, say nothing however, few strategies for the reform of agricul- about whether farmers realize the potential of the tural policies discuss or even acknowledge it, and better genetic material through appropriate hus- no economic reform packages are designed ex- bandry and inputs. Since 1970, maize yields have plicitly to support the intensification of an agricul- grown at about 1 percent per year, of which a little tural system that needs to be fundamentally over one half is attributable to improved germ- changed if it is to proceed forward. Some of the plasm. There is also evidence that breeding pro- economic reforms taken up will, in fact, contribute grams have often not taken account of the cir- to supporting the kind of agricultural intensifica- cumstances faced by small farmers, and failed to tion required. Market liberalization, for example, develop varieties addressing their constraints, as is a key element in ensuring the kinds of incen- well as paying too little attention to the storage, tives farmers need to consider taking up animal milling and other qualities desired by processors traction, and entering into other investments on and consumers. As a result, yields from improved their farms. And it has been common for the re- varieties attained by small farmers have some form process to include some agricultural inputs times been inferior to those from local varieties, which are critical for the transition, notably fertil- and adoption of improved varieties has been bi- izer. ased towards larger farmers. An especially im- portant fact is that declining soil fertility has be-

xiv Agriculture and Economic Reform in Sub-SaharanAfrica

But more than market liberalization is provide funds for financing consumption- needed. The technology requirements, and the smoothing and investments. infrastructure needs are clear. Among areas not so far covered in most reform programs must be When the World Bank's large portfolio of listed attention to inputs other than fertilizer, es- rural credit projects wound down in the late pecially agricultural chemicals, livestock, and me- 1980s, with a record of having failed to establish chanical equipment and tools of all kinds. Sup- financially sustainable formal financial institu- port for the private sector has usually not ex- tions, such projects also largely came to a halt in tended to the particular needs of a machinery re- Sub-Saharan Africa. It was decided that rural fi- pair, maintenance, and manufacturing sector, and nance projects should henceforth be supported the ways in which innovations and rapid forward only in the context of developing rural financial movement in these areas might be fostered. And institutions and markets as a whole, including while there remains controversy about the role in deposit taking as well as lending, with charges for all of this of changes in the land tenure system, financial instruments finding their own levels at few economic reform programs have so much as market rates. It was essential that financial sector examined the issues seriously. reforms be carried out before rural finance could again be an object of Bank operations. These de- A final area where policy reforms have a cisions represented a shift from the aim of trans- direct impact on technology transfers is regulation ferring money to targeted beneficiaries to the aim of the flow of technologies across national and of creating institutions which had the capacity and international borders. Regulations put in place the desire to finance targeted beneficiaries. ostensibly to protect against the transfer of pests and diseases in plants (e.g., seeds) or animals, or During the 1980s most financial systems to protect the environment and health (e.g., pesti- in SSA were seriously distressed, and in some cides), sometimes develop into a web of controls countries (notably Benin and Guinea) the banking on imports, domestic production and sales which sectors collapsed completely. It is useful to dis- go far beyond guarding against these externalities. tinguish three phases in financial reform as in The benefits from regulatory reform may amount other economic reforms: stabilization (steadying to hundreds of millions of dollars per year in the macro-financial framework, restoring fiscal gains from technology transfer. A related matter balance, and reducing inflation); adjustment is the importance of countries in SSA being will- (establishing the incentives, policies, regulations, ing to acknowledge and protect intellectual prop- and procedures governing flows of funds to the erty rights if their agricultural producers are to economy and to intermediating financial institu- continue to have access to the most up-to-date tions); and building the base for self-sustained eco- technologies needed to sustain their industries; an nomic growth (diversifying and expanding finan- example is the cut flower industry in Kenya, cial markets, enhancing competition, providing worth more than $100 million per year to that for the expanded and diverse financial services country. required by a growing economy). By 1994, most of the progress in SSA had been in the first of RuralFinance these three phases - stabilization. There had been some notable success stories in adjustment, The three main aims in developing rural but financial restructuring generally fell short of finance are (a) to provide a repository for savings goals and expectations, and in some cases it which is safe, generates income for depositors, proved too difficult to restructure distressed fi- and is more liquid than traditional competing re- nancial institutions in an adverse economic envi- positories, such as livestock; (b) to provide a ronment. Very few countries had succeeded in means for resource transfers within rural areas engaging in the third phase. and between urban and rural areas, and reduce the transactions costs of these transfers; and (c) to Since the Bank paused to re-examine its rural credit portfolio, many ideas have been forth-

xv ExecutiveSummary

coming about developing viable rural financial deposit-taking is a central part of financial serv- institutions which will provide for the financial ices. needs of the poor, who predominate in rural ar- eas. These ideas emphasize the need for institu- Country Experience tions which give a wide choice to customers, have a dense network of field offices with outlets near The largest ten agricultural sectors ac- their clients, provide services for all kinds of rural counted for close to 70 percent of the agricultural clients (not just farmers), reduce transaction costs value-added of Sub-Saharan Africa in 1991. It through diversified operations, and charge full follows that generalizations about agriculture in costs for the financial services they provide. They SSA depend critically upon how agriculture has also emphasize the need for products responsive to performed in these ten countries. The report also clients' needs, accessible, with a quick turnaround examined economic reforms and agriculture in through simple application processes, and reli- five smaller countries. The experience in these ance on character-based assessments. Above all, fifteen countries offers many lessons about what there is an acknowledgment of the futility of try- policies help agriculture as well as those which ing to develop institutional finance without there are inimical to its growth. being a flow of technological innovations to in- crease agricultural productivity. Rural financial Nigeria institutions need to develop mechanisms for screening, monitoring, and enforcement similar to Prior to the reform period, rising wages those used by informal lenders as well as creating and appreciating currency had undermined the convenient, low-cost saving instruments. Such competitiveness of agricultural exports, and re- institutions need supporting policies which in- sources shifted' from producing traded goods clude interest rate deregulation, and appropriate (mostly agricultural) to producing non-traded supervisory standards. goods (mostly public services). There was a rapid exodus of labor from rural areas. All of these The Consultative Group to Assist the factors, together with poor rainfall over extended poorest (CGAP), an initiative launched by the periods, price controls and trade restrictions, and Bank in 1995, follows on the heels of studies inefficient operations of parastatal marketing showing that micro credit and savings services boards, resulted in poor agricultural performance. can be effective ways to create jobs and generate income for the very poor. The funds are to be The policy changes starting with the SAP channeled through micro-finance institutions in 1986 led to a shift to traded crops, and to crops which have a proven track record, are efficient for which improved technologies were available. and have sound financial policies, have high cost- Real GDP, which had decreased at an average rate recovery and repayment rates of their loans, can of between 2 and 3 percent per year between 1980 provide matching funds from their own sources, and 1986, rose at 5 percent p.a. from 1986 to 1992. and have demonstrated capacity to use additional Most of the recovery came from agriculture and funds well. The philosophy behind this initiative manufacturing. In per capita terms, real income is one of establishing viable financial entities, and grew at an average rate of 2 percent p.a. from 1986 then letting them grow and develop with their to 1992 (population growth 3 percent p.a.). The own funds, relying heavily on deposits (and bor- SAP shifted relative prices in favor of the rural rowing where opportunities arise), in consonance sector, and production of both traditional food with the economy they are serving. Around such crops and cash crops increased. With the excep- institutions, the Bank needs to continue to be in- tion of 1987, real agricultural GDP increased in volved in the hard work of financial sector reform, every year from 1984 to 1992. This revival was to provide the best possible context in which vi- based largely on a reversal of many of the policies able rural financial institutions may be sustained. which had discriminated against agriculture and In particular, this includes development of the pulled resources out of the sector. Also important prudential mechanisms which are essential when were investments in the state-wide Agricultural

xvi Agriculture and Economic Reform in Sub-Saharan Africa

Development Projects (ADPs), which focused on nominal terms, but significantly even in real extension and input distribution for small farmers terms. and rural infrastructure. While economic growth picked up, the There is still a need to remove prohibi- agricultural sector's performance remained dis- tions on the export and import of agricultural raw appointing, with estimated growth in agricultural materials and semi-processed goods, liberalize production averaging about 2.5 percent p.a. from fertilizer markets, remove all inter-state restric- 1986 to 1992, and growth of value-added probably tions on movement of agricultural inputs and below 2 percent p.a. outputs, and phase out parastatal input supply systems. The rural roads network has roughly Possible reasons for the disappointing doubled in size since the mid-1970s, but huge performance include the decline in world market needs still remain. At present the rural road prices for cocoa, failure to pass on to cocoa pro- density, at about 118m/km 2, is only 30 percent ducers the full benefits of devaluation, so that the higher than that in India in 1951, and densities in tax on cocoa production remained very high, a individual states vary widely. Furthermore, roads decline in real prices for cereals and root crops, are in very bad shape, with maintenance lower and lack of progress in tackling deep-seated than the average in surrounding countries and problems of agricultural marketing. Cocoa mar- very high transport costs, in spite of enormous keting costs were 17 percent of the export price fuel subsidies. Reducing the petroleum and fertil- compared with levels in Brazil and the Far East of izer subsidies would pay for a recommended ten- 10 percent. Marketing margins were also very year investment program in rehabilitation, which high for other farm enterprises, with ratios of re- would cost N3.6 billion p.a. in 1993 prices. tail to farmgate prices ranging from 1.50 (cattle) to 3.30 (sheanut); for maize and yams, the ratios Ghana were around 1.6.

During the country's long period of eco- As in the pre-reform era, agriculture has nomic decline, the central mistake of economic continued to take second place in the reforms. policy was that resources used in manufacturing Few policy reforms explicitly directed towards were diverted from agriculture, where they agriculture were included in the early stages of probably would have had a higher rate of return. the economic transformation, and the first agricul- And within this overall mistake, a particularly tural sector adjustment credit was launched only crucial policy error was the wedge which the gov- in 1992, nine years after the adjustment process ernment created between the world cocoa price began. In fact the first AGSECAL has turned out and the price paid to the producer. to be the last adjustment operation so far initiated in Ghana since 1983, coming to fruition only after Ghana launched its adjustment program the stabilization needs of the economy, and the in the teeth of a steep decline in world cocoa adjustment needs of the external trading, indus- prices, which began in 1984. This massive shift in trial, education, financial, and private manufactur- terms of trade - for a commodity that in the early ing sectors had been addressed, sometimes with 1980s provided almost three-quarters of Ghana's more than one operation. export earnings, highlights the difficulties under which the reform program was carried out. Un- But the lack of these economic reforms der these circumstances, the massive devaluation alone cannot have borne total responsibility for of the domestic currency which took place in 1983, Ghana's slow agricultural growth. The continuing and the achievement of further declines in the real extremely high transactions costs in marketing, for effective exchange rate in succeeding years, al- example, arise, among other things, from a num- lowed the government to actually raise prices to ber of infrastructural bottlenecks, foremost among producers through the 1980s, substantially in them very poor rural roads. A Bank report in 1993 concluded that "rural Ghana is...largely a

xvii ExecutiveSummary

"foot path economy." The feeder road density is and achieve rapid growth, while at the same time equal to that of India in 1951, and only 15 percent becoming increasingly vulnerable to economic of their length is motorable year round. Equally shocks by not attending to underlying economic severe as a constraint is a long-neglected agricul- fundamentals. In particular, there was an exces- tural research system which has produced very sive focus on the industrial sector, with policies few technical packages suitable for small, poorly which promoted capital intensive production endowed farmers. Its job is a complicated one, to techniques ill-suited to the country's natural re- provide the technological underpinning for the sources and human endowments. Thus, less em- transition from shifting to settled agriculture. ployment opportunities for the poor, whose main asset is labor, were created than would otherwise As a result of these failures to accord to have been the case. The missed opportunities agriculture an appropriate role in economic de- were swelled by capital-intensive production velopment, Ghana's growth remains muted, and techniques on government-owned plantations. its agriculture, the second largest in Sub-Saharan Africa, is not yet free to take its place at the center When agriculture was growing reasona- of the country's strategy for economic growth. bly well, especially prior to 1982 (average growth rate 4.4 percent p.a. 1966-88 but only 1.9 percent Cameroon p.a. 1982-1988), food crops grew faster than population, but export crops were hampered by During its period of crisis and insufficient heavy government intervention in production and policy response, from the mid-1980s, a process of marketing, and high taxation. Smallholder agri- "rapid impoverishment" took place in Cameroon. culture grew more slowly than other parts of agri- More than 70 percent of the income gains culture and the general economy. The high cost achieved in the previous 18 years were wiped out structure induced by oil revenues and apprecia- in the eight years from 1985 to 1993. During this tion of the CFA franc made Cameroon's agricul- period the total income from agriculture tural exports marginally competitive. And the (including own consumption) shrank by an esti- country's agricultural research and extension mated 16 percent Cameroon thus stands in systems were not up to achieving productivity marked contrast to Nigeria, which faced similar increases, which was the only avenue left to im- external conditions, and with comparable re- prove competitiveness, devaluation of the CFA sources, but fared relatively well during the time franc having been ruled out. of Cameroon's crisis, its real GDP per capita growing at 2 percent per year compared with Between mid-1985 and mid-1987, the real Cameroon's fall of 6.3 percent per year. effective exchange rate of the CFA Franc rose by 33 percent while that of the naira in Nigeria This decline for Cameroon rolled it back plummeted by almost 84 percent. Cameroon's to income levels as low as those in 1966, and the agricultural export markets were lost during this economic collapse was "one of the most painful period. The fiscal cuts made as part of the at- that any country, developing or developed, has tempt to deal with the crisis came largely from ever suffered." Of 41 countries in Sub-Saharan non-salary operating expenditures, severely re- Africa for which estimates were made for the ducing the effectiveness of the public sector. Re- 1988-92 period, per capita GDP fell the fastest in ductions were made in key areas, such as agricul- Cameroon (almost 8 percent p.a. compared with ture, road maintenance, education, and health. Nigeria's increase of 2.5 percent p.a. during this shorter period). Economic development in Cameroon has not followed a course which would directly ad- This rapid decline was all the more pain- dress the transition to settled agriculture, nor al- ful since, in earlier periods, Cameroon had experi- low agriculture to assume fully its potential role enced remarkable growth. The experience dem- as an important engine of economic growth. As onstrates how a country can have a potential for with Nigeria, the impact of exploiting oil reserves

xviii Agriculture and Economic Reform in Sub-Saharan Africa

has been detrimental to agriculture, raising wage This dismal performance resulted from a levels and forming, with the rigid exchange rate combination of a command economy after 1974, structure, a deadly combination of constraints on recurrent drought, a long and devastating civil the competitiveness of agriculture. war, a narrow range of exports whose production declined significantly, and a very low technology The limitation on expanding both food base to begin with. and export crops in Cameroon is not land (which would allow both simultaneously) but labor and Farm incomes were further held down by the unprofitability of using modern inputs under the almost total absence of off-farm employment current technologies. Cameroon shares with opportunities, the result of government decrees Ghana and other countries a need to assemble the forbidding this kind of work, either on other package of policies and investments that would farms or in rural towns. There was thus very little induce farmers to undertake the transition to set- movement of labor, and constrained movement of tled agriculture. This puts a premium on agricul- agricultural commodities, the latter leading to in- tural research which, where it has existed at all in ter-regional price differences greater than justified the past, has favored export crops over food by the costs. crops. When the war was over in 1991, the new Although agriculture grew well in earlier government initiated stabilization measures and periods, its development was not able to with- launched a series of reforms, including devalua- stand the severe shocks of the collapsing oil econ- tion of the domestic currency, .deregulation of omy. And the adjustment measures undertaken commodity prices, freeing agricultural markets, in the aftermath of the crisis of the mid-1980s eliminating export taxes, abolishing the public were too late and too little to prevent agriculture's transport system, and commercialization of para- precipitous decline along with the rest of the statals. economy. With the devaluation of the CFA franc in early 1994, Cameroon has a chance at last to put The economic reforms have been too re- together a package of policies and investments cent, and the problems they aimed at addressing which would restore agricultural competitiveness were too profound for there to be any definitive and exploit its comparative advantage to achieve conclusions yet about their impact. However, a economic growth and poverty alleviation. recent economic memorandum expressed opti- mism, recording strong GDP growth of 7.6 per- Ethiopia cent in FY93 after a decade of stagnation. Agricul- ture grew by more than 4.5 percent in FY93, with With the second largest human popula- the help of good weather. The area under culti- tion in Sub-Saharan Africa as well as its largest vation increased for the third year in a row, fertil- cattle herd, agriculture looming so large in the izer consumption reached record heights of close economy (85 percent of employment, 85 percent of to 160,000 tons (compared with an average of exports, and 70 percent of the raw materials base 50,000 tons during the 1980s), and grain produc- for medium and large scale industry), and consid- tion attained its highest level ever. erable remaining reserves of cultivable land, one would expect Ethiopia's agriculture to be larger For agriculture, the challenges are to re- than it is. But its value-added in 1991 was esti- dress the poor performance of research and ex- mated to be less than one quarter as big as Nige- tension, improve very low crop yields, complete ria's. That figure alone expresses the poverty of liberalization of markets for export crops and in- the country, and the poor performance of agricul- puts (especially fertilizer), upgrade the extremely ture, whose growth averaged only 0.3 percent p.a. limited road network (75 percent of farms are during the long period 1974 to 1991. more than a half-day's walk from an all-weather road), and increase the numbers of transport ve- hicles.

xix Executive Summary

In years of favorable rainfalL agriculture 1983, C6te d'Ivoire did not. In fact, it lost export is now capable of rapid growth in Ethiopia, and competitiveness right through the 1980s, as the its capacity to do so will increase as major atten- CFA franc appreciated in real terms, at first with tion is paid to removing the bottlenecks presented respect to Ghana and Malaysia, and later even by technology and infrastructure. with respect to France, other European countries and the U.S.A. This represented a substantial loss C6te d'Ivoire of competitiveness for the Ivorian economy.

Between 1960 and 1982, the Republic of RCI had only one way to deal with its un- Cote d'lvoire (RCI) was regarded as an economic sustainably high level of public investment: con- miracle and an open and liberal economy. Agri- tractionary fiscal and monetary policy. The ad- cultural yields increased, the sector grew, and the justment process was costly, with real GDP falling supply of calories per capita increased. Until the at 4 percent p.a. 1982-1985, private and public in- mid-1970s, policy had not disadvantaged agricul- vestment falling (by 1985 to one third of its 1981 ture too much, but had encouraged an inflow of level), and modern sector employment falling by foreign labor (from neighboring countries) and 20 percent. foreign capital (from France). A lesson from this is that distortions and But after 15 years of good growth, from inflexibilities in the domestic economy must be 1960 to 1975, RCI experienced a coffee/cocoa dealt with before an internal adjustment can work. boom, followed by an overambitious public in- The debt problem, incurred so quickly ("just five vestment program which continued on the basis years of easy spending"), is taking a long, hard of borrowing, followed by a coffee/cocoa bust, period to get extricated from, and going into ar- savings and investment decline, rapid inflation, rears has deep-seated effects throughout the and appreciation of the currency (a combination economy. The costs of non-adjustment have been of inflation with the nominal exchange rate held increased poverty. constant resulted in increasingly unfavorable changes in the real exchange rate), all accompa- C6te d'Ivoire undertook an agricultural nied by pervasive market distortions. sector adjustment program in 1990. It aimed to increase the growth rate of agriculture to about 2.5 The two most important policy mistakes percent p.a. in the absence of a devaluation, with a were unsustainable expansion of public and pri- hoped for 4 percent p.a. were there to be a de- vate debt, and maintaining the exchange rate re- valuation. Overall the sector adjustment was gime. Debt rose from US$267 million in 1970 to judged to have been inadequate to restore com- US$14.4 billion in 1990. As a proportion of GNP, petitiveness and production incentives, and as a it increased from probably less than 10 percent of result the agricultural sector continued to contract GNP in 1970, to 59 percent of GNP in 1980, and and there was little progress in diversifying im- 182 percent in 1989, while debt servicing rose ports. from just over 28 percent of exports of goods and services in 1980 to almost 41 percent in 1989. With the devaluation of 1994 providing During adjustment the real rate of exchange the opportunity and the starting point, the next moved in an unfavorable direction (appreciated) round of adjustment aims to replace the State-led while that for Ghana became more favorable. model with private agents as the engine of growth. The proposed sector adjustment program In other words, while cocoa farmers were begins to address three major problems facing explicitly taxed in Ghana, in C6te d'Ivoire they agriculture in Cote d'Ivoire, namely the huge were also taxed, but implicitly, through an over- public involvement in the sector, with its ineffi- valued domestic currency. And while Ghana cor- ciencies and fiscal costs, the insufficient returns to rected the exchange rate portion of its tax on cocoa investment arising from the wrong signals leading farmers from the beginning of its adjustment in to misallocation of resources, and the protection

xx Agriculture and Economic Reform in Sub-Saharan Africa

from external markets which has distorted inter- lic debt payments coming due increased from nal markets. US$55 million in 1972-73 to more than US$800 million in 1982-83, while debt service as a propor- One overriding issue facing agriculture in tion of exports of goods and services rose from 12 C6te d'Ivoire is the transition from shifting culti- percent to more than 100 percent. vation to settled cultivation. In this respect, it has a lot of similarity with Ghana. The problem is not From late 1983 onwards, the macro- that the country has run out of land, but that the economic recovery program launched in 1980 fell technologies central to its development so far apart, and many of the policy reforms previously (those associated with slash-and-burn cultivation undertaken were reversed. While political insta- and forest or bush fallows) are nearing the limits bility increased, with changes of government in of their potential, and need to be replaced with the 1985, 1986, and 1989, the government failed to get technologies appropriate for intensive cultivation. on top of unsustainable subsidies for sugar, bread The transition between the two sets of technolo- and petroleum, there were renewed arrears on gies, which has already begun, is likely to be debt, renewed overvaluation of the currency, and completed over a substantial time period, and in- increasing inflation, especially in the latter years volve a complex set of changes in farming sys- of the 1980s. tems. Over the same period the real effective Some of the elements needed to facilitate exchange rate appreciated again by more than 50 the transition are not covered in the adjustment percent. Failure to deal with this critical policy program. These are, in particular, policies related variable reduced incentives for cotton production, to inputs (especially fertilizer), and land tenure. and wiped out the gains that otherwise might have been realized from the program of support Sudan for important inputs into the cotton sector.

Sudan is the biggest country in Africa Two factors more than any others have (with 10 percent of the continent's land area), and negatively impacted upon agriculture during the has the third largest estimated remaining reserve past decade: war, and rainfall fluctuations. As a of cultivable land after the year 2010, almost 47 result of the war, several million people have been million hectares. From 1973 onwards the gov- displaced in the southern region, and the agricul- ernment very substantially increased its invest- tural production there, largely tropical, must be ments in infrastructure (roads, railways, electric written off by the national government. In spite of power, irrigation) and industry, at first with do- its having the largest irrigated agriculture in Sub- nor financing. In part this public investment Saharan Africa, commanding more than one surge was an attempt to realize Sudan's hopes to quarter of the farmed area, Sudan's rainfed agricul- become a major agricultural supplier to the Mid- ture is large enough (and in recent years man- dle East. There were large inflows of foreign agement of irrigation weak enough) to allow very capital and imports of goods. After a few years, large fluctuations in production. when problems with absorbing these large inflows resulted in slowing disbursements, donors re- A renewed attempt at economic reform duced their new commitments. Rather than cut began with initial measures in 1990-91, and a back on projects barely begun, the government more substantial reform package in February decided to sustain the capital intensive develop- 1992. The major questions hanging over Sudan's ment effort by borrowing from abroad on rela- future agricultural performance are: how long will tively hard terms, and running down foreign ex- the government keep up its most recent commit- change reserves. ment to economic reform and will it be able to bring to a conclusion the conflict in the south? When reserves were depleted, an accumu- Unless it can do both of these things, the country's lation of arrears on the debt began. External pub-

xxi Executive Summary

enormous technical potential will remain a dream One lesson from the reform attempts is still far away from realization. that government revenues should be increased either before or simultaneously with decreases in Zaire expenditures. In Zaire the government damaged its budget by reducing revenues before reducing The policy package adopted by Zaire at expenditures, and eroded the confidence of the Independence -overvalued currency, high export private sector by implementing parts of the pro- taxes, heavy external borrowing, low pan- gram but not others. territorial official producer prices, subsidized con- sumer prices, many local taxes on production and When the economic reform program col- marketing, and no cost recovery for things like lapsed, the economy collapsed with it and spun veterinary services - yielded an overall negative out of control. The inflation index (CPI), on a base effective protection on agriculture up to 1983. As of 1980=100, soared over 1.6 million during 1992, a result of this discrimination against agriculture, and reached 13.65 billion by mid-1994. The cause: in 1985, one of the potentially richest agricultural "reckless printing of money -by the authorities economies of Sub-Saharan Africa imported 11 and counterfeiters alike - has pushed annual in- percent of its maize, 17 percent of its rice, 21 per- flation to 8,500 percent and the local zaire into cent of its meat, one third of its sugar, and more contempt. Relaunched at three to the dollar in than one half of its fish. October 1993, the zaire now trades at 3,200."

As a result of a bad policy environment, a When price and marketing controls on tremendous deterioration in services (transport, agriculture were removed in May 1982, many research, extension, input supply, credit, agricul- producer prices increased but there was no supply tural education, and public finance) and loss of response because of a shortage of marketing investor confidence, the agricultural sector in Za- credit, increased marketing costs, deterioration of ire has "imploded," with a general retreat from the transport network, and continued local taxes markets towards subsistence. The situation has impeding marketing. Prices remained heavily been exacerbated by the decline in world prices regulated. An important lesson of the economic for exports. Over the long period 1965 to 1980, reform experience is that, "particularly in agricul- agriculture grew at only 0.5 percent p.a. Because ture, better performance can be obtained only of more attractive work opportunities in mining through a combination of investment projects and and other urban activities, a lot of people left rural changes in overall policies. Before 1983, agricul- areas, leading to a scarcity of agricultural labor, tural projects did not work because of incorrect especially for land preparation. price incentives, yet correction of the price struc- ture was not enough to trigger supply response. In an attempt to build on the relatively In a next phase of adjustment, traditional invest- good economic management of the 1983-86 pe- ment projects will have to remove physical con- riod, the Bank from 1987 to 1990 supported an straints, while structural adjustment must im- economic reform program which, in spite of some prove Zaire's negative investment climate, mainly achievements, substantially collapsed. Later re- through better governance." view of this program argues that it was never owned by the government, and that it was prema- For most of the years since Independence, ture in the sense that the government was neither agricultural research has been egregiously ne- willing nor able to implement it. Although data glected, and infrastructure let fall into ruin. The are not easy to come by, it is estimated that Zaire's total volume of goods transported within the GDP fell by 1.9 percent per year in real terms be- country in 1990 was 40 percent below the volume tween 1986 and 1992. Over the same period, agri- in 1950. If anything, the agricultural sector has cultural exports also fell, and food production regressed, falling back on subsistence production rose by an estimated 9 percent, implying a decline in the face of tremendous economic mismanage- in per capita production. ment and conditions unfavorable either to private

xxii Agriculture and Economic Reform in Sub-Saharan Africa

sector investment or to providing opportunities tained. Leaving adjustment reforms to be imple- for development of a cash economy. mented by only a small group of reform-minded civil servants can lead to a slackening in commit- Kenya ment and capacity to fully implement the reforms if there are subsequent changes in key govern- In the first decade after Independence, ment decision-makers, and their successors lack until 1973, when the development strategy was "ownership" of the agreed program. firmly anchored on growth of smallholder agricul- ture, manufacturing was largely for import- Furthermore, for AGSECALs in particu- substitution, and Kenya benefited from access to lar, there is a danger that officials of sector minis- East African Community markets, the country tries do not feel that they "own" a program in achieved rapid growth, averaging 6.5 percent p.a. which they are making all the policy changes (agriculture almost 5 percent p.a.). This slowed in while the funds from an adjustment credit are all the second half of the 1970s with adverse move- flowing to the Treasury. The Bank has rarely ment in the terms of trade and collapse of the made efforts to build ownership of reforms customs union, and then tightened still further in among actors in the private sector: agro- the first half of the 1980s with serious macro- processing companies, importers, merchants and economic difficulties and a sharp drop in coffee traders. Efforts in this area would be likely to earnings. have a high payoff, however, in keeping a reform program on track, especially one which is chal- The heart of the initial economic reforms lenging vested interests in maintaining the status was a sharp deflation during 1980-1984, accom- quo. plished by reduced budget deficits (which came close to zero in 1982-83), markedly slowed mone- In Kenya, in spite of the reforms carried tary growth (and increased interest rates), and out to date, the problems for the private sector tightened import controls. These succeeded in caused by continuing parastatal activity, and dis- reducing the financial imbalances to sustainable incentives built into the legal and regulatory levels (Kenya was one of the few countries to suc- framework, are widespread in the economy. ceed in this), but the cost was high in foregone From 1981 to 1990 the private sector share in total consumption, investment, and imports. Exchange modern sector employment fell from 53 to 49 per- rate management was also successful, especially cent, and its share in gross investment dropped in the second half of the 1980s, in reducing the from over 13 percent of GDP to about 11 percent. real effective exchange rate of the domestic cur- One estimate is that almost 60 percent of sales in rency. This was an important factor in allowing the economy occur in oligopolistic markets. prices for agricultural commodities to be main- tained reasonably in line with world market This has been especially difficult in cereal prices, and for increasing the effectiveness of marketing, in which the long history of the state other trade policies. monopoly - going back to the early years of the Second World War, surviving at least seven Kenya implemented two agricultural commissions of inquiry, two structural adjustment sector adjustment operations, one starting in early loans and two agricultural sector adjustment 1987 and the other in early 1991, for which the credits, distorting the location of maize produc- second tranche was canceled over the govern- tion over its long history, and earning substantial ment's decision to reinstate controls on movement rents for larger farmers (frequently those in politi- of maize which had already been relaxed some- cal power) - does not bode well for thorough what and were set to be abolished entirely during sustainable reform. 1992. One of the important lessons learned from both SALs and SECALs in Kenya is that strong Kenya's early years of development after efforts are needed to attain and sustain ownership Independence were characterized by a growth of economic reforms if commitment is to be sus- strategy that had agriculture much closer to its

xxiii Executive Summary

heart than many other countries in Sub-Saharan sector, and raised the proportion of agriculture in Africa. Therefore, in spite of poorer resource en- national production and income as the populace dowments than some other countries, and in par- retreated to subsistence farming in order to feed ticular, the vulnerability of its agriculture to fluc- itself and survive as best it could. tuations in rainfall, Kenya stayed with its com- parative advantage better than many other coun- A central element of the economic prob- tries, and grew more rapidly than they did. lems was an exchange rate for the domestic cur- rency which at times was so far out of line that it The performance of the agricultural sector gave rise to bizarre distortions. In the early 1980s, during the 30 years since Independence (1963- for example, when the official exchange rate was a 1993) has been better than the average for Sub- mere 4 percent of parallel market rates, certain Saharan Africa. The agricultural growth rate of plantation companies with access to foreign ex- 2.2 percent per year from 1982 to 1993, however, change at official rates found it privately profit- has not been enough to keep up with the high able to purchase tea-picking machines, even population growth rate of between 3.5 and 4 per- though hand picking was more cost-effective from cent per year. Consequently, it has been difficult the standpoint of the economy as a whole. to raise per capita income levels and protect the natural resource base. Inflation was very high, especially in the The tremendous pressure on land, and the second half of the 1980s. As a result, the Con- speed of fragmentation of smallholdings, is shown sumer Price Index on a base of 1980=100 topped by estimates of the number of rural households 150,000 by mid-1992. In SSA only Zaire experi- increasing from 1.7 million in 1976, through 2.7 enced higher inflation. million in the mid-1980s, to the present 3.5 mil- lion, whose average size is less than one hectare. One important lesson which applies to a More than 40 percent of the smallholdings are number of countries in SSA can be illustrated by managed by women. the experience in Uganda. It is the dilemma faced by reforming governments that have, in the past, Many of Kenya's programs and policies in drawn a substantial proportion of public revenue agriculture now support growth. There is no ex- from taxes on agricultural exports and general plicit taxation through lower than world prices of imports. The dilemma is twofold: how to reduce commodities, farmers in many cases receive pay- overwhelming fiscal deficits while simultaneously ments for their products more quickly than in the trying to encourage agriculture by reducing ex- past, and a successful extension system is already port taxes, and liberalize trade by lowering import in place. But a deepening of reforms is still duties. Eventually, the government in Uganda needed to meet the challenges posed by the pres- was able to pass on to farmers a greater propor- sures on available land, and the reforms that lie tion of the benefits of devaluation (the tax on cof- ahead will be more difficult in the sense that more fee exports provided two thirds of government's ingenuity will be needed to design an investment recurrent revenues in 1985-86, and less than 2 per- climate truly friendly to the private sector, and to cent by 1991-92). But had it happened more circumvent strong vested interests. quickly as the reforms proceeded, it is likely that the benefits would have been greater. On the im- Uganda port side, the trade liberalization process was fragile because the government had very little ca- Like Ghana, although for different rea- pacity to raise revenue from sources other than sons, Uganda missed its opportunity for economic import taxes. growth for almost a quarter of a century. During much of this time the country was immersed in One of the important "sequencing" ques- civil unrest and the chaos of open warfare, which tions about economic reform in SSA is therefore destroyed infrastructure, drove the private sector whether or not to postpone trade reforms until and modern business away, shut down the service public revenues have been shifted to other

xxiv Agriculture and Economic Reform in Sub-Saharan Africa

sources, and the fiscal deficit has been brought policy area. The most vital interventions are more under control. In Uganda, as a result of needed in agricultural technology and rural in- these changes in revenue sources, the difficulties frastructure. Surrounding these there is an acute government had reining in public expenditures need to provide the requisite financing for agricul- were reflected in "periodic explosions of the tural development, and the greater security of budget deficit." One reason for sustained imple- land tenure which would accompany the spread mentation of trade reform in Uganda, however, in of freehold land ownership. The government spite of these difficulties was the "sociopolitical would also need to pay attention to maintaining a shredding" the country had experienced through flexible and smoothly functioning labor market, its wars, that insulated the regime from domestic because the fact that Uganda still has a land fron- pressure groups and enhanced its autonomy and tier means that some movement of labor will be legitimacy. needed as agricultural development proceeds.

By finding new fiscal revenues and reduc- Tanzania ing expenditures, the government lowered the pressure of the fiscal deficit on monetary expan- From 1967 onwards, the government ex- sion, and brought inflation down, almost to zero erted comprehensive control over the economy. It in 1992-93. This reduced a significant tax on the nationalized the main commercial and financial poor. The government has also increased its ex- businesses, placed some agricultural estates under penditures on primary education and health care. public management, collectivized smallholder farming, and displaced private agricultural trad- In spite of severe declines in international ers by giving agricultural cooperatives monopoly market prices for coffee, from 1989 onwards the control over marketing. government was able to increase coffee producer prices in real terms until in 1991 they stood some 7 For the first six years of this period of percent above their level in 1987. They were en- "government takeover," the economy did rea- abled to do this by passing on more of the benefits sonably well on the surface. Under the surface, of the devaluation to coffee producers, reducing however, the productivity of public investment the tax on the crop eventually to zero in 1992. was falling, domestic savings were eroding, the confidence of the private sector declined, and with As a result of the economic growth real- tight controls on foreign exchange, the black mar- ized during the adjustment period, between 1986 ket premium on foreign exchange ballooned to and 1991, rural GDP per capita increased by 14 more than 100 percent. percent in real terms, while non-agricultural GDP per capita rose by 16 percent in real terms. With With less funds to go around, all forms of the increased demand, and the freeing of food maintenance lapsed. This hit roads and other in- markets, food became more attractive as a cash frastructure especially hard, and they deteriorated crop than the traditional export crops, whose substantially. The efficiency and productivity of profitability was taking a beating from interna- public services spiraled downwards. The real ef- tional price declines. As a result, food has led the fective exchange rate increased by almost 150 per- agricultural growth achieved in the past ten years. cent between the beginning of 1980 and the be- ginning of 1986. The latter was at the heart of the Two things are striking about the agricul- distortions in the country, and, although the gov- tural recovery in Uganda. One is the virtual ab- ernment made some reform efforts in the early sence of technological change, and the other is the 1980s, they had little impact in the absence of remarkable impact of roads. An agricultural sec- movement on the central problem. tor memorandum in 1993 concluded that the quickest agricultural gains from structural change During the reform period (1986-91), in had been already realized in the adjustment years. spite of the fact that agricultural producers con- What lay ahead was largely outside the traditional tinued to be taxed heavily through receiving only

xxv Executive Summary

a proportion of the export realization (an average sumer goods into rural areas, giving farmers an of 59 percent during the period), the government incentive to generate more cash, which in former was able to achieve real price increases to produc- times had been lacking because of the extreme ers assisted by continuing devaluations and by dearth of opportunities for spending cash in the some squeezing of marketing margins. rural areas even if it were generated.

The initial economic reform program set With the improvements already wrought the stage for reforms specific to agriculture, which on the policy front, the very poor roads and in- were undertaken from 1990 onwards, supported adequate railway system have emerged as major by a substantial credit from the World Bank. In constraints to providing further marketing oppor- the wider economy, the economic reforms re- tunities to agriculture. And at a critical time for sulted in an increase in real GDP growth to 4 per- agricultural expansion, one of the shortcomings of cent p.a. (higher than population growth), in- the reform period was the inadequate levels of creased per capita consumption, and a recovery in govermnent funding for agricultural research and investment levels There was a substantial turn- extension. For the latter, recurrent expenditures around in economic performance in all major fell by almost 30 percent in real terms between sectors. 1986 and 1992, reducing seriously the capacity of extension workers to perform effectively. Agricultural GDP grew rapidly (almost 5 percent p.a. in the period 1986 to 1991, compared Senegal with only 2 percent p.a. from 1978 to 1985). Most striking of all, food production doubled between Senegal provides another example of the 1983 (when marketing reforms began) and 1988. constraints placed upon economic reforms by in- Maize marketing costs were reduced, and real ability to change the nominal exchange rate. As food prices fell, benefiting all consumers; by 1990 time went on an essentially "internal" adjustment food imports had been brought virtually to zero. policy proved harder and harder to implement Between 1985 and 1991, the value of non- and led towards competitiveness only in the last traditional exports registered a fivefold increase phases of the adjustment program rather than up spurred by the devaluations, and the freedom front as would have been possible with a de- producers had to retain up to 50 percent of foreign valuation. exchange and do their export marketing through private channels. These freedoms contrasted As the French franc appreciated against sharply with those denied to producers of tradi- the U.S. dollar and the naira (Nigeria), Senegal tional exports. faced a similar problem to that experienced by Cameroon: its exports, which competed with The initial focus of the reforms on foreign those of Nigeria and Ghana, lost competitiveness exchange and the exchange rate helped the econ- in the international market. This happened just as omy to get moving again quickly, showing that Senegal was trying to increase industrial competi- private markets could work, facilitating a shift of tiveness through a more liberal trade policy dur- reform focus towards more systemic causes of ing the period 1986-1991. The other main plank of macro instability - especially micro reforms in the competitiveness strategy - labor market pol- the financial sector, agricultural marketing, para- icy - was also inadequate. statals, reform of central and local governments. The, macro reforms were limited in impact by the In spite of the reforms, agricultural fact that the necessary microeconomic foundations growth was slow and real growth of GDP slow were not in place. along with it. One study concluded that the sup- ply response of general agriculture, peanuts and An important lesson regarding the agri- rice, to price increases resulting from devaluation cultural supply response, especially for food, was would all be likely to be low without improve- the role played by increasing the flow of con- ments in infrastructure and input use. The impact

xxvi Agriculture and Economic Reform in Sub-Saharan Africa

of the 1994 devaluation on Senegal's agriculture agencies were abolished or restructured, but trad- and general economy thus remain to be seen. But ers were still effectively kept out of export mar- it will be important that a new reform program kets by costly licensing requirements. Pan- take into account the complementary investments territorial pricing was eliminated. Liberalization needed to gain the most from the new opportu- of markets reduced marketing costs and made nity, and that careful attention be paid to the rela- some of Niger's exports more cost competitive. tive impact of the devaluation on various types of producers in different locations and with differing Exports of some agricultural commodities access to resources. increased as a result, while others did not respond so markedly, probably because for them there was Niger little in the way of improved technologies to be used by producers. In the case of cotton, produc- Niger appears to defy gravity. Its GNP ers did not receive a very high proportion of the per capita fell at an average rate of 4.3 percent per foreign exchange value of their output, and some year from 1980 to 1992, the second worst shrink- producers were reported to be selling their output age among low income countries. And the levels across the border to Nigeria for higher prices. of under-nutrition are appalling. But in spite of limited resources, the pressures on them, and (at Most increases in agricultural production least in the medium term) diminishing rainfall, have come from increases in areas cultivated, to from 1980 to 1992 the population increased by 55 some extent as a result of areas formerly subject to percent (from 5.3 to 8.2 million), and added three Onchocerciasisbeing freed of the disease, allowing years to its average life expectancy (from 43 to 46 a restoration of habitation. In spite of the harsh years at birth). conditions, there is scope for further growth of agriculture, and growth of exports, especially to Part of the explanation for these apparent neighboring countries. Niger's landlocked status contradictions obviously lies in falling receipts necessitates an emphasis on making transporta- from uranium. Assuming the uranium receipts tion as efficient and low cost as possible. Niger did not benefit the bulk of the population, average has made good progress on economic reforms incomes of the latter would not have fallen by as affecting agriculture, and with removal of the much during the period as suggested by the most important constraint, the overvalued cur- overall GNP per capita. A second part of the ex- rency, should be able to realize benefits from the planation may lie in the country's close and criti- policy reforms in the medium term, if attention is cal relationship with Nigeria, its huge and he- paid to improving rural finance, to improving gemonic neighbor to the south. In some impor- technologies, and to further irrigation develop- tant respects, the population of Niger, concen- ment (20 percent of the potentially irrigable area is trated in the south, is an extension of that of Ni- under irrigation). geria, and there is a web of economic transactions which occur across the border, with flows of out- Guinea puts and inputs, food, labor, and remittances. There has been little room for independent ma- Guinea has been able to withstand the neuver in Niger, as local reforms were swamped very low contribution of agriculture to its export by larger changes taking place in Nigeria, espe- earnings (3 percent of total value in 1987) because cially the depreciation of the naira. of its rich endowment of bauxite (about one fourth of the world's reserves), diamonds, gold, and iron The government has made efforts to re- ore. The public enterprise sector, which domi- form an agricultural marketing system in which it nated Guinea's economy, was made up of more formerly interfered heavily. Input and output than 200 public enterprises, which accounted for pricing and marketing, imports and exports, have 75 percent of modern sector employment, 92 per- been largely liberalized for most agricultural cent of domestic credit, and 38 percent of GDP. products (except rice). Parastatal marketing

xxvii Executive Summary

When the Second Republic was declared The economic reforms, though incomplete in 1984, the new government launched a compre- and partly reversed, had an impact. For non- hensive reform program. Among other things this traditional exports, trade was liberalized and ex- included a fifteenfold devaluation of the currency port taxes were eliminated the earliest, during in 1986. The results have been encouraging but 1985-1988. For traditional exports, coffee and not spectacular economic growth (from 1986-1992, cloves, these measures were not introduced until 3 percent p.a. for agriculture, and 3.7 percent p.a. 1988-1992 (export taxes were eliminated in 1992). for the whole economy). Fisheries and non-traditional exports, the More recent agricultural strategy empha- earliest liberalized, grew rapidly. Traditional ex- sized food security but did so by embracing dis- ports (coffee, vanilla, cloves, pepper) did not re- tortionary measures incompatible with the eco- spond because their world prices dropped (coffee nomic reform program to date. In particular, food and cloves), trade was not fully liberalized security concerns were approached as a trade (vanilla), and communications continued to dete- protection question, rather than as a production riorate. Indonesian domestic production cut se- efficiency question, using a variable levy, adjusted verely into the cloves market, and Indonesian every six months, to insulate local producers (e.g. competition cut Madagascar's share of the vanilla of rice) from imports, proceeds of the levy to be market from 70 percent to 32 percent. It is still fal- used to improve domestic production. ling, and in 1993 the government destroyed stocks equal to about 5.3 times its average annual export Low market integration already causes volume over the past five years! Between 1985 segmentation in the rice market, and provides and 1991 the value of traditional exports fell from some protection for local rice. The main factors in US$284 million to US$95 million. this segmentation include one of the least efficient transport systems in Sub-Saharan Africa, The economic reforms have not been "rudimentary on-farm technology," low use of completed, and the marketing framework and modern inputs, and high costs of processing. facilities are still unfriendly to competitive private Costs of transport from Boke, less than 200 km to trade. Production of rice, for example, took off the capital Conakry, are three times the costs of with trade liberalization, but then stagnated be- transport from Bangkok (Thailand) to Conakry. cause of poor market infrastructure. By 1992, rice imports had been eliminated. The transition to settled agriculture in Guinea needs to be the focus of policy, technol- The agricultural growth potential of ogy, and infrastructure efforts, both from a pro- Madagascar is huge. Some 51 percent of all per- duction point of view and to reverse soil degra- manently cultivated land and 80 percent of po- dation resulting from too short a fallow, and tentially irrigable land is under irrigation, a total population pressures on marginal areas. The tre- of 1.1 million hectares, the second biggest area mendous needs in the areas of roads and trans- under irrigation in Sub-Saharan Africa. port have prompted the Bank to support five proj- ects in this sector in the last decade, including a The main constraints on agricultural National Rural Infrastructure Project in 1989. growth are inconsistent macroeconomic and sec- tor policies; an inadequate, market-unfriendly Madagascar legal and regulatory framework (with lack of a competitive private sector); low technology lead- During the socialist period, from 1972 on, ing to declining soil fertility; weak farmer services; public control of agricultural marketing, finance and bad roads and marketing infrastructure. Rice and exports was established, and agriculture was yields, once as high as those in Asia, have stag- heavily taxed, by means of explicit taxes, stabili- nated because none of the newer varieties are zation funds, and appreciation of the real ex- available (those capable of 5-7 mt of paddy per change rate. hectare), and the older varieties can yield twice as

xxviii Agriculture and Economic Reform in Sub-Saharan Africa

much as farmers achieve, but this would require implemented. The government largely succeeded good water management and cash inputs. There in carrying out the exchange rate realignments has been some varietal research on wheat, barley needed to maintain the profitability of agricultural and potatoes, but apart from that, development of exports. The resulting rise in fertilizer prices was new technology has been neglected, resulting in a mitigated to some degree by continuing subsidies, sharp decline in the adequacy of existing tech- although reducing and eliminating these subsidies niques. was a component of the adjustment program.

Of a road network of 40,000 km, only 10 From 1980 to 1991 total sales of fertilizer percent is in acceptable condition, with only 900 to smallholders more than doubled, but within the km rehabilitated during the 1990-93 period, and smallholder sector, fertilizer use is highly skewed maintenance on no more than 2,500 km per year. towards the larger farms on customary lands, Addressing this problem requires effective decen- which have access to credit. It is possible that that tralization of power and funding. Rural markets this skew is greater today than it was eight years and marketing have shrunk. ago.

Malawi Private traders of agricultural commodi- ties responded to market reforms by expanding In the aggregate Malawi's agricultural their operations significantly. But the early stages sector experienced reasonable economic growth of the reforms fell short of intentions, leaving over a relatively long period (almost 2 percent per many restrictions on the private trade, both do- year over twenty years, about average for Sub- mestically and for export. The government con- Saharan Africa). The average growth rate, how- tinued to set prices for smallholder outputs and ever, conceals a remarkable concentration within inputs. Although these were erratic, and did not the farming sector. Around 60 percent of the shift consistently in favor of exports, a measure of growth over the last twenty years was in the price stability was achieved, and the impact on "large-scale" sector of agriculture, whose share in crop substitution and land reallocation appear to agricultural output rose from 13 percent to more be have been substantial. than one-third in the process. It is hard to avoid the conclusion that a systematic bias in the policy Smallholders were discriminated against climate in favor of the large-scale sector in agricul- consistently in policies relating to tobacco, and ture held in Malawi for most of the three decades prevented from having access to the benefits up to the early 1990s. which might have come their way had these poli- cies been conducted differently. This is the single As a result, Malawi's 1.8 million small- most important area where the policy climate held holder farmers, employing on their farms more back smallholder development, because there was than 2.1 million workers in 1987 (72 percent of the no other source of cash for them to support crop total labor force 15-64 years old) experienced only diversification and use of modern inputs. Small- steadily worsening poverty, as highly constrained holders were paid for their tobacco approximately growth in production was overwhelmed by a one third of the price it realized at auction, and population increasing at 3.4 percent per year. were not permitted to grow either flue-cured or Consequently, the levels of undernutrition and the profitable burley tobacco which accounted for infant mortality rates in Malawi's rural areas are most of the increases in tobacco production in extremely high, and available evidence supports a Malawi in the 1980s. The policy had a profoundly decline in life expectancy during the 1980s. detrimental effect upon smallholder agriculture, and was a leading reason for the growth of lease- The government undertook economic re- hold estates during the past decade. From the form programs from 1981 to 1990, with an Agri- 1990/91 season on, the policy has been changed, cultural Sector Adjustment Credit in the latter and smallholders have been permitted to grow year, the last of six adjustment operations to be burley tobacco on a restricted basis.

xxix Executive Summary

The adoption by smallholder farmers of Concluding Remarks new agricultural technologies has been very slow in Malawi. For example, for maize the gap be- For the "big ten" countries which account for more tween experimental results and achievements in than 70 percent of Sub-Saharan Africa's agricul- farmers' fields is one of the largest in the world. ture, progress since 1989 has fallen notably short The most important reason is soil fertility man- of the hopes of that time, with only four countries agement, where the research/extension system in the "big ten" reached close to the 4 percent had not yet put in place a complete package of the growth target for agriculture. With the exceptions essential ingredients, addressing the resource of Zaire and Sudan among the "big ten," however, situation of smallholders, which might allow a the short term outlook is good, if the momentum major breakthrough in smallholder production. of reforms is kept up. A group of smaller coun- tries - Benin, Botswana, Burkina Faso, Chad, Although the rural road network has been Guinea, Mali, Mauritius, Niger, and Togo - have expanded significantly under a targeted invest- also achieved respectable agricultural growth ment program, more than 60 percent of the road rates, generally between 3 and 4 percent p.a. over network in -the country still has an earth surface, the period 1986-1992. Although collectively and road maintenance has been poor. There were making up only 12-15 percent of the continent's also major limitations and problems in the provi- agricultural value-added, they have shown that sion of transport services. the possibilities for growth near the target is not confined to larger countries. For more than half of Malawi has a particularly high proportion these nine smaller countries, the devaluation of of its population in rural areas (the fifth highest in the CFA franc exchange rate may have added the Sub-Saharan Africa), but most of the formal water ingredient which could push them over the target supply investments have been focused on the rate, if economic reforms are put in place conso- larger cities and regional towns, and there is vir- nant with the new exchange rate regime. tually no supply of electricity to rural areas. The national education system was established on a strong foundation, but its expansion has not kept pace with population growth, and the national literacy rate of the population group 10 years of age and older was only 27 percent in 1987.

It is difficult to invest in all of these things simultaneously, with limited resources available, but the balance of investments in Malawi has too much neglected the rural areas, and especially the predominant smallholder farming sector, in all of the factors discussed above. Attempts to rectify this need to be made in the years ahead, if small- holder agriculture is to grow faster, rural welfare improve, and the economic reforms have their full impact on agricultural development.

xxx Introduction T his paper argues that economic reforms impacting on agriculture have seldom been carried through completely and have rarely been designed as part of a strategic package to"get agriculture moving" through (i) analysis of the problems, leading to (ii) measures to address them. In particular, economic reforms related to agriculture have rarely been designed together with, and as complements to, technologies and infrastructure. An example of this is the transition from shifting to settled agriculture, which wiU be dis- cussed in more detail later.- Without a strategic package focus, the reforms themselves have done substantial good, and have had a partial, "restrained" effect on agricultural growth, but have run up against technology and infrastructure limitations, which largely remain to be addressed. Inasmuch as the reforms themselves have included fiscal cuts, the lack of a complete agricultural strategy may have led, in some cases, to the re- forms actualy curtailing their own impact, by reducing investment in research, extension and infrastructure, adding growth factors with one hand while taking them away with the other.

The paper proceeds by examining various parts of the processes of agricultural development and economic reform, from various angles, in order to illustrate the central theme. It does not search for recipes or models so much as for ilumination from a number of different lamps. In doing so, the discussion that follows acknowledges that economic reforms, including those impacting on agriculture, comprise a messy, sprawling, half-finished piece of business, a saga which needs to continue, and will continue into the foresee-' able future. The paper examines that part of the saga which has had its life during the fifteen years from 1980 to 1994, a period in which economic reforms have been at the forefront of policy-makers' minds, and an especialy intensive reform effort undertaken.

The discussion turns first to the question of why agriculture is important in economic growth, and the implications of its relative neglect in so many countries over a sustained period of time. It then outlines the reform process that has been taken up in Sub-Saharan Africa, and summarizes its impact on agriculture, in broad terms. Subsequently the discussion turns to the following topics for a more detailed look at achievements and impact: exchange rate policy, food marketing, fertilizer policy, and shifting agriculture. Finally, it discusses the experience in fifteen countries in more depth, countries which account for more than three-quarters of the value added from agriculture in the sub-continent.

Shifting, or "slash-and burn" cultivation is the dominant mode of agricultural production in one third of the countries of Sub-SaharanAfrica, accounting for possibly as much as 40 percent of the value-added in agriculture, and using more than one half of the potentially cultivableland. The countrieswhere it is practiced contain more than 60 per- cent of the estimated reserves of cultivable land remaining after the year 2010.

1 AFTES Working PaperNo. 18

I Agriculture, Economic Growth, and Poverty Alleviation

O ne of the most cogent statements about economic growth in Sub-SaharanAfrica, the respective roles of the public and private sectors, and the critical importance of agriculture, was made in 1993, by (D Alpine and Pickett, in the context of their study comparing Ghana and C6te d'Ivoire.2 Because of the clarity of its exposition, and because the authors, in their turn, borrowed the main concepts from the classical economists, especially Smith and Mill, the ideas are re-borrowed here, as an introduction to an examination of economic reform and agricultural development in Sub-Saharan Africa.

EconomicGrowth Modem economic growth, defined as "increases in income and income per head, sustained over long periods of time," takes place as the result of "extended application of science to problems of economic production," argue Alpine and Pickett, citing Kuznets. In fact, technical progress is the single most important cause of economic growth, say the authors, citing Abramovitz.

Because of the economic growth which has taken place in the world, from the times when Europe began its great leap forward in the late 1700s, it can be expected that the countries that follow should be able to grow more quickly than did the leaders. In a broad sense this has been borne out by experience of the following economies, each of which grew faster than its predecessor: the United Kingdom, which doubled its income per capita in 60 years, from 1780 to 1840; the U.S.A., which doubled its income per capita in 50 years, from 1840 to 1890; Japan, which doubled its income per capita in 34 years, from 1880 to 1914; and South Ko- rea, which doubled its income per capita in 10 years, from the early 1960s.

The critical question is how quickly can the techniques of the economically advanced countries be taken up in the less advanced? This depends on congruence of factor proportions, economic size of opera- tions, and "tenacious social characteristics" such as education, exnerience with large-scale organization, and financial intermediation. The poor countries face two challenge: achieving congruence, and exploiting the potential inherent in the gap; they are not well placed immediately and effectively to exploit modem tech- nology.

However, there are, according to Kuznets, changes in attitudes and institutions that facilitate the application of science or technology to economic life. It is possible to shape the "social capability" of an econ- omy to allow it to take up the techniques associated with economic growth.

"Social Capability" includes

(a) social attitudes and institutions: those factors-such as secularism, egalitarianism, and national- ism - that allow the nation state to make decisions that promote economic progress: setting the rules for relationships that give rise to incentives, providing human and physical infrastructure, resolution of economic conflicts, and overcoming the opposition of the losers so as to maintain a majority in fa- vor of economic change; and

2Robin W.L. Alpine and James Pickett,Agriculture, Liberalisationand EconomicGrowth In Ghana and C6te d'Ivoire: 1960-1990,OECD, Development Centre Studies, 1993.

2 Agriculture and EconomicReform in Sub-SaharanAfrica

(b) economic characteristics of people and institutions: among them the ancillary functions needed to support modern manufacturing: accounting, finance, merchandizing, insurance, transport and com- munications, a big enough educational system with the right content, competence in forming and running large-scale organizations, and well-functioning capital markets. Education is an necessary, although not sufficient, condition for achieving modern economic growth.

The economic reform programs undertaken in Sub-Saharan Africa in the past fifteen years have been an attempt to move social attitudes, and economic characteristics of institutions towards directions more conducive to the uptake of the techniques for economic growth. As the authors argue, "[t]he challenge facing the African countries.. .was not that of catching up with the more advanced economies by means of techno- logical emulation; rather it was that of evolving the institutions and practices that would make such catching up possible."3

The countries of Sub-Saharan Africa have addressed that challenge with varying degrees of sucess. Of 31 countries reviewed by the authors, over the long period 1965-1989, real GNP per capita grew at a nega- tive rate in eleven countries, at less than or equal to 1 percent per year in seven, at more than 1 percent and less than or equal to 2 percent per year in six countries (Burkina Faso, Kenya, Mali, Rwanda, Togo and Zim- babwe), and at greater than 2 percent per year in seven (Botswana, Burundi, Cameroon, Congo, Lesotho, Mauritania, and Mauritius). Thus, in spite of wanting the fruits of economic growth, "for the majority in poor countries...significant access to modern products remains to be achieved."4

Agriculture's Role Poor countries wishing to industrialize, the authors argue, should attend first to agriculture, giving it priority on grounds of efficient resource allocation and as the best path for industrial development. Such a path would follow their comparative advantage, and in following it, the authors further argue, the countries doing so should learn from classical economic analysis (especially that of Adam Smith) the importance of markets, the tension between population growth and output, and the virtues of laissez-faire and free trade.

What is so valuable about markets and a laissez-faire approach?

Markets: facilitate and decentralize coordination of the host of decisions that must be made, are economical in their information demands, provide incentives and flexibility, impose objective and impersonal decisions on households and firms, maintain fairly close relationships between prices and costs, allow individuals to seek only their own partial equilibrium and remain in igno- rance of the general equilibrium.

Laissez-faire: if the public sector produces private goods, there can be long-lasting disjunc- tions between costs and returns; their performance is the opposite of all the desirable features of markets listed above, and in particular they must consider general equilibrium. This task could de- feat the most competent bureaucracy, but is especially not advised where the bureaucracy is exceed- ingly weak, say the authors, as it is in Sub-Saharan Africa, and was in particular in Ghana and C6te d'lvoire at their independence.

In 1960, Ghana and C6te d'Ivoire were dominated by low-productivity agriculture (more than half of output, most exports, and 75 percent of population engaged). If there had been laissez-faire in Ghana and

3 3 Alpine and Pickett, op.cit., p. 1. 7 4 Alpine and Pickett, op. cat.,p. 26, and Table 1, p.3 .

3 AFTES Working Paper No. 18

Cote d'Ivoire in 1960, the authors argue, it is likely that they both would have followed their comparative advantage and developed agriculture first, followed by manufacturing (with the main initial tasks being im- proving the public services needed to attract industry and operate it efficiently), followed by foreign trade in due course (where productivity - adjusted labor costs were favorable or the product processed lost weight in production and conferred a transport advantage on the home country).

What happened instead was a misplaced focus on industrial development. The big mistake was in not accepting that "efficient industrial development is not primarily a matter of grand strategy, but calls rather for detailed mastery of products, techniques, markets, marketing and labour relations, and so for a plentiful supply of skilled labour, experienced managers and entrepreneurs, and such accessories as reliable electricity supply and good systems of transport and communications. The conditions for industrial success being absent, the attempt nevertheless to pursue it damaged not only industry but the whole economy, agri- culture in particular." 5

The mistake continues even today, say the authors. In particular, the advocacy of South Korea as offering the alternative growth path - aggressive industrial development - is misleading because its GDP per capita in 1965 was already higher than most countries of Sub-Saharan Africa. It had been unified, with one language for more than a thousand years, and its rulers - dedicated to economic discipline and growth since 1960 - were able to pursue these ends ruthlessly, without opposition of landlords, unions, or big busi- ness. The authors offer an opinion that perhaps South Korea could have progressed even faster than it did, if the government had been less active.

The role of agricultural growth in poverty reduction is absolutely central, and "hence a resurgence of growth in agriculture must be the top priority for Africa's poverty reduction strategy... If labor-intensive growth is to be achieved much of it will need to be through growth in agriculture or complementary to agri- culture."6

The Roleof the State The authors are at pains to emphasize that laissez-faire does not mean no role for government. In fact, one of its strongest roles is protection of person and property, citing John Stuart Mill in support of their case: "Insecurity of person and property is as much as to say uncertainty of the connexion between all human ex- ertion or sacrifice, and the attainment of ends for the sake of which they are undergone. It means, uncer- tainty whether they who sow shall reap, whether they who produce shall consume and they who spare today shall enjoy tomorrow. It means, not only that labour and frugality are not the road to acquisition, but that violence is. When person and property are to a certain degree insecure, all the possessions of the weak are at the mercy of the strong."7

According to Mill, government should not engage in industry or commerce because "all the facilities which a government enjoys of access to information; all the means which it possesses of remunerating, and therefore of commanding, the best available talent in the market - are not equivalent for the one great dis- advantage of an inferior interest in the result."8

S Alpine and Pickett,op. cit., pp. 51-52.

6 World Bank, Taking Action for Poverty Reduction in Sub-Saharan Africa: Report of an Africa Region Task Force, Pov- erty and Human Resources Division, Technical Department, Africa Region, July 25, 1995, pp. 18, 74. 7 John Stuart Mill, Principles of Political Economy, 1970 ed. p. 239. 8 John Stuart Mill, op. cit., p.311.

4 Agriculture and Economic Reform in Sub-Saharan Africa

The authors conclude by noting that "lacking widespread skills, African governments did not com- mand the knowledge and trained manpower that would have been needed to give them a fighting chance of success if they became extensively engaged in production." Rather, the state should have devoted itself to "the immensely important task of developing the social capacity needed to exploit the potential inherent in technological backwardness."9

Urban Bias Since agriculture is of overwhelming importance in Sub-Saharan Africa, and its slow development one of the main reasons for slow economic growth in the continent over a long period of time, it is hard to understand the persistence of a bias in economic policy and investment against agriculture, and against rural areas in general. It is made harder to understand by acknowledging that many of the policymakers guiding African countries through the past thirty years have themselves grown up on farms, and many continue to own them while they live their lives, raise their children, and make policy in the cities. But urban bias has been a fact of life in most African countries, and in addition to slowing economic growth tremendously, it has also con- tributed to the failure to deal with poverty, since the great majority of poor people live in rural areas.

In a recent analysis of policy reform, the World Bank attributed Africa's three decade economic de- cline at least in part to "the bias against agriculture, perhaps the most important "omitted" variable in econometric analysis. Most Africans live in rural areas, and the region relies heavily on agriculture for for- eign exchange. Yet agriculture has been heavily taxed, much more than in other regions. Producers of agri- cultural exports were forced to sell their crops to marketing boards, which monopolized exports, and they received real prices half those received by producers of similar crops in other countries."l0 In comparing the economic performance over the last twenty years of two oil-producing countries, Indonesia (whose real GDP per capita had more than doubled over the period) and Nigeria (whose real GDP per capita had fallen by almost 10 percent), the report noted that "Indonesia balanced its investments among physical infrastructure projects, education, agricultural development, and capital-intensive industries (primarily fertilizer), directing a high proportion of its resources to rural areas [italics added]. Nigeria directed its spending toward the urban rather than the rural sector. Most of existing agricultural spending went to large-scale, capital-intensive proj- ects with low rates of return."

The agricultural sector has been the largest source of revenue in Sub-Saharan Africa. It has been taxed directly through the fixing of producer prices at lower than market levels, and by the levying of sub- stantial taxes on products exported. It has been taxed indirectly by overvalued domestic currencies, and protection of the industrial sector which has raised prices of inputs to farmers. The growth of agricultural value added sagged under this burden of taxation, and began to rise again only in the most recent years as the taxation has been eased in the context of policy reform programs (Table 1; details for individual countries are in Annex Table A.1).

9 Alpine and Pickett, op. cit., pp. 56, 58. 0 World Bank, Adjustment in Africa: Reforms, Results, and the Road Ahead, Policy Research Report, 1994.

5 AFTES Working PaperNo. 18

TABLE I

Growth of Agricultural Value Added in Sub-Saharan Africa (percent p.a. in real terms)'"

I 1%5-1973 1974-1980 1980-1985 1986-1992 l 2.2 0.9 0.2 2.4

Too many African countries, in one observer's words, have "treated agriculture as a national parking lot for the poor.'12 In addition to the taxation described, urban bias has manifested itself through a consis- tent shortfall in rural areas of investments in physical infrastructure, education and health facilities. The spatial development of towns and cities has favored the growth of large central cities with little of interme- diate size between them and small rural villages. And there has been, in some cases, a net flow of financial resources from rural to urban areas, with deposits gathered from thousands of rural customers channeled by the banking system into urban investments, whose higher financial returns have been facilitated by their more favorable infrastructure endowment. The results of this deprivation in the rural areas are partially re- flected in the characteristic inequitable distribution of income between agriculture and the other productive sectors in the economy. Agriculture, which employs around 67 percent of the labor force in Sub-Sahararn Af- rica, earns 32 percent of the GDP.

In Sub-Saharan Africa, poverty is overwhelmingly concentrated in rural areas. Not only does the bulk of the population live in rural areas in most countries, but rural people are disproportionately poor compared with those in urban areas. An estimated 92 percent of the poor in Uganda are rural, and probably 86 percent in Kenya. In Kenya, 46 percent of people in rural areas are below the poverty line, compared with 31 percent in urban areas. A polygon diagram for Kenya, for urban and rural areas, with four axes recording the percentage of the population above the poverty line, the primary school enrolment rate (male and fe- male), the secondary school enrolment rate (male and female), and the percentage of people with access to safe water, shows that the rural poloygon is substantially smaller than the urban one, and totally contained within it.'3 The implication is that the provision of services in rural areas is vital both to achieve agricultural growth and to relieve poverty.

Furthermore, research elsewhere shows that rural growth helps both rural and urban poverty, in marked contrast to the effects of urban growth on rural areas: "Urban growth reduced poverty, but adverse distributional effects within the urban sector reduced the gains to the urban poor, and urban growth had no significant effect on rural distribution. Rural growth was distribution-neutral within the rural sector and so brought sizable absolute gains to the rural poor. Rural growth also had pro-poor effects on urban poverty."' 4

In spite of the relative poverty of farmers, however, agriculture is still unchallenged as the single largest productive sector in most national economies. In addition to employing more than two thirds of the labor force, it provides around 40 percent of the region's export earnings (coffee, cocoa and cotton are the three main exports), and a high proportion of the raw materials used in processing and manufacturing.

"Data for the latter two of the four periods come from World Bank, African Development Indicators 1994-95, 1995, p.19, and exclude South Africa to make them compatible with the figures for the two earlier periods. 2 Eicher, Carl K., Zimbabwe's Maize-Based Green Revolution: Pre-conditions for Replication, World Development, Vol. 23, No. 5, pp. 805-815,1995. 3 World Bank, Taking Action for Poverty Reduction in Sub-Saharan Africa, op. cit., p. 27.

4 Ravallion, Martin, and Gaurav Datt, How Important To India's Poor Is The Urban-Rural Composition of Growth? Policy Research Working Paper No. 1399, Policy Research Department, World Bank, December 1994, 29 pp.

6 Agnrculture and Economic Reform in Sub-Saharan Africa

Agriculture therefore has a critically important role to play in economic development. Its most im- portant development benefit is the diffusion of lower real prices for farm goods, especially food, throughout the economy. When real food prices fall, real wages rise without raising nominal wage levels. This increases the competitiveness of other sectors throughout the economy.

Countries which have neglected their agricultural sectors have, in general, not succeeded in raising their overall rates of economic growth. In fact, the faster agricultural growth is the faster, in most circum- stances, economic growth will be, and the more rapidly will an economic transformation be achieved in which labor flows out of agriculture into other sectors.

Box 1. Agriculture'srole in economicdevelopment

- more incomeand better:nutritionin farm households - employmentin agriculture,and higher incomesfor laborers - release of food and other wage goods to non-agriculturalsectors - release of productiveworkers to non-agriculturalsectors - release of capital for developmentof non-agricultural:sectors earningforeign exchange - providingdemand for farm iriputs(backward linkages) - providingdemand for agr. processingand marketing(forward linkages) - providingdemand for householdgoods and services(forward linkages) - inducing a more decentralizedpattern of urbanization

Agriculturehas a criticallyimportant role to play in economic development. Its most importantdevelopment benefit is to spread lower real prices for'farm goods, especially food, throughout the-economy. When real food prices fall, real wages-rise without raising nominal wage levels. This increases the competitivenessof other sectors throughout the economy.

Agricultural Strategy In its strategy for agriculture in Sub-Saharan Africa,15 the World Bank has set a target of an average agricul- tural growth rate throughout the continent of 4 percent per annum. Achieving this target will be necessary if a rate of economic growth of at least 4 percent per year is to be achieved. The latter, in tum, is judged to be the minimum acceptable growth needed to achieve an improvement in real standards of living. Even if achieved, continued high rates of growth of population imply a very modest increase in real incomes per capita.

The five pillars1 6 of the agricultural strategy are:

(a) policy - creating an appropriate policy environment for private sector farming, agricultural marketing, processing and credit;

(b) technology - advancing the application of science to agricultural production;

15 Kevin M. Cleaver, A Strategy to Develop Agriculture in Sub-SaharanAfrica and a Focus for the World Bank, World Bank TechnicalPaper No. 203, February 5,1993.

16 A common element in each of the pillars is improving management in all aspects of agricultural planning, provision of supporting services, production, processing and marketing.

7 AFTES Working PaperNo. 18

(c) infrastructure - fostering urban-rural linkages, and stimulating enterprise development, through roads, transport services, water supply, electrification, education, and health in rural areas;

(d) farner empowerment - increasing farmer participation in development decision-making as well as de- veloping farmer organizations;

(e) natural resource management - increasing the sustainability of agricultural development through better management of soils, water, pasture, and forests.

Substantial failure in any one of these strategic "pillars" will reduce the gains from putting the others in place. Good policies will move agriculture forward to only a limited degree if the.flow of new technolo- gies is slow, or in the presence of major infrastructural bottlenecks. For maximum impact all the pillars must be put in place more or less simultaneously. This not being done accounts for most of the limited agricultural growth achieved, and the measurable, but so far constrained response observed to the policy reforms under- taken.

Box2. The'Function6ofTechnology inAgricultural'andDEconomic1)evelopment

i Economic growth is mainly-:abot rincreasing,prdctiityso it is appropriatethat :technoSloyshould :be at, the:heart of any agriculturalstrategy.- Even inlthe faceof fallngprices, farers can tincreasetheir i _ncomesby taking upsignificantly improvedproduction technologies. An fact this 'is the mostAdesirable devepment Iof tagriculture.ipact The driving ifforcefis adoptiouniof improvedtechnology.: iThis lowers unit costsof production, and diffuseslower real prices for farn lgoods, especially food,throughout the; economy (see0Chart ). When policiesare improved, when marketsare made More efficient,when. tenure:issecure, when: educationiand. health*areimproved, the things that:were constrafningde- 1mand foir.new technologies'are' takenaway,. and supply becomes thet 6constraint.New technologies are generated through agriculturalPresearch,and spreadiby:i agricultural extension,although :the boundariesbetween these two disci- ~:plinesare often blurred in pctice

Policy In devising strategies for agricultural development it is common to pay considerable attention to the delivery of services and inputs to farmers. The policy process also has something to deliver to the farmer, and that is an incentive: whatever it takes to motivate the farmer to use, and use well, all the other services and inputs. For economic reforms to be successful, this incentive has to be delivered all the way to the farm gate. It is not enough to correct a distorted exchange rate - the gains from doing this have to be sent all the way to the farmer: as large a proportion of the gains as possible (not merely the 30 percent which is left over after a heavy export tax has taken the rest away). And the signal this conveys to the farmer has to be clear, unambi- guous, and consistent. Delivering policy incentives clearly and consistently to more than 60 million farmers in Sub-Saharan Africa is a formidable challenge.17

17 The population of Sub-SaharanAfrica was estimated to be 532 million in mid-1994. If 67 percent of the population, or 356 million, is "in agriculture" (the same proportion as the labor force), an average family size of 6 persons would imply 59 million farm households.

8 Agriculture and Economic Reform in Sub-SaharanAfrica

It is also common for policy makers to refer to incentives in terms of higher prices to farmers, but this is clearly not an adequate view. The incentive which has to be delivered to the farmer is an income incentive. And prices (for outputs or inputs) are only a part of income. Equally important are the physical levels of output a farmer is able to attain, and the rate at which inputs can be transformed, physically, into outputs. Therefore it is vital that agricultural technology - its generation and dissemination - be kept at the center of attention when policy for agricultural development is being considered. One of the ultimate development benefits of agricultural growth is that lower farm prices (in real terms) diffuse their way widely through the economy. Such lower farm prices are possible only if farmers' incomes are increasing to give them the in- centive to keep on producing. Increasing farm incomes is the goal of most policy incentives in agriculture.

9 AFTES Working PaperNo. 18

II. Agriculture'sgrowth linkages

O ver the six year period 1986-1992, net disbursements of Official Development () Assistance (ODA) to Sub-Saharan Af- B ox3. DevelopmentAssistans e toAgriculture in Sub-Saran rica from all sources rose by an average of Arc about US$0.63 billion per year, in 1987 dollars, from US$11.5 billion in 1986 to US$15.3 billion Forthe: five fiscal years, .1990 through 1994, World in 1992.3 If agriculture had been growing at 8Banklending commitments for agriculture in SubSaharan Af- 3.2 percent p.a. through this period, instead of ricaiaverageddUS$536-million p.a. in dicurrt dollars, and 2.2 percent p.a, the additional value-added LJUS$520rmillonin constantxdollars of 1990. EHowever:Thisy5 would have been equivalent to the increase average:masks :a:substantial decline in the level of lending, each year in all of the ODA to the sub- whid was,QUS$997Ilionin 1990, and sank to US$305 rnil- continent, and at least as great as all the devel- i in6on 1993 andponl yUS$142 millionin 1994, i constant 1990 dollars. For the 1990-94 period, net transfers:from the: opment assistance to agriculture from bilateral Bankto Sub-Saharan-orld Africa averaged 30 percent of and multilateral donors (see Box 3 for the un- commitments.2 0 It is possiblethat the net transfersto agricul- derlying calculations). ture were differentfrom :the average6forialllending, but if:it is assumedthe same, World Sankinetltransfers to SSA zagriculture.. In 1958, Hirschman argued the superi- would 1have:taveraged ;iUSS1:560 milllon:t ipva.t in: real: terms. ority of manufacturing over agriculture in its jthroughithefive-yearperiod. linkage effects and stimulus to econom-ic growth. 2 4 In 1976, using evidence from Asia, counted At the beginning ofth e1 ste Worldtank 'cutd~forabout:30rpercent ~ofidevelopment assistance to Mellor argued that the potential for rapid worldwide by allthe bilateral and multilateraldo-anagriculture modernization and growth of agriculture 2 1norsSiub-aharan Africa this proportionwould probably through technological change changed the be higher.h ut assumingit is the same, the totalpofagriculturalt conclusion entirely.25 A technologically mod- development4assistance.to:SSA by the bilateral:and ltmultilateraI ernizing agriculture, he maintained, could donors would be of the order of US$520 million p,ai6 or have a very substantial economic growth im- somewhatless:than I percent of the. agriculturalVGDPfor the pact, especially through the consumption link- 2subcntinent,wh]ch is now in the v2icintyof US$56 billion aIp.a. The figure for. agriculturaEl0development.. assistance .Ainii ages of additional incomes in rural areas. It tover-estimate, and it may was these consumption linkages, especially the be as low as US$260 million p.a, or less than half a percent of strong linkages from the food grain sub-sector agrncultural -DP

s World Bank, Annual Report, 1994,p. 80 . 9 Data in current dollars were deflated using the G-5MUVindex, taken from "CommodityMarkets and the Developing Countries: A World Bank Quarterly," November 1994,p. 36. 20 World Bank, Annual Report, 1994,p. 8 6. Net transfers are what remains after repayments of principal, and interest and charges are deducted from commitments. 21 Joachim von Braun, Raymond F. Hopkins, Detlev Puetz, and Rajul Pandya-Lorch,Aid to Agriculture: Reversing the Decline, International FOod Policy Research Institute, October 1993,p. 3. 1 69 22 World Bank, World Development Report, 1994,p. . 5 23 Data from World Bank, African Development Indicators 1994-95,1995, p.31 , adjusted using the G-5MUVindex, taken from "Commodity Markets and the Developing Countries: A World Bank Quarterly",March1994, p.4 5. 24 Albert 0. Hirschman, The Strategy of EconomicDevelopment, Yale University Press, New Haven, 1958,pp. 1 09 -11 0 . 25John W. Mellor, The New Economicsof Growth: A Strategy for India and the Developing World, Cornell University Press, Ithaca, N.Y., 1976,pp.1 60-191.

10 Agriculture and Economic Reform in Sub-Saharan Africa

of agriculture to non-foodgrain sub-sectors of agriculture itself, as well as to small scale enterprises in rural areas, which had been largely overlooked in studies of economic growth. The demand structure of increased rural incomes could encourage economic growth that was more decentralized and employment-intensive, with increases to employment underpinned by increases in food production, which could moderate the up- ward pressures on real wages which might otherwise accompany employment-intensive growth. A key proviso was that substantial investment in rural infrastructure should accompany the rising incomes in agri- culture.

Subsequent studies in India, Pakistan, Malaysia and the Philippines found that a 1 percent addition to the agricultural growth rate stimulated a 0.5 percent addition to the growth rate of industrial output, a 0.7 percent addition to the growth rate of national income, a 0.8 percent addition to the growth rate of rural in- come, and agriculture to nonfarm employment elasticities of 1.0-1.3.26 Studies in Sub-Saharan Africa initially estimated agricultural growth multipliers at about 60 percent of those found in Asia, around 1.5 compared with 1.83, that is that a $1 increase in value added from agricultural tradables induced an additional $0.50 of rural income in Sub-Saharan Africa, compared with an additional $0.83 in those Asian countries that had been studied.2 7 The authors cautioned, however, that the large share of non-marketed goods and services in consumption in Africa may have biased downwards the estimates of growth multipliers there.

Using a model of the Kenyan economy, and "validating" it using disaggregated data from 1977 to 1991, Block and Timmer28 demonstrated that the long-run agricultural growth multiplier was about 1.64, while the long-run growth multiplier for non-agriculture was 1.23; in other words, net of direct growth ef- fects, the multiplier from agriculture was almost three times the multiplier from non-agriculture. If agricul- ture were to grow 1 percent faster, total GDP would grow 0.43 percent faster and non-agriculture 0.2 percent faster; the indirect contribution of non-agriculture to more rapid growth was only 20 percent of its total con- tribution, while the indirect contribution of agriculture to more rapid growth was 33 percent of its total con- tribution.

A comprehensive study in Western Africa concluded that agriculture's growth linkages in Sub- Saharan Africa were much higher than previously thought, with additional income arising from the intitial (exogenous) stimulus at least as great as the initial stimulus (i.e., multipliers typically greater than 2.0, and in a case study in Burkina Faso as high as 2.88).29 The study noted that it was very important that the initial stimulus come from outside the region with whose growth multipliers policymakers are concerned, and that the stimulus be targeted at tradable items of agricultural production. Stimulating the non-tradable sector alone (through technological change, lending etc.) was likely to be a one-shot thing, and result only in "mountains of unsold produce by the roadside".3 0

26 A summary of these results is found in StevenHaggblade, Peter Hazell, and James Brown, Farm-Nonfarm Linkages in Rural Sub-SaharanAfrica, World Development,Vol. 17, No.8, 1989,pp.117 3-12 01. The figures represent the per- centage increase in the entity concemed for each 1 percent addition to the agricultural growth rate. 2 7 Haggblade, et al, op. cit., p.119 0. 28 Steven Block and C. Peter Timmer, Agricultureand EconomicGrowth: Conceptual issues and the Kenyan Experience, CAER (Consulting Assistanceon EconomicReform) Discussion Paper No. 27, Harvard Institute for International Development, September1994.

29 Christopher L. Delgado, Jane C. Hopkins, and Valerie Kelly, with Peter B.R.Hazell, Anna Alfano, Peter Gruhn, Behjat Hojjati and Jayashree Sil, Agricultural Growth Linkages in Sub-SaharanAfrica, International Food Policy Research Institute, June 23,1994.

30 ibid.,p.xxii.

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While tradable agriculture (producing goods exported from the region under consideration) was the basic growth engine - alone capable of providing the widespread and recurring income source needed for an economically sustained rural growth process - growth multipliers arose when people spent increments to income on non-tradables(with respect to the region of interest), i.e., those things which by definition could not be imported (or exported). The growth impact came from drawing under-employed resources into pro- duction to meet new local demand. The multiplier effects of consumption linkages might be equal to, or greater than those of production linkages (e.g., for intermediate goods used in agricultural production such as tools). Consumption growth multipliers worked through consumer spending on services (which by definition were non-tradable), non-tradable farm goods, and local non-farm goods (including food processed by farm households).

The study found that rural households in Africa spent a large share of increments to income on food. In fact, the marginal budget shares for food were so high that even though food demand in general was typi- cally inelastic with respect to income,31 the impact of an increase of rural incomes on demand for food might still be high. And not all foods are income-inelastic. Fruits and vegetables, dairy products and meat, and processed foods generally had higher income elasticities. For non-food consumer items the budget shares were typically lower to begin with, but they generally had higher income elasticities of demand than those for food staples. The disadvantage was that some of these non-food, non-farm commodities tended to be imports, or import-substitutes, weakening the growth linkages in the region of interest.

To get the best out of the growth linkages offered by non-tradable rural consumption items, it helped if those items had a price-elastic supply, i.e., that their production response to increases in their price was high. If supply was not price elastic, the additional demand from the first round of income growth resulted only in price increases, and choked off the growth multipliers. Furthermore, there was also a danger that these price rises might also choke off the growth of the tradable which provided the initial stimulus because it could become more more profitable to produce the price-inelastic non-tradable than the original tradable commodity. Because of these relationships, efforts to increase the price-elasticity of supply of the non- tradables in demand could be beneficial. This increase in price elasticity was typically achieved through re- search, ready supplies of inputs, and good support services (on the production side), and by investments in infrastructure, friendly institutions, and making it easier to obtain imports (on the trade side). The role of public goods, such as research, was a key part of this process, and was very important for getting the most out of growth linkages.

To generate growth multipliers, the income stimulus must be widely spread across rural households, and sustained. In Asia the opposite held, namely that targeting income to the rich had a greater stimulative effect on demand for non-farm items that the same income targeted to the poor. In the African studies, using the "national" definition of tradability, the poorest one-third of households had higher marginal budget shares of non-tradable items than the richest one-third of households; "This implies that a dollar of income directed to the poor will have more linkage benefits for growth than a dollar directed to the rich, cet. par."32

One of the important lessons from this study is that the initial stimulus should be to tradable agricul- tural commodities, which by definitions used in the study were not confined to goods which were exported from the country, but applied to those exported from the region of interest. This carries with it important lessons for investments in micro-enterprise development. Such investments might well increase the supply- elasticity of non-tradables, but if that was all that happened, there would be no growth linkages, and the

31 A 1 percent increase in income would typically lead to an increase in consumption of such foods by less than 1 per- cent.

32 Delgado, et al, op. cit., p. xxi [italics not in the original].

12 Agriculture and Economic Reform in Sub-Saharan Africa

process would not be sustained. The "entry point" was important, and an engine of growth was needed to jumpstart the process.

There are important lessons here also for economic reform, and especially the components of this concemed with agricultural policies. The latter should be designed to target tradables, and to make the most of subsequent growth linkages by providing a friendly policy environment for enterprise growth in rural areas, as well as the requisite investments in technology and infrastructure.

13 AFTES Working PaperNo. 18

III. Economic Reform andAgriculture

W hen countries embark upon economicreform programs, what expectations do policy makers have? What are the expectations of the most optimistic proponents, compared with those of the most Vv pessimistic opponents? Over what time period do people foresee their expectations being realized? For which countries have economic reform programs been expected to bear fruit? To what extent have pol- icy makers focused only on national reforms? In a continent where almost every country has multiple, po- rous borders, what are the consequences of adjustment uncoordinated across frontiers? These are some of the questions with which to begin an enquiry about the impact of economic reform on agriculture.

In their book, Alternative Development Strategies in Sub-SaharanAfrica, 33 Frances Stewart and her co- editors distinguish between stabilization policies(aimed at reducing short-term dis-equilibrium, typically sup- ported by the IMF) and structural adjustment policies (aimed at re-orienting the economies towards greater medium-term efficiency, typically supported by the World Bank). But they concede that in practice the dis- tinction is blurred. Here it is assumed that the objectives of adjustment policies are to tackle macroeconomic difficulties (as typically revealed by rising inflation and balance of payments problems), and shift economies to new, sustainable, poverty-reducing growth paths. Fulfilling these objectives requires improving incen- tives to farmers, but whether or not this is an explicit goal, the reform process will usually have profound effects on agriculture.34

The main policy reforms which are typically taken up in structural adjustment programs include the following:

:*cutting a government budget deficit by reducing public expenditures - controlling the money supply and credit creation * reducing subsidies (inputs and outputs - production and consumption) - wage restraint - devaluing the domestic currency hliberalizing foreign trade by removing import quotas and lowering tariffs * improving export incentives * decontrolling prices in all markets (including financial markets reform and/or privatization of public enterprises to improve their financial performance * strengthening the capacity of public sector policy analysis and implementation.

When the big push on economic reforms began it was because governments and donors came to be- lieve that the policy distortions listed above were affecting adversely all the other essential elements in the development process, and that a concerted effort was needed to correct the situation. There are other areas of

33 FrancesStewart, Sanjaya Lall, and Samuel Wangwe (eds), Alternative DevelopmentStrategies in SubSaharan Africa, Macmillan,1992. 34"When macro policies are badly distorted, their cumulativeimpact puts pressure on the economy for major policy reforms. As pressures build, the options availableto food policymakers are extremely limited: more investment in irrigation, a better agricultural research and extension program, perhaps a subsidy on fertilizer and modern seeds. These will contribute to agricultural growth, but in the constraining environment of distorted macro policies,such programs will not provide the basis for long-run dynamic growth of rural output and incomes, which is the essen- tial base for a food policy that simultaneously increasesfood production while reducing hunger." C. Peter Timmer, Walter P. Falcon, and Scott R Pearson, Food Policy Analysis,A World BankPublication, Johns Hopkins University Press, Baltimore and London, 1983,p. 21 9.

14 Agriculture and Economic Reform in Sub-Saharan Africa

policy which have been seen much less often in adjustment programs: land tenure and land reform; technol- ogy policy; policies to address the problems faced by women (at least policies which really make a differ- ence); regional development; environmental protection; food security; and general taxation. The question why these have been under-represented is not taken up here. But, among other things, they have been re- garded as secondary in importance or urgency to the reforms listed, or they have been deemed too politically difficult to carry through.

What were the above reforms expected to achieve? One of the documents written at the time Sub- Saharan Africa was launching itself on a decade of economic reform programs contains a certain amount of realism about the difficulties which lay ahead, combined with guarded optimism about the likely achieve- 35 ments of the programs themselves. In its concluding remarks this 1981 report noted:

The policy reforms required in Africa will be technically difficult and politically thorny. The African gov- ernments and the donor community will have to work out a relationship that recognizes these realities if the action program recommended in this Report is to be successful. But the rewards of taking the pains will be great. Policy action and foreign assistance that are mutually reinforcing will surely work together to build a continent that shows realgains in both development and income in the nearfuture. "

It would be easier to report positively on the outcome if the author had not added the words, "in the near future"! But one hour of hindsight often allows a clear view of what a great deal of analysis would have difficulty in foreseeing. What does turn out to be optimistic, in the cold light of today's hindsight, are the last two words of that statement, and the economic growth rates which the report projected for the 1980s. These growth rates, of course, were not predicated merely on the policy reforms advocated. Rather were these projections based on a program of investments (in infrastructure, education, health, industrial and agricultural production, and so on) supported by substantial increases in aid, accompanied by policy reforms.

The projections were for 5 percent per year growth in GDP, 2.1 percent per year growth in GDP per capita, and 3.8 percent per year growth in agriculture. In the light of these expectations, the results have been very disappointing indeed: GDP in constant prices (of 1987) grew at 1.1 percent per year from 1980 to 1985, and 1.9 percent per year for the rest of the decade. Value added in agriculture grew at 0.2 percent per year 1980 to 1985, and 1.5 percent per year for the rest of the decade. While it is encouraging that these re- sults turned upwards in the second half of the decade, the appalling consequences in per capita terms weigh heavily on everyone concerned about Africa: falling exports, falling incomes, falling food production and availability; not to mention happenings which were both cause and consequence: a decade of strife which included civil wars in at least ten of the 48 countries in Sub-Saharan Africa, military coups or attempted coups in at least ten more, and seemingly endless troubles among competing ethnic groups.

Table 2 outlines data from 41 countries of SubSaharan Africa, which among other things compare growth rates of agricultural production in the period 1965-1980 with those from 1980 to 1994, when most of the economic reform programs were implemented. The table includes the numbers of the Structural Ad- justment Loans (SALs), Agricultural Sector Adjustment Loans (AGSECALs), and other Sectoral Adjustment Loans implemented during the 1980-1994 period. These give some indication (albeit not an infallible one) of the intensity of the adjustment effort in the various countries during the period. More details are in Annex Table A.2.

35 World Bank, Accelerated Development in Sub-Saharan Africa: An Agenda for Action, 1981, p.133.

15 AFTES WorkingPaper No. 18

TABLE 2

Adjustment and Agricultural Growth in Sub-Saharan Africa Country Agr.Growth SAL AGSECAL FY(s) of (%p.a.) a/ a/ SAL/SEC . ~~~~~~~~~~AL 65-80 80-92 Angola ...... Benin ... 5.2 SS ... 89,91 Botswana 9.7 3.4 ...... BurkinaFaso ... 3.0 SS AA 85,91,92,94 Burundi 6.7 3.0 SSS A 86,88,89,92 Cameroon 4.2 -1.0 SS 89,94 CAR 2.1 2.2 SSS A 87,88(2),90 Chad -0.3 3.9 S ... 94 Congo 3.1 2.8 S ... 87 Comoros ...... S .. 91 Cote d'Ivoire 3.3 -1.0 SSS A 82,83,86,90 Ethiopia 1.2 0.4 S ... 93 Gabon ... 1.3 SS ... 88,94 Gambia ...... SS ... 87,89 Ghana 1.6 1.2 SS A 87,89,92 Guinea ...... SS ... 86,88 G. Bissau ... 4.2 SS ... 87,89 Kenya 5.0 2.9 SS AA 80,82,86,91 Lesotho ... 0.5 ...... Liberia 5.5 ...... Madagascar ... 2.4 ... A 86 Malawi 4.1 1.4 SSS AA 81,83,84,86 Mali 2.8 2.5 SS A ,90 Mauritania -2.0 1.5 S A 90,91,94 Mauritius ... 2.1 SS ... 87,90 Mozambique ... 1.3 SS ... 81,84 Namribia ... -0.5 ...... 89 Niger -3.4 ... SS ... Nigeria 1.7 3.6 ... A 86 Rwanda ... -0.3 S ... 84 SaoTome ...... SS ... 91 Senegal 1.4 2.7 SSSSS ... 87,90 Sierra Leone 3.9 2.4 S A 81,86,87,90 Somalia ... 3.3 ... AA ,94 Sudan 2.9 ... S AA 84,94 Tanzania 1.6 3.8 SSSS A 86,89 Togo 1.9 4.9 SSSS ... 80,83 Uganda 1.2 ... S AA 87,90 Zaire ...... SS ... 83,85,88,91 Zambia 2.2 3.3 SS A 83,88,90,91 Zirmbabwe ... 1.1 ... ,92,94 87 85,86,91 92,93

Average SSA 1.9 1.7 66 23 Sources: World Bank. World DevelopmentReport, 1991, 1994; ALCID Data Base. Notes: a/ The number of "Ss" and "As' representsthe number of operations

16 Agriculture and Economic Reform in Sub-Saharan Africa

What was the magnitude of Sub-Saharan Africa's economic reform programs during the 1980s? Between January 1979 and August 1994:

Thirty-five countries undertook adjustment programs supported by the World Bank. All of these countries, at one time or the other during this eleven-year period, also received assistance from the In- temational Monetary Fund, through Stand-by Arrangements or Structural Adjustment Facilities. Only 13 countries were not included, and they were often particular in one way or another, either very small (Cape Verde, Djibouti, Seychelles, with a combined population of little more than 1 million), suffered from extensive warfare (Angola, Ethiopia), were independent for only part of the period (Namibia), or had other special circumstances (e.g. Botswana diamonds, South Africa in a non-borrowing relation- ship with the Bank).

* The World Bank financed 145 adjustment operations in these 35 countries. Of these 145 operations, about 66 (46 percent) were called Structural Adjustment Loans, or SALs, signifying that they addressed a set of broad microeconomic issues. The balance mainly addressed reform issues particular to a sector such as agriculture, industry, finance, energy, education, and health. Some were trade and export di- versification programs, while others focussed on the public sector entirely. It is important to note that only 19 percent of these adjustment operations started before 1985. Thus the pace stepped up in the second half of the decade, and in fact 42 percent of the operations started in the last five years, from 1990 to 1994. (This is important because it makes for a relatively short period in which to evaluate re- sults). It is also important to note that there was a gradual movement through the decade from SALs to SECALs (Sector Adjustment Loans); that is, the focus changed from the general macroeconomy to is- sues particular to specific sectors. Yet, virtually all the SALs contained conditions which had an impact on agriculture, so to assess the worth of adjustment for agriculture, one must look beyond the specific agricultural sector operations of which, in any case, there were around 23 during the 1980-1994 period.

* There was a wide range in numbers of operations, country by country. Three countries undertook only one adjustment operation with World Bank assistance, while at the other end of the scale one country undertook twelve. Some countries began adjustment programs and then abandoned them, or with- drew for a period before taking them up again.

* Between January 1979 and August 1994 (see Table A.2) the World Bank invested almost US$13 billion in these adjustment operations, and the International Monetary Fund provided support totalling about US$16.4 billion. In addition, various other bilateral and multilateral donors cofinanced many of the adjustment operations. In a sample of 31 operations in which the Bank invested about US$2.6 billion, other donors invested at least US$580 million. Based on these very approximate data, the donors could have provided cofinancing of more than US$3 billion throughout the period. This may be an underes- timate, since in some individual operations (e.g., the first AGSECAL in Kenya) other donors collectively invested more than the Bank itself.

* For the shorter period 1980-1991, Sub-Saharan Africa took roughly one quarter of the World Bank's total commitments for adjustment lending worldwide (US$10 billion out of US$41 billion) but had about 45 percent of the operations (which means that the average adjustment operation was smaller in Africa than in other regions).

* Of the World Bank's total commitments to SSA itself, 1980-91, for all projects in all sectors, structural adjustment lending made up 31 percent. It was thus a leading part of the lending program, but there was also very large financing of more traditional project operations, and the structural adjustment op- erations themselves addressed issues in most sectors.

17 AFTES Working PaperNo. 18

FIGUTRE1. Changes in RPP between 1981-83 and 1989-91

Ghana . . . Nigeria ME Burkina-Faso Benin . . Mozambique Togo - Tanzania Mali Mada&2ascar- CNiger_ Cenral African Rep. Zimbabwe . Malawi . Senegal . Chad Burundi Rwanda - Gambia. Kenya Gabon Conao Uganda . _. ___*_, Zambia Cameroon Cote d'Ivoirel Guinea Bissau Sierra-Leone i i -80 -60 -40 -20 0 20 40 60 80 100 Percentage change in price, 1981/83 - 1989/91

Note: RPP = Realproducer price of agricultureexports. Source: WorldBank estimates, World Bank, Adjustment in Africa: Reforms, Results, and the Road Ahead. PolicyResearch Re- port, 1994,p. 78.

* Benin,Burkina Faso, Ghana,Madagascar, Mali, Mozambique,Niger, Nigeria,Tanzania, and Togo ** Burundi,Central African Republic, Congo, Gabon, Kenya, Malawi, Sierra Leone, Uganda and Zimbabwe '**~"" Cameroon,Chad, Cote d'Ivoire,Gambia, Guinea Bissau, Rwanda, Senegal, and Zambia

* All these figures are only indicative, since to reform policies it is not necessary for countries to borrow, and the numbers of operations and the amounts borrowed, are not necessarily related directly to commitments to adjustment or to intensity of adjustment.

An analysis of the achievements and deficiencies of agricultural policy reform was recently pub- lished as part of a review of structural adjustment in 29 countries of Sub-Saharan Africa.36 Most policy re- forms took place in the period from 1986/87 onwards, when the volume of adjustment operations reached its peak. Here are the main findings:

* In the face of declining international prices for exports, 10 countries improved policies by increasing or allowing increases in real producer prices for exports enough to more than offset the international de- cline.* Policy improvements in a further 9 countries raised real producer prices for exports, but not enough to overcome the international decline.** In 8 countries, deterioration in policies reinforced the price declines experienced in world markets.*** These results are illustrated in Figure 1 below. The ten countries which managed to increase real export prices for farmers achieved this by a combination of lowering export taxes,

36World Bank, Adjustment in Africa...1994, op. cit.

18 Agriculture and Economic Reform in Sub-Saharan Africa

raising administered producer prices, reducing marketing costs (usually by de-regulation and de- monopolization of export marketing), and depreciating the exchange rate of the domestic currency.

* Two thirds of the countries succeeded in reducing the taxation of agriculture.

* Those countries which had a "larger" degree of economic reform achieved a "turnaround" of 2.2 percent in the rate of growth of valued added in agriculture i.e. they added 2.2 percent to the growth rates achieved without reforms; those countries with a medium degree of policy improvement achieved a growth turnaround of 0.3 percent; and those countries in which economic policies deteriorated experi- enced a growth turnaround of -0.8 percent.

* In the face of declining international prices for exports, 10 countries, through improving policies, in- creased real producer prices for exports enough to more than offset the international decline; policy improvements in a further 9 countries raised real producer prices for exports, but not enough to over- come the international decline; and in 8 countries, deterioration in policies reinforced the price declines experienced in world markets.

* In 18 of the 29 countries reviewed, the marketing of at least one major export crop was "loosened" in some way, by eliminating a monopoly marketing board (a scattered few commodities in four countries), link- ing producer prices to world prices (about 15 instances, some of which, however, retained poor exchange rate policies, thus not benefiting their export crop producers as much as they might have), or allowing private traders to compete, either in exporting or in domestic purchase of the commodities v In 17 of the 29 countries reviewed, the marketing of a major food crop was "loosened" in some way, and food crop liberalization appears to have proceeded more quickly than that for export crops, perhaps be- cause of the tremendous fiscal burden of failed food marketing boards

* In 16 of the 29 countries reviewed, fertilizer subsidies had been reduced or eliminated, and virtually total decontrol of fertilizer marketing achieved.3 7 Although the uptake of fertilizer does not appear to have been adversely affected by the reduction in subsidies, fertilizer use remains extremely low in Sub- Saharan Africa, at just over 15 kg of plant nutrients per hectare of arable land-compared with over 74 kg/ha in India and 301 kg/ha in China. Although part of the reason for this is irrigation, which is much higher in Asia, serious fertilizer supply constraints are still in place in many countries of SSA.

* "[R]eforms shifted the terms of trade in favor of agriculture in many countries.. [but] many countries ... continue to operate below their agricultural potential because of macroeconomic and agricultural pricing distortions and inefficient marketing arrangements. Moreover, both policy and institutional factors have strong effects on supply response, as the difference in the agricultural performance of Nigeria and Ghana shows."38

* While removing price controls is an essential first step in encouraging competitive private sector market- ing of agricultural products, the response has sometimes been disappointing because of a complex of

37 Fertilizer subsidies are discussed in more detail later; the most compelling argument against them is that they do nothing to address the supply constraints which almost universally characterize fertilizer supply in Sub-Saharan Africa. 3 14 7 38 World Bank, Adjustment in Africa..., op. cit., pp.14 , . Nigeria's elimination of its export crop marketing boards, investment in agricultural research and extension, more extensive rural infrastructure, less dependence on one major export crop, and implementing reforms in agriculture earlier in its economic reform program, were the main factors for an agricultural growth rate twice that of Ghana in the second half of the 1980s.

19 AFTES Working PaperNo. 18

other inhibiting factors that need to be addressed. The most important among these is poor roads and transport services. But there usually remains, from the period of restricted trading, a web of controls embodied in regulations relating to licensing, trading hours and locations, weights and measures, trans- portation services, movements of goods, and so on. A comprehensive review of these regulations is needed to realize the gains in efficiency that can come from more competition. In addition, new regula- tions may be needed, especially relating to enforcement of contracts and the orderly formation and disso- lution of businesses. Private traders often have problems gaining access to credit, and after long years of proscribed activity may lack the necessary management skills. Public policy in all these areas has a long way to go in most of the countries under review.

20 Agriculture and Economic Reform in Sub-SaharanAfrica

IV Exchange Rate Policy

T he exchange rate between a country's domestic currency and the foreign currencies of its main trading partners is a price that affects most other prices in the economy, one way or another. Therefore the exchange rate is extremely important for economic health and growth. Its level helps to determine the degree to which agriculture is taxed, incentives for farmers, allocation of resources among competing enter- prises on farms and in the economy (especially between tradable products and non-tradables), the distribu- tion of income in rural areas, and real incomes of consumers, not to speak of its effects on macroeconomic variables such as the current account balance in trade, and the balance in the public sector accounts, and therefore on the general health of the economy.

The study on Adjustment in Africa made the following generalizations about exchange rate policy and management in Sub-Saharan Africa:39

"Most Sub-Saharan African countries required a real depreciation to compensate for the worsening terms of trade in the 1980s. In addition, many countries started with large premiums in the parallel foreign exchange market and needed massive devaluations of the official exchange rate."

"By and large, countries with flexible exchange rates have made significant progress in increasing their international competitiveness while those with fixed rates are still struggling to make the much- needed real depreciation."

As Fischer40 pointed out, all of these countries faced a fundamental dilemma: if they fixed their ex- change rate with rising domestic prices, their currency became progressively overvalued, giving rise to in- creasingly severe balance of payments difficulties (as well as distorting economic growth through taxing ag- riculture, as mentioned above); while if they devalued to deal with the balance of payments problems, they were in danger of fueling inflation (because domestic costs associated with imported inputs rose, and wages rose to the extent that they were indexed to general price levels). There was no escape from this dilemma without adjusting monetary and fiscal policies at the same time as devaluing.

The mechanism for this is as follows: For a devaluation to work, a nominal devaluation must be translated into a real devaluation. Devaluation increases the (domestic) price of imports, and increases the (domestic) price of exports, thereby decreasing imports, increasing exports, and improving the current ac- count balance. Devaluation has two effects: it switches demand from foreign to domestic goods, and it in- creases demand. Devaluation makes home goods cheaper relative to traded goods, raising demand for them, while at the same time producers want to increase production of traded goods (exports); if government can reduce the overall level of demand in the economy, they can ensure that resources are freed to produce traded goods.

To increase, restore, or maintain competitiveness (as almost all Sub-Saharan African countries needed to do), it was important to keep domestic costs of production under control. If nominal domestic

39 World Bank, Adjustment in Africa: Reforms,Results, and the Road Ahead, A World Bank Policy Research Report, Oxford University Press, 1994, p.5 1. 40 Stanley Fischer, "Devaluationand Inflation",in Rudiger Dombusch and F. Leslie C.H. Helmers (eds), The Open Econ- omy: Tools for Policymakersin Developing Countries, World BankEDI Series in EconomicDevelopment, Oxford University Press, 1988,Ch.6, pp.108-127.

21 AFTES Working PaperNo. 18

costs of production remain unchanged after a devaluation, domestic costs will fall relative to foreign costs. However, nominal domestic costs will tend to rise because some inputs are imported, and wages may in- crease because they are indexed to general price levels, which in turn will rise after a devaluation. Wages may also rise because the overall increase in domestic demand (for home goods) raises the demand for labor.

The solution to these problems was to squeeze demand through tight monetary policy (credit, inter- est rates), and/or tight fiscal policy (increased taxes, and reduced spending, including on subsidies - al- though reducing subsidies in many cases exacerbated the inflation). Such policies were at the heart of eco- nomic reforms for many countries of Sub-Saharan Africa at one point or another in the 1980s. For dealing with the specific issue of wage rates, other parts of the solution in some cases were to exclude imported goods from a wage index, compensate for only part of the inflation, and suspend wage index clauses in con- tracts.

In most cases, where governments devalued and introduced the right monetary and fiscal policies simultaneously, the economy was stabilized and moved back to a healthy growth path with its competitive- ness improved. As Fischer pointed out, however, major problems arise when governments try to use ex- change rate policies as an alternative to macroeconomic policies. They are tempted, for example, to over- value the currency to reduce inflation, reducing reserves in the short run to guarantee its success, but such "overvaluation episodes" can be very costly. "Unfortunately, every successful stabilization program has been preceded by an unsuccessful attempt in which the government sought to stabilize purely by fixing the nomi- nal exchange rate, without taking accompanying macroeconomic measures." As a precaution, Fischer advo- cated over-devaluation, so that governments could keep the exchange rate at the same nominal level for some time (e.g., a year) in order for the exchange rate "to serve as a nominal anchor for the stabilization plan."t 41

Experience showed that in the Sub-Saharan African countries with flexible exchange rates, most were able to change their relative prices through devaluation without causing inflation. This was possible because:

- they needed a real depreciation (their terms of trade having fallen), so devaluation moved them towards equilibrium;

- the devaluation helped to reduce budget deficits in domestic currency because domestic purchasing power of external grants increased, and tax revenues increased from more expensive imports;

- parallel exchange rates had already depreciated, and prices of smuggled tradables had increased, so there were few further inflationary pressures;

- they had no wage-indexing mechanisms in place (unlike the countries in Latin America, where such index- ing was common) because they had not been traditionally high-inflation countries. 42

The experience of 35 Sub-Saharan countries with managing their real effective exchange rates be- tween 1980 and 1994 is outlned in Table 3, and depicted in Figures 1-8 at the end of this chapter. Table 4, and the charts that accompany it, is added to summarize data on Consumer Price Index movements for com- parison with movements in the real effective exchange rates. Some points to note from the first set of charts are:

41 Ibid.,pp.124, 126.

42 World Bank, Adjustment in Africa..., 1994, p.54.

22 Agriculture and Economic Reform in Sub-SaharanAfrica

(a) By mid-1993, all 35 countries had achieved an equal or lower real effective exchange rate than that of 1980; most of these (30 out of 35) had achieved this by 1988;

(b) Many countries in the CFA franc zone suffered from an appreciation of their real effective exchange rates from mid-1985 onwards, as the value of the French Franc, to which their domestic currency was tied, appre- ciated against the U.S. Dollar, and other currencies, and they were unable to adjust effectively to this change. After a period of depreciation in the early 1980s, between the end of 1984 and the end of 1990, the value of the French franc in U.S. dollars appreciated by 87 percent, from U.S.$0.104 to U.S.$0.195, while its value in terms of SDRs rose by 29 percent, from SDRO.106to SDRO.137.4 3

(c) By contrast, Nigeria and Ghana, with whom some of the West African countries in the CFA Franc Zone compete in agricultural export markets, were able to achieve an almost continuous depreciation of their real effective exchange rate from mid-1982 onwards (in Ghana's case this was especially steep between mid-1982 and mid-1986, slowing subsequently).

(d) Kenya, with one of the most flexible exchange rate systems of all through the period, maintained its real effective exchange rate relatively steady from 1980 to 1985, thereafter engineering a decline at a moderate rate; with an almost complete transition to full convertibility and an open market by 1993-94, both nominal and real effective exchange rates began to appreciate, the latter more slowly than the nominal rate.

(e) The sharpest appreciation "spike" was experienced by Sudan as its economy ran out of control in the pe- riod mid-1988 to mid-1992; Mozambique experienced a similar "spike" between 1982 and 1987, Ghana be- tween 1980 and 1984, and Zaire in the early 1980s.

The Adjustment in Africa study noted that countries with a flexible exchangerate, in general achieved a reduction in the parallel market premiums on foreign exchange from the mid-1980s on, and increased their competitiveness as they did so. The median premium fell from an average of 60 percent in the 1981-1986 period to around 25 percent in 1990-1991, although at that time it was still four times the level in adjusting countries in other regions. Median real effective exchange rates depreciated by 78 percent 1981-86 to 1990- 91, giving an opportunity to many countries to increase their extemal competitiveness. Even Burundi, Kenya and Madagascar (with lower premiums at the beginning) depreciated their REERs by an average of 60 per- cent.

There is not a straightforward relationship between success in exchange rate policies alone, and agri- cultural growth. Countries judged to have attained a "good or adequate" premium (0-10 percent) by 1990- 1991 - Ghana, Guinea, Guinea-Bissau, Kenya and Madagascar - had a weighted average agricultural growth rate from 1986-93 of 2.2 percent p.a. Countries achieving a "fair" success in reducing the premium (11-30 percent) -Burundi, Gambia, Malawi, Nigeria, Uganda, and Zimbabwe - had a weighted average agricultural growth rate of 3.8 percent p.a. Countries scoring "poor" on reducing the premium (31-50 per- cent) -Rwanda - had a weighted average agricultural growth rate of 0.7 percent p.a. And countries with a l"verv poor" performance in reducing the premium (51 percent and above) - Mauritania, Mozambique, Si- erra Leone, Tanzania, Zambia - had a weighted average agricultural growth rate of 2.4 percent p.a.

One of the main reasons for the less than close correlation between exchange rate success and agri- cultural success is that the potential benefit to farmers of an exchange rate change must be passed all the way to the farmer if any response is to be expected, and that failed to happen in a number of countries. Adding to the lack of correlation is the different mix of tradables and non-tradables in the agricultural sectors of differ- ent countries, and external factors such as the impact of droughts Furthermore, as noted already, more is

4 3 lnternational Monetary Fund, InternationalFinancial Statistics Yearbook, 1994, p. 132 .

23 Table 3. Index of Real Effective Exchange Rate, 1980 - 1994 (Quarter 2) (1980= 100)

80Q2 81Q2 82Q2 83Q2 84Q2 85Q2 86Q2 87Q2 88Q2 89Q2 90Q2 91Q2 92Q2 93Q2 94Q2

Botswana 99.47 104.54 99.56 95.77 98.72 88.04 90.09 87.66 85.41 83.44 91.80 87.41 87.01 90.39 92.01 Burkina Faso 100.19 92.29 88.58 86.75 80.36 83.02 83.25 78.17 80.22 75.97 74.66 72.52 71.00 68.98 41.47 Burundi 99.27 119.67 131.99 145.33 125.07 139.89 124.23 99.12 87.94 90.29 76.08 81.96 67.43 63.93 62.18 Cte d' Ivoire 101.31 85.09 80.61 76.27 73.28 67.48 85.07 95.26 99.44 92.03 94.30 90.63 95.11 95.54 57.29 Cameroon 100.94 90.49 90.78 93.58 96.73 94.74 106.16 125.87 119.24 110.37 112.14 107.34 105.89 98.39 64.24 CAR 100.48 95.51 97.51 93.37 90.51 91.60 98.18 98.90 98.20 90.56 94.95 89.27 87.45 84.83 52.32 Chad 100.92 88.18 79.25 78.08 91.48 90.35 75.86 68.70 72.70 66.91 65.98 65.77 59.13 52.25 26.80 Congo 99.75 100.14 100.27 96.00 97.92 100.52 102.82 101.77 101.18 100.85 96.13 98.63 99.16 99.11 73.58 Ethiopia 102.19 108.97 114.67 119.94 129.72 165.96 121.34 100.14 98.08 109.28 102.09 141.20 137.66 61.72 58.70 Gabon 102.05 86.79 90.41 88.45 85.10 86.29 93.35 92.79 79.97 81.53 88.53 93.71 74.46 71.50 46.37 Gambia 97.56 96.83 95.97 98.18 85.65 91.87 67.95 74.41 82.07 79.32 71.37 67.17 70.38 79.60 72.36 Ghana 92.10 202.93 247.85 180.10 72.82 53.68 31.21 22.77 23.57 21.00 21.37 22.09 20.35 17.25 13.72 Guinea #N/A #N/A #N/A #N/A #N/A #N/A 101.81 97.52 106.25 110.83 100.72 111.54 96.63 99.47 100.30 Kenya 100.71 97.95 99.68 94.47 99.74 105.11 87.13 81.74 75.96 77.12 70.27 68.32 72.74 55.45 75.96 Lesotho 100.06 98.59 94.90 100.57 100.31 96.50 95.95 93.02 90.01 90.37 88.52 90.99 92.63 95.63 94.26 Madagascar 97.10 107.63 109.41 117.37 93.12 90.67 90.13 68.27 54.08 48.31 52.19 45.23 46.64 52.25 46.33 Malawi 100.63 100.00 93.06 99.94 94.43 91.39 88.31 77.55 83.81 90.39 88.03 93.33 87.78 89.03 69.99 Mali 101.78 99.25 86.84 88.84 92.53 94.22 97.94 73.70 80.84 76.62 76.20 74.44 67.97 67.34 40.14 Mauritania 100.02 115.87 125.20 124.82 112.02 110.34 99.43 94.08 87.58 88.48 83.10 84.36 88.67 66.54 69.73 Mauritius 98.85 107.19 98.78 100.60 95.87 91.77 90.43 83.61 77.19 81.40 80.55 80.22 78.37 83.03 84.02 Mozambique 101.77 96.46 108.88 130.80 164.77 228.82 288.60 100.15 73.38 80.96 78.69 54.01 56.80 59.55 52.62 Nigeria 100.71 101.26 105.21 89.01 90.49 84.91 79.13 71.20 68.15 62.82 62.43 54.78 50.45 49.19 32.54 Nigeria 94.45 112.19 110.89 128.47 183.13 173.12 113.02 27.87 29.18 25.62 25.06 21.08 15.36 17.24 33.29 Rwanda 100.71 112.37 127.57 142.07 140.56 149.03 132.65 133.80 134.03 133.58 124.93 91.92 89.58 92.35 93.99 Senegal 102.04 88.36 93.16 89.87 94.53 102.69 110.62 106.29 100.09 94.98 95.57 88.20 86.46 84.65 53.46 SierraLeone 97.94 113.42 134.55 215.59 200.32 156.65 228.89 74.29 123.21 94.05 79.02 87.38 73.84 80.97 97.19 South Africa 98.06 107.99 98.48 110.33 105.52 83.11 68.07 76.22 72.02 71.58 74.87 77.53 81.11 78.80 73.55 Sudan 100.25 115.47 85.97 79.72 97.07 95.13 93.09 84.86 86.44 144.29 198.73 475.00 46.26 60.29 56.15 Swaziland 100.16 103.40 98.81 99.91 100.17 95.53 87.65 90.21 87.46 80.72 80.29 78.63 75.05 75.59 81.24 Tanzania 98.47 126.68 141.36 184.31 181.99 203.70 160.45 70.99 53.64 49.37 37.44 40.07 33.20 33.16 30.88 Togo 98.08 98.98 96.37 98.06 86.88 78.65 85.97 85.92 82.92 74.99 79.86 73.09 73.73 71.94 36.80 Uganda 95.58 109.34 25.89 20.81 12.67 17.27 13.98 25.00 28.57 18.45 11.51 8.85 7.54 7.36 10.16 Zaire 94.21 108.62 89.50 142.98 43.87 40.65 41.89 35.10 35.70 36.76 30.52 30.54 26.90 31.61 20.11 Zambia 100.44 102.31 109.32 107.30 89.19 93.36 40.90 36.23 63.76 90.95 72.08 64.96 71.63 58.57 73.08 Zimbabwe 102.21 92.75 117.95 103.51 105.26 94.39 83.25 81.50 73.88 72.83 63.31 59.63 45.46 47.53 47.87 Source:IMF estimates. Table 4. Consumer Price Index, 1980 - 1994 (QUARTER 2) (1980= 100)

89Q2 90Q2 91Q2 92Q2 93Q2 94Q2 ______80Q2 81Q2 82Q2 83Q2 84Q2 85Q2 86Q2 87Q2 88Q2

442.17 Botswana 97.93 115.38 126.99 142.03 154.17 166.21 182.16 201.33 215.87 242.20 269.37 298.64 348.80 398.20 BurkinaFaso 98.68 107.55 117.92 131.05 132.48 146.29 145.35 137.53 145.43 143.11 141.87 145.88 144.85 143.98 179.01 Burundi 98.12 110.24 119.49 128.15 140.32 155.45 151.00 165.39 172.94 192.83 202.89 220.47 235.34 257.02 280.41 Coted'lvoire 98.94 106.55 117.14 123.22 129.05 124.89 144.72 151.83 165.12 166.43 165.32 167.78 174.73 177.72 222.81 275.44 Cameroon 99.17 107.62 123.87 145.08 164.16 171.19 186.46 221.01 217.67 218.30 217.14 219.58 218.43 206.77 Cape Verde 97.91 118.42 143.12 173.45 199.28 218.66 236.24 254.11 267.37 279.56 310.22 336.97 362.46 379.84 395.94 214.88 CAR 98.78 112.25 130.34 141.76 149.78 160.28 167.81 168.21 172.80 170.28 175.22 173.90 172.56 170.36 Chad 99.57 102.56 105.85 116.39 148.24 155.89 133.19 122.51 135.38 132.91 131.49 141.62 132.97 118.26 124.40 Congo 98.16 114.68 130.66 140.92 156.27 171.11 176.33 177.71 181.99 190.71 182.19 196.83 201.93 205.42 314.45 252.46 Ethiopia 100.52 105.18 109.75 112.12 119.62 144.25 130.23 124.55 133.20 144.73 149.85 212.97 223.07 239.64 Gabon 100.13 104.61 124.96 138.59 147.47 159.51 168.59 167.43 149.15 164.20 174.17 195.36 156.10 154.86 210.40 626.10 Gambia, The 97.46 104.03116.99 129.28 154.45 174.76 285.42 359.65 399.08 429.54 492.13 514.96 585.31 632.24 Ghana 90.21 197.30239.51 583.21 842.23 870.311071.27 1531.912046.28 2533.31 3455.63 4151.98 4512.27 5618.92 6803.87 Guinea 100.02 100.03 100.04 100.00 99.81 99.54 97.32 133.92 167.69 221.05 254.76 312.16 366.94 396.85 408.17 911.71 Kenya 98.73 108.86 132.70 147.48 163.13 186.53 193.97 208.63 229.72 261.02 297.49 359.17 463.57 655.01 Lesotho 99.39 111.41 125.18 148.19 164.19 184.81 218.61 246.76 270.57 312.05 348.27 410.45 480.02 548.07 579.98 869.07 Madagascar 95.17 130.79 164.97 206.16 221.05 245.64 278.11 308.70 419.54 445.16 505.56 545.37 612.66 684.07 Malawi 99.86 109.11 117.58 134.36 149.18 172.82 198.24 251.99 328.37 382.37 424.57 469.01 551.36 695.64 891.90 168.64 Mali 99.91 113.11111.69 127.77 143.51 155.25 163.40 125.55 143.28 142.51 142.94 147.92 138.41 137.17 292.19 308.14 Mauritania 98.21 117.92134.32 135.05 140.52 162.01 175.57 191.19 194.33 219.99 227.70 244.87 265.40 271.11 292.64 Mauritius 97.31 112.32127.54 134.40 143.24 153.13 157.62 159.05 165.52 193.48 214.43 233.32 243.03 12945.75 Mozambique 100.08 102.01118.37 151.11 195.51 250.66 350.27 916.40 1457.312167.70 3096.09 4115.35 5944.97 8215.29 142.79 Niger 98.86 116.61137.50 131.39 146.28 145.78 139.48 128.40 127.98 124.39 122.95 114.80 108.19 106.31 2329.30 Nigeria 94.57 119.46128.57 151.92 223.98 238.19 237.93 263.14 357.31 561.57 583.97 646.30 914.83 1440.65 243.87 Rwanda 99.08 106.47118.35 126.87 131.51 138.05 133.70 142.25 144.91 147.91 147.60 182.42 193.80 224.71 169.24 220.58 Senegal 100.34 103.64123.75 133.58 153.26 176.15 185.41 178.36 174.00 174.77 177.19 174.17 173.15 147.89 Seychelles 97.79 111.61109.62 111.72 121.58 122.07 122.91 124.45 127.80 128.53 134.43 136.31 141.90 144.58 70854.07 87464.98 Sierra Leone 96.79 120.33147.71 236.43 424.33 722.021154.84 3902.87 4849.99 7690.6216049.27 31103.79 58923.79 562.79 602.51 South Africa 98.03 112.35130.58 146.78 162.93 188.80 222.32 260.06 293.96 338.13 385.05 442.68 509.39 46416.91 Sudan 96.77 123.43151.57 195.10 250.32 392.17 488.86 556.03 870.41 1558.25 2336.51 5778.9511801.77 22330.80 458.12 541.19 Swaziland 99.60 115.84132.90 144.40 163.70 198.35 224.95 256.47 287.60 309.00 342.55 382.26 412.57 2243.12 2854.82 Tanzania 94.06 120.13149.31 198.30 253.48 357.32 462.29 609.04 796.00 1016.86 1218.87 1496.12 1817.19 142.89 148.75 Togo 96.24 118.26131.65 149.67 142.49 135.80 143.66 142.38 144.30 141.37 146.55 142.54 144.97 206429.9 Uganda 94.31 188.83299.20 375.70 453.84 1166.13 2627.87 10378.23 28750.22 60177.75 81237.56 109608 177974 178021 13029252096 Zaire 98.57 126.75171.36 268.98 487.17 579.68 848.80 1669.222849.96 6170.27 8677.02 69602.63036136 57636276 102106.91 Zambia 99.06 112.07125.51 148.82 177.66 234.24 371.63 520.48 805.41 1515.95 3647.36 7175.1321107.13 62447.81 Zimbabwe 100.41 96.50 129.73152.23 179.50 195.88 222.05 252.56 265.18 295.81 340.93 422.17 577.55 765.17 950.09 Source:: IMFestimates. AFTES Working PaperNo. 18

required of policy than to "get the exchange rate right." When changes in overall macroeconomicpolicies are considered for 26 countries, the relationship with agricultural growth rates is more clearcut. The group rated as having a "large improvement" had a weighted average agricultural growth rate between 1986 and 1993 of 3.5 percent p.a. Those countries with a "small improvement" attained a weighted average agricultural growth rate of 2.5 percent p.a. And those countries with a "deterioration" in overall macroeconomic policies achieved a weighted average agricultural growth rate of 0.3 percent p.a.4 When performance on factors other than policies (such as technology and infrastructure) is also taken into account, the growth rates of dif- ferent groups of countries is even more clearly related to good performance in both policy and non-policy factors.

In countries with afixed exchange rate, there was no improvement in external competitiveness during the 1980s; in fact they experienced a fall in competitiveness as their terms of trade got worse. These countries had no parallel market, so the Adjustment in Africa study compared them with a group of comparable non- African countries, which depreciated their real effective exchange rates by an average of 60 percent 1980- 1990. By contrast, Africa's fixed rate countries depreciated by an average of 5 percent, and some appreciated - Cameroon, Congo, Senegal. There were no countries which had achieved what was judged to be a "good or adequate" real depreciation (>40 percent) by 1990-91. And only one achieved a "fair" real depreciation (21-40 percent), namely Niger. Countries whose performance in this regard was judged to be "poor" (6-20 percent depreciation) were Benin, Burkina Faso, CAR, Gabon, Mali, and Togo. Countries judged "very poor" (with a 0-5 percent depreciation, or an appreciation) included Cameroon, Congo, Cote d'lvoire, and Senegal.

Problems for these fixed rate contries arose from depreciation of the Dollar against the French franc from 1985 on, and low inflation in France, meaning fixed rate countries could get real depreciation only by lowering domestic prices, which they found next-to-impossible to achieve. Again, agricultural growth rates in these countries cannot be correlated closely with exchange rate success, although it is noteworthy that in the group with "very poor" performance, the weighted average agricultural growth rate was -0.4 percent, reflecting, in particular, the miserable outcome in Cameroon, whose large agriculture carries a lot of weight in this group.

One of the biggest concerns in maintaining a realistic exchange rate is a country's competitiveness in foreign trade, dominated on the export side by agricultural exports in Sub-Saharan Africa. As one observer pointed out,45 while for many countries movement in the real exchange rate itself (measured in relation to trading partners) is a comprehensive summary of the competitiveness of exports and import substitutes in the country being analyzed, the analysis can be sharpened by comparing a country's real exchange rate movements with those of its main competitors,as well as with its main trading partners, which are often differ- ent groups. As will be seen in the discussion of individual countries later, this shows up very sharply in comparisons of Cameroon with Nigeria, and C6te d'Ivoire with Ghana, the first of each pair, confined within the CFA Franc Zone, experiencing a real appreciation of its currency just as its competing neighbours (Nigeria and Ghana respectively) were achieving real depreciations of their currencies. Senegal similarly lost competitiveness in relation to Nigeria and Ghana. Under such circumstances, market share can be lost very rapidly by the country becoming less competitive.

The overall effect of real depreciations of their domestic currencies was thus for some countries an effective way to increase (or restore) their trade competitiveness, and conversely, for those whose currencies appreciated, an unhappy way to reduce their trade competitiveness. But this global effect may mask a num- ber of profound local impacts, some initially negative, some initially positive, and others changing from

44World Bank, Adjustment in Africa...,1994, p. 58, and author's estimates of agricultural growth rates. 45 Kathie L. Krumm, A Medium-Term Framework for Analyzing the Real Exchange Rate, with Applications to the Phil- ippines and Tanzania, The World Bank EconomicReview, Vol.7No.2 (May, 1993),p.236.

26 Agricultureand EconomicReform in Sub-SaharanAfrica

negative to positive over time, or vice versa. In the process of achieving a depreciatiori of a country's cur- rency, it is incumbent on those implementing it to understand these local impacts, and to find ways to alle- viate negative impacts where they occur. One interesting study which illustrated this point began by quoting a newspaper article which reported that "[a]wave of price increases, labor disputes, demonstrations and violent clashes has spread across West Africa in recent weeks, prompted by France's decision to devalue the currency used by tens of millions of people in more than a dozen of its former African colonies." The authors of the study, commenting on this news report, remarked, "This quote describes the reality of implementing a devaluation in countries where incomes are low and unemployment is high."46

Using data from an unusually detailed household survey in Senegal, and simulating the impact of the devaluation, the study concluded that while most observers had considered that the main negative im- pact of the devaluation would be on urban households spending a large share of their income on imported rice, the study showed there would also be a negative impact on rural households in certain regions of the country. This negative impact had not been foreseen, in particular because it was thought that rural produc- ers of exportable peanuts would be beneficiaries of devaluation. Instead the study found that the short-run negative effects of the devaluation would be experienced in the northern Peanut Basin as well as in urban areas. This would come about because of a higher than expected consumption of rice in that region, and a lower than expected share of income from peanut production. When the various demand-side and supply- side effects worked through, the overall result was negative for these households.

The authors judged two other regions - the westem Peanut Basin and Senegal Oriental - to be vulnerable because, although they should receive modest benefits from the devaluation, there was a high incidence of poverty already in these regions. The positive effects of the devaluation would be felt mainly in the central and southeastem Peanut Basins. The devaluation was also likely to change: the profitability of using fertilizers on certain crops (e.g., peanuts and millet) as well as the competitiveness of phosphate fertil- izer produced in Senegal; and the relative profitability of investments in irrigated crop production compared to those in rainfed agriculture.

Furthermore, those rural households (and those zones) benefitting from the devaluation would have more cash in hand, with the attendant second round effects of spending the additional income generated. The impact of these second-round effects, in turn, depended on spending patterns of those households into whose hands it fell. These second-round effects, the authors suggested, might be shaped by government policies and support programs. Similarly, the negative impacts on other groups and regions should be alle- viated by targeted relief and other policy interventions. In general, the authors concluded, realizing the po- tential of the devaluation to stimulate long-run economic growth would depend on the government's main- taining political stability, constraining inflation, stimulating employment creation, and raising production of the agricultural products whose competitiveness had been boosted by the currency realignment.

One of the important points to be made from all this is to reiterate the profound, complex, and sometimes unexpected effects of currency realignments, and the need to understand them and deal with them as fully as possible. In the case of the CFA franc devaluation, relative prices were changed at a stroke, not only in one country, and not only in the 14 countries of the CFA franc zone, but also throughout Western Africa, whose countries trade with one another, and compete with one another in trade with the rest of the world. Over time, the impacts on all of these countries will differ according to the success with which those in the CFA franc zone translate the devaluation into productivity and growth in their respective countries, and how their trading partners and competitors respond. And the impacts will be different for different re-

46 Valerie Kelly,Thomas Reardon, BocarDiagana, and Amadou AbdoulayeFall, Impacts of Devaluation on Senegalese Households: Policy Implications, Staff Paper No. 94-20, Department of Agricultural Economics, Michigan State University, March, 1994, 20 pp. The news report was from the New York Times, February 23, 1994, p.A1.

27 AFTES Working PaperNo. 18

gions within the countries, and for different groups of households within the regions. The possibilities for unintended effects (such as an increased export price for timber in C6te d'Ivoire accelerating deforestation, or an increased price for imported gas for cooking stoves stimulating demand for fuelwood) also increase the benefits from closely monitoring the situation over time as the effects work their way through the society and the economy.4 7

Competitiveness As already emphasized, in spite of the profound importance of the exchange rate, ther' is much more to achieving and sustaining competitiveness in agricultural production and trade than manipulating the ex- change rate. In addition it requires a natural resource base capable of sustaining high yields, continuous im- provement in yields and production technology, passing on to producers as much as possible of the export realizations, good infrastructure, educated farmers, and efficiency in all parts of the marketing chain, i.e., collection, transportation, processing, grading, port handling, and so on. Sub-Saharan Africa has experi- enced declining real prices for most of its important agricultural exports. But its competitors who have, rapidly in some cases, seized market share from Sub-Saharan Africa, have faced the same international prices. During the past twenty years, Sub-Saharan Africa has lost market share in most of its most important agricultural exports, which is the final word on its failure to maintain competitiveness.

As indicated, some of that failure stemmed from not adjusting exchange rates as needed to accomo- date conditions in the markets. Now that in many countries the exchange rate situation has improved, the spotlight falls on the other elements in the competitiveness package. Many countries have failed to support the agricultural research needed to keep improving yields and production technologies, have taxed produc- ers heavily rather than passing on to them a substantial share of intemational realizations, have suffered from major weaknesses in marketing efficiency arising from public sector involvement in the entire market- ing and processing chain (including transportation in some countries), and have invested much too little in rural infrastructure. The adjustment process in most countries has had as a central element addressing the export taxation and marketing inefficiency issues. As we saw above, many countries have succeeded in re- d- cing taxation and keeping up prices to producers in spite of severe declines in international prices. But market shares have continued to decline anyway, pointing to other problems which have prevented the achievement of competitiveness.

The overall picture is presented in Table 5 , which reports gross exports of five major exports for Sub-Saharan Africa and the world, showing how, in every case, exports from Sub-Saharan Africa have grown more slowly than world exports in total, and the region's share in the world market has decreased. Sub-Saharan Africa's market shares in 1969-71 (with shares in 1990 in parentheses), were as follows: cocoa beans 60 percent (41 percent), coffee 30 percent (23 percent), palm oil 19 percent (2 percent), cotton 16 percent (14 percent), and bananas 6.5 percent (2.5 percent). In these five cases, Sub-Saharan Africa lost its market share principally to the Americas for coffee and bananas, to East Asia (especially Malaysia and Indonesia) for cocoa and palm oil, and to Pakistan and the United States for cotton.

47 John Staatz, Josue Dione, Valerie Kelly, and Thomas Reardon, A Proposal for Monitoring and Analysis of the Effects of the Devaluation of the CFA Franc on Food Security and Economic Growth in West Africa. mimeo, PRISAS (Programme RegionaI de Renforcement Institutionnel en Matiere de Recherches sur la Securite Alimentaire au Sa- hel) and Michigan State University, April, 1994.

28 Agricultureand EconomicReform in Sub-SaharanAfrica

TABLE 5 SSA - MARKET SHARE IN AGRICULTURAL EXPORTS ('000 tons)

Commodity 1969-71 1979-81 1990 1995 1970-90 (Proj.) (Growth Rate) Cocoa SSA 979 907 1,298 1,386 1.4 World 1,638 2,052 3,190 3,401 3.4 Coffee SSA 987 900 1,126 1,050 -0.3 World 3,261 3,649 4,869 4,595 1.6 Palm Oil SSA 186 96 193 190 -2.2 World 1,002 3,230 7,884 11,417 10.4 Cotton SSA 627 372 699 815 1.3 World 3,929 4,558 5,035 6,820 1.5 Bananas SSA 389 246 234 236 -4.5 World 5,929 6,900 9,330 10,068 1.3

Source: World Bank, Market Outlook for Major Primary Commodities,International EconomicsDepartment, October, 1992, Vol. II.

Palm Oil The shift in production of palm oil between Africa and East Asia during the past twenty years illustrates the preceding points. As can be seen from Table 6, between about 1970 and 1991, the production of palm oil in Africa and Asia increased from 2 million tons to 11.5 million tons. About 30 percent of this expansion oc- curred during the first decade, when real world prices for palm oil were relatively stable, and 70 percent oc- curred in the last ten years, accompanied by a two thirds fall in the real price. In the process, Africa's market share fell from more than 56 percent to less than 15 percent, while Asia's share increased from 38 percent to 80 percent. In simple terms, Asia took 93 percent of the additional production (Malaysia took 60 percent and Indonesia 26 percent).

An important lesson from this experience is that the competitive edge which allowed the two East Asian countries to transfer production from Africa arose from a combination of the same kinds of actions which comprise the pillars of the agricultural strategy referred to earlier. These are summarized below:

(a) policy. With no export taxes on palm oil in Malaysia and Indonesia, with no government involvement in marketing or pricing, and in the context of a competitive exchange rate regime, producers received clear market signals, and acted accordingly;

(b) technology. The expansion in East Asia was underpinned by highly focussed agronomic research which raised palm oil yields to levels 75 percent greater than those achieved in Africa; the research was done both by private sector estates and the government, and passed on to farmers by the government in the context of smallholder development schemes.

(c) infrastructure. In addition to yield increases, the rapid growth in production in Asia also depended on rapid expansion of areas under production; although some of this was on private estates, the governments of both Malaysia and Indonesia financed settlements for smallholders in new lands developed from the forests, in Malaysia under the Federal Land Development Authority (FELDA), and in Indonesia under a series of transmigration projects.

29 AFTES Working PaperNo. 18

(d) farner participation. In Malaysia, although the settlers were highly controlled by the responsible public agency, the settlement system was modelled on the structure and organization of traditional Malay villages. The social infrastructure provided satisfied the aspirations of the settlers who took part, and the public agency was disciplined, efficient, and learned quickly from any mistakes; in the Indonesian transmigration program, these aspects were not handled so well, and there is room for improvement;

(e) sustainability. In neither Malaysia nor Indonesia was sufficient attention paid to environmental impact in the settlement schemes; however, Malaysia developed strict environmental standards for palm oil dis- charges, and learned quickly about other natural resource management issues; as a result, there was little adverse impact upon soils, and the development is judged to have been highly sustainable, although some losses of wildlife were experienced which could have been prevented with appropriate management meth- ods applied from the beginning; in Indonesia, the sustainability of the settlements in transmigration areas is not as assured as in Malaysia, but the problems are less with tree crops than with annual crops.

TABLE 6 PALM OIL - AFRICA AND ASIA

Productionr '000o:'tonos) Global Shares(%) Growth Rate~ 1970-9

19971 11979-8.1_ 19I J969-,71: 197-1L09 ___

Africa 1,178 1,338 1,795 56.4 26.6 14.8 1.9

Nigeria 587 667 820 28.1 13.3 6.8 2.0

Cote dIlvoire 46 158 268 2.2 3.1 2.2 5.1

AsiaAfrica______1,178_805 3,5041,338_ 9,6871,795 38.556.4 26.669.6 80.014. 19.012.6

Malaysia 457 2,529 6,141 21.9 50.2 50.7 13.4

Indonesia 219 721 2,665 10.5 14.4 22.0 12.3 World i2,090 15,033 [2,112 1100 -i| 0 0 9.0

Source: World Bank, Market Outlook for Major Primary Commnodities, Intemnational Economics Department, October 1992, Vol. II, p.149.

Note: Palm Oil yields (tons/ha): Nigeria 2.2,Cote d'Ivoire 1.9, Malaysia 3.8, Indonesia 3.5

Coffee Sub-Saharan Africa barely maintained its production and exports of coffee during the past twenty years, (the growth rate of production from 1970 to 1990 averaged -0.2 percent p.a., while that of exports averaged -0.3

30 Agriculture and EconomicReform in Sub-SabaranAfrica

percent p.a.48). During the same period exports from the Asia and Pacific region grew at 8.3 percent p.a, and those from the Americas at 2.3 percent p.a. It was in the production and export of Robusta coffee that Sub- Saharan lost out, its market share declining from 78 percent in 1970 to 44 percent in 1990.49 The fall in inter- national prices for Robusta was not brought about by falling demand, but by large increases in supply, and Sub-Saharan Africa lost market share because of inroads made by other countries, especially Indonesia, Thailand, and Vietnam in East Asia, and Brazil and Ecuador in South America. For Arabica coffee, by con- trast, Sub-Saharan Africa succeeded in maintaining its share of the world market at about 12 percent.

An examination of the declining competitiveness of African Robusta coffee concluded that it was not due to an unfavorable price differential, nor to a drop in demand. Rather it was attributable to "structural factors," in particular the proportion of the international price which reached producers, coffee yields and costs of production, and costs in the marketing chain. In C6te d'Ivoire, Africa's largest producer and exporter of coffee, the increases in production achieved during the period 1964-1982 were largely the result of in- creases in area under coffee. Yields per unit area declined almost continuously from 1973 to 1990, when they were less than 60 percent of the levels achieved at the beginning of the period. In a comparison of C6te d'Ivoire and Cameroon, with their competitors in Brazil and Indonesia, yields in the most intensive systems of production were comparable in all countries (at 9C0-1650 kg/ha), but in the most extensive production systems C6te d'Ivoire (125 kg/ha) and Cameroon (250 kg/ha) fell far behind Brazil (480 kg/ha) and Indone- sia (600 kg/ha).5 0

Furthermore, at the international prices prevailing in 1990, producers in Cote d'Ivoire received little more than half of the price received by producers in Indonesia and Costa Rica. This meant that for the less intensive production systems prevailing in C6te d'Ivoire, producer gross margins per hectare were lower than those obtained by their competitors. Estimates of production costs in 1992 suggest that while those for Uganda were roughly comparable with those for Brazil (at US cents 42-44/kg), and those for Cameroon were on a par with those in Indonesia (at US cents 58/kg), production costs in C6te d'Ivoire (at US cents 75/kg) were substantially above those in most other countries. When all marketing and transportation costs were added in, the Sub-Saharan African countries had higher total costs per kg (ranging from US cents 96/kg in Guinea to US cents 130/kg in C6te d'Ivoire) than most of their competitors (ranging from US cents 90/kg in Indonesia to US cents 96/kg in Brazil).51

Groundnuts Sub-Saharan Africa's shares in the world groundnut trade have also fallen substantially. Between 1961 and 1987, world exports of groundnuts declined at an average rate of between 1.5 and 3 percent p.a., and world exports of groundnut oil declined at an average rate of 0.05 percent p.a. The rates of decline for Sub-Saharan Africa, however, were much larger: 11 percent and 3 percent p.a. respectively.5 2 On average, between 1961 and 1965, the member countries of the African Groundnut Council (Gambia, Mali, Niger, Nigeria, Senegal, and Sudan) accounted for 25 percent of world groundnut production and 62 percent of world exports of

48 World Bank, Market Outook for Major Primary Commodities, International Economics Department, October, 1992, Vol. II, pp.15 ,17. 4 9 France, Ministere de la Cooperation, "Cafes: Etudes de Cas sur la Competitivite des Principaux Pays Producteurs", 1994,p. 2 . 50 ibid., p.20 . 51ibid., p.23 . 52 Ousmane Badiane and Sambouh Kinteh, Trade Pessimismand Regionalismin African Countries: the Case of Groundnut Exporters, International Food Policy Research Institute, Research Report No. 97,1994, p. 1 6 .

31 AFTES Working PaperNo. 18

groundnut oil.53 By 1992-93, production in these six countries (2.5 million tons in shell) was less than 10 per- cent of the world total (25.2 million tons), and exports of groundnuts and their products (just under 300,000 tons) had fallen to 13 percent of world exports (2.3 million tons). For groundnut oil, the Sub-Saharan African share of world exports was 35 percent (96,000 tons out of 319,000).54

A study of the reasons for this decline concluded, that although world demand for groundnut oil had remained relatively stable, exports from the AGC countries had fallen by more than two thirds since the late 1960s, at the same time as other developing country exporters in Asia and South America had nearly quadrupled their market shares.5 5 As a result of these declines in production and trade, the contribution of the groundnut sector to the economies of the AGC countries fell steadily since 1960. The blame lies with do- mestic sector and macroeconomic policies in the AGC countries themselves. In particular, public sector mar- keting monopolies (with high intermediation costs), combined with appreciation of exchange rates to sup- press producer prices, while other problems such as limited access to improved seeds, and poor distribution of fertilizer also played their role in loss of competitiveness and market share. The price the AGC countries paid for this was an estimated loss equivalent to more than half of their annual export revenue.i6 The study concluded that there were significant opportunities for growth of trade even within the regions in which the AGC countries found themselves, but exploiting these opportunities would also require cutting costs of pro- duction, marketing, and other export-related activities, if AGC exporters were to compete with those from outside their Council.

53 ibid., p.l. 54 FAOdata for 1992 and 1993. 55 Badiane and Kinteh, op. cit., p.l. s'6ibid3, p.69.

32 Index of Real Effective Exchange Rate, 1980 - 1994

140 (1980= 100)

450 120 400

ISO~~~~~~~~~~~~~~~~~~~~~~~~~0 _Cameroon 100 9 ^ >_^ . \__\ a~meroon * 30n~~~~~~~~~~~~~~~~~~~~~~~:-.- C4e. dQ'tcidrteir_ Cd'lvof t. 250 - _-a(ure 750. ___ . / / (~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Gi3nea80

Togo - 60 - 200 ~~~~~~~~~~~~~~~~~~~~~~- in\dex 150

100

20 50-

I I I I I I I O I I I I I I 8802 8702 8502 8402 Yo02 9102 9202 9402 Y402 02 8102 8202 8302 8402 8502 at ' ' U 557 g82 ; 8aa a Ce sebal...... <

Sour co IMF estimates.

IndexofReal Effective Exchange Rate, 1980 -1994 Consumer Price Index, 1980 - 1994 140 (1980= 100) 350 ((1980= 100)

120 _. _ _ __ _ 300 _ - . , Faso Burkina Faso aBurina Ml 250 __ -r-Mali 100-CF urania 0 - Mauritania 80 200 ei NierN Snegal~80gnedneex9al < = 150 )KSenegal 0 ____ Ine 100 40

20 _ 50 -

Soure IMF estimates. _ ource IM F estimates.

Page 1 of 4 ConsumrrPrice Index, 1980- 1994 IndexofReal Effective Exchange Rate, 1980 - 1994 250000 (1980 =100) 500 (1980= I 0)

1 ~~~~4 50 ______- ______: _ _ _ _ _ 200000 . - hhpia-__: 400 : - __ _- ______: __ _ Ethiopia340 ______o isoooo 3500______Kenya _ ___ En 150000 udanS 3003 : t: Kenya A -Sudan ; |; _Tanzania 250 ______2 _ _ Tanzania 100000 -Llg<~Uanda20 ._ Uad 2 00 - ___uganda :In xf _hde 150 Index

50000 : _ / , 100 1 i > : iA v ^10 , - 1 00 * 50 - 0 0

CY a 00 00 0 CY 00 0) "' CY0)

Source IMF estimates Source IM F estim ates.

ConsunmrPrice Index, 1980- 1994 Index of Real Effective Exchange Rate, 1980 - 1994 g00 - (1980=100) 160 (I1980= 1__00)

800. 140 ______

600 -- Buruntdi 1200:<--rn 600 _NStdagascar_ 100 ; F o J ; ; z S , _ + a.Mada0aa 500 + A.-- Mburitius car

400 _ . -x-Rwanda 8 Mauritius 300 In_hdex 60 _ Rwanda 200 40 -- _ -- _ _ _ 100 _ a__ 220 __. . ___ _ _0 0~~~~~~~~~~~~~0

NO jl N ) CO aCO CC a0C aO8 ~C Ca a a _ Source:MFe6timates. Source IM F estimates.

Page 2 of 4 Consumer Price Index, 1980 - 1994 IndexofReal Effective Exchange Rate, 1980 -1994 (1980 100) (1980 100)

eo50 ______x______CAR-_.__ .___ 140 ______

400 1200

300 / . CongoR ZaboG Gabon 80 W Za'80 -~.Zaire he 2 00 A - Index 60______

I 00 40

0~~~~~~~~~~~~~~~~~~~~~~~~~~~~2 0

Source IM F estimates. O F,

CbnsumerPfice Index, 1980- 1994 IndexofRealEfective Bchange Rate, 198D- 1994 4500 (1980=100) 250 (1980=100)

v - _1, Gmt a, Th _ AX k=|30 _|0a_0 -1 s a 2 . . fGhana | -u-,_ 10015 2500 A~~~~~~~~~~~~~~NCgerna Ne 2000 -o-ererLeoLee'

1500 - kcleWex 1001 Leom~-

1000 ,51 \ 50 500

N N N N N N NC4 N N N ON N

CD CD a2N Lo a m cD ,, N ag N a aaC a aO as a N

Sauce: IMFestimates. SD" IMFestimes.

Page 3 of 4 Consumer Price Index, 1980 - 1994 Index of Real Effective Exchange Rate, 1980 - 1994 (1980= 100) (1980= 100) 700 120 soo6_24 s ! 100 - g1 500 A 2~~~~~~~otswana 80 400 Lsotho Botswana

A ~~~~~~~~~ASouthAfrica go ____Lesoth 300 -X~~~~~~~~'*-Swaziland A~ SouthAfte 200- _ - - -Index G0 Swaziland 200 -+ * t: 40 : 0 ~- ; __

1001 I-^l=~ll ~ ; | 0 20

0

0~~~~~~~~~~~~~~~~~

Soure: IMFesumates. Sonc.-: IMF esimates.

Consumer Price hidex, 1980 - 1994 Index of Real Effective Exchange Rate, 1980 - 1994 4000 (1980= 100) 300 (I980 = 100)

250 ______3000

2500 /O\ 200 Mozambiqu

2000 ; - / Mzabq 5 2 mbobweZ-1-0i

1500 -*-Zimbabw e -00 DOD ______W 9 q,~~~~~~~___ nce

500 ______50: 100

Source:IMF esimate Sorce: IMF eu-maes.

Page 4 of 4 Agriculture and EconomicReform in Sub-SaharanAfrica

V. FoodMarketing

T his section describes the effects of economic reforms on food marketing in a number of countries se- T lected from the table below, drawn from a World Bank study.5 7

Government Intervention in Marketing Major Food Crops

Country tCrop Before Reforms Late 1992 Benin Tubers * O Burkina Faso Millet, Sorghum * o Burundi Beans C) O Cameroon Cassava X O Centr. African Rep. Cassava * C Chad Millet, Sorghum o o Congo Cassava ©9 C C6te d'Ivoire Tubers C) o Gabon Cassava C) o The Gambia Sorghum, Millet * o Ghana Tubers C) O Guinea Rice C) Guinea - Bissau Rice 0 C) Kenya Maize 0 0 Madagascar Rice 0 C) Malawi Maize 0 X Mali Millet, Sorghum * C Mauritania Millet X 3 Mozambique Maize 0 C) Niger Millet * C Nigeria Yams O C) Rwanda Sorghum o C Senegal Millet, Sorghum 0 o Sierra Leone Millet, Rice C) Tanzania Maize 0 Togo Maize X C Zambia Maize * 0 Zimbabwe Maize 0 i * Major restrictionson purchases and sales X Limited interventionby government buying agency C) No intervention exceptin food security stocks Source: World Bank staff

85 57 World Bank, Adjustment in Africa...,1994,op.cit., Table 3.3, p. .

37 AFTES Working PaperNo. 18

A. Maize MarketingReform in Easternand SouthernAfrica M aize marketing reform has proven to be arduous in Eastern and Southern Africa. The package of reform measures has been similar in several countries, and has typically taken a long time to im- 1\4 plement, with progress only gradual and incomplete towards the ultimate goal, which has all along been a smoothly-functioning, efficient private sector grain trade. The common package has included moving farmer prices towards export or import parity, announcing administered prices in a more timely fashion in relation to the planting times of crops on farms, speeding up payments to farmers, eventually liberalizing prices altogether, relaxing maize movement controls and other restrictions on the trade, and restructuring parastatal maize marketing companies. The latter has typically included re-organizing the company, changing its management and financial procedures, reducing the scope of its commercial operations in vari- ous commodities, moving it towards being a buyer and seller of last resort (BSLR) arid/or guardian of food security operations and stocks (reducing the level of the latter, and planning them on a more rational basis), putting it on a sounder financial footing by writing off its accumulated debts and agreeing performance con- tracts (under which the government undertakes to underwrite the costs incurred by the company in carrying out the non-commercial functions which the government now wants it to fulfil, and the company in its turn undertakes to reduce its costs of operation, often by reducing staff, selling or leasing assets, closing buying centers, and so on). In very few cases have parastatal cereal marketing agencies been abolished or privat- ized.

KENYA In Kenya, such a process of reforms began in 1982 with the Second Structural Adjustment Operation. This early SAL contained provisions for improving farmer incentives through moving to import parity pricing, compensating from the Treasury the National Cereals and Produce Board (NCPB) for its market develop- ment activities, and carrying out a study "to determine the appropriate market structure" for maize. Under two subsequent sector adjustment operations (both cofinanced extensively by a variety of donors) and in cross-agreements with the EC and USAID, both of which provided substantial additional financial support (the EC under a Cereals Sector Reform Program), the government committed itself to the various liberaliza- tion steps outlined in the first paragraph above. On at least two occasions the government wrote off the ac- cumulated debts of the NCPB, which at one point had mounted to 5 percent of the country's GDP.-8

In April 1992 the government raised the limit on the amount of maize that private traders could transport without a permit from 44 bags to 88 bags (8 tons). But this was only the first step expected under the reform program, and it was already five months later than anticipated. The final step, announcing a date in 1992 for removing all controls on domestic maize movement, was not taken, and instead, in November 1992, the govermnent reimposed the former permit system. Thus, in the course of the Second Agricultural Sector Adjustment Operation, after a decade of slow progress on the reforms, the government reversed sev- eral of its achievements to date, reintroducing maize movement controls, halting the remaining steps to- wards price liberalization and restructuring of the NCPB, approving an inadequate performance contract, raising the levels of maize reserve stocks under consideration instead of lowering them, and falling short of moving the NCPB towards being a BSLR. What did remain was a significant reduction of the activities of the NCPB in both primary (grain) and secondary (milling) markets, a descheduling of most of the crops it was buying (including liberalization of the wheat trade), and a taste, in those intervals when movement restric- tions were lifted, of the growth possible in private trading. The second tranche of the adjustment credit was cancelled by the Bank, largely because of the failure to sustain the critical condition related to abolition of maize movement controls.

58World Bank, Kenya. Second Agricultural Sector Adjustment Operation, President's Report, December 14,1990

38 Agriculture and EconomicReform in Sub-SaharanAfrica

In late 1993 and early 1994 another phase in the saga began, when the government, under pressure because of poor harvests in 1992 and 1993, and needing to import maize quickly, agreed again to complete liberalization of maize imports, and of movement of maize within the country. The government announced that all restrictions on maize movement and all price controls had been removed. The government also agreed that the primary role of the NCPB would be management of strategic maize reserves, whose level would be half the level the government had set as the minimum for the past seven years. In lieu of the "other half" of the physical strategic reserves, the government would maintain an equivalent financial sum in a for- eign currency reserve fund.

The latest marketing reforms for maize are new, and have not yet borne their full fruit. It will be vi- tally important for the government to sustain a commitment to liberalization throughout the marketing sys- tem from farmer to consumer. However, the state monopoly has a long history, going back to the early years of the Second World War, surviving at least seven commissions of inquiry, two structural adjustment loans and two agricultural sector adjustment credits, distorting the location of maize production over its long his- tory, and earning substantial rents for larger farmers (frequently those in political power).5 9

The antecedents are therefore not promising for the prospect of thorough reform which will be sus- tained. Mosley argues convincingly that the Bank found it relatively easy to gain agreement to import parity prices because there was a strong lobby of large farmers in place in favor of this, and it was not a demanding administrative step. Decontrol of maize marketing, by contrast, scored badly on both of these characteristics. The large farmer lobby was not so much in favor, and achieving it would "require the collaboration of thou- sands of people over a period of years."60 However, if a change such as that of early 1994 could be sustained, a new set of vested interests would be built up, and gradually the new policy would become more difficult to reverse. It is hard to tell at this stage how many more years the Bank may have to deal with this issue before it is resolved.

TANZANIA In Tanzania, before economic reforms marketing boards held statutory monopoly in the procurement and distribution of grain. Prices were set pan-territorially (regardless of transfer costs). The currency was over- valued and prices of agricultural products were low. There were substantial consumer subsidies, and do- mestic foodgrain prices were disconnected from movements in exchange rates, interest rates and inflation. The parastatal National Milling Corporation (NMC) had a legal monopoly over procuring, processing and distributing eight major food staples, including maize. In spite of this monopoly, and their being officially banned, it is estimated that more than two thirds of the maize marketed may have been handled by private traders.6" This system was characterized by inefficiencies in marketing, and a heavy burden on the public exchequer, while the distorted prices encouraged food production in areas far away from the main consum- ing centers.

59 Citing a speaker in the 1942 LegislativeDebates who described the maize marketing system as "the most barefaced and thorough-going attempt at exploitation the people of Africa have ever known since Joseph cornered all the corn in Egypt," Mosley noted that "This system has tended, for nearly half a century, to open up a large gap be- tween producer and consumer prices of maize and, as a consequence,inhibit regional specialisation in the produc- tion of the crop, since consumers have found it cheaper to grow maize themselves, however unsuitable the soil and climate, than to pay a retail price containing an element of monopoly profit." Paul Mosley, "Kenya",in Paul Mos- ley, Jane Harrigan, and J.F.J.Toye, Aid and Power: The World Bank and Policy-BasedLending, Routledge, London and New York, 1991,Vol. II, p.2 84 . 60 Mosley,op. cit. p.291. 13 8 61 World Bank, Tanzania, Agricultural Sector Memorandum, Eastern Africa Department, Vol. II, July 29,1994, p. .

39 AFTES Working PaperNo. 18

The marketing of food crops has been progressively liberalized since 1984, beginning with decontrol of maize flour prices, and relaxation of domestic crop movement restrictions for quantities less than 0.5 tons (raised from the former level of 30 kg!), both in that year. Subsequent steps included decontrol of the price of maize grain in 1985, removal of consumer subsidies in 1986, and elimination of all movement restrictions in 1987 along with establishment of a strategic grain reserve under public control.6 2 By 1987 private traders could purchase grain from cooperatives in competition with the National Milling Corporation, although marketing outlets were still confined to the primary cooperative societies. By 1989, the markets for all grains except wheat had been decontrolled at the primary society level, and exports of all grains except wheat and rice were allowed. By 1990 all other restrictions on private grain purchase at the farm level had been re- moved, although strategic grain reserves were still being held.

Throughout the period of reform, traders remained in a state of uncertainty about government in- tentions. Although quantity restrictions were removed in 1987, traders were still not permitted to purchase directly from farmers. Instead they had to buy from primary cooperative societies or other official agencies, whose administered prices did not reflect economic costs. Furthermore, the 1962 legislation outlawing pri- vate traders was not repealed. Private traders continued to purchase directly from farmers at parallel market prices, but the slow official relaxation of the conditions related to source of purchase made traders uncertain about the government's commitment to complete liberalization. The direct result of this uncertainty was re- luctance by traders to carry out serious investment in storage or marketing structures.

In addition, the extremely poor condition of feeder, regional and trunk roads resulted in high trans- port costs - private traders did not even visit some areas where the costs of primary marketing were from 9 to 40 times those of secondary marketing.6 3 Besides being hampered by legal restrictions, private traders were unable to obtain formal credit, which was still confined to cooperative societies for grain purchases. In spite of these obstacles, private traders have succeeded, in the context of partial liberalization, in providing a market for farmers in accessible localities, improving food supplies, and stabilizing food prices in urban ar- eas. The increase in competition which has occurred to date, even though still restricted, has already re- duced profit margins in private trading.

Although it is hard to sort out the effects of the reforms from those associated with fluctuating rain- fall, the reforms appear to have contributed to both a rise in maize production (an index with average pro- duction in the two years 1984/85 to 1986/87 equal to 100, shows production at 75-80 in the four years prior to reforms, and 105-141 in the four years after reforms. Between 1983/85 and 1986/88, real maize prices dropped by 50 percent, although the majority of this fall represented recovery from the severe drought. Re- moval of the distortion caused by pan-territorial pricing more than halved the real price differential between the Southern Highlands (a low-price, major producing region) and Dar es Salaam (a major consuming area). There is some evidence of a small reduction in seasonal price variations for maize, in all regions except the South Coast, which is not yet well integrated into the market. By 1988, small traders provided 70 percent of the grain needs of Dar es Salaam, and the role of both NMC and cooperatives in the markets had declined.6 4

There remain further steps that could be taken to strengthen the private trade system which by 1992 had come to dominate marketing of almost all of the food grains traded in Tanzania.65 Clarifying the legal

62 StephenJones, Agriculture and EconomicReform in AfricanSocialist Economies, Food Studies Group, Oxford Uni- versity, Draft March, 1993,p. 50. 63 H.K.R.Amani, Rogiervan den Brink and W.E. Maro,Tolerating the Private Sector:Grain Trade In Tanzania After Adjustment, Cornell Food and Nutrition PolicyProgram, Working Paper 32, November,1992, p. 36. 64All data in this paragraph are from World Bank,July 29,1994, op. cit.,pp.13 9-142 . 65These proposals are drawn from World Bank,ibid., pp. 14 3-14 6.

40 Agriculture and Economic Reform in Sub-Saharan Africa

position of private traders, both domestically and externally, would help them qualify for financing based on their inventories. The Agricultural Products Act of 1962 (which originally banned private grain traders and enthroned cooperatives), and the NMC Act No. 22 of 1984 are especially in need of revision. Among other things new regulations should introduce and enforce reliable standard measures, which have been a source of suspicion between farmers and traders in some regions of the country, where traders insist on carrying out transactions in bags, which have no uniform volume or weight.6 6

There would be significant benefits to improving the information available to all participants in the markets from producers to consumers. Encouraging private traders to store grains between seasons would reduce seasonal price fluctuations. The external market in food grains (including maize) needs to be opened up, to the benefit of all countries in Eastern and Southern Africa, which need to trade foodgrains with one another from time to time when they experience shortfalls and surpluses. Foodgrain production in Tanzania is both more stable than that of countries to its south, and tends to increase in years when the others are de- creasing. Finally, management of the strategic grain reserve needs to be improved, to cut its costs of pro- curement and distribution and to develop appropriate guidelines for rebuilding and releasing its stores.

MALAWI In Malawi, maize is widely grown throughout the country, and is available year round. Before adjustment maize had always been traded privately, and until 1980-1981 the Agricultural and Marketing Development Corporation (ADMARC) sometimes used private merchants as buying agents. The marketing services pro- vided by ADMARC, however, attracted a large part of the non-local maize trade, leaving only the local maize trade for smallholders. ADMARC, established in 1971, subsidized inputs (fertilizer), stabilized prices and marketed all the maize assembled. Until the early 1980s, ADMARC provided assured and reliable mar- kets for smallholder output. ADMARC's ability to perform this marketing function was impaired in 1985- 1986 when it made a loss in its overall crop trading account. After this crisis, it was able neither to buy all the produce offered nor to meet demand for fertilizer.

In order to address financial crises of the public sector produce marketing agency (ADMARC), in- crease the efficiency of agricultural marketing, and allow prices to reflect more accurately the regional and seasonal demand and supply situation for agricultural commodities, the government undertook a series of agricultural marketing reforms, beginning under SAL III in 1986, and continuing under subsequent adjust- ment operations, including ASAC. Achievements so far have included a significant expansion of private maize trade with more traders operating outside their home areas, closure of some ADMARC buying centers (though less than agreed), and some increase in the differential between retail prices in private markets and ADMARC prices.

Progress has, however, been constrained. By 1992 a web of restrictions remained in place around private traders, who had confined themselves largely to short-haul bulking up for ADMARC, were shut out of private export trade, were heavily concentrated geographically, faced severe transportation problems and limitations on their access to credit, and were still subjected to official inspections on the roads which added to their resource outlays. ADMARC, on the other hand, continued to operate a network of buying points only marginally less dense than it had before reforms, and was still far from attaining the role which the re- forms had set as its goal, namely being a buyer and seller of last resort (BSLR). ADMARC made little at- tempt to monitor the market, or target its sales and purchases in order to stabilize prices; when unable to

66 J. Coulter and P. Golob, Liberalisation of Cereals Marketing in Sub-Saharan Africa: Implementation Issues, Report No. 2, Tanzania - A Case Study, Natural Resources Institute (U.K.), November, 1991, p.45.

41 AFTES Working PaperNo. 18

procure enough of a crop it did not raise its purchase price, but instead just banned private trade; ADMARC still cross-subsidized its functions, especially from lucrative export activities, which undermined traders.6 7

In November 1992, the Secretary for Agriculture - with the agreement of other concerned Ministries and organizations - forwarded a revised draft of the Smallholder Agricultural Produce (Marketing) Regu- lations to the Secretary for Justice, for processing. These revisions mandated that a license would be required only for trade and not for merely moving goods from one point to another, and would reduce restrictions on times and locations of trading, while eliminating the requirement for private traders to submit monthly re- turns on their transactions. Adoption of these measures may lead gradually to further market liberalization. In the meantime, those traders who have entered the marketplace have an obvious need for credit, and could benefit significantly from training in their small businesses. Pilot efforts to address these needs are also being introduced under ongoing projects. Better rural infrastructure would also greatly facilitate private trading.

In 1992 private traders demonstrated what they could do by paying producers more than ADMARC, and taking market share from it. Subsequent droughts have helped to keep ADMARC in the maize distribu- tion business, in part because of its role in handling imports. The government still sets minimum and maxi- mum prices in its annual agricultural price review, which takes account of prices of substitute commodities as well as inputs such as fertilizer. During 1994 the domestic currency was devalued substantially, resulting in increased fertilizer prices, and the government in its 1994/95 price review also raised substantially the in- dicative floor and ceiling prices for maize.

ZAMBIA Agriculture in Zambia is mainly rainfed, and is dominated by smallholders. Before adjustment the economy was characterized by slow growth, falling real incomes, high inflation rates, an over-valued domestic cur- rency, price controls and trade restrictions. These had a negative effect on agriculture, whose growth rates were below the population growth rate between 1970 and 1988. In real terms, the growth of GDP between 1980 and 1987 is estimated to have averaged only 0.2 percent p.a., and real GNP per capita is estimated to have halved between 1980 and 1989.58 Maize production takes up between 60 and 70 percent of the culti- vated land. Government intervention was strongest in maize production and marketing, where the Provin- cial Cooperative Unions carried out all trading between districts, and the primary cooperative societies han- dled local markets, as agents for the government. Producer prices were set by government on a pan- territorial basis, and maintained the same throughout the season.

The government subsidized the costs of transport, handling, storage and management incurred by the cooperatives, as well as subsidizing coupons for poor urban households. These policies, beside placing tremendous strains on the exchequer, were reckoned to have resulted in a substantial shift in maize produc- tion from low-cost regions close to the urban consumption centers, to higher cost regions further away.6 9 The subsidies encouraged expansion of maize into marginal areas, and discouraged yield growth through adop- tion of new technologies.7 0 Maize consumers purchasing their food supplies from the market, mostly in ur- ban areas, benefitted from the policies, which corresponded to an annual average price subsidy of 52 percent.

67 Oxford Food Studies Group, Study of the Impact of the Liberalizationof SmallholderAgricultural Produce Marketing in Malawi, March, 1992.

68 Julius J. Shawa, "Zambia,"in Alberto Valdes and Kay Muir-Leresche(eds), op. cit., p.139.

69 World Bank, Zambia: AgricultureSector Strategy:Issues and Options, Southern Africa Department,January 20, 1992, p.49. 7 0 Kumar, Shubh K., Adoption of Hybrid Maize in Zambia:Effects on Gender Roles,Food Consumption, and Nutrition. InternationalFood Policy Research Institute, ResearchReport 100,December 1994.

42 Agriculture and EconomicReform in Sub-SaharanAfrica

The program of economic reforms begun in 1985 was dropped after food riots in 1986-87, which were initiated by increased prices for maize meal. Subsequently, maize meal prices were frozen for three years, and did not rise again until they underwent a substantial increase in 1989, in the context of a reform program which began with a 25 percent devaluation of the domestic currency in November 1988. The re- form program for maize was designed to decontrol prices, establish a floor price mechanism with some flexibility by region and season, eliminate transport subsidies, encourage private trading, and put in place clear guidelines for operating and financing the strategic reserves of maize, all in a series of steps over the years from 1990 to 1993.

Although substantial reforms have been undertaken, there has been some hesitation and the reforms remain incomplete. Price controls have been eliminated, and steps taken to liberalize product and factor markets. Private participation in marketing has been encouraged, and a floor price system implemented that guarantees border price equivalents to producers. Restrictions on agricultural exports and imports have been abolished. But growth of private sector marketing has been slow in part because of tight monetary policy, and in part because the government has been slow to divest public storage and processing facilities. Policy conditions attached to the Agricultural Sector Investment Program,71 which was approved in Febru- ary, 1995, are designed to tackle some of these remaining issues.

ZIMBABWE In Zimbabwe, maize marketing reform measures of the type outlined in the first paragraph above have been much more recent, beginning only in 1991.72At Independence in 1980, the new government was faced with a highly dualistic agriculture, divided between a large scale commercial farming sector, for whose benefit the interventionist activities of the public sector Grain Marketing Board (GMB) were designed, and smallholder farmers in communal areas where free trade existed more or less untouched by the official marketing system. Through the 1980s the government engaged in two main activities: raising to the extent possible the maize price to farmers to stimulate production, and increasing by 58 percent the number of permanent depots op- erated by the GMB, with all of the new depots serving smalHholder areas. These policies, building on a backlog of available hybrid maize technologies, and aided by a national infrastructure of roads, agricultural research, and farmer support institutions built up by commercial farmers in the previous fifty years, were initially and rapidly successful in raising smallholder maize production, which almost doubled between 1980 and 1986, from 738,000 to 1.3 nillion tons.73 Unfortunately, the policies were not fiscally sustainable.

The sharp rise in producer prices in the early 1980s led to a large increase in the GMB's financial deficit, which the government addressed by widening the margin between GMB buying and selling prices, subsequent freezes in nominal maize producer prices (which reduced the price in real terms), and encourag- ing diversification out of maize production. At various stages through the decade, the official producer price was raised (e.g. at the beginning of the 1987 drought) and lowered in real terms. The continuation of maize movement controls, a strong official orientation towards rural-to-urban grain flows, and lack of private trading in communal areas, resulted in high rural undernutrition coinciding with large national food stocks. Export activities of the GMB were loss-making because of high transportation costs and overvaluation of the domestic currency.

71World Bank, Zambia: Agricultural SectorInvestment Program, Staff Appraisal Report, November 21,1994, Annex 1, p.l. 72The account in this paragraph is based substantially on the following paper: Stephen Jones, Dilemmas of Agricultural Marketing Reform Under Structural Adjustment in Zimbabwe: Maize Marketing Policy, in Franz Heidhues and Beatrice Knerr (eds) Food and Agricultural Policies Under Structural Adjustment, Seminar of the European Asso- ciation of Agricultural Economists (Hohenheim, 1992), Lang, 1994. 73 Eicher, Carl K., Zimbabwe's Maize-Based Green Revolution: Pre-Conditions For Replication, World Development, Vol. 23, No. 5, pp. 805-815,1995

43 AFTES WorkingPaper No. 18

Under an Economic Structural Adjustment Program (ESAP) begun in January 1991, the government committed itself to progressive removal of price controls, reduced expenditures on subsidies, relaxing import licensing and foreign exchange controls, and movement towards a market-determined exchange rate, the reforms to be fully in place by 1995. The reforms include liberalization of maize marketing, elimination of parastatal deficits, and a new price stabilization role for the marketing board. Actions so far have included increases in maize consumer prices, selective reduction of milling subsidies, partial dismantling of movement controls, and significant diversification of maize production towards yellow maize. But there has been little progress towards more flexible pricing, or development of private trading in communal areas, and the new, severe drought of 1992 interrupted the forward movement of reforms, necessitating another sharp rise in producer prices.

The price stabilization dilemma One analyst used Malawi, Zambia and Zimbabwe as case studies to illustrate a dilemma with which gov- ernments have to wrestle in liberalizing their food markets.74 The dilemma is how to protect producers and consumers from the high costs associated with large fluctuations in prices, while at the same time realizing the efficiencies to be gained from free markets? The analyst argued that governments should act to stabilize food prices, actively buying and selling in the market, in a carefully calibrated way, when needed to dampen the very wide price movements which can result from the rainfall patterns common in eastern and southern Africa. By doing so, in the analyst's opinion, they would be likely to achieve higher rates of growth than if prices were left to gyrate in complete freedom. The analyst's view is a variant, albeit a more sophisticated one, based on econometric modelling, of the arrangements that several of the countries have moved towards, when rather than disbanding their grain marketing parastatals completely, they have retained them in some sort of role as buyer and seller of last resort, with a mandate to stabilize markets in the interests of food se- curity.

Disagreements about such interventions have been endless in marketing circles. One element of the debate is the observation that fluctuations in grain production and pnices are generally of a greater magnitude than fluctuations in producer incomes which result from the generally opposite movements of output and price. It is interesting that in the particular case mentioned here, the analyst's own editors, summarizing the papers in an overview, could not resist the following caveat in a footnote: "Important empirical and theoreti- cal studies suggest that price instability might be offset in part by risk-spreading investment and output, and that at least macroeconomic performance is not clearly adversely affected by the instability of commodity prices. Given the questionable economic record of parastatal marketing boards and strategic grain reserves in Africa, it is difficult to endorse at face value the view presented in the paper that government agencies might be counted upon to stabilize prices more efficiently in the future, following modest "leaning against the wind" or other enlightened operational rules generated by econometric models."7 5

Lessons Lessons from the above include the following:

Maize marketing reforms, without exception, have taken much longer, and proven substantially more difficult to implement than their designers foresaw. The slow progress has meant that the expected

74Thomas C. Pinckney, "IsMarket LiberalizationCompatible with Food Security?Storage, Trade, and Price Policies for Maize in Southern Africa," in Alberto Valdes and Kay Muir-Leresche (eds), Agricultural Policy Reforms and Re- gional Market Integration in Malawi, Zambia, and Zimbabwe, International Food Policy Research Institute, 1993, pp.171-205.

75 Alberto Valdes and Kay Muir-Leresche (eds), op. cit., p.5.

44 Agriculture and Economic Reform in Sub-Saharan Africa

benefits of reform have also been slow to materialize, increasing the difficulty of maintaining momen- tum.

* The easiest measures to implement have been moving producer prices towards export or import parity; the hardest, restructuring parastatals, and negotiating their withdrawal from a mainstream commercial role.

* The typically intense and comprehensive vested interests in current marketing arrangements mean that developing ownership of reform programs is difficult. None of the programs so far has tried mobiliz- ing support among the main beneficiaries - commercial producers who benefit from higher prices and more timely payments; it would be worth trying.

* More work is also needed to build up consensus and support within the sector ministries and agencies, which perceive the financial benefits of structural adjustment as flowing largely towards the Ministry of Finance.

* In spite of almost universal agreement (among donors, at least) that the goal for a parastatal marketing agency should be to become a buyer and seller of last resort, fulfilling price stabilization and food se- curity functions, in no case has this been achieved to provide a model for study. Therefore, there re- main uncertainties about the concept's viability. And among analysts of agricultural policy reform, there also remain differences of opinion about the wisdom of encouraging such arrangements, as was seen above. Therefore the ultimate fate of restructured grain marketing parastatals is still to be worked out over time.

* Proper sequencing of reforms is important to maintain consistency of goals and coherence of results. Maize reforms cannot be implemented in isolation from other farm enterprises which compete with maize production and can have unexpected effects on farmers' production decisions. In Zimbabwe, maize was stimulated, and then undermined prematurely, when production incentives for controlled and uncontrolled commodities got out of sequence.

* Private sector development only begins, and does not end, with price liberalization and removal of movement controls. Problems commonly observed include continuing restrictions on, and harrassment of private traders, severe road and transport constraints, lack of access to credit, lack of good market in- formation systems, and the need for management and financial training of potential entrepreneurs. Moving from a restrictive to a strong and supportive regulatory framework, with clear guidelines and enforcement thereof, and transparency and consistency of purpose, is especially important.

* Unpredictable events, such as droughts, can play havoc with reform programs, and in particular weaken an already fragile political resolve on the part of governments. The possibility of reversal of re- forms is always present.

* Large increases in the efficiency of marketing, which would allow producer prices to be maintained at incentive levels while consumer prices were reduced, remains the most important goal of reform pro- grams. Evidence of the impact of even the partial reforms so far achieved confirms the possibility of moving towards this goal.

45 AFTES Working PaperNo. 18

B. Other Countries and Other Crops

T he discussion which follows reviews the sometimes limited information available about other food- crops in selected countries engaged in economic reforms. The main food crops in many countries are rIFroots and tubers, such as cassava, yams, and taro, which are frequently overlooked, or treated curso- rily, in analysis of the agriculture of these countries. Their high bulk and low value for weight make them more expensive to transport than the more "dense" cereals, but nevertheless there is a vigorous trade in them, which crosses borders in some instances. It is therefore a mistake to divide analysis of agriculture into dis- cussion of "cash" crops and discussion of "food" crops, as though the latter rarely enter the market. But their characteristics favor small scale in marketing, and relatively local sales, which may be the reason why they have been less frequently than cereals the target of government policies, and their marketing less often allo- cated to parastatals and large monopolies.

Tubers Tubers and root crops are the main staples in Benin, Cameroon, Central African Republic, C6te d'Ivoire, Ga- bon, Ghana,Nigeria, and Uganda. In most countries marketing of roots and tubers has proceeded with very little interference from the government. Transport costs are a strong factor affecting their marketing, how- ever, and practices such as harassment of traders by police at roadblocks (Benin) can raise these costs even further. In Cote d'Ivoire the margin between producer and retail prices is high, with estimated ratios of retail to producer price around 2.6 for yams and 2.9-3.2 for cassava.76 One reason is the cost of transporting these high bulk, low value commodities over long distances. These distances have increased as the population of the capital city increased, taking them further away from the areas of production. A second reason is that as the economy declined in the late 1980s, the marketing chain between farm and urban consumer is believed to have lengthened, with more intermediaries taking up marketing activities as a way of earning some small incomes. As a result of these factors, food prices rose substantially faster than the overall price index during the 1980s.

Production of tubers in C6te d'Ivoire increased markedly during the 1980s, yams growing by 43 per- cent from 1980 to 1991, compared with about 33 percent in the decades 1960-70 and 1970-80; production of cassava grew by 55 percent, compared with 87 percent in the 1970s, and 20 percent in the 1960s; production of taro and plantains also increased by more than 40 percent during the 1980s.7 7 The combination of appre- ciation of the real exchange rate and falling world prices for exports may have induced farmers to turn to altemative enterprises such as domestic food production, especially those whose prices were rising. The re- verse appears likely to happen with the devaluation of the CFA franc, although the working through of the impact of the devaluation in rural areas will be complex, as discussed elsewhere.

Among other things, the costs of transportation will increase, a further strike against the high bulk low value tubers, which have to be carried long distances to reach the urban market. When they reach the market, however, it will help them that the devaluation should have increased the price of imported rice, if the exchange rate effects are allowed their full sway (imported rice has been subsidized in the past in C6te d'Ivoire). While the income elasticity of demand for yams is estimated to be positive (0.79), that for cassava is thought to be negative (-1.30)78,suggesting that as incomes increase, especially in urban areas, the growth of demand for yams is likely to outstrip that for cassava.

76ibid., p.46. 77ibid., p.43. 78 ibid.,p.46.

46 Agriculture and Economic Reform in Sub-SaharanAfrica

In Gabon, where cassava is the main food staple, pricing of the traditional food crops has always been determined by forces of supply and demand. Farmers complaints are mainly that prices are too low and there is competition from cheap imports, especially from Cameroon. Labor costs are high because of a higher minimum wage in Gabon than neighboring Cameroon, productivity is low, and there are inefficien- cies in storage and transportation. Marketing outside of limited, local areas is inhibited by extremely poor roads. The transport limitations make it difficult for domestically produced cassava, outside of the immedi- ate locality where it is produced, to compete with imports from neighbouring countries. Food imports in- creased by 15.5 percent annually between 1982 and 1987. Rapid increases in per-capita income, growing ur- banization of the population and a shift in urban demand toward non-traditional foods have contributed to the greater demand for food imports (such as rice), at the expense of traditional foods made from cassava.

In Ghana also, there have been few government interventions in marketing of roots and tubers, but the impact on their trade of deteriorating transportation systems has been especially acute, because of their relatively low value relative to weight. The numbers of operating trucks appear to have declined almost con- tinuously from the early 1960s to the early 1980s, with lack of maintenance, and an attentuated flow of spare parts and new vehicles as the economic crisis deepened. By 1983, perhaps 70 percent of the road vehicle fleet was out of service because of lack of tires and spare parts.7 9 This has had a progressive effect on marketing of tubers, because they have always been traded in huge aggregate quantities in Ghana, including across borders into neighbouring countries.

In Nigeria,8 0 the adjustment program was begun in 1986, with a devaluation which raised prices of non-food consumption goods. Prices of food were particularly low at the time because of unusually good harvests, but between 1986 and 1989 they rose by between 200 and 500 percent in nominal terms and 16-60 percent in real terms. The sharp increase in food prices in 1988 resulted from a major fall in production cou- pled with a ban on food imports, especially of maize, millet and sorghum. Although the data on production from different sources are conflicting and raise doubts about their authenticity, estimates by the Central Bank and the Nigerian Institute of Social and Economic Research suggest that between 1986 and 1992 production of yams rose by more than 250 percent, and that of cassava by about 160 percent, much higher rates of in- crease than the longer-term averages.8 1 It is likely that these increases in production were driven by high prices for competing cereals, greater availability of labor in the rural areas after adjustment, lifting of the drought, and investments throughout the country in Agricultural Development Projects (ADPs) which in- cluded a substantial expansion of extension services as well as rural infrastructure.

The ban on imports of all cereals led to their disappearance from official markets, with a recorded fall from more than 2 million tons in 1983 to next to nothing in 1988. However, estimates of illegal imports suggested that, by the late 1980s, rice and wheat were being smuggled into the country at a level of at least 400,000 tons.8 2 The import bans also contributed to sharp increases in cereal prices arising in part from other factors. By 1989, domestic prices of wheat and rice were more than 50 percent above their import parity lev- els, while those for maize were 12 percent above. Liberalization of the trade in cereals would moderate year to year fluctuations in food supply and prices, given the possibilities for substitution between cereals and yams.

79 J. Dirck Stryker et. al., Trade, Exchange Rate, and Agricultural Pricing Policiesin Ghana, World Bank Comparative Studies in the PoliticalEconomy of Agricultural Pricing Policy,1991. 80 World Bank, Nigeria: Strategy for Food and Nutrition Security, 1991.

81 World Bank, Nigeria: Structural Adjustment Program: Policies, Implementation, and Impact, Western Africa Depart- ment, May 13,1994, p. 66. 82 Strategy for Food and Nutrition Security, op. cit., p.4 9.

47 AFTES Working PaperNo. 18

In Uganda, 8 3 bananas, the major food staple, account for about 50 percent of total tonnage and cover a third of the 3.9 million hectares under food cultivation. Together with roots and tubers, they contribute about 85 percent by weight of total food production. Maize is a relatively new crop for producers. Real food prices increased sharply in 1979/80 and 1985/86. There has been no report of direct intervention in the in- ternal marketing of bananas, or of roots and tubers. A persistent problem is susceptibility of current planting material to diseases: black sigatoka, fusarium wilt, nematodes and weevils affecting bananas; cassava mosaic, green spider mite, and bacterial blight for cassava; and sweet potato viruses. These limit the yields of these crops.

In the past 5-7 years since the economic recovery program began in 1987, higher food prices, al- though more volatile, have given farmers incentives to switch from traditional cash crops to food production. The ratio of producer prices of banana to coffee has generally increased from the early 1970 levels. Food de- mand is expected to grow at around 4.5 percent per annum in the medium term, taking into account both income and population growth effects. This is also the rate at which supply must increase to keep relative prices constant. The income elasticity of demand for bananas is less than one. A major constraint to the ex- pansion of food production and efficiency in food marketing is the scarcity of monetized transactions. It is anticipated that cash transactions in food will increase as roads are improved and extended. There is a need for research to breed more disease-resistant planting material.

BU RKI NA FASO (Sorghum,Millet) Burkina Faso is one of the relatively few countries in Sub-Saharan Africa which has attained positive growth rates in per capita incomes and food production. In spite of this performance the prospects for long-term food security are still not bright. The latest World Bank report (1990) indicated that about half of the popu- lation are food insecure. Environmental degradation, demographic growth and poverty are a few of the ex- planatory factors.

After the droughts of the 1970s, successive governments have been much concerned about how to enhance food security. Food production has been increasing in the 1980s, largely as a result of good rainfall and increasing domestic demand. Before adjustment, in pursuing a food security goal, governments inter- vened in food pricing and trade. These policies deterred market clearing rather than enhancing food secu- rity. Each year at harvest, the government publishes official producer and consumer prices. Between the years 1983 and 1986, the local police were allowed to monitor and control prices, especially during the dry season when prices typically rise by about 50 percent above the harvest price.

Since 1987, there have been efforts to reassess these policies. Many of the regulations have since been abolished and price controls, quota and other supply control systems over the movement of cereals have been lifted. Traders are being encouraged to re-enter the market. The informal sector is playing an im- portant role in agricultural production and marketing. However, external trade is still controlled through marketing boards. There has been a positive response to the marketing changes. Over the period 1984-89, the annual growth rate of GDP increased to 8 percent p.a. for the decade 1984-89. Information systems have been established, which help farmers by providing data on cereal production and regional demand pros- pects.

83 World Bank, Uganda: Agricultural Sector Memorandum, 1993.

48 Agriculture and Economic Reform in Sub-Saharan Africa

BURUNDI84 In the 1960s the government launched a program aiming at self-sufficiencyin the traditional food-crops, based on subsidization of inputs, while taxing agricultural produce. This suppressed output and promoted inefficient use of inputs. Moreover administered prices were based on cost of production instead of value added, which led to inefficienciesand low farm prices. And the government's top-down approach created research and extension institutions which did not respond to the need of the people to intensify agricultural production.

The government's structural adjustment program began in 1986,and a new agricultural sector policy was designed in 1988, and implemented under the auspices of an agricultural sector adjustment loan in 1989. These new policies represented a shift from government control from producer and processor to a role of regulator and promoter, and aimed to enhance the role of the private sector and cooperatives. The market- ing of food crops and inputs was liberalized. One of the strengths of the economy is a well developed trans- portation and agro-industrial infrastructure. The supply response, however, has been lower than expected due mainly to inadequate access to land and agricultural inputs (fertilizer), poor soil fertility, availability of cheap food imports from Tanzania and Zaire; and lack of confidence by farmers in political and economic consistency.

THE GAMBIA (Sorghum,Millet) 85 With a flexible exchange rate, the Gambian economy has long been relatively open to its regional and global markets, and there is no margin between officialand parallel exchange rates. There has been a trend towards diversification of the economic activity from cereals production to import and re-export. Before adjustment there were no direct controls on producer and consumer prices for sorghum and millet, but there were sub- sidies on fertilizer, and there were import restrictions. Under the economic reform program all restrictions have been removed. Small subsidies on fertilizer remain. Structural adjustment was accompanied by an in- crease in foreign aid, on top of levels already high compared to Africa as a whole.

As a result of the economic reforms, the state no longer intervenes in food markets except for man- agement of national security stocks. Liberalization of cereals markets in this country is almost complete, and domestic production of cereals is increasing faster than population. With unrestricted imports of all cereals and cereal products, the inflow of cereal imports (especiallyrice) is also increasing.

G U I N EA (Rice) Since the mid-1980s, there have been significant changes in the macroeconomicenvironment and a substan- tial liberalization of trade and marketing of food staples, especially rice. The policy measures adopted in- cluded dissolving the state enterprises which distributed food products, ending food rationing, elminating the fixing of producer prices, removing roadblocks for movement of food inside the country, and ending quantitative restrictions on imports. Production of rice has risen substantially through the 1980s, but not significantly faster than the rate of growth of population, so that production per capita has remained rela- tively level. One of the main constraints facing rice production in Guinea is a very poor transport network, coupled with a high degree of concentration of production geographically. Guinean rice is highly competi- tive if consumed in the area of production.86

84 World Bank, Burundi: Private Sector Development in Agriculture, September 13,1995. 85 OECD, Cereals Trade and Agricultural Policies in the Western Sub-Market, Paris, (1991). 86 World Bank, Republic of Guinea, Agricultural Sector Review, Discussion Draft, Occidental and Central Africa De- partment, June 30,1992, p.13.

49 AFTES Working PaperNo. 18

A long term agricultural development strategy, developed by the government from 1989 on, and announced after 1991 in a Letter of Agricultural Development Policy (LPDA) aims at achieving food security and reducing food imports, especially of rice and vegetable oils, in the long run. The LPDA proposes a vari- able duty on imported rice to protect domestic rice production. The policy appears to be aimed at fostering food self-sufficiency as the means to food security. Such a duty of course increases the price of rice in net consuming areas, and is a self-defeating approach to food security, unless it is regarded as a very short-term shield behind which efforts to increase the competitiveness of domestic rice production will be made at an accelerated pace. Those efforts need to emphasize technology and infrastructure, to promote intensification in lowland areas and take the pressure off the uplands.

MADAGASCAR (Rice)87 Rice production stagnated from 1974 to the mid-1980s when yields stopped increasing. Population growth and low urban prices for rice led to increased per capita consumption. Rice imports increased from 20,000 tons in 1970 to 350,000 tons in 1982. Government policy focussed primarily on public control over agricul- tural marketing, finance and external trade with active discouragement of the private sector. The marketing of major food crops such as rice was nationalized; marketing boards with monopoly powers were established and prices were set administratively. This enabled the government to heavily tax the agricultural sector. Domestic producer and consumer prices for rice were controlled and kept below import parity levels. This implied large subsidies to the urban sector, which reached 19 million FMG in 1981, equivalent to 2.5 percent of GDP. The government initiated a reform program in 1983, with a set of adjustments for the period from 1984-1990. The measures covered exchange rate devaluation, price and trade liberalization, and tax reform. It represented a reversal of the cheap urban food policy.

The agricultural sector and trade reforms were implemented first with rice (from 1983 to 1985) and then with other agricultural exports (1985 to 1992, all except vanilla). Initially the reforms concentrated on controlling inflation and the fiscal and balance of payments deficits, neglecting the provision of services and infrastructure. The response from the agricultural sector to the adjustment has been mixed, and there have been reversals of the reforms, which complicates the assessment of impact. Production of rice first took off in 1986, but stagnated because of poor market infrastructure (roads, markets and storage) and the absence of external trade liberalization and de-stabilizing government intervention. Generally, there has been an in- crease in the involvement of private traders and processors; higher farm-gate prices for paddy; lower per capita consumption of rice due to a switch to cheaper alternative foods; and elimination of the rice deficit, with no imports in 1992, compared to imports of 150,000 tons in 1985. The reforms reduced the level of both explicit and implicit taxation on agricultural crops. In spite of these changes, some of the constraints on effi- ciency in marketing of the food staple still persist, and political disturbances in 1990 interrupted the reform process.

MALI (Millet,Sorghum)' Before adjustment, marketing boards held statutory monopoly in the procurement and distribution of grain. The government organization OPAM marketed all cereals and determined prices. Prices were set pan- territorially (regardless of transfer costs). The currency was overvalued and prices of agricultural products were low. Beginning in 1981, a series of steps were taken to liberalize the markets, and by 1986, the process had been completed. During the mid-1980s a group of donors worked to synchronize food aid, in order to support market reforms. Marketing margins have decreased with the adjustment. The goverunent role is

87World Bank, Madagascar:An Agricultural Strategy Note, AgricultureOperations Division,South-Central and Indian Ocean Departnent, February, 1994. 88Coulter J., Liberalizationof Cereals Marketing in Sub-SaharanAfrica: Lessons from Experience,Marketing Series,Vol. 9, Overseas Development Institute.

50 Agriculture and EconomicReform in Sub-SaharanAfrica

now to maintain strategic stocks for food security reasons. The size of this stock was 50,000 tons, but this is in the process of being reduced to 30,000 tons.

The prices of millet fluctuate quite widely, influenced by rainfall, and the relative thinness of mar- kets, and to less than smooth functioning of export sales in the later 1980s when surpluses developed and forced down domestic prices. Particularly high prices in 1988, coupled with delays in the payment of civil service salaries, led to calls for OPAM to be restored to its traditional role, but the government resisted, and subsequently public opinion came to support the liberalization, perhaps because of increases in production. Average production of millet and sorghum during the years 1985-1989 is estimated to have been 44 percent 89 higher than in the first half of the 1980s, and by 1992 production had risen by a further 12 percent.

Development of a market information system was very successful, and has increased the transpar- ency of the market substantially, as well as helping to establish an early warning system for drought. Per- haps in part a result of the better flows of information, observers judged that the price fluctuations were not a constraint on farmers developing increasingly sustainable production systems.90 Malian millet, maize and sorghum are exported to Senegal, Mauritania and Guinea, and import of cereals (especially rice) is also in- creasing, mainly from Thailand, United States and Vietnam. The devaluation of the CFA franc in early 1994 should facilitate regional exports for Mali, especially if it is accompanied by regional harmonization of trade policies, which before devaluation were characterized by inconsistencies in protection and regulation from country to country.

MOZAMBIQUE (Maize) Maize production in Mozambique, along with the rest of agriculture, suffered greatly as a result of the war- fare which continued through the 1980s. The average production of cereals in the 1987-1991 period was es- timated to be lower than in the early 1960s, while agricultural production per capita in 1989 was only 55 per- cent of its level at Independence. 9 1 Furthermore, insecurity in the countryside, and disruption of normal lines of communication and transport networks led to increases through the 1980s in the governments in- volvement with food marketing and distribution. By 1988, more than one million tons of food aid cereals were imported.9 2 This was substantially higher than estimated domestic cereal production, and almost 90 percent of the total supply of cereals marketed commercially in and around urban areas, or distributed free in the countryside. By the end of the decade the supply of cereals to urban consumers was subsidized.

Under an Economic Rehabilitation Program begun in early 1987, the government has tried to raise producer prices and restore incentives, while cutting subsidies. There is some evidence that these policies led to increased plantings of maize by smallholder farmers, and commercial sales in 1989-90 and 1990-91 were estimated to be double those achieved in the early 1980s, and 4-6 times as great as in the mid 1980s.93 The liberalization process can be completed only in the prolonged absence of war, however, since that is an

89 J. Coulter and P. Tyler, Liberalisation of Cereals Marketing in Sub-Saharan Africa: Implementation Issues, Report No. 4, Mali - A Case Study, Natural Resources Institute (U.K.), February, 1993. 90 Heinrich Becker and Mamadou Camara, Impact of Food Price Liberalisation on Supply and Sustainability of Agricul- tural Production Systems in the Dogon Region of Mali, in Franz Heidhues and B6atrice Knerr (eds) Food and Agri- cultural Policies Under Structural Adjustment, Seminar of the European Association of Agricultural Economists (Hohenheim, 1992), Lang, 1994, pp.249 -26 4. 91 Stephen Jones, Agriculture and Economic Reform in African Socialist Economies, Food Studies Group, International 4 2 Development Centre, University of Oxford, draft paper, March 1993, pp. & 46. 92 World Bank, Mozambique, Food Security Study, Southern Africa Department, October 12,1989, p.iii. 93 Jones, op. cit., p.46.

51 AFTES Working PaperNo. 18

essential condition for the private sector to have the incentive to make significant investments in storage and trading capacity.

NIGER (Millet) Production of the main cereals in Niger (millet, sorghum, and maize, three-quarters of which is typically millet) fluctuates tremendously from year to year, in the past decade falling to a low of 860,000 tons in 1983- 84, and rising to a high of 1.9 million tons just four years later, in 1988-89.94 When the exceptional years are taken out at each end, the range narrows to 1.2-1.5 million tons p.a. with no sign of production increases over time. Since there appears to have been a significant increase in areas under the crops, the necessary deduc- tion is that yields have been falling. Certainly production per capita fell during the 1980s. In 1991, 100,000 tons of these three cereals were imported commercially, and 35,000 tons received in food aid, along with al- most 80,000 tons of commercial imports of rice and wheat, and 31,000 tons of food aid in the latter two com- modities. All in all, a total of 244,000 tons of cereals were needed to supplement domestic production in that year, and it is likely that further quantities enter the country unofficially from Nigeria.9 s Commercial im- ports are largely paid for by uranium and livestock, which account for 75 percent and 17 percent of exports, respectively.

Until 1984 the public sector Office des Produits Vivifers du Niger (OPVN) enjoyed a monopoly position in the marketing and trading in food grains, handling food aid, and attempting to stabilize producer and consumer prices. From 1984 on, private trader were officially allowed to take part in millet and sorghum marketing, and by 1986 the grain trade had been completely liberalized, except for rice, which is handled by a separate parastatal. OPVN was allocated as its sole task the maintenance of food reserve stocks, import and import distribution monopolies were eliminated, and private traders gradually took over from coopera- tives, which had been active in the grain trade until that time. By 1990, the cooperatives were no longer pur- chasing any grain.

In 1986, the government also abolished its pan-territorial price fixing for cereals, along with its man- dated profit margins. Although real food prices and general inflation both rose steeply and continuously from 1970 to 1982, from 1984 onwards both have declined, approximately in unison. The declining price to cereal producers has not had a very strong effect in inducing farmers to switch to other crops, because the farming altematives are limited. Millet prices fluctuate within each cropping year, by as much as 65 percent, depending on the region of the country. Imports mitigate these intra-seasonal price movements.96

SENEGAL(Millet, Sorghum) There are currently no price controls on the marketing of traditional cereals (millet and sorghum), whose prices are determined in the free market. There are subsidies to promote the processing of millet and sor- ghum. Although the direct effects of adjustment on the traditional cereals are not obvious, indirect effects and competition from cheap imported cereal (rice and wheat) are anticipated. Imports of cereals (especially rice) are increasing, mainly from Thailand, United States and Vietnam. Although there is an import tax of 15 percent on millet and sorghum, there are no non-tariff barriers. Nor are there export taxes or subsidies.

94World Bank, Niger: Food SecurityStrategy: Integrating Poverty Reductionand Growth, Sahel Departnent, June 29, 1994,p.6. 95 ibid.,pp.11 & 35. 96ibid., p.42.

52 Agriculture and Economic Reform in Sub-Saharan Africa

SIERRALEONE (Rice) One important objectiveof government agricultural policies has been to attain self-sufficiencyin producing the major economic and food crop, rice. As the domestic economy deteriorated in the early 1980s,and it be- came apparent that the attainment of rice self-sufficiencyhad become an elusive goal, the emphasis shifted to poverty alleviation and food security. This required, in addition to increased domestic production, the avail- ability of enough food through commercial imports, and the establishment of a food security stock. At the macroeconomic level, the emphasis of government policies has been on exchange rate adjustment and monetary and fiscal policies in support of economy-wide growth. At the sectoral level, government's policy approach has been interventionist, especially in input and output markets and the regulation of exports through various parastatal agencies.

Policies affecting rice production and imports were under the control of the Rice Department of the Ministry of Agriculture until that agency was dissolved and reconstituted as the autonomous Rice Corpora- tion in 1975. The mandate of the Rice Corporation was to organize production, processing and distribution of domestic rice, with intermittent imports during years of shortage. The corporation's operations suffered from substantial financial losses, and by 1979 these activities were transferred to the Sierra Leone Produce Marketing Board (SLPMB).In spite of these organizational changes, no fundamental change in rice market- ing and trade policy actually occurred. The official purchase price of domestic rice offered by the marketing board continued to be set very low and was not supported by the government as a floor price. The SLPMB procured only some 2 percent of the annual marketed volume of domestic rice. In early 1989, lack of funds for procurement led to suspension of all domestice rice purchases. Instead, the marketing board concen- trated its efforts on imports of rice because of its high profitability and low overhead costs.

Riceimports grew by more than 9 percent per year over the last decade. Their share of the value of all food imports increased from 20 percent in 1989 to 46 percent in 1990. By 1991, the value of rice imports was 57 percent of the value of all food imports to Sierra Leone. Three factors have been responsible for the large increase in rice imports: (a) the profitability of rice imports to the SLPMBwhich, unlike private sector firms, had both the monopoly and the accessto foreign exchange; (b) the combined impact of successive crop failures and declining domestic production; and (c) low producer prices. Rice imports were mainly targeted at urban consumers who benefitted through subsidized prices.97

Improved rice seed is subsidized by government, along with fertilizer and agricultural machinery. While the production of improved rice seed by the Seed Multiplication Program has been subsidized over the last decade, its impact has remained negligible at the farm-level. An estimated annual production of 87,600bushels remains far short of national requirements, and less than 10 percent of farmers have benefitted from the program.98

The government has instituted far-reaching structural reforms which, if maintained, would consti- tute the necessary policy changes required to implement a medium-term agricultural development strategy. These reforms include the liberalizationof domestic pricing and trade policies. Given the agronomic poten- tial and the efficiencyof resource use in domestic rice production, the question of the competitiveness of do- mestic rice vis-a-vis commercial imports arises. Estimates show that all modern, intensive methods of rice production would be competitive with commercial imports, but the traditional methods would not be. If the government focuses on the essential elements of good infrastructure, efficient marketing and high produc-

97 It is importantto note that urbanconsumers benefitted from government intervention in the ricemarket not througha pricesubsidy per se, but throughexchange rate policy. Domesticselling prices were determined by convertingthe CIFvalues of importedrice to domesticcurrency using the officialexchange rate, rather than the parallelmarket rate, thereby effectivelyunderpricing rice to consumers (Weeks,1990).

98 Seed Multiplication Program, Annual Report 1990.

53 AFTES Working PaperNo. 18

tivity in rice cultivation, domestic rice production will continue to compete with the cheapest sources of im- ports. Nevertheless, with the cost of labor higher than it would otherwise be, as a result of other distortions in the economy (especially those arising from the diamond sector), the domestic industry will remain vulner- able to competition from imports for some time to come.

Furthermore, there are significant investment costs of intensifying domestic rice production through development of the inland valleys, and the country will in any case need to import at least some rice for years to come, either under commercial conditions or those associated with food aid. Until something is done about the terrible condition of the roads, there is the danger of dual markets being maintained, with a barrier between the producing areas up country and the urban consumers in Freetown. Under these cir- cumstances it will be especially important for the government to ensure that none of its policies tips the bal- ance any further than the natural conditions already do in making it difficult for domestic producers to com- pete with imports. Particular attention needs to be paid to the pricing of food aid, since this involves gov- ernment in collaboration with the donors, and thus inserts the public sector into the business of price and margin setting.

TOGO (Maize)' In the 1980s, the agricultural sector grew faster than the average for Sub-Saharan Africa, mainly due to a boom in cotton production. During that decade about four structural adjustment programs were imple- mented in 1983, 1985, 1988, and 1990. They resulted in substantial progress towards trade liberalization and privatization. The process however remains far from complete. The 1991 political unrest has slowed down the economic reforms and restricts further programs for the agricultural sector.

Before the reforms, government intervention in food crop marketing was not very widespread. A state marketing organization (TOGOGRAIN) was established in 1973, with a mandate to buffer price varia- tions between and within seasons, but it has never had enough storage capacity or purchasing power to af- fect food prices significantly. In 1983, under the structural adjustment program, it was agreed that its role would be confined to that of managing the small food security stock (12,000 tons), with its deficits financed by the government. Its total losses in 1990 were of the order of CFAF 261 million (just under US$1 million equivalent) .I'°

In earlier years, exports of food crops were banned. This continued until 1986, when the ban was replaced by export licensing. In 1989 these barriers were removed, but in the early 1990s, trade was reported to be still delayed by officials not fully observing the new laws. As a result of changes in diets in urban areas, and facilitated by the overvalued domestic currency, imports of wheat and rice increased continuously through the 1980s, from about US$429,000 by value in 1979-81 period to more than US$2.5 million by 1988. The impact of tariffs in offsetting distortions caused by the exchange rate and EC subsidies has been weak because of ongoing problems in controlling the borders. The main aim of the adjustment process was to lib- eralize trade and privatize state-owned enterprises for the three principal cash crops, coffee, cocoa and cot- ton. While there was no direct effect on main food staple crop marketing,they were affected indirectly by way of commodity substitution in production.

99World Bank, Togo: Agricultural Sector Review,1993. '00 ibid., p.45 .

54 Table 7. Sub-Saharan Africa - Total Production of Cereals and Roots/Tubers, 1975-1994 ('000 metric tons) Country Commodity 1975 1980 1985 1990 1991 1992 1993 1994 Angola Cereals 558 444 325 264 386 465 335 274 Angola Roots/Tubers 1542 1465 1710 1999 2036 2083 2083 1203 Burundi Cereals 179 217 256 293 299 309 299 213 Burundi Roots/Tubers 937 1030 1218 1413 1449 1487 1449 1124 Benin Cereals 299 346 535 546 587 609 628 646 Benin Roots/Tubers 1071 1316 1490 2020 2259 2202 2316 2510 B. Faso Cereals 1254 1048 1583 1518 2455 2477 2495 2509 B. Faso Roots/Tubers 98 126 116 70 71 86 86 86 Botswana Cereals 67 44 19 54 45 15 34 50 Botswana Roots/Tubers 6 7 7 7 7 8 9 9 CAR Cereals 95 100 111 105 100 100 101 92 CAR Roots/Tubers 1045 1102 785 781 837 848 896 901 C. D'Ivoire Cereals 839 860 1089 1239 1286 1340 1539 1359 C. D'Ivoire Roots/Tubers 3398 3294 4025 4239 4368 4868 4736 4761 Cameroon Cereals 1103 892 815 816 1003 905 970 985 Cameroon Roots/Tubers 2100 1634 2050 2227 1940 1949 1958 1967 Congo Cereals 21 12 16 26 26 27 27 27 Congo Roots/Tubers 598 675 759 763 652 671 703 703 Comoros Cereals 16 18 17 19 20 20 21 19 Comoros Roots/Tubers 57 48 37 57 57 59 60 63 Cape Verde Cereals 5 9 1 11 3 5 12 6 Cape Verde Roots/Tubers 5 11 8 20 13 8 8 8 Eritrea Cereals 212 175 175 77 77 204 73 72 Eritrea Roots/Tubers 78 95 99 115 115 120 109 109 Ethiopia Cereals 4796 5612 4820 6457 6305 7070 #N/A #N/A Ethiopia Roots/Tubers 1362 1634 1861 2042 2078 2074 #N/A #N/A Gabon Cereals 8 11 14 23 24 25 25 27 Gabon Roots/Tubers 263 380 315 382 374 374 374 374 Ghana Cereals 672 674 921 844 1436 1254 1645 1450 Ghana Roots/Tubers 3709 3151 4187 4409 5897 6202 6436 6650 Guinea Cereals 640 725 739 859 913 949 1065 1172 Guinea Roots/Tubers 765 636 682 853 887 999 1101 1203 Gambia Cereals 83 79 116 90 111 96 97 109 Gambia Roots/Tubers 9 6 6 6 6 6 6 6 G. Bissau Cereals 93 93 158 167 179 169 181 201 G. Bissau Roots/Tubers 30 50 54 67 62 65 65 65 E. Guinea Roots/Tubers 54 53 70 75 81 82 82 84 Kenya Cereals 2538 2233 2901 2729 2770 2833 2006 3481 Kenya Roots/Tubers 1181 1191 1615 1512 1551 1630 1680 1752 Liberia Cereals 229 243 289 100 109 102 65 50 Liberia Roots/Tubers 297 346 335 398 398 421 421 441 Lesotho Cereals 154 194 167 238 133 80 154 258 Lesotho Roots/Tubers 5 6 6 7 8 8 8 8 Madagascar Cereals 2094 2238 2320 2577 2489 2617 2727 2517 Madagascar Roots/Tubers 1796 2302 2949 3160 3183 3127 3255 3210 Table 7. Sub-Saharan Africa - Total Production of Cereals and Roots/Tubers, 1975-1994 ('000 metric tons) Country Commodity 1975 1980 1985 1990 1991 1992 1993 1994 Mali Cereals 1307 913 1719 1771 2415 1819 2138 2705 Mali Roots/Tubers 85 124 147 145 145 145 152 145 Mozambique Cereals 542 663 746 734 546 239 766 819 Mozambique Roots/Tubers 3329 3715 3717 4186 3821 3366 3643 3426 Mauritania Cereals 52 47 108 103 105 107 169 188 Mauritania Roots/Tubers 5 6 5 6 6 6 4 5 Mauritius Cereals 2 1 5 2 2 2 2 2 Mauritius Roots/Tubers 10 12 24 19 18 20 15 20 Malawi Cereals 1178 1252 1423 1413 1680 670 2137 1110 Malawi Roots/Tubers 505 562 509 495 528 479 586 550 Namibia Cereals 63 74 63 99 114 33 76 120 Namibia Roots/Tubers 185 200 235 270 275 220 250 253 Niger Cereals 871 1775 1849 1480 2384 2253 2155 2221 Niger Roots/Tubers 188 179 234 248 251 253 255 260 Nigeria Cereals 8424 7957 11911 13733 13059 12734 13919 13517 Nigeria Roots/Tubers 21119 18916 20261 34055 37004 41233 42415 44415 Rwanda Cereals 219 273 337 306 329 292 181 158 Rwanda Roots/Tubers 1243 1665 1941 1603 1883 1737 1617 1616 Sudan Cereals 2874 2857 4036 1716 4590 5438 3093 4805 Sudan Roots/Tubers 312 293 243 115 159 161 154 157 Senegal Cereals 790 676 1249 977 946 856 1086 952 Senegal Roots/Tubers 120 41 49 85 40 59 58 91 Sierra Leone Cereals 596 551 488 562 560 535 540 515 Sierra Leone Roots/Tubers 124 125 131 141 142 135 114 115 Somalia Cereals 243 267 514 581 256 209 165 405 Somalia Roots/Tubers 34 39 44 50 49 43 44 39 SaoTome Cereals I 0 1 3 4 4 4 4 Sao Tome Roots/Tubers 14 13 11 8 4 9 10 10 Swaziland Cereals 101 105 178 99 142 58 77 67 Swaziland Roots/Tubers 11 14 12 7 7 10 8 8 Chad Cereals 591 573 704 602 812 976 747 963 Chad Roots/Tubers 337 431 563 643 643 643 660 534 Togo Cereals 265 296 371 484 465 495 634 526 Togo Roots/Tubers 839 914 856 1006 902 831 967 848 Tanzania Cereals 2138 2961 3622 3842 3792 3538 3876 3534 Tanzania Roots/Tubers 6012 5586 8730 9038 7981 7578 7323 7716 Uganda Cereals 1749 1078 1171 1580 1576 1743 1881 2036 Uganda Roots/Tubers 5166 3438 4532 5337 5268 5069 5435 5923 South Africa Cereals 11532 13217 10870 11016 10810 4616 12405 14422 South Africa Roots/Tubers 751 732 1108 1323 1367 1247 1334 1564 Zaire Cereals 759 889 1141 1487 1538 1585 1752 1798 Zaire Roots/Tubers 12423 13748 16452 19499 20313 21035 21672 20447 Zambia Cereals 1616 984 1193 1210 1225 613 1757 1168 Zambia Roots/Tubers 232 334 370 583 596 620 636 648 Zimbabwe Cereals 2197 1989 3416 2560 2060 481 2278 2764 Zimbabwe Roots/Tubers 70 81 110 127 133 136 162 163 Agriculture and Economic Reform in Sub-SaharanAfrica

VI. Fertilizer Policy and Fertilizer Development

Background Fertilizeruse is extremely low in Sub-SaharanAfrica, with application of plant nutrients per unit area of arable land (average 15 kg/ha in 1992/93) substantially below that in South Asia (74 kg/ha), and far below that in China (301 kg/ha). Some have maintained that this low fertilizer consumption is itself a sufficient indicator that an agricultural transformation has yet to take place in Sub-Saharan Africa. Although one of the reasons for the differences in consumption is irrigation, which is much more widespread in Asia, rainfed areas of India receive at least three times as much fertilizer per hectare as those in Sub-Saharan Af- rica, and serious fertilizer supply constraints are still in place in many countries of SSA.

Fertilizers are generally expensive in African countries, as a result of small procurement lots, weak bargaining positions, high shipping, handling and domestic transport costs, and inefficient marketing by public agencies. Governments have been slow to relinquish their typically close involvement in fertilizer im- porting and marketing at least in part because of continuing in-kind aid by bilateral donors. As a result pri- vate marketing of fertilizers is not well developed in many countries.

Table A.3 in the Annex shows fertilizer consumption per hectare of arable land in each African country in 1970/71, 1986, and 1991. These data on uptake of one of the most important modem inputs into farming give some indication of the impact of extension and the adoption of improved technology. For Sub- Saharan Africa as a whole, average application rates increased at only 0.9 percent p.a. In a number of coun- tries, fertilizer use fell during the 1986-1991 period, while in others it grew modestly. Between 1986 and 1991, for comparison, India's fertilizer application rates increased by 5.4 percent p.a., and China's by 9.8 percent p.a. The countries which applied fertilizer at rates at least half of the Sub-Saharan Africa average, and for which fertilizer application rates rose at more than 3 percent p.a. were (average annual growth rates 1986- 1991 in parentheses).*

Togo (17), Tanzania (13), Mauritania (13), Ghana (12), Malawi (9), Chad (7), Nigeria (6), Senegal (5), and Ethiopia (4)

*(excludesthose experiencing a largedeclinefrom 1970 to 1986)

In some of the above countries, most of the growth in fertilizer use took place in the last two years of the period, and choosing different end points for the series may have given different growth rates in some cases. While there were encouraging signs of growth in consumption in some countries over the period, Sub- Saharan Africa accounted for only about 0.8 percent of total world consumption in 1986, and about one per- cent in 1991. It thus remains a very insubstantial player in the fertilizer market, which in part accounts for the high costs of fertilizer procurement for many African countries. Leaving aside South Africa, Sub-Saharan Africa is also a negligible producer of fertilizer, accounting for less than 0.4 percent of world output. Nigeria and Zimbabwe between them accounted for more than 80 percent of that production in 1991.

Fertilizer Marketing Anything which gives farmers the incentives, and the means, to take up the better technologies emerging from research will "add value" to research investments, and in fact increase their rate of return. New or im- proved technologies often "ride on the back" of agricultural inputs such as water, seeds, fertilizers, agricul- tural chemicals, tools and equipment, livestock feeds, and so on. It is to increase the productivity of these inputs that technology development is undertaken, and especially to increase the productivity of two key inputs, land and labor. Farmers are interested in income, however. And income is affected by the prices of

57 AFTES Working PaperNo. 18

both outputs and inputs, as well as by the physical ratio of output to input, which is what agricultural re- search focuses on. The physical ratio is squeezed between two pieces of marketing, that for outputs, and that for inputs, both of which affect the prices involved. Marketing is as important as it is, because it comes in twice in the income equation.

Partly because of the small procurement lots for fertilizer mentioned above, and partly because fertil- izer has been seen as a "strategic input" into agriculture, government involvement in fertilizer marketing has been ubiquitous in Sub-Saharan Africa. The result has been, for the most part, unreliable, untimely, and ex- tremely high-cost supplies of fertilizer to farmers, which when combined with the widespread lack of knowl- edge about its benefits, has led to near universal non-use. An example is Malawi, where the international price for fertilizers is more than doubled as a result of transport costs from the coast to Malawi, and within the country. Throughout much of the past decade, while the international price was trending downward, even in nominal terms, the cost of landing the fertilizer in Malawi was rising steadily. The challenge this poses for inducing farmers to adopt fertilizer on their small farms is obvious, even if the fertilizer were avail- able, and even if the farmers had the credit they needed to purchase it. Faced with a situation like this, gov- ernments typically reach for the subsidy tool. But it is a rather futile substitute for reducing transport and marketing costs, as will be discussed further below.

The main arguments used to try to justify fertilizer subsidies are much the same today as they have been for a long time - namely, to compensate farmers for taxes levied through low output prices; to try to overcome farmer risk aversion; to speed up adoption of agricultural innovations in the early phases of up- take; and to encourage tackling head-on the declining soil fertility commonly observed as fallow systems and other means used to sustain soil productivity in the past break down under population pressure. Common counter arguments are that larger farmers are the main beneficiaries, and that the public funds devoted to subsidies (which are sometimes a substantial proportion of development budgets for agriculture) would be better spent on improving infrastructure, investing in other measures which would develop an efficient pri- vate sector in fertilizer importing and marketing, or alternatively on research and extension to spread the availability of more fertilizer-responsive crop technologies, and communicate to farmers the best fertilizer recommendations. One of the big gaps in research on fertilizer subsidies is that alternative uses of the funds, aimed at achieving the same goals of increased fertilizer uptake, have not been studied.

In a study in 1985, Shalit and Binswangerol0 concluded that where land was scarce and in inelastic supply, fertilizer subsidies could be less costly to the national treasury than output price increases, provided that the supply elasticity of fertilizer was greater than that for farm labor. The authors showed, however, that the risk aversion argument could justify, at best, a rather small fertilizer subsidy, since most farmers ex- hibited relatively similar risk aversion, they did not reduce production much as a consequence of risk avoid- ance, and they had other ways of spreading risk and dealing with it than through input prices. Moreover, in the matters of dealing with declining soil fertility and accelerating fertilizer adoption, while there was no general case for a fertilizer subsidy, there might be a special case for a temporary subsidy, which must be targeted. They noted that both of these attributes - temporariness and targeting - were hard to achieve. Furthermore, there were other things which might also speed up adoption, such as investments in extension, roads, and improvements to fertilizer markets.

After acknowledging that during a budget crisis, cuts in input subsidies may have a more immediate impact on agricultural output than cuts in investment programs with impact only in the long term, Timmer nevertheless judged that "From a broad policy viewpoint, a cut in input subsidies is preferable to reductions in investment programs," because if tightening the budget brought inflation under control, farmers' incen-

101Shalit, Haim, and Hans P. Binswanger,Is There A TheoreticalCase For Fertilizer Subsidies?Agriculture and Rural Development Department, World Bank,Report No. ARU27, November, 1995,33 pp.

58 Agriculture and EconomicReform in Sub-SaharanAfrica

tives could be raised more efficaciously through direct output price measures than through indirect input subsidies.1 0 2

Except in one set of circumstances spelled out by Shalit and Binswanger, it is better to deal with dis- tortions in the output marketing system by removing them, rather than by attempting to "compensate" for them by introducing distortions in the input markets in the form of fertilizer subsidies. Because of the dis- tortions they induce, fertilizer subsidies are in any case not advisable to have in place for any length of time, but of course they are very difficult to abolish once established. "All subsidies tend to distort the intensity of use of inputs from their economically optimal levels, and significant waste is the result ...input subsidies can keep farm profitability high and consumer prices low only for a particular stage of input use and for a short time. After that the short-run distortions significantly impede an efficient long-run growth strategy."'10 3

Moreover, fertilizer subsidies do not affect only the price of fertilizer. Where markets are working reasonably well, as Gardner points out, a fertilizer subsidy tends to lower the output price of the commodity being produced, and reduce the price of complementary inputs but lower their use as fertilizer is substituted in production.104 As a result of these various changes in other factors, under plausible assumptions about the share of fertilizer costs in overall costs of crop production, and the input/output relationships, lowering the price of fertilizer by any given proportion is likely to lead to a much lower proportionate rise in output of the commnodity being produced.

Fertilizer subsidies are, in any case, extremely unlikely to reach the great majority of small farmers. The fact of the matter is that a very small proportion of farmers in Sub-Saharan Africa use fertilizer, or even have it readily available to them, at any price. When subsidies are eliminated, therefore, the small minority of farmers who use fertilizer may reduce their consumption (as, indeed, economic theory suggests they should if they are already applying fertilizer at the optimum level, since the optimum shifts downwards with increasing fertilizer cost). But for the great majority, - many of whom already find the cost infinitely high because of the scarcity of fertilizer - there is little effect from the subsidy removal.

Fertilizers have been subsidized implicitly through overvalued domestic currencies, and directly through pan-territorial pricing, and/or fiscal subventions which keep farm prices below what they would be otherwise. Subsidies have been removed, sometimes abruptly in the cases of currency devaluation, some- times more slowly by removing a specific subvention in a phased manner. In most cases of structural ad- justment reforms, the pace of subsidy removal has been substantially slower than originally expected, and has been the subject of continuous re-negotiation. In 16 of 29 countries reviewed by a recent World Bank study of adjustment,10 5 fertilizer subsidies had been reduced or eliminated, and virtually total decontrol of fertilizer marketing achieved; although the uptake of fertilizer does not appear to have been adversely af- fected by the reduction in subsidies, nevertheless fertilizer use remains extremely low in Sub-Saharan Africa, as already noted.

There are many other important aspects of fertilizer marketing which need to be dealt with, and one benefit of reducing subsidies is that governments are freer to focus on the other factors needed to increase the competiveness and efficiency of marketing, and to increase the availability of fertilizers to farmers. Among many other things, governments need to develop more fertilizer-responsive varieties of crops, revise the

102C. Peter Timmer, Walter P. Falcon, and Scott R. Pearson, Food Policy Analysis, Johns Hopkins Press, 1983, pp. 281- 282. 103Timmer, et al, op. cit., p.288. 4 Bruce L. Gardner, The Economics of Agricultural Policies, Macmillan Publ. Co., 1987, p.1 09 . 1 World Bank, Adjustment in Africa: Reforms, Results, and the Road Ahead, Policy Research Report, 1994.

59 AFTES Working PaperNo. 18

regulatory framework, liberalize fertilizer pricing, replace in-kind by monetized aid, take steps to reduce transport costs, and engage in fertilizer promotion campaigns. We will return to discussion of these matters after reviewing experience in a number of countries over the past several years.

Country Experience In Malawi, while intemational prices of its most important fertilizers levelled off, or even declined, in dollar terms, their prices expressed in domestic currency tripled between 1982 and 1992, and the costs of ocean freight doubled. At the same time, transport costs from port to farmer rose very rapidly (probably also tri- pling over the decade) as transport routes lengthened with the war in Mozambique. In 1983, under the sec- ond Structural Adjustment Operation, the government committed itself to phasing out fertilizer subsidies completely by the 1988/89 season. The weighted average subsidy fell from 30 percent in 1983/84 to 20 per- cent in 1987/88, but returned immediately to 30 percent when the attempt to reduce it was abandoned in that year. Under a subsequent AGSECAL, the government renewed its commitment to phase out subsidies, this time by 1994/95. From 1980 to 1991, total sales of fertilizer to smallholders more than doubled, from 49,000 to 107,000 tons. This represented a quadrupling of plant nutrients, as the government succeeded in encour- aging use of higher analysis fertilizers. While this growth has compared reasonably well with that achieved in neighbouring countries, smallholder use of fertilizers in Malawi remained extremely low, at 23 kg/ha of plant nutrients in 1989/90.

Furthermore, within the smallholder sector, fertilizer use was highly skewed towards the larger farms on customary lands, which had access to credit. In 1984/85, farms less than 1 ha in size - comprising 55 percent of smallholder households, and farming 27 percent of the total smallholder cultivated area - used less than 5 percent of smallholder fertilizer. By contrast, farms greater than 3 ha in size, comprising 4 percent of smalIholder households, and farming 15 percent of the total smallholder cultivated area, used more than 35 percent of smallholder fertilizer.'" It is possible that fertilizer use is even more skewed today than it was eight years ago. Fertilizer sales have continued to rise in the face of substantial increases in their official prices, but may have been increasingly diverted to non-food crops at the expense of maize, and may have "leaked" outside the smallholder sector to larger estates. The data may also reflect some relaxing of supply constraints, especially since foreign exchange shortages have been relieved somewhat by donor aid.

In Tanzania the Tanzanian Fertilizer Company continues to receive subsidies which allow it to un- derprice private suppliers. The subsidies peaked at 80 percent of the farmgate price in 1988/89, and the gov- ernment subsequently adopted a plan to phase them out by 1994/95. By 1992/93, they had been reduced, progressively, to about 40 percent of the farm-gate price. Pan-territorial pricing of fertilizer continues, how- 0 7 ever.1 Since the fertilizer subsidies had been part of a policy package to increase maize production in the Southern Highlands, there were fears that reducing them would damage that strategy. Around 70 percent of fertilizer supplied by the Tanzanian Fertilizer Company is distributed in the Southern Highlands, and used primarily on maize. An analysis of the first years of subsidy removal1 0 8 shows that fertilizer demand is not likely to fall significantly below available supplies, given recent trends in fertilizer availability. In particular, the fear that increased fertilizer prices would result in a permanent fall in maize production is shown to be implausible. The evidence suggests that efficiency gains from rapidly developing private maize marketing and input supply systems are being passed on to producers in the form of higher output prices, and will be

06David E. Sahn, Jehan Arulpragasam and LemmaMerid, Policy Reform and Poverty in Malawi, CornellFood and Nutrition Policy Program Monograph No. 7, December1990, Table 28, p. 119. 107 MalcolmMayfield, The Effects of Policy Reformson the Performanceof Agriculture in Tanzania, World Bank Agri- cultural Sector Review Working Paper, February 10, 1992. 108Malcolm Mayfield, The Effectsof Fertilizer Policy Changes on FertilizerUse and Maize Production in the Southern Highlands, World Bank, Tanzania Agricultural Sector Review Working Paper, Spring, 1993.

60 Agriculture and EconomicReform in Sub-SaharanAfrica

likely to lead as well to lower input prices than would otherwise have been the case. The rehabilitation and extension of railways and all-weather roads seems likely to increase the competitiveness of Southern High- lands maize producers even further.

In Cameroon, the program to remove fertilizer subsidies over a five-year period, beginning in 1988, has been complicated by the very large decline in the international price of coffee. This raised the classical fear in a fertilizer subsidy removal program - a "cost-price" squeeze which endangers agricultural produc- tion. Removal of fertilizer subsidies appeared likely to double fertilizer prices. Analysis using 1990/91 cof- fee prices showed, however, that the loss of income to coffee producers from doubled fertilizer prices could be compensated by a rise of 25 percent in the prices producers receive for arabica coffee, or a rise of 30 per- cent in the price they receive for robusta coffee. There appeared to be scope for increasing the producer price, in view of the longstanding implicit taxation of coffee through a producer price maintained at less than half of the fob price through the 1980s.1°9 Overriding all these measures, on the other hand, was overvalua- tion of the domestic currency, estimated to be around 40 percent. Recovery from the economic and financial crisis initiated by the sharp fall in the international prices of Cameroon's primary exports was frustrated by 1 this overvaluation, and the inability to restore competitiveness by depressing internal costs and prices. 10

In Nigeria, fertilizer had been subsidized for a long time, and subsidies made up a very large pro- portion of the costs. Fertilizer use grew rapidly, increasing almost fifteenfold in the fifteen years from 1972 to 1987, and another 30 percent in the next three years. It is not clear how much subsidized fertilizer may have been smuggled over the borders into countries such as Niger. Under conditions of a fertilizer import loan from the World Bank, the government reduced subsidies from 85 percent in 1983 to 28 percent in 1986. The level of subsidy implicit in the overvalued domestic currency was still high, however, and when the currency was devalued from 1986 on, by 400 percent in effective terms, the government maintained the price of fertil- izer at pre-devaluation prices. As a result, the subsidy rose again, eventually to about 90 percent of price, and by 1989 the subsidy bill took up more than 70 percent of the federal government's total agricultural ex- penditures. As a result, the public sector became unable to supply fertilizers at subsidized prices, a large black market emerged with small farmers paying up to four times the official price, fertilizer supply became inadequate and unpredictable, and shortages of fertilizer emerged as a major constraint to agricultural growth."' Analysis based on 1989 crop prices suggested that subsidies could be reduced to 30 percent with- out making fertilizer use unprofitable on any crop.

In Ghana, consumption of fertilizer did decrease, from about 30,000 tons of nutrients in 1980-82 to 11,000 nutrient tons in 1988-90. It is worthwhile examining this case because it has been argued that this decline in consumption was brought about by price increases resulting from the joint impact of exchange rate liberalization and the removal of fertilizer subsidies."12 To assess this claim, it is important to note the follow- ing information, provided by the same report:

(a) Fertilizer consumption fell from around 30,000 nutrient tons in 1981 to just under 10,000 nutrient tons in the three years to 1984; thereafter, the trend line was flat, at about 11,000 nutrient tons; during the

09 Andrea Fadani and Emmanuel Foko,Economic Effects of the Fertilizer Sub-SectorReform Program on CoffeeBased Farming Systemsin Cameroon, Seminar of the European Associationof Agricultural Economists, Hohenheim, Germany, September,1992. World Bank, Cameroon, Country Strategy Paper, 1992.

"' World Bank, Nigeria, Strategy for Food and Nutrition Security,June 28,1991, p. 52. 1 1 2 Bumb, B.L.,J.F. Teboh,J.K. Atta, and W.K. Asenso-Okyere,Ghana: Policy Environment and Fertilizer Sector Devel- opment, International Fertilizer Development Center and Ghana Institute of Statistical,Social and EconomicRe- search, 1994,p. 57.

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three year period 1981-1984, the price of ammonium sulphate rose from ¢25 to C295 per 50 kg. bag, while in subsequent years, when consumption was "flat," the price rose repeatedly, to reach ¢3,100 per 50 kg. bag by 1990. This does not support the simple relationship between rising prices and falling consumption suggested by the claim about exchange rates and subsidy removal; in fact the subsidy rate on fertilizer was steady, at 45 percent, through the three years of the main decline in consumption. Thereafter it rose temporarily in 1985 before falling away to 15 percent in 1989 and being removed completely in 1990.

(b) Until 1988, the Ministry of Agriculture (MOA) had full responsibility for estimating fertilizer re quirements, procuring fertilizers from abroad, and distributing them among regions; the MOA had to apply to the Ministry of Finance for allocation of foreign exchange for imports, and this was rarely released in time to get fertilizers to farmers for the main season planting; in 1988 a pilot scheme for private marketing was introduced in two regions, extended to other regions in 1989 at retail levels, and in 1990 at wholesale level; in 1991, private dealers were allowed to import for the first time; in 1991, the IFDC recommended a five-year scheme to develop skills, networks, and institutional arrangements for strengthening privatization efforts.

(c) Almost 100 percent of fertilizer imports were financed by foreign aid in the late 1980s, mainly EC, CIDA, Netherlands, and ADF; this caused problems such as fluctuating donor commitment, mismatch of products, prices above world market, and irregularity of availability to farmers.

(d) Under the EconomnicRecovery Program and Structural Adjustment Program, interest rates on formal sector agricultural lending rose from 9.0 percent in 1980 to 18.5 percent in 1985 and 26.0 percent in 1990; the interest rate subsidy was retained until 1988; farmers still need general collateral for loans, how- ever, and many banks have no experience extending credit to dealers using fertilizer as collateral; as a conse- quence, there is a constraint on credit availability to finance the fertilizer marketing and distribution system.

(e) Based on a survey of 108 farmers in 6 agro-ecological zones, IFDC concluded that 80 percent of fertilizer was used on cereals (64 percent on maize, 10 percent on rice), and only 0.3 percent on cotton and cocoa.

(f) In spite of fertilizer problems, maize yields rose from 1.1 tons/ha in 1980 to 1.2 tons /ha in 1990, while maize production rose from about 350,000 tons in 1980 to an average of around 733,000 tons in the pe- riod 1989-1991 inclusive.

(g) maize prices rose from about ¢6/kg in 1980 to c200/kg in 1990, with a dip in 1984-85 when there was a sharp rise in production in 1984 to 574,000 tons, following a decline from about 350,000 tons in 1980 to a low of 141,000 tons in 1983; the lower prices in 1984 and 1985 contributed to a fall in production to 411,000 tons in 1985, but thereafter it climbed again and was over 700,000 tons in 1989, 550,000 or thereabouts in the two subsequent years.

(h) In 1990 it required 3.5 kg of maize to buy 1 kg of N, but one additional kg of fertilizer nutrient produced 21.1 kg maize at an application rate of 35 kg/ha, 16.9 kg at 70 kg/ha and 13.3 kgs at 100 kg/ha; furthermore, the marginal profitability of fertlizer on maize in 1989 was ¢500-885 per kg of nutrient, and higher still on groundnut, cotton, and lowland rice; the report noted: "It is clear that the prevailing price en- vironment was not unfavorable for using fertilizers. However, if we make allowance for imperfect knowl- edge and uncertainty of rainfall and crop prices, the conclusion may change."

(i) Fertilizer subsidies rose from 3.4 percent of the total agricultural budget in 1980 to 5.3 percent in 1984,8.4 percent in 1986 and 10.6 percent in 1988; in the latter year they reached almost 33 percent of the de- velopmental budget.

62 Agriculture and Economic Reform in Sub-Saharan Africa

These observations suggest a different scenario in the case of Ghana, namely that serious problems with supply of fertilizers to farmers are likely to lie behind the reduction of fertilizer use experienced during the 1980s, and that until these supply problems are dealt with, fertilizer consumption is not likely to recover and expand. It is significant that private sector importing of fertilizer began only in 1991, and that the pro- gram to foster private sector development was suggested in the same year. Experience in Kenya suggests that such a program is typically slow to achieve an impact, and that attaining the goal of an efficient, com- petitive private sector supply is an arduous and difficult process.

Among further observations of the Ghana report were that the country lacked an integrated research and extension policy for fertilizer use, and did not provide site-specific, fertilizer recommendations which differed for different parts of the country. The report regarded these as an essential part of a fertilizer devel- opment program, and also recommended giving priority to development of physical infrastructure to reduce transport costs. A particularly important need for successful private sector development was providing fi- nance for importers, traders and farmers, which the report noted were totally inadequate. It is clear that the growing proportion of Ghana's agricultural budget taken up by fertilizer subsidies was fiscally unsustain- able. If the government were able to re-allocate such sums, it is likely they would be much more effectively used to support investments in infrastructure, promote fertilizer use, and provide for the financing needs of the fertilizer distribution system.

Lessons from the Country Experience Lessons from the country experience outlined above include the following:

* Continued fertilizer subsidies, as with continued donor in-kind fertilizer aid, keep the government heavily involved with fertilizer importing, pricing, marketing and distribution, and hinder private sector development in these areas.

* Fears about subsidy removal having an adverse impact upon crop production are often based on par- tial, static analysis, which does not allow for the dynamic development of private marketing, and the scope for achieving marketing efficiencies for both inputs and outputs. The dynamic developments cushion the adverse impacts to varying degrees. The price at which farmers can buy fertilizer is only one factor in their decision whether or not to use it. More important is the selling price of their crop, and how much crop they can produce with each unit of fertilizer, the technical factor. A corollary of this is that economic reforms relating to fertilizer should be implemented only in close harmony with more general reforms relating to agricultural production and marketing, and not in isolation from the latter. A second corollary is that distortions in fertilizer prices can induce unforeseen distortions in its allocation among crops, and even in the prices of other inputs.

* The bottlenecks to fertilizer uptake are often on the supply side rather than the demand side. Where this is the case, parallel markets effectively confine subsidy benefits to those with access to supplies, among whom small farmers are rarely represented.

* The most compelling argument against fertilizer subsidies is that they do nothing to address the supply constraints which almost universally characterize fertilizer supply in Sub-Saharan Africa, and in par- ticular they do not remove credit constraints or permanently lower transport costs; the argument is strengthened by acknowledging that fertilizer subsidies are almost universally captured by larger farmers, they are an extremely inefficient means for transferring income to the poor, they distort re- source allocation, and hinder the development of competitive private sector marketing which might reduce fertilizer costs to farmers over time; it would be better to use the funds allocated to subsidies for constructing more rural roads and improving existing ones, or for crucial investments in research and extension, to generate and spread better technologies.

63 AFTES Working PaperNo. 18

* The most effective way to reduce the price of fertilizer to farmers is to have policies which will encour- age efficient, competitive marketing of it, and to make sure there are good roads and transport services. So important are these two factors that it is worthwhile for governments to invest money in them. They mnightfind some of the funds by reducing subsidies on fertilizer. But few analyses look at alternative ways to spend the public funds devoted to fertilizer subsidies. Better roads and transport services could benefit all farmers, and make fertilizer available at affordable prices in areas where it was not available at all before. The other important things are for agricultural research to work out the best rates of fertilizer application, agricultural extension to carry the message about correct fertilizer use to the farmer, and improved soil testing sharpen the recommendations for different agro-ecological zones. That way, farmers can make the best use of their scarce funds.

GettingFertilizer Consumption Moving One of the clear messages of recent experience in Sub-Saharan Africa is that liberalization of ferhlizer mar- keting by itself is not enough if the goal is to accelerate fertilizer use quickly. In fact, the desperate need to get more fertilizer on to the land in Africa (for both agricultural growth and environmental reasons), coupled with the slow pace of private sector development, is what lies behind the well-intentioned advocacy of fertil- izer subsidies, and of proposals for parastatal agencies which would perform all functions in fertilizer supply - forecasting needs, importing, distributing, marketing, providing advice, and providing credit, If a private sector model is to be followed in the interests of long-term efficiency and sustainability, or only because pub- lic sector budgets can no longer bear the burden of public sector fertilizer supply, something more is needed than merely freeing up markets and waiting for the private sector to seize the opportunities.

What should that something be? This section concludes by outlning again the important parts of the logic in thinking about the problem, and reviewing proposals made recently for fertilizer development in the SADCC region, and for a project in Ethiopia, which suggests the kinds of steps that may be necessary to in- crease fertilizer consumption and develop private sector marketing and distribution, at regional and national levels.

First, it is important to remind ourselves of the main reasons why farmers don't use enough fertilizer:

(a) lack of knowledge about fertilizer, or about what kinds and amounts of fertilizer to use, and how and when to apply it;

(b) fertilizer use not financially viable because of high costs of getting it to fields (including unavailabil- ity in small enough packages), inadequate response from lower grade crop varieties or poor seeds, inade- quate prices or late payments for crops, risk of crop loss from adverse weather, and inability to put together other elements of the package of inputs which would make the crop profitable (especially constraints on la- bor, or unavailability of other purchased inputs);

(c) unavailability of fertilizer at all within any reasonable radius (equivalent to a price which is "infinitely high"), or unavailability of the correct formulation of fertilizer;

(d) inability to raise sufficient funds to purchase fertilizer, either because of lack of access to credit, or lack of cash arising from late payments for crops.

Estimating the relative importance of the various constraints outlined, for different kinds of small farmers in different areas, is a major research task.

64 Agriculture and EconomicReform in Sub-SaharanAfrica

Second, and derived from these problems faced by farmers, some of the most important things for policy-makers to focus on are:

(a) thorough soil testing to recommend the right formulation for each major locality and crop, taking into account trends in soil acidification, and environmental effects;

(b) up-to-date research on fertilizer response functions, which, in combination with soil testing and in- put-output prices, results in correct (optimal) application recommendations for all main situations;

(c) extension of appropriate fertilizer recommendations to farmers, and promotion of fertilizer use;

(d) careful planning to make the most of donor aid; this would include discouraging aid-in-kind (because it can force the wrong formulations), encouraging untied monetary aid where possible; any remain- ing aid-in-kind to be distributed through the free market;

(e) adequate, freely available foreign exchange for private sector fertilizer importers, with minimum government interference, in any case excluding physical quotas in licensing;

(f) exploration of the economies to be gained from bulk procurement of fertilizers for import;

(g) a government role confined to monitoring, planning, providing guidelines to donors, creation of the right incentive framework, research, providing market outlook and fertilizer information through agricul- tural extension, and regulating quality standards;

(h) adequate access to credit for private sector importers, domestic distributors, and farmers;

(i) attention to factors constraining fertilizer use by farmers (see above), especially incentives for crop and livestock production on the demand side, and transport and packaging bottlenecks on the supply side;

(j) in some countries there may be a case for promoting use of products locally available, such as rock phosphate, and/or for domestic manufacture of fertilizer; but this needs to be examined very carefully, on a case-by-case basis.

The SADCCRegion Recommendations. A regional report issued in 1991, for the 10 countries grouped together in the Southern Africa Development Coordination Conference (SADCC), proposed "concrete actions that companies, governments and develop- ment agencies can take to lower the cost of supplying fertilizers."113 The report concluded that moving from present supply systems dominated by low analysis compound fertilizers transported mostly in bags, to high analysis fertilizers with bulk transport, would save the SADCC nations over US$100 million per year, or about 25 percent of their outlays on fertilizer. With full integration of trade among the ten SADCC nations and with South Africa, an additional US$25 million per year would be saved. Full market integration would also allow possibilities for increasing local production of fertilizers. This would include production of am- monia and urea in Mozambique (based on the Pande natural gas field), further production of phosphates from the reserves at Phalaborwa in South Africa, and production of potash from brines of the Sua Pan in Bot-

113 World Bank, The Southem African Development Coordination Conference,An Action Plan for the Development of the Fertilizer Industry, Draft Report, December,1991. The ten SADCCcountries are Angola, Botswana, Lesotho, Malawi,Mozambique, Namibia, Swaziland, Tanzania, Zambia,and Zimbabwe. They are grouped with South Af- rica.

65 AFTES Working PaperNo. 18

swana. To bring this about, the report saw it as essential "to reverse the well intentioned but debilitating role of the state in all aspects of agriculture and fertilizers." [p. ii]

The SADCC report emphasized four key policy reforms:

(a) the state should leave importing, manufacturing, and distribution of fertilizers to experienced pro- fessionals in the private sector;

(b) prices of crops and fertilizers should be de-regulated in ways that would encourage high-intensity agriculture;

(c) the financial means must be made available to ensure sustainable purchase, transport and distribu- tion of large quantities of fertilizer; this meant permanent working capital for the fertilizer supply system, and foreign exchange for imports, with fertilizers and other farm inputs given preference if need be in the allocation of scarce foreign exchange;

(d) there should be freer trade, and easier movements of capital and labor, among the countries of the region.

The report acknowledged that such policy changes were easy to talk about, but exceedingly difficult to im- plement, in the face of many competing priorities, political and social upheavals sometimes accompanying price deregulation, severe foreign exchange shortages, inadequate supplies of financing in overstretched lo- cal capital markets, and divergent needs in the individual countries that made up the SADCC group. And it called for education and mobilization of the groups with most to gain from reforms, especially farmers, but including fertilizer importers and suppliers, and foreign companies involved in manufacturing or import. The report saw trade liberalization in Southern Africa as the single most important policy measure in the short term to improve the supply of fertilizers.

When it came to specifics about how to build up the private sector, the SADCC report was not so forthcoming. A key phrase in the above recommendations, "experienced professionals in the private sector," is the biggest missing link in most countries of Sub-Saharan Africa. Starting from the low basis that many of these countries do with respect to fertilizer consumption, the lack of immediate possibilities for exploiting economies of scale through larger procurement lots, local sensitivities associated with entrepreneurs of par- ticular ethnic groups, and the widespread lack of private sector experience with fertilizer marketing, with all its attendant risks, it cannot be taken for granted that rapid liberalization would lead to efficient, competitive private sector activities within a short space of time. The proposed National Fertilizer Sector Project in Ethiopia tries to address some of these issues.

The EthiopiaFertilizer Project. A project which has begun in Ethiopia' 14 seeks to address many of the same problems as those experienced throughout Sub-Saharan Africa, and already described above. While fertilizer consumption in Ethiopia had increased from just over 40,000 tons in 1980 to 156,000 tons in 1992 (114,000 tons of nutrients), consumption per hectare of arable land (8 kg nutrients/ha) is below the average for Sub-Saharan Africa, and among the lowest in the world. An estimated 20 percent of the country's 6 million farm families use fertilizer, 95 percent of which is applied to foodgrains. Since 80 percent of fertilizer sales are of Di-Ammonium Phosphate, and 19 percent of Urea, there is a serious shortfall in nitrogen, the ratio of nitrogen to phosphorus being about 1:1.8 compared with an extension recommendation of 1:1.1.

114 World Bank,Ethiopia: National Fertilizer Sector Project,Staff Appraisal Report, Eastern Africa Department, April 24, 1995.

66 Agriculture and EconomicReform in Sub-SaharanAfrica

Until mid-1993, when the Transitional Government of Ethiopia announced a new National Fertilizer Policy, imports and marketing were controlled totally by the state, through collaboration between the Minis- try of Agriculture and the monopoly parastatal Agricultural Inputs Supply Corporation (AISCO). Prices have been administered, set on a pan-territorial basis, and a 15 percent fertilizer subsidy was introduced in 1993 to soften the impact of a more than one hundred percent devaluation of the domestic currency. The new policy of 1993 calls for involvement of the private sector throughout the entire fertilizer trade, but only a small, inexperienced private sector exists to call on, so the central goal of the project is to increase fertilizer supplies by ensuring that a viable private sector comes into being, is built up, and becomes sustainable.

The main proposals of the project are as follows:

(a) The fertilizer price subsidy, which the government regarded as temporary from its initiation, would be phased out over a two year period, and capped as to absolute amount in the meantime.

(b) Pan-territorial prices would be phased out gradually, beginning at the retail level. progressing to wholesale, with total decontrol after three years.

(c) The monopoly of the Agricultural and Industrial Development Bank in providing credit for agricul- tural inputs would be abolished, and the Commercial Bank of Ethiopia, with many more rural branches, would be looked to for providing trade and working capital finance for the fertilizer sector.

(d) The private sector, which already has been given the green light to import and market fertilizers without any restrictions, would be assured equal access to foreign exchange from all available sources, in- cluding the IDA import credit which would be forthcoming under the project; the government would also promote fertilizer use in the more remote areas by selecting, on a competitive basis, traders to operate in these areas, and compensating them for their additional costs of doing so (especially transportation).

(e) AISCO would be expected to play an active role in building up the private retail network; it would do this by selling the bulk of the fertilizer it handles through private agents (including cooperatives), and by preparing a plan for phasing out operations of all of its marketing centers within three years.

(f) The government would discuss with donors the possibility of their harmonizing their procurement procedures so that fertilizers could be imported at the most competitive prices;

(g) The government would also develop and enforce fertilizer specifications, quality standards, and packaging regulations, while providing specific education to fertilizer dealers and farmers relating to the standards, and to safe handling and storage of fertilizers.

(h) The project would finance technical assistance and training for all participants in the private sector marketing system, at all distribution stages, including cooperatives, which are expected to play a much larger role in the future.

(i) The project would also finance investments in a dockside bagging facility in the main port, laborato- ries for soil testing and for producing rhizobial cultures (to boost nitrogen-fixing crops), a laboratory to de- velop and enforce fertilizer quality standards, equipment for biogas development (from animal manure), equipment for the agricultural extension services, equipment for the Ministry of Agriculture to lay down fertilizer trials and demonstrations in farmers' fields, and requisites of a new National Fertilizer Industry Agency; the latter agency would implement the project, coordinate and monitor all project activities, and be the spearhead of the national fertilizer promotion effort;

67 AFTES Working PaperNo. 18

(j) Training would be offered within Ethiopia on international fertilizer marketing, port handling, inte- grated plant nutrient supply systems, fertilizer quality control, soil testing, fertilizer wholesaling and retail- ing, inventory control and warehouse management, biofertilizer production (rhizobia cultures), storage and transportation, biogas technology, and cooperative management. There would also be support for some training programs outside the country, and a twinning arrangement would be explored with one or more reputed institutions specialized in related fields of expertise.

(k) The project would include measures to promote fertilizer use and stimulate demand, with the aim of more than doubling fertilizer consumption over five years. These measures would include an annual fertil- izer workshop bringing together all interested parties to estimate needs, plan, and prepare year-to-year strategies for promoting fertilizer; agricultural research and extension programs focusing on working out and spreading better fertilizer recommendations for farmers (including balanced nutrient use for care for the environment), preparing explicit plans for expanding fertilizer use, implementing a minikit program to in- troduce a targeted number of new farmers each year to fertilizer use, and close collaboration with other ac- tivities of the project such as biofertilizer and biogas development, waste recycling, and soil testing; a pro- gram by AISCO to introduce smaller fertilizer packages for small farmers; using all available media to pro- mote fertilizer; and collaborating with the agricultural NGO Sasakawa-Global 2000 in laying out a large number of demonstrations each year for five years;

(1) The National Fertilizer Industry Agency would be charged with putting considerable effort into fa- cilitating, accelerating, and solving problems in the supply chain-from imports through the port and the transportation network into the hands of the domestic fertilizer trade. This would include a special focus on foreign exchange availability, and identifying and dealing with any gaps or shortfalls which may develop in the supply chain;

(m) The project would finance more than half of incremental fertilizer imports during the project's life.

Discussion of the Ethiopia Project

The approach proposed in this large, imnportant national fertilizer project is an "administered' solu- tion to the many problems facing the fertilizer sector. It is based on the principles of using the available strengths of the public and cooperative sectors, and mixing these with the growing strength of the private sector, which would be actively promoted. The project claims, as advantages of this mixed approach, "avoiding a vacuum and sustaining fertilizer consumption levels during the transition period, and giving time to the private sector to assimilate change, build confidence as well as experience and achieve sound growth."

There are significant risks in this approach, including possible conflicts between emerging private sector interests and remaining public agencies over estimates of fertilizer needs and gaps; the possibility that the parastatal AISCO, having control over selecting its own marketing agents, and planning its own with- drawal from the marketing system, may find itself unable (or unwilling) to implement its own demise as smoothly as the project envisages; the possibilities that continued public sector control over promoting fertil- izer in remote areas, and arranging for AISCO to fill any gaps it sees developing in the supply chain, may interfere with private sector development by maintaining a substantial element of uncertainty; and the pos- sibilities for overlapping responsibilities and inefficiency in the operation and coordination of such a sub- stantial number of public sector agencies.

Nevertheless, it seems unlikely in Ethiopia, as in many other countries of Sub-Saharan Africa, that an efficient private sector fertilizer marketing and distribution system would develop quickly enough of its own

68 Agriculture and EconomicReform in Sub-SaharanAfrica

accord, merely given the go-ahead to do so. Especially critical are the port facilities, the roads, and the fi- nancing needs of the system, in all of which it appears necessary for explicit public sector involvement in at- tempts to overcome the legacy of decades of neglect. The experiment in Ethiopia is a serious effort to seek better ways to allocate scarce resources than to subsidies, and to take as exhaustive a series of actions as pos- sible to promote fertilizer use and establish fertilizer markets on a sound and sustainable basis. The experi- ment should be watched closely in order to learn lessons as it proceeds, and to make the necessary adjust- ments to ensure success.

69 AFTES Working PaperNo. 18

VL. Technologyfor African Agriculture

Overviewof Africa'sTechnology Needs A gricultural growth has been poor in Sub-SaharanAfrica, especially during the 1980s,and the growth that has been achieved seems to have arisen mainly from expansion of agriculture at the extensive lk margin- i.e., through increased use of land. Some studies have found low and declining labor pro- ductivity in agriculture,"15 and with the slow growth of fertilizer uptake, land is reported to be degrading.116 Therefore, the need for a markedly increased flow of product from agriculture coincides with a simultaneous decline in the productivity of the two main inputs, land and labor. This puts even more stress on the genera- tion and dissemination of improved technology, if agriculture's growth is to be accelerated, and the cost- reducing potential of technological change is to be realized. Scarcely anything is likely to block the response of agriculture to economic reforms more effectively than lack of improved technologies available to farmers. On the other hand, successful economic reforms raise the rate of return to investments in agricultural tech- nology generation and dissemination.

Achieving technical change in smallholder agriculture in Africa is "daunting," in the judgement of Lynam and Blackie, because of "the diversity of agricultural technologies that must be produced to generate widespread increases in food-crop productivity"."17 They argue that the agricultural development logic is different in Africa than it was in Asia:

In Asia the ability to control conditions for plant growth (through irrigation, soil fertility, and basic agronomy) allowed dependence on single crops (such as rice) and provided opportunities for opti- mizing and narrowing the genetic base;

In Africa there is a need to exploit the diversity in soils, climate, terrain, and genetics (both within and between species), "to buffer the system against temporal variability" (from biotic and climatic stresses). "Modern plant science is based on the premises of and reinforces the Asian model; the struggle has been in developing a conceptual model around which to structure research on African agricultural systems.""18

There have been four concerns in the evolution of research in Africa, argue Lynam and Blackie:

(i) how to control the plant growth environment

(ii) what balance to strike between genetic and agronomic sources of productivity growth, and how much genetic diversity to retain

115Block, Stephen, and Peter Timmer, Agricultural Transformationin Sub-SaharanAfrica: A Progress Report, Agricul- tural Policy Analysis Project,Phase II, CollaborativeResearch Report No. 342, ABTAssociates, Bethesda, 1992. 6 1 Stoorvogel,J.J. and E. Smaling,Assessment of SoilNutrient Depletion in Sub-SaharanAfrica: 1983-2000, Report 28, Winand Staring Centre, Wageningen,1990. 1 1 7 Lynam, John K., and MalcolmJ. Blackie,Building Effective Agricultural Research Capacity:The African Challenge, in J.R. Anderson (ed) Agricultural Technology:Policy Issuesfor the International Community,CAB International, 1994:106-134[p.111]. 8 1 Lynam and Blackie,op. cit., p.112.

70 Agriculture and Economic Reform in Sub-Saharan Africa

(iii) whether this diversification can be maintained with increasing commercialization (which implies more specialization and stricter market preferences)

(iv) how extension and delivery of other services can be adapted to these much more complex outputs of ag- ricultural research.

The basis for increased crop yields in Africa is improving moisture availability, improving nutrient availability, and controlling biotic stresses. "Moisture management will be directly tied to soil management, since moisture storage is based on infiltration, soil moisture-holding capacity and soil evaporation. Tillage, tied ridging, mulching, organic matter management, terracing and timing of the cropping cycle will all influ- ence moisture availability to the plant. These can be combined with genetic approaches that include match- ing maturity to the rainfall cycle and incorporating specific drought tolerance or resistance characteristics. However, the latter charecteristics have been some of the more difficult characteristics for which to breed."" 9

Furthermore, the intensification of land use needed in Africa increases biotic constraints, from soil- borne diseases, nematodes, insects, and the shift from broadleafed to grassy weeds. Declining soil fertility makes plants more susceptible to attacks. "Efficient solutions to controllng a complex of biotic constraints that vary by agroclimatic conditions, interact with soil management, and become more severe with intensifi- cation are far from being developed."

Traditional crop varieties produce "excess" leaves to give more consistent production under weather and biotic stress. Their response to better nutrition, moisture and control of disease is more leaves. Im- proved varieties more efficiently partition increased photosynthate towards the economically valuable part of the plant. These considerations, argue Lynam and Blackie, led to a "breeding first" paradigm in agricul- tural research. Since agronomic research was regarded as location specific, it was to be the domain of Na- tional Agricultural Research Systems (NARs), while International Agricultural Research Centers (IARCs) concentrated on breeding. The "breeding first" strategy had some successes in Africa, but not nearly in pro- portion to the increase in the international movement of germplasm in the 1970s and 1980s as the IARCs de- veloped their networks. Among the successes were improved cassava in Nigeria, climbing beans in Rwanda, and in particular maize, a success nevertheless constrained by the adoption of improved varieties for com- mercial but not home use, and a big lag in the uptake and increased application of inorganic fertilizers.

"The task in Africa is to devise a strategy that will meet the requirements of the multiplicity of agri- cultural niches on the continent. The simple answer to the problems is that diversity is needed to meet a di- verse situation: that farmers need to select from a multiplicity of options to meet the multi-dimensional char- acteristics they require of a new technique and that all characteristics cannot be met in a single variety or technique but are combined and met at the level of the cropping farming system. Such a strategy requires a significant reorganization in how research and extension are executed.' 2 0

African farmers, argue Lynam and Blackie, are good at maintaining and managing genetic diversity, adapting their portfolio of varieties to changing climatic soil fertility and biotic conditions. A breeding pro- gram should therefore improve breeding populations, letting the farmer evaluate and select. This in itself requires a massive change in the research system, with restructured breeding, testing, release, and seed mul- tiplication systems. Moreover, the largest gains in African agriculture will not be through varietal improve-

119Lynam and Blackie,op. cit., p.1 13. 1 15 120 Lynam and Blackie,op. cit., p. .

71 AFTES Working PaperNo. 18

ment of itself, but through improved husbandry, especially soil and crop management.' 21 This tends to un- dercut the work and role of the IARCs.

This poses a challenge not only to research, but also to extension. "The few analyses of the content of the technical content of the technical message ... highlight the reliance on introduction of recommended va- rieties, fertilizer use, plant population and tillage recommendations and occasionally insect control through pesticides. That is extension advice is organized around the seed-fertilizer technology paradigm. Moreover, the T&V system is vastly increasing the level of recurrent cost financing required by ministries of agriculture to maintain an extension service .... Given the complex nature of African farming systems and the techno- logical challenges to address that complexity, questions should be asked about the timing and cost implica- tions of this major increase in lending for T&V development in Africa."'17

Lynam and Blackie posit two paths for extension:

(a) Use the current system to develop much more sophisticated information flows leading to prototype, stepwise solutions to farmers' problems - moisture (improved agronomy), fertilizer, responsive varieties. They caution, however, that "[t]he information and expertise required to target complex technologies to spe- cific agroclimatic and farming system conditions puts an enormous burden on both the research and exten- sion system and, in Africa, the extension system often does not have the needed level of technical profi- ciency."

(b) Redesign extension systems completely to rely on farmers to do much of the adaptive research; with ex- tension focusing on improving the farmers' capacity to evaluate and adapt technology, and research provid- ing the menu of possible techniques and technologies, "extension will have to be far more flexible in where it deploys its staff and for how long; targeting of activities will be essential to make the best use of a pared down extension capacity. Erecting large and expensive extension systems based on simple techniques and simple messages does not meet the reality of African agriculture."123

Many of the structural adjustment packages adopted in the past fifteen years in Sub-Saharan Africa have included budget-trimming exercises, which have often cut operating costs first, and personnel last. As a result, the effectiveness of all personnel-rich systems has suffered, as staff found that they no longer had equipment, vehicles, or the means to run the equipment and vehicles. This is especially the case for such systems working in rural areas, the effectiveness of whose staff depends on their traversing long distances and large spaces. Agricultural research and extension are among such systems whose effectiveness has been in question as a result of budget cuts focused on essential operating costs. One can argue that the priorities have been wrong when such essential services have been so constrained, but that they have is not disputed. Although there has been substantial investment in agricultural research over the past two decades, Lynam and Blackie argue that this has fallen far short of the levels of investment in Asia and Latin America, and the bottom line is that "technological change on the continent is by no means widespread or deep enough to precipitate the 4 percent growth target set by the World Bank."'24

121 "Improvedsoil management is, in many respects, the key to improving crop yields in Africa. How to accomplish this is one of the larger challengesfacing researchers in Africa." Lynam and Blackie, op. cit., p.116. 122Lynam and Blackie, op. cit., p.117 . 123Lynam and Blackie, op. cit., p.1 18 . 124 Lynam and Blackie, op. cit., p.112 .

72 Agriculture and EconomicReform in Sub-SaharanAfrica

Investmentsin AgriculturalResearch in Sub-SaharanAfrica Although there has been substantial progress in numbers of research staff, in the Africanization of those staff, in educational levels, and in the ability of African countries to train researchers, Pardey et al argue that after reasonable growth in the 1960s and 1970s, "growth in expenditures [on agricultural research] basically stopped in the late 1970s.''125

At Independence, Pardey et al report, many smaller countries were cut off from their networks of agricultural research services, others had specialized agencies not addressing local problems, and research was aimed largely at the needs of commercial export agriculture, not the needs of subsistence farmers. Since then, the growth in size of African research systems has been substantial. In 1961 there were only 3 national agricultural research systems (NARS)with 100-400full-time equivalent researchers, whereas by 1991 there were 18. In 1961, 33 systems employed less than 25 full-time equivalent researchers, and in 1991 only 8. There have been marked contrasts in this process, for example between South Africa and Zaire: In 1961 South Africa employed about 900 researchers, and Zaire more than 200;by 1991 South Africa's complement of research staff had grown to 1,400, while that of Zaire completely collapsed at Independence when all of the expatriate researchers fled the country, and "three decades later the research system has yet to re- cover.""26 The trends for the whole sub-continent in the past thirty years have been as follows:

AgriculturalResearch in Sub-Saharan Africa,1961-1991 (average yearly growth rates):

1961-71 1971-81 1981-91

Full-time equivalent researchers 8.3 6.0 3.3 Research Expenditures (US$1985PPP)a 6.6 3.7 -0.3 a Purchasing Power Parity equivalent

Africanization of agricultural research took place steadily, from 10 percent of research personnel in 1961 to 89 percent in 1991, but the process happened more slowly in Francophone than in Anglophone countries (by 1991, 21 percent of researchers were expatriates in Francophone countries, and 7 percent in Anglophone countries). Simultaneously,research staff have increased their levels of formal training, from 45 percent of researchers with post-graduate degrees to 64 percent in the past decade. About 20 percent of re- searchers currently have Ph.D degrees.

Real agricultural research expenditures shrank in the 1980s, after two decades of fairly steady growth. For 16 countries in the sample, spending per scientist in 1991 averaged less than half of the 1961 level. Overall, spending per scientist declned by 2.6 percent p.a. since 1961,the rate of decline accelerating from 1.6 percent p.a. in the 1960sto 3.5 percent p.a. during the 1980s. In 16 countries (Botswana, Burkina Faso, C6te d'Ivoire, Ethiopia, Ghana, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Niger, Nigeria, Rwanda, Senegal, Swaziland, Zimbabwe), agricultural research expenditures (in 1985 Purchasing Power Parity terms) rose from US$164million in 1961 to US$328million in 1971,to US$501million in 1981 then fell to US$465million in 1991 (US$214m in constant 1985 dollars, using market exchange rates instead of PPP). Both agricultural research staff and expenditures rose more slowly in Francophone than in Anglophone countries.

2 5 1 Pardey,Philip, Johannes Roseboom, and NienkeBeintema, Agricultural Research in Africa:Three Decades of Devel- opment,International Service for NationalAgricultural Research, Briefing Paper No. 19,January 1995,11 pp. [p.111

126 Pardey et al, op. cit., pA4.

73 AFTES Working PaperNo. 18

Behind these trends lay replacement of expatriates with less costly local researchers, an upgrading of the status of locals, substantial staffing increases, a smal shift in share of the overall expenditures towards capital away from operating expenses, with personnel expenditures flat. Virtualy no semi-public agricul- tural research agencies have been set up since 1961, so their share of research, always small, shrank still fur- ther, to perhaps 3 percent. The proportion of researchers in universities grew a little, to just over 10 percent. The rest of the researchers (more than 85 percent) were in the government sector. The share of agricultural research financed by donors rose from 35 percent in the early 1980s to 43 percent in 1991.

As a share of agricultural GDP, research expenditures rose from 0.36 percent in 1961 to 0.58 percent in 1971, and 0.84 percent in 1981, before falling to 0.55 percent in 1991 (below the level reached 20 years pre- viously). By contrast, the numbers of researchers per million farmers rose throughout the period, from 16.2 in 1961 to 51.3 in 1991. In a sample of 23 countries, only 5 spent more than 1.8 percent of agricultural GDP on agricultural research (Cape Verde, Botswana, Narnibia, South Africa, Swaziland, and Mauritius).12 7 These trends support the general comrnent earlier that coinciding with the period of economic reform during the l980s and early 1990s, at a time when technologicalimprovements were more than ever necessary to complement policy changes in increasing agricultural production...investments in agricultural research declined in Sub-Saharan Africa, and their effectivenessalso declined becauseof the reducedratio of operating expenditures to those on salaries and per- sonnel generally.

Improvements In Maize Technology As noted above, the successes in agricultural technology in the past 30 years in Sub-Saharan Africa have been limited, but one area generally regarded as a success is the spread of improved maize varieties, especially hybrids. Such successes are important because of the centrality of maize as a food crop in so many countries. In Eastern and Southern Africa, for example, maize accounts for 50 percent or more of calories provided by starchy staples in 8 countries, and more than 80 percent of staple calories in Malawi and Zambia. In West Africa about 10 percent of calories comes from maize, while in Africa as a whole, the share of maize in total cereal production rose from 25 percent in the 1950s to 36 percent in the 1980s, and is projected to rise at 3.2 percent per year in the the next two decades.'2 8 As Lynam and Blackie noted, maize was displacing coarse grains as part of a change in crop mixes in Africa in the direction of higher valued farming activities, one of the sources of agricultural growth.12 9

The first successful maize breeding programs were for large-scale commercial farming in Kenya and Zimbabwe in the 1950s. Since then there has been enormous progress, as shown by a number of indica- tors.130 In 1990 there were 270 maize researchers in the public sector and 38 in the private sector in Sub- Saharan Africa, according to data from 21 national programs compiled by CIMMYT. In 1985-87, 43 percent of the maize research budget of Intemational Agricultural Research Centers was spent in SSA. During the period 1966-1990 there were almost 300 releases of maize varieties by the public sector in SSA, including about 175 improved open-polinated varieties, and around 120 hybrids. This amounted to 20 varieties per million hectares of maize, compared with 10 per million hectares in Asia (excluding China), and 27 per mil-

127Their agricultural GDPs per capita in 1991 were all above (some substantially above) the average for Sub-Saharan Africa of $107. 28Byerlee, D., with P. Anandajayasekeram,A. Diallo, Bantayu Gelaw, P.W. Heisey, M. L6pez-Pereira,W. Mwangi, M. Smale, R. Tripp, and S. Waddington, Maize Research in Sub-Saharan Africa: An Overview of Past Impacts and Future Prospects, CIMMYT Economics Working Paper 94-03, Mexico, D.F.: CIMMYT, 1994. 129Lynam and Blackie, op. cit., p. 108. Other examples of this phenomenon, they noted, were the displacement of yams by cassava, and, in some instances, of maize itself by bananas and beans. This process of diversification posed dif- ficulties for agricultural research, because it made crop priorities "somewhat of a moving target." 130Most of the material that follows in this section is derived from the work by Byerlee, et al, op. cit.

74 Agriculture and Economic Reform in Sub-Saharan Africa

lion hectares in Latin America. Work is progressing on resistance to streak virus, major insect pests (especially borers), striga (a parasitic weed), acid soils, and drought.

In 20 countries surveyed during 1990 which had a total maize area of 14,500,000 hectares (covering probably 93 percent of the area in maize in SSA excluding South Africa), an estimated 23 percent of the area was sown to hybrids, and between 11 and 26 percent of the area was sown to improved open-pollinated va- rieties, a total of between 34 and 49 percent of the area sown to improved germplasm; on the area sown to improved germplasm, 33 percent of that germplasm came from CIMMYT alone. Since 1970, maize yields have grown about 1 percent per year, of which a little over half is attributable to improved germplasm. Av- erage yield gains under farmer conditions are estimated to have been about 40 percent for hybrids, and 15-25 percent for open-pollinated varieties. Improved varieties have also contributed to improved yield stability.

It is important to note that the above data say nothing about the quality of maize, which has some- times given rise to complaints. Nor do data about uptake by areas say anything about whether farmers real- ize the potential of the better genetic material, through appropriate husbandry and inputs. Nor do the data provide information about how fast progress is being made. The maize hybrids in particular require farmers to incur cash expenditures every year, to replace the seeds (which otherwise deteriorate in yield potential markedly in succeeding generations), and this is a well-documented problem for many farmers with poor access to cash or credit.

Furthermore, the dominant maize ecology is the tropical lowlands, with less than 900 metres eleva- tion, and, until recently, hybrid materials were unavailable for this ecology. The main source of improved germplasm was the IARCs, which produced mainly open-pollinated varieties.131 In this and other ways, breeding programs have often not taken account of small farmers' circumstances. Because of labor con- straints, risk, and crop rotations, they often plant late and like an early maturing variety. Only recently have farming systems research acknowledged this and produced the appropriate varieties.

Nor have breeding programs recognized post-harvest evaluation of grain quality, storability, and small-scale processing. Small farmers have been very slow to adopt hybrids in southern Africa because of their preference for flinty (harder) maize varieties. When grain yields are corrected for post-harvest losses in storage and processing, many hybrids are inferior to local varieties at low input levels. Nor has much atten- tion been given to varieties suitable for intercropping, although it is common as a way of increasing returns to labor and reducing risk on small farms. As a result, adoption (especially of hybrids) has been biased to- wards larger farmers. Data for Zambia show that farmers over 5 ha have 33 percent of the maize area and 49 percent of the area in hybrids, while farmers under 1 ha have 6 percent of the maize area and 3 percent of the area in hybrids.13 2

Maize research has paid insufficient attention to returns on farmers' labor. Labor constraints espe- cially play a role in uptake of labor-intensive practices, such as precise plant spacing, frequent weeding, separate operations to apply fertilizer. Labor constraints (exacerbated by lack of seasonal animal draft power because of unavailability or poor nutritional status) make planting late, and may result in yield reductions of 1.3-1.5 percent per day's delay in planting. Labor constraints are also likely to be of overwhelming impor- tance for the application of large quantities of organic matter to soils, as is being urged with increasing fre- quency. Research in methods of overcoming labor constraints while conserving the soil base have had lim- ited success, as measured by adoption of practices. One outcome has been the expanded interest in no-till or low-till agriculture.

9 131 Byerlee, et al, op. cit., p. . 1 132 Byerlee, et al, op. cit., p.1 .

75 AFTES Working PaperNo. 18

Byerlee et al share the view that population pressure and agricultural commercialization, leading to intensified cropping and reduction or elimination of the fallow period, have caused declining soil fertility and soil degradation to become the major constraints on increasingand even maintaining productivity. And the discour- aging fact is that "technologies for enhancing soil fertility have enjoyed less widespread success than the adoption of improved maize varieties and hybrids."'13 3 In particular, they note, fertilizer use on maize is still low (in drier areas of Zimbabwe, with almost all farmers using hybrids, less than 20 percent of farmers use fertilizer, and yields average under 1 ton per hectare). Organic sources (such as fallowing, animal manure, legume rotations, green manures, alley cropping) could help in the short run, but they are constrained by labor and land availability, inadequacies in extension services, and the availability of phosphates in soils, and will not overcome soil degradation in the long term.

Another part of the problem is that using fertilizer on local varieties is not economic, and high costs constrain its use even on hybrids, a practice that becomes economic at yield levels higher in SSA than in other regions. It is critically important, therefore, to increase the rate at which fertilizer nutrients are converted into grain. Rainfall risk is a key factor in low adoption of fertilizer in marginal maize areas in Kenya. Add- ing organic matter often increases the efficiency of using inorganic fertilizers and long-term sustainability of yields.

Maize breeding programs of Eastern and Southern Africa, Byerlee notes, took a decade to produce results. Farming systems research (which tries to address the real problems of farmers) has made slow prog- ress but has begun to affect commodity research priorities. A major problem, however, is the unavailability or late arrival of inputs, discussed elsewhere in this paper with respect to fertilizers. The answers to improv- ing input supply lie with the private sector, but, as noted elsewhere, the private sector needs to be assisted to emerge from its fledgling state in much of Sub-Saharan Africa. The overwhelming need for strong on-farm research and extension with substantial farmer participation means that "strategies for technical change in Africa require more institutional capacity than at a comparable stage of development in Asia." And since the private sector is still in its infancy, most improvements in productivity over the next 10-20 years will come from the public sector.134

"Slashand Burn"Agriculture Many of the technology issues discussed above are exemplified in a set of farming systems which still pre- dominate in many countries, and have been rarely addressed explicitly by economic reforms or policy change. As much as 40 percent of the value-added in agriculture in Sub-Saharan Africa may come from "slash-and-burn" agriculture or "shifting cultivation," which is the dominant mode of agricultural production in one third of SSA countries - Benin, Cameroon, Central African Republic, Congo, C6te d'Ivoire, Equatorial Guinea, Gabon, Ghana, Guinea, Guinea Bissau, Liberia, Madagascar, Sierra Leone, Togo, and Zaire as well as parts of Angola and Mozambique. These countries account for more than one half of the potentially cultiva- ble land in Sub-Saharan Africa (480 million hectares out of 921 million), and more than 60 percent of the es- timated reserves of cultivable land remaining in Sub-Saharan Africa after the year 2010 (396 million hectares out of 644 million; details for individual countries are in Annex Table A.4).13 5

133Byerlee, et aZ,op. cit.,pp.14, 18. 34 1 Byerlee,et al, op. cit., pp.26-27.

35 Food and Agricultural Organization of the United Nations (FAO),African Agriculture: The Next 25 Years, Atlas of African Agriculture, 1986. Estimates of Potentially Cultivable Land are based on knowledge of length-of-growing- period zones and crop requirements. "Manyconstraints such as the presence of trypanosomiasis and the instabil- ity of soils once the natural vegetation is removed will have to be overcome, however, before this land can be brought into use; its cultivation will require greatly increased use of inputs such as credit, fertilizer, improved seed and mechanization, and road and rail communicationswill also have to be improved. Moreover,much of it is al- ready in use for forestry or grazing." FAO, p. 52.

76 Agriculture and Economic Reform in Sub-SaharanAfrica

As wiUlbe seen, a central issue for agricultural development in many of these countries is the transi- tion from shifting agriculture to settled cultivation, a vital step forward if agriculture is to be intensified in a sustainable way. Yet, in spite of this issue's centrality, few strategies for the reform of agricultural policies discuss, or even acknowledge it, and no economic reform packages are designed explicitly to support the intensification of an agricultural system that needs to be fundamentaly changed if it is to proceed forward. This section therefore discusses the characteristics of shifting cultivation, some of the technical needs for a successful transition, and how reform policies in support of this may be devised.

Characteristicsof Shifting Cultivation Shifting cultivation systems are numerous in their variety'3 6 but almost aU rely on the principle of rotating crops around the available land areas as wel as fallowing land between crops in order for soil fertility to re- cover enough to support another crop. Most shifting cultivation is carried out in the humid and semi-humid tropics, and the thinly populated savannas adjoining them. The main vegetation types vary from forest (Zaire) through bush (the West African Lowlands) to savannas (commonly carrying the grass Imperata cylin- drica) and, to a lesser degree, the grasslands of the Africa Highlands.

Traditional shifting cultivation is based on nutrient cyclng,137 described by one observer as a "cost- free, effortless regeneration of soil productivity during the fallow period."138 During the falow period, the secondary forest grows rapidly, tapping nutrients remaining in the soil (including those released slowly by unburned decomposing forest biomass), accumulating them above ground for 10-20 years. A considerable art is involved in shifting cultivation, including selection of tree sprouts aUlowed to grow and form the forest faUlow. When cropping time arrives, small forested areas are cleared by axe or machete and burned before the first rains. Without further removal of debris, crops such as maize, rice, beans, cassava, yams, and plan- tains are planted in holes dug with a planting stick or mounds for root crops in Africa. Intercropping is very common and manual weeding practiced. Burning releases to the soil about half of the nitrogen (N) and phosphorus (P) in the burning biomass, and virtualy all the other nutrients in the form of ash. Higher soil temperatures also accelerate mineralization of soil organic matter. These two things provide high nutrient availability for one to two years of crop production. After the first or second harvest, the fields are aban- doned to rapid forest regrowth resulting in a secondary forest falow. "The traditional system is ecologically sound but guarantees perpetual poverty. There is no such thing as a prosperous shifting cultivator in the humid tropics."'3 9

Within these general principles of nutrient recycling, there is very large variation in land clearing systems, cropping systems, types of rotations, types of tools used, spatial organization, and labor intensity of shifting cultivation. Although shifting cultivation is usually associated with a low level of commercial activ- ity and a concentration on subsistence, it is important to note that it is stil a highly skilled activity, relying on an intimate understanding of their productive environment on the part of its practitioners14 0 and a good ad- aptation to the labor availability of cultivator households throughout the farming season. Furthermore, al-

36 1 Hans Ruthenberg, Farming Systemsin the Tropics,Clarendon Press, Oxford, 3rd. edition, 1980

137 Pedro A. Sanchez, Alternatives to Slash and Bum: A Pragmatic Approach for MitigatingTropical Deforestation, in J.R.Anderson (ed) Agricultural Technology:Policy Issues for the International Community, CABInternational, 1994:451-479. 38 Ruthenberg, op. cit., p.45 . 5 5 139 Sanchez, op. cit., p.4 . 40 1 Ruthenberg remarks the ability of cultivators to rate soil fertility, the "staying power" of various kinds of land, and their knowledge of hundreds of named trees, grasses, and other plants, along with an ability to read the signifi- cance of these plants in the ecologicalsequences associated with shifting agriculture.

77 AFTES Working PaperNo. 18

though the systems have been practiced for hundreds of years, they are not static, since "most of the crop va- rieties grown by African shifting cultivators have been introduced in the last 300 years by traders, settlers, and administrators.' 14 1

The Needfor a Transition from Shifting Cultivation It is important to note that "shifting cultivation is obviously not essential in the tropics but is rather an ex- pression of a certain stage in population density, technology, and price relations."'142 In that characteristic lies the seed of the decline of the system's efficacy, for as populations increase, the shifting cultivation system comes under ever increasing stress. The main result of increasing population is that eventually the land frontier is reached, and the lengths of fallow rotations begin to shorten, as attempts are made to produce more food to support the greater numbers of people.

Since shifting cultivation is "balanced exploitation," relying on the fallows for regenerating soil fertil- ity, as fallows shorten, the system gets out of equilibrium and tends towards soil mining. Crop yields decline (although total production may increase for a time because of the increased areas under cultivation), roots and stumps of trees die and rot away, the thinner coverage of vegetation allows increased leaching of nutri- ents from soils and increased erosion, soil structure deteriorates and along with it the soil's water holding capacity, soils become compacted, less productive vegetation takes the place of the erstwhile secondary for- est and bush, weeds invade, and eventually the forest becomes grassland. Although grasslands also can be a basis for shifting cultivation, they produce one third as much (or less) dry matter as a bush or tree fallow, and the soil is more susceptible to leaching under grass cover.

In many of the countries listed above, and therefore for a significant proportion of Sub-Saharan Af- rica's agriculture, the pressure of population has reduced the fallow periods in the shifting cultivation cycles to the point that the productivity of the system is in decline. The central change which needs to happen in their agricultures is the transition from shifting to settled agriculture. Shifting cultivation itself is not ame- nable to much improvement because measures that increase cropped area or yield per hectare reduce the fallow length and therefore soil fertility. Furthermore, introduction of livestock is constrained by the asso- ciation of the livestock disease Trypanosomiasis(sleeping sickness) with bush and forest, the plough cannot be used because the fallow would then not work, the network of paths and roads needed to increase commer- cialization would be too costly because of the shifting location of production, there are storage problems also associated with shifting houses and the long distances to fields, there are problems with dividing labor be- tween agriculture and non-agricultural activities, and shifting cultivation hinders the development of vil- lages and towns. With shifting cultivation there is little incentive to invest in permanent structures (such as irrigation, drainage, or trees) which would improve productivity and diversify production. "Even when all imaginable measures open [available] are applied to retain the fertility of soil...it is apparently not possible to avoid decreasing returns per hour of work when land use is intensified on tropical soils within the traditional state of agriculture."'`4 3

The Transition to Settled Cultivation Sanchez notes that contrary to the beliefs of some, the soils of the humid tropics are capable of sustaining ag- riculture and forestry. In particular, the dangers of laterite formation (bricklike layers in the subsoil) are very limited in extent; soil organic matter is as high in the humid tropics as in soils of temperate forests (and he presents data to show this); and tropical rainforests do not "essentially feed themselves", but rather 70 percent

'41Ruthenberg, op. cit., p.38. 42ibid., p.63.

143 ibid.,pp.164-165.

78 Agriculture and EconomicReform in Sub-SaharanAfrica

of the ecosystem's nitrogen and phosphorus stocks are located in the soil and not in the biomass (although the bulk of potassium, calcium and magnesium remains in the above ground biomass).

There are options to improve the economic status of subsistence farmers on predominantly acidic, low fertility soils of the humid tropics, methods which will sustain development in the humid tropical re- gions. These include paddy rice production on alluvial soils, low-input cropping, continuous cultivation, legume-based pastures, and agroforestry, together with perennial tree crops (rubber, oil palm), plantation forestry and alley cropping for the higher fertility soils.

The elements of a successful transition from shifting to settled agriculture are known, and have been described by Sanchez.144 They include:

First Stage: several years of a profitable low-input system, in which secondary forest is slashed and burned, acid-tolerant crops are planted without tillage in nutrients captured in the ash, steps are taken to maximize nutrient recycling, and the system is carefully managed to control weeds;

Second Stage: one of three options:

(a) continuous cropping, using cereal/legume rotations, which are cultivated, limed and fertilized according to soil test recommendations; the keys are effectiverotations, and judicious applications of lime and fertil- izers, which make a more favorable environment for root development; cultivation can be mechanical where slopes permit, and if the system is managed well, results show improving soil fertility, declining acidity, de- creases in exchangeable aluminum from toxic amounts to minimal, a doubling of effective cation exchange capacity, and increase of the available phosphorus content to substantially above the critical level;

(b) legume-based pasture, in which a transition is made from crops by planting acid-tolerant pas- tures under a rice crop canopy; fertilizer is applied every one or two years, and combinations and rotations of several grasses and legumes are used; beef and milk production, under carefully managed rotational graz- ing, is possible in these systems;

(c) agroforestry, in which, in the ground cover provided by low-input cropping, acid-tolerant tree crops are established, from among industrial crops (e.g. rubber, oil palm, guarana), or food crops (e.g. peach palm); or trees are used for alley cropping.

Facilitating the Transition to Settled Agriculture

A. Land Tenure. What is less known, or at least less tried, is the policy package needed to provide incentives for farmers to make the transition from shifting to settled cultivation. One ingredient of it which has been missing from most economic reform programs across Sub-Saharan Africa is the need for measures to ensure more secure land tenure. In Ghana, for example, traditional tenure is thought to limit access to credit, dis- courage tree crop planting, and provide little incentive for land improvement. There is also a gender-biased inequity in land distribution under traditional inheritance rules.

There is an unresolved debate about the ability of traditional tenure systems in Sub-Saharan Africa to facilitate modernisation of agriculture. Although in general he argues for the dynamism of traditional tenure systems, and their adaptability to changing economic and technical conditions, Noronha also notes that "the second major line of criticism of communal tenure systems is that the system does not provide an incentive to invest .[underlining his] Under systems of shifting cultivation, for instance, where the allottee

144Sanchez, op. cit., pp.45947 2 .

79 AFTES Working PaperNo. 18

("member") is not necessarily entitled to receive the same plot cultivated previously after the fallow period, there is little incentive to invest in long-term land improvement or in capital equipment - for example, ter- racing or tractor purchase, respectively. In many respects this is one of the deficiencies of "communal" tenure although, at times, the criticism does not take into account land use and soil quality in areas where shifting cultivation is practiced.' 4 5

While noting this possible problem with respect to the transition from shifting agriculture, in general Noronha observes that "although it is also possible that lack of formal title could be a constraint on long-term investments in land improvement and in physical capital, there is no evidence to support or refute this premnise." He argues for research in the area of "land tenure systems as constraints on development", as one of "three areas for research [which] appear to be most fruitful".14 6 We may note here that the fact that land tenure systems change with population pressure seems not to be in doubt. It may be even reasonable to de- duce that they must change. If anything stands in the way of this change, presumably the developments that might otherwise have responded to population growth might themselves be curtailed or muted?

In the years following Noronha's paper, research was carried out on the question of whether tradi- tional tenure arrangements inhibit all or some of the key elements of agricultural development. 147 The es- sence of the research findings were that "with few exceptions, land rights were not found to be a significant factor in determining whether or not farmers made land-improving investments or used yield-enhancing inputs. The most pronounced relationships were found in Rwanda..."'148This research, in several regions of three countries, found that in Madzu Kenya (a maize growing area) land rights were not significantly related to land improvements, while in Kianjogu Kenya (a coffee growing region) preferential-transfer parcels were more likely to receive drainage or liming improvements than limited-transfer parcels. In Anloga Ghana (a land scarce region, with commercialized agriculture), complete-rights parcels were more likely to be im- proved with drainage or excavation than limited-transfer parcels; in Ejura Ghana (a land abundant, food growing region) there was no relationship between land rights and the likelihood of de-stumping or tree crop improvement; and in Wassa Ghana (a land abundant, cocoa growing region) having "complete rights with approval" over land was significantly related to planting tree crops.

Further findings of the study were that:

(a) land rights were not significantly related to yields in any study region; "These results suggest that either all current types of land tenure are equally restrictive in spite of their wide variations in form, or more likely that there are other more binding constraints on agricultural productivity (such as lack of improved tech- nologies or inadequate access to credit)"'14 9

(b) land rights were not significantly related to use of formal credit;

145Raymond Noronha, A Reviewof the Literature on Land Tenure Systems in Sub-SaharanAfrica, Research Unit, Agri- culture and Rural Development Department, Operational Policy Staff, World Bank, Report No. 43, July 19,1985, p.19 6.

146Noronha, op. cit., p.222. 147John W. Bruce and Shem E. Migot-Adholla (eds) Searching for Land Tenure Security in Africa, Kendall/Hunt Pub- lishing Company, Dubuque, Iowa, 1994, 282 pp. This monograph contains the entire study, and the following ar- ticle the results of econometric analysis. 148Frank Place and Peter Hazell, "Productivity Effects of Indigenous Land Tenure Systems in Sub-Saharan Africa," Amer. J. Agr. Econ. 75 (February, 1993): 10-19. 149ibid., p.19.

80 Agriculture and EconomicReform in Sub-SaharanAfrica

(c) more generally, "our study provides little support for ambitious land registration and titling programs at the current time.. .Our econometric results also suggest that even if land rights could be changed, they may not affect productivity if there are more binding constraints. Land titling may encourage more bank lending to agriculture, but the virtual absence in the study regions of formal lending or of any variation in land titling prevented us from testing this hypothesis. Anecdotal evidence suggests there are constraints more serious than land titling to the development of efficient and financially viable credit institutions in these regions."

The authors of this study were at pains to emphasize that the results cannot be extrapolated to other regions, or outside of rainfed agriculture, or to pastoral and livestock systems, or to communal forestry. And the results still leave large parts of the question about a tenure constraint dangling. For example, one can note that something else may be more binding at the present time, or at any particular phase of a region's development, but what if the other constraints were removed? Would land titling then become profitable? And if so, at what point in the removal of other constraints does this happen?

Obviously, each case must be assessed on its merits, and actions taken accordingly. Where action is deemed necessary on land tenure, one possible solution would be legal protection of traditional tenure, rather than comprehensive titling, since the latter would be costly for many countries, in view of the large number of holdings of small size which characterize traditional hand-hoe agriculture by virtue of its reliance on family labor, and the limitations associated with that.

B. Traction Power. Another ingredient of the transition to settled farming in many cases is providing for more powerful means of cultivation, either by animal traction or by tractor. As noted by Pingali et al,'i5 as agricul- ture is intensified, higher yields per hectare are obtained, but in the absence of animal or motor power, there is typically a decrease in yield per labor unit. Labor required per unit of output rises faster than labor avail- ability, leading to adoption of labor saving animal draft. Shorter fallows also lead to less stumps and roots, which eventually almost disappear by the phase of grass fallow, when animal cultivation comes to dominate. Mechanical cultivation becomes appropriate only at the bush fallow or early grass fallow stage. At this point trypanosomiasisis also less of a threat, and grass is available for fodder.

Factors which can speed up the advent of the plow are: heavy soils, a longer growing season (implying higher capacity utilization for equipment), and attractive meat markets. The plow does not by it- self raise yields, except for rice, but expands the area which it is possible for farmers to cultivate. It is there- fore important to have available area for expansion, typically in the fallow system itself, and land tenure be- comes an important factor. The adoption of animal traction changes the structure of the livestock sector, giving rise to new possibilities for linkages between farmers and herders. Initially the supply of equipment from abroad may be important, and later the supply of tools, raw materials, and spare parts, as local manu- facture and repair develops. Decentralization, and a conducive environment for the private sector are impor- tant considerations.

It is important to note that animal traction is not just another input into farming, but a fundamental change in the farming system. To be profitable, animal traction has to be used throughout the system, imply- ing progressive changes, new techniques, agronomic adaptations, and so on. It is very important to get the essentials right: marketing, input supply, and credit. In earlier years, the Bank included development of animal traction in a number of projects in Sub-Saharan Africa. Some of the lessons drawn from a review of 18 of these projects (in Benin, Burkina Faso, Cameroon, C6te d'Ivoire, Mali, Niger, and Senegal) are outlined in the following Box:15 '

1 5Prabhu Pingali, Yves Bigot,and Hans P. Binswanger,Agricultural Mechanizationand Evolution of Farming Systems in Sub-Saharan Africa, Johns Hopkins University Press, Baltimore and London, 1987.

151 Graeme Donovan, Draft Animal Power: Project Considerations, AGREP Division Working Paper No. 110, July, 1985.

81 AFTES Working PaperNo. 18

Among other things aBox4. Lessonsfrom Animal Traction Componenis goverments can do to help .in Projectsin'SubSaharan Africa development of animal trac- tion are ensuring that the integrateda~new ~ ~~system is new requirements for credit it- should be introducedonly when costs ofde-stumpingare not prohibitvely are taken care of (in a situa- --:when::farmers expand areas cultivated rusingidraftanimals,:they.quickly run tion where the loans are into:a laborconstraint relatingdto weeding;, the solutionis Srowplanting, which smaller, and re-possession of requiresseeders animals harder than for - draft animalsare quite quickly ineededfor pploughing,seeding,yweeding, and: tractors); fostering the estab- transporti(for:'bringinganimal :manurefto the fields, and for carryingthe har- lishment of more extensive vest) ~~~~~~~~~~~~~~~veterinaryservices; expand- rneatfrom culled animalsis4anjimportant partof theprofit calculus ing agricultural extension to - manimalman:ure has:great value on tropicalsoils: tak up the man ne de- - returns mustbe raisedper laborday as] wellas per.hectare: - -investmentis costly (perhaps halfof farm grossincome initally, implyinga mands of animal traction on need for credit, and a need for farmersio be in tthecashKeconomy-:: farm husbandry; and assist- t: here is:oftena shortageof animalsin theiinitial buildupphase ing with training of black- :- $good feeding is vital1yimportant for:draft animals .t(more important than smiths and other artisans, ::breeding);this 1is especiallyimportant tQ strengthen:anitnals prior to the first and with training of livestock ploughingof theEseason, but raises prob ems because-6of a: lack off:dder at and farmers. ~thattime. ';- -specialtathlneeds:of dra(ftanimals (such as iniuries,:andfatiagueleading to- With respect to the diseasesus.eptibitlity)may c;all ordchangesoinveterinary services. dvlbopmente of privatesetr backsmts ad 'iteacsytmnedo agricultural machinery in- be 6encoured dustry, goverunmentsshould - researthis'needed 6onfeeding regimes: provide patent laws and : - researchis neededonimaintainingseoil gfertility on tropical solts::in: thetransi- other legal provisions to en- tion;;: f toyintensve annualcultivattiony00g;gff innovatorsablefg;gg : to;ffjj;j capture a portion of the economic rent generated by their innova- tions, and not try to protect a domestic agricultural machinery sector, noting, however, that "private initiative has been the dominant force in the generation of mechanicalinnovations and the development of an agricultural ma- chinery industry."1 5 2 And since remunerative prices, timely payments for output, and profitability of farm enterprises help to speed up agricultural intensification and mechanization, the need for adequate market infrastructure, farm-to-market roads, and so on, is clear. The lack of a climate in which the private sector could flourish in Zambia, led to shortages of rural craftsmen and artisans and of implements and spare parts, and a lack of private investment and markets.' 5 3

C. Credit. Putting in place sound, flexible and innovative financial systems, with lower transactions costs, is essential to support all aspects of the transition from shifting to settled agriculture, because the increased in- tensity characteristic of settled cultivation requires investment in capital (land structures, livestock, perhaps

152 Pingali, et al, op. cit., p14 (italics theirs)

153 Jacques de Graaf, "Increasing Agricultural Production by Using Animal Traction: A Rural Development Puzzle", pp. 116-120in Paul Starkey, Emmanuel Mwenya and John Stares (eds), 1994,Improving Animal TractionTechnology, Proceedings of the first workshop of the Animal Traction Network for Eastern and Southern Africa (ATNESA) held 18-23 January 1992, Lusaka, Zambia. Technical Centre for Agricultural And Rural Cooperation (CTA), Wagenin- gen, The Netherlands.

82 Agriculture and Economic Reform in Sub-Saharan Africa

machines and equipment), and substantially increased outlays of cash for agricultural inputs (especially for seeds and fertilizers).

Discussion: The transition to settled cultivation is a centralissuefor agricultural intensification, and economicdevel- opment in the countries concerned. None of the economicreform packages in these countries, however, was explicitly designed to assist the transition, nor was the need for the transition even acknowledgedin the documentation and ra- tionalefor the economicreform packagesadopted.

Some of the reforms taken up will, in fact, contribute to supporting the kind of agricultural intensifi- cation required. Market liberalization, as noted above, is a key element in ensuring the kinds of incentives farmers need to consider taking up animal traction, and entering into other investments on their farms. And it has been common for the reform process to include some key agricultural inputs, especially fertilizer.

But more than market liberalization is needed. A comprehensive analysis of possible constraints should reveal, in each country, the sequence of other actions and reforms which are important for facilitating the transition. The technology requirements, and the infrastructure needs are clear. Among areas not so far covered in most reform programs must be listed attention to inputs other than fertilizer, especially agricul- tural chemicals, livestock, and mechanical equipment and tools of all kinds. Support for the private sector has usually not extended to the particular needs of a machinery repair, maintenance, and manufacturing sector, and the ways in which innovations and rapid forward movement in these areas might be fostered. And while there remains controversy about the role in all of this of changes in the land tenure system, few economic reform programs have so much as examined the issues seriously.

TechnologyTransfer AcrossBorders Finally, it remains to discuss an area of policy reform which has been little addressed so far in Sub-Saharan Africa, but may become increasingly important to development of agricultural technology in the sub- continent, namely de-regulation of the flow of technologies across national and international borders. In many countries comprehensive regulations have been in place for many years to control imports and exports of agricultural inputs, inputs which embody the results of agricultural research, increasingly carried out in the higher income countries by private companies. The most detailed recent study of such regulations has been carried out by Gisselquist, who argues that such regulations may constitute significant barriers to tech- nological advance, and that the benefits of reducing them may be substantial.'"

Among other things, countries commonly prohibit imports of seeds except for varieties approved in tests by government agencies, enforce time-consuming and expensive registration procedures for new active ingredients in pesticides, limit types of fertilizers allowed for private import, protect local farm machinery industries through high import duties or limit imports to models tested and approved by government agen- cies, maintain positive lists of permitted livestock feed ingredients, limit imports of veterinary medicines and those allowed to import them, and restrict livestock or fish breeding materials. The most important reasons for the existence of such regulations and controls are the prevention of externalities arising from uninhibited imports, especially externalities related to the introduction of pests and diseases (e.g. with imports of seeds), and damage to environment and health (e.g. from pesticides).

Gisselquist argues, however, that such regulations are pervasive through controls on imports as well as on domestic production and sales of inputs, that they go far beyond the legitimate need to avoid exter- nalities, and that their relaxation might have a substantial impact on the availability to the lower-income

Gisselquist, David, Import Barriersfor Agricultural Inputs, OccasionalPaper, UNDP-WPTrade ExpansionProgram, World Bank, 1994. See also Gisselquist, David, and Carl Pray, Regulating TechnologyTransfer in Agriculture:Im- pact on Technical Change, Productivity, and Incomes, ResearchProposal, April, 1995.

83 AFTES WorkingPaper No. 18

countries of a stream of appropriate new technologies. In particular, he estimated the net benefits from regulatory reform in these areas in Turkey, in the period 1990-1992, to have been of the order of US$450 mil- lion per year."5 In proposing further research on this topic in four countries of Sub-Saharan Africa (Ghana, Malawi, Zambia, and Zimbabwe), Gisselquist argues that reforming such regulations is likely to increase the flow of new technologies to farmers, that smaller and poorer countries may have the most to gain frorn such reforms, and that smaller farmers and women in agriculture are particularly likely to benefit, the latter from, among others, the freer transfer of improved technology for horticulture and other minor crops which are their responsibility.

In the latter regard, it is important to note that modem emphasis on protection of intellectual prop- erty rights has raised the payoff to private companies of doing agricultural research from which they may realize economic gains. But countries which do not acknowledge and enforce such property rights may fall behind increasingly in the acquisition of advances in technology. A case in point is Kenya, where in early 1995 the prospects for introducing new varieties of cut flowers and Asian vegetables were being circum- scribed by the government's failure to ratify the International Plant Breeders' Rights Agreement. That this mattered a great deal is evidenced by the value of the horticultural export industry to Kenya, which more than doubled, from US$60 million to US$133 million, in the course of the 1990s, and grew another 30 percent in volume by 1994. By 1994, cut flowers alone earned possibly more than US$100 million in export receipts for Kenya, which had come to dominate the Dutch flower auctions in certain categories, and accounted for almost one quarter of all imported flower stems sold in the Dutch auctions, second only to Israel.156 The cut flower industry is characterized by rapid development of new tastes, sometimes driven by the breeding of new varieties with desired attributes. In order to maintain market share, producers need to be able to adopt quickly the new varieties with these attributes, while those individuals and companies who developed them are unwilling to provide planting material to producers unable to guarantee that the material will not be ap- propriated in turn by other producers in their countries who have not paid the requisite royalties. The touchstone for greater confidence in the enforcement of such payments is ratification by countries of the rele- vant international conventions.

1r Gisselquist and Pray, op. cit., p.18. 156 Imported flowers, in turn, accounted for more than 18 percent of the total cut flower supply in Dutch auctions in 1994. Malter, Alan J., Ard Reijtenbagh,and Shiraz Limbada, Floriculturein Southern Africa,Informal paper, August 17, 1995.

84 Agriculture and EconomicReform in Sub-SaharanAfrica

VII. Rural Finance

Why The World BankStopped Providing Rural Credit Inthe mid-1980s, criticism of the Bank's portfolio of agricultural credit and rural finance, criticism which had been growing since the late 1970s, erupted in the establishment of a special Task Force on Financal Sector Operations, which was commissioned in 1988. Its report to the Bank's Board of Executive Direc- tors in August, 1989, which led eventually to Operational Directive 8.30 on Financial Sector Operations (issued February 28,1992), is widely regarded within the Bank as having led to the virtual demise of agricul- tural credit inititiatives. Coming as it did in the midst of economic reforms which had been accelerating throughout the 1980s, the Operational Directive's main message was that interventions to support produc- tion without attention to the special requirements of financial sector development (indeed often blocking and/or distorting that development) should be replaced by liberalized financial intermediation and market- based interest rates. A special concern was targeted credit, interest rate subsidies, and especially targeted subsidies. The Task Force allowed targeted subsidies for "infant industries", or in cases of "market failure", or to overcome disincentives elsewhere, but insisted on a short transition period.

The background to this development, with its profound effects on the Bank's portfolio of projects in the rural sector, is well laid out in the Operations Evaluation Department (OED) report of mid-1993,15 7 and will be only summarized here, drawing on that report. From 1965 to 1975, agricultural credit grew into one of the most important components of the Bank's lending to the agricultural sector. In 1975, an Agricultural Credit Sector Policy Paper "gave formal expression to what was later to be described as the "traditional" Bank credit project." Credit was a necessary condition for agricultural growth. The credit agency had to cover its costs, but this was a means to the end of stimulating production and farmer incomes. The intention was not to contribute to fragmentation of financial markets, but to fill an important gap arising from banker discrimination against agriculture, and especially against small farmers. This meant special agencies, and special windows. For small farmers the credit should be packaged with other necessary services and prefer- rably administered by a project authority. Subsidies might be necessary in certain cases, to induce commer- cial banks to participate.

Criticisms of the traditional model arose in the 1970s, argued the OED report, initially outside the Bank, but then internalized within the Bank. The main criticisms were that agencies provided only credit (and not other services, especially deposits), the subsidies were unsustainable and distorting, targeting had not achieved anything, the agencies were specialized and protected instead of being part of an open and competitive financial system, and interest rates were too low (this being ineffective for either production or equity objectives, and destructive to financial institutions).

In its review, the OED noted that of the total volume of US$16.5 billion approved for agricultural credit since 1945, 82 percent had been for free-standing agricultural credit projects, most since 1975. Some 30 countries had received 91 percent of the credit, while 50 countries had received 4 percent. The review looked at 41 credit projects in 26 countries completed in the past five years, and at credit components of 18 broader rural development projects. All 41 projects provided term credit (in many cases the terms were shorter than the Bank had anticipated at appraisal), and one third offered seasonal or other short term finance independ- ent of the term lending. The OED argued that the projects had not turned out to be dominated by targeting, nor by poverty considerations, that there was no deliberate cheap money strategy (which was not the case for

157World Bank, A Review of Bank Lending for Agricultural Credit and Rural Finance (1948-1992), Operations Evalua- tion Department (OED), June 29,1993.

85 AFTES Working PaperNo. 18

the "component" projects, however), that there was a low prevalence of the alleged substitu- tion/diversion/crowding-out-of-other-lenders (misallocation of resources effects) supposedly arising from targeted subsidies, and the incidence of abuse was low. The overwhelming factor, however, was that insti- tutional viability remained for the most part precarious, and there had been little contribution by the Bank to management of delinquency, improving eligibility criteria, debt rescheduling or waivers. It was possibly this, more than any other single thing, that put paid to these kinds of credit programs - the institutions were not financially sustainable.

Thus, although the farmers reached were neither the poor subsistence farmers originally envisaged, nor the wealthy, but rather medium and small-scale commercial farmers, and although administrative ca- pacities were strengthened in many cases, the agricultural credit portfolio had failed to build viable institu- tions, develop policy, and achieve financial sector adjustment. The reaction in the Bank, argued the OED report, was that pipelines in operational lending programs were reviewed against the guidelines, and many dropped.

The OED report engendered debate within the Bank, with the OED itself taking the view that the Operational Directive overstated its case, and the staff response was exaggerated. Nevertheless, in Africa it was decided that rural finance projects should be supported only in the context of development of rural fi- nancial institutions and markets as a whole (including deposit taking as well as lending), with charges for financial instruments finding their own levels at market rates. Furthermore, rural finance operations should be supported only in the context of sectoral development programs that deal with shifts in rural terms of trade, taxes on agricultural produce, and access costs, as well as separating social from financial intermedia- tion.

Moreover, it was argued that commercial banking alone was inadequate, and there was need for an innovative rural finance policy for Africa, meeting the requirements of OD 8.30, and having the following elements: 158

- linked transactions (credit with inputs supply, consumer goods supply etc., to reduce transaction costs), with assistance where needed to set up the linkages;

- joint liability groups, with assistance where needed to set up such groups;

- savings mobilization as a precondition for lending;

- lending for off-farm enterprises to exploit fungibility of family finances;

- identification of and working with informal finance networks;

- improved effectiveness, responsiveness, and administrative capacity of intermediary rural organi- zations (savings and credit cooperatives and associations);

- close ties to infrastructure, technology, export promotion, informnation dissemination, a free foreign exchange market, and reduced taxation of agriculture;

- a special effort to establish term financing for an export-oriented agriculture.

158James Coates, internal memorandum, 1993.

86 Agriculture and Economic Reform in Sub-SaharanAfrica

In its response to the OED report at the Joint Audit Commnitteein January, 1994, the Bank's Man- agement acknowledged that it was important to focus on institutions and the policy framework, which em- phasis had been deficient in the past. At the same time, the Bank's policy did not disallow well-designed rural credit operations, although some interpreted the policy too narrowly. Management also reaffirmed that the Bank aimed to: provide improved financial services to the rural population, especially the poorest seg- ments; and to broaden the focus from single-purpose farm lending institutions to multi-purpose institutions serving the broad rural population. Furthermore, "because of geographical dispersal of rural populations, and the covariance of risks prevalent in agriculture, expansion of rural financial services requires special at- tention of the state in the form of promotional activities, support to reduce set-up costs, and subsidizing the high transaction costs of dealing with the poorest clients. To increase sustainability, the Bank's approach emphasizes accountability, the incentive structure for both lenders and their clients, and better insulation of the rural financial system from political interference."15 9

FinancialSector Reforms If a resurrection of the Bank's participation in rural finance was to take place in the context of financial sector reforms, how did the latter fare in Sub-Saharan Africa in the past fifteen years? During the 1980s, argued one commentator, most financial systems in SSA experienced disintermediation and distress. "No other de- veloping region of the world has experienced financial distress on such a scale." In Benin and Guinea the banking sectors collapsed completely. The distress came from the poor state of the economies, mismanage- ment and fraud, and the scope of non-performing assets arising from directed credit, especially to uncredit- worthy public enterprises. Financial sectors in most SSA countries, he concluded, remain among the weakest sectors of their respective economies.160

Popiel saw the three main phases of financial reform as being similar to those of other economic re- forms, namely:

(a) stabilization (steadying the macro-financial framework, restoring fiscal balance, and reducing inflation); in SSA, most of the progress has been in this phase; of 34 countries surveyed, 15 had made "notable prog- ress" in establishing macro-financial stabilization, 21 in strengthening monetary management, 23 had im- proved prudential regulations, and the same countries had succeeded in strengthening supervision of finan- cial institutions;

(b) adjustment (establishing the incentives, policies, regulations, and procedures governing flows of funds to the economy and intermediating financial institutions); in SSA, there had been notable progress, but con- strained in some cases by difficulties in restructuring distressed financial institutions in an adverse economic environment; of 34 countries surveyed, by the end of 1993: 27 had liberalized interest rates, 27 had abolished directed credit, 23 had abolished credit ceilings (or had none to begin with), 27 had reserve requirements, 18 had established auctions of domestic short term instruments, and 15 had established at least an embryonic money market; between 1984 and the end of 1993, 30 countries undertook financial restructuring programs of various scopes, at a cost ranging from 7 percent to 15 percent of their GDPs (spread over periods from 4 to 12 years) - of the 34 countries surveyed, 25 had restructured, or were in the process of restructuring, a more or less important part of their financial system, and 23 had established some type of debt recovery agency; however, he wamed, it was critical to change managers, change incentives to managers, and to insulate man-

2 159World Bank, Joint Audit Committee Report, January 12,1994,p.

10Popiel, Paul A., Financial Reforms in Sub-SaharanAfrica - An Update, World Bank Intemal Memorandum, August 24, 1994,8 pp. + 7 tables.

87 AFTES Working PaperNo. 18

agers from political interference, or financial institutions would fall into distress again; "with only a few ex- ceptions, financial restructuring in the region fell short of objectives and expectations';161

(c) establishing or strengthening the base for self-sustained economic growth (diversifying, developing and expanding financial markets, enhancing competition, providing the expanded and diverse financial services required by a growing economy); "only a handful of Sub-Saharan countries is today engaged in implement- ing this phase."1 6 2

In East Asia, most countries were in the third phase of financial reforms, but in Sub-Saharan Africa, most financial reforms were in the first phase. The prerequisites for deepening and diversification of finan- cial systems being lasting macro-financial stability, a market-friendly environment, a strong flexible le- gal/regulatory/prudential framework, an equitable and efficient judicial system, enough technical and managerial skills (in finance), and good flows of financial information, in general these prerequisites were not yet firmly established in the majority of SSA countries. Ghana was one of the few, being then in the third phase. Botswana, Gambia and Uganda were moving in the right direction.

Popiel concluded by noting that institution building is crucial, and time-consuming, and should start with the first phase of reform; diversification of institutions, mechanisms and instruments is vital for com- petition and lasting financial deepening; more attention is needed to improving information flows and ac- counting/auditing standards; and large training programs are needed to produce skills in financial operations and management. These things taken together mean that financial reforms are possibly the most difficult reforms to formulate and imple- ment (since they address a complex and fast changing environment), and as a result the financial sectors in SSA remain among the weakest sectors of their respective economies.

As with all other markets, the aim in developing financial markets is to reduce transaction costs, and therefore the charges financial institutions make for their services, be they interest rates on loans, or fees for a wide range of other transactions. As with all other markets, reducing these costs is made possible by com- petition, market integration, and tapping economies of scale and diversification. Many researchers have ar- gued that if rural financial institutions set their interest rates high enough, they would make a profit on loans and attract enough depositors to sustain their profits. Much of this argument is a reaction to the years of administered interest rates and forced financial activities which effectively bankrupted many institutions.

A dissenting view is that increased interest rates will decrease the volume of loan business without much increasing deposits, thus limiting the cost-reduction the financial institutions can realize from econo- mies of scale.16 3 In this view accessibility, liquidity, and safety affect rural borrowing, savings and deposits more than the interest rate, so a high density is critical. These contentions were derived from careful econometric analysis, which showed that demand for rural loans was more elastic to real interest rate than was either rural savings or demand for rural financial deposits. Rural savings, deposits and borrowing all showed an elastic response, however, to available, accessible, appropriate rural financial institutions. There- fore widespread rural branches are important. Coverage of farmers, the authors note, is 7 percent in Africa, 24 percent in Asia, and near universal in the developed countries. The higher the expected rate of return

6 161 Popiel, op. cit., p. . 162Popiel,op. cit., p. 2 . 63 1 Desai Bhupat M., and John W. Mellor, Institutional Finance for Agricultural Development An AnalyticalSurvey of Critical Issues, International Food policy Research Institute, Food Policy Review No 1, 1993.

88 Agriculture and Economic Reform in Sub-SaharanAfrica

from investments in agriculture, and the higher the inflation rate, the higher interest rates should be; but as economies of scale are achieved, interest rates should be reduced. Interest rates can improve the margins of rural financial institutions only to a limited degree. To go further needs tapping the economies of scale and scope arising from horizontal and vertical integration. Such integration also helps achieve growth with eq- uity and financial market integration.

Demand for rural loans is elastic to interest rates because when farmers are changing from subsis- tence to market orientation, interest costs form a significant share of toal costs of production. On the other hand, supply of rural savings and deposits is inelastic to interest rates because farmers prefer physical, pro- ductive assets. Rising interest rates have a greater impact on loan demand (elasticities average -1.31, with a range from -0.25 to -1.98 [cf. USA -0.10]) than on rural savings (elasticities 0.0005 to 0.50) or rural deposits (elasticities 0.002 to 0.16). The lesson the authors draw from this is that if interest rates are raised too much during the development phase they will:

choke off loan demand and therefore retard growth;

retard the achievement of scale economies in financial transaction costs; and

lead to cost-push inflation, lower growth and saving rates, and bankruptcy.

Interest rates are less important in determining rural loan demand and rural deposits supply than nonprice factors such as new technology, density of formal rural financial institutions, and multiproduct services in these same institutions, plus the safety and liquidity of their deposit facilities. Farmers still prefer to hold their savings and assets in physical productive resources than in financial deposits.

Desai and Mellor contend that average transaction costs of rural financial institutions are lower when they are vertically integrated, have high geographic density, reach a high proportion of rural clients, and have multiproduct operations that are horizontally integrated. They show that as a precentage of all assets plus liabilities, transaction costs averaged 1.1 percent in Taiwan, 1.5 percent in Korea, 1.7 percent in the Near East and Mediterranean, 2.4 percent in Asian low-income countries, 2.8 percent in Latin American and Car- ibbean medium-income countries, and 3.1 percent in African medium-income countries. Where rural finan- cial institutions are sustained and disciplined, the authors argue, they can bring down rates of interest of in- formal lenders. These rates were reduced by 25 percent over two decades from 1951 in 13 developing coun- tries.

The viability of a rural financial institution, they argue, therefore should not rest alone on its lending margin to agriculture over borrowing. Other sources of revenue are the interest spread for other develop- ment activities, commissions on nonfund-based credit, discounts on bills, check-clearing fees, and income from nonfinancial activities. Considerations of viability should be based on a comprehensive overview of the institution's activities.

The diversified, dense-on-the-ground rural financial institutions which meet their approval are not developed, Desai and Mellor argue, by merely liberalizing financial markets, and hoping that the private sector will flourish. "In both developed and developing countries formal rural lenders and integrated rural financial markets emerge through a deliberate public policy rather than unguided market forces. This is in substantial part because the financial market transactions, which deal in future events, are innately imper- fect."'64 In their view, it is mistaken to: understate the need for public policy to focus on institutional means

64Desai and Mellor, op. cit.,p.2.

89 AFTES Working PaperNo. 18

for fostering growth of rural financial institutions and integrated financial markets; prematurely privatize these institutions; and over-emphasize interest rates as a policy instrument.

Therefore, in their view, governments need to go beyond stopping political abuse and ensuring ap- propriate interest rates, important as these may be. They need to promote and develop appropriate rural financial institutions, with the following characteristics:

- multiple agencies, giving farmers a choice;

- a variety of forms, with vertical integration, from local to regional and national levels;

- increased density of field offices;

- wide coverage of farmers and other rural clients, especially farm input distributors, agro- processors, repair services, and consumer outlets (coverage of farmers was highest in Asia at 24 percent, and lowest in Africa at 7 percent);

- horizontal integration through multi-product and diversified operations (among others both cash and kind transactions, extension services, input sales, produce marketing, consumer goods sales, collection of deposits or share capital, other borrowing and loan recovery services); cooperatives are an example of this multifunctionality, and if they cannot do this directly, they can become effectively multi-functional through collaboration with other rural financial institutions.

An important point to note is thefutility of trying to developinstitutional finance in the absenceof innova- tions that increase agricultural productivity. The aims of agricultural credit policy, which are to facilitate rural growth with equity, integrate rural financial markets, and foster viability of formal rural financial institu- tions, all work best when there are new agricultural technologies that reduce cost of production per unit of output. Nevertheless, developing rural financial markets is complex because agriculture is smnall-scale, widely dispersed, weather-dependent, only partly commercialized, and often deprived of basic infrastruc- ture and education. And development of institutions takes time, so some anticipation is needed to have them ready when the agricultural innovations arrive. Since agricultural research also takes time, this is an argument for investing in both research and financial development simultaneously.

Back To Directed Credit? Does there remain a case for directed credit, to address real or financial sector distortions, and try to reach the poorest groups? The rationale for such initiatives begins wth a contention that the potential scope for welfare-improving interventions is likely to be wider in financial markets than in commodity markets.165 In a normal market, there would be a dispersion of interest rates based on risks, transaction costs, and costs of implementing contracts. But if the costs of screening are very high, and if it takes a long time to establish a track record as a borrower, any individual borrower may find there are only a small number of lenders will- ing to lend at any given time. Arguments for directed credit also cite real sector distortions that drive wedges between financial and economic rates of return, and non-economic objectives such as poverty alle- viation.

1 5 These arguments, and the doubts cast upon them, are taken from the following report: World Bank, Directed Credit, DEC Policy Review Note No. 1, April, 1995,17pp.

90 Agriculture and Economic Reform in Sub-Saharan Africa

In spite of these arguments, directed credit is desirable only in exceptional cases, argues a World Bank review,166 because government may not have the ability or the disciplne to analyze how credit should be allocated from an economic point of view, "first best" solutions should be sought to distortions before the credit tool is activated, there is a tendency for direct programs to proliferate, and credit subsidies are likely to be better delivered as subsidies for technical assistance or location to reduce transaction costs, rather than as interest rate subsidies.

Furthermore, publicly-owned agricultural credit institutions supplying subsidized credit to farmers have proven wasteful, the DEC report argues, and not offsetting the many other policies discriminating against agriculture in many developing countries. There are genuine market failures, the DEC report allows, among them that many rural and poor families have no access to formal sector finance (whether borrowing or saving); informal markets can collapse from covariant risk, as well as from farmers all needing credit at the same time; poor households trade off greater ability to smooth consumption against higher average in- come, foregoing productive investments; and the limited access of poor households to credit and liquid sav- ings instruments is very costly to them and to aggregate growth. Nevertheless, subsidizing interest rates may be an ineffective response to these market failures, and there is virtually no evidence that subsidized credit reduces interest rates charged by local moneylenders, the main source of funds to most poor farm- ers.16 7

To reach the small farmer, the DEC review concludes, financial agencies need to offer deposits, wholesaling, and/or insurance, offering "economies of scope between savings and lending functions", and a "multi-dimensional contract that includes emergency aid". The institutions need to develop substitutes for the screening, monitoring, and enforcement mechanisms used by informal lenders, as well as creating con- venient, low-cost instruments for savings. The leading example of this has been the Grameen Bank in Bang- ladesh, which reduces the difficulty of repaying a loan (e.g. by insurance provisions and direct productivity- increasing interventions) while increasing the cost of default (through peer pressure and exclusion from fu- ture credit and educational opportunities).

Other success stories are the Bank of Agriculture and Agricultural Cooperatives (BAAC) in Thailand, and the Bank Rakyat Indonesia - Unit Desa (BUD) program in Indonesia. These three programs apply posi- tive lending interest rates, use increased savings mobilization to finance lending, and have very high loan recovery, as well as efficient, innovative modes of operation to reduce administrative costs. BUD has an ex- tremely efficient managerial information system, and has demonstrated that the poor can pay interest rates high enough to cover full financial administrative and credit risk costs, and that the poor can save. The Grameen Bank provides many financial and non-financial servies, has consistently increased its clientele and the variety of services offered them, and has "exceptionally high loan recovery". BAAC has "unprecedented outreach" (two thirds of rural households in Thailand have accounts with it), and uses small group joint li- ability to generate cost savings, alongside peer group pressure to achieve adequate screening and prompt loan repayment.

Pre-eminent among the principles on which institutions must be built if they are to reach very small borrowers and lenders are understanding the needs of such clients, designing the products to meet their

166World Bank, DEC Policy Review Note No. 1, op.cit. 167Hoff, Karla, and Joseph E. Stiglitz, "Some Surprising Analyticsof Rural Credit Subsidies," Joumal of Development Economics,September 1994

91 AFTES Working PaperNo. 18

needs, and keeping in the forefront the importance of savings.'6 8 According to these authors, the character- istics of microenterprises are that they:

- have very small startup capital but relatively large working capital needs;

- operate with short planning cycles (days and weeks, rather than years);

- manage seasonal businesses, in many cases tied to agriculture;

- are subject to fluid, unpredictable comings and goings within a year;

- are part of larger family or household units, whose financial flows are mingled with those of the wider household;

- lack marketable assets, so that substitutes for collateral must be found;

- experience serious time constraints, so that transactions have to be quick, and outlets convenient;

- rely on savings as an important determinant of their enterprise growth.

Common commercial finance procedures - credit checks, project appraisaL and formal collateral - cannot be applied to microenterprises with these characteristics, and programs using these methods will continue to need large subsidies, argue the authors. The commercial baunkswhich take their small deposits typically fail to link them to loans to the same clients. At the same time, the common informal financial sys- tems lack depth of intermediation, have high interest rates, and are segmented from the formal system. The poor need short term loans (less than one year), for liquidity and working capital, but not directed to specific uses. Successful financing of the poor requires outlets near to the clients, simple application processes (no more than one page), readily verifiable eligibility criteria, savings requirements, quick disbursement, group guarantees and social pressure, increasing loans with repayment, repayment incentives substituted for costly information - gathering, safe, convenient savings opportunities, with positive real returns, and ready access to financial facilities.

Financial institutions which can successfully offer services to small and micro-enterprises need to be financially self-sufficient by charging fees and interest that cover operating costs, loan loss reserves, cost of funds, inflation, and profit for the owners, with funds derived only from savings and/or from borrowing at commercial rates. Their operating costs have to be trimmed by improving processes, computerization, streamlining staff and plant, and achieving scale. These authors argue for reducing non-financial services as a way to lower costs through specialization, while by contrast Desai and Mellor argue for achieving scale economies through diversification as well as breadth of coverage of clientele. But all are agreed that because microenterprise borrowers are far more sensitive to transaction costs than to interest rates, a lot of effort needs to be exerted to bring down these costs one way or another. Otero and Rhyne set a target for loan losses of below 3 percent of principal. They note that expansion involves its own special costs, including startup activities, and higher interest rates for funds used for these.

For governments and donors, the main policies needed in support of successful micro - enterprise finance include interest rate de-regulation, for both saving and lending, full cost-recovery from organizations receiving government, lender, or donor assistance, supervisory standards which allow microenterprise fin-

168Otero, Maria, and Elisabeth Rhyne (eds), The New World of MicroenterpriseFinance; Building Healthy Financial Institutions for the Poor, Kumarian Press, 1994,302 pp.

92 Agriculture and EconomicReform in Sub-SaharanAfrica

anciers to take deposits (e.g. minimum equity requirements, adequate loan reserves, limits on the percentage of deposits lent, proper accounting standards, constraining loan sizes; cf. those developed by the World Council of Credit Unions), different requirements for loans than standard loan collateral, approval, and documentation, and above all maintaining a growing economy, and a liquid formal financial system with inflation under control.

The authors advise donors to take the lead in fostering a financial systems perspective towards mi- croenterprise development, by demanding higher performance, promoting learning, and fostering suppor- tive interest rate and regulatory policies. Donors can also help by linking NGO programs to formal financing sources, helping them to develop a blend of commercial finance and soft money, and then to diminish their reliance on soft funds, possibly with guarantees which would help the programs to develop credit- worthiness. The next steps in such a program could be to transform the informal sources into specialized financial institutions by re-organization to provide both credit and savings to the full levels needed for ex- pansion, followed by decentralization through development of a franchise or branch network. A special need during this phase would be to help specialized microenterprise institutions cope with banking regula- tions, as they must when they become registered deposit-taking organizations. An altemative route would be to foster specialized operations within commercial financial institutions. There are few examples to date, but one successful experience has been that of the Bank Rakyat Indonesia (BRI) Unit Banking system, a large, government-owned bank serving over 8 million savers and 2 million borrowers. Such an established bank has many advantages arising from its many branches, and its liquidity. In spite of the advantages, however, it was important to note that it must apply special techniques with microenterprises, and cannot succeed by applying its standard operating procedures.

While the World Bank in its mainstream operations has yet to move substantially beyond the slow- down in its rural finance activities which resulted from the initial critique of 1988-1989, the recently launched CGAP initiative provides at least one path towards new activism in behalf of rural financial systems, espe- cially for the poor. While the initiative is not specifically addressed to rural areas, the Consultative Group to Assist the Poorest (CGAP)16 9 should be biased heavily towards rural areas, because the majority of the poor live there, and to the extent they are economically active (part of the definition for the target group for CGAP), they are engaged in rural microenterprises, whether on farms or in agriculture-related activities.

Built on the results of studies showing that micro credit and savings services are effective in creating jobs and generating income for the very poor, the CGAP is a US$100 million program, to which the World Bank has committed US$30 million from its Special Program Budget. The balance is expected to be provided by other donors. The funds are to be channelled through micro-finance institutions which have a proven track record, are efficient and have sound financial policies, have high cost-recovery and repayment rates of their loans, can provide matching funds from their own sources, and have demonstrated capacity to use additional funds well. The CGAP funds generally would be disbursed as grants, aimed at supplying the funds micro-finance institutions typically need for capitalization, expanding their programs, and developing innovative approaches towards reaching the poor on a sustainable basis. Such grants might be disbursed in tranches in order to allow review and enforce discipline.

Interestingly, although the institutions would be required to have "sound financial policies", they would not have to have reached full financial sustainability already, but merely have prepared "a strategy to move towards full financial sustainability". They would be allowed to provide subsidized technical assis-

169Information on the CGAP initiative is drawn from: World Bank, Proposal for Establishing a Consultative Group to Assist the Poorest (CGAP) - A Micro-Finance Program, Memorandum to the Executive Directors, February 28, 1995, 10 pp.; and World Bank, A Policy Framework for the Consultative Group to Assist the Poorest (CGAP) - A Micro-Finance Program, Internal Memorandum, June 15,1995,11 pp.

93 AFTES Working PaperNo. 18

tance and other non-financial services, but would be required to on-lend funds at interest rates which would cover their full costs of providing credit.

It will require some years of experience to judge the success of this initiative, and the step is a signifi- cant one between a limited program of grants and larger scale operations in which the World Bank would provide the initial funds to participating institutions on a credit basis. Nevertheless, CGAP may well prove to be a vehicle for the Bank to find its way back into rural finance on an increased scale. In the meantime, the pathway to financial sector reform, although a hard one, must continue to be pursued.

94 Agriculture and EconomicReform in Sub-SaharanAfrica

IX. Country Experience

T his section of the report assesses the impact of economic reforms on agriculture in 15 individual coun- tries. Together, these countries account for more than 80 percent of the agricultural value added of the entire region. Annex Table A.5 summarizes data on value-added from agriculture, for 35 countries in Sub-Saharan Africa. The largest agricultural sectors for which data are not available for 1991 are Zaire, An- gola and Somalia, but where they fit in the table can readily be seen by comparing data for them for 1987-89, which are available. In making a total for Sub-Saharan Africa for comparative purposes, South Africa is omitted, because until recently it has not been included in comparative statistics. It does, however, have the second largest agricultural sector in Sub-Saharan Africa, and must be included in all future analysis. Leaving it aside for the moment, along with a number of small countries, it is possible to make some generalizations about agriculture across the continent. The countries reviewed in this section include (in descending order of value added in 1991): Nigeria, Ghana, Cameroon, Ethiopia, Cote d'Ivoire, Sudan, Zaire, Kenya, Uganda, Tanzania, Senegal, Niger, Guinea, Madagascar, and Malawi.

As can be seen from the table, the first ten countries accounted for close to 70 percent of the agricul- tural value-added of Sub-Saharan Africa in 1991. It follows that generalizations about agriculture in SSA depend critically upon how agriculture has performed in these ten countries. If their progress is disappoint- ing (for whatever reason), performance in the other countries would have to be extraordinary to pull up the average by much. Furthermore, the same ten countries account for almost half of the remaining reserves of cultivable land, according to estimates made by FAO in the mid-1980s (Annex Table A.4). Although expand- ing the area of land under cultivation has contributed only an estimated 0.7 percent p.a. to the agricultural growth rate in the past (leaving the bulk of growth to come from intensification of production), several countries which have suffered from civil war in the past decade, or political instability and paralysis, happen to share among them a substantial proportion of the estimated remaining reserves of cultivable land.17 0

NIGERIA

Setting In the early 1970s, Nigeria's revenues from oil increased sharply. The government used the revenues to im- prove infrastructure and social services. There was a very large increase in public investment and expendi- ture, which led to large increases in wages. The oil revenues led to appreciation of the domestic currency. These two effects - rising wages and appreciating currency - undermined the competitiveness of traditional (agricultural) exports. Thus resources shifted from producing traded goods (mostly agricultural) to produc- ing non-traded goods (mostly public services). There was a rapid exodus of labor from rural areas. All of these factors, together with poor rainfall over extended periods, price controls and trade restrictions, and inefficient operations of parastatal marketing boards, resulted in poor agricultural performance.' 71

In the early 1980s, the world market price of oil fell sharply, and with it Nigeria's export revenues and public budget revenues. Public spending did not slow down right away. The external trade and public budget deficits grew large, and were financed, respectively, by drawing down foreign reserves, and domestic borrowing/money creation. The private sector accumulated arrears overseas. In 1984 the govermnent tight- ened its budget, and reduced the deficit, but it kept the value of the currency up as a way of trying to avoid

170 Four countries which have been torn by war and political instability - Angola, Mozambique, Sudan and Zaire - among them have an estimated half of the potential land. 171 This outline of economic developments and reforms draws heavily on the following report: World Bank, Nigeria: Structural Adjustment Program Policies, Implementation, and Impact, Report No. 13053-NIG,Country Operations Division, Western Africa Department, May 13,1994.

95 AFTES Working PaperNo. 18

inflation. Inflation rose anyway. Domestic food prices rose because of the drought, and import prices rose because there was not enough foreign exchange to go around.

In late 1985 and early 1986, oil prices fell again. By this time, the economy was in a state of crisis. To deal with this crisis, the government launched a structural adjustment program (SAP). The program in- cluded a devaluation of the currency, elimination of import licenses, reductions in the size of the public sec- tor and improved management, elimination of agricultural marketing boards, removal of price controls, the beginning of a banking de-regulation, and a program of privatization.

In 1990, when international oil prices rose, the government increased spending again, and continued it after oil prices had fallen. The deficit rose out of control once more, and inflationary deficit financing was resorted to again. Many of the gains from the SAP were rolled back during this latter period, which took the economy towards the middle of the 1990s once again in a weakened condition. In particular, the climate for the private sector deteriorated markedly because of the uncertainty generated by unstable macroeconomic policies.

EconomicReforms The policy changes starting with the SAP in 1986 led to a shift to traded crops, and to crops for which im- proved technologies were available; policy reforms included:

(a) gradual devaluation of the Naira [from $1.63/Naira in 1981 to $0.057/Naira in 1992, with a massive shift from $0.74 in 1986 to $0.25 in 1987]; there was a cumulative depreciation of the real effective exchange rate of about 80 percent between September, 1986 and the end of 1992; from the beginning of the SAP to 1992, various official and parallel market devices were introduced, and the degree of convergence between official and parallel market exchange rates fluctuated; in 1993, the government re-instituted an administered foreign exchange allocation, and in 1994 free market transactions at the Bureau de Change were prohibited;

(b) abolishing export duties, removing export prohibitions, and easing export licensing on most agricul- tural products (except foodgrains);

(c) reducing the list of commodities banned for import (but retaining bans on rice, maize, wheat and their products), and abolishing import licensing requirements for many imports (but retaining fertilizer as a Federal Government import preserve); some of the reductions in the prohibited imports list were later rolled back;

(d) comprehensive tariff reform in January, 1988; some tariff reductions were later rolled back;

(e) abolishing Marketing Boards for cocoa, cotton, groundnuts, oil palm, rubber and grains, and abolish- ing price controls on the commodities themselves; this was done at one stroke, in December, 1986; the fact that this, and the other initial reforms, were able to be accomplished so decisively was attributed to "a highly centralized institutional setup and extensive preparation, which permitted coordination by a small, relatively unified and technically competent economic team; the absence of phase-in periods, and the government's strong posture; and the public's acceptance [following a year-long public debate on whether or not to accede to a reform program proposed by the IMF] of the close link between economic and politic reforms"172;

(f) commercializing parastatals - of more than 1,600 parastatals (450 wholly or partially owned by the Federal government and the rest by the States), some 58 were fully privatized, and around 35 partly or fully

17 2 Rashid Faruqee, "Nigeria: Ownership Abandoned,' in Ishrat Husain and Rashid Faruqee (eds) Adjustment in Africa: Lessons from Countrv Case Stud- 24 6 ies, World Bank Regional and Sector Study, 1994, p. .

96 Agriculture and Economic Reform in Sub-Saharan Africa

commercialized; limited progress was made on commercialization of public utilities, notably of the Nigerian Electrical Power Authority and Nigerian Telecommunications Limited;

(g) simplifying regulations, lowering limits on foreign investment, decreasing corporate tax rates, and beginning a debt-equity conversion program, all to encourage private sector development; the costs of doing business in Nigeria are still high, however, because of remaining regulations and necessary approvals, and electricity and telecommunications service (both still provided by public utilities) are unreliable;

(h) de-regulation of interest rates and spreads, and other financial sector reforms to bring banking regulations in line with international standards for supervision; interest rates were re-regulated in the 1994 budget, and many established financial institutions are in seriously bad health;

(i) introduction of a rolling-plan process to try to improve public sector budget-making and implemen- tation; in spite of this, public spending management has continued to be weak, and discipline eroded by in- creased off-budget activities and continued financing of non-viable investment projects.

Results In spite of weaknesses in implementation noted above, the economic reforms (especially the depreciation of the real effective exchange rate) reversed the decline in economic growth. Real GDP, which had decreased at an average rate of between 2 and 3 percent per year between 1980 and 1986, rose at 5 percent p.a. from 1986 to 1992. Most of the recovery came from agriculture and manufacturing. In per capita terms, real income grew at an average rate of 2 percent p.a. from 1986 to 1992 (population growth 3 percent p.a.). But the huge fall in average income levels arising from the decline in oil prices could not be recovered rapidly, and real incomes per capita are not very much greater today than they were before the oil boom in the early 1970s. In 1976, Nigeria had an estimated GNP per capita in current dollars of US$380, with an average growth of 3.5 percent p.a. for the sixteen years from 1960. In 1992, the estimated GNP per capita in current dollars was US$320, with an average growth rate for the twelve years from 1980 of -0.4 percent p.a.17 3

Agricultural production revived in the mid-1980s, with average growth rates of 6 percent p.a.1984- 86, and about 4 percent p.a. from 1986 to 1992. With the exception of 1987, when there was a 3.2 percent decline in agricultural GDP (in 1987 Naira), it increased in every year from 1984 to 1992. This revival was based largely on a reversal of many of the policies which had discriminated against agriculture and pulled resources out of the sector. Also important were investments in the state-wide Agricultural Development Projects (ADPs) which focused on extension and input distribution for small farmers, and rural infrastruc- ture. Net real returns from farming, and especially returns to labor, increased 3-4 times since the mid-1980s; there has also been area expansion through shortening fallows and reduction of forests, but less significantly than before 1986; more important has been the spread in the north of fadama irrigation to supplement rainfall and extend cropping into the formally "dry" season.

Fertilizer consumption in Nigeria grew at 12 percent p.a. from 1983 to 1991, and in the four years from 1987 to 1991, Nigeria accounted for almost 80 percent of the total increase in fertilizer consumption es- timated by FAO for the whole of Sub-Saharan Africa. Although fertilizer has been heavily subsidized in Ni- geria, real fertilizer prices rose in three of the four years during which its consumption grew a total of 47 per- cent; a recent Bank report concluded that "all available evidence strongly suggests that the fertilizer subsidy in its present form and size is no longer needed to promote fertilizer use, no longer affordable on financial grounds, and no longer justified on economic grounds." 174

173World Bank, World DevelopmentReports, 1978 and 1994,Statistical Annex, Table 1. 174 World Bank.Nigeria: DevelopmentIssues In Agriculture.Agnculture OperationsDivision, Western Africa Department.July 2,1993.

97 AFTES Working PaperNo. 18

The SAP shifted relative prices in favor of the rural sector, and production of both traditional food crops and cash crops increased. With the earlier bias against exports reduced, manufacturers used more lo- cally produced materials, especialy in agro-processing and textile manufacturing. The amount spent on food imports has been reduced by 80 percent since 1986.

There was a short term response in tree crops as people tried to repatriate foreign exchange via ex- ports; this pushed agricultural growth upwards. Subsequently food production grew. According to FAO estimates, production of the main cereals (sorghum, millet, maize, and rice) increased by 78 percent between 1979-1981 and 1991-1993, growing from around 7.5 million tons to more than 13 mDlion tons. Over the same period, production of roots and tubers (mainly cassava and yams) more than doubled, from under 19 milion tons to more than 40 milion tons. But livestock and forestry have not fared so well, partly due to trade pol- icy constraints.

Since 1989 there has been backsliding on trade policy, with export prohibitions re-introduced, little liberalization of agricultural imports, and rice, wheat and maize remaining banned. Protectionist measures (bans, QRs, and tariffs) generally favor commodities in which Nigeria has no particular comparative advan- tage, so resources are still misallocated. Exports are banned for timber and wood, maize, rice, cassava, yams, beans, all imported food items, raw hides and skins, and unprocessed palm kernels. Imports are banned for rice, wheat, maize, barley and their products (flour and malt), fresh vegetables, fruit and nuts, preserved and frozen fruits and vegetables, eggs, meat, poultry, fish and crustaceans, processed wood, cork, fruit and vegetable juices, beer, and vegetable oils. Duties are high on other agricultural raw materials. As a result, there has been massive smuggling.

Nigeria is the world's largest producer of yams, cocoyams (taro) and cassava. The prohibition on exports has caused domestic gluts and falling prices, especially for cassava. In addition, these policies inhibit the technological transformation from low-input/low-output to high-input/high-output farming.

Individual states continue to interfere with the free movement of goods, and fertilizers can be moved across state boundaries only by parastatals. Various states have controlled movements of various commodi- ties, usually by administrative fiat e.g. grains, tomatoes, apples and other fruit, and sawn logs. There are also livestock health inspection and quarantine stations which extract "transit fees" from traders moving live ani- mals across state borders. There is a need to remove prohibitions on the export and import of agricultural raw materials and semi-processed goods, liberalize fertilizer markets, remove all inter-state restrictions on movement of agricultural inputs and outputs, and phase out parastatal input supply systems.

In the name of food security, a national Strategic Grain Reserve was initiated in 1988, with the aim of reaching 1 million tons, stored in a cluster of silos (each cluster 25,000 tons) in each state; 5 have been built already, and 5 more are under way. It is not clear how the silos will be filled without disturbing the market and/or incurring very high costs. Other schemes are in progress, such as the National Buffer Stock Program, the Program for Small and Medium-Scale Storage facilities, and the National On-Farm Storage Scheme; the massive public sector involvement in these schemes needs to be re-assessed because none of them is promot- ing efficient, private markets.

Other Factors Complementaryto the Reforms There were substantial productivity gains in maize (improved varieties, fertilizer, animal traction), yam (minisett technique), and cassava (improved varieties). While some further area and irrigation expansion are possible, the opportunities are not large, and sustained growth will depend on suitable technology, better input supply, feeder roads, markets, and cost-effective irrigation. The main issues will relate to: the role and functioning of the public sector; promoting the workings of the market; technology development and dis- semination; and ensuring sustainability through improved soil management.

98 Agriculture and EconomicReform in Sub-SaharanAfrica

Technology: In spite of the technology gains mentioned above, agricultural research has been under- funded, with all funding coming from the Federal Government and support declining drastically since the late 1970s It has lacked a sense of direction or connection with the real needs of farmers (e.g. focusing heav- ily on moncropping). In August 1992, responsibility for research was transferred to the Federal Ministry of Agriculture, and priorities are to be re-ordered in the context of a National Agricultural Research Plan. The main issues include the tremendous diversity of agro-ecological zones needing location-specific adaptive research, sustaining soil fertility and structure, integrating livestock and agro-forestry, gender-specificity, and much better links with farmers.

Regarding extension, a decision was made in 1989 to establish a unified national extension service, based on the ADPs, and this is being implemented slowly. Regarding agricultural education, colleges have been grossly underfunded, and their facilities run down. In 1992 the government significantly improved the balance of non-salary operating expenditures to salaries (from 9.4 percent to 48 percent) by lowering the allo- cation for personnel costs, and increasing that for other costs - a five year program for rehabilitation would cost about US$60 million.

There are also serious issues of sustainability to be addressed in agriculture. "Declining soil fertility is a nationwide phenomenon, resulting in reduced crop yields. Maize yields have been shown to declne from about 4 tons per hectare to about 1 ton per hectare over a five-year period of continuous cultivation, and similar declines have been documented for many other food crops. If the nutrients removed from Nige- ria's soils by the major food crops had to be replenished solely with chemical fertilizers, the cost would be over US$600 million annually."'7 5

To address these problems, better management techniques are needed in three broad areas: to pre- serve and enhance soil fertility, conserve soil and water, and enhance the yield of biomass from the available land. A number of techniques are regarded as being socially profitable, but not financially worthwhile to individual farmers. There is a need to reassess land tenure with a view to strengthening the security of cus- tomary tenure, facilitating the evolution towards individualized rights, and returning ownership and man- agement responsibility for community resources (rangelands, forests) to local communities and user groups.

Seeds: The seed system is being helped under a National Seed and Quarantine Project supported by the Bank, but not until November 1992 was a Seed Decree finally signed by President, and a National Seed Council inaugurated. Excellent progress has been made with improved cassava varieties from the Interna- tional Institute for Tropical Agriculture (IITA), which have been disseminated throughout the humid and semi-humid zones under a Cassava Project supported by IFAD, with rapid development of a network of seed growers/suppliers.

Irrigation: The costs (in 1990 US$/ha) of large-scale surface irrigation are about $10-12,000 for de- velopment, $500 for operation and maintenance of gravity irrigation, $2,600 for pumping, and $4,600 for sprinklers. By contrast, farmer - owned and operated lift pumping and shallow tubewells cost $635-1,265 for development, and $585-625 for operation and maintenance. Over twenty years an estimated US$ 2 billion has been invested in large-scale schemes. Most of these are inefficient and not cost-effective, with poor de- sign, incomplete, weak implementation, and inadequate O&M. Of 333,000 ha planned to receive this kind of irrigation, only 59,000 ha are receiving it, and another 57,000 ha have been developed, but are not receiving water. By contrast, small-scale irrigation planned and operated by farmers, has developed 160,000 ha in the past decade, at much lower cost than the large schemes; there is a need now for thorough hydrological as- sessments before proceeding with any large schemes, whether for rehabilitation or new development.

175 World Bank, Nigeria: Development Issues In Agriculture, op. cit., p.

99 AFTES Working PaperNo. 18

Rural Finance: The proportion of funds mobilized in rural areas required to be allocated to rural ar- eas by banks has steadily increased, to more than 50 percent in 1990. Preferential interest rates for agricul- ture which prevailed until 1991 have been abolished. A program is needed now to deepen financial inter- mediation in the rural areas.

Rural Roads: The rural roads network has roughly doubled in size since the mid-1970s, but huge needs still remain. At present the rural road density, at about 118m/km , is only 30 percent higher than that in India in 1951, and densities in individual states vary widely, from 14m/km2 in Borno to 192m/km2 in La- gos State. Furthermore, roads are in very bad shape, with maintenance lower than the average in surround- ing countries, and very high transport costs, in spite of enormous fuel subsidies.

Reducing the petroleum and fertilizer subsidies would pay for a ten-year investment program of road rehabilitation recommended by the Bank, which would cost N3.6 billion p.a. in 1993 prices.17 6 After the recommended 10 year program of rehabilitation, maintaining the rural roads in stable condition would cost N2.9 billion p.a.; an additional N2 billion p.a. would add 10,000 km p.a. to the rural network, doubling it within 11 years. Labor-based methods of construction and maintenance could mop up seasonal unemploy- ment in rural Nigeria estimated at 35 percent between October and March, and 70 percent between January and March. There is also a need to promote intermediate means of transport.

Water Supply: less than 20 percent of Nigerian's rural population has convenient access to safe water. Conclusion The impact of economic reforms in Nigeria has been very positive for agriculture. The depreciation of the domestic currency was especially important, increasing the competitiveness of tradable cash crops, and, by discouraging investment in less-competitive manufacturing, releasing resources (especially labor) which be- came available for agriculture. The agricultural sector also benefited from the general growth of the econ- omy, and the trend towards greater use of domestic resources induced by the reforms. Abolishing the mar- keting boards and liberalizing trading had a positive impact on cash crops, especially cocoa. Food has been a particular success story. Cassava production increased by 160 percent between 1986 and 1992, and maize production by more than 300 percent.

It is important to note, however, that factors other than economic reforms played a very large role in this agricultural expansion. Especially important were the technological breakthroughs in cassava, yams and maize. These were spread through the investment in Agricultural Development Projects (ADPs) state by state, which focused on extension, input distribution, and the development of rural infrastructure. The rapid spread offadama irrigation in the north also played an important role. Nor can it be overlooked that since the mid-1980s rainfall improved significantly in western Africa, ending a rather prolonged drought which had previously sapped agriculture's strength.

By comparison with Ghana, Nigeria's placing of its specifically agricultural adjustment efforts earlier in its economic reform program, its rapid abolition of its agricultural marketing boards, more extensive rural infrastructure, and greater, more successful investment in agricultural research and extension, all played a role in raising Nigeria's agricultural growth rate to double that of Ghana through the second half of the 1980s.

17 6 The total cost of the fertilizer subsidy was estimated to be N2.9 billion in 1992, and with increased sales in 1993, the total subsidy cost was projected to nse to as much as N7.5 billion in that year. It was projected to be more than half the resources provided for agriculture by the Federal and State governments. See World Bank, Nigeria: Development Issues In Agriculture, op. cit., p.

100 Agriculture and Economic Reform in Sub-Saharan Africa

The economic reforms certainly helped to change the domestic climate for agriculture in Nigeria. But the persisting bans on exports and imports have muted the production and market opportunities for farmers, and with them the possibilities for increased farm incomes. Remaining distortions have capped ag- ricultural growth, and fostered large-scale smuggling and black markets, which are always associated with transactions costs higher than they would be otherwise. The huge burden of fertilizer subsidies has con- strained the public investment funds available for agricultural research, extension, and rural infrastructure, and the fertilizer subsidies have not reached their targets. In fact, the leakage of fertilizer across Nigeria's borders with neighboring countries appears to have been very substantial.

A large agenda for further reforms which would benefit agriculture still remains to be implemented in Nigeria. The rolling back of some of the gains of the reform program, what one observer called "ownership abandoned",177 does not augur well for the future. But it continues to be an advantage that the reforms which have been carried out, and those that may yet be taken up again in the future, have been more balanced in Nigeria with other initiatives vital for a comprehensive agricultural development strategy, espe- cially technology and infrastructure. Should the economic reform program be re-started, the prospects are good for agricultural growth that may even exceed 4 percent p.a. Since Nigeria's agriculture accounts for more than a quarter of the total in Sub-Saharan Africa, that development will be important for the whole sub- continent.

GHANA

The Setting Income per capita in Ghana today has yet to recover, in real terms, to the level obtaining at independence. In 1957, Ghana was one of the most economically advanced countries in SSA; by 1980, its average income was 20 percent lower in real terms than it had been in 1950; economic and social infrastructure had been "gravely damaged", markets had ceased to work, real wages and incomes fell substantially, many left the country, and when one million people (10 percent of the population) were forced to return in 1982, in the midst of a drought, the economy experienced virtual breakdown. "It is a measure of the failure of economic policy in Ghana that, having been on the same level of development (as measured by income per head) as South Korea in 1957, it should end up comparing unfavorably in some important respects with Ethiopia."'17 8 Between 1960 and 1990, income per capita in Thailand rose from half that of Ghana to more than three times.179

Until the early 1980s, real growth of GDP in Ghana slowed in each decade: in the 1950-1960 period it grew at 4.1 percent p.a., from 1960-1970 at 2.1 percent p.a., and from 1970-1982 at 0.05 percent p.a. Agricul- ture, manufacturing, exports, imports, and investnent followed similar trends. Only population growth steadily increased, respectively in the three decades from 1.5 percent, to 2.4 percent, and 2.7 percent p.a. As a result, income per capita grew in the 1950s, but thereafter declined, faster and faster. The rate of inflation, which had averaged 2.9 percent p.a. in the 1950s, climbed to 5.8 percent p.a. in the 1960s, and 35.7 percent p.a. in the 1970-1982 period.180

The central feature of economic development during these periods of decline, was that the resources used in manufacturing were diverted from agriculture, where they probably would have had a higher rate of return, in the

1 7 7 Faruqee, op. cit.

1 78 Alpine and Pickett, op. cit., p.72.

179 World Bank. Ghana-2000 And Beyond: Setting the Stage for Accelerated and Equitable Growth. Western Africa Department. February, 1993,

180 All data from Alpine and Pickett, op. cit.

101 AFTES Working PaperNo. 18

opinion of Alpine and Pickett. And within this overall mistake, a particularly crucial policy error was the wedge which the government created between the world cocoa price and the price paid to the producer.'81

This policy error had profound implications for both the economy and the polity. As one observer noted, "When former colonial territories such as Ghana achieved national independence, their great expecta- tions led many lay persons as well as scholars to underestimate the ramifications of the intense resource and capital extraction from rural producers."...."leaders such as Nkrumah were among the first to witness the brutal confrontation between rural economies and the "political kingdom"-a confrontation which was to transform African national politics."... "Nkrumah's shrewd exploitation of the cocoa factor made it possible for the CPP to remain in power, but cocoa politics was also responsible for his fall in 1966."' 82 [p.xvi]

The sequence which ensued began with a fall in cocoa price in the early 1960s, which reduced gov- ernment revenue but not expenditure, which led to inflationary financing, an overvalued currency, worsen- ing balance of payments, and a downward spiral accompanied by steep rises in prices. As it became harder to cover imports from export revenues (with aid and foreign direct investment disappearing), there was in- creasing resort to price and import controls, which led to rent-seeking becoming more profitable than direct production. This resulted in sharp declines in agricultural and industrial output.

The share of agriculture in total output rose from 44 percent in 1965 to 58 percent in 1980, while co- coa increased in importance from 57 percent of the value of exports in 1960 to 74 percent in 1980. The tre- mendous tax on cocoa producers arising from their receiving eventually only 20 percent of the export price made it very difficult for producers to cover their costs of production. Cocoa production and exports peaked in 1965, at 500,000 tons sold abroad, dropping to 240,000 tons in 1982 (with a significant portion of produc- tion being diverted to C6te d'Ivoire, whose farmers received 84 percent of the selling price, and were paid in hard currency, compared with Ghana's 20 percent of its export price). For the six major food crops (maize, sorghum, millet, rice, cassava, and yams) yields stagnated for maize, and fell for all the others. In 1974/75, Ghana received more food aid per capita than famine-struck Ethiopia, and by 1982, calorie supply per capita had fallen below that of Ethiopia.

Alpine and Pickett pose the question: was all this due to factors outside Ghana's control? Factors such as worsening terms of trade, oil price shocks, world recession, and domestic drought? They answer their question with a resounding no, arguing that C6te d'Ivoire had to contend with the same factors but did markedly better; that other countries raised their incomes during the same period, instead of lowering them; and that constant terms of trade would have given Ghana a higher GDP in 1966 than recorded, and the same GDP in 1980 as recorded, implying a lower rate of growth of terms-of-trade adjusted GDP than that of the unadjusted. While allowing that adverse economic shocks do reduce economic progress, they nevertheless maintained that "if...a professional boxer makes himself so drunk that he is flattened by a dwarf, it would misrepresent the situation to attribute his prone position entirely to the prowess of the dwarf."'m' Another observer remarked that "just as Ghana pioneered political independence from colonial masters in Africa, so also has she pioneered a set of self-destructive policies which many more recently decolonized African countries have also followed."'84

181 John Toye, "Ghana", in Paul Mosley, Jane Harrigan, and J.F.J. Toye, Aid and Power: The World Bank and Policy-Based Lending, Routledge, London and New York, 1991, Vol. II, p.151. 82 1 Gwendolyn Mikell, Cocoa and Chaos in Ghana, Howard University Press, Washington, D.C. 1992, pp. xvi and 173. 183 Alpine and Pickett, op. cit., p.77.

184Toye, op.cit., p.151.

102 Agriculture and EconomicReform in Sub-SaharanAfrica

EconomicReforms In 1983, the economy having virtually collapsed following a devastating drought, and the forced return of around a million migrant workers from Nigeria, Ghana began its adjustment reforms. The first recovery program, launched in April 1983, had the aims of validating prices (including that of the currency), imposing fiscal discipline in the public sector, and restraining credit expansion. Devaluation of the Cedi, with eventual introduction of foreign exchange allocation through an auction system, took place in four stages: from 1983- 1986 there were a number of discrete, large devaluations; then an auction was set up; overlapping with this was the legitimization of foreign exchange bureaux and a parallel market; and finally a unified system was achieved. Controlled prices were initially increased markedly. Tariffs were simplified and reduced to three rates. New taxes were introduced on wealth and rental incomes, and the efficiency of tax collection was in- creased.

Sandwiched among the economic reforms was the practical need to deal with the huge number of returned migrants, which posed an enormous test of the goverrmentes ingenuity, coinciding as it did with severe drought, a food crisis, starvation, bush fires that destroyed forests and cocoa and altered the farm ecology of the central, Ashanti and Brong-Ahafo regions. The government responded by sending the people to the rural areas, doubling the population of many villages almost overnight, and establishing a National Mobilization Program of public works on schools, roads, clinics, and other rural facilities.18 5

In 1983, the prices farmers received for cocoa were increased by two thirds in May, and several times over the next three years. Producer prices were also increased for coffee, cotton and tobacco. The minimum wage was doubled to C25 per day, interest rates increased; price controls were abolished on all but 23 goods, then further reduced until by 1986 only rice, sugar, babyfood, cement, textiles, drugs, matches, and soap were affected. Reform of the Cocoa Marketing Board was begun in the first recovery program, and more than 30 percent of its staff were laid off. Public sector wages were raised and differentials widened between top and bottom. Steps were taken to improve management and reduce the labor force of parastatals. A new investment code was introduced to guarantee repatriation of profits and capital by foreigners, and rule out expropriation. By December, 1986, external arrears had been reduced to US$170 million. In the four years from 1983 to 1986, Ghana received about US$1 billion in financial assistance, 60 percent of it provided by the IMF, 14 percent by the World Bank, and lesser amounts by a number of bilateral donors.186

The second phase of reforms, during 1987-1989, attacked more deep-seated problems of imbalances in the economy and erosion of the productive base This phase aimed at complete liberalization of exchange and trade systems, encouragement of divestiture of state enterprises; increased efficiency and reduced size of the public sector; continued tax reform; strengthening the domestic banking sector; more careful design of public investment; rehabilitation of economic and social infrastructure; and increased spending on education, health and social services. Equity was a central concern, as exhibited by introduction of the Programme of Actions to Mitigate the Social Costs of Adjustment (PAMSCAD). As will be seen below, the second phase of reforms was focused only peripherally on agriculture, on which its effects were therefore limited.

Results What were the Results? There was a clear improvement in economic performance, as real GDP rose every year, from 1983-1990, which it had not done for more than 3 successive years during the entire period 1965- 1982. Much of the growth came from industry, mining, and a marked recovery of cocoa production. In- comes increased, the balance of payments improved, central government finances were strengthened and the

8 185 Mikell, op. cit., p.21 . 0 186 Toye, op. cit., p.16 .

103 AFTES Working PaperNo. 18

budget deficit eliminated by 1986,187the trend rate of inflation fell (aided by the end of the drought), by 1990 extemal arrears had been wiped out, competitiveness improved, infrastructure improvements boosted manufacturing, mining and agricultural exports, savings and investment rose (the latter from 3.7 percent of GDP in 1983 to 16 percent by the end of the 1980s, most of it being in the public sector, in education, health, electricity supply, and so on), and private investment rose. "There can be little doubt that changes in eco- nomic policy have caused the Ghanaian economy to produce more than it would otherwise have done.. .one measure of the success of the policy reform is its success so far in a much less favorable world environment than that in which Ghana began its long economic decline in the 1960s."188

The main weaknesses in the policy reform were not enough attention to non-cocoa and traditional agriculture, (northem farmers need better techniques and market access; and there is a need for facilitating infrastructure); and substantially better financial intermediation is needed, even in rural areas. Just before the 1992 elections the civil service wage bill was doubled, giving rise to a tremendous new fiscal deficit. The civil service remains one of the largest in Africa. Especially notable has been the slow restructuring of a very large number of government enterprises (more than 300, the largest number in Africa except perhaps for Tanzania). There is also a low savings rate (8 percent of GDP, compared with the average for Sub-Saharan Africa of 13 percent), and investment rate (16 percent of GDP, compared with an average of 29 percent for low - income countries world-wide). Ghana's exports have leveled off at 18 percent of GDP (compared with 24 percent of GDP for developing countries in the same income group). There is also continuing high infla- tion (26 percent p.a., compared with an average of 18 percent p.a. for Sub-Saharan Africa in the past decade). The banking system has one of the lowest levels of resource mobilzation in Africa (attributed to a lack of confidence with regard to arbitrary investigation and seizure). There is a need for fair laws, abolition of mo- nopolies, and curtailment of the public sector.

A sobering footnote to the above, albeit incomplete, reforms is the political climate in which they took place, and the reactions they engendered. One observer noted that "when the tum-about in policy be- came apparent, the basis of support for the regime was bound to change."18 9 The adjustment was biased against the urban economy, this author argued, noting that after April 1983, there was a slow realignment of loyalties, in the course of which the regime lost the support of organized labor and most urban workers. In the meantime, the rural masses, whom the ruLng government had vowed to rescue from exploitation, were not organized. There were more than twenty attempted coups between 1982 and 1987, and more in 1989. The regime survived only with the support of the armed forces.

A program to mitigate social costs of reform was proposed in 1987, and initiated the following year. Its aims were to cushion the burden of public sector retrenchments, encourage communal infrastructure de- velopment, and meet the basic needs of vulnerable groups. Further measures were included in the 1992 Ag- ricultural Sector Adjustment Program, including monitoring of the spatial distribution of public expenditure in relation to the poor, study of the impact of agricultural policy reforms on poverty, and implementation of an action program to alleviate poverty. The latter was to include labor-intensive investment in feeder road construction, and increased research and extension on matters important to the poor, and to rural women, among them roots and tubers, crop rotation, soil fertility improvement, and better methods of post-harvest handlng of crops.

Nevertheless, it was impossible to conclude, argued Rimmer, that the economic reforms were bound to affect the poor adversely. "Programs of stabilization and structural adjustment such as were undertaken

187 By an increase in tax revenues from 5 percent of GDP in 1983 to more than 15 percent in 1987 while expenditures grew less quickly CI'oye,op. cit., p.167). 188 Alpine and Pickett, op. cit., p. 8 9 1 Douglas Rimrnmer,Staying poor: Ghana's Political Economy 1950-1990, Pergamon Press, 1992, p.

104 Agriculture and Economic Reform in Sub-Saharan Africa

in Ghana after 1983 are sometimes said to be at the expense of the poorer and more vulnerable sections of society. There is an implicit assumption that those groups were protected against adversity by the institu- tions of the unadjusted economy, and that they would have been better off if adjustment had not been under- taken. The Ghanaian record does not support that assumption, The twists in prices and resource allocation that characterized the economy before 1983 had made the population as a whole poorer, and benefited only the small minority able to secure administratively generated rents. The reforms initiated in 1983 reduced the potential gains from rent-seeking and reversed the process of economic contraction."'190

Agriculture Ghana launched its adjustment program in the teeth of a steep decline in world cocoa prices, which began in 1984. From a level of US$3,620 per ton in 1980, the world price of cocoa, in constant dollars of 1990, shrank to US$1,030 per ton by 1992. Subsequently the price began a slow recovery, and is projected to reach a little over US$1,450 by the year 2005.191 This massive shift in terms of trade, for a commodity which in the early 1980s provided almost three-quarters of Ghana's export earnings, highlights the difficulties under which the reform program was carried out.

Under these circumstances, the massive devaluation of the domestic currency which took place in 1983 (when the exchange rate index fell from 100 in the first quarter to just over 9 in the fourth quarter), and the achievement of further declines in the real effective exchange rate in succeeding years,'9 2 allowed the government to actually raise prices to producers through the 1980s, massively in nominal terms, but signifi- cantly even in real terms.1 93 As they did so, the gap between producer prices and world prices was reduced, but this laudable gap reduction appears to have peaked in 1989 at around 55 percent,19 4 and fell later to around 46 percent. As real producer prices leveled off, so did the recovery in production, which resulted in growth averaging 6-7 percent p.a. from 1984 to 1988. In the period of rising real prices, the majority of farm- ers apparently undertook additional plantings of cocoa.

The Medium Term Agricultural Development Strategy (MTADS)195 noted in 1991 that while virtu- ally all agricultural inputs had been exempted from import duties, quantitative restrictions remained in place on maize imports, and maize export licensing de-linked cereals from world markets. In spite of this, prices were close to world market parity. Minimum prices for maize and rice were discontinued in 1990. By then the Ghana Food Distribution Corporation handled less than 10 percent of the marketed surplus of maize and much less for rice, and marketing was dominated by a large number of small traders (mostly women) who lacked storage, grading and weighing facilities. Cotton commodity aid supplied on concessional terms to local textile companies undermined domestic incentives for cotton production, and farmgate prices were one third of import parity. Tobacco prices were half of import parity.

More importantly, cocoa was still [as of 1991] taxed at about 40 percent, a high level compared with other producing countries (where taxes were not more than 20 percent). "Among the major [cocoa] produc-

190 Rimmer, op. cit., p.192.

3 191 Commodity Markets and the Developing Countries: A World Bank Quarterly, November 1994, Table Al, p. 4.

192 Between 1983 and the end of 1990, the Cedi was devalued from 2.8 to 340 per US Dollar.

193 The real producer price (in constant 1979 prices) rose from C2,347 per ton in 1983 to C6,332 per ton by 1987; see Richard Pearce, 'Ghana" in Alex Dun- can and John HoweU (eds), Structural Adjustment and the African Farmer, ODI London, 1992, App. Table 1.1, p.44. Subsequent to 1987 real pro- ducer prices leveled off, and fell slightly again. 194 Chad Leechor, "Ghana: Forerunner in Adjustment' in Ishrat Husain and Rashid Faruqee (eds), Adjustment in Africa: Lessons from Country Case 5 7 Studies, World Bank, 1994, Fig. 4.2, p.' . 195 World Bank, Ghana: Medium Term Agricultural Development Strategy (MTADS), Report No. 8914-GH, Agriculture Operations Division, Westem Africa Department, June 28, 1991.

105 AFTES Working PaperNo. 18

ing countries, the role of the private sector is most restricted in Ghana."`96 The government was "taking bold steps" to streamline COCOBOD's operations, since major competitors Brazil, Indonesia and Malaysia had marketing costs 50 percent lower than those in Ghana.

In the palm oil sector, lack of competition had been the main obstacle to raising productivity, with estate producers [about one third of total production] having benefited from protective pricing arrangements and therefore having had no pressure to produce competitively. On the other hand smallholders had failed to benefit from their more competitive production because they produced a relatively impure palm oil con- sumed mainly in rural areas. The government influenced prices, but did not control them directly, and dis- couraged exports.

For rubber, with devaluation, prices had improved, and the main problem remaining was low pro- ductivity, which research needed to rectify. The government had been slow to privatize State Economic En- terprises in agriculture, but had made progress in reducing the claims of these on the public budget. "The constraints imposed by a lack of adequate marketing infrastructure are pervasive in food as well as non - food crops."'19 7

Real prices of cereals and root crops declined by about 30 percent between 1980 and 1990, and al- though real prices for cocoa and some other cash crops increased, there was an overall deterioration of the agricultural terms of trade. Price volatility between and within years suggested good opportunities. for arbi- trage, but the limited amount of it observed suggested that transaction costs were high, arising, perhaps, from limited storage facilities, transport or other infrastructural bottlenecks. Marketing margins were very high, with ratios of retail to farmgate prices ranging from 1.50 (cattle) to 3.30 (sheanut); for maize and yams, the ratios were around 1.6.

A deepening of reforms in marketing was believed to be urgently needed, especially for cocoa, whose marketing costs were 17 percent of the export price compared with levels in Brazil and the Far East of 10 percent. Much agricultural processing was being carried out on a very small scale, with traditional tech- nologies, achieving low labor productivity and low quality. Medium and larger scale processing suffered from low capacity use, poor quality, frequent breakdowns and maintenance problems, obsolete machinery, and weak management.

During the period 1983-1990, GDP grew at 5.4 percent p.a., while agriculture (which contributed 43 percent of GDP) grew at 2.7 percent p.a., industry at 7.5 percent p.a. (manufacturing 9.5 percent p.a.), serv- ices at 7.5 percent p.a. During the more recent period 1988-1992, agricultural production grew at 1.77 percent p.a.

Summary of Agricultural Reforms to 1992 and a Future Agenda Against the above backdrop of disappointing agricultural growth, and limited reform of policies directly im- pacting upon agriculture, a new reform effort was launched in 1992.198 Its central aim was to achieve com- petitive private trading in all agricultural inputs and outputs, and to remove external trade restrictions for all agricultural commodities except cocoa, thereby creating conditions for increased private investment in stor- age, agro-industry and input supply. The following paragraphs outline the situation and plans for each of the major components of this new reform program.

196 World Bank, Ghana: MTADS, op. cit., p.8. 197 World Bank, Ghana: MTADS, op. cit., p.47. 198 World Bank, Report of the President on a Proposed Credit to Ghana for an Agricultural Sector Adjustment Program, Report No. P-5523-GH, Agricul- ture Division, Western Africa Departnent, February 27,1992.

106 Agriculture and Economic Reform in Sub-SaharanAfrica

Cocoa: the key factor for this crop, which still accounted for 45 percent of Ghana's foreign exchange earnings, was that in spite of the country's strong comparative advantage in producing cocoa, the price to farmers had been held down below a level needed to provide incentives adequate for investment and proper maintenance. Although the world price had been low throughout the 1980s, domestic policy had still not gone far enough in increasing the share of that price accruing to farmers. The budget of the Ghana Cocoa Board (COCOBOD), which had 42,000 staff in 1992 (down from 101,000 in 1984!), took up one third of total export revenue from the crop. Since 1987, under two structural adjustment credits, steps had been taken to reduce these marketing costs by divesting subsidiaries of the Board (including a substantial proportion of its plantations, and converting its insecticide plant into a joint venture), loosening the monopoly on purchases from farmers enjoyed by the Produce Buying Company, and streamlining buying operations and cocoa ex- tension services. As a result, COCOBOD operating costs had been reduced by one third since 1987, allowing the producer price to rise from 20 percent of f.o.b. in 1983 to 46 percent of f.o.b. in 1992.

Under the further reform program, the monopsony still enjoyed by the Produce Buying Company would be abolished, and the Cocoa Board would be much reduced in size and charged with a residual func- tion of policy formation. Although it would continue in the short run to be responsible for research and ex- tension, eventually these would be merged with the rest of agriculture. A Producer Price Review Committee expanded to include representatives of new buyers would set prices to licensed buyers based on f.o.b. prices, with deductions to cover remaining COCOBOD costs, quality control and expenses of extemal marketing, incurred by the Cocoa Marketing Company. Licensed buyers would be free to offer whatever prices they wished to farmers, and it is anticipated that these would rise with competition, and lower deductions to cover COCOBOD costs. The ultimate aim will be to attain a level of taxation on cocoa farmers no higher than that in competing countries, namely 15-20 percent of the f.o.b. price.

Cereals: increasingly substituting for roots and tubers in the national diet, maize, rice, millet and sor- ghum now account for more than 60 percent of the calorie supply of rural households and about 50 percent of that of urban households. The largest single buyer of maize remains the parastatal Ghana Food Distribu- tion Corporation (GFDC), although it buys only 8-10 percent of the marketed supply. It also runs rice mills, and has substantial storage facilities. The government abolished the guaranteed minimum price for both maize and rice in 1990, froze plans to construct further GFDC storage, took steps to secure extemal donor financing for smaller private sector storage facilities, prepared plans to develop local marketing infrastruc- ture and services, and began divesting its rice mills and cold storage facilities. Under the further reforms, the GFDC would lay off about one quarter of its staff, divest or lease its remaining storage, commercialize its remaining rice mills, cease its domestic purchase of cereals for price support purposes, and reduce its activi- ties to handling public sector food security stocks and food aid imports.

Cotton: the government, which used to be the sole buyer of cotton, during the 1980s withdrew from its monopoly position, ended its practice of fixing producer prices, and lifted its restriction on cotton exports. Farmers received higher prices, and domestic production rose to meet about 60 percent of total demand in 1991. It is anticipated that with further reforms, an export surplus could emerge. The centerpiece of further reform would be achieving full divestiture of the Ghana Cotton Company, a joint equity concern set up in 1986 to share government and private ownership of the former monopoly operations of the Cotton Board.

Palm Oil: behind a wall of import tariffs, with restricted exports, and with prices set administratively on a cost-plus basis, larger estate producers failed to raise their productivity. Smaller producers, operating in a competitive, but fragmented marketing situation, continued to produce an oil more attractive for domestic village consumption than for industrial processors. Under the reform program, the government would free both imports and exports, in particular removing the import and special sales taxes of 100 percent, cease set- ting prices, and let the pressure of competition force efficiency in the industry.

107 AFTES Working PaperNo. 18

Agricultural Inputs: between 1987 and 1990, the government eliminated subsidies on fertilizer, and launched a phased privatization of input marketing, which by 1991 had made limited gains at the retail level. It also privatized seed production. Under further reforms, the government would abolish its control of fertil- izer marketing margins, divest the two Farmers' Agricultural Supply Companies, and withdraw from fertil- izer importing. Fertilizer marketing reforms in Ghana are examined in greater detail elsewhere in this re- port. The government would also implement new directives on quality and environmental standards for import and use of agricultural chemicals.

Agricultural Coordination: to address major problems arising from the dispersed nature of responsi- bilities for agriculture (shared among three Ministries, the Cocoa Board, and the Council for Scientific and Industrial Research), the government would implement an evaluation of projects in the agricultural public investmnent program, conduct joint reviews across the board of agricultural budgets under the auspices of an Agricultural Policy Coordinating Conmmitteewith broader terms of reference, and design a long-term sector monitoring system with key performance indicators.

What Has Been The Impact Of The Reforms? While economic growth has picked up substantially in the country with the most Bank-financed adjustment operations in Sub-Saharan Africa, the agricultural sector has remained a disappointing laggard, at least ac- cording to official statistics, which are notoriously slender, but suggest a growth in agricultural production averaging about 2.5 percent p.a. from 1986 to 1992, with growth of value added probably below 2 percent p.a.

Some possible reasons for the disappointing performance include the decline in world market prices for cocoa, failure to pass on to cocoa producers the full benefits of devaluation, so that the tax on cocoa pro- duction remains very high, a decline in real prices for cereals and root crops, and lack of progress in tackling deep-seated problems of agricultural marketing. One estimate of supply elasticities concludes that if real farm prices had been 30 percent higher between 1980 and 1990, agriculture would have grown faster by be- tween 1.5 and 2 percent p.a.199

But the lack of these economic reforms alone cannot have borne total responsibility for Ghana's slow agricultural growth. The continuing extremely high transactions costs in marketing, for example, among other things arise from a number of infrastructural bottlenecks, foremost among them very poor rural roads. A recent Bank report concluded that "rural Ghana is...largely a "foot path economy", and that "it is probably true to say that the very high cost of transport associated with the poor state of the rural roads is the single most important factor affecting the ability of subsistence farmers to enter the market economy."20c. Ghana has a feeder road density of 89m/km 2 , equal to that of India in 1951, and only 3,300 km of the 21,300 km of feeder roads are motorable year round. Around 5,000 km are in fair condition, but 12,900 (60 percent) are in poor or very poor condition, constituting a severe limitation on the achievement of agricultural production potential.

Equally severe as a constraint is a long-neglected agricultural research system which has produced very few technical packages suitable for small poorly endowed farmers. Its job is a complicated one, to pro- vide the technological underpinning for the transition from shifting to settled agriculture. In Ghana almost half the land cropped in any year (essentially the proportion planted to annual crops as distinct from tree crops) is still under a 3-4 year crop/fallow rotation which has been shortening as population pressure has increased. Without fertilizer, such a system is continuously removing nutrients from the soil. It is estimated that annual production of the main food crops alone removes close to 100,000 tons of nutrients each year,

199 Alpine and Pickett, e. cit., p. . 35 200 World Bank. Ghana-2000 And Beyond: Setting the Stage for Accelerated and Equitable Growth. Western Africa Departnent. February, 1993, p. .

108 Agriculture and Economic Reform in Sub-SaharanAfrica

compared with 10-20,000 tons applied in the form of fertilizers.201 But fertilizer use on annual crops may be viable only with adoption of a full package of soil management techniques which would improve soil or- ganic matter and structure in the context of a conversion from shifting cultivation to sedentary agriculture.

The elements of a successful transition from shifting to settled agriculture are known, and have been described elsewhere,2 0 2 and discussed in more detail elsewhere in this report. What is less known, or at least less tried, is the policy package needed to provide incentives for farmers to make the transition from shifting to settled cultivation. One ingredient of it which may be important, and which has been missing from most economic reform programs across Sub-Saharan Africa is provisions for more secure land tenure. In Ghana traditional tenure is thought to limit access to credit, discourage tree crop planting, and provide little incen- tive for land improvement. There is also a gender-biased inequity in land distribution under traditional in- heritance rules. One possible solution would be legal protection of traditional tenure, rather than compre- hensive titling, which would be costly, in view of the fact that by 1984, after accommodating the large return of people from Nigeria the previous year, 84 percent of farm holdings in Ghana were less than 4 acres (1.5 ha) in size.

Another ingredient of the transition to settled farming may be providing for more powerful means of cultivation, either by animal traction or by tractor. Putting in place sound, flexible and innovative financial systems, with lower transactions costs, is also essential because the increased intensity characteristic of set- tled cultivation requires investment in capital (land structures, livestock, perhaps machines and equipment), and substantially increased outlays of cash for agricultural inputs (especially for seeds and fertilizers).

Conclusion In concluding, we return to the beginning, to the argument of Alpine and Pickett, that the central feature of economic development during Ghana's long and precipitous decline was that the resources used in manufac- turing were diverted from agriculture, where they probably would have had a higher rate of return. A similar comment can be made even about the bulk of the period of reform. Although the devaluation of the currency had an immediate and comprehensive impact on the economy, including agriculture, its impact on the latter was confined to tradable inputs and commodities. Few policy reforms explicitly directed towards agriculture were included in the early stages of the economic transformation, and the first agricultural sector adjustment credit was launched only in 1992, nine years after the adjustment process began. In fact the first AGSECAL has turned out to be the last adjustment operation so far initiated in Ghana since 1983, coming to fruition only after the stabilization needs of the economy, and the adjustment needs of the external trading, industrial, education, financial, and private manufacturing sectors had been addressed, sometimes with more than one operation.

Furthermore, the economic reforms which impacted on agriculture (including those in the broad structural adjustment credits of 1987 and 1989) were not designed to complement investments in other fac- tors vital to agriculture's development, especially agricultural technology and the provision of infrastructure. Thus an attack across-the-board on the factors constraining agriculture's growth has not been assembled until relatively recently. The transition out of shifting agriculture is a complex one to manage, requiring attention to incentives, technologies, and comprehensive measures to develop the rural sector, where the many parts of the process needed to complement one another must be assembled with considerable skill. Ghana has yet to put this package of measures together. As a result its agricultural growth remains muted, and its agricul- ture, the second largest in Sub-Saharan Africa, is not yet free to take its place at the center of the country's strategy for economic growth.

15 201 World Bank, Ghana: MTADS, op. cit., Table 4.2, p. . 2 02 Pedro A. Sanchez, Alternatives to Slash and Burn: A PragmnaticApproach for Mitigating Tropical Deforestation, in J.R. Anderson (ed) Agricultural Technology: Policy Issues for the International Cormnunity. CAB International, 1994,:451-479.

109 AFTES Working PaperNo. 18

CAMEROON

Setting "Cameroon is a country of striking diversity, unfulfilled promise, and tantalizing potential...Despite its natu- ral and human endowments, for the last ten years the country has slipped into a profound crisis marked by economic collapse, political and social discord, and a silent crisis of deepening poverty."203 That some of the seeds of this crisis were sown prior to the "last ten years" to which this observation refers is made clear in the analysis of the report from which the quotation is drawn. But the simple, surface facts of the matter are that from 1967 to 1978, GDP in Cameroon grew at an average 5.7 percent p.a., that this growth rate almost dou- bled, to 10.1 percent p.a. in the 1978-1985period, that therefore for the overall period 1967 to 1985 GDP per capitarose at an average rate of 4.6 percent per year,204and that from 1985to 1993 GDP per capitafell at an average rate of 6.3 percent p.a. This means that the last eight years wiped out more than 70 percent of the income growth achieved in the previous eighteen years.

Cameroon stands in marked contrast to Nigeria, which faced similar external conditions, and with comparable resources, but fared relatively well during this time of Cameroon's crisis, its real GDP per capita growing at 2 percent per year compared with Cameroon's fall of 6.3 percent per year. This decline, for Cam- eroon, rolled it back to income levels as low as those which obtained in 1966, and the economic collapse was judged to be "one of the most painful that any country, developing or developed, has ever suffered."205 Of 41 countries in Sub-Saharan Africa for which estimates were made for the 1988-92period, per capita GDP fell the fastest in Cameroon (almost 8 percent p.a. compared with Nigeria's increase of 2.5 percent p.a. during this shorter period).

The main culprits in this collapse were oil and the CFA Franc. The high cost structure induced by oil revenues and the appreciation of the CFA Franc made Cameroon's agricultural exports marginally competi- tive. Because nominal devaluation was ruled out within the strictures of the CFA Franc Zone, import taxes and export subsidies were difficult to administer because of fraud, and deflation to reduce the cost structure was hard to achieve, Cameroon had only one avenue left, to go for productivity increases, and its agricul- tural research and extension systems were not up to achieving those. The government did not react as quickly to the crisis as did Nigeria, and being hamstrung by its inability to adopt the most important single measure of all - a nominal devaluation of the currency - failed to stem the hemorrhage that took place from 1985 onwards. The experience demonstrates how a country can have a potential for rapid growth, and achieve that, while at the same time becoming increasingly vulnerable to economic shocks by not attending to underlying economic fundamentals.

Need for Reforms What lay behind the crisis of 1985 would induce sobriety in any observer. For while on the surface Camer- oon was highly successful, with income per capita rising at rapid rates for almost twenty years, based on oil wealth and agriculture, there were, seen with hindsight, some characteristics of this growth that could have raised warning flags. As in Nigeria, the oil boom led to a substantial movement of population from rural to urban areas. As this happened, the gap in incomes grew between urban and rural areas. Some of the factors contributing to this were high taxation of agriculture's exports, neglect of infrastructure and social invest- ments in rural areas (although part of the oil boom revenues were used for urbanhealth, education, roads,

2 03 World Bank, Cameroon: Diversity, Growth, and Poverty Reduction, Report No. 13167 CM, Human Resources and Poverty Division, Technical Depart- ment, Africa Region, September 30,1994, p.1 Much of the description that follows is drawn from this report.

204 Growth rates of population for the periods 1967-78 and 1978-85 were respectively Z7 and 2Z9percent p.a. 205 World Bank, op. cit., p.3.

110 Agriculture and Economic Reform in Sub-SaharanAfrica

water supply, and sanitation), the extension of parastatal control over marketing of many agricultural com- modities, and substantial direct agricultural production carried out by the public sector.

The Poverty Assessment2 0 6 also argues that there was an excessive focus on the industrial sector, which created employment but at a high opportunity cost, behind protective tariff walls and with large tax breaks. Distortions resulting from subsidized interest rates and low taxes on capital goods promoted a capi- tal intensity in production techniques which did not fit well the natural resources and human endowments of the country. Although the growth that ensued was not to be gainsaid, experience showed that the character- istics of the growth mattered tremendously for poverty alleviation, and that growth alone did not suffice.

The crisis flared in 1985 with stunning speed, spurred by a drop in prices for Cameroon's main ex- ports, petroleum and agricultural products (dominated by cocoa and coffee). Over the 1985-88 period, the external terms of trade fell by more than 50 percent. The fall in petroleum prices led to a collapse of the tax base. The fall in prices of agricultural exports led to a fall in production as profitability waned, further exac- erbating the situation. The balance of payments, formerly in surplus, quickly turned to substantial deficit. Investment dropped from 25 percent of GDP to 10 percent. The public debt ballooned.

Although the debt overhang did not result in an immediate drain, as debts were rescheduled, it cre- ated a climate of uncertainty in which the private sector was willing only to retrench. The real effective ex- change rate moved upwards sharply after 1985 as the French Franc (to which the domestic currency was tied) appreciated within the European Monetary System, and neighboring Nigeria devalued its currency. Between mid-1985 and mid-1987, the real effective exchange rate of the CFA Franc rose by 33 percent while that of the Naira plummeted by almost 84 percent.

EconomicReforms The reforms were slow in coming. A standby arrangement with the IMF did not become effective until Sep- tember 1988, and a first Structural Adjustment Loan (SAL I) with the World Bank only in November 1989. The latter was closed in mid-1994, and followed immediately by an Economic Recovery Credit which became effective in the same month as the SAL closed. The measures taken included fiscal restraint and revenue ex- pansion. In the early years of the crisis the focus was on reducing the fiscal deficit and controlling inflation, rather than on restoring the competitiveness that had been lost almost at a stroke. Without being able to use the exchange rate as part of its adjustment package, Cameroon had to try to adjust using intemal measures, forcing down nominal wages and prices through fiscal and monetary austerity while trying to raise produc- tivity through structural reforms.

The intention of the 1989 adjustment operation was to support the following reforms2 07 :

(a) public sector resource management - prepare rolling four-year public investment programs tied closely to macroeconomic projections, reduce procurement delays by standardizing procedures, increase non-wage recurrent expenditures for education, health, agricultural research and extension, review each ministry to determine its role and staffing needs and try to reduce staff, improve efficiency of the civil service through closer personnel management and evaluation of performance, increase non-oil revenues by extending land taxes, reduce exemptions from import duties (which then covered 60 percent of imports), reduce evasion and fraud, and replace a complicated set of indirect taxes with a value-added tax while simplifying income taxes;

(b) public enterprise reform - from a group of 75 parastatals identified as being the heaviest burden on the pub- lic purse, rehabilitate 16 and improve their effectiveness through performance contracts2 0 8, liquidate 2, and

20 6 World Bank, op. at.

207 World Bank, Presidents Report for a Structural Adjustment Credit, May 16, 1989. pp.13-26.

111 AFTES Working PaperNo. 18

privatize 6, while preparing diagnostic studies for a further 60 public enterprises not on the original priority list with a view to rehabilitating them, design and implement measures to compensate staff of parastatals laid off, and reform the legal framework within which parastatals operate with a view to increasing their autonomy;

(c)financial and banking reform - liquidate three distressed state banks, restructure the state investment hold- ing company, restructure the finances and orgarization of four jointly-owned commercial banks and the Banque de Paris et des Pays-Bas (Cameroon), divest a substantial proportion of the state holding in banks, re- finance the banking sector on an emergency basis, move of interest rates and banking margins towards lib- eralization, and reform the legal framework within which banks operate (including taxation of financial transactions);

(d) agricultural reforms - reduce the government role in the few basic commodities with which it is involved (rice, sugar, palm oil) and protect these and meat from competition by imposing import tariffs, establish a floor price for exports (coffee, cocoa and cotton) and liberalize the marketing system over time (including the performance contracts for agricultural marketing parastatals mentioned already above), deregulate the coop- erative movement, privatize input distribution and phase our fertilizer subsidies, revise the forestry code to provide incentives for concessionaires to maintain their areas of operation and end exploitative practices;

(e) external tradereform - elimninatequantitative restrictions on imports, reform tariffs, and eliminate all export taxes except for logs;

(f) domestic trade reform - eliminate price controls on all goods and services except a few basic necessities, and revise the regulations concerning business incorporation, labor, and the investment code;

(g) social dimensions of adjustmnent- elaborate a program to improve social services, retrain those losing their jobs, launch labor-intensive public works, with surveys to monitor any adverse impact of adjustment on par- ticular groups, and initiate measures to mitigate the problems.

Results The government succeeded in liberalizing trade, but was not able to implement strong reforms in other ar- eas.2 '9 The appreciating French Franc forced the govermment to lower local prices of the main exports, turn- ing the terms of trade against tradables and reducing rural incomes substantially while those of civil servants were maintained. In the period 1984/85-1992/93 overall consumption fell slightly but domestic savings dropped from 35 percent to 10 percent of GDP, and domestic investment from 25 percent to less than 11 per- cent of GDP. Public revenues fell but expenditures were not brought down commensurably, so the public deficit increased to 8.5 percent of GDP by 1992-93. The public wage bill was reduced by 60 percent in late 1993, by lowering civil servants' salaries drastically, but this came only after years of substantial cuts in non- wage expenditure, and efforts largely failed on the revenue side. An inappropriate regulatory framework for the petroleum sector even reduced oil production, proven reserves, and exploration.

Because the reforms were both slow and constrained, the situation continued to worsen. The fiscal cuts came largely from non-salary operating expenditures, severely reducing the effectiveness of the public sector. Reductions were made in key areas, such as agriculture, road maintenance, education and health. The proportion of the public budget devoted to debt servicing rose. Credit was restricted in the rest of the economy while it was expanded to the public sector. The real effective exchange rate continued to be sub-

208 Including those marketing cereals, cocoa, palm oil, rubber, cotton, and other agricultural products (the Office National de Commnnercialisationdes Pro- duits). 3 209 World Bank, President's Report for an Econornic Recovery Credit, May 25,1994, p. ff.

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stantially higher than in 1985, and export markets were lost. In addition, domestically produced foods could not compete with imports, and their production grew more slowly than otherwise. The demand for labor was constrained in production for both exports and domestic consumption. As a result of the worse external terms of trade, and exacerbated by the tremendous drop in domestic incomes, producer prices for agricul- tural commodities (including food) declined, and agricultural production stagnated.

During this period of crisis and insufficient policy response, from the mid-1980s, a process of "rapid impoverishment" took place.210 The total income from agriculture (including own consumption) shrank by an estimated 16 percent from 1985 to 1993. The number of households in poverty increased by about 64 per- cent, while the proportion of households below the poverty line grew from 40 percent in 1983 to 48 percent in 1993. The proportion of households in poverty in the two main urban areas - Yaounde and Douala - rose from fewer than 1 percent in 1983 to more than 20 percent and 30 percent, respectively, in 1993. The level of per capita consumption in the two cities fell, in real terms, by 10 percent and 50 percent, respectively. At the same time, in rural areas, which accounted for most of the poor, the proportion of households below the poverty line may have risen from about 50 percent to over 70 percent.

Agriculture and Economic Reform Agriculture's share of export earnings fell decisively as the value of petroleum exports mushroomed, espe- cially from 1977 to 1985.211During this period, the value of agricultural exports increased by 77 percent in nominal terms, but the value of total exports rose by 476 percent. Agriculture's share in exports fell from 87 percent in 1977 to 27 percent in 1985. This share recovered to near 50 percent in the late 1980s, but as a result of oil revenues falling, not agriculture's contribution growing.

Through the 1965-85 period, agriculture grew strongly, at an average rate of 4.5 percent p.a., with food production growing faster than population, but export crops were hampered by heavy government in- tervention, both in their marketing and production, and high taxation, especially towards the end of the pe- riod. Some 93 percent of agricultural production was from smallholders (food crops, cocoa, coffee and cot- ton), and 7 percent from industrial plantations, mostly owned by the government (rubber, palm oil, sugar, tobacco, and bananas).

The Poverty Assessment argued2 12 that the distribution of benefits from the strong agricultural growth was unequal, with smallholder agriculture growing well, but more slowly than other parts of agricul- ture and the rest of the economy. Since this was the most labor intensive part of agriculture, the overall share of labor in agricultural value-added declined, and agricultural wages grew more slowly than output. Thus less employment opportunities for the poor, whose main asset is labor, were created than would otherwise have been the case. The missed opportunities were swelled by capital-intensive production techniques on government - owned plantations, and the effective exclusion of private sector agents from marketing, proc- essing and exporting because of the dominant activities of parastatals in these fields.

The urban bias in investments in infrastructure and social services from oil boom funds has already been noted above. But during the crisis and its aftermath in the second half of the 1980s, agriculture was hit even harder. From 1983 to 1993, producer prices for all cash crops fell by more than 40 percent (cocoa 46 percent, robusta coffee 74 percent, arabica coffee 51 percent, and cotton seed 27 percent). And from 1984 to 1990, producer prices for food crops fell by 40 percent (millet/sorghum 63 percent, maize 47 percent, plan- tains 31 percent, cassava 39 percent and yams 66 percent).

210 World Bank, Poverty Assessment, op. cit., p.33. 6 211 World Bank, Cameroon: Agricultural Sector Report, Occidental and Central Africa Department, Nov. 1989, p.2 212 World Bank. Poverty Assessment 1994. op. cit., p.3.

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The shift in terms of trade against rural areas implied by the falling food prices showed up in the activities of farm households. According to survey results, from 1984 to 1990 there was a drop in the pro- portion of farm households using crop sprayers, plows and coffee pulpers, the use of organic manure from livestock fell by 50 percent, and the proportion of farmers applying inorganic fertilizers fell from 33 to 20 percent, while the quantity consumed per farm fell by 16 percent.21 3

When the government set out in 1987 to phase out fertilizer subsidies by 1991, there was worry about fertilizer use on robusta coffee becoming marginal without the subsidy. The authors of the Agricultural Sector Report responded to this concem by noting that "Experience in the cotton growing area, however, has demonstrated that non-price factors such as reliable supply, effective extension and marketing are equally important in inducing farmers to use non-subsidized fertilizer on cotton. In the coffee growing area, subsi- dized fertilizer is being used on food crops [and is inefficient for this, because the Ammonium Sulphate, urea, or 20:10:10 compound fertilizer recommended for coffee is not the best fertilizer for maize]. It is likely that even if subsidies were eliminated, fertilizer marketing improved and extension strengthened, fertilizer would be used on food crops. On coffee plantations where efficient husbandry practices are used, fertilizer would continue to generate advantageous benefit/cost ratios, but not on the less efficient farms. This result is precisely the desirable one: fertilizer should only be used where it can generate substantial benefits.",2 14

The total consumption of fertilizer nutrients in Cameroon grew at 16 percent p.a. from 1975 to 1985, rising from 13,000 nutrient tons to a peak of 57,000 tons in 1985. When the decision was made to remove subsidies, the price of fertilizer was subsidized at the rate of 60 percent, and the line item in the Ministry of Agriculture budget to cover this was the single biggest in the budget, at CFAF 7 billion (US$ 23 million). Most of the fertilizer procured was tied to development of coffee and cotton. The distribution network, 90 percent in the public sector (two thirds government, one third parastatals and cooperatives), was compli- cated and unreliable.

From 1986 to 1991 the consumption of fertilizer nutrients fell by more than 17 percent per year. In view of the tremendous declines in producer prices during the 1980s, for all of Cameroon's cash crops215 , it is difficult to conclude anything else than that these price declines were the main factor in reducing the profit- ability of fertilizer use. Estimates made by the Agricultural Sector Review team in 1987 showed that without the subsidy, it was still profitable to use fertilizer on robusta coffee, but marginally so. Further declines in producer price subsequently would have wiped out this borderline profitability.

When agriculture was growing reasonably well, especially prior to 1982 [average growth rate 4.4 percent p.a. 1966-88 but only 1.9 percent p.a. 1982-1988], food crops grew faster than population, but export crops were hampered by heavy government intervention. In particular maize grew steadily (2.9 percent p.a. 1971-87), replacing millet and sorghum, with a maize/coffee price ratio much more favorable than in Eastern Africa. Production of rice grew very rapidly (>15 percent p.a. 1971-87) with big yield increases under a parastatal (SEMRY)responsible for irrigated rice. Production of potatoes has also grown rapidly (10 percent p.a. 1971-85) with high yielding varieties, while yam and cassava production has declined with increasing consumption of cereals, and millet and sorghum production have stagnated as maize has replaced them. The growth of food crops has come mainly from area expansion.

During these same, pre-crisis periods, production of cotton increased as a result of area expansion, good prices, and good support services from the parastatal SODECOTON (albeit at high cost). Production of robusta coffee increased significantly, but cocoa and arabica coffee production decreased (the price differen-

5 213 ibid., p.5 .

214 World Bank, 1989, op. cit., p.49.

215 From 1983 to 1993, the producer price of cocoa, robusta coffee, arabica coffee and cotton seed fell 46, 74, 51, and 27 percent respectively.

114 Agriculture and Economic Reform in Sub-SaharanAfrica

tial between arabica and robusta coffee declined) Rubber and palm oil production increased significantly from government investment in plantation estates, whose economic rationale was not favorable. Although livestock in Cameroon have substantial potential on natural range lands, almost 100,000 live cattle are im- ported each year from CAR and Chad, and 20,000 tons of frozen meat, half from the EEC. Local production could not compete with these foreign competitors.

Cameroon's food markets are thin, and therefore food prices are volatile. The main foods are roots and tubers There are wide variations in regional expenditure patterns on specific foods. The food marketing system is totally private and relatively competitive (women at farmgate and retail, men at wholesale), but the cost of distribution is high, with farmgate prices less than 50 percent of retail. Imports of food are growing rapidly, especially of the non-traditional cereals - rice and wheat - and meat and frozen fish. A substantial proportion of the under five population is undernourished because of poverty and low socio-economic status. The incidence is highest in the north, where the climate is most variable, and where climatic varia- tions in neighboring Nigeria and Chad can draw food across uncontrolled frontiers. There are also problems with inefficient marketing systems, which are ifl-served by transport facilities and information flows, an ab- sence of grades and standards, weights and measures, and a lack of finance on the part of traders.

Discussion Cameroon has enormous agricultural potential, with almost 4 percent (21 million ha) of the remaining re- serves of potentially cultivable land in Sub-Saharan Africa. With a total area of 46.5 million ha (arable 6.8 million ha), the overall population density is low, but poor infrastructure restricts the population to much higher densities especially in the West, Northwest and Littoral Provinces, and much lower densities in the East and Adamaoua Provinces. Cameroon is "a country dominated by dense forest."26 , totalng 16.5 million ha in extent, of which 13.9 million ha are regarded as commercial with 7.2 million ha being exploited, but not well planned or controlled. There is considerable scope for increasing timber-based revenue from forests.

A large part of the agricultural production is still carried out using the techniques of shifting cultiva- tion (slash and burn agriculture). As with other countries of Sub-Saharan Africa where shifting cultivation predominates, the bush fallow period has been declining (to the vicinity of 34 years between crops), espe- cially in the southern and central forest regions, where fallows are becoming too short to sustain yields and soil quality. The limitation on expanding both food and export crops is not land (which would allow both simultaneously), but labor, and the unprofitability of using modern inputs under current technologies. As with Ghana and other countries, there is a need to assemble the package of policies and investments that would induce farmers to undertake the transition to settled agriculture. This puts a premium on agricultural research which, where it has existed at all in the past, has favored export crops over food crops.

Economic development in Cameroon has not followed a course which would directly address the transition to settled agriculture, nor even to allow agriculture to assume fully its potential role as an impor- tant engine of economic growth. As with Nigeria, the impact of exploiting oil reserves has been detrimental to agriculture, raising wages levels and forming, with the rigid exchange rate structure, a deadly combina- tion of constraints on the competitiveness of agriculture.

Although agriculture grew well in earlier periods, its development was not able to withstand the severe shocks of the collapsing oil economy. And the adjustment measures undertaken in the aftermath of the crisis of the mid-1980s were too late and too little to prevent agriculture's precipitous decline along with the rest of the economy. With the devaluation of the CFA Franc in early 1994, Cameroon has a chance at last to put together a package of policies and investments which would restore agricultural competitiveness, and exploit its comparative advantage for economic growth and poverty alleviation.

216 World Bank. 1989. op. cit., p.8.

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Unfortunately the country has a long way to go to put together the package. There is a great lack of new agricultural technologies for many crops and regions, and the problems engendered by the parastatal monopolies in marketing will not be easy to deal with. Nor will the extremely poor infrastructure be quickly improved. But the country has rich potential, and some actions would reap benefits rather quickly. As the experience with bananas showed, when a competitive and more dynamic private sector was allowed access to marketing and exporting, production and exports grew rapidly, and even so remained far from exploiting fully the market niche that Cameroon enjoyed for bananas in Europe. Similar success stories would be pos- sible for a range of high-valued crops, and the potential for increasing food production is also large.

ETHIOPIA

Sefting With the second largest population in Sub-Saharan Africa, agriculture looming so large in the economy (85 percent of employment, 85 percent of exports, and 70 percent of the raw materials base for medium and large scale industry), and considerable remaining reserves of cultivable land, one would expect Ethiopia's agricul- ture to be larger than it is. But its value-added in 1991 was estimated to be less than one quarter as large as that of Nigeria. That figure alone expresses the poverty of the country, and the poor performance of agricul- ture, whose growth averaged only 0.3 percent p.a. during the long period 1974 to 1991.217 Although cereal production grew faster than this during the 1980s (perhaps 1.6 percent p.a. from 1975 to 1988), it fell sub- stantially behind population increasing at between 2.4 and 2.9 percent p.a., and even with massive increases in imports and food aid, there is little doubt that per capita cereal availability fell during the 1980s. This dis- mal performance resulted from a combination of a command economy after 1974, recurrent drought, a long and devastating civil war, a narrow range of exports whose production declined significantly, and a very low technology base to begin with.

In early 1990, the then government announced a package of economic reform measures in line with the profound changes needed in the incentive climate for agricultural production. Their full implementation would have raised substantially the rate of growth agriculture and the rural economy. Together with a de- valuation of the domestic currency, these reforms have been implemented, in part, by the new government which came to power by winning the war in 1991, but progress has been slow on dismantling controls, regulations, and state involvement in the economy. In the five years from 1988 to 1992, agriculture grew at 2.2, 0.08, 8.4, -9.4, and 6.1 percent respectively, in real terms. While drought will be a continuing constraint on agricultural development, a strong emphasis on good policies, deepening market reforms, massive in- vestment in long-neglected rural infrastructure, and above all high priority to technology to raise fertilizer use and improve soil management, could result in a significant increase in the longer-term trend of agricul- tural growth.

Need for Reform Ethiopia became, during the 1980s, virtually the poorest country in the world. From 1980 to 1989, it is esti- mated that Ethiopia's GNP per person declined by 1.1 percent per year in real terms, to reach a level of only US$120 in 1989.218 Only one country was worse off. Wracked by natural and human disasters - drought, forced resettlement of population, extremely restrictive policies, and civil war - only massive international efforts in providing food aid saved the country from even higher levels of suffering and death than took place. The income decline was accompanied by falling food production and availability. In spite of the food aid effort, the estimated supply of nutrients per person in 1988 was also very close to the lowest in the world,

217 World Bank. Ethiopia: Agricultural Sector Note. Agriculture and Environment Division, Eastern Africa Departmnent. Decemnber21, 1993. 218 World BankcAtlas, 1990. p. 7.

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at 1658 KCalories per day.2 19 Since the agricultural sector then accounted for 45 percent of GDP, 80 percent of employment, and 85 percent of export earnings, the sector's poor growth record has contributed to the general economic decline.

Ethiopia has the second largest population in Africa, characterized by a medium to high growth rate by African standards (2.6 percent per year), and a high fertility rate (6.9 children per woman), reflecting very little focus on population planning. The population has just passed 58 million, and is projected, on medium assumptions, to double within 20 years. The country's agricultural sector has suffered from serious soil ero- sion, as well as from an extremely limited road network, and transport services weakened by the high pro- portion of trucks pressed into military service. During the 1980s, marketing of agricultural commodities was further constrained by tightly administered compulsory requisition of food grains by the State marketing agency at prices below market levels.

Farm incomes were further held down by the almost total absence of off-farm employment oppor- tunities, the result of Government decrees forbidding this kind of work, either on other farms or in rural towns. There was thus very little movement of labor, and constrained movement of agricultural commodi- ties, the latter leading to inter-regional price differences greater than justified by the costs. These price dif- ferences were offset to a degree by a public distribution system which, at minimum cost to the Treasury, transferred income from producers to consumers by procurement and sale of cereals at below-market prices. In addition, an explicit subsidy on wheat flour kept down prices of bread (mainly distributed in the cities). The rising costs of this subsidy, by contrast with the grain procurement system, increasingly burdened the Treasury, reaching around Birr 80 million in 1990.

An agriculture thus confined in an iron jacket of controls also experienced, on several occasions during the 1980s, severe droughts from which recovery was each time slower because of the loss of produc- tive assets by many of the poorer families, and the slow rebuilding of livestock herds decimated by the droughts. Possibly as many as one million people died in the drought of 1984/85.23° The droughts were particularly severe in those parts of the country caught up in the long civil war, which exacerbated every other adverse circumstance. Among other things, the domestic warfare, combined with similar conflicts in neighboring Sudan and Somalia, left Ethiopia with up to a million refugees, whose care required separate and significant efforts by intemational relief agencies.

From just over 100,000 tons in 1979/ 80, food aid on concessional terms grew steadily to peak at over one million tons in 1989. In that year, concessional imports provided 13 percent of foodgrain consumption. On average, over 84 percent of the food aid was wheat. In "emergency" years food aid deliveries have tended to outstrip Government requests, and fall short of such requests in "non-emergency" years. The offi- cial food security reserve, modest though its targeted size, nevertheless was never built up to much more that one quarter of that target.

Through the 1980s, the former Government's response to rising poverty was to maintain a rationing system for allocating scarce goods at reasonable (official) price levels, especially in urban areas. The system worked without egregious corruption, and succeeded in alleviating urban poverty to a degree at relatively low cost to the public Treasury, by transferring income from farmers to urban areas. An exception as far as fiscal burden is concerned was the explicit subsidy on wheat flour, whose cost to the Treasury rose to around Birr 80 million in 1990 (equivalent to just over US$38 million at the official exchange rate). In spite of the

219 ibid. p. 7.

220Patrick Webb, Joachim von Braun, and Yisehac Yohannes. Famine In Ethiopia: Policy Implications Of Coping Failure At National And Household Levels. IFPRI, Washington, D.C. Draft Report, March 1991, p. 35.

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burden of the wheat flour subsidy, and its lack of targeting, a substantial proportion of its benefits probably accrued to relatively worthy poverty target groups.

In early March, 1990, the Government announced sweeping economic policy changes, including abolition of grain procurement quotas, other market liberalization measures, improved land use rights, re- lease of official controls on the rural labor market, and voluntary membership of cooperatives and other farm associations. If carried through, these would have brought about profound changes in the incentive climate for agricultural production. In particular, they would have cleared the way for grain market liberalization, ensuring better incentives for farmers, increasing input supply, improving vital services (especially research and extension) and infrastructure, and investing in export crops, by these means raising substantially the rate of growth of the agricultural sector and the rural economy.

Initially, there was a marked reaction to the commencement of these reforms, with relatively swift disbanding of producer cooperatives in rural areas, and significant reduction in the activities of the parastatal Agricultural Marketing Corporation (AMC), which had formerly procured grains under the quota system. Other rural institutions, especially the service cooperatives and state farms, entered a period of intense un- certainty about their future roles. No guidelines were given to any of these organizations, including the AMC. Nor was any safety net established to protect the most vulnerable groups from any adverse effects of economic reforms. Food prices fell significantly in the immediate aftermath of the announcement of reforms, but within a short time began to rise again as the newly liberalized marketing system ran up against the re- maining physical constraints of limited infrastructure and transport services.

The Government failed subsequently to implement many of the actions announced in its economic liberalization package, and the intensification of the civil war further slowed reforms to the point where the new program virtually came to a halt. Under these conditions, inflation accelerated, and food prices in- creased, undoubtedly with severely adverse effect upon the welfare of the many persons already on the very edge on existence. When the war ended, with the advent of a new government there was a new opportunity for progress on the reforms and other measures vital for turning around the agricultural economy.

EconomicReforms When the new government came to power in May, 1991, it initiated stabilization measures to contain fiscal and monetary problems that arose during the transition, and also launched a series of reforms, aimed at transforming the command economy to a market-based one with a smaller role for government. The most important elements of the reform package were;

(a) devaluation of the domestic currency, in October 1992, by more than 140 percent;

(b) replacement of the administered allocation of foreign exchange, in May, 1993, by a bi-monthly auction;

(c) administered interest rates increased to achieve positive real rates (they were about 4 percent in real terms in late 1993);

(d) deregulation of commodity prices (except for a few essential goods);

(e) freeing agricultural marketing, including coffee;

(f) abolishing the public transport system, and liberalizing transport charges;

(g) revising direct and indirect tax schedules, reducing top rates, and halving the number of taxes;

118 Agriculture and Economic Reform in Sub-Saharan Africa

(h) eliminating indirect tax discrimination against imports, and reducing import tariffs;

(i) abolishing all export taxes (except for coffee), and all export subsidies;

() new legislation allowing establishment of private banks and insurance companies, and increasing the autonomy of the national bank;

(k) abolition of state corporations (the holding companies for parastatals), commercialization of parastatals, and preparation of some for divestiture;

(1) new regulatory codes relating to investment, labor, commerce, and mining, aimed at increasing oppor- tunities for private sector involvement, and, among other things, removing restrictions on movement of la- bor;

(m) substantial devolution of economic functions from the center to the regions.

Results The reforms have been too recent, and the problems they were aimed at addressing too profound, for there to be any definitive conclusions yet about the impact of the reform program. A recent economic memoran- dum,221 however, expressed optimism, recording strong GDP growth of 7.6 percent in FY93, after a decade of stagnation. Agriculture grew by more than 4.5 percent in FY93,with the help of good weather. The area un- der cultivation increased for the third year in a row, fertilizer consumption reached record heights of close to 160,000 tons (compared with an average of 50,000 tons during the 1980s), and grain production attained its highest-ever level. The industrial sector grew by 13 percent, with an increase in capacity use of about 50 per- cent Growth in the service sector was (encouragingly) from the private portions of it (retail and transport subsectors) rather than from government services, the source of most growth in the past.

To illustrate the continuing development of private sector trading in agriculture, purchases of cereals by the Agricultural Marketing Corporation (AMC), which had been over 500,000 tons in the mid-1980s, dropped to 129,000 tons in 1990-91, and 87,000 tons in 1991-92 (of which 23,000 tons were from state farms and 64,000 tons from farmers and cooperatives). AMC's inports of cereals were also down from 1989-90 onwards, by more than 50 percent.

As any report on Ethiopia is at pains to point out, in spite of a promising beginning, there are many challenges ahead. For the macroeconomy, among other things the challenges include mobilizing additional domnestic and external investment resources; keeping the fiscal deficit under control; making government services more effective and efficient; redefining government's mandate in support of the increasing role to be played by the private sector; and restructuring the economy to reduce its extreme dependence on agriculture, and especially cereals production, which is highly volatile because of the rainfed conditions under which al- most all of it is produced.

For agriculture, the challenges are to address the poor performance of research and extension, and shape better services to more than 6 million smallholders with average holdings between 1 and 2 hectares; improve the very low yields of crops (less than 1 ton/ha foodgrains, 0.6 tons/ha pulses, and 0.5 tons/ha oil- seeds); complete the liberalization of marketing for export crops and inputs (especially fertilizer, dealt with in more detail elsewhere in this report); upgrade the extremely limited road network (average density 0.3 km/1,000 people, with 75 percent of farms more than a half day walk from an all-weather road) and increase the numbers of transport vehicles; redress the lack of financial capital and absence of any effective credit in-

221 World Bank, Ethiopia: Public Expenditure Policy for Transition, Eastern Africa Department, October 21, 1994.

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stitution; implement a set of actions to roll back environmental degradation, and the net losses of forest cover for fuelwood; deal with weak institutions, and the lack of a legal framework for rural associations; and de- velop a market in land by defining ownership rights.

In years of favorable rainfall, agriculture is now capable of rapid growth in Ethiopia, and its capacity to do so will increase as major attention is paid to removing the bottlenecks presented by technology and in- frastructure. The country's biggest agricultural problem will continue for many years to be the susceptibility of its production to weather. There are substantial reserves of unused land which could be cultivated, and some potential for irrigation development, but development of remaining land will require considerable in- vestment, either in irrigation itself, or at least in infrastructure, since much of the uncultivated land is in areas with limited access at present. The low base of agriculture, the formidable array of problems, and the pov- erty of the country, mean that the development road will be lengthy and require consistent discipline to trav- erse. Not least among the things to be achieved will be sustaining peace, and political stability.

COTEd'IVOIRE

The Setting Between 1960 and 1982, the Republic of C6te d'Ivoire (RCI) was regarded as an economic miracle, and an open and liberal economy.2 Its real GDP increased in the decades as follows: 1950-1960 3.7 percent p.a., 1960-1970 8.1 percent p.a., 1970-1982 5.9 percent p.a. Population grew in the three periods by 2.1 percent, 3.8 percent, and 4.9 percent p.a., respectively. In the period 1980 to 1982 average income fell. The government was much more stable in Cote d'Ivoire than in Ghana over the period.

Agricultural output and exports were sustained through the 1970s, with the government maintaining prices to farmers even as world prices decreased and the CFA Franc became progressively more overvalued, which strained the public budget. Production of foodstuffs was also sustained. Agriculture grew at 4.6 per- cent p.a. 1960-70, 3.0 percent p.a. 1970-82, and 0.04 percent p.a. 1980-82. Of the six main food crops, between 1962 and 1982, yields increased for 4, while they were stable for sorghum, and fell slightly for yams. The supply of calories per head increased over the 1965-1980 period, and in the latter year were 42 percent higher than in Ghana (2,546 compared with 1,795 [COte d'Ivoire had been 21 percent ahead of Ghana in 19651).

C6te d'Ivoire was more market-driven and competitive than Ghana, but it was far from completely liberalized, and less interference might have led to even higher growth. The real exchange rate rose throughout the period (as it did in Ghana) but it rose much more sharply in Ghana, and in C6te d'lvoire it was never so far from its 1960 rate as it was in Ghana. At the end of the 1970s, the RCI real rate of exchange was 88 percent above its level in 1960, and in 1982 it was down to 26 percent above (in Ghana, the respective rates were 500 percent and 1,200 percent above their levels in 1960).

Over the period 1965-1982, the average real annual rate of growth of exports in RCI was 2.4 percent [Ghana: -1.4 percentl, while that of agricultural exports from 1965-1980 was 4.7 percent [Ghana: -1.9 percent]. During 1965-1982, cocoa exports from RCI rose from 60,000 to 326,000 tons. In the early 1980s, farmers re- ceived 84 percent of the selling price [Ghana 20 percent]. It is probable that cocoa smuggled from Ghana to Cote dIvoire, under the influence of this wide differential in incentives, reduced the former's apparent pro- duction and exports while inflating those of RCI.

RCI set minimum wages in industry at levels three times higher than the average income in rural areas, which probably induced higher immigration from rural to urban areas than would otherwise have

Robin^W.L. Alpine and James Pickett, Agriculture, Liberalisation and Econornic Growth in Ghana and Cote d'lvoire: 1960-1990, OECD, Development Centre Studies, 1993, p. . The account of developments in RCI draws substantially on this source.

120 Agricultureand EconomicReform in Sub-SaharanAfrica

been the case, and lowered the absorptive capacity of manufacturing for labor, perhaps causing higher urban unemployment than there need have been.

At the beginning of the 1980s, the spread of incomes in RCI was greater (more unequal) than it was in Ghana (the richest 10 percent had incomes 14 times higher than the poorest 20 percent, compared with a 9:1 Tatio in Ghana). The poorest people were twice as well off in RCI as in Ghana. There is not much evi- dence, but such as there is does not support a general conclusion that growth without development took place in RC, or that its social indicators worsened by comparison with those of Ghana In some indicators RCI was still behirnd Ghana in the early 1980s, but it made more progress over the period 1965-80, increasing its food supply more, having fewer of its young children affected by wasting, inmunizing a larger propor- tion of its one-year-olds, having a higher ratio of physicians to people, and a higher proportion of relevant age groups in primary and higher education than Ghana.

Until the mid-1970s, policy had not disadvantaged agriculture too much, argued Alpine and Pickett. In fact the policies adopted had encouraged an inflow of foreign labor (from neighboring countries) and for- eign capital (from France). After the first oil shock, from mid-1970 onwards, the government became less cautious, especially following the boom in coffee and cocoa prices in 1976 and 1977. Inflation increased to 17 percent p.a. during 1975-1980 and real import prices rose. As growth slowed the government took more risks with its foreign exchange reserves, and invested in manufacturing, which led to a big spurt in domestic investment and imports, with large public investments in sugar and other factories. Sugar factories intended to help the poorer north made up one third of public investment over five-year period, but much of invest- ment was unsound, with capital costs of factories twice that in other countries, and production costs in pro- portion.

Thus, after 15 years of good growth, RCI experienced a coffee/cocoa boom, followed by an over- ambitious public investment program which continued on the basis of borrowing, followed by a cof- fee/cocoa bust, savings and investment decline, rapid inflation, and appreciation of the currency (a combi- nation of inflation with the nominal exchange rate held constant resulted in increasingly unfavorable changes in the real exchange rate), all accompanied by pervasive market distortions. RCI had only one way to deal with the unsustainably high level of public investment: contractionary fiscal and monetary policy. A severe squeeze on public investment cut the primary deficit, and a large increase in foreign debt led to irnport com- pression, slowed domestic investment, and decreased industrial output. This crisis in the early 1980s led to a stabilization program as a condition of IMF/World Bank support.

EconomicReforms To counter the economic difficulties it experienced in the early 1980s, Cote d'Ivoire launched its adjustment a year ahead of Ghana, in 1982. With the aim of progressively reducing its internal and extemal deficits, and restoring a growth-inducing environment, the country adopted a tight monetary policy. It curbed inefficient public enterprises: some were closed, including the northern sugar factories, some were sold to the private sector, some were reorganized and more tightly controlled. Public sector wages were frozen for a time, and foreign technical assistance was significantly reduced, especially in education. Producer prices for main ex- port crops were increased by 30 percent in 1983-85, while subsidies for cotton growing were abolished. Tar- iffs were reformed and made more equitable across different manufactured goods, and quantitative restric- tions were replaced by import duties for some manufactures. The adjustment process was costly, with real GDP falling at 4 percent p.a. from 1982-1985, private and public investment falling (by 1985 to one third of its 1981 level), and modern sector employment falling by 20 percent.

121 AFTES Working Paper No. 18

Results Wlhat were the Results? Inflation was curbed, decisively, noted Alpine and Pickett. But GDP, which had grown at 6.8 percent p.a. from 1965 to 1980, grew at only 1.2 percent p.a. from 1980 to 1989; therefore income per capita fell. Alpine and Pickett pose the question, why has growth not resumed? Part of their answer is that "it is easier to run down an economy than to rebuild it." Another part of the answer is the large expan- sion of debt, coming as it did on top of the "recourse to the pawnbrokers"z2 of the late 1970s. In fact, they argue, the two most important policy mistakes made in Cote d'lvoire were unsustainable expansion of public and pri- vate debt, and maintaining the exchangerate regime.

Debt rose from US$267 million in 1970 to US$14.4 billion in 1990. As a proportion of GNP, it in- creased from probably less than 10 percent of GNP in 1970, to 59 percent of GNP in 1980, and 182 percent in 1989, while debt servicing rose from just over 28 percent of exports of goods and services in 1980 to almost 41 percent in 1989. In 1970, the debt stock in Cote d'Ivoire was half that of Ghana, and by 1990 it was seven times as great as Ghana's. It took time to replace the high level expatriates who were sent away, and with them a lot of repatriation and relocation of private capital took place.

During adjustment the real rate of exchange moved in an unfavorable direction (appreciated) while that for Ghana became more favorable. Between 1983 and 1990 the real effective exchange rate rose (appreciated) by 25 percent, while in the same period that of Ghana fell (depreciated) by 95 percent.224 In the opinion of Alpine and Pickett, writing in 1993, the time had come to reconsider the benefits of RCI member- ship in the Franc Zone, rather than trying to restore balance in the economy through fiscal and monetary policies. An overwhelmingly important factor affecting economic and agricultural performance in Cote d'Ivoire has been its confinement within the CFA Franc zone, its inability therefore to adjust its nominal ex- change rate in the desired direction, and its resort instead to export subsidies and import taxes in an effort to "simulate" the effects of changes in the exchange rate. One author, describing the results as "fettered adjust- ment", has commented: "...adjustment has not taken place in C6te d'Ivoire. The case illustrates some of the repercussions of not adjusting, and in this sense, it offers insights into what the counterfactual to structural adjustment might entail. "225

Failure with the exchange rate was critical because it seriously fettered trade policy (liberalization and export diversification), forced the government to rely on internal adjustment (thus increasing the costs of adjustment), and undid the major part of the adjustment program. A lesson from this is that distortions and inflexibilities in the domestic economy must be dealt with beforean internal adjustment can work. The debt problem, incurred so quickly ("just five years of easy spending"), is taking a long, hard period to get extri- cated from, and going into arrears has deep-seated effects throughout the economy. The costs of non- adjustment have been increased poverty.

Agriculture Although agriculture had grown relatively well in the earlier years after independence, from the mid-1970s on it was increasingly disadvantaged. In the judgment of Alpine and Pickett, during the 1974-1979 period, cocoa farmers received about one third of the prices they could have received, and in 1980-1984 about half of what they could have received, had the exchange rate been set at the level needed for external balance, and there had been no direct intervention in agricultural markets. In other words, while cocoa farmers were ex- plicitly taxed in Ghana, in C6te d'Ivoire they were also taxed, but implicitly, through an overvalued domestic currency. And while Ghana corrected the exchange rate portion of its tax on cocoa farmers from the begin- ning of its adjustment in 1983, Cote d'Ivoire did not. In fact, it lost export competitiveness right through the

22 Alpine and Pickett, op. cit., p.117. 224 IMF estimates.

225 Lionel Demery, Fettered Adjustment The Case of Cote d'lvoire in the 1980s, April, 1993.

122 Agriculture and EconomicReform in Sub-SaharanAfrica

1980s, as the CFA Franc appreciated in real terms, at first with respect to Ghana and Malaysia, and later even with respect to France, other European countries and the USA This represented a substantial loss of com- petitiveness for the Ivoirian economy.

The persistent overvaluation of the currency in real terms continued to tax agriculture through the 1980s. "The weakness of Ivoirian agriculture is a serious outcome of the failure of the adjustment ef- fort...during the 1980-87 period, value added declined by 1.5% per annum on average (and the export-crop sector declined by 0.5% per annum)."226 Under the attempted adjustment program agricultural growth has merely stagnated (in part because of the steep decline in world coffee and cocoa prices).

Nor has there been any increase in agricultural competitiveness, since the attempt to achieve real effective depreciation of the currency foundered on grounds of administrative awkwardness and financial unfeasibility. There has been little market liberalization, and only cosmetic reforms in the parastatal sector; any costs savings in coffee or cocoa from this source were overwhelmed by losses from plunging world prices. Government achieved neither the core aims of economic policy (macroeconomic balance, good re- source allocation and improved competitiveness), nor its more basic objectives of growth and poverty alle- viation; in fact, the incidence of poverty almost doubled over the second half of the 1980s, and export pro- ducers were among the groups hardest hit by increasing poverty.

Cote d'Ivoire undertook an agricultural sector adjustment program in 1990. It aimed to increase the growth rate of agriculture to about 2.5 percent p.a. in the absence of a devaluation, with a hoped for 4 per- cent p.a. were there to be a devaluation. 2 7 The sector adjustment operation had a limited number of achievements. It reduced the value-added tax on important cash crops (oil palm, rubber, cotton, sugar and copra), making them more competitive, gave better price signals to cocoa, coffee, oil palm and cotton by aligning domestic prices more closely with border prices, liberalized exports of cocoa and coffee, and liberal- ized coffee hulling dehulling enterprises, thereby reducing rent-seeking in these activities, and increased protection for livestock producers against EC dumping of frozen meat. It also improved the protection of forest resources through raising fees, spread a greater free market orientation among decision makers, and formed constituencies to support further reform in coffee processing, livestock and forestry.

But some things intended by the sector adjustment were not done, notably that the agricultural credit bank (BNDA) was liquidated instead of being rehabilitated, the import tariff/export subsidy scheme was executed only fitfully on the export side, and little progress was made on increasing the transparency of the Caisse de Perequation for rice and wheat. And overall the sector adjustment was judged to have been "inadequate to restore competitiveness and production incentives, and as a result the agricultural sector con- tinued to contract and there was little progress in diversifying imports."228

The results for agriculture were that no increase in its growth rate was achieved (partly because of the steep decline in world coffee and cocoa prices). There has been no increase in overall economic competi- tiveness (because of the failure to halt real exchange rate depreciation). Strong resistance to liberalization in rice and wheat imports has continued, with little increase in transparency at Caisstab and Caisse de P& requation. There was no improvement in agricultural credit delivery (demise of BNDA). The import tar- iff/ export subsidy attempt to simulate a real effective exchange rate depreciation was administratively awk- ward, understood by few officials and opposed by more, was financially unfeasible, and ultimately failed.

22 6 Demery, op. cit., p.iv. 6 227 World Bank, C6te d'Ivoire: Proposed Agricultural Sector Adjustment Loan, Initiating Memorandum, Western Africa Department, July, 1994, p. . 228 World Bank, Cote d'lvoire: Agricultural Sector Adjustment Loan, Project Completion Report (PCR), Agriculture Operations Division, Country Depart- ment I, July 1, 1994.

123 AFTES Working PaperNo. 18

Dirigisme remained widespread, partly coming from "the world view of the Head of State, a firm believer in fixed prices for consumers and producers and a strong opponent to reliance on world markets as a means to assure Cote d'Ivoire the stable level of resources it needed to develop economically." Any cost savings in coffee and cocoa from streamlining parastatals was overwhelmed by losses from plunging world prices; besides "agricultural sector parastatal reforms were largely cosmetic."229

The decision during January, 1994 to devalue the CFA Franc gave a window of opportunity for C6te d'Ivoire (as it did to other countries in the Franc Zone) to renew its economic reform attempts, and a greater market orientation among decision makers, one of the by-products of the reform attempts to date, should provide a launching pad for new attempts in the near future.

On the heels of the devaluation, the Bank prepared, during 1994, a second agricultural sector ad- justment credit. It aims to engender a quick economic recovery, to be led by agriculture and agro-industries, with economic growth rates of 5-6 percent p.a. over the next two years. With devaluation providing the op- portunity and the starting point, the next round of adjustment aims to replace the State-led model with pri- vate agents as the engine of growth. The planned sector adjustment program includes the following pro- posals:

Box5. Pioposalsforfthe C4te dlvoireAgculturl tSedtorAdldui Credit

-abolish non-tariff harriers ~(milkandbutter, oils, margarmneAndsas flur sugar tobccocoto tetils,fruit jce,offee sacks,Jnse;cticide6s)

-eiminate export taxes for coffee and reducte them o1 pecntfrcoa

- ;eliinateprice contiols ondcoffee and cocoa, and:separate their stabilizatiofundsi-

- convertlCAISST (the agriltural staizti funh espially for coffeeand cocoa) _to a new: role lIibitd. topoidn pie: ad, marketihinomtio

- nnplemnet markaicommotypresaation

- -libralize riceimports and prces underagreediffsi

i priatize4rice imports,at firstunderquoisand then inate quotas

- bring to point of sale five sectorcpublicrice mills

l0 fh hA-study onifthe fiuture6role Coftheaisse General de PerEquaP'(PP}, on des Prix implement anction. plan to.elimfinate its ~monopolonrcmots,~ and: endit equalitio of transrt cost whichunderpinpan-teritorial consumer es forrice:

- eliminate price controls on:agricultual consumergoos especially flour, bread, sugar

bbigto oint of sale: Palmindrie ipm ,Sdsucre (suga r) CIDT(texile), SOGB (rubber),and SAPH (rubber)

229 World Bank, PCR, op. cit., pp. 2, 4.

124 Agriculture and Economic Reform in Sub-SaharanAfrica

The proposed sector adjustment program begins to address three major problems facing agriculture in Cote d'Ivoire, namely the huge public involvement in the sector, with its inefficiencies and fiscal costs, the insufficient returns to investment arising from the wrong signals leading to misallocation of resources, and the protection from external markets which has distorted internal markets. If implemented it should provide clear price incentives for cocoa and coffee, and possibly for rice. If it stimulates agricultural growth, espe- cially of exports, it should help the country to deal with a fourth major problem, the tremendous burden of debt. What does seem still to be missing from the adjustment program, however, is a vision of the agricul- tural strategy for the country, and how the proposed economic reforms fit into that strategy.

Economic Reformsand AgriculturalStrategy The overriding problem facing agriculture in Cote d'Ivoire is the transition from shifting cultivation to settled cultivation. In this respect, it has a lot of similarity with Ghana (discussed elsewhere). The problem is not that the country has run out of land, but that the technologies central to its development so far (those associ- ated with slash-and-burn cultivation and forest or bush fallows) are nearing the limits of their potential, and need to be replaced with the technologies appropriate for intensive cultivation. The transition between the two sets of technologies, which has already begun, is likely to be completed over a substantial time period, and involve a complex set of changes in farming systems.

To facilitate this transition, the government needs to ensure that attractive technologicalpackages are available for intersification (especially good soil, crop and livestock management practices), that farmers have incentives to intensify by adopting sustainable technologies (and that there are no distortions which would make the process either too capital-intensive or too labor-intensive, or would discourage farmers from adopting good soil management and conservation practices), that land tenure arrangements give farmers enough security to make appropriate investments, that investments in infrastructure are made to support an emerging high-production agriculture, and that the training needs associated with a move to different agri- cultural management systems are taken care of.

Some of the elements needed to facilitate the transition are not covered in the adjustment program. These are, in particular, policies related to inputs (especially fertilizer), and land tenure. And, while the pro- posals of the adjustment program, if implemented, will begin the process of moving from public sector to private sector domination, the proposals focus on privatization of large parastatals, which will do little to put in place the favorable regulations regarding enforceability of contracts, security of property and assets, fi- nance, and market information, which are needed to stimulate the bulk of the private sector - the traders, merchants, small agro-processors, stockists of farm inputs, equipment repair and maintenance facilities, vet- erinarians, specialist contractors and so on.

Furthermore, the adjustment proposals have not yet been embedded in the heart of a comprehensive strategy for facilitating the transition from shifting to settled agriculture. It is therefore not clear what role the proposed policy reforms play in that strategy, and how they complement the technology and infrastruc- ture needs of the strategy.

Conclusion As they did for Ghana, Alpine and Pickett argue that C6te d'Ivoire should have focused more strongly on its agriculture from the beginning, developing it first, and only then moving on to manufacturing and foreign trade. Had a laissez-faire policy been followed from the beginning, they argue, this emphasis on agriculture would have followed naturally, based on comparative advantage. The resources used in manufacturing would have had a higher rate of return in agriculture.

125 AFTES Working PaperNo. 18

As it was, from 1960 to 1982, C6te d'Ivoire by and large adopted a more liberal economic stance than did Ghana. But as the period progressed, its heavy public investments in agriculture and manufacturing, while keeping the economy going for a while, eventually proved to be unsustainable, and collapse ensued. When that happened, and adjustment became inevitable, the reform program in C6te d'Ivoire was prevented from succeeding by, among other things, the straitjacket of its inability to depreciate the real exchange rate of the CFA Franc.

While agriculture in RCI was not exploited as egregiously as it was in Ghana, it was still not profit- able enough to stimulate the adoption of greatly improved production techniques. Had the economy been fully market-driven, argue Alpine and Pickett, the agricultural growth rate in RCI for the period 1965-1989 might have been 4.4 percent p.a. rather than the 2.9 percent p.a. achieved. Since technical progress is critical for modem economic growth, the failure of the policy climate throughout the past thirty years to induce much technical change in agriculture is particularly important. In the transition from shifting to settled agri- culture which is now the leading problem for RCI's agriculture, the technical changes needed are of central importance, and more complex than any needed in the past. This is why it is crucial that the policy package for an agriculture-led economic recovery should be designed to complement the necessary technological changes.

SUDAN

Setting "After decades of decline, Sudan is now one of the poorest countries in Africa with an average per capita in- come estimated to be in the range of US$250 to US$300 in 1992."230 This devastating pronouncement, per- haps more than any comparable statements made about other countries in Sub-Saharan Africa, sums up the difficulties in economic and agricultural development during the past few years. For Sudan is the biggest country in Africa (with 10 percent of the continent's land area), and has the third largest estimated remaining reserve of cultivable land after the year 2010, almost 47 million hectares (see Annex Table A.6). Its perceived technical potential for enormous food production is well-known, having given rise at various times to titles such as "bread-basket for the Arab world."

Two factors more than any others have negatively impacted upon agriculture during the past dec- ade: war, and rainfall fluctuations. As a result of the war, several million people have been displaced in the southern region. In spite of its having the largest irrigated agriculture in Sub-Saharan Africa, with irrigation schemes commanding some 4.4 million feddans (1.85 million hectares) of the 17 million under cultivation, Sudan's rainfed agriculture is large enough (and in recent years management of irrigation weak enough) to allow very large fluctuations in production (changes up or down of from 20 to 30 percent in a single year have been recorded in the past ten years).

To begin the 1990s, the government adopted an ambitious long-term plan, and commenced sub- stantial economic reforms in early 1992, including currency devaluation, exchange rate liberalization, aboli- tion of most export and import licenses, and liberalization of most domestic markets. Spurred by good weather and better production incentives in the form of higher producer prices, agricultural growth of over 20 percent was experienced in 1991/92 and 1992/93. It is too early to see whether positive growth will con- tinue, since it will depend to a large degree on an end to the war, return to political stability, and restoration of the confidence of intemational donors who had largely abandoned the scene following the policy failures of the 1980s. If these problems are dealt with, however, Sudan obviously has enormous agricultural poten- tial.

230 World Bank, Sudan: Agricultural Sector Review,. Agriculture and Environment Operations Division, Eastern Africa Department, Draft September 22, 1993.

126 Agriculture and Economic Reform in Sub-Saharan Africa

Need for Reforms From 1973 onwards the government increased very substantially its investments in infrastructure (roads, railways, electric power, irrigation) and industry, at first with donor financing. In part this public investment surge was an attempt to realize Sudan's hopes to become a major agricultural supplier to the Middle East There were large inflows of foreign capital and imports of goods. After a few years, when problems with absorbing these large inflows resulted in slowing disbursements, donors reduced their new commitments. Rather than cut back on projects barely begun, the government decided to sustain the capital intensive de- velopment effort by borrowing from abroad on relatively hard terms, and running down foreign exchange reserves.

When reserves were depleted, an accumulation of arrears on the debt began. External public debt payments coming due increased from US$55 million in 1972-73 to more than US$800 million in 1982-83, while debt service as a proportion of exports of goods and services rose from 12 percent to more than 100 percent.231 The severe balance of payments problems were exacerbated by increases in the price of oil during the 1970s. With rapid international inflation taking place, the price of imports increased, and between 1974- 75 and 1977-78 a sharp rise in import volume. Concurrently the value of exports fell in real terms by 50 per- cent between 1972-72 and 1980-81. The overwhelming force behind this was the shift from cotton to other crops, and declining yields for cotton. Cotton production in 1980-81 was only 40 percent of its level a decade earlier.

The problem in the balance of payments was mirrored in the domestic fiscal and monetary situation. The government's sharp increases in expenditure without matching increases in revenues led to a sharp growth in public sector demands on the domestic banking system. The resultant expansion in money supply fueled inflation, which rose from 6 percent p.a. in the early 1970s to more than 25 percent p.a. by the early 1980s. By 1978, however, the government was faced with a crisis in its balance of payments.

To try to deal with its huge problems, the government adopted a financial stabilization program with IMF support, and launched an agricultural program whose goal was to increase exports of cotton, Sudan's main foreign exchange earner, by 7 percent per year for the period 1979-1991. This program was supported by two credits of the World Bank for agricultural rehabilitation, in 1980 and 1983. The credits were largely to finance imports of agricultural inputs, including equipment spare parts for mechanized cultivation, and the second credit, in particular, came to focus on pesticides for cotton production. Under the agricultural reha- bilitation program the government also improved its accounting systems for recovering costs from tenant farmers in irrigation schemes, began to announce publicly before harvest the producer price for cotton and to pay farmers promptly on delivery of their seed cotton, commercialized the public sector cotton export and processing corporations, gave greater autonomy to selected other agricultural parastatals, and improved its procurement procedures.

The stabilization program included devaluation of the domestic currency by about 58 percent over four years (late 1977 to late 1981) and unifying official and parallel rates of exchange in late 1981, reduction of government subsidies for petroleum, wheat products and sugar, attempts to increase govermnent reve- nues, and constraints on expansion of credit. A further devaluation of the currency by 44 percent was im- plemented at the end of 1982, in the context of the government's preparation of a comprehensive economic recovery program. The latter contained a three-year public investment program tightly focused on contin- ued rehabilitation of the export sector and on efficient import substitution. The donors agreed to support it in the context of a major debt re-scheduling which occurred in early 1983.

2 231 World Bank, President's Report for a Second Agricultural Rehabilitation Program, May 23,1983, p. .

127 AFTES Working PaperNo. 18

From late 1983 onwards, the macroeconomic recovery program fell apart, and many of the policy reforms previously undertaken were reversed. While political instability increased, with changes of gov- ernment in 1985, 1986, and 1989, the government failed to get on top of unsustainable subsidies for sugar, bread and petroleum, there were renewed arrears on debt, renewed overvaluation of the currency, and in- creasing inflation, especially in the latter years of the 1980s. From mid-1988 to mid-1991, the real effective exchange rate appreciated by more than 450 percent, while inflation averaged more than 80 percent per year, and was over 133 percent in the third year. The macroeconomic dechine was exacerbated by severe flooding in 1989, and droughts in 1990 and 1991. Underlying everything else was the civil war which had continued from the beginning of the 1980s.

Although the agricultural recovery program succeeded in raising cotton production in the first few years of the 1980s, it was judged to have contained insufficient provisions for policy reforms to have lifted cotton production on to a sustainable growth path, and sustained it in the face of the other adverse circum- stances that ensued.232

Under the National Economic Salvation Program (NESP), a renewed attempt at economic reform began with initial measures in 1990-91, and a more substantial reform package in February 1992, including a re-unified exchange rate and devaluation of the domestic currency from LS12.5 per US Dollar to LS30 per Dollar; elimination of restrictions on holding and transferring foreign exchange; abolition of most export and import licenses; cotton and gum arabic producer prices raised to international levels; domestic markets lib- eralized except for bread and petroleum (but the bread and petroleum subsidies reduced); 11 public enter- prises privatized with 140 more planned; the government deficit reduced from 13.3 percent of GDP in FY90 to 8.4 percent in FY91, (although reversed to 19.3 percent in FY92); abandonment in January 1992 of tight government controls on prices for producers, merchants and consumers; from February 1992 onwards, lib- eralization of the exchange rate [which reached LS96 per US Dollar by mid-1992, with a fall in the real effec- tive exchange rate]. The share of public capital expenditure going to agriculture increased from 30 percent in FY87 to 38 percent in FY91, but there were major shortfalls in public investments in roads, railways, river transport, power, and telecommunications, ironically the very things whose construction had started the country on its ruinous economic path twenty years previously.

In its programs for poverty alleviation, the government switched in October 1991 from price controls and general subsidies (which included the overvalued currency, controlled producer prices and fixed retail prices), to targeted cash transfers. In the judgment of an agricultural review carried out in 1993,233a major problem remaining with these was their bias towards urban areas. The government needed to embark on public works programs and increase expenditures in social sectors.

Results During the period of the agricultural recovery program cotton production increased by 51 percent in 1981-82 (entirely from an increase in irrigated area), and a further 23 percent in 1982-83.234 Substantial gains were also realized from other crops. Over the succeeding two years a further gain of about 8 percent was achieved in cotton production, but production of sorghum, millet, and groundnuts declined by 40 percent, largely be- cause of the drought in 1985. Over the same period the real effective exchange rate appreciated again by more than 50 percent, and one study argued that the leveling off of cotton production came about because of the lower incentives consequent on this real exchange rate appreciation.235 Failure to deal with this critical

232 World Bank, Sudan: Agricultural Rehabilitation Program II, Project Performance Audit Report, June 30, 1988. 233 World Bank, Sudan: Agricultural Sector Review, Eastern Africa Departmnent, Septemnber, 1993. 234 ibid., p.11.

235 World Banlk, ARP II Project Performnance Audit Report, op. cit., 1988, p.8.

128 Agriculture and EconomicReform in Sub-SaharanAfrica

policy variable, in other words, wiped out the gains that otherwise might have been realized from the pro- gram of support for important inputs into the cotton sector.

In spite of the adverse economic conditions in the second half of the 1980s, agricultural GDP experi- enced a net growth of 17.5 percent over the five year period 1983-84 to 1988-89. This was followed by two years of drought, during which agricultural production fell substantially, and a recovery with 29 percent ag- ricultural growth in FY92, stimulated by better rainfall and higher producer prices. Over the past 15 years, the traditional (rainfed) sub-sector in agriculture including livestock showed a dramatic decline, and the irri- gation sub-sector, which grew in the early 1980s, has since stagnated. During the twenty years to 1991, how- ever, there was also an encouraging quadrupling of the area devoted to fruit crops (from about 33,000 to 165,000 hectares). Production increases from 1982 to 1991 were 6 percent for citrus, 53 percent for mango, 59 percent for dates, and almost 90 percent for banana.

Discussion In assessing the situation at the outset of the new reform program in 1992, the agricultural sector review ob- served that:

"The sources of and prospects for agricultural growth in Sudan are severely hampered by the-over- riding effects of serious political and macroeconomic instability and any analysis of growth must take this into account. The political instability in the South not only imposes enormous budgetary costs, which the Government can ill afford, but, far worse, has subjected more than 10 percent of the population to economic ruin and, in some cases, starvation. In addition, an important component of agricultural production in the South, largely tropical, must be written off by the national Govem- ment because of the instability in that area...The macroeconomic instability characterized by a high level of extemal debt, inflation in excess of 100 percent and large Government budget deficits have greatly reduced Sudan's economic options, particularly for investment. In addition, donor support has almost totally disappeared. It is within this bleak picture that the short and medium term growth prospects must be examined...

...Yet, it is also, evidently, wrong to conclude that this political and economic instability precludes agri- cultural growth. While in the long-term...crop production either declined or stagnated for 10 of the 14 crop/technology combinations analyzed during the period 1975-91 and agricultural exports, meanwhile, dwindled to less than half their 1982 level, in the last two crop years, 1991/92 and 1992/93, the negative trends were broken. Agricultural growth surged to over 20 percent in 1991/92, owing mainly to good rains following two drought years and to better production incen- tives in the form of higher producer prices...the same growth is expected in 1992/93...crops have be- come highly competitive and mostly profitable, on an economic basis, and have also improved on a financial basis, during the recent high growth years (1991/92 and 1992/93) as the official exchange rate has moved more in line with the market exchange rate.

The most important factors which have adversely affected yields are the lack of research and exten- sion, deterioration of the genetic quality of seeds, soil erosion and poor farming practices [e.g. lack of timely weeding] ...Agricultural infrastructure, the rural labor market, financial intermediation and human resource development must also be improved lest the current growth surge disappear."236

The major questions hanging over Sudan's future agricultural performance are how long will the government keep up its most recent commitment to economic reform, and will it be able to bring to a con- clusion the conflict in the south? The government's National Agricultural Strategy (1992-2002) plans to in-

236 World Bank, Sudan: Agricultural Sector Review, op. cit., 1993, p.

129 AFTES Working PaperNo. 18

crease irrigated areas threefold, rainfed areas tenfold, and double (in some cases triple) crop yields. It plans to increase grain production 6 times to 24 million tons, increase oilseed production 4 times, increase legumi- nous and horticultural crops 3 times, triple the number of livestock and increase meat exports 20 times, and reforest 10 million feddans [4.2 million hectares].

The plan assumes the availability of markets for commodities produced, ignores the security prob- lems in the South (which have been there for 12 years), ignores deterioration in export markets, and assumes outside financing. It is therefore a very optimistic strategy, and some of the projections (especially for live- stock numbers and production) are unrealistic, even were most things to work out well.

In some respects, the plan says more about Sudan's enormous technical potential than it does about the likelihood of outcomes. With a total land area of almost 600 million feddans, (250 million ha), the poten- tial arable area is estimated to be 85.5 million feddans of which 29.5 million are already under cultivation (4.2 million irrigated, 17.2 million under mechanized rainfed cultivation, 8 million under traditional rainfed cul- tivation, and 0.1 million under flood irrigation). There are around 242 million feddans of grazing land, 58 million feddans in heavy forest, 205 million feddans of desert, 6.5 million of swamps, and 0.1 million in ur- ban areas. The irrigated area could expand from 4.2 million feddans to a maximum of 7 million with all the waters of the Nile allocated, and a program to ensure more efficient use of water in place. Areas under mechanization could increase by 30 million feddans, at less cost than irrigation, and more rapidly, but with the problem that they would remain under rainfed cultivation, constrained by susceptibility to the fluctuat- ing weather conditions to which the country is subject. The tremendous potential of Sudan remains a dream still far away from realization.

ZAIRE

Setting Regarded as "probably the richest country in Sub-Saharan Africa in terms of its land, forest, water and eco- logical resources"237, Zaire's agricultural potential remains largely unrealized, victim to an agricultural re- search system virtually moribund since 1960, and profound neglect of transportation infrastructure, among other things. Fertilizer consumption is at a minuscule level (probably less than 10,000 tons of nutrients p.a.).

"The three-year effort (1987-1989) by the World Bank to introduce serious reforms in Zaire through structural and sectoral adjustment loans did not succeed particularly due to the Government impotence to control public expenditure. This nullified much of the reforms affecting the exchange rate, the revenue structure, the public enterprise efficiency and the reorganization of the financial, agricultural and transport sectors. Together with the massive disruption caused by political transition, this led to an unsustainable bal- ance of payments situation, a sharp decline in the welfare of the population and prospects of continued de- cline in economic growth."238 As with Sudan, any government in Zaire will need to demonstrate sustained political commitment to implementing appropriate development measures and economic reforms if it is to recapture the confidence of intemational investors. But again, the potential in agriculture, livestock, fisheries and forestry is enormous.

237 World Bank, Zaire: Towards Sustained Agricultural Development, Agricultural Sector Memorandum, South-Central and Indian Ocean Department, September 26,1988. 23 World Bank, Zaire: Structural Adjustment Loan, (Credits 1831-ZR and A-30-ZR) Performance Audit Report, May 13,1993.

130 Agriculture and EconomicReform in Sub-SaharanAfrica

Needfor Reform The Zairian economy grew rapidly from 1967 to 1974, largely as a result of favorable prices for copper.239 During this growth period there was a lot of foreign borrowing and a great deal of investment, much of it of low quality. When copper prices fell sharply in 1974, there was a period of increasing budget deficits, infla- tion, and over-valuation of the domestic currency. Over the three year period from early 1975 to late 1978, the real effective exchange rate appreciated by more than 230 percent and inflation was more than 85 percent per year. Real GDP per capita declined. By the end of 1982, the country was in arrears on its external debt to the tune of SDR850 million. A strong stabilization program launched in 1983, which included a substantial debt re-scheduling and exchange rate reform, resulted in a resumption of positive growth of GDP, but at a lower rate than growth of population, so that per capita income continued to decline in real terms. When another crisis developed in 1986, further standby arrangements with the IMF were made, and the World Bank agreed in mid-1987 to provide financial support for a structural adjustment program. This commenced in the context of another highly favorable re-scheduling of arrears, and then-current debt servicing obliga- tions.

The policy package adopted by Zaire at Independence (overvalued currency, high export taxes, heavy external borrowing, low pan-territorial official producer prices, subsidized consumer prices, many local taxes on production and marketing, and no cost recovery for things like veterinary services), yielded an overall negative effective protection on agriculture up to 1983. As a result of this discrimination against agri- culture, in 1985, in one of the potentially richest agricultural economies of Sub-Saharan Africa, the following proportions of foods in the market were imported: maize 11 percent, rice 17 percent, meat 21 percent, sugar 32 percent, fish 53 percent. Prior to 1982 such imports were used to control consumer prices because price controls were hard to implement.

The agricultural sector in Zaire has "imploded", with a general retreat from markets towards subsis- tence, as a result of a bad policy environment, a tremendous deterioration in services (transport2 40 , research, extension, input supply, credit, agricultural education, and public finance), and loss of investor confidence. The situation has been exacerbated by the decline in world prices for exports (although these do not explain the decline in exports, since real farmer prices frequently increased during the period without any response from the export sector)

Over the long period 1965 to 1980, agriculture grew at only 0.5 percent p.a. Because of more attrac- tive work opportunities in mining and other urban activities, a lot of people left rural areas, leading to a scarcity of agricultural labor, especially for land preparation. Animal traction would help alleviate the labor shortages, as would a shift to settled agriculture, but this would require roads, marketing and extension services, all of which are extremely weak. As a result of the poor growth of agriculture, and its neglect over long period of time, although the sector accounted for 70 percent of employment, it contributed only 30 per- cent of GDP, and less than 10 percent of export earnings (which were dominated by the mining sector). With the virtual disappearance of palm oil, rubber, and tea, coffee made up almost two thirds of agricultural ex- ports.

Food imports have grown considerably, especially cereals (wheat, maize, rice), meat and fish, and there were high unrecorded imports from neighboring countries like Zambia. Agro-industries contributed 30 percent of value-added in the manufacturing sector. Most enterprises were foreign-owned with govern- ment participation, dominated by vertically integrated companies processing sugar, cotton, rubber, oil palm, coffee and wood. There continues to be a tremendous lack of confidence in the economy, leading to reluc-

239 ibid., p. 1.

240 As a result of a breakdown in maintenance throughout the transportation system, it is estimated that the total volume of goods transported within the country in 1990 was 40 percent below the level attained in 1950. World Bank, Zaire: Transport Sector Survey, 1991.

131 AFTES Working PaperNo. 18

tance to invest, and resulting in aging and badly maintained equipment. The decline in production of agri- cultural raw materials led to under-use of capacity. In the 1988-91 period, donors were expected to account for 65 percent of the core public investment program in agriculture. In a country where public services have been so neglected, NGOs have assumed a more important role than in some other countries.

EconomicReforms Under an IMF program implemented during the 1983-85 period, the currency was devalued by 70 percent, and then, with some exceptions, maintained in a market framework, with the real effective exchange rate below its 1984 level at least through June 1990. The Structural Adjustment Program supported by the Bank contained reforms in taxation, public expenditure, the civil service, public enterprises, and in the financial agricultural and transportation sectors. In these various areas the main elements were as follows:2 41

(a) tax reform - expand the tax base by reducing exemptions, evasion and fraud, improve the incentive structure, and improve the adjustment of taxes to inflation to maintain revenue; the reforms were imple- mented only with two years' delay, after new management was put in place, and in the meantime the gov- ernment damaged its budget by reducing revenues before reducing expenditures, and eroded the confidence of the private sector by implementing parts of the program but not others; by the early 1990s, tax revenues had begun to increase substantially, incentives had improved, and tax elasticity to inflation had been fully achieved; parts of the reform program were premature, and too complicated for the existing administrative capacity;

(b) trade tariffs and taxes - reduce and unify import tariffs to a narrower band, and eliminate export taxes; implementation was slow but steady from 1987 to 1990, with a focus on reducing the number of exemptions to import duties; export taxes were abolished except for those on wood logs and coffee; the latter were re- duced with the collapse of the International Coffee Agreement in 1989;

(c) civil service reform - reduce staff, raise salaries and improve management; "with the exception of a small and lower than planned reduction (5 percent against 15 percent) in Government staff, the civil service reform did not actually take place"242; these reforms needed political will, and the provision of financial resources to soften the initial impact, and both were absent;

(d) state enterprise reform - when the structural adjustment program was being appraised, the government had already made much progress in re-privatizing nationalized enterprises, terminating some loss-making enterprises, eliminating the state oil company monopoly, and abolishing agricultural marketing boards; the ambitious further reforms hoped for under the adjustment program were largely not achieved; they did not include the enterprises where most gain would have come from privatization (the leading gold, diamond and copper corporations2 4 3 ), and the program had too narrow a base of political support, relying too heavily on one dynamic minister who was removed in 1988;

(e) financial sector reform - this was to be designed under the adjustment program, and was later to be im- plemented under a World Bank supported financial sector operation; but the preparatory studies were in- adequate, and the follow-up implementation was lost in the general collapse of the adjustment program in 1990;

241 This account draws on the Performance Audit Report, 1993, op. cit. 8 242 ibid., p. . 4 243 According to The Econonust (Dec. 17, 1994. p. 7), "the copper nining giant Gecamines, once the state's main foreign-currency earner, is on the verge of bankruptcy-"

132 Agriculture and EconomicReform in Sub-SaharanAfrica

(f) public expenditure reform - get control over public expenditures, and raise the productivity of public in- vestment, focusing on rehabilitation of infrastructure, and increased expenditure on social sectors; the gov- ernment never accepted this program, it ended up having no legal basis, and the government continued launching uneconomic projects outside the framework; on this issue the entire adjustment program eventu- ally foundered;

(g) transport sector reform - rehabilitate rail and river connections between the mines and the coast, and im- prove financial and management performance of the public corporations responsible, supported by invest- ments under a separate transport investment project; the agreed policy of providing local counterpart funds for road maintenance from a designated levy on petroleum products failed, and the government repeatedly failed to provide the counterpart funds; the Bank suspended disbursements on the investment project, and "for lack of funding the road maintenance program halted, cutting entire regions from their potential markets and increasing food imports and prices in the towns"244; because of its importance to the economy, the Bank has persisted with this sector under traditional investment projects, and now road work is increasingly put out to private contractors;

(h) agricultural reforms - provide better incentives for agriculture through exchange rate liberalization and removal of export taxes, redress deteriorating transport infrastructure, provide counterpart funds for foreign -financed projects, improve the investment climate for the private sector, (especially in provision of agricul- tural inputs), improve credit policies, and simplify export procedures; the incentives for agriculture were improved, but the private sector remained reluctant to invest; many of the other reforms which were to help agriculture failed, and the Bank resorted to assistance through traditional investment projects, sometimes on a pilot basis; specifics are as follows:

- a plan was prepared for a rural roads program, and work is ongoing under a Bank financed pilot project which began in September, 1990;

- a minimum tariff of 10 percent was applied to all agricultural products, and raised to 15 percent in 1989;

- a study was done to propose measures to improve availability of agricultural inputs, and it is being followed up under a Bank financed technical assistance project;

- taxes on agricultural exports, earmarked for the Fonds Agricole, were eliminated, and the Fund itself abolished in January 1988;

- a study was carried out on simplifying export procedures for agricultural products, but its recom- mendations were not implemented;

- the special allocation of credit to agriculture, with preferential agricultural credit interest rates, was eliminated, but the Consultative Committee on Agricultural Credit (which was to identify agricultural credit needs, and facilitate their being supplied) never met, and an obligation on commercial banks to invest a specified proportion of their portfolio in agriculture was not enforced; as a result, credit available to agricul- ture declined;

244 ibid., p.67. "plantations and smallholders were handicapped by poor road conditions, silted river channels, collapsed bridges, non-functioning ferries, lack of fuel and spare parts, lack of wage goods, and other problems." ibid., p.67.

133 AFTES Working PaperNo. 18

- recommendations of a Presidential Commission on agricultural research were implemented in an investment project launched in 1989, and attempts have been made to prepare a national agricultural re- search project;

- recommendations to improve staffing and management of agricultural extension have been imple- mented in a pilot extension project launched in 1989;

Results In an attempt to build on the relatively good economic management of the 1983-86 period, the Bank from 1987 to 1990 supported an economic reform program which in spite of some achievements substantially col- lapsed. Later review of this program24 5 argues that it was never owned by the government, and that it was premature in the sense that the government was neither willing nor able to implement it. Although data are not easy to come by, it is estimated that Zaire's GDP fell by 1.9 percent per year in real terms between 1986 and 1992.246Over the same period, agricultural exports also fell, and food production rose by an estimated 9 percent, implying a decline in per capita production.

When the economic reform program collapsed, the economy collapsed with it, and spun out of con- trol. The inflation index (CPI) on a base of 1980=100, soared over 1.6 million during 1992, and reached 13.65 billion by mid-1994 (even on a base of 1990=100, the CPI index was over 117 million in mid-1994). The cause: "reckless printing of money - by the authorities and counterfeiters alike - has pushed annual inflation to 8,500 percent and the local zaire into contempt. Relaunched at three to the dollar in October 1993, the zaire now trades at 3,200.1247

When price and marketing controls on agriculture were removed in May 1982, many producer prices increased but there was no supply response because of a shortage of marketing credit, increased marketing costs, deterioration of the transport network, and continued local taxes impeding marketing. Prices re- mained heavily regulated. An important lesson of the economic reform experience is that, "particularly in agriculture, better performance can be obtained only through a combination of investment projects and changes in overall policies. Before 1983, agricultural projects did not work because of incorrect price incen- tives, yet correction of the price structure was not enough to trigger supply response. In a next phase of ad- justment, traditional investment projects will have to remove physical constraints, while structural adjust- ment must improve Zaire's negative investment climate, mainly through better governance. " 24 8

Discussion Zaire has stunning agricultural potential. According to FAO estimates, it has a reserve of cultivable land of at least 160 million hectares, more than 28 percent of the reserve of such land estimated to remain in Sub- Saharan Africa, and the single biggest such reserve. Around 10 million hectares are under cultivation or grazing. "In addition to its unexploited agricultural potential, Zaire has tremendous potential for forestry and fisheries. The country possesses over 170 million ha of natural forest, most of it untouched. These for- ests represent about 10 percent of total world resources in tropical forests and over 50 percent of the tropical forests in Africa. Zaire produces an estimated 150,000 metric tons of fish a year from its marine, riverine, and lake fisheries. The potential for production from these fisheries has been put at about 700,000 mt/annum

245 ibid., pp.1013.

2 2 246 World Bank, African Development Indicators, Third Edition, December, 1994, Table 2.1, p. 247 The Economist, December 17, 1994, p.47. 248 Performance Audit Report. 1993, op. cit., p.69.

134 Agriculture and Economic Reform in Sub-Saharan Africa

leaving significant room for expansion."2 4 9 There are about 1.3 million cattle and 3.6 million small ruminants when the potential is estimated at 30-40 million cattle.

The traditional sector in agriculture (3-4 million smallholders, with an average land area of 1.5 ha) mostly practices primitive slash and burn agriculture. There is a growing class of technically more advanced farmers (150,000400,000 in number) producing mainly cash crops; they account for 40 percent of agricultural GDP, a high proportion of arabica coffee and cotton, and a significant proportion of robusta coffee, tea, and palm oil. Modem corporation owned plantations averaging 300 ha in size declined in numbers with zairian- ization measures from 1,200 to 900 during the 1980s.

As we have seen previously, in a discussion of economic reforms in Ghana, the transition from slash and burn to settled agriculture requires a package of measures to ensure its success. It is clear that Zaire is far away from making this transition, for the bulk of its farmers. As noted many times above, for most of the years since Independence, agricultural research has been egregiously neglected, and infrastructure let fall into ruin. If anything, the agricultural sector has regressed, falling back on subsistence production in the face of tremendous economic mismanagement, and conditions conducive neither to private sector investment, nor to providing opportunities for development of a cash economy. In the absence of this economic climate, an informal sector flourishes, but its basis is a desperate struggle for survival. Its presence proves that entrepre- neurship aplenty awaits an accommodating political and economic climate.

KENYA

Setting "Few country lending experiences have given the Bank so much cause for frustration..." Thus wrote an out- side observer,25 0 commenting on the history of structural adjustment efforts in Kenya through the 1980s. Kenya was one of the first countries in Sub-Saharan Africa engaged by the Bank in structural adjustment lending, and the efforts have been repeated through the decade, moving from general Structural Adjustment Loans (SALs) to sector adjustment loans (SECALs) of which the latest was in education in 1991. There were two SECALs in agriculture, in 1986 and 1990, although conditionality in the SALs and some of the other SE- CALs have also had an impact on agriculture.

The observer's conmment needs to be interpreted as referring especially to the pace of reform in Kenya, which has certainly been slow, and marked by many setbacks. Over the longer term, however, sub- stantial progress has been made. Although the Bank in late 1991 canceled the second tranche of the second AGSECAL, the main policies over which that cancellation took place - liberalization of the maize market, and in particular abolition of maize movement controls - have finally been achieved, in early 1994. Looking back over the decade, then, one can see progress across the board in agricultural policy reform: fertilizers, cereals, output marketing for a variety of crops, cotton, dairying, sugar, and especially coffee, where today the pay- ment arrangements for smallholder producers are so good as to warrant separate description.251 The main area where progress still remains to be achieved is in divestiture of the enormous parastatal sector which is as ubiquitous in agriculture as in the other productive sectors in Kenya. And because of the "patchy, inter-

249 World Bank, Zaire:Agricultural Sector Memorandurn, 1988, op. ciL, p.1. 250 Paul Mosley, "Kenya", in Paul Mosley, Jane Harrigan, and J.F.J. Toye, Aid and Power: The World Bank and Pohcy-Based Lending, Routledge, London 0 and New York, 1991, Vol. II, pp.27 -310. 251 Inrnediately upon delivery of coffee "cherry" to the washing station, the farmer receives an initial payment calculated as 20 percent of last year's price realization. When the coffee is sold at auction, the farmer receives the proceeds (ess the initial payment) directly from the Coffee Board. The time- liness of this payment system has improved so markedly that it has had a profound effect on the needs for credit to farmers. Furthermore, under provisions in Kenya applied recently to all sectors, farmers have the opportunity for 90 days to realize all of their coffee proceeds as foreign ex- change.

135 AFTES Working PaperNo. 18

mittent commitment"2 52 which has characterized adjustment so far in Kenya, even some of the achievements so far are at risk of being rolled back as circumstances change.

As for many other countries in Sub-Saharan Africa, Kenya's agricultural performance is affected in a major way by weather, and fluctuations from this source often obscure progress arising from other sources. From 1980 to 1991, agricultural GDP in Kenya grew at an average rate of 3.2 percent p.a., but in the 1988-92 period, the average growth rate has been a disappointing 0.5 percent p.a. This reflects, in part, the falls in world market prices for tea and coffee, as well as a severe drought in 1992, as growth for three years suggest: 1990 3.4 percent, 1991 -1.1 percent, and 1992 -4.2 percent. Unfortunately, an even more severe drought in 1993, which reduced production of the staple cereal, maize, to two thirds of its peak production, reduced the growth rate for the third straight year, although there were offsetting positive developments for tea and cof- fee. The drought dealt a setback to dairying as well, but with better weather, dairying and horticulture are expected to realize very substantial growth. For dairying, this will be predicated also on liberalizing reforms in marketing and processing.

A continuing concern about Kenya is political developments that point to the need for greater atten- tion to effective governance. Lack of transparency, weak accountability, and concentration of economic and political power could act as severe constraints on the development prospects of several sectors of the econ- omy, through adverse effects on the use of public resources and on the willingness of the private sector, both foreign and domestic, to make longer term commitments to investment and production. The level of real private investment, for example, dropped by 23 percent in the wake of an attempted coup in 1982, and has yet to recover to the level attained in 1981. The share of private investment in GDP fell from greater than 16 percent in 1981, to an average of less than 10 percent for the years 1989-1991.253

The Need for Reform Kenya's economic performance since Independence can be broken down conveniently into five time periods: (a) rapid growth (averaging 6.5 percent p.a., agriculture almost 5 percent p.a.) and low inflation (below 4 percent p.a.) in the first decade until 1973, when the development strategy was firmly anchored on growth of smallholder agriculture, manufacturing was largely for import-substitution, and Kenya benefited from access to the East African Community markets254;(b) slower growth and rising inflation during 1973-80, due to ad- verse movements in the terms of trade (the first oil shock), collapse of the customs union, the limitations of import substitution as a strategy, a rapid spurt in less productive public sector economic activities23 5, and deterioration of macroeconomic managemente56; (c) serious macroeconomic imbalances and slow growth during 1980-85, caused mainly by the second oil shock of 1979, a sharp drop in coffee earnings, and the ero- sion of fiscal discipline; and (d) a revival of growth from 1986 to 1990, resulting initially from improved terms of trade but subsequently sustained by a favorable response from smallholder agriculture to improve- ments in incentives and by maintaining public spending through increased reliance on foreign savings; and (e) markedly slowed growth from 1991 to 1994, engendered by the adverse effects of world recession on tourism, the decline in prices for the country's major exports (tea and coffee), and quite severe drought two

252 Gurushri Swamy, "Kenya: patchy, intermittent commitment', in Ishrat Husain and Rashid Faruqee (eds), Adjustment in Africa: Lessons from Country Case Studies, World Bank Regional Study, 1994, pp.193-237. 253 World Bank, Kenya: Employment Growth for Poverty Alleviation, Eastern Africa Department, September 30,1993, Table 2.4, p.133.

254 According to Mosley (op.cil.,p.271), Kenya was the "senior partner" in the customs union agreement established in 1963 (the agreement was dissolved in 1977). 25 The share of public sector output in GDP rose from just under 25 percent in 1976-77to over 35 percent in 1980-81, when there were 147 parastatals, and 73 the government had shares in a further 176 companies (Mosley, op. cit.,p.2 ) 256 Including heavy international borrowing, and "expansive gestures on recurrent account," such as the decree on May 1, 1979 that public sector employ- 272 ment should be increased by 10 percent across the board (Mosley, op. cit., p. )

136 Agriculture and Economic Reform in Sub-Saharan Africa

years in a row, but also relating to a declining rate of investment, and declining efficiency of use of capital resources.2 5 7

At the time when reforms were introduced (mid-1980), the economy was heading towards a budget deficit of 10 percent of GDP, a current account deficit of 12.5 percent of GDP, and an inflation rate of over 20 percent p.a.

EconomicReforms The heart of the initial economic reforms was a sharp deflation during 1980-1984, accomplished by reduced budget deficits (which came close to zero in 1982-83), markedly slowed monetary growth (and increased in- terest rates), and tightened import controls. These succeeded in reducing the financial imbalances to sustain- able levels (Kenya was one of the few countries to succeed in this), but the cost was high in foregone con- sumption, investment and imports. "By 1984, real domestic demand was 5 percent less than in 1980 despite a population increase of 17 percent and further deterioration of external terms of trade.""98 The initial reforms were supported by a World Bank Structural Adjustment Loan (SAL) effective in June, 1980. A second SAL followed two years later, aimed at completing trade reforms, addressing grain marketing reform, and other matters including interest rates, energy, and family planning.

When the implementation and results of these first two attempts at structural adjustment proved to be unsatisfactory, the Bank paused for four years before deciding to change its approach, dropping global adjustment operations in favor of sector adjustment. By emphasizing coordinated sectoral adjustment op- erations that were clearly-focused, measured and administratively feasible, it was hoped to sustain a com- prehensive and successful reform process in the Kenyan economy. The Bank approved adjustment credits for agriculture in 1986, industry in 1988, the financial sector in 1989, export development and a second agri- cultural adjustment operation in 1991, and education in 1992.

In the meantime, the govermnent continued with a managed exchange rate policy which had been in place since the 1970s, and underpinned the program of economic reforms without being an explict part of it from the point of view of policy conditionality. The exchange rate of the domestic currency, for much of this period, was pegged to the SDR, while the allocation of foreign exchange was freed progressively from con- trols until the currency eventually traded freely, and was completely convertible (see Table 5).

AgriculturalReforms The Government began implementing the first Agricultural Sector Adjustment Operation (ASAO I) at the beginning of 1986. It included measures to improve the timeliness, availability and application of key agri- cultural inputs; improve agricultural credit policies; enhance price incentives for agricultural producers; ra- tionalize budgetary allocations and expenditures; and restructure designated agricultural parastatals. This program was largely implemented, although with slower progress than expected in restructuring two para- statals. The second tranche of the Credit was released in March 1988.

At the outset of the second agricultural sector adjustment operation, the growth of agriculture was seen as being constrained by the following major factors:

(a) Insufficient incentives for producers, resulting from delayed payments and unnecessarily high costs of marketing because of insufficient competition in the marketing of key agricultural commodities, especially maize. This had lowered effective prices received by producers in surplus areas.

257 World Bank, Kenya: Employment Growth..., op. cit, p.3.

2 58 Swamy, op. cit., p.203.

137 AFTES Working PaperNo. 18

(b) Low use of yield-augmenting inputs, notably fertilizer, due to institutional factors affecting demand (delayed payments for crops, and low returns from available technical packages), and supply constraints (high cost of imported fertilizer, inadequate and uncertain allocation of foreign exchange, excessive licensing controls, and poor and high cost distribution). Consequently, only a small proportion of Kenya's smallholder farmers used fertilizer.

(c) Inadequate availability offinancing, including institutional credit, to enable longer term investments, as well as provide working capital, both for smallholders and for financing crop payments by private traders.

(d) Declining efficiency and returns to public expenditures in the sector, arising from weak project selection, underfunding of ongoing programs, marked imbalances between non-wage operating expenditures and per- sonnel costs, and serious funding delays for approved projects.

The operation aimed at substantial advances in three policy areas, representing a deepening of re- forms begun under the first operation, while beginning initiatives in two other areas. The operation there- fore supported:

Deepening Reforms (a) improving incentives for smallholder maize producers through prompt payments to farmers, and sustaining adequate producer prices through reduced marketing margins; increasing the efficiency of maize marketing through removal of maize movement controls and achieving a higher degree of competitiveness; and reducing the budgetary burden of NCPB's operations through consolidation of a new role for the Na- tional Cereals and Produce Marketing Board (NCPB) and reducing its operating costs;

(b) increasing fertilizer availability to small farmers, of the right type, in a timely fashion, at lower cost, and promoting transfer of more efficient and environmentally safe fertilizer use technology; among other things, the reforms included decontrol of fertilizer prices;

(c) improving the efficiency of public expenditures, through more rigorous criteria (including environ- mental factors) for including projects in the public investment program, a better balance between salary and non-salary operating expenditures, and improved budgetary operations;

New Initiatives (d) promoting targeted programs to protect vulnerable lower-income groups, based on the Govern- ment's completed Food Security Paper and new initiatives to develop preparedness for droughts;

(e) strengthening planning and management capacity in selected Ministries which dealt with major sub- sector issues, and undertaking strategic studies which cut across subsectors, or have macroeconomic and environmental implications.

Results It is important to record at the outset that the government's management of the exchange rate was successful, especially in the second half of the 1980s, in reducing the real effective exchange rate of the domestic cur- rency. The most successful period was the four years from early 1985 to early 1989, when a depreciation of 46 percent in the real effective exchange rate was achieved. This was an important factor in allowing prices for agricultural commodities to be maintained reasonably in line with world market prices, and for increas- ing the effectiveness of other trade policies.

138 Agriculture and Economic Reform in Sub-SaharanAfrica

The increased reliance on sectoral reform programs since 1986 represented a shift in Bank strategy in Kenya away from global adjustment operations, following the poor performance of the SALs of 1980 and 1982. Although the early reforms successfully stabilized the economy, "little or no progress was made to- ward structural adjustment. There were design and timing problems, but the lack of compliance [with con- ditionality] can also be traced to the absence of commitment among all but a small coterie of top civil ser- vants."2 5 9 Implementation of the SALs fell short of expectations because the program conditionality covered too many areas, the proposed pace of adjustment was too ambitious and unsustainable, the loans involved few substantive up-front actions, consensus within the Government on key issues was often inadequate, and the lack of transparency in implementation of reforms vitiated their impact. The attempts at trade reform in the early 1980s, in particular, failed almost totally when import controls which had been at first removed were reinstated in the face of a foreign exchange crisis, and tariffs were increased instead of being reduced. The reinstatement of quantitative restrictions resulted from the government's justifiable fear that it would lose control of the balance of payments.

While implementation of some of the measures in the first ASAO was good, for others it was slow or weak. Good progress was made in: maintaining adequate producer price levels, taking steps toward market de-regulation, particularly maize and beef; beginning the financial and organizational restructuring of two parastatals, the National Cereals and Produce Board (NCPB) and the South Nyanza Sugar Company (SONY); and improving cost recovery in the provision of animal health services. Disappointing progress oc- curred in: the removal of supply constraints on fertilizer availability; supervision and management of para- statal reform; and achievement of concrete improvements in rationalizing the composition of sectoral public investments and expenditures.

The noticeable slackening in Government's commintment and capacity to fully implement the reforms after the final tranche was released in early 1988 was in part due to: changes in the key Government decision- makers since the beginning of the ASAO, and a lack of "ownership" by their successors of the agreed pro- gram; fragmentation of institutional responsibilities within the agriculture sector (from two to five Minis- tries), and to some extent Government's being lulled by improved economic performance in the early part of the program.

The main shortcomings from IDA's side were: (a) focusing on financing the preparatory steps for adjustment (studies, elaboration of policy papers, and restructuring plans) rather than on implementation; (b) setting too many conditions whose initial definitions were loose; (c) underestimating the time it would take to carry out difficult reforms (and especially to initiate actions which required decisions by Cabinet); and (d) placing too great a reliance on a small number of key individuals in Government, whose replacement would make a difference in the commitment to certain actions.

In spite of these shortcomings, the Project Completion Report judged the ASAO to have been: (a) well embedded in a macroeconomic policy framework understood between Government and IDA; (b) a use- ful instrument for promoting policy and institutional improvements in agriculture which would lead to faster growth, and improved efficiency in the allocation and use of sectoral resources; (c) a source of momen- tum for implementing reforms in important policy areas; (d) a contributor to good agricultural growth dur- ing its implementation period, 1986-1988 (average exceeding 4 percent per year); and (e) helpful in mobiliz- ing substantial external resources for balance of payments support.

The quality and speed of ASAO implementation suffered after an initial satisfactory phase. Towards the latter part of the implementation period in 1987, Government appeared to be more committed to fulfill- ing the loosely defined conditions for tranche release, than to full implementation of a reform program.

259 Swamy, op. cit., p12003

139 AFTES Working Paper No. 18

While the direction of the policy reforms remained on track in most areas, and the majority of the conditions were met, the timeliness of doing so fell short of expectations. The Project Completion Report highlighted a number of areas where actions were still pending and where Government should concentrate its efforts to sustain and carry out fully these actions. The most important of these were to establish an improved pay- ment system for coffee producers, and to complete the process of restructuring the Cotton Lint and Seed Marketing Board (CLSMB), divesting it of its ginning activities, and speeding up payments to farmers.

The coffee payment system was a condition of effectiveness of the Second Coffee Improvement Proj- ect (1990), which also provided financing for a revolving fund to allow the new payment system to be intro- duced. There was significant progress on actions relating to the CLSMB, including the passage of the Cotton Act by Parliament. The final steps were monitored under the IDA-financed Cotton Processing and Market- ing Project, which was extended to finance supporting studies for implementing the Cotton Act.

The second agricultural sector adjustment operation learned from the past by endeavoring to obtain greater government commitment at the technical level, to include fewer conditions with a focus on early achievement, and to strengthen linkages between the policy framework and complementary investments and actions. In spite of this, the second tranche of the adjustment credit was canceled by the Bank, largely be- cause of the failure to sustain the critical condition related to abolition of maize movement controls. In April 1992, the govermnent raised the limit on the amount of maize that private traders could transport without a permit from 44 bags to 88 bags (8 tons). But this was only the first step expected under the reform program, and it was already five months later than anticipated. The final step, announcing a date in 1992 for removing all controls on domestic maize movement, was not taken, and instead the government, in November 1992, re- imposed the former permit system. In 1994, however, in the midst of a drought which necessitated imports of maize, the government finally lifted all controls on domestic movement, as well as liberalizing maize im- ports. Contrary to the government's earlier belief about the likely directions of maize across its borders in the event of a drought, at that stage maize was flowing in from Tanzania, and, especially, from Uganda.

Despite significant fluctuations in the terms of trade, a large extemal debt burden, and continuing structural bottlenecks in the economy, GDP growth held at around 5 percent p.a. from 1985 to 1991. For the two years following that, the economy suffered from the setbacks of substantial declines in the world market prices for its principal exports, tea and coffee, and drought conditions in agriculture during the 1992-93 sea- son, which were repeated during the 1993-94 season.

The government's attempt at trade liberalization in the early 1980s largely failed, but a second try in 1988 has been more successful. It was not until 1992, however, that the import licensing system was com- pletely abolished and foreign exchange and commodity markets liberalized fully. The impact of these re- forms is only beginning to be experienced. In agriculture, prices for most products are now relatively undis- torted, but the sector has remained inhibited by parastatal activity and very slow payments to farmers until very recently. In 1994 payments to coffee farmers have finally been accelerated so much that their liquidity problems have been substantially reduced.

The problems for the private sector caused by continuing parastatal activity, and disincentives built into the legal and regulatory framework, are widespread in the economy. From 1981 to 1990, the private sector share in total modem sector employment fell from 53 to 49 percent, and its share in gross investment dropped from over 13 percent of GDP to about 11 percent. 260 One estimate is that almost 60 percent of sales in the economy occur in oligopolistic markets.2 6 '

260 World Bank, Kenya: Second Agricultural Sector Adjustment Operation, President's Report, Eastern Africa Department, December 14,1990, p. 2. 4 261 World Bank, Kenya: Poverty Assessment, Eastem Africa Department, July 14, 1994, p. .

140 Agriculture and Economic Reform in Sub-Saharan Africa

Discussion The performance of the agricultural sector during the 30 years since Independence (1963-1993) has been bet- ter than the average for Sub-Saharan Africa. The agricultural growth rate of 2.2 percent per year from 1982 to 1993, however, has not been sufficient to keep up with the high population growth rate of between 3.5 and 4 percent per year. Consequently, it has proven difficult to raise per capita income levels and protect the natural resource base. The proportion of rural households with insufficient income to secure their basic food needs has not been reduced, and the number of persons in poverty has almost certainly increased substan- tially.

The major sources of past agricultural growth were land expansion in the fertile areas, switching to high value coffee and tea production for export, and increases in crop yields and livestock productivity. These two latter sources offer the greatest scope for future increases in agricultural production. By contrast, fertile soils with adequate rainfall comprise only a small proportion of the arable land, and area expansion in them cannot continue at past rates. Under severe population pressure, the amount of high potential land per capita has decreased significantly, and as farm sizes have diminished, migration has increased to the lower potential areas in Kenya's vast arid and semi-arid lands, which are more susceptible to environmental dam- age.

Smallholder agriculture is now the dominant mode of production in terms of output, employment, and land area cultivated. Over 3.5 million smallholdings of less than 12.5 ha (average size less than 1 ha), account for 75 percent of total value of agricultural output, and over 85 percent of total agricultural employ- ment. The tremendous pressure on land, and the speed of fragmentation of smallholdings, is shown by esti- mates of the number of rural households increasing from 1.7 million in 1976, through 2.7 million in the mid- 1980s, to the present 3.5 million.2 62 More than 40 percent of the smallholdings are managed by women. Most smallholders combine subsistence food crop and livestock production (primarily maize, milk and meat) with varying amounts of cash crops (mostly coffee, tea and horticulture) and sell surpluses of food, especially during years of favorable weather. These characteristics of small farms are repeated in many countries of SSA, but they are particularly acutely observed in Kenya.

Despite these trends, Kenya's agriculture can grow faster than the average achieved during the 1980s. The Bank's study on Agricultural Growth Prospects (1990) identified priority measures which, if ef- fectively implemented, could raise the growth rate above 4 percent per year. Yields of crops and livestock for the majority of smallholders are about one half of those achieved by large scale farmers or progressive smallholders. It is from improving the performance of small farmers in this regard that most growth will come. Kenya also has a distinct advantage in sustaining exports of high quality coffee and tea, increasing exports in the rapidly growing horticultural sector, and in diversifying its exports even further, both by commodity and market. Both milk and beans, for example, offer promising opportunities for the future.

Many of Kenya's programs and policies in agriculture are now supportive of growth. There is no explicit taxation through lower than world prices of commodities, farmers are in many cases receiving pay- ments for their products more quickly than in the past, and a successful extension system is already in place. But yields of the major food crops - especially maize - have been stagnant through the 1980s, and the yields of small farmers are as little as one fifth of those achieved on research stations. Raising smallholder yields presents a challenge to the research system - to adapt technologies to specific conditions faced by farmers, particularly in less well-endowed areas.

2 The 1976 estimate is from Paul Collier and Deepak Lau, Labour and Poverty in Kenya, 1900-1980,Oxford, Clarendon Press, 1986, based on the Govern- estimates are based on the Government of Kenya's Rural Labour Force Survey of ment of Kenya's Integrated Rural Survey of 1976. The later 20 1988/89; see Lawrence D. Smith, Aspects of Rural and Agricultural Ermploymentin Kenya, World Bank Working Paper, September, 1992, p. .

141 AFTES Working PaperNo. 18

But policies have also played an important role in constraining yield growth, and the costs of market- ing both inputs and outputs can be, and must be, reduced substantially. The way to do this is to encourage stiHlfurther competitive private sector marketing and distribution. The marketing reforms for maize are new, and have not yet borne their full fruit. It will be vitally important for the Government to sustain a commitment to liberalization throughout the marketing system from farmer to consumer. This commitment needs to be extended to the entire agricultural sector. In the case of maize marketing, however, the long his- tory of the state monopoly, going back to the early years of the Second World War, surviving at least seven commissions of inquiry, two structural adjustment loans and two agricultural sector adjustment credits, dis- torting the location of maize production over its long history, and earning substantial rents for larger farmers (frequently those in political power), the antecedents are not promising for thorough reform which will be sustained.2 6 3

There are still supply problems with agricultural inputs, especially maize seed, for which the main issues are with the timely and efficient supply of reliable, high quality seed to farmers, of the particular higher-yielding varieties they need (i.e. those adapted to their agro-ecological zones). But the provision of seed supplies during droughts also needs to be improved. With fertilizer, the issue is somewhat different. Fertilizer use (especially on food crops) on small farms has always been low, and the recent sharp increases in prices and decline in export-crop prices has reduced consumption overall. The profitability of fertilizer is thus not as clear-cut as one would like to see, and further economic analysis is called for to identify ways of increasing this profitability enough to induce wider use. Beyond improving marketing, the obvious area for work is raising the response per unit of fertilizer, which swings the spotlight back on research.

In the post-independence period, the spread of cash crop cultivation to smallholders, especially of tea and coffee, was a major source of income growth. The secular decline in export prices of these crops (real prices fell at trend rates of 6 percent and 7 percent per annum respectively during the 1982-1992 period) points to the need for further diversification on farms, to new cash enterprises. The growth of horticultural production and exports in recent years, and of dairying are examples of such diversification. But entrepre- neurs face several constraints. In dairying, the continued domination of marketing and processing by the large Kenya Cooperative Creameries (KCC), an inflexible pricing system in the formal market which does not reflect market conditions, delayed and unreliable payments, and deficient animal health services - all contribute to inefficiency and lack of incentives. In horticulture there is little government interference, but the industry is not supported by adequate research and propagation activities. Poor communications infra- structure between Nairobi and the main producing centers leads to lack of coordination and consequent waste.

Conclusion Kenya's early years of development after independence were characterized by a growth strategy that had agriculture much closer to its heart than many other countries in Sub-Saharan Africa. Therefore, in spite of poorer resource endowments than some other countries, and in particular, the vulnerability of its agriculture to fluctuations in rainfall, Kenya stayed with its comparative advantage better than many other countries, and grew more rapidly than they did.

The rational reliance on agriculture did not, however, prevent policies from getting out of line in the late 1970s, and the economy becoming susceptible to shocks from external conditions. In particular, the es- tablishment during earlier periods of a comprehensive structure of parastatal marketing organizations gave Kenya a lot of trouble during the difficult 1980s, as similar structures did in other countries. Accumulated debts of the grain marketing parastatal alone reached more than 5 percent of GOP at one stage, and had to be written off in one drastic step. The management of economic reform in the 1980s was fraught with foot-

263 Mosley, op. c:it.,p.2S

142 Agriculture and Economic Reform in Sub-Saharan Africa

dragging and reluctance to take the difficult decisions needed to restore the economy to a rapid growth path. Only in 1994 could it be said that the government had implemented a broad array of reforms. These have substantially raised external reserves, stabilized the exchange rate with the currency fully convertible, abol- ished all internal price controls, reduced inflation to a single digit, and helped to engender a recovery of GDP growth to an estimated 3.3 percent (the first positive growth in four years).

From the point of view of increasing per capita incomes, the 1980s were a lost decade. Were the gov- ernment now to take steps to deepen economic reforms enough to provide a fully friendly environment for the private sector, focus intently on generating and spreading new agricultural technologies for smallholders, and decentralize funding to provide better for transportation and other infrastructure needs in rural areas, Kenya's agriculture has shown itself capable of growing at least at the rate set as a target for Sub-Saharan Africa - 4 percent p.a. In spite of the severe limitations on land in Kenya, and absence of an extensive margin in agriculture, if everything were done right, agricultural growth could be high enough even to pull ahead of the country's highly challenging growth rate of population, and provide some increases in per capita income. Furthermore, agriculture has shown itself capable of recovering quickly when droughts lift and policies im- prove.

143 Table 5. KENYA Indexes of Exchange Rates and Consumer Prices, 1980-1994 (1980--l

______h______Rate R a ge Raein e 1980 1 100.552 100.881 95.430 2 100.040 100.531 99.173 3 100.247 98.060 100.783 ______-4 99.161 100.528 104.614 1981 1 92.829 97.876 106.608 2 86.783 99.131 109.582 ______3 81.565 102.609 112.521 4 72.333 91.088 118.557 1982 1 70.868 97.224 127.846 2 69.611 100.588 133.077 3 67.650 104.001 137.223 4 64.946 103.295 140.284 1983 I 57.834 93.721 144.728 2 57.065 95.647 148.314 ______-3 54.607 96.479 152.285 ______4 54.405 98.054 155.154 1984 1 54.727 101.324 159.230 2 52.966 100.731 163.534 . 3 50.515 103.320 167.103 4 48.861 105.601 171.756 1985 1 45.699 108.343 180.241 2 46.168 106.214 186.923 3 44.211 96.659 189.460 4 45.154 93.823 191.349 1986 1 45.911 91.550 191.103 2 45.543 87.104 292.500 3 46.254 86.169 194.560 4 45.845 86.657 199.884 1987 1 46.097 84.445 203.602 2 46.029 81.606 207.039 3 44.857 82.020 210.437 4 44.079 76.810 215.609 1988 1 43.624 77.050 220.665 2 43.077 75.588 227.998 3 40.626 79.139 237.480 4 40.673 76.913 244.252 1989 i 39.323 58.422 244.305 2 36.839 76.619 259.288 3 34.991 75.419 266.589 4 34.096 72.917 275.274 1990 1 33.719 73.008 284.488 2 32.243 69.779 296.067 3 32.191 68.981 306.085 4 31.894 67.893 327.988 1991 1 29.763 68.682 343.853 ______2 26.888 64.502 340.091 3 25.871 59.181 315.052 4 26.148 66.933 381.066 1992 1 25.540 69.612 403.926 2 23.739 72.742 463.567 3 22.576 70.570 502.352 ______21.074 _4 73.488 523.371 1993 1 19.395 77.185 576.048 ______12.645 _2 55.451 655.007 ______11.364 _3 56.121 730.239

.______4 10.876 59.620 809.392 1994 1 11.093 67.851 901.064 2 - 12.647 75.956 911.714 3 13.707 Source: IMF estimates Agriculture and Economic Reform in Sub-Saharan Africa

UGANDA

Setting Like Ghana, although for different reasons, Uganda missed its opportunity for economic growth for almost a quarter of a century. During much of this time the country was immersed in civil unrest and the chaos of open warfare, which destroyed infrastructure, drove the private sector and modem business away, shut down the service sector, and raised the proportion of agriculture in national production and income as the populace retreated to subsistence farming in order to feed itself and survive as best it could. Between 1965 and 1980, Uganda's GDP grew at the very poor rate of 0.6 percent p.a.264 In the first few years of this period, agriculture's share of GDP declined, to reach about 44 percent by 1968. From then until 1977, agriculture's share rose rapidly, reaching 73 percent,265 which it held for two years before the share plummeted again to 55 percent in 1981 as the economy staged a mini-recovery. The peaks of civil conflict were in 1979-80and 1984- 86.

Following long years of civil strife and economic deterioration, the agricultural sector has grown rapidly since the mid-1980s,2 6 6 attaining a growth rate of over 4 percent p.a. between 1986 and 1993.267 This enabled the country, finaly, to regain the levels of agricultural output last attained in the late 1970s. The growth of agriculture since the advent of the current government in 1986 has been led by rapid expansion of food production for a revived domestic market, and has been based largely on area rather than yield in- creases. The value-added from export crops declined between 1986 and 1990, responding to the reduced incentives for coffee production. This began to turn around in 1991, stimulated by economic reforms includ- ing unification of market and official exchange rates, elimination of government-set processing margins for coffee, and abolition of the Coffee Marketing Board monopoly in exports.

In 1992, earnings from coffee were converted at the market exchange rate, and the remaining export tax on coffee was dropped. This boost to coffee came at an opportune time, when food production was be- ginning to slow into the range of 2-3 percent growth following its earlier levels between 6 and 8 percent p.a. The reforms in coffee have been very successful, and provide a model for how to proceed in liberalizing the other export crops, especially cotton and tea. In both sub-sectors, a substantial agenda of reforms awaits, including divestiture of parastatal marketing organizations. The agricultural strategy for the future looks to technology generation and dissemination, infrastructure to allow exploitation of under-used agricultural ar- eas (and re-establishment of the necessary peace and security in the north), availability of long-term finance from a capital market responding to reforms, and establishment of freehold tenure.

Need for Reforms By the outset of the 1980s,in Uganda, decline had reached catastrophic proportions. The GDP fell 25 percent during the Amin period (1970-1979),with forced nationalizations, and lack of imported spare parts and raw materials bringing to a halt the manufacturing sector. Following a very brief respite of economic recovery and political stability in the early 1980s,renewed civil war which lasted for three years "destroyed the re- maining physical and human capital..."268 A central element of the economic problems was an exchange rate for the domestic currency which at times was so far out of line that it gave rise to bizarre distortions. In the early 1980s,for example, when the officialexchange rate was 8 Shilings to the US Dollar, but parallel market

63 264 World Bank, Uganda: Growing Out Of Poverty, Eastern Africa Department, March 31, 1993. p. 265 World Bank, Uganda: Agricultural Sector Memorandum, Agriculture and Environment Operations Division, Eastern Africa Department, March 3,1993, p.2. 266 World Bank, Uganda: Agricultural Sector Memorandum, op. cit., 1993. 267 World Bank, African Development Indicators, Third Edition, 1995, Table 2.2. 268 Faezeh Foroutan, Trade Reform in Ten Sub-Saharan Countries: Achievements and Failures, World Bank Policy Research Department, Policy Research 4 Working Paper No. 1222 November, 1993, p. .

145 AFTES Working PaperNo. 18

rates were as high as 220 Shillings to the Dollar, certain plantation companies with access to foreign exchange at official rates found it privately profitable to purchase tea-picking machines, even though hand picking was more cost-effective from the standpoint of the economy as a whole.2 69

In June 1981 the government launched an economic recovery program. The domestic currency was devalued sharply and measures were adopted aimed at improving foreign exchange. A new Public Invest- ment Program included a plan for restructuring and divesting public enterprises. The govermnent began restructuring public expenditures, reforming taxes and tariffs, liberalizing coffee export marketing, and re- forming the civil service.27 0 These reforms were supported by two IDA credits for reconstruction (1982, 1984), and an Agricultural Rehabilitation Credit in 1983. These various programs had an impact on the economy, although their implementation was interrupted by the renewed civil strife of 1984 and 1985, and the recovery was slower than expected because of the devastation wrought by the various periods of war. Inflation, which leaped to around 112 percent p.a. between 1983 and 1985, stayed over 100 percent p.a. for five successive years, reaching 250 percent p.a. between 1985-86 and 1986-87. As a result largely of these five years, the Consumer Price Index on the base of 1980=100 topped 150,000 by mid-1992. Only Zaire experi- enced worse inflation.

EconomicReforms The first attempt at serious and sustained reform began in 1987. It got off to a slow start but momentum de- veloped and the program proceeded without interruption. The Bank provided two Economic Recovery Credits (effective November 1987 and February 1990). A realistic exchange rate was achieved, and the black market premium eliminated (down to a narrow 6-8 percent) with legalization of private foreign exchange bureaus and transition to an auction system. From 1987 to 1992, the domestic currency was devalued from 45 Shillings per US Dollar to more than 1,000 Shillings per US Dollar, and the government succeeded in re- ducing the real effective exchange rate by 67 percent over the period.Y7 Non-tariff barriers on imports were eliminated and custom duties rationalized, but effective protection remains quite dispersed, because some importers remained exempt, and some imports remained banned. All export taxes were eliminated (including those on coffee, although removing them took some time), with export procedures simplified, and a duty drawback system introduced.

The trade liberalization process has been fragile because the government had very little capacity to raise revenue (import taxes made up half of public revenue, which was a low 7 percent of GDP), and the dif- ficulty the government had in reining in public expenditures were reflected in "periodic explosions of the budget deficit".2 72 One reason for sustained implementation of trade reform in Uganda, however, was the "sociopolitical shredding" the country had experienced through its wars, that insulated the regime from do- mestic pressure groups and enhanced its autonomy and legitimacy.273

Agricultureand EconomicReform As a result of the tremendous disorder and strife in Uganda over a prolonged period of time, agriculture (especially subsistence agriculture) came to assume an order of importance in the economy substantially larger than in other countries of Sub-Saharan Africa. At the time of launching the Agricultural Sector Ad- justment Credit in 1990, agriculture accounted for more than two thirds of GDP, 80 percent of employment,

269 Peter Hopcraft, "Market Determined Exchange Rates: Experience with Foreign Currency Auctions in Uganda," Paper for the World Bank, Agriculture and Rural Development Department, 1986. 10 270 World Bank, Presidents Report for an Agricultural Sector Adjustment Credit, November, 1990, p. . 271 World Bank, Uganda: Growing Out Of Poverty, 1993, op. cit., p.47. 0 272 Foroutan, op. cit., p.2 . 2 73 7 Foroutan, op. cit., p.2 .

146 Agriculture and EconomicReform in Sub-SaharanAfrica

99 percent of export earnings, and 40 percent of government revenue, without considering its provision of 2 74 raw materials for manufacturing, and of the economic base for much of the service sector.

Thus the performance of agriculture, and especially coffee, determined the capacity of the economy to import (including any equipment, spare parts and raw materials needed to keep manufacturing running), floated the public expenditure program, affected the monetary aggregates (because the financing needed for purchasing, processing and marketing coffee and other crops was a large proportion of total demand for credit), and constrained budget cuts because of the high proportion of the budget needed to provide critical services to agriculture).2 75 In spite of its relatively rich natural resource endowments, Uganda had been un- able to move away quickly from its excessive dependence on one crop, as shown by the fact that even by 1989 coffee still accounted for over 95 percent of export eamings. The plummeting intemational prices for coffee in the 1980s, and the collapse of the International Coffee Agreement in 1989 revealed the vulnerability associated with this lack of diversification, as Uganda's export revenues fell abruptly by US$100 million compared with expectations.27 6

The reforms in agriculture which began with the Agricultural Rehabilitation Credit in 1983 were suc- cessful in physically rehabilitating export crop processing facilities (for coffee, tea, and cotton), and when the war finally ended, the Bank credit financed a large proportion of the imports of agricultural inputs over the succeeding years to its closing in 1992. It also successfully established an Interministerial Agricultural Policy Committee, with an Agricultural Secretariat in the Bank of Uganda. Among other things, this organization administered and adjusted producer prices for export crops during the second half of the 1980s, to try to maintain incentives for farmers.

Administration of producer prices to try to maintain incentives was especially hard for coffee, be- cause of the more than 72 percent decline in real terms of the international price, between 1985 and when it bottomed out in 1992.277 In Uganda, as a result of the administered price regime, the producer price bot- tomed out in 1989, down some 65 percent from its 1985 level. Thereafter the government actually increased the producer price in real terms, until in 1991 it stood some 7 percent above its level in 1987. They were able to do this by passing on more of the benefits of the devaluation to coffee producers, reducing the tax on the crop eventually to zero in 1992.

Prior to this, between 1984 and 1990, when producers had to surrender their export receipts at the official exchange rate, the implicit tax on coffee producers fluctuated between 75 and 90 percent, measured as the difference between the producer price and the export price calculated at the market exchange rate (net of marketing costs).278 An additional tax was levied in that the fixed processing and marketing margin re- flected inefficiencies of the marketing agents (cooperatives and the Coffee Marketing Board). The farmers' share of the international coffee price in 1991 and 1992 was more than double their share in the mid-1980s, and the proportion of government revenues which came from export taxes fell from 34 percent in 1986-87 to less than 2 percent in 1991-92.279In an attempt to reduce marketing margins, and raise further the incentive

274 World Bank, Agricultural Sector Adjustment Credit, 1990, op. cit., p.16.

275 World Bank, Uganda: Agricultural Sector Memorandum, op. cit., 1993, pp.9-10. 276 World Bank, Agricultural Sector Adjustment Credit, 1990, op. cit., p.16. 277 World Bank, Commodity Markets and the Developing Countries: A World Bank Quarterly, November, 1994, p.34.

278 World Bank, Agricultural Sector Adjustment Credit, 1990, op. cit., p.18. 279 World Bank, Uganda: Growing Out Of Poverty, 1993, op. cit., p.48. According to the Agricultural Sector Memorandum (Vol 11,p.10), during the inter- national coffee boom of 1985-86, coffee tax receipts were more than 60 percent of recurrent budget revenues, and according to the President's Report for the Structural Adjustment Credit, (November 1, 1991, p.3), from FY85 to FY87, coffee alone contributed an average of 53 percent of total govern- ment revenues.

147 AFTES Working PaperNo. 18

for coffee producers, from 1991-91 onwards the government abolished the export monopoly of the Coffee Marketing Board, and opened coffee marketing to competition.

Other reforms undertaken by government with an impact on agriculture included the following:

(a) allowing producers of all non-coffee exports to retain their foreign exchange earnings, or sell them through the foreign exchange bureaus at the market-determined exchange rate;

(b) eliminating the export monopoly of the Tea Authority and the Produce Marketing Board (foodcrops);

(c) shifting provision of credit for coffee purchase from the Bank of Uganda to commercial banks, in order to control credit expansion, and allow the Bank of Uganda to better monitor financial sector development;

(d) strengthening government capacity for policy formulation through technical assistance and training in the Ministries of Agriculture, Commerce, and Planning;

(e) shifting the role of the Agricultural Secretariat from administration of export prices and margins towards monitoring of prices and markets for agricultural outputs and inputs; and

(f) supporting new legislation to extend freehold tenure over land.

Results The country economic memorandum of 1993 aptly summarized the achievements of the economic reform program: "On the stabilization front, the Government has adjusted the value of the Ugandan shilling and moved to a market determined exchange rate; contained the fiscal deficit by implementing numerous reve- nue enhancing and expenditure controlling measures; and implemented measures to curb inflationary crop financing. On the structural front, the Government has liberalized the trade regime by abolishing export and import licensing; dismantled all price controls, which were few to begin with; repealed the Industrial Licens- ing Act, promulgated a new investment code, returned properties expropriated by the Amin regime and commenced privatizing public industrial enterprises; made important strides in abolishing export and distri- bution monopolies; embarked upon a major overhaul of the civil service; restructured the tax system and improved tax administration; and has made an impressive start in restructuring public expenditures towards critical economic and social services... .the outcome of the adjustment program has, on the whole, been very encouraging."2W

As a result of the economic growth realized during the adjustment period, between 1986 and 1991, rural GDP per capita increased by 14 percent in real terms, while non-agricultural GDP per capita rose by 16 percent in real terms. While domestic terms of trade rose for agricultural cash crops, they fell for food crops, and the overall domestic terms of trade for agriculture declined, although possibly not as much as appears because of a decrease in farmers' costs of production. The decline of agricultural terms of trade implies that gross domestic income increased less than gross domestic agricultural product.

Food prices fell in real terms, as the real producer prices of plantain, cassava, maize, millet and sor- ghum fell by 25 percent between 1987 and 1992. The real devaluation of the currency was complemented by market liberalization which allowed the benefits of the real devaluation to be transmitted as incentives to agricultural producers, and reduced monopoly rents of marketing boards. This passing on to producers of devaluation benefits is, in fact, one of the important lessons to be drawn from Uganda's adjustment experi-

280 World Bank, Uganda: Growing Out Of Poverty, 1993, op. czt., p.47

148 Agriculture and EconomicReform in Sub-SaharanAfrica

ence. Had it happened more quickly as the reforms proceeded, it is likely that the benefits would have been greater.

The real wages of agricultural casual labor in early 1992 were more than four times as high as in De- cember, 1984, and almost twice as high as in December 1986, indicating that the benefits of rapid growth of agriculture were spread widely in the sector. By finding new fiscal revenues (increasing government reve- nue from 4 percent to 7 percent of GDP) and restricting fiscal expenditures, the government reduced the pressure of the fiscal deficit on monetary expansion, and brought inflation down, from more than 200 percent in 1986-87 to 25 percent in 1990-91, and almost to zero in 1992-93. This reduced a significant tax on the poor. The government has also increased its expenditures on primary education and health care.

The economic reforms undertaken by the government have been successful in restoring agriculture to a sustainable growth path, in the face of formidable obstacles, not least the catastrophic drop in coffee earnings at a critical time in the adjustment of the economy. The judgment of the 1993 Country Economic Memorandum seems just, that "through macroeconomic and agricultural pricing policies, the Government has been largely successful in preventing the coffee industry from virtually collapsing which would have occurred in the absence of the structural reforms implemented.",2 8 ' Thus the way was paved, during this dif- ficult period of reforms, for coffee to benefit from the recent recovery of international prices, and play an en- larged role in the economy again, at least for a short while.

The major elements in the recovery in Uganda's economy have been bringing the conflict to an end and achieving peace and security, overcoming the foreign exchange constraint, rehabilitating infrastructure, and freeing markets, for both food and export commodities. And food has led the agricultural growth achieved in the past ten years. Growth of food production averaged 3.3 percent p.a. from 1980 to 1990, and 5.9 percent p.a. since 1986. On the demand side, the rehabilitation of infrastructure, the manufacturing and service sectors, and the public sector, resulted in rapidly rising urban incomes, which in turn have increased demand for food. On the supply side, there was a lot of slack in agriculture, and growth has been due almost entirely to expansion of cropped areas, rather than to increases in yields. With the increased demand, and the freeing of food markets, food became more attractive as a cash crop than the traditional export crops, whose profitability was taking a beating from international price declines.

Driven by agriculture, the economy as a whole grew at 2.8 percent p.a. throughout the 1980s, and 5.3 percent p.a. in the five years of sustained adjustment. This compares with Uganda's dismal performance over the long run, in which GDP grew at an average rate of 0.6 percent p.a. from 1965 to 1980. As the eco- nomic memorandum argues, there were some special factors in the recovery experienced in the adjustment period. The economy had so much slack capacity that the advent of peace and security alone were enough to trigger a burst of economic activity. But it also argues that the factors associated with the economic reform program - the provision of more foreign exchange for imports, the rehabilitation of roads, and the move to- wards a market economy - all played important roles.282 As the adjustment period continued, the initial burst of growth (7.2 percent p.a. over the first three years) slowed to a more sedate, but still satisfactory 4 percent per year.

Agriculture grew at 2.5 percent p.a. through the 1980s, more than double its performance over the long period 1965-1980. From 1986 to 1993, agriculture grew at 4.1 percent p.a. For most of this period, food production accounted for between two thirds and three quarters of agricultural output. Almost 55 percent of the food production does not enter the formal market. The slowing down of agricultural growth in 1992 and 1993, to 3 percent per year, is attributed to less good weather conditions, affecting food production in par-

8 281 ibid., p.4 . 63 282 ibid., p. .

149 AFTES Working PaperNo. 18

ticular. Livestock have also been very important in Uganda's agriculture, accounting for some 17 percent of the sector's output. And in the "food boom" of the late 1980s, dairy products and meat have featured promni- nently, driven by the higher demand for these products as incomes recover, especially in urban areas. Live- stock numbers have been recovering from their decline of around one third during the times of civil strife, as a result of disrupted disease control programs, cattle rustling and looting, and perhaps increased levels of slaughter as rural people strove to survive under difficult circumstances.

The fact that the agricultural recovery has been so strongly built upon food production has given rise to concern that domestic food markets will soon be saturated, and when they are, agricultural growth will cease, or at least slow significantly. Thus the worries are mostly on the demand side, since on the supply side the remarkable thing is that the recovery was based almost entirely on area expansion (or at least on lifting areas cropped to levels reached in former times2 33), and the levels of technology used are still rather low. In wrestling with this issue, the Agricultural Sector Memorandum remarked that "based on projected population and income increases, the domestic market is expected to increase at no more than 3 to 4 percent per year over the next decade."2m Further, much of the possibilities for import substitution (especially for dairy products, sugar, and tobacco) had already been taken up.

For the future, the report argued, agriculture would have to turn increasingly to technological change, increased production of higher valued foods (with the requisite improvements to marketing and processing), regional and international food markets, a significant expansion of cotton production (for which serious policy reforms in marketing, processing and exporting remain to be put in place), some increase in traditional exports, and an expansion wherever possible of non-traditional exports, especially horticulture, spices and other crops and livestock products (among products that have emerged in the past few years have been sesame seed, and hides and skins, as well as beans and maize, the latter becoming an important source of exports into Kenya during its recent drought). With further expansion of cropped areas and productivity improvements, agriculture is believed to be capable of growing at between 4 and 5 percent per year in the medium-term future.

Discussion Two things are striking about the agricultural recovery of the past eight years in Uganda. One is the virtual absence of technological change, and the other is the remarkable impact of roads. About the former, the ag- ricultural sector memorandum observed that "Food crop production in Uganda has always been based upon low purchased input systemts. It has never been significantly affected by research or extension.. .The use of fertilizer on food crops at present is practically nil."m On the other hand, there are large gaps between cur- rent and potential yields, as shown in the following table, taken from the country economic memorandum (p.70).

When roads were rehabilitated, food began to flow from rural areas to the capital city, and among the country's regions. But the potential of this beneficial effect only began to be explored in the course of the adjustment program. The improvements have been confined largely to links between the main food produc- ing areas and Kampala. While the paved trunk network was substantially renewed, work is still in progress on the main gravel roads, and "rural feeder roads.. .remain in a state of disrepair, with an estimated 25 per- cent impassable in the rainy season...If continued support to agricultural growth is to be provided, the next phase of infrastructure rehabilitation should pay serious attention to the rehabilitation of rural feeder roads."28 6 The strategy formulated to address this concern has estimated that a five year program for reha-

283 The area cropped is still below levels of the late 1970s. 284 World Bank, Uganda: Agricultural Sector Memorandum, op. cit., 1993, p.130. 285 ibid, pp.108109. 64 286 ibid, p .

150 Agriculture and EconomicReform in Sub-SaharanAfrica

bilitating rural roads and building up the associated institutions would cost in the vicinity of US$170 million. Another bottleneck during the adjustment phase was the shortage of vehicles, and the rundown state of transportation services. Restoring these services is largely a matter of establishing a regulatory framework conducive to private sector investment and activities, and allowing it to proceed.

Box:6 Uganda Present and Potential Crop Yields - (mt/ha)

Crop -Present Potential Coffee (Robusta)0.6- 0.8 Tea 1.4 3.0 Matoke (Banana)5.5 80-: Finger Millet 03a1.5 Maize. 1. 2.0 Sorghum 0.8 2.0 Rice 1.0 2.0 Cassava -9.0 12.0 SweetPotato 5.0 20.0: Irish Potato 8.5 20.0 Beans 0.8 1.2 Groundn-ut 0.8 2.0 Seisam-Le 0.4 0.8

Sourae Government of Uganda, National Agricultural ResearchStegy and Plan, Vol. Il, Priorties and. Programs, 1991 and staffestimates

The agricultural sector memorandum concludes that the quickest agricultural gains from structural change have been already realized in the adjustment years. What lies ahead is largely outside the traditional policy area. The most vital interventions are needed in agricultural technology and rural infrastructure. Sur- rounding these there is an acute need to provide the requisite financing for agricultural development, and the greater security of land tenure which would accompany the spread of freehold land ownership. the gov- ernment would also need to pay attention to maintaining a flexible and smoothly functioning labor market, because the fact that Uganda still has a land frontier means that some movement of labor will be needed as agricultural development proceeds.

TANZANIA

Setting By the early 1980s, Tanzania had come to be a heavily state-controlled economy, whose rigid economic sys- tem was battered by the shocks of the war with Uganda, and whose inadequate policies led to economic stagnation and a fall in per capita income lasting almost a decade. After a new government was elected in 1985, the Economic Recovery Program began in mid-1986, with reforms that at last began to work. These in- cluded: substantial currency devaluation (75 percent in real effective terms from 1987 to 1992); liberalization of imports, domestic trade, foodgrain and export marketing; reduction of the fiscal deficit; export retention schemes and legalization of foreign holding; reduction in tariff levels; liberalization of cashew marketing

151 AFTES Working PaperNo. 18

(1992); elimination of price controls on everything except sugar, petroleum, and fertilizer; phasing out petro- leum and fertilizer subsidies; a hiring freeze and retrenchment in the civil service; and a few restructuring and performance contracts in parastatals.

Under the reform program, per capita income and consumption increased each year. There has been a major turnaround in economic performance in all major sectors, with industrial growth at 5 percent p.a. during 1986-1991 (versus a 5 percent p.a. decline 1979-85), solid growth in agriculture and a marked increase in food production (especially in 1989). There have also been increased sales of traditional exports, and a five-fold rise in non-traditional agricultural exports since 1985. There is some evidence of reduced poverty, though not much progress in meeting basic needs because of a deterioration of social services.

Needfor Reform In the first six years following Independence, Tanzania, in concert with many other African countries, expe- rienced six years of good economic growth, more than 6 percent per year.3 7 The weather was good. There were no big external shocks. Market forces were allowed reasonable sway. Trade and the capital market were largely free of restrictive controls. From 1967 onwards, the government exerted comprehensive control over the economy. It nationalized the main commercial and financial businesses, placed some agricultural estates under public management, collectivized smallholder farming, and displaced private agricultural traders by giving agricultural cooperatives monopoly control over marketing.

For the first six years of this period of "government takeover", the economy did reasonably well on the surface. Real GDP grew at 5 percent p.a., the ratio of gross investment to GDP increased to more than 20 percent, and inflows of donor funds burgeoned. Under the surface, however, the productivity of public in- vestment was falling, domestic savings were eroding, the confidence of the private sector declined, and with tight controls on foreign exchange, the black market premium on foreign exchange ballooned to more than 100 percent. Contributing to the latter was a decline in the efficiency of public sector marketing of agricul- tural exports.2 m As a result of this weakening under the surface, the economy was not able to withstand the series of shocks it experienced during the 1970s - oil prices multiplied by four, drought in 1973-74, the breakup of the East Africa Community with its customs union in 1977, and a war with Uganda. The GDP began to decrease in real terms. Underlying this were declines in industrial production and agricultural ex- ports, and slow growth of agriculture.

With less funds to go around, all forms of maintenance lapsed. This hit roads and other infrastruc- ture especially hard, and they deteriorated substantially. The efficiency and productivity of public services spiraled downwards. The balance of payments fell into the red, while debt surged, along with increasing arrears on external credit. The Consumer Price Index rose by 380 percent between mid-1980 and mid-1986 (around 30 percent per year). Donors sharply reduced their assistance after 1981. There were widespread and deep shortages of goods in the country, and vigorous black markets emerged. The real effective ex- change rate increased by almost 150 percent between the beginning of 1980 and the beginning of 1986. The latter was at the heart of the distortions in the country, and although the government made some reform ef- forts in the early 1980s, they had little impact in the absence of movement on the central problem. President Nyerere stepped down towards the end of 1985, clearing the way for serious economic reforms to be under- taken, and an economic recovery program was launched in mid-1986.

287 This account draws heavily upon the following work: Darius Mans, "Tanzania: resolute action' in Ishrat Husain and Rashid Faruqee (eds) Adjustmnent in Africa: Lessons from Country Case Studies. World Bank Regional Study, 1994, pp.352-426. 288 Kathie L. Krunu, A Medium-Term Framework for Analyzing the Real Exchange Rate, with Applications to the Philippines and Tanzania, The World 2 4 Bank Economic Review, Vol.7 No.2 (May, 1993),p. M .

152 Agriculture and EconomicReform in Sub-SaharanAfrica

EconomicReforms The economic recovery program commenced in 1986 finally had donor support. It included the following main elements, some of which were implemented over an extended period:289

(a) depreciation of the official exchange rate from TShl7 per US Dollar in early 1986 to TSh 193 per Dollar in early 1990; the real effective exchange rate depreciated by around 84 percent over this period, and has been maintained at or below that level subsequently, to the present; in a second phase, begun in 1992, the govern- ment allowed foreign exchange bureaus to operate, whose volume increased substantially with the decline of the open general licensing facility (next para); foreign exchange management then moved towards a unified system, with bureaus increasingly guiding setting of the official rate, until the official and market rates were unified in 1993; the government is committed to maintaining the unification, and eventual complete market determination of the exchange rate;

(b) allocation of foreign exchange was freed up under an Open General Licensing Facility; initially most for- eign exchange for this facility was provided by the World Bank, but by 1992 the Bank's share was down to 56 percent, with bilateral donors, the government, and the African Development Bank providing, respectively, 28, 11, and 5 percent; donor funding was subsequently reduced in 1992-93 over concerns about allocation mechanisms and accountability of this facility;

(c) interest rates were raised in the public sector banking system, until they were positive in real terms, al- though the latter was not achieved until 1990; subsequently the government launched wider financial sector reforms, including interest rate liberalization, stronger banking regulations and supervision, restructuring existing banks, and allowing private banks (including international ones) to enter the market;

(d) price controls were abolished on virtually all consumer goods; and today only three sets of prices are controlled, for sugar, fertilizer, and petroleum products; along with vanishing price controls went de- regulation of wholesale trade, effectively now complete for the industrial sector, but moving much more slowly in agriculture;

(e) producer prices for export crops were raised in real terms; in the face of decline or stagnation of the in- ternational prices for the main export commodities (coffee, cotton, and tea), and in spite of the fact that pro- ducers continued to be taxed heavily through receiving only a proportion of the export realization (an aver- age of 59 percent during 1986-91), the government was able to achieve real price increases to producers as- sisted by the continuing devaluations, and by some squeezing of marketing margins; producer prices could have been even higher, however, if payments had been calculated at the market rate of exchange instead of the official rate (this was achieved from July, 1993 onwards), and there remains scope for reducing marketing margins further by market liberalization; in the case of cotton, official price guidelines overshot international realizations for a period, resulting in subsidies to production;

(f) responsible targets for the fiscal deficit; from a peak of almost 20 percent of GDP in 1979, the central gov- ernment deficit declined to less than 3 percent of GDP by 1991; the government improved revenue collection even while lowering income tax rates, reduced subsidies to parastatals, froze hiring in the civil service, re- duced deficit financing by domestic banks (and eliminated it by 1992), and improved the budget process by introducing multi-year planning; in spite of these achievements the tax base is still narrow, tax collection weak, the proportion of donor funding too high, the drain on the treasury of commercial parastatal losses continues (accumulated losses reached 8 percent of GDP in 1989), and the public investment program con- tains far too many projects, many of them seriously underfunded.

289 This, and subsequent sections, also draw upon the foUowing report: World Bank, Tanzania: Agricultural Sector Memorandum, Eastern Africa Depart- ment July 29,1994.

153 AFTES Working PaperNo. 18

(g) responsible targets for monetary expansion; although the targets set were exceeded throughout the re- form period, the government's efforts in this area were a central part of the reform effort; in 1991, the gov- ernment launched a financial sector reform program which further improved monetary management;

(h) quantitative restrictions and tariffs on imports were substantially reduced, although the process of intro- ducing these reforms was slow and reluctant; sales taxes and duties on imported goods have also been low- ered; on the export side, foreign exchange retention schemes were introduced from 1986 onwards, and the government has moved towards allowing complete retention for all non-traditional exports;

(i) in the more recent phase of the reforms, the government has begun to address restructuring and divesti- ture of parastatals, restructuring of the banking system, and the more effective provision of public services.

Agricultureand EconomicReform The initial economic reform program set the stage for reforms specific to agriculture, which were undertaken from 1990 onwards, supported by a substantial credit from the World Bank.290"The objectives of the agricul- ture adjustment program...were to liberalize the marketing and pricing of foodgrains; to initiate liberalization of the marketing and pricing structures of the major export crops; to remove the monopoly export powers of crop marketing boards; to restructure several agricultural sector parastatals; to improve the efficiency of the cotton tenders, the coffee auctions, the cotton ginneries and the cashew nut plants; and to close down or re- structure non-viable projects in the agricultural public investment program.",2 91

The following steps have been taken in liberalizing marketing offood crcps, which until the early 1980s had been, along with processing, transportation, distribution and storage, under the monopoly of the Na- tional Milling Corporation:

(a) cooperatives and private traders were allowed to sell foodgrains, and were no longer restricted in their transportation of foodgrains;

(b) in 1987, cooperatives (both unions and primary societies) were allowed to sell foodgrains to traders, though farmers still had to sell to primary societies;

(c) in 1988, the grain trade was fully liberalized;

(d) the National Milling Corporation began selling maize on a commercial basis in June, 1988, and this was extended to all crops in June, 1989; in early 1989, the government separated out the Strategic Grain Reserve, and retained the NMC to manage it; in price setting, initially the NMC was restricted to announcing a gov- ernment -set into-store price to replenish the Strategic Grain Reserve, and the purchase and selling decisions for the SGR were relegated to the Board of Trustees; then maize consumer prices were decontrolled, and the NMC was permitted to set its own maize selling prices;

(e) during the 1987-89 period, government intervention in maize pricing was reduced to supporting pro- ducer prices in remote areas where private traders did not operate efficiently; this was regarded as a tempo- rary measure to be undertaken only until satisfactory private sector activities developed.

Progress was slower in liberalizing marketing of export crops. Except for some minor export crops, whose marketing was freed up in 1987, the single channel monopoly (farmers selling to cooperatives, with

290 World Bank, President's Report for an Agricultural Adjustment Program, March 5,1990. 291 World Bank, Agricultural Sector Memorandum, 1994, op. ciL,Vol 11,p. 166.

154 Agriculture and Economic Reform in Sub-Saharan Africa

exporting handled by parastatal marketing boards) was retained for coffee, cotton, tea, cashew nuts, tobacco, and pyrethrum until mid-1990. At that stage the role of the boards was changed to that of agents performing certain roles (running auctions, administering tenders, controlling quality, handling and forwarding) on be- half of the cooperatives on a fee basis.

Cashew mrarketing was fully liberalized in 1992, and cotton ginning was more recently (the 1992-93 season) opened to the private sector, including international companies. All coffee came to be sold at inter- national auction by the marketing board. In 1991 the government abandoned its fixing of producer prices for export crops, and instead announced indicative prices to guide the private sector. These were set initially without close reference to intemational prices, and were set too high, causing losses for cotton and coffee unions. The remaining agenda in export crop marketing is to withdraw completely the monopsony position of the cooperative unions and marketing boards, and allow producer prices to be set completely by the mar- ket.

For fertilizer, a key "modem" input into agriculture, the thrust of the reforms has been to remove the subsidy on its price to farmers, which peaked at 80 percent in 1988-89, as continuing devaluations of the do- mestic currency raised the import price substantially above the fixed price at which the parastatal Tanzania Fertilizer Corporation was permitted to sell to farmers. The Agricultural Sector Memorandum argued strongly29 2 that the consumption of fertilizers in Tanzania was constrained by available supplies, not by price, and that early evidence from the 1991-92 and 1992-93 seasons supported this, since the substantial price increases of those two years (arising from a combination of subsidy phase-out and continuing depre- ciation of the currency) had not halted the upward movement in consumption.

Furthermore, the report argued that a dynamic analysis, in which adjustments in both maize and fertilizer markets were accounted for fully, with the respective output and input price movements resulting from these adjustments, and allowing for private sector response triggered by government withdrawal from the market, showed that fertilizer consumption was likely to go on increasing even as the subsidy was re- moved fully.2 93 This analysis was based largely on maize production in the Southern Highlands, which ac- counts for as much as 70 percent of fertilizer consumption in Tanzania, and about which observers had had the most concerns when debating the impact of subsidy reduction.

Other aims of the reform program for fertilizer were government withdrawal from market activities, raising the nutrient content of fertilizers brought into the country, and re-examining the worth of keeping in production the country's sole fertilizer manufacturing plant at Tanga, which had until 1981 accounted for around half of Tanzania's total fertilizer supplies (the plant produced mainly Sulphate of Ammonia, Triple Superphosphate, and some compound fertilizers). Up to 1992, the parastatal Tanzania Fertilizer Corporation (TFC) was the sole importer, producer and distributor of fertilizer. The monopoly was first breached in 1992, by the import of fertilizer by the Tanzania Farmers' Association and one private supplier. Although compe- tition remains limited at the wholesale level, it has become quite intense at the retail level since 1988-89 when the TFC began contracting with private stockists for retail sales. Within three years, in spite of markups still fixed by government, private control of the retail system in one region had reached 95 percent, with more than 90 stockists involved.29 4

Attempts to raise the nutrient content of fertilizers were initially made by negotiations with donors, who had been supplying the bulk of the country's fertilizers from 1982 to 1990. The program has been suc- cessful in increasing slowly the use of high analysis fertilizers, so raising the average rate of increase in con-

292 World Bank, 1994, op. cit., Vol. II, pp.74-83.

293 World Bank, 1994, op. cit., Vol. II, p.82. 294 World Bank, 1994, op. cit., Vol. 11,p.83.

155 AFTES Working Paper No. 18

sumption of fertilizer nutrients to 3.8 percent p.a. (1974-1991) over the 3.4 percent p.a. rate suggested by the data for whole fertilizers, uncorrected for nutrient content The issue of what to do with the Tanga manufac- turing plant was resolved by its stopping production indefinitely in 1991 when a component was badly dam- aged. Feasibility studies undertaken since then to examine the possibilities for investing in its rehabilitation have so far proved unpersuasive.

Results In the wider economy, the economic reforms resulted in an increase in real GDP growth to 4 percent p.a. (higher than population growth), increased per capita consumption, and a recovery in investment levels. Macroeconomic stability remained elusive in the face of excessive growth of the money supply, continued inflation at unacceptably high levels, a low savings rate and low investment efficiency, and a widened cur- rent account deficit sustained by high levels of foreign assistance.

There was substantial turnaround in economic performance in all major sectors, with industrial growth reaching 5 percent p.a. in the 1986-91 period (compared with a 5 percent p.a. declne during 1979- 1985). Agricultural growth was rapid, and there was a dramatic increase in food production, an increase in sales of traditional exports to reach levels left behind before the crisis, and a five-fold increase in non- traditional agricultural exports since 1985. There is some evidence of reduced poverty, although not much progress in meeting basic needs because of the tremendous deterioration of social services previously experi- enced which has had to be rectified.

Agricultural Results Agricultural GDP grew at 4.9 percent p.a. in the period 1986 to 1991, compared with only 2 percent p.a. from 1978 to 1985. Most striking of all, food production doubled between 1983 (when marketing reforms began) and 1988. Maize marketing costs were reduced, and real food prices fell, benefiting all consumers; by 1990 food imports had been brought virtually to zero, down from their peak of more than 400,000 tons in 1985. Sales of traditional exports increased by 68 percent between 1985 and 1991, with cotton sales beating past records by around 50 percent, and the other traditional exports (coffee, tea, tobacco, and cashews) returning to pre-crisis levels. Between 1985 and 1991, the value of non-traditional exports29 5 registered a fivefold in- crease, spurred by the devaluations, and the freedom producers had to retain up to 50 percent of foreign ex- change and do their export marketing through private channels. These freedoms contrasted sharply with those denied to producers of traditional exports.

Discussion The initial focus of the reforms on foreign exchange and the exchange rate helped the economy to get moving again quickly, showing that private markets could work and facilitating a shift of reform focus towards more systemic causes of macro instability, especially micro reforms in the financial sector, agricultural marketing, parastatals, reform of central and local governments. All of these proceeded much more slowly, demanding more of government capacity, and meeting more entrenched resistance. The pace of these reforms was lim- ited by former biases against the private sector, limited managerial and technical capacity of government, the need to build consensus, and a legal system which was both inadequate and even inimical to the spirit of lib- eralization (existing laws had to be repealed before reform could proceed).

In the view of one observer, "greater attention should have been given earlier [in the reform pro- gram] to strengthening the private sector, particularly indigenous entrepreneurship, including allowing en- try to all areas of economic activity, improving access to credit, lowering real interest rates and inflation, streamlining the investment approval process, and improving the transparency of tax assessments and col-

295 In 1990, traditional exports comprised pulses and starches (45% by value), cereals (18%), sugar products (18%),oilseeds and oil (9%), cocoa beans (7%), spices (2%), and minor percentages of fruit and vegetables and other products, export value totatling almost US$42 rnillion. See World Bank, 1994, 7 op. cit., Vol. 11,p.14 .

156 Agriculture and Economic Reform in Sub-Saharan Africa

lections."2 96 In this view the macro reforms were limited in impact by the fact that the necessary micro- economic foundations were not in place Reform of parastatals and inefficient agricultural marketing institu- tions and systems, with deregulation of the economy to facilitate private sector entry and expansion with orderly exit of nonviable firms, all would have improved macroeconomic stability and helped generate the higher growth needed to alleviate poverty.

In agriculture, the producers of traditional export crops were still taxed until very recently, through the continuing overvaluation of the currency represented by the official exchange rate. In addition to remov- ing this implicit tax there remain gains to be had from increasing the competitiveness of marketing arrange- ments and allowing farmers to realize more of the return from international prices. Further gains would be possible from reform of the cooperatives, which began only recently under revised legislation. Liberalization of the trade in agricultural inputs, especially fertilizer, is far from complete.

An important lesson regarding the agricultural supply response, especiallyforfood, was the role played by increasing the flow of consumer goods into rural areas, giving farmers an incentive to generate more cash, which in former times had been lacking becauseof the extreme dearth of opportunitiesfor spending cash in the rural areaseven if it were generated.

With the improvements already wrought on the policy front, the very poor roads, and inadequate railway system have emerged as major constraints to providing further marketing opportunities to agricul- ture. And at a critical time for agricultural expansion, one of the shortcomings of the reform period was the inadequate levels of government funding for agricultural research and extension. For the latter, recurrent expenditures fell by almost 30 percent in real terms between 1986 and 1992, reducing seriously the capacity of extension workers to perform effectively.

Tanzania has enormous agricultural potential still to be realized, with reserves of potentially culti- vable land not yet developed equal to those in Cameroon. Agriculture still accounts for a much larger share of the economy than it does in many countries of Sub-Saharan Africa, employing 84 percent of the working population and producing more than 60 percent of both GDP and merchandise exports. The reforms so far have demonstrated the capacity for agricultural growth, and the possibilities for supply response from smallholders. Although a substantial agenda of reforms still remains to be implemented, the possibilities for Tanzania's meeting and exceeding the target agricultural growth rate of 4 percent p.a. are promising, pro- vided the reforms are deepened, investments increased in rural infrastructure, and successful new technolo- gies developed by a reinvigorated agricultural research system.

SENEGAL

Reforms Although a brief summary fails to do justice to the details of adjustment in Senegal, the bottom line is that it didn't work, largely because of the straitjacket of the CFA Franc Zone within which the country remained, along with many others, and the constraints this placed on the adjustment process.

The need for adjustment arose after Senegal's slow economic growth over 20 years (2.1 percent p.a. 1960-1980), left its economy vulnerable to the terms of trade and drought shocks of the latter part of the 1970s. The country had through this period followed policies of nationalization and industrial production for import substitution. When the shocks hit, the fiscal deficit reached 12.5 percent of GDP, the current ac- count deficit more than 25 percent of GDP, inflation over 12 percent p.a., and total debt more than two thirds of GDP.

296 World Bank, Adjustment in Africa: Lessons from Country Case Studies, op. cit., p.413.

157 AFTES Working PaperNo. 18

Adjustment was supported by four Structural Adjustment Operations (3/81-6/83, 2/86-6/87, 5/87- 2/90, and 2/90-1/92), a Financial Sector Adjustment Operation (12/89-2/92), and a Trade Sector Adjustment Operation (2/92-1/96). In all, the World Bank provided total financing of US$349 million for these six op- erations.

Senegal adjusted by deflationary monetary and fiscal policies (demand management), second best trade policies (high tariffs and export subsidies), liberalizing markets and prices, reducing the size of the public sector, and encouraging the private sector.297 As time went on an essentially "internal" adjustment policy proved harder and harder to implement, and led towards competitiveness only in the last phases of the adjustment program rather than up front as would have been possible with a devaluation. The real ef- fective exchange rate appreciated by 34 percent from 1985 to 1987, and then settled at a level roughly 20 per- cent above that of 1985 right through to 1991.

As the French Franc appreciated against the US Dollar and the Naira (Nigeria), Senegal faced a similar problem to that experienced by Cameroon: its exports, which competed with those of Nigeria and Ghana, lost competitiveness in the international market. This happened just as Senegal was trying to in- crease industrial competitiveness through a more liberal trade policy, during the period 1986-1991. The other main plank of the competitiveness strategy - labor market policy - was also inadequate. The labor market was partly freed from pervasive government regulation (on the hiring side), and a new labor code was prepared, but never enacted into law. As a consequence, labor remuneration remained inflexible, and out of line with productivity, sapping competitiveness.

The government simplified taxes, and raised more revenue by widening the value-added tax, but it did not strengthen tax administration, decrease reliance on petroleum revenues, reduce the public sector wage bill, control transfers to public enterprises, or increase allocations to investment and to non-wage recur- rent expenditures, which remain the most important structural changes needed.

Reform in the industrial sector was also partial, confined largely to price and trade liberalization. And some aspects of the trade policy reforms were reversed in the latter part of the reform period, to com- pensate industry for real exchange rate appreciation.

Such divestiture of public enterprises as was carried out was slow to be implemented, while the re- structuring of other enterprises not divested has been limited, and has not improved performance, because the government was unwilling to meet financial commitments it entered into under performance contracts with the enterprises.

The most successful part of Senegal's reform program was in the financial sector, where it proceeded further than many other countries, closing seven of the country's fifteen banks, restructuring and re- capitalizing others that were in financial distress, reducing government ownership to less than 25 percent, moving to market interest rates and widening banking margins, abolishing mandatory targeting to sectors, and raising credit authorization ceilings. Efforts to recover bad debt remained a weak part of an otherwise successful program. Inflation was kept low by tight monetary and credit policy.

In agriculture, domestic trade was liberalized, prices were decontrolled, and input subsidies were eliminated, but rice imports remained under governunent control, and producer prices for groundnuts and cotton continue to have no direct relationship with world prices. Agricultural reforms which were imple-

29 7 Mustapha Rouis, 'Senegal: Stabilization, Partial Adjustment, and Stagnation", in Ishrat Husain and Rashid Faruqee, Adjustrnent in Africa: Lessons from Country Case Studies, World Bank Regional Study, 1994, pp.286-351.

158 Agriculture and EconomicReform in Sub-SaharanAfrica

mented included decontrol of meat marketing (1987), liquidation of SONAR (agricultural inputs)(1986), and SERAS (hides and skins)(1987), and elimination of input subsidies (1986-89). Agricultural reforms which were not implemented included decontrol of rice marketing, linking cotton and groundnut prices to levels in the world market, privatization of SONACOS (groundnut processing), elimination of the monopoly agree- ment for sugar, and the import monopoly on rice and sugar, reforms in the rice, cotton and groundnut sec- tors, and establishment of a land tenure system.

Results The reform program succeeded in reducing substantially the macroeconomic imbalances (the budget deficit from 8.8 percent of GDP in 1983 to virtually zero in 1991, the current account deficit from over 18 percent to less than 8 percent of GDP over the same period). But agricultural growth was slow (1.3 percent p.a. 1986- 1992), and real growth of GDP only 2.4 percent p.a. 1986-1992. More importantly, there was no improvement in the competitiveness of the economy, and the investment rate was not raised, even to the level needed to keep the capital stock from deteriorating.

At the beginning of 1994 the CFA Franc devaluation gave Senegal the opportunity to begin restruc- turing in ways which would increase competitiveness in the economy. Two years previously, a group of re- searchers had analyzed the likely impact on agriculture of a devaluation of similar magnitude to that which has actually taken place in 1994.298Their most important conclusion was that the supply response of general agriculture, peanuts and rice, to price increases resulting from devaluation would all be likely to be low without improvements in infrastructure, and input use. Transport costs were very high, and the authors saw the need to invest in infrastructure and transport in order to prevent devaluation and public expenditure cuts from increasing price instability and transactions costs, thus choking off the supply response.

Their estimates of the likely effects of devaluation ranged from a 17 percent decrease in net house- hold income (in the northem low production and high rice consuming zone) to an 18 percent increase (in the southern high peanut producing and low rice consuming zone). The two relatively high potential zones would be virtually unaffected. Urban areas might expect a drop in real income. Rural households with ac- cess to credit and able to afford peanut seed would benefit, while the poorest rural households who were net purchasers of cereals might suffer unless they were able to increase coarse grain production or purchase coarse grains at pre-devaluation prices. Women farmers who generally produced peanuts and cowpeas might gain more than men who produced cereals and were responsible for purchasing family cereal supplies out of their own income.

The impact of the devaluation on Senegal's agriculture, and general economy, thus remain to be seen. But it will be important that a new reform program take into account the complementary investments needed to gain the most from the new opportunity, and that careful attention be paid to the relative impact of the devaluation on various types of producers in various different locations, and with differing access to resources.

NIGER

Niger appears to defy gravity. Its GNP per capita fell at an average rate of 4.3 percent per year from 1980 to 1992,299the second worst shrinkage among low income countries. And the levels of under-nutrition are ap- palling. But in spite of limited resources, the pressures on them, and (at least in the medium term) diminish-

29 8 Thomas Reardon, Valerie Kelly, Bocar Diagana, and Amadou Abdoulaye Fall, Potential Welfare Impacts of Trade Regime Changes on Households in Senegal: Focus on Devaluation, paper presented at the Semmnaron Regional Integration of Agricultural Markets in West Africa: Issues for the Sahe- lian Countries and their Trading Partners, Saly Portudal, Senegal, Dec. 4-7,1992, Co-Sponsored by IFPRI and ISRA.

299 World Bank, World Development Report, 1994, Table 1, p.162

159 AFTES Working PaperNo. 18

ing rainfall, from 1980 to 1992 the population increased by 55 percent (from 5.3 to 8.2 million), and added three years to its average life expectancy (from 43 to 46 years at birth).

Part of the explanation for these apparent contradictions is that between 1984 and 1991, in real terms, falling uranium export earnings may have accounted for around one third of the fall in GNP per capita.300 Assuming the uranium receipts did not benefit the bulk of the population, their average incomes would not have fallen by as much during the period as suggested by the overall GNP per capita. Niger relied on ura- nium to provide an average of about 82 percent of its merchandise export earnings from 1982 to 1991 (in 1987 as much as 91 percent). The value of uranium exports declined from a peak of CFAF100 billion in 1984 to a trough of CFAF64 billion in 1990,301a fall of 36 percent in current terms. In the process, uranium's share in the GNP fell from almost 20 percent in 1984 to between 10 and 11 percent in 1991. And uranium export earnings per capita almost halved, from CFAF16,200 in 1984 to CFAF8,300 in 1991, all in current terms. In real terms the decline was closer to 65 percent

A second part of the explanation for the apparent contradictions may lie in the country's close and critical relationship with Nigeria, its huge and hegemonic neighbor to the south. In some important respects, the population of Niger, concentrated in the south, is an extension of that of Nigeria. In some respects, it may even be misleading to discuss economic management and economic reforms in Niger, because there has been so little room for independent maneuver, as local reforms were swamped by larger changes taking place in Nigeria, including the depreciation of the Naira.. And little is known about the web of economic transactions which occur across the border. A better understanding of these might even reverse the statistics of falling income, which are difficult to reconcile with other observations. For example, some fertilizer and fuel, heavily subsidized in Nigeria, probably find their way across the border to Niger, but at what prices is uncertain. Certainly there are substantial flows of food, and probably of labor. It seems likely that what happens across the border has a profound impact on food security, export opportunities, the cost of agricul- tural inputs, remittances and other financial flows, and credit availability.

The government has made efforts to reform an agricultural marketing system in which it formerly interfered heavily. In policy, there has been a movement from heavy state involvement in input and output pricing and marketing, imports and exports, cooperatives and rural financial institutions, to full liberaliza- tion of these for rnost agricultural products (except rice). Parastatal marketing agencies were abolished or restructured, but traders were still effectively kept out of export markets by costly licensing requirements.

Liberalization of cereal markets included elimination of pan-territorial pricing, setting paddy and cotton prices according to border prices, abolishing compulsory domestic purchase of rice (importers had to buy 20 percent of their rice from domestic producers until 1991) and introducing a protective tariff on im- ported rice, gradually dismantling the Office des Produits Vivriers du Niger (OPVN) which was the cereal marketing agency, and the Societe Nationale de Commercialisation de l'Arachide (SONARA) which mar- keted groundnuts. When the CFA Franc was devalued in January, 1994, the 30 percent tax on imported rice was removed, on grounds that the competitiveness of local rice had improved, and as a protective measure against inflation.30 2

Liberalization of markets reduced marketing costs, and made some of Niger's exports more cost competitive. This applied especially to cowpeas and onions, whose exports to neighboring countries in-

30 Estimates using GNP per capita figures from successive World Development Reports, exchange rates of CFAF437 per U.S. Dollar in 1984, CFAF259 per U.S. Dollar in 1991, and a Manufactures Unit Value Index (1990=100)of 68 in 1984 and 102 in 1991. 301 World Bank, Niger Agricultural Growth Strategy Study, Technical Paper No. 1. 'Agricultural Performance, Supply Response, Incentive Framework, and Comparative Advantage and Export Competitiveness, Sahel Department, June 1994, Annex 5.

302 World Bank, Niger: Agricultural Growth Strategy Study, TechunicalPaper No. 1, op. cit.

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creased with liberalization. Simplifying the export licensing system contributed to this as well as removing restrictions on domestic marketing. Exports were still held back by limited access of traders to credit to fi- nance crop purchases, and limited access of farmers to credit to finance crop inputs, as well as by overvalua- tion of the CFA Franc; the fact that the latter has now been redressed should boost exports further.

Unlike onions and cowpeas, cotton and groundnut exports did not respond much to the agricultural policy reforms. In the case of cotton, producers did not receive a very high proportion of the foreign ex- change value of their output. A semi-private firm (Societe Cotonniere du Niger, SCN) created in 1989 to promote production and exports was not able to secure enough cottonseed locally to run its ginneries at full capacity, and had to purchase cottonseed from Benin to reduce its unit costs of processing. Some producers were reported to be selling their output across the border to Nigeria for higher prices. In the case of both cotton and groundnut, it is probable that there was little in the way of improved technologies to be used by producers. Certainly the use of fertilizer in Niger is extremely low (0.3 kg/ha nutrients in 1991 compared with an average of 9 kg/ha for Sub-Saharan Africa and 48 kg/ha in Kenya), and declined in the second half of the 1980s.

An index of agricultural production fell by 5.8 percent per year in the 1980-1985 period, and recov- ered to show growth of 6.4 percent p.a. from 1986 to 1992.3° Since rainfed cereals dominates agriculture in Niger, the performance of the sector varies tremendously with rainfall. If exceptional years are left out, rain- fed cereal production (millet, sorghum, maize and fonio) fluctuated between 1.2 and 1.5 million tons per year in the 1980s, with no trend either up or down.304 Production of cowpeas, mainly for export, fluctuated be- tween 200,000 and 300,000 tons, but reached a record 512,000 tons in 1992, a good rainfall year. Groundnut production has declined until Niger (once an exporter) no longer produces enough to supply its domestic vegetable oil industry. Production of roots and tubers has declined somewhat, but output of rice under irri- gation steadily increased from around 24,000 tons paddy in 1979-80 to over 70,000 tons in the early 1990s. Almost uniquely in the Sahel, almost all the rice in Niger is produced under double cropping conditions.

There has been a marked secular trend downwards in rainfall in Niger. Data from main weather stations show that on average, rainfall in the 1968-1987 period was more than 30 percent lower than during the 1948-1967 period twenty years earlier.3 0 5 Most increases in agricultural production have resulted from increases in areas cultivated, to some extent as a result of areas formerly subject to Onchocerciasisbeing freed of the disease, allowing a restoration of habitation. Between 1984 and 1991 the cultivated area increased by 64 percent from 5.8 million to 9.5 million hectares. In spite of the harsh conditions, there is scope for further growth of agriculture, and growth of exports, especially to neighboring countries. Niger's landlocked status necessitates an emphasis on making transportation as efficient and low cost as possible. Niger has made good progress on economic reforms affecting agriculture, and with removal of the most important constraint, the overvalued currency, should be able to realize benefits from the policy reforms in the medium term, if attention is paid to improving rural finance, to improving technologies, and to further irrigation develop- ment (20 percent of the potentially irrigable area is under irrigation).

GUINEA

Between Independence in 1956 and the end of the First Republic in 1984, there is a consensus in Guinea that much of the country's agricultural potential remained unrealized, as a result of state monopolies on market- ing and external trade, rigid restrictions on imports, state support of inefficient collective farms, low pro-

303 World Bank, African Development Indicators, Third Edition, December 1994, Table 8-2, p.237. 304 World Bank, Niger: Food Security Strategy, Sahel Department, June 29, 1994, p.5. 305 ibid., p.9.

161 AFTES Working PaperNo. 18

ducer prices, and many barriers to private trade.306 In part as a result of the rigid public sector controls on agriculture and its resultant slow growth, the sector's contribution to GDP fell from about 57 percent in 1965 to 30 percent in 1989.0 7 The country could withstand the very low contribution of agriculture to its export earnings (3 percent of total value in 1987) because of its rich endowment of bauxite (about one fourth of the world's reserves), diamonds, gold, and iron ore. Guinea is judged to have had the most potential for rapid economic growth among all the former colonies of France in West Africa.308

By 1984, the country's economic system needed to be changed comprehensively. Guinea was suffer- ing from a highly overvalued currency, increasing inflation, a very large public sector work force,339sub- stantial budget and external deficits, and expanding external debt (62 percent of GDP in 1985). When the Second Republic was declared in 1984, the new government launched a comprehensive reform program. Among other things this included a fifteen-fold devaluation of the currency in 1986 (followed by measures to float the Guinean Franc through foreign currency auctions), liberalization of trade, tariff reforms involving standardization and reduction of rates, removal of price controls and liberalization of internal marketing, privatization of productive sectors, restructuring of public enterprises, and better management of public ex- penditures.

The results have been encouraging but not spectacular economic growth (from 1986-1992, 3 percent p.a. for agriculture, and 3.7 percent p.a. for the whole economy). With support from two Structural Adjust- ment Credits from the World Bank (effective May, 1986, and March, 1989), the government succeeded in re- moving the most important price distortions, reducing the size of the civil service, deleting uneconomic proj- ects from the public investment program, divesting 86 public enterprises, reducing the public enterprise work force by half and its share in the GDP from 38 percent in 1985 to 20 percent in 1990, achieving positive real interest rates, issuing new commercial legislation and beginning work on judicial reform to suit a market economy. But financial discipline was not well maintained, inflation was not brought down as much as de- sired, and domestic and external deficits remained too high. Further reduction of the public enterprise is still needed, because it is still large enough to be an obstacle to private sector market development.

Starting in 1987, the government conducted a number of national symposia to dissect the problems facing agriculture, and to prepare a strategy for reducing the importance of the mining sector in Guinea by intensifying agriculture and increasing its production and trade. The outcome of these deliberations was a major policy document, the Lettre de Politique de Developpement Agricole (LPDA), which was published in 1991. The strategy outlined in the LPDA emphasized high potential crops and areas, and focused especially on rice (to try to achieve food security in the short run) and coffee and horticultural crops to revive growth in traditional exports.

The LPDA appears to have been only fitfully implemented so far, and there has been criticism of some of its provisions. For example, in its emphasis on food security it has embraced measures incompatible with the thrust of the economic reform program to date, measures which generate distortions, with their sub- sequent loss of economic efficiency, costs of compliance, rent-seeking, and lack of development of the do- mestic private sector in trade. In particular, food security concerns have been approached as a trade protec- tion question, rather than as a production efficiency question, using a variable levy, adjusted every six months, to insulate local producers (e.g. of rice) from imports, proceeds of the levy to be used to improve domestic production. In early 1993, potato and onion imports were banned between February and Septem-

306 Bechir Rassas, Agricultural Policies in Guinea, Second Draft Report, World Bank, May, 1994, p.3. 307 World Bank, Republic of Guinea, Agricultural Sector Review, Occidental and Central Africa Departxent, June 30,1992, p.2. 308 id.,.

3 The public enterprise sector, which dominated Guinea's economy, was made up of more than 200 public enterprises, which accounted for 75 percent of modern sector employment. 92 percent of domestic credit, and 38 percent of GDP.

162 Agriculture and EconomicReform in Sub-SaharanAfrica

ber each year. And recommendations made at the beginning of November 1993 include: an interministerial Food Security Council to implement a food security program; raising the tariff to 30 percent; a food security surtax of 8 percent on all imported food commodities competing with local production, especially rice, on- ions, potatoes, and edible oil; a Food Security Promotion Fund to finance food security activities; and a Food Import Coordination Committee to monitor import flows and recommend any necessary measures to pre- vent market failure.

Although price elasticities of demand and time series data on consumption of rice by different in- come groups is lacking, there is evidence that rice import liberalization has strengthened food security in the capital city. The importance of rice is indicated by the fact that per capita expenditure on rice is 10 percent of average household expenditure, 20 percent of food expenditure, and 40 percent of total caloric intake. A high proportion of farmers in Guinea are net rice purchasers, selling at harvest time and buying back during the soudure or lean season.

High transport costs and low market integration already cause segmentation in the rice market, and provide some protection for local rice. Other factors in this segmentation include one of the least efficient transport systems in Sub-Saharan Africa, "rudimentary on-farm technology", low use of modem inputs, and high costs of processing. Costs of transport from Boke 200 km to the capital Conakry are three times the costs of transport from Bangkok (Thailand) to Conakry!310

There is a need to build policy analysis capacity, since an early try in a Bank - supported First Agri- cultural Services Project (1986-92) achieved no significant institution building, no studies, and no input by the Bureau for Strategy and Development into sector strategizing. The BSD was replaced by the Bureau de Coordination de la Politique Agricole (BCPA) in February 1993, and a USAID-financed Economic Policy Support Project begun in the last quarter of 1993 may help to build it up. There is also a need for better agri- cultural statistics. A 1988-89 agricultural census by the Statistical Directorate of the Ministry of Plan, and the Systeme Permanent des Statistiques Agricoles (SPSA) were launched in 1989, financed by FAO, the World Bank, UNDP and the European Development Fund. Originally planned to work through the BSD, it actually reports directly to MARA's Secretary-General, because of weak BSD management capacity, to develop which considerable work is still needed.

Although there is a strong sub-sector consisting of private plantations and estates, Guinea's agricul- ture is largely made up of smallholders engaged in shifting cultivation (slash and bum agriculture), with a bush fallow period which is diminishing as a result of population pressure on the land. The transition to set- tled agriculture needs to be the focus of policy, technology, and infrastructure efforts, both from a production point of view and to reverse soil degradation resulting from too short a fallow, and population pressures on marginal areas. The tremendous needs in the areas of roads and transport have prompted the Bank to sup- port five projects in this sector in the last decade, including a National Rural Infrastructure Project in 1989. Future directions in agriculture center on completing development of an economic climate conducive to competitive private sector trading, further reduction of public enterprises, and a heavy emphasis on building up responsive and productive agricultural research and extension services.

MADAGASCAR

With a population of over 13 million, Madagascar has very substantial agricultural potential as yet unreal- ized. In spite of this potential, its per capita income has declined 40 percent in last 20 years, with modest growth 1960-70, stagnation 1972-82, growth under adjustment programs from the mid-1980s on, and a

310 Jehan Arulpragasam and David Sahn, Econoniic Reform in Guinea: Adjusting for the Past, Cornell Food and Nutrition Program, Washington, D.C. October, 1991)

163 AFTES Working PaperNo. 18

downturn in 1991-92 with major political turmoil and strikes.311 Agricultural growth was 0.6 percent p.a. from 1970 to 1980, and -0.1 percent p.a. from 1980 to 1983, with stagnating and even negative growth in rice production. Rice imports jumped from 20,000 metric tons in 1970 to 350,000 metric tons in 1982.

During the socialist period, from 1972 on, public control of agricultural marketing, finance and ex- ports was established, and agriculture was heavily taxed, by means of explicit taxes, stabilization funds, and appreciation of the real exchange rate (especially from 1978 to 1983, when the real effective exchange rate appreciated by almost 40 percent). During the period 1975-1983, farmers received on average only 40 per- cent of the coffee receipts implied by external realizations, 25 percent for vanilla, and 25 percent for cloves. At the same time there were large subsidies to urban rice consumers through keeping rice prices below im- port parity. Supported in part by the heavy taxation of agriculture, there was also large investment in indus- trialization. And during the 1970s and early 1980s, there was a marked increase in centralization of govern- ment. Price and trade policies were designed to get cheap raw materials for domestic agro-processors and to give them privileged access to a protected domestic market, while financial policies in support of inefficient public sector enterprises limited availability of credit to the rural sector.

The reforms of 1984-1990, (supported by the World Bank through industrial and trade policy credits in 1985 and 1987, an agricultural sector adjustment credit in 1986, and a public sector adjustment credit in 1988), included devaluation (by 55 percent in June 1987), price and trade liberalization, and tax reforms. Re- forms affecting agriculture were introduced only gradually, so that the policy climate was not really condu- cive for private sector development until 1988, and forward movement was cut off by political disturbances in 1990. The Open General License System of foreign exchange allocation was closed in October 1991, and a 30 percent import surcharge imposed in January, 1992, resulting in collapse of the external trade liberaliza- tion process.

For non-traditional exports trade was liberalized and export taxes were eliminated the earliest, dur- ing 1985-1988. For traditional exports, coffee and cloves, these measures were not introduced until 1988-1992 (export taxes were eliminated in 1992). The rice trade liberalization was implemented in 1986, and oilseeds in 1988. The government disengaged from the distribution of fertilizer and other agricultural inputs, but still allocates donor fertilizers to established operators at prices below import parity. Commodities still con- trolled directly by state and public monopolies are vanilla, cotton, sugar, tobacco, and wheat.

Domestic prices were decontrolled in 1988, when public sector restructuring and expenditure re- views were introduced, as well as reductions in tariffs. The government could not control budget deficits, however, and printed too much money (some in support of non-performing loans to public agricultural firms). The government also managed foreign exchange inflexibly, and the real effective exchange rate ap- preciated about 8 percent between mid-1989 and mid-1990. In mid-1991, political turmoil increased eco- nomic slippage, leading to suspension of the Open General License allocation of foreign exchange in October, 1991, and rationing of foreign exchange.

The reforms, though incomplete and partly reversed, had an impact. Fisheries and non-traditional exports, which were the earliest liberalized, grew rapidly - industrial shrimp by 43 percent from 1980 to 1989, and small-scale fishing achieving a fivefold increase (8,500 mt to 52,000 mt), Non-traditional export crops (beans, butter beans, cane sugar, cashews, cotton fiber, live cattle, hides and skins, maize, gherkins, and li- chis) increased by 20 percent per year in real value terms from 1986 to 1991. Non-rice agriculture in the cen- tral highlands (potatoes, sweet potatoes, maize, barley, and wheat), with better infrastructure and services responded to improved prices.

311 World Bank, Madagascar: Agricultural Strategy Note, Februaxy 23,1994. The entire outline which follows draws heavily on this source.

164 Agriculture and EconomicReform in Sub-SaharanAfrica

Traditional exports (coffee, vanilla, clove, pepper) did not respond because their world prices dropped (coffee and cloves), trade was not fully liberalized (vanilla), and communications continued to de- teriorate. Indonesian domestic production cut severely into the cloves market, and Indonesian competition 312 cut Madagascar's share of the vanilla market from 70 percent to 32 percent. It is still falling, and in 1993 the government destroyed stocks equal to about 5.3 times its average annual export volume over the past five years! Between 1985 and 1991 the value of traditional exports fell from US$284 million to US$95 million.

Production of rice took off with trade liberalization, but then stagnated because of poor market in- frastructure. By 1992, rice imports had been eliminated, while paddy production rose from around 2.1 mil- lion mt in the early 1980s to 2.45 million mt from 1988 onwards (higher consumer prices led to some switch- ing of consumption from rice to maize and cassava). The 1986 trade liberalization encouraged many small traders and processors to enter the market, reducing intermediary margins by 25-35 percent and seasonal price fluctuations by 20-25 percent. Farmer got prices higher by 30 percent in real terms, while real retail prices stayed constant until 1990. Paddy yields are still low (average 1.8-2.0 mt/ha) and continued incentives are needed to keep farmers intensifying, and using more cash inputs.

The economic reforms have not been completed. Still to be done are: getting on top of the appreciat- ing exchange rate of 1990-1992; making sure that the very recent export taxations steps take with respect to vanilla are carried out (introducing a floor price at a lower level to replace the high ceiling price, together with no more public financing of stocks, and elimination of export quotas); getting rid of monopolies in cot- ton. sugar, wheat, copra, oil palm, and export beef marketing; ending administered prices for sugar, and seed cotton for domestic processing; reducing high import tariffs on wheat, copra oil, and palm oil; eliminating non-tariff barriers such as access to foreign exchange and import credits, and reducing regulatory restrictions on live cattle exports; privatizing the National Agricultural Bank (BTM) and finding some way to get credit to small-scale rural producers and processors.

The marketing framework is still unfriendly to competitive private trade. A recent Private Sector Assessment highlights problems such as an inadequate Labor Code, Commerce Code, and land tenure legis- lation, lack of a Domestic Competition Law, lack of transparency of the Investment Code and of the system of fiscal incentives, a need to overhaul business law and the administrative/judicial system to encourage pri- vate investment, and the general lack of information about current government laws and regulations. There is also an unsuitable legal framework for farmer associations (currently designed for socialist cooperatives), for input supply, produce marketing, water management, and maintenance of irrigation perimeters . New legislation very recently introduced took a step forward by decentralizing savings and loan associations.

The agricultural growth potential of Madagascar is huge. Some 51 percent of all permanently culti- vated land and 80 percent of potentially irrigable land is under irrigation, a total of 1.1 million hectares, the second biggest area under irrigation in Sub-Saharan Africa. Irrigated land is occupied primarily by rice (80 percent), sugar cane, and cotton. Only 3 million hectares are cultivated out of 33 million potentially cultivable (although it should be noted that the land is largely under shifting cultivation, whose expansion is con- strained by ecological risks, ethnic considerations relating to movement of people, and the large investments needed in infrastructure to exploit remaining land). The country has a large number of different ecological zones, in which many different commodities could be produced, among them diverse medicinal plants and spices. The country is largely freed from major plant and animal diseases, irrigation provides seasonal flexibility, the very low yields of many crops provide great potential for improvement, there are low labor costs, and Madagascar has a small share of international markets. There is need for much adaptive research under these circumstances.

3 1 Vanilla, the country's second largest export, provided 10 percent of export income and 10 percent of public revenues. Madagascar, in a cartel with Comoros and Reunion, formerly extracted substantial rents from the world vanilla market by withholding supplies and charging high pnces.

165 AFTES Working PaperNo. 18

The main constraints on agricultural growth are inconsistent macroeconomic and sector policies; an inadequate, market-unfriendly legal and regulatory framework (with lack of a competitive private sector); low technology leading to declining soil fertility; weak farmer services; and bad roads and marketing infra- structure. Added to these are the problems caused by declining urban purchasing power and consumption: per capita consumption of rice fell by 30 percent from 154 kg in 1980 to 108 kg in 1992; sugar was down 30 per- cent between 1972 and 1990; dairy products fell 15 percent from 1983 to 1989; cotton for domestic textile pro- ducers was down 20 percent 1986-1989. Using an index with 1972=100, per capita GDP was at 61 in 1992, and per capita consumption at 52.

Technology: Rice yields, once as high as those in Asia, have stagnated because none of the newer varieties are available (those capable of 5-7 mt of paddy per hectare), and the older varieties can yield twice as much as farmers achieve, but this would require good water management and cash inputs. There has been some varietal research on wheat, barley and potatoes, but apart from that, "the development of new technology has essentially been neglected, resulting in a sharp decline in the adequacy of existing techniques (coffee varieties succumbing to disease, no disease-resistant cassava available, hybrid maize only beginning on research stations, good fruit and vegetable seed not available, livestock diseases increasing and out of control of public veterinary service)." 313

Outside of irrigated agriculture, shifting agriculture is destroying the forest and causing soil erosion. Forest clearing has not been for commercial logging, and only on a minor scale for fuelwood. The lack of land tenure rights has exacerbated the problem, as has failing supervision of forests, and rangeland man- agement. A program to address these concerns would have four main components: expanding parks and preserves, sustainable production systems in sensitive areas, accelerated land titling, and improved man- agement of gazetted forests.

Farmer support services, rural roads, and marketing infrastructure: Agricultural extension is over- centralized but also dispersed, with five semi-autonomous services beside the national one. All the irrigation engineers are located in the capital city. Services are characterized by a lack of recurrent cost funding. Of a road network of 40,000 km, orly 10 percent is in acceptable condition, with only 900 km rehabilitated during the 1990-93 period, and maintenance on no more than 2,500 km per year. Addressing this problem requires effective decentralization of power and funding. Rural markets and marketing have shrunk. There are large flaws in the balance and processes of the public investment program.

Unless all the above problems of technology, services and infrastructure are addressed simultane- ously with putting in place the remaining elements of the economic reform program in agriculture, the re- forms will have a muted impact.

MALAWI

In the aggregate, Malawi's agricultural sector experienced reasonable economic growth over a relatively long period (almost 2 percent per year over twenty years, about average for Sub-Saharan Africa). The average growth rate, however, concealed a remarkable concentration within the farming sector.3 14 Around 60 percent of the growth over the last twenty years was in the "large-scale" sector of agriculture, whose share in agricul- tural output rose from 13 percent to more than one-third in the process. The estates which make up the

313 World Bank, Madagascar: Agricultural Strategy Note, February 23,1994 314 This account is drawn from W. Graeme Donovan, Malawi: Economic Reform and Agricultural Strategy, World Bank, Environmentally Sustainable Development Division, AFTES Working Paper No. 10, July, 1994. Further details are contained in that publication.

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"large-scale" sector expanded in numbers from 250 in 1970 to close to 15,000 in 1990,31Sby which time they occupied about 850,000 ha of land, 9 percent of the total land in Malawi. During the decade of the 1980s, these estates (especially leasehold estates) transferred more than 500,000 ha from what had been "customary" lands, farmed by smallholders.

There has thus been a sharp contrast between the ostensible goals of agricultural policies in Malawi, and their outcome. Sahn and Arulpragasam observe, "Malawi's structural adjustment policies of the past decade have focused on stimulating smallholder agriculture.. .the aim of adjustment in Malawi has been to improve the performance of the smallholder sector."31 6 But Malawi's 1.8 million smallholder farmers, em- ploying on their farms more than 2.1 million workers in 1987317(72 percent of the total labor force 15-64 years old) experienced only steadily worsening poverty, as highly constrained growth in production was over- whelmed by a population increasing at 3.4 percent per year. As a result, the levels of undernutrition and infant mortality rates in Malawi's rural areas are extremely high, and available evidence supports a decline in life expectancy during the 1980s. It is hard to avoid the impression that a systematic bias in the policy cli- mate in favor of the large-scale sector in agriculture held in Malawi for most of the three decades up to the early 1990s.

The World Bank has financed six adjustment operations in Malawi, three Structural Adjustment Loans SALs), in FY81, 84, and 86, a Fertilizer Loan in FY83, an Industry/Trade policy operation in FY88, and an Agricultural Sector Adjustment Credit (ASAC) in FY90. The main actions of the structural adjustment program in Malawi have been to:

(a) devalue the domestic currency and actively maintain an appropriate exchange rate;

(b) strengthen the Export Promotion Council and liberalize imports;

(c) keep interest rates positive in real terms; under ASAC revise the Banking Act to enhance efficiency of fi- nancial institutions;

(d) increase excise taxes, import duties, and user charges; under ASAC convert excise taxes to an ad valorem basis and revise income tax structure;

(e) increase funding for agriculture and key economic and social sectors; under ASAC continue to hold down the fiscal deficit;

(f) strengthen monitoring of public investments in agriculture to ensure economic and financial viability; un- der ASAC exclude low-return investments, and maintain balance between investment and recurrent expendi-. tures, and within recurrent expenditures between non-wage and wage operating costs;

(g) reform Press Holdings,3 18 and the Malawi Development Corporation, to make agro-processing more effi- cient and generate more foreign exchange;

3 15 Richard Mkandawire, Steven Jaffee, and Sandra Bertoli, Beyond "Dualism": The Changing Face off the Leasehold Estate Sector in Malawi, Institute for Development Anthropology Working Paper No. 71,1990, p. ix.

3 David E. Sahn and Jehan Arulpragasam. The Stagnation of SnalLholder Agriculture in Malawi. Food Policy, June 1991, 219-234. 317 David E. Sahn, Jehan Arulpragasam and Lenmua Mend. Policy Reforrn and Poverty in Malawi. Cornell Food and Nutrition Policy Program Monograph No. 7, December 1990, Table 3, p. 10.

318 A large private holding company, with equity interests in every important economic sector, including majority shareholding in Malawi's commercial banks.

167 AFTES Working PaperNo. 18

(h) make the Agricultural Development and Marketing Corporation (ADMARC) more efficient, and expand the role of private traders; under ASAC develop explicit agreement for Government to fund fully the non- profitable activities of ADMARC required by Govermment, on a transparent basis;

(i) reduce fertilizer subsidies and strengthen the payment system to the Smallholder Farmers Fertilizer Re- volving Fund of Malawi (SFFRFM); under ASAC differentiate subsidies to provide higher subsidy to higher analysis fertilizer, introduce small bags, and liberalize the fertilizer market;

(k) revise estate expansion plans, and make them more efficient; under ASAC halt transfer of land from cus- tomary tenure to estates, raise estate land rents, adjust rents at intervals of no more than three years, and in- troduce rents differentiated by land quality;

(I) carry out an annual review of smallholder output prices acceptable to IDA; under ASAC introduce a two- payment system for smallholder tobacco;

(m) under ASAC, allow smallholders to grow burley tobacco under customary tenure, and license at least 5,000 smallholders to do so;

(n) under ASAC, liberalize the seed cotton market; and

(o) under ASAC, change research policy to develop high-yielding flint maize.

There was clearly a movement in policy conditionality over time, with lessons leamed from the ear- lier operations reflected in the later ones, especially the ASAC. Too little time has passed to judge the success of the latter, and some promising initiatives have been started under its auspices, in particular the scheme to introduce smallholder burley tobacco growing, and the hybrid maize program.

Exchange Rate: While exchange rates occasionally got out of line somewhat during the 1980s, the ex- tent of misalignment was small and the periods of misalignment short, so that by and large the Govermment succeeded in carrying out the exchange rate realignments needed to maintain the profitability of agricultural exports. The resulting rise in fertilizer prices was mitigated to some degree by continuing subsidies, al- though reducing and eliminating these subsidies was a component of the adjustment program. Other possi- ble effects of the successive devaluations include rising costs of fuel (hence increased transportation costs), equipment and spare parts, agricultural chemicals, and, to some extent, rising labor costs (minimum rural wage rates were raised in the 1980-83 period, and again in 1988-89 to take some account of inflation which had eroded real wages; the minimum rates appear to affect mainly the estates). To the extent that they con- tinue in subsistence production, the bulk of smallholders are largely cut off from the effects of the exchange rate changes, but the majority of families are likely to buy at least small amounts of food in the market, and experience the impact of rising transportation costs.

Financial Reforms: Driven by rapidly increasing money supply as well as repeated devaluations of the domestic currency, inflation increased significantly, to about 19 percent p.a., in the first half of the decade of the 1980s. Thereafter it dropped again. Interest rates charged by commercial banks for their lending were deregulated in July, 1987, and rose from their former level of 19-23 percent before falling back somewhat in each of 1990 and 1991. Commercial bank lending rates were positive in real terms through most of the 1980s, and approximately doubled in real terms following the deregulation. Interest rates on commercial bank de- posits became positive in real terms only in 1990, but fell a little in 1991, and deposit interest rates at the Post Office Savings Bank have yet to become positive in real terms.

168 Agriculture and Economic Reform in Sub-SaharanAfrica

From 1985 to 1987 Government borrowed from commercial banks, especially to address the serious financial problems of ADMARC. Public borrowing significantly crowded out private sector borrowing through a substantial portion of the decade.31 9 Significant segments of the private sector including smaller enterprises and the poor still have limited access to the financial support required to respond to policy changes in pricing, agricultural marketing, and the extemal regime among others."3 20 In particular, private sector traders in agricultural commodities are reported to be limited in their response to the market liberali- zation reforms by lack of credit.

On the agricultural production side, most small farmers in Malawi always had very limited access to credit, and this is particularly the case with respect to formal sector credit. It is impossible to say to what de- gree smallholders are constrained in developing their farms, and rural entrepreneurs in developing their en- terprises, by lack of credit, especially compared with other constraints such as technology and infrastructure, but what is certain is that as the small enterprise rural economy increasingly gains access to productive new technologies, and as infrastructure is developed, it will make large new demands for credit, and that provid- ing the climate for deepening the provision of financial services is a very important task still facing the Gov- ernment, one which is still unfinished.

Agricultural Input Prices: In the face of unpalatable increases in the costs of fertilizer delivered to Malawi, largely the result of changes in exchange rates, the Government subsidized fertilizer to smaUholders, and fixed prices in such a way as to maintain a target ratio of benefits to costs for fertilizer use on crops, es- pecially maize, the main staple food.3 21 The results of these subsidies and their being phased out were dis- cussed in more detail earlier, in the chapter on fertilizer.

From 1980 to 1991 total sales of fertilizer to smallholders more than doubled, from 49,000 tons to al- most 107,000 tons, but within the smallholder sector, fertilizer use is highly skewed towards the larger farms on customary lands, which have access to credit. It is possible that that this skew is greater today than it was eight years ago. There is clearly further progress to be made on relaxing both demand and supply con- straints on smallholder fertilizer use.

Agricultural Marketing: The Government undertook a series of agricultural marketing reforms, whose implementation and impact on maize marketing were discussed in detail earlier. In response, private trad- ing expanded significantly, and a higher proportion of traders began operating outside their home areas. The private trade in maize was still limited, but it became more substantial in other crops, especially beans and other pulses, which had lower transport costs, higher profit margins, and lucrative export markets. The lower turnover in these crops, however, was discouraging for smaller traders, and for groundnuts, trade slowed down when restrictions were re-introduced on private exports. The early stages of the reforms fell short of intentions, and a web of restrictions remaining in place on private traders,322 while many signs of market segmentation remained.

It is clear that many changes are still required before it can be claimed that an adequate degree of market liberalization has been achieved. More recent attempts to move in that direction were discussed in the earlier section on maize marketing.

9 31 Sahn et al, 1990, p. 189 320World Bank. President's Report on a Proposed Credit to the Republic of Malawi for an Entrepreneurship Development and Drought Recovery Pro- gramn June 1, 1992, p. 6 321 Ann Conroy. Draft Report on the Agricultiural Inputs Sector. April, 1992. 322 Sahn et al,1990, pp. 132-136.

169 AFTES Working PaperNo. 18

Smallholder Prices: The Government of Malawi systematically set official prices for smallholder out- puts and inputs over a long period of time. The changes in prices of individual commodities were erratic; and did not shift consistently in favor of export commodities. Domestic producer prices were more stable than world prices, achieving one of the goals of the price setting process, and suggesting that this goal was held in higher regard by the Government than the goal of moving prices towards export or import parities. The impact on crop substitution and land reallocation of changing relative prices have been substantial: higher prices appear to have increased marketings of maize more than they raised production, and food se- curity may have been compromised by some of the relative price movements.

Smallholder Tobacco:Sinalholders in Malawi have had a very long experience with producing to- bacco, especially the Northern Division Dark Fired variety, but they were discriminated against consistently in policies relating to tobacco, and prevented from having access to the benefits which might have come their way had these policies been conducted differently. This is the single most important area where the policy climate held back smallholder development. Had reforms been made years ago the smallholder economy might well have looked different today. On average, until 1989, smallholders were paid for their tobacco approximately one third of the price it realized at auction. By contrast, estates received the auction price, less any associated marketing costs. The second important policy obstacle for smallholder tobacco producers was that they were not permitted to grow either flue-cured or burley tobacco. The policy combination of these production bans, together with the taxation of the tobacco they were allowed to grow, and the implicit taxa- tion on other export crops, had a profoundly detrimental effect upon smallholder agriculture, and was a leading reason for the growth of leasehold estates during the past decade.

More recently, with implementation of the Agricultural Sector Adjustment Program, a start was made on changing this important area of policy discrimination, allowing smallholders to grow burley to- bacco on a limited scale, and passing on to them a higher proportion of the prices realized at auction for their tobacco. These changes were implemented from the 1990/91 cropping season on, and appear to have been very successful. With the simultaneous development of a new hybrid flint maize variety, which finally promised profitable yields along with the desirable storage and processing qualities, and when some other missing parts of the technical package have been assembled successfully, the stage should be set for a sub- stantial leap forward in the smallholder economy.

Discussion Economic reforms, while necessary conditions for agricultural growth, are far from sufficient in themselves. A package of investments is needed in rural areas to achieve the growth of which agriculture is capable, and the development of the national economy to which this can contribute.

The adoption by smallholder farmers of new agricultural technologies has been very slow in Malawi. For maize, for example, the gap between experimental results and achievements in farmers' fields is one of the largest in the world. Farmers attain average yields of around 1 ton per hectare, compared with results on experiment stations of over 4 tons per hectare for the local maize farmers use overwhelmingly, and more than 11 tons per hectare for improved varieties developed on the experiment stations. The most important reason for the enormous gap between research station and farmers, in the judgment of the group carrying out the triennial review of agricultural research, was in the area of soil fertility management.323 Here the re- search/extension system had not yet put in place a complete package of the essential ingredients, addressing the resource situation of smallholders, which might allow a major breakthrough in smallholder production. Similar remarks with respect to inadequacy of research could be made about sorghum and millet, ground- nuts, beans, cotton, and roots and tubers.

323 W.R. Coffman, R.W. Blake, D.R. Bouldin, K.M. Chavula, J.E. Hunter, W.H.Lesser, L.D.M. Ngwira, H.C. Price, and V.W. Saka, Malawi National Agricul- tural Research Project, Second Triennial Review, March 27,1992, p.4S.

170 Agriculture and EconomicReform in Sub-SaharanAfrica

Although the rural road network has been expanded significantly under the District Rural Improve- ment and Maintenance Program (DRIMP), more than 60 percent of the road network in the country still has an earth surface, and less than 20 percent is bitumen surfaced, implying that during the rainy season passage becomes very slow and difficult in many areas. The state of road maintenance also has left much to be de- sired, with premature deterioration in DRIMP roads observed. Even more important, however, is that there 4 were major limitations and problems in the provision of transportservices. 32 For some time, the Government banned the private carriage of fare-paying passengers, and passenger transport was subject to strict regula- tions with respect to exit, entry, routes and fares; other regulations restricted joint carriage of passengers and haulage of freight, as well as joint own-account and for-hire haulage. The regulatory framework was confus- ing, and years of severe import restrictions in the past resulted in an aging transportation fleet, which dwin- dled because necessary replacements were not made. These restrictions, a response to foreign exchange shortages, also led to import of smaller vehicles, and few spare parts; transportation vehicles and their spare parts were very expensive, in part as a result of heavy duties and surtaxes; the high transportation costs themselves raised the cost of fuel;3 5 fuel and maintenance facilities were very scarce in rural areas; as a result of the above factors, among others, "the rural areas of the country, where the majority of the population lives, receive only minimal transportation services, and there is a pervasive shortage of supply, even in the more densely populated areas."32 6

Although Malawi has a particularly high proportion of its population in rural areas (at least 88 per- cent, the fifth highest in Sub-Saharan Africa) most of the formal water supply investments have been focused on the larger cities and regional towns; only 36 percent of the rural population is estimated to have access to safe water, from boreholes and dug wells; as many as 30 to 50 percent of these may be inoperative for want of maintenance; of even more importance is the estimate that half of rural households are at least 2 km away 3 2 7 from a water source. There is virtually no supply of electricity to rural areas of Malawi. (By contrast, more than 80 percent of India's villages are reached with electricity). Many indicators of health in Malawi are sig- nificantly worse than the averages for Sub-Saharan Africa. Although Malawi's national education system was established on a strong foundation, its expansion has not kept pace with population growth, and the na- tional literacy rate of the population group 10 years of age and older was only 27 percent in 1987.328

It is difficult to invest in all of the above things simultaneously, with limited resources available, but the balance of investments in Malawi has too much neglected the rural areas, and especially the predominant smallholder farming sector, in all of the factors discussed above. Attempts to rectify this need to be made in the years ahead, if smalUholder agriculture is to grow faster, rural welfare improve, and the economic re- forms have their full impact on agricultural development.

ConcludingRemarks For the "big ten" countries which account for more than seventy percent of Sub-Saharan Africa's agriculture, progress since 1989 has fallen notably short of the hopes of that time, as expressed in the World Bank's Long

324 World Bank. Malawi. Transport Sector Review: Selected Issues. Report No. 9908-MAI, August 10, 1992. 325 The transportation elemnentfor fuel is about one third of the retail cost, and between 30 percent and 65 percent of the c.i.f. cost. World Bank, Transport Sector Review, 1992, Vol. II, p. 154. 326 World Bank, Transport Sector Review, 1992, Vol 1, p. iv.

327 "Per capita annual electricity consumption for 1986 is low at 67 kWh, and less than 3 percent of the population have access to electricity, one of the lowest access rates in Africa." World Bank. Malawi. Public Expenditure Review. April 7,1990. Vol. 11,pp. 104-105. Of projected expenditures on the power sector of MK160 million (in constant terns of 1987/88, equivalent to US$72 million) for the past five years, less than 5 percent was allo- cated to rural electrification, MK7.8 million (US$3.5 million); same report, Vol. II, p. 107. 328 World Bank. Malawi. Human Resource Development Study, 1990, p. 69.

171 AFTES Working Paper No. 18

Term Perspective Study (LTPS).32 9 Only four countries in the "big ten" reached close to the 4 percent growth target for agriculture set by the LTPS. With the exceptions of Zaire and Sudan among the "big ten", the short term outlook is good, and were Sudan to end its war and focus wholeheartedly on the reforms it has begun, it would be possible to raise its rate of growth substantially. A positive short term outlook also requires keeping up the reform momentum, especially in countries such as Nigeria and Tanzania, which have shown some signs of turning back. For Zaire, the short term cannot be regarded with optimism.

A group of smaller countries - Benin, Botswana, Burkina Faso,Chad, Guinea, Mali, Mauritius, Niger, and Togo - have also achieved respectable agricultural growth rates, generally between 3 and 4 percent p.a. over the period 1986-1992. Although collectively making up only 12-15 percent of the continent's agricultural value-added, they have shown that the possibilities for growth near the target is not confined to larger coun- tries. For more than half of these nine smaller countries, liberation from the shackles of the CFA Franc ex- change rate may add the ingredient which could push them over the target rate, if economic reforms are put in place consonant with the new exchange rate regime. For Angola and Mozambique,with close to one fifth of the remaining reserves of cultivable land between them, the most compelling "spark" for igniting growth will be an end to their respective civil wars.

329 World Bank, Sub-Saharan Africa: From Crisis To Sustainable Growth: A Long-Term Perspective Study, 1989.

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World Bank, Accelerated Development in Sub-Saharan Africa: An Agenda for Action, 1981. World Bank, Adjustment in Africa: Lessons from Country Case Studies, World Bank Regional Study, 1994. World Bank, Adjustment in Africa: Reforms, Results, and the Road Ahead, Policy Research Report, 1994. World Bank, African Development Indicators 1994-95, 1995. World Bank, African Development Indicators, Third Edition, December, 1994. World Bank, Annual Report, 1994. World Bank, Atlas, 1990. World Bank, Financing Adjustment with Growth in Sub-Saharan Africa, 1986-90, April, 1986. World Bank, Ghana-2000 And Beyond: Setting the Stage for Accelerated and Equitable Growth, Western Africa Department. February, 1993. World Bank, Ghana: Medium Term Agricultural Development Strategy (MTADS), Report No. 8914-GH, Agriculture Operations Division, Western Africa Department, June 28, 1991. World Bank, Market Outlook for Major Primary Commodities, International Economics State University, April, 1994. World Bank, Niger: Agricultural Growth Strategy Study, Technical Paper No. 1. World Bank, Sub-Saharan Africa: From Crisis To Sustainable Growth: A Long-Term Perspective Study, November 1989. World Bank, The Southern African Development Coordination Conference, An Action Plan for the Development of the Fertilizer Industry, Draft Report, December, 1991. World Bank, World Development Report, 1994. Table A.l. AgriculturalGrowth (Value Added)

Average Annual Percentage Change Country 1965-73 1974-80 19_81-87 198892 1991 1992

Sub-Saharan Africa 2.2 0.9 1.4 1.1 1.3 0.4 excluding Nigeria 2.1 2.1 0.2 1.9 1.1 1.0 Angola - - -0.2 Benin - 4.6 6.1 4.9 8.6 3.9 Botswana 12.4 -1.3 -4.6 2.2 2.7 2.0 Burkina Faso - -0.5 2.6 0.8 14.3 -3.7 Burundi 10.6 1.8 3.1 2.5 2.1 3.5 Cameroon 4.6 4.9 0.5 -5.8 -10.2 -5.8 Cape Verde - - 9.4 1.0 9.3 Central African Republic 2.1 1.5 3.4 -0.6 -3.1 0.8 Chad -0.7 -0.2 2.2 5.6 20.0 -0.2 Comoros - - 4.2 1.7 1.6 -0.8 Congo, People's Republic of 4.1 2.2 2.3 -0.4 -7.4 4.0 Cote d'lvoire 4.9 4.5 -5.7 2.3 0.0 0.6 Djibouti - - - - - Equitorial Guinea - - - - -6.0 -4.0 Ethiopia 2.1 0.9 -2.2 1.0 2.0 -0.5 Gabon - - 1.7 -1.2 4.0 -0.8 Gambia, The 4.5 -3.4 -2.4 - - Ghana 4.5 0.8 0.8 1.6 -2.6 0.7 Guinea - - - 3.3 2.9 4.7 Guinea-Bissau - -5.0 4.2 -2.1 -9.4 -6.0 Kenya 6.2 4.6 2.5 1.6 -0.7 0.0 Lesotho - -1.2 -0.7 -10.7 -25.9 -19.9 Liberia - - - - Madagascar - -0.9 2.6 2.0 0.5 1.1 Malawi 4.1 4.9 3.0 -1.8 12.8 -25.2 Mali 0.9 7.3 0.0 2.6 -3.7 12.3 Mauritania -2.1 0.7 0.9 0.1 4.2 3.8 Mauritius - -5.6 3.4 9.0 -2.8 Mozambique - - -0.4 0.6 1.9 -6.5 Namibia - - -3.7 5.7 -0.7 17.0 Niger -2.9 1.3 2.2 - - Nigeria 2.9 -2.0 3.8 4.2 4.0 4.0 Rwanda - 8.3 -0.6 1.8 0.1 0.0 Sao Tome & Principe - - 0.2 - - Senegal 0.2 -2.2 2.8 -0.2 -2.5 Seychelles - 0.7 -1.3 - - Sierra Leone 1.5 10.4 2.7 -2.9 0.7 -17.9 Somalia - 14.0 3.2 - - Sudan 0.3 1.4 1.3 -0.5 -4.2 Swaziland 8.0 3.8 2.5 - - Tanzania 3.1 0.3 4.3 5.0 6.4 4.4 Togo 2.6 2.3 6.8 2.0 -0.6 1.0 Uganda - - 0.2 3.3 1.9 2.3 Zaire -1.7 0.9 2.6 - - Zambia 2.0 0.9 8.0 -10.4 5.7 -39.3 Zimbabwe - -1.6 1.9 -2.1 3.1 SSAfrica (lxcl. South Africa) 2.2 0.9 1.4 1.I 1.3 0.4 South Africa 2.5 2.5 -2.5 5.4 -9.4 Comparator Countries 3.1 2.1 5.4 4.7 5.6 1.8 China 2.8 2.0 6.9 3.3 7.5 3.2 India 3.3 1.7 1.5 7.1 4.2 0.0 Indonesia 4.8 4.1 3.0 3.5 2.5 0.9 South Asia(Excl. ndia* 2.2 2.4 3.6 1.9 6.3 ___ 3.3

a. Excluding South Africa b. Bangladesh, Nepal, Pakistan, Sri Lanka Source: National sources as collected by World Bank regional country economists and collated for the Global Coalition for Africa by the Trade and Finance Division, Technical Department. Africa Region, World Bank. Note:Agricultural value-added in Southem Africa was hit by a severe drought in 1992;especially affected were Lesotho, Malawi, Mozambique,Zambia, Zimbabwe, and South Africa; Kenya also suffered from the drought. Table A.2 SUB-SAHARANAFRICA

WORLD BANKAND INTERNATIONALMONETARY FUND ADJUSTMENTOPERATIONS (Jan 1979 through A a. 1994) Country Org. BoardDate Loan Type Credit # Amount Amount Date Date __ AFrX _ ($m) WB (Sm) IMF Effective Closed Benin IMF Structural Adj. Facility _ 21.9 89-06 92-06 Benin WB 89 SAL I 2023 45.0 89-06 90-12 Benin WB 91 SAL II 2283 55.0 91-10 94-12 Benin IMF Enhanced SAF 47.0 93-01 96-01 Burkina Faso WB 85 (NCL) Fertilizer Loan 1550 13.7 85-11 91-12 Burkina Faso WB 91 SAL 1 2281 80.0 91 -09 95-06 Burkina Faso WB 92 SECAL 2381 28.0 93-08 94-12 Burkina Faso WB 92 Transport SECAL 2332 96.0 93-06 96-12 Burkina Faso WB 94 Econ. Recovery Credit 2590 25.0 94-06 95-06 Burkina Faso IMF (NCL) SAF 22.1 91-03 94-03 Burkina Faso IMF Enhanced SAF 48.6 93-03 96-03 Burundi IMF StructuralAdj. Facility 29.9 86-08 89-08 Burundi IMF Stand-by Arrangement 21.0 86-08 88-03 Burundi WB 86 *_SAL I 1705 31.2 86-09 88-06 Burundi WB 88 SAL 11 1919 90.0 88-11 92-06 Burundi WB 89 Ag Services Sector Loan 2024 56.9 89-10 96-12 Burundi IMF EnhancedFund Facility 42.7 91-11 94-11 Burundi WB 92 SAL III 2376 30.0 92-09 94-06 Cameroon IMF Stand-by Arrangement 61.8 88-09 90-03 Cameroon WB 89(NCL) SAL I L3089 150.0 89-11 94-06 Cameroon IMF Stand-by Arran ement 28.0 91-12 92-09 Cameroon WB 94 Econ. Recovery Credit 2627 75.0 94-06 95-06 CAR IMF Stand-byArrangement 4.0 80-02 _81-02 CAR IMF Stand-by Arrangement _ _ 10.4 81-04 81-12 CAR IMF Stand-byArrangement 18.0 83-04 84-04 CAR IMF Stand-by Arrangement __ 15.0 84-07 85-07 CAR IMF Stand-by Arrangement 15.0 85-09 87-03

CAR IMF Stand-by Arrangement _ 8.0 87-06 88-05 CAR IMF Structural Adj. Facility _ 21.3 87-06 90-05 CAR WB 87 *SAL 1 1732 30.0 86-10 87-12 CAR WB 88 Agricultural Sector Loan 1836 15.0 87-10 89-12 CAR WB 88 SAL 11 1916 40.0 88-09 90-05 CAR WB 90 SAL III 2162 45.0 90-08 94-06 Chad IMF StructuralAdj. Facility 21.4 87-10 90-10 Chad WB 89(NCL) *Financial Rehab.Credit 1945 44.1 88-10 91-06 Chad WB 89 Transport Sector Loan 2007 60.0 89-12 94-06 Chad WB 94 Econ. Recovery Credit 2589 20.0 94-04 95-12 Comoros IMF Struct. Adj. Facility 3.2 91-06 94-06 Comoros WB 91 SAL 2270 8.0 92-12 95-12 Congo IMF Stand-by Arrangement _ 4.0 79-04 80-04 Congo IMF Stand-by Arrangement 28.0 90-08 92-05 Congo IMF Stand-by Arrangement 22.4 86-08 88-04 Congo WB 88 SAL I 12866 70.0 87-10 89-03 Cote d'lvoire IMF Extended Fund Facility 484.5 881-02 84-02 Cote d'lvoire WB 82 SAL I L2058 150.0 81-12 82-12 Cote d'lvoire WB 84 SAL 11 L2332 250.7 _ 83-08 84-12 Cote d'lvoire IMF (NCL) Stand-by Arrangement 82.8 84-08 85-05 Cote d'lvoire IMF Stand-by Arrangement 66.2 85-06 86-06 SUB-SAIIARANAFRICA

WORLD BANK AND INTERNATIONALMONETARY FUND AIDJUSTMENTOPERATIONS (Jan1979 t rough Aug. 1994) Country Org. Board Date Loan Type Credit# Amount Amount Date Date -:: Y) : _____(F (S:m)WB f$m)S IMF Effective Closed Cote d'lvoire IMF (NCL) Stand-by Arrangement . 100.0 86-06 88-06 Cote d'lvoire WB 86 SAL III L2711 250.0 87-02 87-12 Cote d'Ivoire IMF Stand-byArrangement . 94.0 88-02 89-04 Cote d'Ivoire WB 90 Agriculture Sector Adj. L3127 150.01 90-06 91-12 Cote d'lvoire IMF Stand-by Arrangement _ 146.5 89-11 91-04 Cote d'lvoire WB 90 Energy Sector Loan L3150 100.0 89-12 91-06 Cote d'lvoire WB 90 Water Suppl. Sect. Adj L3240 80.0 90-06 91-12 Cote d'lvoire IMF Stand-by Arrangement . 82.8 91-09 92-09 Cote d'lvoire WB 92(NCL) *FinSector Adj L3408 300.0 91-10 94-06 Cote d'Ivoire WB 92(NCL) *RegulatoryReform L3429 150.0 92-03 94-09 Cote d'lvoire WB 92(NCL) *Human Resources Devt. L3428 335.0 92-01 95-02 Cote d'Ivoire IMF Enhanced SAF _ 333.5 94-03 97-03 Equatorial Guinea IMF Stand-by Arrangement 5.5 80-07 81-06 Equatorial Guinea IMF Stand-by Arrangement 9.2 85-06 86-06 Equatorial Guinea IMF SAF 12.9 88-12 91-12 Equatorial Guinea IMF Enhanced SAF . 12.9 93-02 96-02 Ethiopia IMF Stand-by Arrangement 67.5 81-05 82-06 Ethiopia WB 93 *SACI 2526 250.51 93-07 94-12 Ethiopia IMF SAF 49.4 92-10 95-10 Gabon IMF ExtendedArrangement _ _ 34.0 80-06 82-12 Gabon IMF Stand-by Arrangement _ 98.7 86-12 88-12 Gabon WB 88 SAL I L2933 50.0 88-05 90-06 Gabon IMF Stand-by Arrangement 43.0 89-09 91-03 Gabon IMF Stand-by Arrangement _ 28.0 91-09 93-03 Gabon WB 94 Econ.Recovery Loan L3759 30.01 94-06\a 95-06 Gambia IMF Stand-by Arrangement _ 1.6 79-11 80-11 Gambia IMF Stand-by Arrangement 16.9 82-02 83-02 Gambia IMF Stand-by Arrangement _ 12.8 84-04 85-04 Gambia IMF (NCL) Stand-by Arrangement 10.9 86-09 87-10 Gambia WB 87 *SALI 1730 16.5 86-10 88-06 Gambia IMF Enhanced SAF 20.5 88-11 91-11 Gambia WB 89 SAL11 2032 23.01 89-08 92-06 Ghana IMF Stand-by Arrangement 53.0 79-01 80-01 Ghana IMF Stand-by Arrangement _ 238.5 83-08 84-08 Ghana WB 83 Trade/ImportSector 1393 40.0 _ 83-08 86-03 Ghana WB 84(NCL) *Export Rehab. Loan 1435 76.0 84-06 88-12 Ghana IMF Stand-by Arrangement 180.0 84-08 85-12 Ghana WB 85(NCL) *2nd Trade/Import Sector 1573 87.0 _ _ = 85-08 88-12 Ghana WB 86 *IndustrialSector Loan 1672 53.5 86-06 91-12 Ghana IMF Stand-by Arrangement 81.8 86-10 87-10 Ghana_ WB 87 Educational Sector Loan 1744 34.5 87-04 91-12 Ghana B 87 *SAL I 1777 130.0 87-05 90-06 Ghana IMF (NCL) Extended Fund Facility 245.4 87-11 90-11 Ghana IMF (NCL) StructuralAdj. Facility 129.9 87-11 92-12 Ghana WB 88 *FinancialSector Loan 1911 106.6 88-08 90-09 Ghana IMF Enhanced SAF 388.6 88-11 92-03 Ghana WB 89 *SAL 11 2005 134.0 89-06 91-03 Ghana WB 90 EducationSAC 11 2140 50.0 90-07 94-12 Ghana WB 91 Priv. Invest. Prom. 2236 132.6 91-07 94-01 SUB-SAHARANAFRICA

WORLDBANK AND INTERNATIONALMONETARY FUND ADJUSTMENTOPERATIONS (Jan 1979 t rough Aug. 1994) Country Org. Board Date Loan Type Credit # Amount Amount Date Date L___.___,__ _ =2.____.__._ _. (Sm) WB ($M)IMF Effective Closed Ghana WB 92 FINSAC 2318 100.0 92-05 95-03 Ghana WB 92 *Agric.SECAL 2345 8S.7 92.06 95-04 Guinea IMF Stand-byAttangement 25.0 82-12 83-11 Guinea IMF Stand-byArrangement 27.0 86-02 87-03 Guinea WB 86 I 1659 _SAL 42.0 86-05 88-12 Guinea IMF StructuralAdi. Facility 40.5 87-07 90-07 Guinea IMF Stand-byArrangement 11.6 87-07 88-08 Guinea WB _SAL 88 11 1926 65.1 89-03 94-05 Guinea WB 90 Education Sec Adj. Loan 2155 20.0 90-11 94-06 Guinea WB 90 Private Sector Promotion 2148 50.0 91-03 92-12 Guinea IMF EnhancedSAF 57.9 91-11 94-11 Guinea Bissau WB 85(NCL) 'Import Reconstruction 1531 15.0 85-02 89-12 Guinea Bissau WB 87 *SAL 1 1798 15.0 87-06 90-07 Guinea Bissau WB 89 SAL11 2019 23.4 89-08 94-12 Guinea-Bissau IMF StructuralAdj. Facility 5.3 87-10 90-10 Kenya IMF (NCL) Stand-byArrangement 122.5 79-08 81-08 Kenya WB __80 __SAL I 999 55.0 80-06 80-12 Kenya IMF (NCL) Stand-byArrangement 241.5 80-10 82-10 Kenya IMF __ Stand-byArrangement 151.2 82-01 83-01 Kenya WB 83 *SAL 11 L2190 70.0 82-08 83-12 Kenya IMF Stand-byArran ement _ 176.0 83-03 84-09 Kenya IMF Stand-byArrangement 85.2 85-02 86-02 Kenya WB 86 *AgriculturalSector Loan 1717 60.0 87-03 88-06 Kenya IMF (NCL) StructuralAdj. Facility 90.4 88-02 91-01 Kenya IMF (NCL) Stand-byArrangement ._ 85.0 88-02 89-07 Kenya WB 88 '*nd./TradeSectors Loan 1927 165.7 88-08 90-04 Kenya IMF | EnhancedSAF __. _ 261.4 89-05 93-03 Kenya WB 89 *Financial Sector Loan 2049 231.3 89-07 91-09 Kenya WB 91 *Export Development 2197 149.2 90-12 95-06 Kenya WB 91(NCL) Ag.Sector Adjust. II 2204 75.0 91-05 95-12 Kenya WB 92 *Educ. Sect. Adj. Credit 2295 194.3 91-09 95-03 Kenya IMF EnhancedSAF _ _ 45.2 93-12 94-12 Lesotho IMF j _ ISAF_ 10.6 88-06 91-06 Lesotho IMF I EnhancedSAF _ 18.1 91-05 94-05

Madagascar IMF (NCL) Stand-byArrangement _ 64.5 80-06 81-04 Madagascar IMF I Stand-byArrangement _ 109.0 81-04 82-06 Madagascar IMF Stand-byArrangement _ 51.0 82-07 83-07 Madagascar IMF _ __ Stand-byArrangement _ 33.0 84-04 85-03

Madagascar IMF _ Stand-byArrangement 29.5 85-04 86-04 Madagascar WB I 85(NCL) *Indus. Asstce. Credit II 1541 60.0 85-08 90-09 Madagascar IMF Stand-by Arrangement _ 30.0 86-09 88-02 Madagascar WB 86 *AgriculturalSector Loan 1691 53.0 86-11 90-06 Madagascar IMF (NCL) Structural Adj. Facility _ 46.5 87-08 89-05 Madagascar WB | 87 *Industry/Trade Policy 1834 83.0 87-09 91.03 Madagascar IMF (NCL) Stand-by Arrangement _ I_ 13.3 88-09 89-07 Madagascar WB | 88(NCL) *PublicSector Adj. Loan 1941 132.0 88-12 94-01 |Madagascar IMF | Enhanced SAF _ 76.9 89-05 92-05

Malawi IMF (NCL) Stand-by Arrangement 2121 I _ 26.3 79-10 81-12 SUB-AHARAN AFRICA

WORLDBANK AND INTERNATIONALMONETARY FUND ADJUSTMENTOPERATIONS (Jan 1979 t rough Aug. 1994) Country Org. Board Date Loan Type Credit # Amount Amount Date Date I (FY) :I (m) WB (Sm) IMF Effective Closed Malawi WB 81 SAL I L2026 45.0 81-08 82-12 Malawi IMF Stand-by Arrangement 22.0 82-08 83-08 Malawi WB 83(NCL) Fertilizer Loan 1352 5.0 83-06 88-03 Malawi IMF Extended Fund Facility 81.0 83-09 86-09 Malawi WB 84 SAL II 1427 55.0 84-01 85-06 Malawi WB 86(NCL) *SAL III 1644 80.0 85-12 88-09 Malawi IMF Stand-byArrangement 13.0 88-03 89-05 Malawi IMF Enhanced SAF 55.8 88-07 91-07 Malawi WB 88 Industry/Trade Policy 1920 86.4 88-09 91-12 Malawi WB 90(NCL) Agriculture Sector 2121 70.0 90-04 92-12 Malawi WB 92 *Entrep.Dev. & Drought 2396 130.3 92-07 95-06 Malawi IMF Enhanced SAF 67.0 88-07 93-05 Mali IMF Stand-by Arrangement 40.5 83-12 85-05 Mali IMF Stand-by Arrangement 22.9 85-11 87-03 Mali IMF Stand-by Arrangement _ 12.7 88-08 89-10 Mali IMF Structural Adj. Facility 35.6 88-08 91-08 Mali WB 88 Public SectorLoan 1937 40.0 88-09 92-06 Mali WB 89(NCL) Human Resources Loan 2054 49.0 90-01 94-12 Mali WB 90 Agriculture SECAL 2163 53.0 90-09 96-12 Mali WB 91 SAL I 2188 70.0 91-03 94-12 Mali WB 94 Econ. Recovery Cr. 2580 25.01 94-05 95-06 Mali IMF Enhanced SAF 61.0 92-08 95-08 Mauritania IMF (NCL) Stand-by Arrangement _ 29.7 80-07 81-05 Mauritania IMF | Stand-by Arrangement _ 25.8 81-06 82-03 Mauritania IMF T Stand-by Arrangement | 12.0 85-04 86-04 Mauritania WB 85 Public Sector Loan 1567 16.4 86-03 90-12 Mauritania WB 86 Public Enterprise Loan L2643 20.0 86-03 88-12 Mauritania IMF Stand-by Arrangement 12.0 86-04 87-04 Mauritania IMF (NCL) Structural Adj. Facility _ 23.7 86-09 89-05 Mauritania IMF r Stand-by Arrangement _ 10.0 87-05 88-05 Mauritania WB 87(NCL) *SAL I 1812 42.4 87-08 88-12

Mauritania IMF | Enhanced SAF _ 50.9 89-05 92-05 Mauritania WB 90 *P.E. Sector Adj. 2166 50.0 90-08 95-04 Mauritania WB 90 AGSECAL/irrigation 2093 25.0 1 90-04 95-12

Mauritania IMF Enhanced SAF _ 33.9 92-12 94-12

Mauritius IMF (NCL) Stand-by Arrangement _ 73.0 79-10 80-09 Mauritius IMF Stand-byArrangement 35.0 80-09 81-09 Mauritius |WB_ | 81 SALI L2010 15.0 81-06 82-06 Mauritius IMF Stand-byS Arrangement 30.0 81-12 82-12 Mauritius IMF | Stand-by Arrangement 49.5 83-05 84-08 Mauritius WB 84 SAL 11 L2361 40.0 84-03 85-06 Mauritius IMF T Stand-by Arrangement _ 49.0 85-03 86-08 Mauritius WB 87 (NCL) Industrial Sector Loan L2791 25.0 87-10 89-06 Mozambique IMF T___ |_Structural Adj. Facility _ 42.7 87-06 90-06 Mozambique WB 88(NCL) *Ec. Recovery Program 1841 88.6 87-09 91-06 Mozambique WB 89(NCL) Ec. Recovery Program 2021 90.0 89-08 94-04 Mozambique IMF | Enhanced SAF _ | ___ 100.7 90-06 93-09 Mozambique WB | 92_ Econ. Recovery Credit 2384 180.0 92-08 95-06 SUBSAHARAN AFPRICA

WORLD BANKAND INTERNATIONALMONETARY FUND ADJUSTMENTOPERATIONS (Jan 1979 t rough Aug. 1994) Country Org. Board Date Loan Type Credit # Amount Amount Date Date .___ _ (FY) ($m) WB (Sm) IMF Effective Closed Mozambigue WB 94 SERC 2628 200.0 94-07 97-08 Mozambique IMF Enhanced SAF 130.1 90-06 95-06 Niger IMF Stand-by Arrangement 18.0 83-10 84-12 Niger IMF Stand-by Arrangement 16.0 84-12 85-12 Niger IMF _ Stand-by Arrangement 13.5 85-12 86-12 Niger WB 86 *SAC 1 1660 60.0 86-05 87-12 Niger IMF (NCL) Structural Adj. Facility 21.4 86-11 88-12 Niger IMF Stand-by Arrangement 10.1 86-12 87-12 Niger WB 87(NCL) *Publ. Enterprise Reform 1833 80.0 88-01 90-09 Niger IMF Enhanced SAF 47.2 88-12 91-12 Niger WB 94 Econ. Recovery 2581 25.0 94-03 95-06 Nigeria WB 84(NCL) Fertilizer Sector Loan L2345 250.0 83-12 86-12 Nigeria WB 87(NCL) Trade/Inv. SECAL L2758 452.0 86-11 91-12 Nigeria IMF Stand-by Arrangement 650.0 87-01 88-01 Nigeria WB 89 2nd Trade/Inv. SECAL L3011 500.0 88-12 90-12 Nigeria IMF Stand-by Arrangement 475.0 89-02 90-04 Nigeria WB 90(NCL) University Dev. 2139 120.0 90-10 95-06 Nigeria IMF Stand-by Arrangement 319.0 91-01 92-04 Rwanda IMF Stand-by Arrangement 80-10 79-10 80-10 Rwanda IMF Structural Adj. Facility 30.7 91-04 94-04 Rwanda WB 91 SALI 2271 90.0 91-10 94-12 Sao Tome/Principe WB 87(NCL) *SAL 1 1825 7.0 88-01 92-03 Sao Tome/Principe IMF Structural Adj. Facility 2.8 89-06 92-06 Sao Tome/Principe WB 90 SAC 11 2165 9.8 91-09 94-12 Senegal IMF (NCL) Extended Fund Facility 184.8 80-08 83-08 Senegal WB 81 (NCL) SALI L1931 30.0 _ 81-03 83-06 Senegal IMF Stand-by Arrangement 63.0 81-09 82-09 Senegal IMF (NCL) Stand-by Arrangement 47.3 82-11 83-11 Senegal IMF Stand-by Arrangement 63.0 83-09 84-09 Senegal IMF Stand-by Arrangement 76.6 85-01 86-07 Senegal WB 86 *SACII 1656 64.0 86-02 87-06 Senegal IMF (NCL) Structural Adj. Facility 54.0 86-11 89-11 Senegal IMF (NCL) Stand-by Arrangement _ 34.0 86-11 87-11 Senegal IMF Stand-by Arrangement 21.3 87-10 88-10 Senegal WB 87(NCL) *SAL III 1802 100.5 87-06 90-02 Senegal WB 90 Banking Financial Sector 2077 45.0 89-12 92-06 Senegal WB 90(NCL) *SALIV 2090 96.2 90-02 93-06 Senegal WB 94 Econ. Recovery Credit 2582 25.0 94-03 95-06 Senegal IMF Enhanced SAF 144.7 88-11 92-06 Sierra Leone IMF (NCL) Extended Arrangement 186.0 81-03 82-04 Sierra Leone IMF Stand-byArrangement 50.2 84-02 85-02 Sierra Leone WB 84 Agricultural Sector Loan 1501 21.5 84-12 96-12 Sierra Leone IMF StructuralAdj. Facility 40.5 86-11 89-11 Sierra Leone IMF Stand-by Arrangement 23.2 86-11 87-11 Sierra Leone WBI 92 *Import Support 2352 43.7 92-04 93-12 Sierra Leone WB 94 *SAC 2546 50.2 93-10 96-06 Sierra Leone IMPF SAF 27.0 94-03 95-03 |Sierra Leone IMF Enhanced SAF I 88.8 94-03 97-03 SUB-SAHARANAFRICA

WORLD BANK AND INTERNATIONALMONETARY FUND ADJUSTMENTOPERATIONS (Jan 1979 through Aug. 194) Country Org. Board Date Loan Type Credit T Amount Amount Date Date _-. . (F) (Sm) WB (Sm) IMF Effective Closed Sierra Leone IMF Stand-by Arrangement 11.5 80-02 81-02 Sierra Leone IMF Stand-by Arrangement 43.1 81-07 82-07 Sierra Leone IMF Stand-by Arrangement 60.0 82-07 84-01

Somalia IMF Stand-by Arrangement _ _20.1 85-02 86-02 Somalia WB 86 *Agricultural Sector Loan 1711 62.6 86-08 89-12 Somalia IMF Structural Adj. Facility 30.9 87-06 90-06 Somalia IMF (NCL) Stand-by Arrangement 33.2 87-06 89-02 Somalia WB 89(NCL) 2nd AGSECAL 2030 70.0 89-08 92-01 Sudan IMF (NCL) Extended Fund Facility 427.0 79-05 82-05 Sudan WB 80(NCL) Agr. Rehab. Loan 1000 65.0 80-05 83-03 Sudan IMF Stand-by Arrangement 198.0 82-02 83-02 Sudan IMF Stand-by Afrangement 170.0 83-02 84-03 Sudan WB 83(NCL) 2nd Agr. Rehab. Loan 1389 50.0 83-12 86-11 Sudan IMF Stand-by Arrangement 90.0 84-06 85-06 Tanzania IMF Stand-by Arrangement 179.6 80-09 82-06 Tanzania WB 81 Export Rehab. Loan 1133 50.0 81-05 83-03 Tanzania IMF Stand-by Arrangement 64.2 86-08 88-02 Tanzania IMF Structural Adj. Facility 74.9 87-10 90-10 Tanzania WB 87 *Multisect. Rehab. Prog. 1741 152.2 86-11 89-12 Tanzania WB 89(NCL) *Industry Rehab.ffrade 1969 157.8 _89-02 90-11 Tanzania WB 90 *Agr. Adj. Credit 2116 227.4 90-04 93-01 Tanzania IMF Enhanced SAF ______181.9 91-07 94-07 Tanzania WB T 92 *Fin.Sector _____2308 211.3 91-11 95-12 Togo IMF Stand-byArrangement 21.4 83-03 84-04 Togo WB 83 _ *SAL I _ _ _ 1365 40.0 83-09 85-12 Togo IMF r Stand-by Arrangement _ 19.0 84-05 85-05 Togo IMF Stand-by Arrangement 15.4 85-05 86-05 Togo WB 85 SAL II 1599 37.8 85-09 87-12 Togo IMF Stand-by Arrangement 23.0 86-06 88-04 Togo IMF (NCL) Structural Adj. Facility 26.9 88-03 89-05 Togo IMF T Stand-byArrangement _ 13.0 88-03 89-04 Togo WB | 88 *SAL III 1892 45.3 88-06 90-10 Togo IMF Enhanced SAF _ _ 46.1 89-05 93-05 Togo WB 91 SAL IV 2194 55.0 90-12 95-06 Togo WB 91 Population/HealthAdj. 2211 14.2 92-06 95-06

Uganda IMF Stand-by Arrangement _ 112.5 82-08 83-08 Uganda WB 83(NCL) AGSECAL 1328 _ 70.0 83-07 92-06 Uganda IMF Stand-by Arrangement 95.0 83-09 84-09 Uganda IMF (NCL) Structural Adj. Facility _ 69.7 87-06 89-04 Uganda WB 88 *Ec. Recovery Program 1844 130.0, 87-10 92-06 Uganda IMF Enhanced SAF r 179.3 89-04 92-11 Uganda WB 90 *Economic Recovery II 2087 128.6 90-02 93-06 Uganda WB 91 Agr. Sector Adj. Credit 2190 100.0 91-01 95-06 Uganda WB 92 *SAC I (SAL) | _2314 126.4 92-01 94-07 ,Uganda WB 93 *Financial Sector Adj. Cr. 2496 101.1 93-08 96-06 Uganda I__WB _94_ _ __SACII ____ 2608 80.0 94-06 95-12 Uganda IMF Enhanced SAF 219.1 89-04 93-11 Zaire IMF _ Stand-by Arrangement j 118.0 79-08 81-02 SUB-SAHARANAFRICA

WORLDBANK AND INTERNATIONALMONETARY FUND ADJUSTMENTOPERATIONS (Jan 1979 throughAu. 1994) Country Org. BoardDate Loan Type Credit l Amount Amount Date Date l ______(FY) (Sm) WB (Sm) IMF Effective Closed Zaire IMF (NCL) Extended Arrangement . 912.0 81-06 82-06 Zaire IMF Stand-by Arrangement 228.0 83-12 85-03 Zaire IMF Stand-byArrangement 162.0 85-04 86-04 Zaire IMF (NCL) Stand-byArrangement 214.2 86-05 88-03 Zaire WB 86 *IndustrialSector Adj. Cr. 1708 80.0 87-01 88-06 Zaire IMF StructuralAdj. Facility 203.7 87-05 90-05 Zaire IMF Stand-by Arrangement 100.0 87-05 88-05 Zaire WB 87 *SALI 1831 163.3 87-09 89-12 Zaire IMF Stand-byArrangement 116.4 89-06 90-06 Zambia IMF (NCL) Extended Fund Facility 800.0 81-05 82-07 Zambia IMF Stand-byArrangement 211.5 83-04 84-04 Zambia IMF (NCL) Stand-by Arrangement 225.0 84-07 86-04 Zambia WB 84 Export Rehab./Diversn. L2391 75.0 84-07 88-09 Zambia WB 85(NCL) *AgriculturalSector Loan 1545 35.0 _ 85-08 88-06 Zambia WB 86(NCL) *ndustrial Sector Loan 1630 62.0 _ 85-11 88-12 Zambia IMF (NCL) Stand-byArrangement 229.8 86-02 88-02 Zambia WB 86 Ec. Recovery Program 1720 50.0 _86-12 91-06 Zambia WB 91 *RecoveryCredit (SAL) 2214 247.2 91-03 93-06 Zambia WB 92 *PrivatizationReform 2405 237.7 92-07 95-04 Zambia WB 93 *PIRC II 2523 110.0 93-12 95-06 Zambia WB 94 Econ & Social Adjustment 2577 150.0 94-05 95-12 Zimbabwe IMF Stand-byArrangement 37.5 81-04 82-04 Zimbabwe IMF _ Stand-byArrangement 300.0 83-03 84-09 Zimbabwe WB 83 ExportIndustry Policy 2239 70.6 _ 93-03 87-07

Zimbabwe IMF (NCL) Extended Arrangement _ _340.8 92-01 92-09

Zimbabwe IMF Extended Arrangement _ 114.6 92-09 95-09 Zimbabwe WB 92 SAP 2331 50.0 92-04 93-12 Zimbabwe WB 92 SAP L3434 125.0 92-04 93-12 Zimbabwe WB _ 93 SACII 2527 125.0 _ 93-12 95-06 Zimbabwe IMF EnhancedSAF 200.6 92-09 95-09

TOTAL WB: 12,959.0 IMF: 16,395.9 Under the heading 'Credit #' the numbers preceededby an L are for loans. This table does not include hybrid loans,those providing investmentfinancing as well as balance of payments support. * Projects funded by tranche loans: The fiscal year is that of the original loan, as is the effective date. The closingdate is the latest date given for any one loan, and the amount is the total of all funding. NCL = loan cancelled, partly or totally; DRL = Debt ReductionLoan; SAF = Structural AdjustmentFacility; Loan Supplements not listed but added into the totals. Note: IMF loans are those that were in place between the Board date and terminationdates of World Bank adjustment loans, or that became effectivewithin two years of Board date of World Bank adjustmentloan. They are as of June 30, 1994. Notes: \a Approvai date listed, as loan is not yet effective. Sources: AdjustmentLending Conditionalityand ImplementationDatabase, IMF Annual Reports and IMF Treasurer's Dept. For 89-94: IFS, Financial Database (FDB), and Lending Oerations Database (LOD). Annex Table A.3. - Fertilizer Use ('00 gm nutrients/lha arable land)

% increase p.a. Country 1970/71 1986 1991 1986-91

Sub-Saharan Africa 33 86 90 0.9 Angola 33 - 74 - Benin 36 63 38 -9.6 Botswana 15 5 7 7.0 Burkina Faso 3 61 39 -8.6 Burundi 5 23 16 -7.0 Cameroon 34 75 31 -16.2 Cape Verde - - - - Central African Republic 12 1 4 32.0 Chad 7 13 18 6.7 Comoros - - - - Congo 525 59 119 15.1 Cote d'lvoire 74 83 97 3.2 Djibouti - - - - Equatorial Guinea - - - - Ethiopia 4 66 80 3.9 Gabon - - 25 - Gambia, The - - - - Ghana I1 27 48 12.2 Guinea 44 4 7 11.8 Guinea-Bissau - - 17 - Kenya 238 518 477 -1.6 Lesotho 10 130 144 2.1 Liberia 63 46 - - Madagascar 61 23 26 2.5 Malawi 52 131 198 8.6 Mali 31 166 73 -15.2 Mauritania I1 50 93 13.2 Mauritius 2095 2361 2616 2.1 Mozambique 22 19 8 -15.9 Niger 1 7 3 -15.6 Nigeria 2 94 124 5.7 Rwanda 3 20 26 5.4 Sao Tome and Principe - - - - Senegal 17 40 50 4.6 Seychelles - - - l Sierra Leone 17 22 20 -1.9 Somalia 27 16 - - Sudan 28 67 63 -1.2 Swaziland - - - - Tanzania 31 77 144 13.3 Togo 3 78 172 17.1 Uganda 14 - - - Zaire 6 15 - - Zambia 73 148 113 -5.3 Zimbabwe 446 571 606 1.2

India 137 571 743 5.4 China 410 1740 2777 9.2 a. Fertilizer consumption in terms of hundreds of grams of plant nutrients per hectare of arable land; World Indicators 1992, World Bank, 1992. And for 1986: World Bank. World DevelopmentReport 1989 Table A.4. - Sub-Saharan Africa: Agricultural Value-Added and Agricultural Land.

,, _ _, ______l ______Country 1991 Value- Percent of Cum. % Total Potentially Remaining Percent Added in Total for of Total Land Cultivable Reserves of of Total Agriculture (Sm SSA for SSA (million Land (million Cultivable current) ha) ha) Land (millionha) -

Nigeria 12271 25.8 25.8 91.1 47.9 7.1 1.3 Ghana 3404 7.2 33.0 23.0 11.0 4.9 0.8 Camneroon 3172 6.7 39.7 46.9 31.5 21.6 3.8 Ethiopia 2822 5.9 45.6 110.1 24.9 7.0 1.2 Cote d'lvoire 2754 5.8 51.4 31.8 14.1 5.5 1.0 Sudan 2625 5.5 56.9 237.6 63.5 46.9 8.4 Zaire 226.8 177.7 160.0 28.5 Kenya 1895 4.0 60.9 56.9 6.7 0.6 0.1 Uganda 1425 3.0 63.9 20.0 10.7 3.3 0.6 Tanzania 1352 2.8 66.7 88.6 36.6 20.2 3.6 Senegal 1129 2.4 69.1 19.2 9.7 3.7 0.7 Mali 1082 2.3 71.4 122.0 16.8 7.9 1.4 Zimbabwe 1082 2.3 73.7 38.6 15.9 10.5 1.9 Burkina Faso 1074 2.3 76.0 27.4 10.7 3.3 0.6 l Niger 877 1.8 77.8 126.7 11.8 0.3 0.1 Mozambique 854 1.8 79.6 78.4 41.4 33.4 6.0 Guinea 850 1.8 81.4 24.6 7.5 2.0 0.4 Madagascar 822 1.7 83.1 58.1 32.8 28.3 5.0 Rwanda 812 1.7 84.8 2.5 0.9 .. 0.0 Malawi 701 1.5 86.3 9.4 4.1 0.9 0.2 Benin 692 1.5 87.8 11.1 6.3 2.8 0.5 Zarnbia 603 1.3 89.1 74.1 51.1 44.7 8.0 Burundi 565 1.2 90.3 2.6 1.0 .. 0.0 '[ogo 531 1.1 91.4 5.4 2.1 0.1 0.0 Chad 528 1.1 92.5 125.9 17.0 7.6 1.4 CAR 497 1.0 93.5 62.3 35.8 29.4 5.2 Gabon 425 0.9 94.4 25.7 12.9 12.4 2.2 Congo 356 0.7 95.1 34.2 21.7 20.7 3.7 Sierra Leone 319 0.7 95.8 7.2 2.6 0.4 0.1 Mauritius 248 0.5 96.3 0.2 0.1 .. 0.0 Mauritania 226 0.5 96.8 103.0 1.4 0.3 0.1 Namibia 194 0.4 97.2 82.3 0.7 .. 0.0 Botswana 190 0.4 97.6 58.5 1.7 .. 0.0 Guinea Bissau 96 0.2 97.8 2.8 0.3 .. 0.0 Lesotho 82 0.2 98.0 3.0 0.3 .. 0.0

Sub-Totals 47528 100.0 100.0 1 2243.8 817.2 561.3 100.0

South Africa 4594

Totals 52122 124.6 77.3 71.5 12.7 Source: FAO, African Agriculture:The Next 25 Years. Atlas of African Agriculture, 1986, pp.52-53.

Note: Not recorded (Av. 1987-89 Agr. Value-Added[$m of 1987] in parentheses):Angola (905), Cape Verde (37), Comoros (73), Djibouti (9), Equatorial Guinea (70), Gambia (55), Liberia, Sao Tome & Principe (16), Seychelles(13), Somalia(637), Swaziland,Zaire (2286). Sources: WDR 1993, pp. 244-245; ADI 1992, p.17 .

Note: Estimates of Potentially Cultivable Land are based on knowledgeof length-of-growing-period zones and crop requirements. "In theory, this will leave more than 550 million ha of potentiallycultivable land still to be exploited, much of it in Central Africa. Many constraints such as the presence of trypanosomiasis and the instability of soils once the natural vegetation is removed will have to be overcome, however,before this land can be hought into use; its cultivationwill require greatly increaseduse of inputs such as credit, fertilizer, improved seed and mechanization, and road and rail communicationswill also have to be improved. Moreover, much of it is already in use for forestry or grazing." FAO, African Agriculture:The Next 25 Years. Atlas of African Agriculture, 1986. p.52. Table A.5 Sub-Saharan Africa - Agricultural Valued-Added

Country 1992 Agr. Value-Added 1991 Agr. Value-Added 1987/89 Agr. Value-Added 91/88 ($m curr.) % SSA Cum% ($m curr.) % SSA Cum% ($m '87) % SSA Cum% Nigeria 10,831 21.5 21.5 12,271 25.8 25.8 7,470 16.4 16.4 164 Ghana 3,343 6.7 28.2 3,404 7.2 33 2,667 5.8 22.2 128 Cameroon 2,286 4.5 32.7 3,172 6.7 39.7 2,979 4.3 26.5 106 Ethiopia 2,984 5.9 38.6 2,822 5.9 45.6 2,115 4.6 31.1 133 C6te d'lvoire 3,257 6.5 45.1 2,754 5.8 51.4 3,458 7.6 38.7 80 Sudan 2,625 5.2 50.3 2,625 5.5 56.9 5,756 12,6 51.3 46 Zaire 2,700 5.4 55.7 2,286 5 56.3 Kenya 1,844 3.7 59.4 1,895 4 60.9 2,264 5 61.3 84 Uganda 1,711 3.4 62.8 1,425 3 63.9 2,537 5.6 66.9 56 Tanzania 1,439 2.9 65.7 1,352 2.8 66.7 1,920 4.2 71.1 70 Senegal 1,217 2.4 68.1 1,129 2.4 69.1 1,030 2.3 73.4 110 Mali 1,197 2.4 70.5 1,082 2.3 71.4 975 2.1 75.5 III Zimbabwe 1,115 2.2 72.7 1,082 2.3 73.7 673 1.5 77 161 Burkina Faso 1,074 2.1 74.8 1,074 2.3 76 838 1.8 78.8 128 Niger 870 1.7 76.5 877 1.8 77.8 729 1.6 80.4 120 Mozambique 854 1.7 78.2 854 1.8 79.6 909 2 82.4 94 Guinea 1,058 2.1 80.3 850 1.8 81.4 640 1.4 83.8 133 Madagascar 925 1.8 82.1 822 1.7 83.1 838 1.8 85.6 98 Rwanda 630 1.3 83.4 812 1.7 84.8 777 1.7 87.3 105 Malawi 473 0.9 84.3 701 1.5 86.3 390 0.9 88.2 180 Benin 705 1.4 85.7 692 1.5 87.8 576 1.3 89.5 120 Zambia 603 1.2 86.9 603 1.3 89.1 257 0.6 90.1 235 Burundi 535 1.1 88 565 1.2 90.3 573 1.3 91.4 99 Togo 580 1.2 89.2 531 1.1 91.4 448 1 92.4 119 Chad 547 1.1 90.3 528 1.1 92.5 346 0.8 93.2 153 CAR 549 1.1 91.4 497 1 93.5 432 0.9 94.1 115 Gabon 525 1 92.4 425 0.9 94.4 Congo 366 0.7 93.1 356 0.7 95.1 292 0.6 94.7 1 122 Sierra Leone 264 0.5 93.6 319 0.7 95.8 223 0.5 95.2 143 Mauritius 281 0.6 94.2 248 0.5 96.3 211 0.5 95.7 118 Mauritania 309 0.6 94.8 226 0.5 96.8 310 0.7 96.4 73 Namibia 243 0.5 95.3 194 0.4 97.2 192 0.4 96.8 101 Botswana 188 0.4 95.7 190 0.4 97.6 66 0.1 96.9 288 Guinea Bissau 97 0.2 95.9 96 0.2 97.8 82 0.2 97.1 117 Lesotho 57 0.1 96 82 0.2 98 66 0.1 97.2 124

SUB-TOTALS 50,266 100 100 47,528 100 100 45,616 100 100 104

South Africa 4,069 1 4,594 ___ 4,910 94

TOTALS 54,335 _ _ 52,122 __ _ 50,526 103

Note: Not recorded (Av. 1987-89 Agr. Value- Added [$m of 1987] in parentheses): Angola (905), Cape Verde (37), Comoros (73), Djibouti (9), Equatorial Guinea (70), Gambia (55), Liberia (est. 130), Sao Tome & Principe (16), Seychelles (13), Somalia (637), Swaziland (est. 140).

Sources: WDR 1994, pp. 168-169; WDR 1993,pp.244-245; ADI 1992, p.17 TableA.6 Sub-SaharanAfrica IrrigatedAreas (thousandhectares) _ 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 SUB-SAHARAN AFRICA 4741 4793 4868 4957 4882 5234 5242 5289 5349 5402 5440 excluding Nigeria 3911 3958 4028 4114 4036 4384 4387 4429 4484 4532 4565 Angola ...... Benin 5 5 6 6 6 6 6 6 6 6 6 Botswana 2 2 2 2 2 2 2 2 2 2 2 Burkina Faso 10 12 12 12 12 14 16 16 16 20 20 Burundi 58 60 63 65 66 68 70 70 72 72 74 Cameroon 16 16 18 18 21 22 24 26 28 30 30 Cape Verde 2 2 2 2 2 2 2 2 2 2 2 Central African Republic ... __.. _= . . ______Chad 10 0 10 10 10 10 10 10 10 10 10 Comoros .I Congo, People's Republic 4 4 4 4 4 4 4 4 4 4 4 Cote d' Ivoire 46 48 50 52 54 56 58 60 62 64 66 Djibouti ...... Equatorial Guinea ...... _ ...... _.. _. Ethiopia 162 162 162 162 162 162 162 162 162 162 162 Gabon A...... Gambia, The 12 12 12 12 12 12 12 12 12 12 12 Ghana 8 8 7 7 7 8 8 8 8 8 8 Guinea 68 70 14 16 18 70 70 22 24 25 26 Guinea-Bissau Kenya 40 40 40 40 42 40 42 49 52 54 55 Lesotho Liberia 2 2 2 2 2 2 2 2 2 2 2 Madagascar 682 718 755 790 826 860 880 890 900 920 930 Malawi 18 18 18 18 18 18 18 18 20 20 20 Mali 159 166 173 180 187 195 200 205 205 205 205 Mauritania I 12 12 12 12 12 12 12 12 12 12 Mauritius 16 16 17 17 17 17 17 17 17 17 17 Mozambique 70 74 80 86 93 100 105 110 115 115 115 Namibia 4 4 4 4 4 4 4 4 4 4 4 Niger 24 30 30 30 30 25 32 32 32 40 40 Nigeria 830 835 840 843 846 850 855 860 865 870 875 Rwanda 4 4 4 4 5 4 4 5 4 4 6 SaoTome & Principe ...... Senegal 170 170 175 175 4 175 175 175 180 180 180 Seychelles .. . .X _ . .. Sierra Leone 22 23 25 26 28 30 32 32 34 34 34 Somalia 150 105 105 110 110 190 112 114 116 118 118 Sudan 1790 1800 1818 1833 1848 1860 1870 1880 1890 1900 1910 Swaziland 58 60 60 60 62 62 62 62 62 62 64 Tanzania 120 122 124 126 127 129 146 150 153 150 152 Togo 6 7 7 7 7 7 7 7 7 7 7 Uganda 6 8 8 8 9 9 9 9 9 9 9 Zaire 7 8 8 8 9 9 9 10 10 10 11 Zambia 19 20 23 25 28 20 20 30 32 32 32 Zimbabwe 130 150 '178 185 192 180 185 216 220 220 220