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.