Trends in Agricultural Aid

Much of the impetus behind the call to reduce trade-distorting agricultural support in the EU and other OECD countries is because of the expectation that this will have a pro-poor effect in stimulating agricultural development in developing countries. But it is increasingly recognised that more open markets, on their own, are not the whole answer. There is a need to help developing countries, and particularly the least developed among them, to take advantage of the associated new market opportunities.

The question is whether the development assistance efforts of OECD member countries are as effective as they might be in promoting agricultural development and in enabling developing countries to take advantage of trade liberalisation? What is the EU doing in this regard?

Trends in overall aid

Consider first, trends in overall aid flows. The flow of official development assistance (ODA) to developing countries maintained a steady level during the 1980s, but fell sharply after the end of the Cold War. By the late 1990s, aid flows were at an all-time low of 0.22% of donor’s combined national income.

However, aid efforts have increased since 2001. The Monterrey Conference on Financing for Development in 2001 marked the beginning of a recovery in aid. Following the Monterrey Conference aid flows have increased by 4% a year in real terms. However, despite this increase, there remained a large aid shortfall for financing the MDGs (estimated at $46 billion in 2006).

At the Gleneagles G8 and UN Millennium +5 summits in 2005, donors again committed to increase their aid. The pledges made at these summits, combined with other commitments, implied lifting aid from $80 billion in 2004 to $130 billion in 2010 (at constant 2004 prices). However, few donors are on track to meet their stated commitments to scale up aid.

In 2007, the 22 member countries of the OECD provided $103.7 billion in aid. But it is clear that donors still face a real challenge to meet the Gleneagles G-8 summit projection to double aid to Africa by 2010. The OECD has calculated a $37bn shortfall in aid funding commitments by donors.

The largest donors on 2007, by volume, were the United States, followed by Germany, France, the UK and Japan. The only countries to exceed the UN target of 0.7% of GNI were Denmark, Luxembourg, the Netherlands, Norway and Sweden.

The combined ODA of the fifteen Development Assistance Committee (DAC) members of the EU – which represents 60% of the DAC ODA – fell by 5.8% in real terms to $62.1bn, representing 0.40% of their combined GNI. Excluding a decrease in debt relief grants, net ODA from DAC EU members rose by 8.8%. Net ODA by the European Commission rose by 3% to $11.8bn, mainly due to increased programme and project aid.

Trends in agricultural aid

Equally important is how donors choose to allocate these funds. Donors have steadily reduced the priority they give to assistance to agriculture. In the majority of developing countries aid to agriculture has been stagnant or declining for over two decades, although there are now welcome signs that aid to agriculture is again increasing..

ODA to agriculture decreased in real terms by nearly half between 1980 and 2005, despite an increase of 250% in total ODA commitments over the same period. The share of ODA to agriculture fell from about 17% in the early 1980s to a low of 3% in 2005. In Sub-Saharan Africa the reduction in agricultural aid was less dramatic, but still sizeable, with a decline of about 35% over the period.

Bilateral aid to agriculture has also fallen from 12% of total bilateral aid in 1980-81 to 6% of the total in 2000-01. For individual donors, the fall is even more striking. For Canada, the fall was from 22 to 4%; for New Zealand, from 25 to 3%; for the Netherlands, from 21 to 3% and for the United States from 18 to 4%. The multilateral institutions have also reduced aid flows to agriculture, from 35% of their total flows in 1980-81 to 7% in 2000-01.

Public expenditure on agriculture in Sub-Saharan Africa has displayed the same trend, even in areas where public investment is known to have high returns, such as agricultural research and development. According to an International Food Policy Research Institute study covering 44 developing countries, the share of agricultural expenditure in total government spending dropped from 11% in 1980 to about 7% in 2002.

Reasons why aid to agriculture is falling

The declining interest of donors in providing assistance to agricultural development has been called ‘agricultural aid fatigue’. There are various reasons for it. Donors and lending agencies have been put off by the high failure rate of agricultural projects, as well as the inherent complexity and risk and the high transactions costs (preparation, supervision and monitoring) involved in agricultural and rural development projects. The number of technically competent staff in agriculture employed by donor agencies has shrunk, making it even more difficult to design successful projects to claw back some of the share which was lost.

In some cases, projects performed poorly because of unfavourable domestic policies, which discriminated against the agricultural sector. The increased profile of poverty alleviation also led many donors to give priority to social spending in the areas of health and education. The initial Poverty Reduction Strategy Papers were strongly oriented towards social provision sectors, which the growth in programme lending in other areas such as debt forgiveness also squeezed the resources available for directly productive sectors such as agriculture.

The case for an renewed focus on agricultural aid

One argument for a renewed focus on agricultural aid is the need to provide a sustainable basis for the health, education and social safety net programmes that donors wish to put in place. Without a viable production base, local communities cannot afford to pay for the teachers, the drugs and the transfers when donors withdraw. And for many communities, and particularly rural communities, agriculture is the core of that production base.

The importance of global public goods for the livelihoods of poor people is a further argument for raising assistance to the agricultural sector in developing countries. These include the generation of technologies for the sustainable management of land and water, forest and marine resources; the control of trans-boundary animal and crop pests and diseases; the conservation of agro-biodiversity; ensuring food safety; carbon sequestration; and the rehabilitation of degraded lands.

The link with trade policy reform provides another argument for re-evaluating the priority given to agricultural assistance. New market access opportunities, together with a more favourable policy environment for agriculture in many developing countries, enhance the attractiveness of agricultural development projects.

Committing more aid resources for agricultural development

In recent years, most aid agencies and donor governments have reviewed their rural development policies. Calls to increase the priority given to agricultural in aid budgets were made at the UN Financing for Development meeting in 2002, the Johannesburg World Summit on Sustainable Development in 2002 and the G8 meeting in Evian in 2003.

In 2007, the World Bank launched its flagship World Development Report entitled ‘Agriculture for Development’ and the Bank has increased its support for agriculture and rural development, earmarking $3.1 billion in 2007, an increase for the fourth year in a row. The Bank has also devised ‘agriculture for development agendas’ for specific regions and countries, mobilising skills, political commitments and resources.
Increasing aid to agriculture will only be possible if developing countries, too, increase their investment in agriculture. However, in the African continent the actual increase in real spending has been modest even though the heads of state of the African Union pledged in the Maputo Declaration of 2003 to raise spending on agriculture to 10 percent of public budgets within 5 years.

At the G8 Gleneagles Summit in 2005, OECD members committed to increasing aid up to USD 50 billion a year by 2010 in order to step up the fight against hunger and poverty. For agriculture, G8 heads agreed to “support a comprehensive set of actions to raise agricultural productivity, strengthen urban-rural linkages and empower the poor” based on national initiatives and in co-operation with the African Union (AU)/ NEPAD Comprehensive African Agriculture Development Programme (CAADP) and other African initiatives. To respond to the 2008 food crisis, no less than five international summits took place between June 2008 and November 2009 that focused, at least in part, on global food security. These included the FAO High Level Conference on Food Security in June 2008; the G8 Summit in Hokkaido in July 2008; the Madrid Food Summit in January 2009; the G8 Summit in L’Aquila in July 2009; and the FAO World Food Summit in November 2009. The L'Aquila Summit pledged €20 billion over the next three years for development aid for agriculture. Donors also committed to better co-ordinate their interventions and to support government programmes and agricultural policies.

The EU has also increased its aid for agricultural development. On 21 November 2008, representatives of the European Parliament and the Council of Ministers agreed on a €1 billion food facility, availing additional agricultural aid for developing countries over the period 2008-10. In total, the EU Commission expects to contribute almost €3 billion in 2010-2012 within the initiative on global food security agreed at the G8 summit of world leaders in 2009.

Links:

OECD, Focus on aid to agriculture
Aid in support of Agriculture: an overview of available studies and links to statistical methodology.

FAO, Committee on World Food Security
The Committee for World Food Security (CFS) is the United Nations’ forum for reviewing and following up on policies concerning world food security.It is the main global platform dealing with food security and nutrition and is a central component in the evolving Global Partnership for Agriculture, Food Security and Nutrition.

G-20 Toronto Summit conclusions on agricultural development
Provides an update on developments in the G-20 process to develop a Global Partnership for Agriculture and Food Security

Global Donor Platform for Rural Development Website
The Global Donor Platform for Rural Development is an initiative of development agencies and international financial institutions to improve donor cooperation, collaboration and coordinated dialogue with partner countries. Its ultimate objective is to reduce poverty and enhance economic growth in rural areas in developing countries.

Resources:

European Commission DG Development, Communications on tackling hunger in developing countries, 2010
The press release announcing two Commission policy frameworks, one on humanitarian assistance and the other a policy framework to assist developing countries improve their food security, with links to both documents.

OECD, Measuring Aid to Agriculture (PDF), 2010
Briefing paper presenting statistics on the main donors and recipients of aid to agriculture

UK Department for International Development/Department for the Environment, Food and Rural Affairs, Policy Narrative on Global Food Security and Sustainable Agriculture (PDF), 2010
Provides an overview of the current global food security situation and reviews the international response since the 2008 food crisis to help improve global food security and sustainable agriculture for both the short and longer term.

ODI, Accra 2008: The Bumpy Road to Aid Effectiveness in Agriculture (PDF), 2008
This paper sets out areas in agricultural aid requiring focused attention including the overwhelmingly private nature of agricultural activities, the roles of non-governmental services providers and the significance of context and the cross-sectoral dimension of policy challenges.

ODI, Funding Agriculture: Not ‘How Much?’ but ‘What For?’ (PDF), 2007
This paper explores the decline in aid and public expenditure in agriculture and argues that before calling for an increase in the volume of funding to agriculture, we need a better understanding of how resources are being used.

The Reality of Aid, The New Aid Agenda for Agriculture, 2008
This paper critically analyses the role of aid in agriculture over the past few decades. It specifically looks at why spending in agriculture has declined and discusses what shape the future aid architecture for agriculture should take.

UK Food Group, More Aid for African Agriculture, 2008
This report reviews policy documents of some of the major donors providing aid for African agricultural development – between 2004 and 2008 – and seeks to determine what underlies the expressed policy of each actors; how they influence each other’s priorities; and what mainstream agenda has emerged.

World Bank, Agriculture and Poverty Reduction, 2008
Policy Brief that details the special role that agricultural plays in poverty reduction and makes the case for policies designed to enhance the pro-poor effects of agricultural growth.

Action Aid, Five out of Ten: Assessing progress towards the AU’s 10% budget target for agriculture (PDF), 2010
Examines progress made in African countries towards their own self-proclaimed goal to devote 10% of their budget spending to agriculture