Box 12: Agricultural growth and poverty reduction

Agriculture, due to its size and its linkages with the rest of the economy – which remain strong and significant in many of today’s developing countries – has long been seen by agricultural economists as an engine of growth in the earlier stages of development (see, for example, Johnston and Mellor, 1961; Hazell and Haggblade, 1993). Starting with Ahluwalia’s (1978) work on India, many studies have attempted to quantify the impact of agricultural growth on poverty. Seminal work by Ravallion and Datt (1996) and Datt and Ravallion (1998) showed that rural growth, stimulated by agricultural growth, not only reduced poverty but also had a stronger effect on poverty reduction than growth in other sectors such as manufacturing and services. Furthermore, rural growth had a significant poverty- reduction impact also in urban areas.

Cross-country econometric evidence indicates that GDP growth generated in agriculture is at least twice as effective in reducing poverty as growth generated by other sectors, controlling for the sector’s size (World Bank, 2007). Even in studies that do not find agriculture to be the sector contributing most to poverty reduction, growth in the primary sector is still found to have a sizeable impact on the living standards of the poor – well beyond that suggested by its role in the economy (Timmer, 2002; Bravo-Ortega and Lederman, 2005).

The extent to which agricultural growth contributes to poverty reduction, depends, however, on the degree of inequality in a country (Timmer, 2002) and on the share of agriculture in the economy and in employment. Most agricultural growth, over the long term, stems from technical change (Timmer, 1988). A vast body of literature on the Green Revolution illustrates the strong poverty-reducing impact of productivity- enhancing technological innovation. Such innovation in agriculture has lifted millions of people out of poverty by generating rural income opportunities – not only for farmers, but also for farm labourers and other rural providers of goods and services – and by reducing prices for consumers (FAO, 2004c). Studies on China and India have shown that, dollar for dollar, agricultural research has historically been one of the most effective means for poverty reduction through government spending (Fan, Zhang and Zhang, 2000; Fan, 2002). Subsequent work in Uganda has shown similar results (Fan, Zhang and Rao, 2004).

An FAO study on the roles of agriculture outlined four main channels through which agricultural growth can alleviate poverty (FAO, 2004d; FAO, 2007d): (i) by directly raising incomes; (ii) by reducing food prices; (iii) by raising employment; and (iv) through higher real wages. For the first of these channels, the distribution of land is important: a more equitable land distribution provides a more equal distribution of the benefits of agricultural growth (Lopez, 2007). Similarly, the wage and employment channels are more effective when urban and rural labour markets are better integrated (Anríquez and López, 2007).

Source: FAO, The State of Food and Agriculture, Biofuels: Prospects, Risks and Opportunities (2008) , Chapter 6, p.80

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Other Figures & Tables on this publication:

TABLE 1: Biofuel production by country, 2007

TABLE 2: Biofuel yields for different feedstocks and countries

TABLE 3: Hypothetical potential for ethanol from principal cereal and sugar crops

TABLE 4: Voluntary and mandatory bioenergy targets for transport fuels in G8+5 countries

TABLE 5: Applied tariffs on ethanol in selected countries

TABLE 6: Total support estimates for biofuels in selected OECD economies in 2006

TABLE 7: Approximate average and variable rates of support per litre of biofuel in selected OECD economies

TABLE 8: Energy demand by source and sector: reference scenario

TABLE 9: Land requirements for biofuel production

TABLE 10: Water requirements for biofuel crops

TABLE 11: Import bills of total food and major food commodities for 2007 and their percentage increase over 2006

TABLE 12: Net importers of petroleum products and major cereals, ranked by prevalence of undernourishment

TABLE 13: Share of net staple food-seller households among urban, rural and total households

Box 1: Other types of biomass for heat, power and transport

Box 2: Biotechnology applications for biofuels

Box 3: Biofuel policies in Brazil

Box 4: Biofuel policies in the United States of America

Box 5: Biofuel policies in the European Union

Box 6: Main sources of uncertainty for biofuel projections

Box 7: Biofuels and the World Trade Organization

Box 8: Biofuels and preferential trade initiatives

Box 9: The Global Bioenergy Partnership

Box 10: Biofuels and the United Nations Framework Convention on Climate Change

Box 11: Jatropha – a “miracle” crop?

Box 12: Agricultural growth and poverty reduction

Box 13: Cotton in the Sahel

Box 14: Biofuel crops and the land issue in the United Republic of Tanzania

Figure 1: World primary energy demand by source, 2005

Figure 2: Total primary energy demand by source and region, 2005

Figure 3: Trends in consumption of transport biofuels

Figure 4: Biofuels – from feedstock to end use

Figure 5: Uses of biomass for energy

Figure 6: Conversion of agricultural feedstocks into liquid biofuels

Figure 7: Estimated ranges of fossil energy balances of selected fuel types

Figure 8: Support provided at different points in the biofuel supply chain

Figure 9: Biofuel production costs in selected countries, 2004 and 2007

Figure 10: Breakeven prices for crude oil and selected feedstocks in 2005

Figure 11: Breakeven prices for maize and crude oil in the United States of America

Figure 12: Breakeven prices for maize and crude oil with and without subsidies

Figure 13: Maize and crude oil breakeven prices and observed prices, 2003–08

Figure 14: Price relationships between crude oil and other biofuel feedstocks, 2003-08

Figure 15: Food commodity price trends 1971–2007, with projections to 2017

Figure 16: Global ethanol production, trade and prices, with projections to 2017

Figure 17: Major ethanol producers, with projections to 2017

Figure 18: Global biodiesel production, trade and prices, with projections to 2017

Figure 19: Major biodiesel producers, with projections to 2017

Figure 20: Total impact of removing trade-distorting biofuel policies for ethanol, 2013–17 average

Figure 21: Total impact of removing trade-distorting biofuel policies for biodiesel, 2013–17 average

Figure 22: Life-cycle analysis for greenhouse gas balances

Figure 23: Reductions in greenhouse gas emissions of selected biofuels relative to fossil fuels

Figure 24: Potential for cropland expansion

Figure 25: Potential for yield increase for selected biofuel feedstock crops

Figure 26: Potential for irrigated area expansion

Figure 27: Agricultural trade balance of least-developed countries

Figure 28: Distribution of poor net buyers and sellers of staple foods1

Figure 29: Average welfare gain/loss from a 10 percent increase in the price of the main staple, by income (expenditure) quintile for rural and urban households