Consistency Dimensions of a Strategy

Another integrating dimension for a strategy is that of consistency and complementarity among the various policies. This is the dimension of intra-sectoral consistency in policies. As commented upon earlier, adequate access to farmland can require improvements in financial institutions, and in some cases the creation of new programs and institutions such as land funds. Regularization of land tenure in turn can be a pre-condition for the implementation of other policies and programs. For example, in order to carry out a program of transfers to small farmers it is an unavoidable requirement that farmers' landholdings be registered in some form. Adequate availability of rural finance also is a necessary condition for many programs of technology transfer. On the side of crop production and marketing, a prerequisite for implementation of a program of certificates of grain deposits (crop liens) is the development and dissemination of agreed quality standards for grains. The list of examples could be extended considerably, but it is evident that these kinds of consistency requirements must be satisfied in order for a strategy's recommendations to be feasible.

When the agricultural sector is defined in a broad sense, additional consistency requirements enter the picture. In a number of countries in Latin America, existing land tenure laws are incompatible with sustainable management of national forests. In Panama, to cite only one instance, a rural family cannot aspire to tenure rights on State-owned lands as long as those lands are forested. However, if the family cuts down the trees and plants annual crops on the land, then provisional title to the land can be acquired under the agrarian reform law, and eventually that title can be converted to fee simple title.33 Other policy linkages may be found between agricultural and rural environmental policy and between agricultural and water management policy.

Notwithstanding the importance of policy consistency between agriculture and natural resource management, the effort should avoid the temptation that arises in some kinds of strategizing to try to decide in a centralized way which crops can be grown in each class of soils. In the end, farmers are better placed than government to make those choices. Sometimes, the crop sown in a given area may be the second or third or fourth best for those soils, because the most appropriate crops are grown in even better soils elsewhere, and their

31. P. Milgrom and J. Roberts, Economics, Organization and Management, Prentice-Hall, London, 1992.

32. John C. Beghin and Marcel Fafchamps, 'Constitutions, Institutions and the Political Economy of Farm Policies: What Empirical Content?', in G. H. Peters and Douglas D. Hedley (Eds), 1995, p. 288.

33. These kinds of contradictions and other legal obstacles to sustainable rural development in Panama were reviewed in Roger D. Norton, 'Obstáculos jurídicos e institucionales al desarrollo sostenible del Darién', Panama City, Panama, April 1998 (study developed for the Inter-American Development Bank).

production from those other areas satisfies the market's needs. In both international and national production and marketing, the law of comparative advantage holds sway. What policy planners can usefully do in regard to the suitability of soils for given crops is to present workshops and training courses to inform farmers in a given region of cropping alternatives they may wish to consider and how such crops can be grown and marketed.

In addition to the intra-sectoral consistency dimension, the inter-sectoral dimension is basic as well. As explained above in Chapter 4, macro-economic policies usually figure among the principal determinants of agriculture's growth path, and so a strategy for the sector cannot be presented without taking these linkages into account. Macroeconomic policy has such a pervasive effect that it is no exaggeration to say that it has a strong bearing on the type of society that is evolving. Sometimes it is felt that there is only one 'correct' set of macroeconomic policies, but this is not usually true. The composition of revenue and expenditure policy, the type of exchange rate policy, and the speed at which inflation is reduced all can vary, to mention only three examples. In a recent agricultural strategy for El Salvador, it was pointed out that the high degree of dependence on workers' remittances from abroad, and the policy of allowing them to appreciate the real exchange rate, was creating an economy and society dependent on the service sectors plus the bonded processing industry. Both agriculture and manufacturing per se were being permanently diminished in importance. That strategy also quantified the cost to society of the annual increments to rural-urban migration that resulted from the exchange rate bias against productive sectors, and it pointed out macroeco-nomic alternatives which would help correct that bias and promote the growth of both agriculture and manufacturing.34

The World Bank has commented on the relationship between macroeconomic and sectoral policy in the following words:

Reforms of specific sectoral policies in agriculture should not be divorced from reforms of economy-wide policies and development strategies that induce strong biases against agricultural production and exports. . .. many developing countries have discriminated against agriculture through high industrial protection and through inappropriate macro-economic and exchange rate policies. . . . The linkage between sectoral and macroeconomic policies is usually so strong that it is best to carry out agricultural reforms in conjunction with reforms of general economic policies.

The most important priority in agriculture is to ensure that the profitability of farming is not artificially depressed because of either macro-economic or sectoral policies.35

An agricultural strategy may have to take on the task of outlining viable alternatives for macro-economic strategy, if they have not been brought into the public dialogue already. In addition, it should present clearly the interdependencies between macroeconomic and sectoral policies, and between macro policies and the sector's development prospects. Nevertheless, although a strategy should include both macro-sectoral linkages and a thorough analysis of agriculture's potential and policies for realizing that potential, it also is important to avoid adopting a partisan stance in favor of agriculture vis-à-vis the rest of the economy. If real agricultural prices have declined because of macroeconomic and trade policies, it may be appropriate to institute new policies to reverse that trend, but at the same time to discuss measures that could compensate the urban poor for the effects of rises in food prices. From an intersectoral perspective, the

34. Roger D. Norton and Amy L. Angel, La Agricultura Salvadoreña: Políticas Económicas para un Macro Sector, FUSADES, San Salvador, El Salvador, 1999.

35. The World Bank, World Development Report 1986, The World Bank, Washington, DC, USA, 1986, pp. 149-150.

guiding precept can be to avoid policies that are biased against agriculture, but not to make agriculture a ward of the rest of the economy either .36 Gale Johnson has expressed the idea in the following language:

Agriculture has important contributions to make to economic development, but must receive even handed treatment if the possible contributions are to be realized.37

Fortunately, there are many kinds of policies that foster agricultural development without impinging negatively on other sectors, as discussed throughout this volume.

A productive way to incorporate macroeco-nomic considerations in an analysis of the agricultural economy is through the framework of incentives in the sector. The net incentives for production are the result of many different policies, including taxes, tariffs, export rebates, trade controls and fiscal transfers, in addition to the exchange rate. Sometimes, the net incidence of these policies is uneven within the sector. In Nicaragua, for example, it was pointed out recently that the coffee sub-sector, which is a major contributor to both foreign exchange earnings and smallholder incomes, had been taxed more heavily than other sub-sectors in the economy, thus discouraging its development. A useful strategic exercise in these kinds of circumstances can be to analyze alternative combinations of tax and tariff instruments that would generate the same amount of fiscal revenue with fewer distortions. A more complete exercise would consist of a joint analysis of the incidence of all policy instruments in the sector and the identification of alternative combinations that would lead to a uniform rate of effective protection for all products.

Another basic dimension of planning documents is time. It can be worthwhile to develop projections of the sector's possible path of evolution over time, to illustrate its potential for generating income, employment, foreign exchange and so forth. However, such projections play a purely illustrative role and it is difficult to link them rigorously to the effects of policy reforms and their timing, although they can be useful in a pedagogical sense. A strategy's basic role is to present a vision of the sector that is valid for the medium term, without trying to forecast dates in which the recommendations will generate their effects. In this context, medium term signifies at least five years, and usually the appropriate time span is ten to fifteen years. A clear definition of priorities among policy actions usually is more useful than forecasts of the effects of reforms period by period in the future.

. . . models themselves cannot provide the answers. This is especially true as attempts are made to build into the models the response of policy itself to changes in the economic environment. . . . Such endogenous policy models might reveal some of the historical factors that accounted for policy shifts, but they seldom provide a sense of when the degrees of freedom for policy initiative are about to expand (Peter C. Timmer, 'The Agricultural Transformation', in Carl K. Eicher and John M. Staatz (Eds), International Agricultural Development, 3rd Edn, The Johns Hopkins University Press, Baltimore, MD, USA, 1998, p. 132).

Finally, a major unifying axis of a strategy is its set of policy goals or objectives, and operational sub-objectives and the means to attain them. It is suggested in Chapter 2 that the most

36. In the wording of the Estonian strategy, '. . . policies shall be oriented toward ensuring that agriculture is not an economic parasite on the rest of the economy, and neither is it exploited by the other sectors in the economy' (Food and Agriculture Organization of the United Nations and the Estonian Agricultural University, Estonia: Long-term Strategy for Sustainable Development of the Agriculture, Tartu, Estonia, 1997, p. 9).

37. D. G. Johnson, 'Role of agriculture in economic development revisited', Agricultural Economics, 8(4), June 1993, p. 421.

all-encompassing goals are real rural incomes and, within that category, real incomes of the rural poor. The strategic emphasis on rural poor is warranted from a national viewpoint as well as from a sectoral perspective, since in most developing countries the bulk of the poverty, including the extreme poverty, is found in rural areas. For Africa, for example, it has been noted that:

Overall, household data show that while a large percentage of the urban population does poorly, the rural population does worse.38

Rosamund Naylor and Walter Falcon examined trends in poverty and demographics in the developing world and concluded that, in spite of continuing rural-urban migration:

the poor in rural areas will continue to outnumber their urban counterparts well into the 21st century, even if they are less visible or less vocal politically.39

This emphasis on income leads directly to the subsidiary goal of productivity increases and, in many cases, to the goal of improvements in relative farmgate prices.

It should be pointed out that goals based on rural income and the income of the poor do not include food price stabilization as a primary objective, although it has its place in the pantheon of lesser objectives. Price stabilization often is accepted almost reflexively by some analysts as a fundamental policy goal. Peter Timmer, for example, in an otherwise illuminating piece, sug gests that 'food price stability' is an essential goal, on the basis that it enhances food security and attracts more investment into agriculture.40

The empirical and theoretical evidence on the harm caused by price fluctuations is still unclear. As pointed out by Stephen Jones:

there is a lack of securely based consensus about the significance of, and how to define and measure, the costs of price variability for both food producers and consumers. Micro-economic modeling of the impact of missing markets for price insurance has suggested that the benefits in terms of allocative efficiency from price stabilization through conventional buffer stock policies are likely to be small relative to the distributional impact of these policies and the costs of intervention. On the other hand, this approach has been criticized for neglecting the dynamic impact of price instability on investment and the feedback from food price instability to the macroeconomy.. . .41

Unquestionably, extreme and frequent fluctuations in food prices can be detrimental to both food security and investment prospects, but the price stabilization goal has to be placed in an appropriate context. The first objection to a blanket acceptance of that goal is, price stability at what level of prices? Consistently low food prices (in relation to other prices in the economy) undercut both food security and investment possibilities. While both theoretical and empirical measures of economic well-being (utility functions) depend on both the expected value of farm

38. Kevin Cleaver, 'Rural Development, Poverty Reduction and Environmental Growth in Sub-Saharan Africa', Findings, No. 92, The World Bank, Washington, DC, USA, August 1997.

39. R. L. Naylor and W. P. Falcon, 'Is the locus of poverty changing?', Food Policy, 20(6), December 1995, p. 517.

40. Peter C. Timmer, 'The Macroeconomics of Food and Agriculture', in C. K. Eicher and J. M. Staatz (Eds), 1998, pp. 204-206. Other illustrations may be cited of the practice of invoking food price stabilization as a principal policy goal. For example, 'Policy and institutional support to stabilize the prices of primary products of special interest to poor developing countries, especially in sub-Saharan Africa, should be initiated and firmly implemented'. (From D. J. Shaw, 'Conference report: Development economics and policy: a conference to celebrate the 85th birthday of H. W Singer', Food Policy, 21(6), December 1996, p. 562.)

41. S. Jones, 'Food market reform: the changing role of the state', Food Policy, 20(6), December 1995, p. 556.

income and its variance,42 and farmers have been shown to be risk averse, most farmers would take a significantly higher average product price at the cost of a degree of greater variability in it. The second principal objection is that food prices must fluctuate seasonally to some extent in order to attract investment in marketing and storage facilities, and without those kinds of investments the price fluctuations tend to become even more extreme under external shocks.

A third objection is that undue stress on food price stability can lead to recommendations for policy configurations that have distortive economic effects and have proven to be unwise from a viewpoint of governance in many countries, as in the case of crop support prices and other kinds of price interventions.43 Finally, national policy makers often use the goal of food price stability as an argument for preventing needed increases in real farmgate prices.

In the words of one of the World Bank's World Development Reports:

Prices of agricultural commodities are expected to vary more than the prices of industrial products for three reasons: agricultural markets are vulnerable to climatic changes; the short-run responsiveness of supply and demand to changes in prices is usually less in the case of agricultural products than it is in industrial markets; and the output of most crops is necessarily seasonal. .. . The variability of agricultural commodity prices explains why governments in developing countries often try price stabilization schemes to protect farmers from large price falls and consumers from large price increases. When greater price stability leads to greater income stability, farmers benefit from reduced risks. These benefits, however, are extremely hard to estimate in practice. ... it is possible to overstate the benefits of stabilization. Farmers, for example, can lose rather than gain if incomes fluctuate because of variations in crop yields and outputs - stable prices can then destabilize incomes.. . . Moreover, farmers, consumers, traders, and industrial users can reduce the risks they face by diversifying their activities, by using capital markets, by storing products, and by sharing risks through purchase and sales contracts.

Stabilization is a particularly complex task for any government to undertake, and its costs can be very high.44

Extreme price fluctuations can be moderated by dismantling trade barriers. Again, as the World Bank has commented:45

Greater priority should be given to moderating stabilization and producer [price] objectives, to bringing about stability and predictability of the public policy regime, and to encouraging private sector operations.

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