Improving The Incomes Of The Rural Poor

A central question for poverty alleviation programs is how to devise a set of policies that will help place the rural poor on a self-sustaining growth path, rather than simply continue to provide handouts to meet their immediate needs, urgent though these may be. Programs of food assistance and health care are required for the poorest groups in the population and must be continued, but they do little to assist them to develop capabilities to eventually satisfy their needs through their own efforts. In addition to programs that respond to the symptoms of poverty (such as malnutrition and high incidences of disease), policies are required that diminish the causes of poverty, i.e. that will enhance the earning capacity of low-income households. Better education is often cited as fundamental in this regard. In the agricultural sector, other possibilities arise, including, but not limited to, improved access to cultivable land, improved access to technology and better farmer training, and improved access to production credit.

This question has broader ramifications, for it is part of the concern of how to design policies that not only promote growth in general but which improve the lot of the poor, or at least prevent a deterioration in their condition while other groups prosper. Traditionally, stabilization and growth have been viewed as falling in the purview of policy, but the alleviation of poverty has been relegated to the realm of programs and projects. The question is, can policies be developed that simultaneously promote income growth in general and growth for the poor?10

Part of the answer is found in the research reported in Chapter 1 which concludes that agricultural growth is more effective than industrial growth in reducing poverty as well as contributing to the growth of the entire economy. However, given the magnitude of the rural poverty problem in most developing countries, that answer alone is not sufficient. Hence agricultural policies need to incorporate a special focus on poverty alleviation.

Another part of the answer to this strategic question can be found in seeking to target more effectively the fiscal subsidies that are present in

10. An example of the pervasiveness of this question is found in Chile. Valdés comments: 'Perhaps the most complex unfinished business in Chilean agriculture after 15 years of reform is how to address the needs of small farmers, who are geographically scattered, usually located in disadvantaged areas, and remain separate from the sector's newly found dynamism' (Alberto Valdés, 'Mix and sequencing of economy-wide and agricultural reforms: Chile and New Zealand', Agricultural Economics, 8(4), June 1993, p. 302).

IMPROVING THE INCOMES OF THE RURAL POOR 45

all economies. One of the keys is identifying where these subsidies lie and what their incidence is (over income groups), and another key is finding ways to reorient that incidence. In addition to fiscal outlays, many other examples of policies can be found that, in effect, discriminate against the poorer rural families. For example, in Honduras until 1992 it was illegal to give full title to farms with less than five hectares, in spite of the fact that the vast majority of the farms in the country were that size or smaller. This situation, of course, made it much more difficult for small farmers to obtain production loans than those with larger farms who had full ownership. A similar situation still prevails in Estonia, where the small household plots, a heritage of the era of collective farms, are both the most numerous and the most productive forms of agriculture in the country, but under the existing legislative framework there is no mechanism for titling them.

In Honduras, El Salvador, the Dominican Republic and other countries, the majority of beneficiaries of the agrarian reform have been obliged to receive farmland in a collective form, without being consulted as to their preferences. In the case of El Salvador, a survey showed that the productivity of collective units was markedly inferior to that of farms distributed to individu-als.11 Additionally, in Honduras before 1992 it was very difficult for rural women to obtain access to land through the agrarian reform, which was oriented almost exclusively toward men. These issues and others concerning access to land are explored in Chapter 5.

In effect, these kinds of policies, which were embedded in legislation, made the rural poor into second-class citizens, without the full property rights that other citizens enjoyed. Changing such policies can help bring poor rural families into the economic ambit which prevails for most of the rest of the citizenry, thus giving them improved opportunities to better their economic condition through their own efforts.

Other examples of agricultural growth policies aimed at the poor include the following:

• Systems of certificates of deposit (crop liens) which small farmers can participate in. Normally, the existing banking legislation enables farmers with large harvests to obtain loans for crop storage but often it is not adapted to the situation of small farmers (it may require, for example, separating stored grains by owner, which is impractical when dealing with many small lots).

• Creation of a second-storey land fund, which can finance purchases of small farms, with a subsidy in the price to the buyer. Because of the transaction costs, and uncertainty about legal backing for foreclosure on small units in the event of default, many banks are reluctant to issue land mortgages for small farms, and thus there is scope for government to complement the workings of the market in this area.

• Market-assisted land reform, which is a broadening of the concept of a land fund, so that communities participate in identifying beneficiaries and, in some cases, potential beneficiaries are required to put forth a farm development project.

• Improvement of land rental markets, since rentals are a principal avenue for poor rural families to gain more access to land.

• Privatization of grain silos and other facilities in a way that enables small farmers, and large farmers too, to become shareholders in the enterprise.

• Provision of subsidies via vouchers to enable poorer farmers to purchase private extension services.

• Decentralizing agricultural research, and involving farmers more directly in agricultural research and extension through participatory approaches.

• Development of a viable rural financial system oriented toward the needs of small-scale producers.

• Investments in small-scale irrigation and formation of water users' associations for participatory management of irrigation projects of all sizes.

11. R. D. Norton and M. Llort, Una Estrategia para la Reactivación del Sector Agropecuario en El Salvador, Fundación Salvadoreña para el Desarrollo Económico y Social (FUSADES), San Salvador, October, 1989.

• Institutional reforms to improve respect for contracts, since poor farmers frequently are victims of breaches of contract, for example, by export brokers. In some cases, it may be necessary to develop a system of rural or agrarian tribunals that can act swiftly, and at low cost to plaintiffs, in reinforcing the integrity of contracts.

• Education and training programs oriented toward poor rural families, especially toward rural women.

These are examples of policies that reduce the economic distance between small farmers and the institutions that serve the sector, providing them with more nearly equal economic opportunities, as compared to those enjoyed by large farmers and their urban counterparts. They and other policies for poverty alleviation are discussed throughout this volume.

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