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January 2008, Volume 14, Number 1

Agriculture for Development

The World Bank's World Development Report 2008 concluded that migration out of rural areas "is not a guaranteed pathway out of poverty." About 75 percent of the world's poor live in rural areas, representing some 900 million people who have incomes of less than $1 a day, including 20 percent in sub-Saharan Africa, where two-thirds of residents live in rural areas and agriculture accounts for a third of GDP.

The World Bank urged more rural development rather than faster rural-urban migration. It concluded that raising agricultural productivity, encouraging farmers to grow more high-value fruits and vegetables, and creating nonfarm jobs in rural areas offers the best hope for fast reductions in rural poverty. The major justification for rural development rather than rural-urban migration is that "more than 80 percent of the [recent] decline in rural poverty is attributable to better conditions in rural areas rather than to out-migration of the poor."

Chapter three of the report identified three major routes out of rural poverty: innovations that raise farm productivity and income, living on the farm and working in the nonfarm labor market, and migrating to urban areas. The report emphasizes that many poor farm families are already engaged in all three activities, sometimes using nonfarm wages or remittances to invest in their farms in ways that raise productivity.

The report provides examples of how rural poverty was reduced via improved farming, nonfarm jobs, and rural-urban migration. In Tanzania and Vietnam, farmers who switched from traditional subsistence to cash crops such as fruits and vegetables were able to increase their incomes while remaining mostly farmers. In India and Indonesia, many farmers were able to find nonfarm jobs while continuing to live on the farm to raise their incomes above the poverty line. Rural-urban migration that generated remittances was very important to reducing rural poverty in China, and international migration and remittances had the same poverty-reducing role in Nepal.

In all of the developing countries examined, the share of rural households participating in agriculture was higher than the share of income they received from agriculture. For example, in Vietnam in 1998, over 95 percent of rural households engaged in some agricultural production, but only 40 percent of their income, on average, came from agriculture. The picture in Bulgaria was similar. About 80 percent of rural households participated in agriculture, but less than 40 percent of the average income in rural areas came from agriculture.

The report deals with out-migration from rural areas, emphasizing that the best-educated young people are most likely to leave, which may make the area less attractive for investment. In Mexico, young men are more likely than young women to leave, and non-indigenous groups with fewer ties to ancestral lands more likely to move.

Chapter nine turns to the rural employment challenge, emphasizing that rural labor forces grow as young people turn working age. The report estimates that 20 percent of all workers employed in agriculture are wage workers, and that they are concentrated in high-value crops produced for export. However, wages in agriculture are low, and the report recommends more education and skills training so that rural workers can earn higher wages, usually in nonfarm labor markets (p202).

The share of wage workers in agriculture rises with per capita income and special circumstances, such as the 95 percent estimate of wage workers among those employed in agriculture in Russia and Ukraine. In Mexico, 40 percent of those employed in agriculture are estimated to be wage workers, compared with 60 percent in Chile and Costa Rica (p205).

Chapter nine emphasizes that the wages of farm workers are lower than nonfarm wages, and that farm earnings are variable because of seasonality. The report notes the prevalence of piece-rate wages in agriculture- they minimize the need to invest resources in recruitment and supervision, but leave workers with variable earnings that reflect individual abilities as well as conditions beyond an individual's control, such as yields (p207). In many developing countries, there are fewer year-round or permanent hired workers, as on plantations or estates, and more casual or seasonal workers hired when they are needed.

The World Bank notes that efforts to regulate the farm labor market can have perverse effects, as when hired workers in Brazil formed cooperatives that offered higher take-home pay but none of the social security benefits and minimum wage protection the government was trying to extend to farm workers. High-value commodities such as fruits and vegetables are labor intensive, increasing the demand for wage workers, but the report is silent on whether farm jobs in these sectors should be subject to more or less regulation.

Some 575 million people migrated from rural to urban areas in developing countries over the past 25 years. International migration out of rural areas is male-dominated in Ecuador and Mexico, but female-dominated in the Dominican Republic, Panama and the Philippines.

Between 1993 and 2002, the share of rural residents who were poor (living on less than $1 a day) declined from 28 to 22 percent. Migration "lifts some of the rural poor out of poverty but takes others to urban slums and continued poverty... [so that] migration can be a climb up the income ladder for well-prepared, skilled workers, or it can be a simple displacement of poverty to the urban environment for others."

Migration's effects on agricultural productivity are mixed. On the one hand, migration reduces the labor supply and can reduce farm output. Farm output can later rise if the absence of some family members changes the crop and livestock mix to a more profitable mix as a result of remittances.

A World Bank study released in October 2007 faulted the bank for urging African governments facing fiscal crises in the 1980s and 1990s to reduce their support for agriculture, under the theory that the private sector would fill the gap. Higher prices for farm commodities, this reasoning went, would give farmers incentives to plant more, and expanded markets would attract new suppliers of seed, fertilizer and credit, thus reducing prices.

This did not happen, and farmers faced with high prices for seed, fertilizer and credit reduced production, increasing poverty. In response, the World Bank says it will increase its lending for African agriculture projects, including providing support to improve the transportation infrastructure so that farmers can get their commodities to market.

World Bank. 2007. Agriculture for Development. October.

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