Public Services and Agricultural Development: Challenges, Policy Options, and a Case Study

Kevin Z. Chen, Ph.DSenior Research Fellow & China Program Leader

International Food Policy Research Institute (IFPRI)

Presented at Seminar on Comprehensive Agricultural Development and Poverty Reduction

China-IFAD South-South CooperationNanning, Guangxi, China, November 4-6, 2010

IFPRI

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Agricultural Development Challenges and Inadequate Public Investment on Agriculture

Feeding the Hungry People- Are We on Track?

Source: Fan (2010)

Malnourished People

China: 127

million

India: 252

million

Brazil: 12

million

Rest of World:

482 million

2004-2006

China: 178

million

India: 210

million

Brazil: 16

million

Rest of World:

442 million

1990-1992

Source: FAO (2009)

Rising Global Food Demand

FAO projects that food production needs to almost double by 2050 to feed a world population of 9 billion

Source: Chen (2010)

Agricultural Success Is Essential

Rising Productivity in agriculture provided the foundation for economic success in the vast majority of the economies

The World Bank’s World Development Report 2008: Agriculture for Development points out that GDP growth from agriculture has been shown to raise the incomes of the poor 2-4 times than GDP growth from non-agriculture

Past Methods of Production - Not Sustainable

Past Growth of Population and Agricultural Production

Production Increases of the last half century have been achieved at considerable ecological cost and only with heavy use of energy and oil inputs

A report by the Centre for Food Policy at City University, London, Towards a National Sustainable Food Security Policy

Source: Chen (2010)

Investment Gap on Agriculture

Source: Fan (2010)

Public Expenditure on Agriculture1980 1990 2000 1980 1990 2000

North Africa 3.96 3.79 5.89 14.7 8.7 11.3

Sub-Saharan Africa2.33 4.10 3.10 4.8 3.7 2.9

Asia 63.19 95.34 137.00 9.0 8.6 8.8

LAC 16.11 6.74 7.22 13.2 5.0 5.8

Total 85.58 109.12 153.21 9.5 8.0 8.3

1995 international dollars, billion Percentage share of agriculture GDP

1980 1990 2000 1980 1990 2000 1980 1990 2000 1980 1990 2000

Agriculture 6.1 5.3 5.5 5.7 5.0 2.7 14.4 12.3 9.5 7.9 3.2 2.1

Education 11.0 15.8 19.2 12.6 13.8 11.2 13.8 17.4 18.4 15.3 14.1 19.4

Health 3.0 3.4 14.6 4.2 5.9 7.3 5.3 4.3 5.0 4.1 5.0 7.5

T&C 3.5 3.8 5.1 9.6 4.4 4.1 11.8 5.2 4.0 11.4 4.6 3.2

Social Security 7.4 10.9 7.2 2.3 2.5 5.1 3.7 3.0 4.9 18.7 18.2 25.9

Defense 11.6 10.9 9.5 14.1 17.0 8.0 17.5 12.8 13.5 7.2 5.8 5.2

Other 57.3 49.9 39.0 51.4 51.4 61.7 33.5 45.0 44.7 35.5 49.1 36.6

North Africa Sub Saharan Africa Asia Latin America

Source: Fan (2006)

IFPRI

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Priority Setting on Public Agricultural Investment

Rationales of Public Investment

Market Failures

Distribution and Poverty Reduction

Enabling the Investment Environment

Yield Gap

Source: Chen (2010)

Food Waste

The Stockholm International Water Institute recently estimated that the world wastes about half the food it grows.

For poor countries, waste could be curbed through investment in transportation, storage and distribution systems.

For rich countries, it is about our habits as consumers: buy only what we need, eat less, and move away from the built-in waste endemic in our food distribution systems.

Source: Science (2010)

Changing Diets

Source: Chen (2010)

Rural Urban Disparity in China(Income and Health)

19. 2

4. 9

35.0

17. 3

0

5

10

15

20

25

30

35

Urban城市 Rural农村

19922002

10.1

3.1

20.0

9.3

0

5

10

15

20

Urban城市 Rural农村

19922002

Nonfarm Income in China, 1983-2008

The total amount of labor force on nonfarm activities is estimated to be 230 million in China in 2009, which is about 47% of the total labor force in rural China

Source: China Annual Statistic Book (2009)

Growth and Rural Poverty Pathways of Public investment

Agricultural Production

Other Exogenous Variables -Population Growth -Agroecological Conditions -Urban Growth -Macro and Trade Policies -Asset (Land) Distribution

Rural Poverty

Food Prices

Wages Nonfarm Employment/migration

Finance -Political -Economic -Governance

Total Government Spending

Spending Allocation: Education/Health, Infrastructure, Technology

Spending Outcome: Education/Health, Infrastructure, Technology

Efficacy -Governance

Non-farm Production

Impact Pathways for Specific Public Service

Agricultural research and extension services

Irrigation Rural roads Rural transportation

and telecommunication

Markets

Rural financing Rural electrification Agricultural

subsidies Agricultural and

rural education Rural health Safety nets and

targeted transfers

Returns to Rural Investment, India

Returns in Rupee per Rupee Spending

Number of Poor Reduced per Million Rupee

Spending

0 5 10 15

R&D

Irrigaiton

Roads

Education

Power

Soil and Water Conservation

Health

Anti-poverty Programs

0 50 100 150

R&D

Irrigaiton

Roads

Education

Power

Soil and Water Conservation

Health

Anti-poverty Programs

Effects of Rural Investment, China

0

2

4

6

8

10

0 2 4 6 8 10 12

yuan per yuan spending

No. of poor reduced /10,000 yuan

R&D

Education

Roads

Phone

Irrigation

Power

Loans

Regional Effects, China

0

24

6

8

1012

14

Coastal Central Western

R&D

Irrigation

Roads

Education

Electricity

Telephone

0

510

15

20

2530

35

Coastal Central Western

R&D

Irrigation

Roads

Education

Electricity

Telephone

Poverty loan

Returns in Yuan per Yuan investment

Number of poor reduced per 10,000 Yuan invested

Effects of Rural Investment, Uganda

0

5

10

15

20Agricultural R&D

Education

Feeder Roads

Health

Returns in shilling per shilling Investment

Number of poor reduced per million shillings investment

0

50

100

150

200

Agricultural R&D

Education

Feeder Roads

Murram Roads

Tarmac Roads

Health

China India Thailand Vietnam Uganda

Ranking of Returns in Agricultural Production

Agricultural R&D 1 1 1 1 1Irrigation 5 4 5 4Education 2 3 3 3 3Roads 3 2 4 2 2Telecommunications 4Electricity 6 8 2Health 7 4Soil and Water Conservation 6Anti-Poverty Programs 5

Ranking of Returns in Poverty Reduction

Agricultural R&D 2 2 2 3 1Irrigation 6 7 5 4Education 1 3 4 1 3Roads 3 1 3 2 2Telecommunications 5Electricity 4 8 1Health 6 4Soil and Water Conservation 5Anti-Poverty Programs 7 4

Ranking of Investment Effects

Effects of Low and High Quality Roads, China

00.5

11.5

22.5

3

High Quality

Low Quality

0123456

High Quality

Low Quality

No. of Urban Poor Reduced per 10,000 Yuan

No. of Rural Poor Reduced per 10,000 Yuan

Highlights of Results The three most effective public spending items of

promoting agricultural growth and reducing poverty:» Agricultural research and extension» Education» Rural infrastructure

Government spending on antipoverty programs such as safety nets or food subsidies generally has a small impact in reducing poverty and growth mainly because of inefficiencies in targeting and misuse of funds.

Initial subsidies in credit, fertilizer, and irrigation might have been crucial for small farmers to adopt new technologies. But as more and more farmers have adopted new technologies, continued subsidies have led to inefficiency of the overall economy.

 Reforming Institutions: PPP

Public and Private Partnership (PPP). Public sector will be still the major player in providing infrastructure services in rural areas

But privatizing certain component can improve efficiency and service

“Unbundling” is a necessary part of privatization

Feasibility of Private Sector Delivery

Sector/type of servicePotential

for competition

Characteristics of good/service

Potential for cost recovery

Equity concerns

Marketability index

TelecommunicationsLocal servicesLong distance

medium

high

privateprivate

highhigh

medium

few

2.63.0

PowerThermal generationTransmissionDistributionGas production/ transmission

highlow

mediumhigh

private

clubprivateprivate

highhighhighhigh

fewfew

manyfew

2.62.42.43.0

TransportRural roadsPrimary/secondaryRoads

low

medium

publicclub

low

medium

manyfew

1.02.4

IrrigationPrimary/secondary networksTertiary (on farm)

low

medium

club

private

low

high

medium

medium

1.4

2.4

Unbundling and Degree of Competition Industry Generation/

storage Transmission Distribution/retailing

Power / energy

Competitive

Monopolistic

Competitive

Large scale irrigation

Monopolistic/ oligopolistic

Monopolistic

Competitive

Medium scale irrigation

Competitive

Monopolistic

Competitive

Small scale irrigation Competitive

Monopolistic

Competitive

Telecommunications

Competitive

Monopolistic

Competitive

Rural roads

Monopolistic

Centralization vs. Decentralization

Scale of economy New technological innovations Community and user’s association Strengthening public institutions Improving human capitals

Policy Options – Business Unusual

Source: Fan (2010)

Public Service Delivery in Rural China Agriculture: To reach a grain output of 500

million tons by 2010 through government subsidies, agricultural construction and industrialisation projects. A particular focus is put on the construction of water-saving farmland irrigation systems.

Rural infrastructure: providing safe drinking water for all by 2013. Additional 1.2 million kilometers of rural roads aims to connect all townships and villages. Internet access in all townships.

Health care: The new rural co-operative medical scheme (NRCMS) to 730 million residents and 86% of counties. By 2010, the standard for financing might be raised to CNY 100 per person, with central and local government contributions to be raised to CNY 80.

 

Social security: a rural social security system to cover all needy people in rural areas under a subsistence allowance programme (dibao).

Education and training: the realisation of free nine-year compulsory education in rural areas by exempting rural primary and junior high school students from tuition fees and other educational expenses.

Financial services: strengthening the role of the Agricultural Bank of China (ABC), the Agricultural Development Bank of China (ADBC) and the China Postal Savings Bank (CPSB) in serving the sannong sectors as well as promoting new types of rural financial institutions and reforming rural credit co-operatives (RCCs).

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INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

A Case Study – Delivering Agricultural Extension Services in China

Agricultural Extension in the World The large population countries, such as China and India, established their

agricultural extensioto realize their national food security goals (Swanson, 2006; Umali and Schwartz, 1994; 1997; Hu et. al., 2009). n system

Government support for public research and extension in most developed and developing countries began a slow decline since the late of 1980s (Swanson, 2006; Huang et. al., 1998; 2003).

The budgetary challenge made many countries start to reform their public agricultural extension system during the 1990’s (Feder et. al., 1999; Umali and Schwartz, 1994).

While privatizing agricultural extension services was conducted in some industrialized countries in Europe, North America, and Oceania counties, the decentralization or commercialization of agricultural extension services had been conducted in some developing counties (Feder, 2001; Umali and Schwartz, 1994; 1997; Anderson and Feder, 2003; Rivera, 2001; Hu et. al., 2009).

However, a number of studies indicated that the privatization reform made agricultural extension services inaccessible for smallholder farmers (Cary, 1998; Lindner, 1993; Umali and Schwartz, 1994; 1997; Feder et. al., 1999).

Agricultural Extension in China A rather ‘complete’ national agricultural extension system

» The number of public extension staff is 1,008,000 » China has 720,000 villages

Top-down model and government-led agricultural extension service

Government failures led to ineffectiveness» Information inadequacy, incentive measure, competency,

political interests and bureaucratic system Led to a number of extension reforms in the country

» A concern over exclusion of small farmers in the reformed extension system has been raised

Challenges in China’s Agricultural Extension

Dominance of scattered small farmers

Rapid rise of urbanization and agricultural industrialization

Demands for sustainable agricultural development

Ongoing reform of government structure and administration

“Three Dissatisfactions” with the Current Public Agricultural Extension Service

Farmers’ dissatisfaction: close to 80% farmers surveyed in ten villages at two counties in Sichuan and IMAR had never seen extension staff in 2005

Government dissatisfaction: extension staff don’t do or cannot do the extension job but get the salary

Extension staff: low salary, no incentive for good performance, no adequate operating budget

Intervention Strategies Set up an inclusive public agricultural extension

system which meets demands of farmers

Promote the establishment of market-driven agricultural extension system

Adopt participatory agricultural extension approach to improve the efficiency

Policy Experiment on Public Agricultural Extension Reform

Objective is to introduce and experiment a farmer need based extension system

Key organizations involved: Agricultural Committee, the People’s Congress National Agricultural Technology and Education Service Center

(NATESC), Ministry of Agriculture (MOA) Center for Chinese Agricultural Policy (CCAP), Chinese Academy of

Science (CAS) Agricultural bureaus at counties Township level extension workers China Canada agriculture development program

Initial Pilot sites: 5 villages at Wuchuan, IMAR and 5 villages at Pengzhou, Sichuan

Duration: from April 1st 2005 to August 30th 2008

Characteristics of Policy Initiative

Changing role: a shift from meeting demands from government to farmers’ needs

Bottom-up model: to deliver technologies demanded from farmers instead of government

Responsibility system: one staff in charge of 1 or 2 villages

Accountability: to respond to the requirements from farmers

Incentive-based: to be more pro-active

Key Approaches Identification of experiment villages and selection of

township level responsible extension workers Identify the responsibility of the chosen extension agents

and link the performance with the payroll The number and extent of visits to farmers, the number

of problems solved, deal with emergent issues, farmer field schools conducted, nurturing the lead farmers, and performance related bonus

At village level Identify the technique needs from farmers, new

technique workshop, new technique experience sharing, and farmer field school

Rapid Rural Appraisal

Responsibility System for Township Level Agricultural Extension Agent

Farmers New Technique Sharing – Farmer Field Schools

Outputs of the Policy Initiative

Learn farmers’ diversified needs, met farmers’ needs and benefited farmers

Improved role of extension staff Setup of a functional incentive mechanism Introduced an effective monitoring & evaluation

system Proposed a way to deal with issues of incapable

staff

Initial Evaluation: Farmers’ Access to Extension Staff in Pilot Villages

2006» Pengzhou: 100% in two villages ， 95% in another

two villages and one village 50%» Wuchuan: 100% in one village, 95% in two villages,

and 90% in another two villages

2007» Pengzhou: 100 ％ in one village, 94 ％ in another

village, 80 ％ in five villages and 70 ％ in two villages

» Wuchuan: 100 ％ in one village, 93 ％ in two villages, 85 ％ in three villages, and another 68 ％

Scaling Up

The number of villages was increased from 5 villages to 15 villages for the INC initiative

The Government of Pengzhou extended the modified model to 130 villages in 2006

The MoA also extended the modified model to 25 counties in 25 provinces in 2006

Differences between Pengzhou and INC Initiatives

First, the extension agents are responsible for identifying the farmers’ needs based on their own individual informal survey rather than the use of RRA.

Second, the target group is farmers selected for technology-demonstrating purpose.

Third, the maximum year-end bonus is 3,000 yuan.

Differences between the MOA and INC Initiatives

First, an attempt is made to include the county level extension agents in the reform initiative. Separate service contracts are designed for the county and township level extension agents with the MoA initiative.

Second, a questionnaire is designed to identify farmers’ technology needs in the beginning of the year rather than the RAA method.

Third, the target group is the model farmers selected for technology-demonstrating purposes.

Forth, local government provides extra operation funds to encourage agricultural extension agents to go to the villages. In Pixian, for example, an operational fund in the amount of 5,000 yuan per year is provided for each responsible agent.

Fifth, extension agents are assessed jointly by their work units and the selected farmers.

Questions

Whether farmers see more agricultural extension agents due to the reforms;

Whether farmers accept more services from the agents due to the reforms;

Whether the number of farmers who accept the services is increased due to the reforms;

Whether farmers adopt the services from the agents due to the reforms;

Whether the number of farmers who adopt the service from the agents due to the reforms.

Our Own Policy Experiment - INC Treatment

» The “INC initiative” reform programs were initially introduced in Pengzhou county, Sichuan and Wuchuan county, IMAR in 2005. In each county, five villages were randomly selected as pilot sites in 2005, additional five villages were added in 2006, and additional five villages were added in 2007.

» Five technicians at the township level for a given county are randomly selected to as the RESPONSIBLE AGENTS. As a result, one technician is responsible for one village in 2005, for two villages in 2006, and for three villages in 2007.

Control» In order to evaluate the effects of INC reform initiatives, 15 non-reform

villages in the neighbor of the reform policy pilot villages as a control group each county.

» The neighboring villages were chosen to control the effect of other factors than the reform program.

Pengzhou Government Initiative

Treatment» Fifteen villages out of the total 130 villages under

the Initiatives were randomly selected by researchers to assess its effectiveness.

Control» Because Pengzhou government reform initiative

are located at the same county as our INC reform initiative, Pengzou initiative based on the same 15 villages as a control as the INC Initiative.

The MOA Policy Initiative Treatment

» Pixian and Kalaqing are chosen out of 25 counties under the Initiative. Pixian is chosen to match Pengzhou in Sichuan, while Kalaqin is chosen to match Wuchuan, IMAR

» 15 villages each were randomly selected for Pixian and Kalaqin, respectively.

» For the MOA programs, no specific extension staff was allocated to specific villages. Rather a team from township extension station was made responsible for meeting the extension needs in the villages.

Control» Two neighboring counties - Doujiangyan in Sichuan and Songshan

County in IMAR were selected as control counties. » Fifteen villages were randomly selected at each of the two counties

as the control group.

Data Collection The survey questionnaire was designed to collect

information on the farmers’ access to technology services during the years 2005 to 2007.

A team of four trained enumerators conducted a random survey in IMAR and Sichuan at the end of 2007 and the beginning of 2008.

A total of 1350 farmer households from 135 villages at 6 counties were selected and interviewed.

Relevant information was collected for 2005, 2006, and 2007 when available (Only collected information in the reformed year).

As a result, the final sample consists of a total of 2,730 observations.

Table 4. Services Received and the Number of Techniques Adopted by Farmers

AVAILABLE:Have met the

agents (%)

ACCEPTANCE:Services received

ADOPTION:Techniques adopted

Percents (%)

Numbers Percents (%)

Numbers

The INC reform initiative and control non-reform comparison

Wuchuan, IMAR

INC initiative (reform village) 91.0 84.2 1.82 80.1 1.67

Non-reform (control village) 19.5 18.8 0.22 17.9 0.22

Pengzhou, Sichuan

INC initiative (reform village) 84.0 79.0 2.30 74.3 1.93

Non-reform (control village) 36.7 34.6 0.76 35.5 0.73

The Pengzhou initiative, the MoA reform, and control non-reform comparison

Pengzhou, Sichuan: INC initiative 68.3 57.2 1.28 56.8 1.23

MoA

Reform county: Kalaqin, IMAR 89.7 84.5 2.57 83.2 2.25

Control non-reform county: Songshan, IMAR 67.9 64.2 1.56 63.0 1.50

Reform county: Pixian, Sichuan 43.4 36.1 0.60 35.1 0.46

Control non-reform county: Doujiangyan, Sichuan 27.0 25.0 0.39 22.7 0.33

Source: Authors’ survey

Key Observation

Comparing to farmers in the control non-reform villages, it appears that more farmers in each extension reform initiative villages have seen extension agents, accepted the agent’s services, and adopted the services provided by the agents.

Major Conclusions

First, the introduction of all reform initiatives considered under the study increases the farmers’ access, acceptance and adoption of agricultural advisory services from extension agents.

Second, the farmers under the small farmer inclusive reform initiative are more likely to receive, accept, and adopt the agricultural advisory services than those under other reform initiatives considered under the study.

Promoting Extension Service of the Third Parties and Private Sectors

The new system provides incentives for local extension agents to work with the third parties such as cooperatives and private sectors to deliver the extension service

Company-led agricultural extension service

Farmer organizations and cooperatives take the leading role in extension service

Challenges for Scaling-up

High monitoring cost

Budgetary issue with bonus payment

Lack of operating budget for the extension agents

Conflicts between the agents in the new and old systems

Difficulties to deal with incapable extension staff

Policy Impacts

Provincial-wide: The revised model had been extended to 35 villages in 5 counties at Chengdu, Sichuan and 12 villages in 10 counties at IMAR in 2007

National-wide: The revised model had been extended to 25 counties in 25 provinces in 2006

Key elements of the model had been adopted in the National Agricultural Extension Policy issued by the State Council in 2007

Policy consultation with Agricultural Committee at the People’s Congress on the revision of existing Agricultural Extension Act in April, 2008