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).