How can DFID help to make public policy and expenditure work for the poor?

The consultation aims to seek views, opinions and examples of innovative and established practice in order to inform future DFID policy and investment. Your moderator will lead the debate with the short introductory paper below, provide regular summaries and guide the dialogue.

Theme Outline

There is an urgent need to identify how public policy and expenditure on agriculture can be made more effective in achieving poverty reduction. The arguments are compelling: (i) the majority of the world’s poor reside in rural areas; (ii) agriculture accounts for a major part of developing countries’ economies; and (iii) growth in agriculture has important linkages with the rest of the economy.

Yet despite the importance of agriculture, little is being done to ensure that the sector plays its role in poverty reduction. In many developing countries, government policy on agriculture is unclear and public spending in the sector is stagnant or declining. The problem is especially acute in sub-Saharan Africa, where there has been rapid withdrawal of state and donor support to agriculture, fuelled by a perception (probably correct) that past public spending to agriculture has had little impact.

Why is this a problem? Although agricultural production is predominantly a private sector activity, public investment is required to ensure that market mechanisms operate effectively. There are also important public goods in agriculture for which public funding (though not necessarily public provision) is required. There is some evidence to support this, which shows positive growth and poverty reduction effects from public spending on agriculture - mainly on production-enhancing investments such as agricultural research.

However, it is not just a question of throwing money at agriculture. This has been tried before, and has failed. New approaches are needed which:

• Identify the linkages between agriculture and poverty reduction;
  
  
• Establish a clear policy and institutional framework for effective public spending in agriculture - ideally one that maximises poverty impact;
  
  
• Recognise the need to demonstrate the poverty impact of public spending in agriculture, compared with spending in other sectors (e.g. health and education); and,
  
  
• Enable approaches to pro-poor agricultural spending that are flexible and responsive to specific regional and country needs.

Agricultural policy reform - issues

A traditional focus of ministries of agriculture has been upon food production and self-sufficiency, often associated with significant state involvement in agricultural production and marketing. Over recent years, reappraisal of the role of government has encouraged a withdrawal of the state from commercial agriculture, towards a role focussed towards support to making rural markets work, and the provision of basic rural services that the private sector cannot provide.

The process has not been straightforward. Reforms have often been partial, and sometimes reversed, creating policy uncertainty and undermining the overall impetus for reform. There are few success stories.

Key questions:

• What impact have recent policy reforms in agriculture had upon poverty reduction? How have the reforms affected different groups – for example producers of export / cash crops compared to producers of food / subsistence crops? Has the poverty impact of policy reforms differed between countries; and if so, why?
  
  
• The nature of rural economies can be diverse, both between countries and geographically within countries (high potential vs low potential areas). How can DFID and governments adequately reflect the need for differentiated policies, and roles for state and market across areas?
  
  
• What priority investments and further policy reforms should DFID be promoting to support pro-poor agricultural growth (including in areas of non-agriculture spending, such as rural infrastructure)?
  
  
• How should distributional issues be addressed - through free or subsidised services to target groups, or are alternative forms of support more effective?
  
  
• How effective have efforts been to increase beneficiary participation in agriculture policy processes? What can DFID do to enhance participation?
  
  
• Many countries are moving towards systems of decentralised service delivery. What does this imply for the provision of pro-poor agricultural services?

Public expenditure management in agriculture - issues

While agricultural policy reforms often imply a changed role for government, they do not necessarily reduce the case for public spending on agriculture. It is important to note however, that: (i) the composition and management of public spending to agriculture is more important than the overall level of spending; and (ii) ministries of agriculture need to demonstrate effectiveness and efficiency in service delivery in order to make a convincing claim for scare public resources. However, in many developing countries, assessing the composition, relevance, efficiency and impact of developing country spending to agriculture (and to other sectors) is made difficult by weak public expenditure management and accountability systems.

The move towards decentralisation of rural services adds a further complication to public expenditure management in agriculture, requiring careful planning to determine responsibilities for resource allocation and accountability.

Key questions:

• Should we be concerned about declining public spending to agriculture? Why, and what actions should DFID take?
  
  
• Sound expenditure management is critical for achieving policy objectives. What approaches and instruments should DFID use to encourage improved public expenditure management in agriculture?
  
  
• The literature typically identifies three principles of pro-poor budgeting - participation, transparency and accountability. How can these principles be applied to public spending in agriculture?
  
  
• Is government effectively able to implement and monitor agricultural policy through the budget process? What are the typical problems, and how can DFID assist governments in resolving them?
  
  
• What can be concluded about the efficiency of public spending in agriculture: (i) at the sector / organisational level (ministries of agriculture and their agencies), and (ii) at the local level under decentralised service delivery?
  
  
• Co-ordination of expenditures between ministries, and between central and local government, is becoming increasingly important for achieving rural poverty reduction. How can DFID support this process?
  

Stephen Akroyd, March 2004