Table of Contents

I. INTRODUCTION

II. WHY MORE RESOURCES FOR FOOD SECURITY AND WHY TOWARDS AGRICULTURE IN DEVELOPING COUNTRIES?

III. TRENDS IN INVESTMENT IN AGRICULTURE IN DEVELOPING COUNTRIES

A. Nature of the problem and resource needs

B. Agricultural Investment

C. Agricultural investment and agricultural productivity

IV. MOBILISING PUBLIC RESOURCES FOR AGRICULTURAL DEVELOPMENT

A. Government expenditures on agriculture

B. External financial resources

V. RESOURCE NEEDS TO MEET THE WFS TARGET

A. Investment for agricultural and rural development

B. Investments for transitional assistance to the food insecure

VI. CONCLUSIONS

TABLES

Table 2.1 Per caput dietary energy supply (DES) (kcal/person/day) 6
Table 2.2 The dimensions of agriculture in developing countries 8
Table 3.1 Capital Stock per Agricultural Worker (constant 1990 US $) 15
Table 3.2 Agriculture Value Added Per Agricultural Worker by Undernourishment Prevalence category *(Constant 1995 US$) 18
Table 4.1 Share of Government Expenditure for Agriculture in Total Expenditure by Developing Region and Undernourishment Prevalence Category (1990-1998). 20
Table 4.2: Government Expenditure as a Share of Agricultural GDP by Undernourishment Prevalence Category (1990-1998) 20
Table 4.3: Govt Expenditures for Agriculture per Agricultural Worker by Developing Region and Undernourishment Prevalence Category (1990-1998) (constant $US) 21
Table 4.4 Share of expenditures on agriculture in total expenditures and other indicators of the importance of the agricultural sector in developing countries by prevalence of undernourishment category (1990-1993 and 1995-1998) 23
TABLE 4.5 Total Net Resource Flows from DAC Member Countries¹ and Multilateral Agencies to Developing and Transition Countries (Current Bn.$) 25
Table 4.6 Aid* as a Share of GDP, Government Expenditures And Domestic Investment by Undernourishment Prevalence Category (1990-1998) 27
Table 4.7 - Total Official Development Assistance and ODA Towards Agriculture and Rural Development (million of 1995 US$) 28
Table 4.8 Total ODA Commitments to Agriculture (Broad Definition): Shares of Main Purpose Groups (Agriculture and Rural Development) 29
Table 4.9 Lending for Agriculture by Principal Financing Institutions 31
Table 5.1 Investment needs to reach the WFS target * (billions of 1995 $US) 33
Table 5.2 Past investment and future needs in developing countries - (primary agriculture) (millions of 1995 US$) 30

Annex Table 1 rural and urban poverty percentages, developing countries 34
Annex Table 2 Incidence of Undernourishment in population by country, geographic region and prevalence category 39
Annex Table 3 Total Expenditure on agriculture - Central+Local+State (million US$) by country and region (1990-1998) 42
Annex Table 4 Total Expenditure on agriculture by Undernourishment Prevalence
Category- Central+Local+State (million US$) 44
Annex Table 5 Govt. Expenditure on Ag as % of Agriculture, value added (By Region) 46
Annex Table 6 Govt. Expenditure on Ag as % of Agriculture, value added By Undernourishment Prevalence Category 49
Annex Table 7 Expenditure on Agriculture as a Share of Total Expenditure 52
Annex Table 8 Total commitments issued by main donor groups from 1990 to 1998 54

FIGURES

Page

Figure 2.1 Past Trends in Undernourishment by Developing region 6
Figure 2.2 Example of relationship between quantity and quality of diets 7
Figure 3.1 The Prevalence of undernourishment and perspectives of reduction in undernourishment until 2015 and 2030 10
Figure 3.2 Prevalence of Undernourishment in Developing Countries 12
Figure 3.3 GNP per Caput by Prevalence of Undernourishment (in 1995 $US)* 13
Figure 3.4 Highly-indebted-poor countries among the Low Income Food Deficit Countries* 14
Figure 3.5 Capital Stock Per Agricultural Worker by Developing Region (Annual increase from 1986-90 in 1990 US $) 16
Figure 3.6 Capital Stock per Agricultural Worker by Undernourishment Prevalence Category (Annual Changes from 1986-90 in 1990 $US) 16
Figure 3.7 Agricultural Value Added per Agricultural Worker by Undernourishment Prevalence Category 18
Figure 4.1 Agricultural Orientation Index¹ by Undernourishment Prevalence Categories (1990-1998)² 24
Figure 4.2 Percent of FDI inflows to Developing Countries by region, 1999 26
Figure 4.3 Total Commitments to Agriculture by main Bilateral & Multilateral Donors (million of 1995 US$) 28
Figure 4.4 Total ODA to agriculture by main recipient groups in 1990 and 1998 (% of total $US) 30

EXECUTIVE SUMMARY

Despite remarkable progress made over the last decade by developing countries in overall economic growth and improved living conditions, food insecurity is still widespread and shows insufficient signs of decline. FAO estimates the incidence of undernourishment in the developing countries at some 792 million persons (18 percent of their population) in 1996-1998. Although their number amounted to 960 million in 1969-71 (37 percent of the population) and has declined over the last decades, the absolute number of undernourished remains stubbornly high. If trends continue, then the World Food Summit (WFS) target of halving the number of food insecure by 2015 will not be met. In order to accelerate improvements in the food security situation, immediate action has to be taken to mobilise and effectively utilise additional resources in order to improve access to food particularly by the poor and vulnerable groups.
Mobilising resources towards strengthening the productivity and productive capacity of the agricultural sector is of essential importance for food security in developing countries. Agriculture is the principal sector in terms of national income, but especially in terms of employment and exports in most developing poor countries. Moreover, the majority (estimated at 70 percent) of the poor live in rural areas and earn their livelihoods in the agricultural sector directly as farmers and agricultural labourers, or from employment in the off-farm rural sector. The latter, in turn, consists mainly of activities upstream or downstream of primary production and, therefore, heavily depends on agricultural activity and incomes for its survival and growth.
The attention in this paper is on resource requirements for agriculture in support of food security in developing countries. It is in these countries, indeed, that nearly all of future population increases will be concentrated, and where alleviation of extreme poverty, in particular hunger, needs to take place. The role of agriculture, in generating additional food supplies and incomes necessary for access to food, is paramount in the developing countries, especially the low-income fooddeficit countries (LIFDCs). However, it is recognised that sustainable agricultural development has to be supplemented with other indispensable components of a strategy to alleviate poverty and in particular, food insecurity
Resources for agricultural investment come from private or public sources, external or internal. Although most investments are primarily mobilised by the farmers themselves, the public sector has a critical role through its expenditures on agriculture, forestry and fisheries sectors in creating an environment conducive to such private investment (economic incentives) and to ensuring sufficient availability of public goods (basic infrastructure, rules of law, peace and security). Most countries with high levels of undernourishment are characterised by low and stagnant per caput incomes. This implies a low savings capacity, and is often accompanied by a high external debt burden that absorbs a substantial amount of resources that could otherwise be used to develop rural productive sectors and alleviate food insecurity. For countries in this category, external resources and/or debt relief are essential.
Investment data in this paper are examined on a regional basis, and by groups of countries experiencing similar prevalence of undernourishment levels. The data indicate that the capital stock in agriculture per agricultural worker in the group of countries belonging to high undernourishment prevalence categories is very low when compared to the group with low levels of undernourishment. The wide divergence among capital-labour ratios in agriculture is reflected in labour productivity differences across prevalence categories: As in the case of the capital-labour ratio, a sharp divide is evident between labour productivity in the lower prevalence categories, and the others. Thus, the value added per worker in agriculture in the lowest prevalence category was 14 to 17 times that of the highest prevalence category in the period between 1990 and 1998, which is much higher than the difference in capital-labour ratios. This result points to higher productivity of resources in countries with low levels of undernourishment. The pattern of the relationship between productivity and nutritional status of the various groups suggests that differences in efficiency may themselves be at least partly explained by the prevalence of undernourishment. Indeed, there is increasing evidence from recent research that high levels of undernourishment reduce overall growth of countries directly (through the reduced productivity of those who are undernourished) and indirectly (through the negative effect of undernourishment on health).
Even though the role of government in economic activity (including in agriculture) has been drastically scaled down over a decade of structural reforms, government expenditure remains an indispensable element in promoting agricultural development. Public infrastructure, transfer of knowledge through agricultural research and extension, services in facilitating storage, transport and marketing are examples of expenditures that continue to be required from the public sector, often in an increasingly decentralised fashion and in partnership with the private sector and civil society.
The share of public expenditures on agriculture in total government expenditures shows wide variation, with the observations ranging from 0.015 percent to 23 percent, and the share being lower than 10 percent in 90 percent of the countries for which data are available. Despite the dependence of poor countries on agriculture for incomes and food security, public expenditure for agriculture, whether measured in relation to agricultural GDP or to agricultural labour force, is lower in the category of countries with the highest prevalence of undernourishment.
External assistance to overall resource mobilisation and economic activity is more important in countries where food insecurity is prevalent. For the countries with the highest prevalence of undernourishment, external assistance to agriculture still counts for as much as 86 percent of gross domestic investment and 51 percent of government expenditures. Developing countries are facing a decline both in the overall official development assistance (ODA) by the major bilateral and multilateral donors, and in the share of ODA directed towards the agricultural sector. Furthermore, private foreign direct investment (FDI) has so far bypassed most of the poor countries and, of the overall private investment going to the poorer countries, relatively little goes to the food and agriculture sectors of the LIFDCs.
The level of needed resource mobilisation for food and agriculture is, of course, dependent on the targets to be achieved. Thus, the stagnation of resources for agricultural development and food security needs to be considered together with the investment levels required to reach the WFS target. The Summit considered that the limited reduction in world hunger expected under projections available at the time ("business as usual") was not acceptable, and set the more ambitious target of halving, by no later than 2015, the number of undernourished people. To achieve that goal the needed total gross investment in the agriculture of the developing countries, including primary agriculture as well as storage, processing and support infrastructure, has been estimated by FAO at US$ 180.4 billion annually for the period up to 2015. In terms of gross investment in primary agriculture alone, the shortfall between a "business as usual " investment scenario and one in which the WFS target would be achieved, was 12 percent on the average for all developing regions, varying from 38 percent in sub-Saharan Africa to zero in North Africa and the Near East.
In this context, FAO, over five years, has mobilised US$ 230 million for the Special Programme for Food Security (SPFS). To be effective and achieve its goals in around 80 LIFDCs the programme requires an annual financing of about US$ 1.4 billion, including US$ 500 million from the FAO SPFS Trust Fund, US$ 67 million from the recipient countries, US$ 134 million from bilateral donors, and US$ 670 million from multilateral financing institutions, which is equivalent to about US$ 17 million per country.
But investment in productive sectors cannot address the immediate problem of alleviating hunger, and a twin approach to food security is needed. Thus, direct interventions aimed at reducing current malnutrition and creating conditions for healthy living should accompany policies (including public investment priorities) aiming at overall and agricultural development. Resources needed to improve the multi-dimensional health and nutrition conditions of the populations in those countries are of course difficult to quantify. The cost of providing the food required for those undernourished to be fed at a minimally adequate level has been notionally estimated at around US$ 13 per person per year - for 800 million persons, this means US$ 10 billion per year, but the cost would decline to only US$ 5 billion with the WFS target met.
Overall, the information and analyses presented in the paper do not provide enough evidence that changes to a new path have taken place, even though the necessary data to monitor the situation are scarce and preliminary. Nevertheless, even considering the dearth of information available, the analysis points to worrisome trends in agricultural investment in countries that most need it. Lack of sufficient investment, in turn, has contributed to the insufficient progress in the alleviation of hunger observed since the beginning of the 1990s. In addition, the analysis shows that countries which have made achievements in reducing undernourishment seem to be directing more resources towards their agricultural sectors. The message therefore should be clear: to meet the WFS target the political will by both national governments and international foreign donors is needed to direct sufficient resources to food and agriculture in a way that will increase productivity, employment and access to food, in particular in the rural areas, and to lift the poorest of the poor from severe levels of undernourishment.

I. INTRODUCTION

1. Despite remarkable progress made over the last decade by developing countries in overall economic growth and improved living conditions, poverty, in particular food insecurity, is still widespread and shows insufficient signs of decline. It is evident by now that this situation will not really change unless action is taken immediately to mobilise the necessary additional resources and utilise them effectively in sustainable programmes of agricultural production, and in measures to improve access in particular by the poor and vulnerable groups (women and children). Resources devoted to agriculture and rural development are of prime importance since the rural economy plays an important role in the lives of the poor who are also the hungry.

2. World agriculture as a whole must sustainably increase food production in order to meet the needs of a growing population and respond to increasing demand. It is in developing countries that nearly all of future population increases will be concentrated, and where alleviation of extreme poverty, in particular hunger, need to take place. The role of agriculture in generating additional food supplies and incomes necessary for access to food is paramount in the developing countries, especially the low-income food-deficit countries (LIFDCs).

3. Food insecurity is one of the direst traits of poverty. The number of people living on less than one dollar a day in the developing world¹ was about 1.2 billion in 1998², meaning that on average about a quarter of the population of these countries were poor. The figures for undernourishment, the most extreme condition³ of poverty, display a similar pattern. The latest figures from FAO show that in 1996/98 there were still 792 million undernourished people in the developing world, a number that is projected to fall to about 580 million in 2015⁴, implying that the World Food Summit (WFS) goal of halving the number of undernourished to 400 million by that date will not be met if the trends continue. Although food insecurity is concentrated in the developing world, it is important to note that hunger, affecting some 34 million people, is also present in other countries. While most of these people are in transition countries (28 million) which are still undergoing a difficult stage of restructuring of their economies, pockets of hunger exist even in higher income countries.

4. Poverty manifests itself in concrete ways, in particular through food insecurity (people not having reliable access to enough and adequate food), and therefore, fighting hunger is a fundamental part of any serious strategy to eradicate poverty. The concept of food security constitutes an effective tool with which to target, design and monitor policies and initiatives for poverty reduction. This means that resources can be used effectively to target the food insecure in the short or long term. Adequate resources do exist and in fact, the resources required to end hunger are lower than the human and economic costs of not ending it. The latter include the cost, in terms of public expenditures for health and welfare programmes, of ill-health often generated by undernutrition, low labour productivity and ultimately, lower economic growth.

5. The 1995 Quebec Ministerial Declaration committed FAO and its member countries to "promoting appropriate investment in agricultural, forestry and fisheries sectors"⁵. In the context of the WFS, FAO⁶ estimated the future volume of investments required in agriculture and supporting infrastructure and services to meet the WFS objective of "reducing the number of undernourished people to half their present level no later than 2015". It is estimated that current investment levels fall short by some US$ 30 billion from the US$ 180.4 billion needed annually to reach the Summit target.

6. Resources for agricultural investment come from private or public sources, external or internal. Although most investments are primarily mobilised by the farmers themselves, the public sector has a critical role through its expenditures on agriculture, forestry and fisheries sectors in creating an environment conducive to such private investment (economic incentives) and to ensuring sufficient availability of public goods (basic infrastructure, rules of law, peace and security). Official Development Assistance (ODA) is an important complement to domestic resources, particularly for those countries plagued by high food insecurity. In the paper, along with such resources devoted to agriculture, the investment requirements estimated to reach the WFS target are also reviewed.

7. Trends towards reaching WFS targets of halving the number of undernourished people by 2015 have been discouraging in the past decade. The reduction in the number of undernourished people has not exceeded eight million annually while a reduction of 20 million annually is needed to reach the WFS target. Under current trends, halving the undernourished population would be achieved only by 2030. Countries which have a high prevalence of undernourishment have lower income levels along with lower capital labour ratios and lower labour productivity in agriculture than countries where the prevalence of undernourishment is low. With respect to resources allocated to agriculture, some countries are expected to be able to mobilise additional domestic resources to cover the substantial costs required to reduce substantially the prevalence of undernourished in their populations.. Many others, however, especially those belonging to the group of LIFDCs, will need to draw on an expanded flow of external resources. In this regard, external development assistance to agriculture has been falling to historically low levels, while in terms of total resources, there has been some substitution of public by private sources. However, Foreign Direct Investment (FDI) has so far bypassed most of the poor countries and, of the overall private investment going to the poorer countries, relatively little goes to the food and agriculture sectors of the LIFDCs. The issue of mobilising resources at an adequate level and making optimal use of them is therefore one of paramount and urgent importance.

II. WHY MORE RESOURCES FOR FOOD SECURITY AND WHY TOWARDS AGRICULTURE IN DEVELOPING COUNTRIES?

8. The latest issue of FAO's "State of Food Insecurity in the World" estimates the incidence of undernourishment in the developing countries at some 792 million persons (18 percent of their populations)⁷ in 1996-1998. Although their number amounted to 960 million in 1969-71 (37 percent of the population) and has declined over the last decades (Figure 2.1), the absolute number of undernourished remains stubbornly high. Emphasizing the persistence of large numbers of undernourished should not be taken as a lack of recognition of the significant success of world agriculture in providing food to an ever increasing world population. Over this period, the population of the developing countries increased from 2.6 billion to 4.5 billion. The decline in the relative incidence of undernourishment (a halving of the percentage of the population affected) has been a significant achievement.

Figure 2.1: Past trends in nndernourishment by developing region

LAC: Latin America, NENA: Near East and North Africa, SSA: sSub-Saharan Africa, ESEA: East and Southeast Asia and SA: South Asia, DCs: developing countries
Source data: FAO Statistics

9. Such progress is also reflected in the increases of one of the key variables used here to measure the extent of food insecurity at country level, i.e. the per caput food availability for direct human consumption expressed in kcal/person/day (the dietary energy supply or DES)⁸ (Table 2.1).

Table 2.1: Per caput dietary energy supply (DES) (kcal/person/day)

Source: FAO Statistics

10. As shown in Table 2.1, progress in the world average DES reflects predominantly gains by the developing countries whose average DES grew from 2110 to 2650 kilocalories per caput (26 percent) between 1969-71 and 1996-98. This progress in the aggregate of the developing countries has been decisively influenced by the significant gains made by the ones with the highest populations. Of the seven developing countries with a population of over 100 million, only one remains at very low levels in terms of per caput food consumption during that period. The unbalanced gains achieved towards food security can also be seen in the more recent history: between 1990-92 and 1996-98 only 40 countries have been able to reduce the number of their undernourished population (by a total of 100 million persons), while in the remaining developing countries where this assessment has been made (59 countries) no progress was registered and instead the number of undernourished increased by about 70 million. The reasons for hope and those for concern are jointly illustrated by this comparison (see, The State of Food Insecurity in the World, 2000).

11. It is useful to note, at this point, that the widely used reference to the number of people not having access to a minimum daily dietary energy intake as a measure of food insecurity does not capture all the dimensions of undernutrition (caused also by poor health status) and malnutrition (where dietary imbalances, especially of micronutrients, can have deleterious health implications). However, the absence of sufficient food is in itself a cause of deficiency of a variety of necessary nutrients, not only of energy. In addition, as illustrated by a comparison below of the diets of a well-nourished and an undernourished adult the diversity of the diet is typically much lower at lower levels of food intake, adding to the nutritional inappropriateness of the food consumption of the undernourished (Figure 2.2).

Figure 2.2: Example of relationship between quantity and quality of diets
Source: FAO, The State of Food Insecurity in the World 2000

12. There are currently 33 developing countries that have per caput food consumption under 2200 kcal, and in consequence, a rather high prevalence of food insecurity. Halving the number of undernourished by 2015 in each of these countries, based on self reliant economic development, requires exceptionally high rates of growth in their aggregate demand for food along with a more equal distribution of income. The required combination of income growth⁹ and better distribution would be quite demanding, if at all feasible. Only in exceptional cases in the past have countries achieved these kind of growth rates in total food consumption for extended periods. Therefore, only through an exceptional effort at mobilising resources on the scale required and allocating them to attend to the most pressing needs of mass rural poverty and food insecurity can the lack of sufficient progress be reversed so as to meet the WFS target.

13. Overall, some 70 percent of the poor in developing countries live in rural areas where poverty is concentrated. This is particularly true in countries with high undernourishment (Annex Table 1). These countries depend on agriculture, directly or through related activities, for the largest part of the employment of the labour force, and for a high proportion of their economic output and export earnings. The percentage of the labour force employed in agriculture in 1999 was 56 percent on the average in developing countries. In Africa where 34 percent of the population was undernourished¹⁰ in 1996-98, employment in agriculture is as high as 67 percent of the total labor force (Table 2.2).

Table 2.2: The dimensions of agriculture in developing countries

Source: FAO Statistics

14. The poor in rural areas depend on agriculture to produce the food they eat or to generate income. Rural households generate income from agricultural activities (revenues from the sale of agricultural products or employment in agriculture) and/or from employment in rural non-farm activities. The rural non-farm sector includes a wide number of goods and services which are in most cases linked to the agricultural sector (input preparation, agricultural implement repair, output processing). In addition, income earned from agricultural activities is spent on locally produced goods and this demand is essential for the survival of the rural non-farm sector. Therefore growth of the agricultural sector is an essential component in reducing poverty and ensuring food security, given the dependence of the poor on the sector for their livelihoods. The emphasis of the present paper is on resource mobilization for agriculture, as such investments are considered to be an essential component in increasing the productive capacity for employment and income generation in areas where the majority of the poor and food insecure are to be found.

15. Mobilising resources for agriculture is fundamental, but it has to be supplemented by investment in infrastructure, health and education¹¹. Conflict reduction, democracy and good governance, education and health, safe water, and market openness, are essential targets for ODA resource mobilisation and for action to reduce hunger, alongside agricultural technology transfers, research, extension, and rural infrastructure. The evidence on the high returns to investments that enhance human capital has been a major contribution to the understanding of economic development and its relationship to human development. Their role in poverty alleviation is at the root of development strategies widely shared by the international community, as expressed in the 1995 Copenhagen Social Summit, the 1996 OECD/DAC strategic orientations for development cooperation¹², in the World Bank's World Development 2000¹³, and in the Millenium Declaration.

III. TRENDS IN INVESTMENT IN AGRICULTURE IN DEVELOPING COUNTRIES

A. Nature of the problem and resource needs

16. The level of needed resource mobilisation for food and agriculture is, of course, dependent on the targets to be achieved. The WFS considered that the limited reduction in world hunger expected under projections available at the time¹⁴, was not acceptable, and set the more ambitious target of halving, by not later than 2015, the number of undernourished people. FAO's most recent projections of the number of undernourished in the world indicate that under a "business-as-usual" scenario, this target would not be met. In fact, the study indicates that instead of 400 million, the number of hungry might still be around 580 million and the WFS target might not be met before 2030. Figure 3.1 shows the prevalence of undernourishment and projections to 2030.

Figure 3.1: The prevalence of undernourishment and perspectives for a reduction in undernourishment by 2015 and 2030

LAC: Latin America, NENA: Near East and North Africa, SSA: sub-Saharan Africa, ESEA: East and Southeast Asia and SA: South Asia, DC's: Developing countries
Source data: FAO Statistics

17. Accelerating the fight against hunger in countries with a high prevalence of undernourishment is not only dependent on political will¹⁵, but also on sufficient and available resources. Most countries with high levels of undernourishment are characterised by low and stagnant per caput incomes. This implies a low savings capacity, often accompanied by a high debt burden that absorbs a substantial amount of resources that could otherwise be used to develop productive sectors. The result is that countries with a high incidence of undernutrition are strapped for the resources needed for generating the growth of productive sectors. These issues are discussed below.

Box. 2.1: Methodological note on classification of countries
In order to illustrate the distinguishing characteristics of countries associated with different levels of undernourishment, the developing countries are grouped into five categories according to the prevalence of undernourishment, i.e. the proportion of undernourished in their population¹⁶. The proportion of undernourished in the population for countries under each prevalence category is as follows: less than 2.5 percent (Category 1), from 2.5 to less than 5 percent (Category 2), from 5 to less than 20 percent (Category 3), from 20 to less than 35 percent (Category 4) and above 35 percent (Category 5). The list of countries in prevalence categories, their geographic region and degree of undernourishment in the population are given in Annex Table 2¹⁷. Relatively, undernourishment is characterised as "low" in Categories 1 and 2, "high" in Categories 4 and 5, and "intermediate" in Category 3.
The geographic distribution of countriesby region is shown in Figure 3.1. Of the 24 countries in Category 5, where undernourishment is 35 percent or more, 18 are in Africa South of the Sahara. Undernourishment is concentrated in South and SouthEast Asia, Africa and Latin America. Countries in undernourishment prevalence category 1 have very low levels of undernourishment and include developed countries in the map below. There are 26 countries in Category 4 with 34 countries in Category 3.
It should be noted that variations may exist in the values of economic indicators of countries belonging to a particular prevalence category.

Figure 3.2: Prevalence of undernourishment in developing countries

18. National incomes (measured by per caput GNP) (Figure 3.3) are lowest in the countries where undernourishment is high (categories 4 and 5); furthermore, trends over the last decade show that in these categories per caput incomes have not improved significantly. Under such conditions, savings and investment rates are bound to be low. Moreover, the savings of the vulnerable and food insecure are likely to be channelled into assets which reduce their vulnerability to shocks rather than into investments to increase their resource productivity.

Figure 3.3: GNP per caput by prevalence of undernourishment (in 1995 US$)*

Source: World Bank, World Development Indicators, 2000.

19. The high debt burden in countries with a high prevalence of undernourishment constitutes an additional drain on resources, which could be invested in productive sectors. Figure 3.4 shows that in the LIFDCs high indebtedness is more widespread among the countries with a higher prevalence of undernourishment. Among the 23 LIFDCs with the highest prevalence of undernourishment, 17 belong to the group of Highly Indebted Poor Countries (HIPC). The outlook is much more positive for countries with a prevalence of less than 20 percent. In this group, only six out of 21 LIFDCs are highly indebted.

Figure 3.4: Highly-indebted-poor countries among the Low-Income Food-Deficit Countries*

Source: FAO, State of Food Insecurity 2000
* 14 LIFDCs for which information on undernourishment was missing were excluded .

20. Not surprisingly, the combination of low savings capacity and high indebtedness results in low investment capacity in the agriculture sector, particularly in those countries in which agricultural investments are most needed to enhance the incomes of the poor and thus to improve food security. This will be discussed in the next section.

B. Agricultural Investment

21. It is now widely understood that the concept of investment to augment the productive capacity of agriculture entails not only physical assets, but science and technology dissemination, human capital enhancement and social capital build-up. Creating a pro-investment climate to raise productivity levels and realise the necessary structural changes becomes a principal policy challenge. The whole policy and institutional environment needs to be conducive to investment by private agents, in particular farmers.

22. In the last two decades, many governments addressed the anti-agricultural biases of the past by adopting policies to deregulate agricultural markets, reduce price distortions, and allow a greater role for private actors in economic activity. Such measures, although necessary, are not always sufficient to induce the investments necessary for sustained productivity and production increases. Improved investment incentives also require policies that improve access to markets, ensure dissemination of information, set standards and provide adequate legal and regulatory frameworks. At a more general level, there is consensus that political stability and a well-defined and enforced institutional framework are needed in order to ensure adequate private investment. Strong complementarity between public and private investment is also necessary to sustain agricultural growth, with governments investing in sectors having an important public good element (research, extension, infrastructure - particularly water control, roads, storage facilities, marketing, education, norms and standards).

23. FAO has developed a comprehensive database on agricultural capital stock and investment based on FAOSTAT data, complemented by national accounts data from individual countries. These data include capital stock (including land, irrigation, tractors, livestock, plantations, structures) for primary agriculture in the major developing regions.

24. In order to take into account the varying capital intensity and technology levels of the agricultural sectors in the different groups of countries, data on capital stock per agricultural worker are presented in Table 3.1 by region and prevalence category. The two regions with a lesser incidence of undernourishment, Latin America and the Near East - North Africa, show higher agricultural capital per worker compared with other regions.

Table 3.1: Capital stock per agricultural worker (constant 1990 US$)

Source: FAO Statistics

25. Over time, the same two regions have also experienced a substantial increase in capital per worker, in contrast to the stagnation in other regions. Based on the grouping of countries by prevalence of undernourishment, there is a clear contrast in the capital intensity of the first two categories (low incidence of undernourishment) and the other three (high levels of undernourishment). Differences also exist in terms of changes over time: countries with a lower prevalence of undernourishment show a stronger increase (base period 1986-90) in investment per worker while changes in the other categories have been very little or even negative (Figure 3.5). Thus, the lack of the needed build-up of physical capital for agricultural growth and alleviation of undernourishment becomes evident. It is worth noting that during the period considered, the capital-labour ratio of the lowest prevalence category has increased relatively from six to nine times that of the highest prevalence category (Table 3.1).

Figure 3.5: Capital stock per agricultural worker by developing region
(annual increase from 1986-90 in 1990 US$)

Source data: FAO Statistics

Figure 3.6: Capital stock per agricultural worker by undernourishment prevalence category (annual changes from 1986-90 in 1990 US$)

Source data: FAO Statistics

C. Agricultural investment and agricultural productivity

26. Low capital stock per worker is reflected in low productivity per agricultural worker in agriculture, as is shown in Table 3.2 for the various undernourishment prevalence categories. As a matter of fact, the wide divergence among capital-labour ratios across categories is further amplified in terms of labour productivity, and so are the diverging trends through time. As in the case of the capital-labour ratio, a sharp divide is evident between the lower prevalence categories, and the others. Thus, the value added per worker in the lowest prevalence category was 14 to 17 times that of the highest prevalence category in the period between 1990 and 1998 (Table 3.2). The pattern of the relationship between productivity and nutritional status of the various groups suggests that differences in efficiency may themselves be at least partly explained by the prevalence of undernourishment. Indeed, there is increasing evidence from recent research that high levels of undernourishment compromise overall growth of countries directly (through the reduced productivity of those who are undernourished) and indirectly (through the negative effect of undernourishment on health)¹⁸. It is possible that countries with a high incidence of undernourishment are caught in a hunger trap: high incidence of undernourishment causes efficiency losses and constrains their ability to deal with undernourishment. Over the period 1990-1997, agricultural productivity has improved in all categories except that with the highest prevalence of undernourishment. ( Figure 3.7)

Table 3.2: Agriculture value added per agricultural worker by undernourishment prevalence category *(constant 1995 US$)

^{*Note: Israel, Luxembourg, Malta and Sweden are not included. Germany not included in 1990.}
Source: FAO Statistics

Figure 3.7: Agricultural value added per agricultural worker by undernourishment prevalence category

Source data: FAO Statistics

27. Two conclusions emerge from these observations: additional resources for promoting agricultural growth are especially needed in countries where undernourishment is more prevalent; and there is an important scope to improve productivity of capital and labour assets in countries with a high prevalence of undernourishment. Furthermore, alleviation of undernourishment could be a decisive step to break the under-nourishment/low productivity trap faced by many countries in the developing world.

IV. MOBILISING PUBLIC RESOURCES FOR AGRICULTURAL DEVELOPMENT

28. Resources at national level for agricultural development and the promotion of food security may be private or public, domestic or external. In countries with a high incidence of undernourishment, private savings are likely to be limited by the low per caput incomes. For the same reason the tax base from which governments derive revenues is likely to be low. Although governments could often raise additional domestic resources through fiscal reforms, a number of countries will still have to rely on external resources to generate funds for agricultural development. Important adjustments are underway in many countries in the form and levels of public intervention to a generally shrinking resource base and to the new conditions of the international playing field. In what follows, the role of public expenditure in the agricultural sector and the role of foreign finance for agricultural development and food security are examined.

A. Government expenditures on agriculture

29. The role of government in support of economic activities in general, and agriculture in particular, has been drastically revisited and often scaled down over a decade of structural reforms in most countries in the world. The tendency in the new development "paradigm" is for governments to concentrate the use of their resources towards delivering indispensable public goods and services, and to providing an environment where private initiative can flourish, instead of endeavouring to replace or compete with the private enterprise. Yet, government expenditure remains an indispensable condition for economic and social development. Agricultural research and extension, public infrastructure and services, safety nets against transitory shocks, programmes to facilitate adjustment of particular sectors or regions to enable risk-taking innovations to ensure environmental sustainability and food security are examples of public functions that continue to be required from the public sector, often increasingly in a decentralised fashion and in partnership with the private sector and civil society.

30. The forms of taxation used by governments also have an impact on the level of resources available to governments, while constituting an effective instrument for redistribution. Reforms in the tax systems should also be geared inter alia toward ensuring a friendly investment environment for both foreign and domestic private investment.

31. Time series data on government expenditures by sector are scarce however. The only comprehensive data source documenting government expenditures (Central, Local and State) on agriculture is the IMF¹⁹ . It must be noted immediately that a minority of countries report useable data, with long delays, as seen in the low and declining number of available observations in this source (Annex Tables 3,4,5). In terms of prevalence category, the paucity of observations in Category 2 (3 countries or less reported) does not warrant use of this category.

32. The first observation is that the share of expenditures on agriculture in total government expenditures is extremely dispersed, with the observations ranging from 0.015percent to 23percent, and the share being lower than 10 percent in 90 percent of cases (Annex Table 7). These data are summarized by region and undernourishment prevalence category in Table 4.1. The share of expenditure on agriculture is not related in any simple way to the size of the agricultural sector, and depends inter alia on the overall importance given to economic functions in government budgets. However, one would expect that countries where agriculture plays a dominant role would allocate a greater share of expenditures to this sector. This is examined below in relation to two principal indicators: the importance of agriculture labour in total employment, and the share of agriculture value-added in the total GDP. In view of the importance of agricultural growth in alleviating food insecurity in countries with a high prevalence of undernourishment, the examination is also conducted with respect to undernourishment categories.

Table 4.1: Share of government expenditure for agriculture in total expenditure by developing region and undernourishment prevalence category (1990-1998)

Source: IMF, Government Financial Statistics 2000.

33. The data on government expenditure for agriculture in relation to agricultural GDP are presented in Table 4.2. Averages for groups of countries derived in the table are unweighted in order to reflect a picture of governments' policy in this respect. On a regional basis, Near East and North Africa and Africa South of the Sahara allocate a greater share than the other regions. By prevalence of undernourishment, the category with the highest prevalence is consistently allocating the lowest share to agriculture over the period reported.

Table 4.2: Government expenditure as a share of agricultural GDP by undernourishment prevalence category (1990-1998)

Source: IMF Government Financial Statistics, 2000*, Years with very few observations ( less than 2) have been ommitted from the averages. For the second category, data are available for only three countries ( Egypt, Kuwait, Uruguay). If Kuwait whch displays an exceptionally high value, is excluded, then the average for the group oscillates around 6.5 for the years where there is information.

34. The resource constraints facing countries with high levels of undernourishment can be better illustrated by relating government expenditures for agriculture to the size of the agricultural labour force (Table 4.3). The table shows an inverse relationship between prevalence of under-nourishment and government expenditure.²⁰ The countries with the highest prevalence of undernourishment spend much less per agricultural worker compared to the countries with the lowest incidence. In this context, it is worth noting that the average expenditure per agricultural worker in the highest undernourishment prevalence category is at least 30 times lower than that of the category with the lowest prevalence (for years for which data are available).

Table 4.3: Government expenditures for agriculture per agricultural worker by developing
region and undernourishment prevalence category (1990-1998)
(constant US$)

Source: IMF, Government Financial Statistics Yearbook, 2000
* Singapore not included (expenditure per agricultural worker in the range of 8000 $).

35. In terms of developing regions, spending per agricultural worker is lowest in the regions with the highest incidence of undernourishment, namely South Asia and Africa South of the Sahara.

36. To what extent do the changes (over time and by country/category ) in the share of government expenditure in agriculture "track" differences in agriculture's importance in the economy? The share of government expenditures on agriculture in total expenditures compared to other indicators of the importance of agriculture in developing countries grouped by prevalence of undernourishment are given in Table 4.4. For the countries and years covered by the expenditures data, the share of agriculture in GDP and in total exports increases with prevalence categories, highlighting the now well-known fact that poorer countries are agriculture-based. The available data do not provide strong evidence of a decline (overtime) in the share of agriculture in total GDP (possibly due to the short time period and sparse data) although some tendencies toward a decline can be observed (categories 1, 3 and 5 for some years).

37. Expenditure shares on agriculture are slightly higher in countries where undernourishment is high and where agriculture plays an important role. However, the expenditure shares for groups of countries reporting in each category are low compared to the shares of agriculture in economic and demographic indicators for those countries (Table 4.4). Bringing together the data on agriculture's share in GDP and expenditure we can construct an "agricultural orientation index" which reflects the extent to which government expenditures on agriculture reflect (or not) the importance of agriculture in the overall economy. To construct the index, the share of agricultural expenditure in total government expenditure is divided by the share of agriculture in GDP. The higher the index the closer is the agricultural expenditure share to the share of agriculture in GDP²¹. The index, and changes over time by prevalence category, are shown in Figure 4.1.

Table 4.4: Share of expenditures on agriculture in total expenditures and other indicators of the importance of the
agricultural sector in developing countries by prevalence of undernourishment category (1990-1993 and 1995-1998)

Source: FAO Statistics

Figure 4.1: Agricultural Orientation Index¹ by undernourishment prevalence categories
(1990-1998)2

1 Agricultural orientation index is calculated as:

2 Category 2 has been ommitted from this graph as data are available for only three countries ( Egypt, Kuwait, Uruguay) where Kuwait displays an exceptionally high value for government expenditures.

38. Figure 4.1 shows that the group in prevalence category 1 (very low prevalence of undernourishment) has the strongest agricultural orientation relative to the other groups with a tendency to increase in the late 1990s. On the other hand, for group 5 (the highest prevalence group) the share of government spending devoted to agriculture, is substantially below agriculture's importance in the economy and, for the time period covered, there are no signs of improvement. This in itself constitutes a worrisome trend given the dependency of that group of countries on agriculture for overall income and nutrition. It is worth noting that the agricultural orientation for that group is consistently lower than that of groups 1, 3 and 4 for the period examined.

39. Although data are limited, the above analysis shows that in countries with a very high incidence of undernourishment, public expenditure on agriculture does not reflect the importance of the sector in overall income and its potential contribution to the alleviation of undernourishment. Due to the scarcity of data, this paper can only address the amount of government expenditure but not the quality or effectiveness of these expenditures. Fan et. al.²², in a study on government spending in rural India, quantify the effectiveness of different types of government expenditures and conclude that government spending on productivity enhancing investments, such as agricultural research and development, irrigation, rural infrastructure (including roads and electricity) have large impacts on growth in agricultural productivity while at the same time reducing poverty. These results imply that government expenditures can be both poverty reducing and growth enhancing at the same time if effectively directed to the right channels.

B. External financial resources

40. In order to provide a complete picture of resources for promoting economic and social development and food security in low-income, food-deficit countries, the trends in external financial resources should also be investigated. These can be either official or private. Table 4.5 provides a comprehensive picture of external resource flows and their composition for most of the 1990s.

41. The net flow of external financial resources to the developing countries has increased from US$ 142 to US$ 248 billion in the period between 1990-92 and 1999. At the same time, there has been a dramatic change in the composition of these resources between public and private sources. Thus, Official Development Finance (the overall net flows from official sources) has stagnated to around US$ 80 billion (in current prices), while private flows increased almost threefold from US$ 58 to US$ 160 billion during the same period. A small residual component is made up of export credits.

42. As a result of the shift in the composition of external flows, ODA has been reduced from 39 percent of net total external flows in 1990 to 20 percent in 1999.

Table 4.5: Total net resource flows from DAC member countries and multilateral agencies to developing and transition countries (current billions of US$)

1)Australia, Austria, Belgium, Canada, Denmanrk,Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg,Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, UK and the USA.
2) Provisional
3) Excluding forgiveness of non-ODA debt for the years 1990 to 1992.
4) Includes bilateral ODA as above plus contributions to multilateral organisations in place of ODA disbursements from multilateral organisations shown above.
Source: Development Cooperation Report 2000, OECD, 2000.

43. The increase in foreign direct investment from DAC countries to developing countries (a change of 130 percent between 1990 and 1999) is an important development but a more detailed analysis of the destination of those flows worldwide shows that its distribution is not according to need (Box 4.1). For the countries more in need of resources for agriculture and food security, official sources and indeed ODA will continue to be the major source of external flows for the development of their agricultural sectors.

Box 4.1: Private foreign direct investment (FDI)
Worldwide FDI inflows reached US$ 865 billion in 1999, increasing 27 percent from 1998. Developing countries accounted for 24 percent of the FDI flows, with a total of US$ 208, an increase of 16 percent over 1998. This increase, compared to the stagnation in 1998, is encouraging, but is still concentrated in a small number of countries.

Where FDI increased in the developing world, most of it went to countries in South, East and Southeast Asia where FDI flows increased by 11 percent to reach US$ 93 billion in 1999. This increase was mainly in newly industrialised economies, while FDI in South Asia declined in 1999 by 13 percent. South, East and Southeast Asia accounted for 46 percent of all flows to developing countries and about 11 percent of world FDI. Latin America was second with similar levels of FDI inflows. Africa has received only about 1 percent of total world FDI and 4 percent of FDI to developing countries. Thus allocation of FDI is far from being distributed according to need (Figure 4.2).

In the period, 1993-98, of the total FDI going to developing countries, out of the 20 countries that accounted for 72.3 percent of FDI inflows, China represents 25.7 percent followed by Brazil and Mexico. The poorest countries, where financial markets are underdeveloped, information available to potential investors is imperfect, and the risks associated with longer-term investment are high, have difficulty in attracting FDI.

Figure 4.2: Percent of FDI inflows to developing countries by region, 1999


Source: UNCTAD, World Investment Report, 2000

44. Table 4.6 shows that in countries where food insecurity is prevalent, so is the importance of external assistance to overall resource mobilisation and economic activity. For the countries with the highest prevalence of undernourishment, ratios of external resources to various measures of resource mobilisation and to GDP have fallen in the second half of the 1990s, however, external aid is still as high as 86 percent of gross domestic investment and 51 percent of government expenditures. For the group of countries in this category, external aid is an indispensable source of funding for development.

Table 4.6: Aid* as a share of GDP, government expenditures and domestic investment by undernourishment prevalence category (1990-1998)

Source: FAO calculations based on World Bank data, World Development Indicators, 2000.

1 Net ODA and net official aid (the actual international transfer by the donor of financial resources or of goods or services valued at the cost to the donor, less any repayments of loan principal during the same period).
2 Averages refer to simple group and period means.

45. Table 4.7 shows that total ODA commitments from the major bilateral and multilateral donors to developing countries for agricultural development amounted to $12 316 million in 1998 (provisional data) in current prices. This is almost exactly the same level as was recorded in 1997 ($12 340 million) but still lower than the 1990 level. Moreover, the share of agricultural and rural development (both the broad and the narrow definitions) in total ODA was lower in the mid-1990s than at the beginning of the decade, while recovering in the last two years for which data are available.

Table 4.7: Total official development assistance (ODA) and ODA towards agriculture and rural development (millions of 1995 US$)

1 Narrow definition includes the following sectors: land and water; research, training and extension; inputs; agricultural services; crop production; livestock; fisheries; forestry; others.
2 Broad definition includes all the above plus manufacturing of inputs; environmental protection, agro-industries; rural development/infrastructure; regional and river development.

46. When measured in constant 1995 prices, total commitments for agriculture have increased since 1995 but still remain 8 percent below the level that opened the decade in 1990 ( Figure 4.2). The contributions made by bilateral donors, mainly countries in the Development Assistance Committee (DAC), remained at about $4.3 billion in both 1997 and 1998. The increased levels of assistance in 1997 and 1998 over that of 1996 were represented entirely by increased levels of multilateral assistance, particularly from the International Development Association (IDA), while bilateral assistance was actually lower than in 1996 (Annex Table 8 and Figure 4.3 ).

Figure 4.3: Total commitments to agriculture by main bilateral & multilateral donors
(millions of 1995 US$)

47. The share of concessional assistance in total commitments for agriculture is estimated at 65 percent in 1998, well below the shares of 1988 (77 percent), and 1996 (74 percent). The share of grants in total commitments has remained relatively stable throughout the 1990s and represented 28 percent in 1998.

48. During the period 1990 to 1998, the share of total funds allocated to primary agriculture out of total ODA commitments to agriculture (broadly defined) has declined while the share to fisheries and forestry remained stable. There has been increasing attention to other areas, in particular environmental protection (from 5percent in 1990 to 10percent of the total in 1998), rural development and infrastructure (from 14percent to 25percent) and research, extension and training (from 6percent to 14percent of the total) (Table 4.8).

Table 4.8: Total ODA commitments to agriculture (broad definition): shares of main purpose groups (agriculture and rural development)

49. As for the geographic distribution of flows of external assistance to agriculture, there has been a declining trend throughout the 1990s in the share going to Africa. In 1998, the largest share of commitments went to Asia (46 percent), with Latin America and the Caribbean in second place (23 percent) and Africa third (21 percent). A smaller share went to Europe (2.5 percent) (Table 4.8 and Figure 4.4).

Figure 4.4: Total ODA to agriculture by main recipient groups in 1990 and 1998
(percentage of total US$)

Table 4.9: Lending for agriculture by principal financing institutions
(loan approvals)
(all figures in current millions of US dollars )

IFAD is of course 100% agriculture
Peak lending years in bold.
Source: Annual Reports; for 1998 figures (other than World Bank) from e-mails/telephoned information from financing institutions (Annual Reports for these other institutions usually only published April/May each year).
N.B. As of FY 98, World Bank reclassified figures used.

50. Table 4.9 presents data on external resource flows to agriculture in the form of loans by principal international and regional financing institutions. Total lending to agriculture in terms of total loans declined substantially between 1990 and 1997. The share of agriculture in total lending ²³has also declined during the same period. World Bank lending for agriculture has declined from $3 656 million in 1990 to $1,125 million in 2000. While lending to agriculture represented 18percent of total lending by the World Bank in 1990, in 2000, this figure was reduced to 7percent. Except for IFAD, where all lending is to agriculture and EBRD where the shares of lending to agriculture vary substantially, all financing institutions have reduced lending to agriculture (Table 4.9).

51. Given that domestic resources are scarce and levels of domestic investment needed exceed what most countries can finance out of their own savings, most countries therefore heavily depend on external assistance, a dependency augmented by the heavy debt burden faced by them. Until countries with a high incidence of undernourishment are able to increase their incomes to the level where they can generate sufficient savings to meet their needs, external transfers will play an important role in the fight toward eliminating food insecurity. Most LIFDCs will need to draw on some measure of official finance for many years to come.

52. A

major question arising from the above discussion concerns the reasons for the decline in the external resource flows to the agricultural sector despite its critical importance for growth and food security in developing countries. Some possible reasons are briefly mentioned here. They may hold to different degrees depending on the country/region and source of aid or lending: (a) current abundance in world food availability reflected, inter alia, in the low agricultural commodity prices masks the plight of those who cannot access their daily food needs even at the prevailing low prices (b) increased attention by donors and financing institutions is given to activities such as health, environment, education and to social issues without adequate additional funding to reflect the new emphasis. This refocusing of attention has been brought about by shifts in the predominant development paradigm towards the various manifestations of poverty and has been reiterated by resolutions of summits and as an outcome of high-level meetings, conferences and reports. Primary agriculture has to compete for resources with those sectors and activities; (c) those concerned with agricultural and rural development lack sufficient political power to influence national governments to direct resources, including aid and /or lending requests, towards agriculture and the rural sector. In particular, increasing urbanisation may have further strengthened the political voice of urban populations and their claim on both domestic and external resources; (d) the "mechanics"of aid and lending favour sectors and activities with short turnaround and have therefore discouraged programme and project managers from the undertaking of agricultural and rural projects with long gestation periods; (e) negative experiences with the performance (rate of return) of the agricultural and rural loan portfolios of some lending agencies have further discouraged lending. It is important that stakeholders and their allies at the national level and international bodies concerned with the growth of the agricultural sector and the food security of those who derive livelihoods from it, analyse the reasons for the reduced resource flows to agriculture and rural sectors and make a concerted effort to reverse the decline.

V. RESOURCE NEEDS TO MEET THE WFS TARGET

A. Investment for agricultural and rural development²⁴

53. The World Food Summit, had called for a drastic departure from the pre-existing trends and policies that had led to the persistence of high levels of undernourishment. The Rome Declaration is clear on this point:

"We consider it intolerable that more than 800 million people throughout the world, and particularly in developing countries, do not have enough food to meet their basic nutritional needs. This situation is unacceptable. The problems of hunger and food insecurity have global dimensions and are likely to persist, and even increase dramatically in some regions, unless urgent, determined and concerted action is taken, given the anticipated increase in the world's population and the stress on natural resources. We are determined to make efforts to mobilise and optimise the allocation and utilisation of, technical and financial resources from all sources, including external debt relief for developing countries, to reinforce national actions to implement sustainable food security policies."

54. It is enlightening to compare the observed slow growth of resources for agricultural development and food security with an estimate, uncertain as it may be, of investment levels required to reach the WFS target. This estimate, calculated initially by FAO in preparation for the Summit, has been updated subsequent to the Summit and was provided for information to the Committee on World Food Security at its 25^th session in 1999. As shown in Table 5.1, the total annual gross investment required in agriculture of the developing countries, including primary agriculture as well as storage, processing and support infrastructure, has been estimated at US$ 180.4 billion for the period up to 2015 in the FAO study.

Table 5.1: Investment needs to reach the WFS target * (billions of 1995 US$)

Source: FAO Document CFS: 99/Inf.7, 1999.
* Gross Investment

55. The same study, using a comparable estimate of actual investment in primary agriculture during the decade 1986-95 showed that a continuation of these annual investment rates until 2015 would be clearly insufficient to achieve the WFS target (Table 5.2). The expected shortfall was 12 percent for the average of all developing regions, varying from 38 percent in sub-Saharan Africa to zero in North Africa and the Near East. Comparisons for storage, processing, support and infrastructure could not be undertaken due to the absence of statistics on actual investment levels.

Table 5.2: Past investment and future needs in developing countries - (primary agriculture) (billions of 1995 US$ )

Source: FAO Document CFS: 99/Inf.7, 1999.

56. It is important to reiterate that the largest share of investment in primary production is undertaken at the farm level, and therefore depends above all on a conducive climate for private investment, i.e. on sound policies for sustainable agricultural and rural development. On the other hand, public investment plays the main role in providing essential public goods without which private initiative cannot flourish: knowledge generation, information, education and infrastructure. For many LIFDCs, provision of these public goods cannot be achieved in the foreseeable future without resorting to external assistance. Recipient countries and donor institutions, bilateral or multilateral, need to allocate resources as required into these areas if the objective of food security is to be achieved.

57. It is in pursuit of this objective that FAO, over five years, has already mobilised US$ 230 million for the Special Programme for Food Security (SPFS) that is operational in several countries around the world. The main aim of the SPFS is to improve food security through rapid increases in productivity and food production, reducing year-to-year variability of production and improving access to food on an economically and environmentally sustainable basis. The programme, to be effective and achieve its goals in around 80 LIFDCs requires an annual financing of about US$ 1.4 billion, of which US$ 500 million would come from the FAO SPFS Trust Fund, US$ 67 million from the recipient countries, US$ 134 million from bilateral donors, and US$ 670 million from multilateral financing institutions, which is equivalent to about US$ 17 million per country.

58. The widening resource deficit is greater still when one considers the need to attend, in addition, to the transitional needs of the poor and food-insecure on the road to development. These will be discussed in the following section.

B. Investments for transitional assistance to the food insecure

59. Quite understandably, in order to reduce poverty and food insecurity, more attention must be paid to investments which can sustainably improve the capacity of people to better their living conditions. As an example, the importance of the agricultural sector and of rural poverty has led many countries to pursue strategies focused on reducing chronic food insecurity through increasing the productivity of small farmers. Such strategies require that financial resources and institutional capacity be available, that the rural poor can access productive land and affordable inputs, and that the non-farming poor can express their unsatisfied food needs in terms of effective demand. In most LIFDCs, however, the feasible scale of such a strategy is constrained by the lack of resources, domestic and external, and institutional capacity.

60. Since adequate nutrition, health and elementary education are prerequisites for inclusive economic growth, ensuring the broadest possible access to essential food needs, safe water, primary health care and primary education may well be the most important use of scarce resources to reach the WFS target. Therefore, direct interventions aimed at reducing current malnutrition and at creating conditions for healthy living should accompany policies (including public investment priorities) aimed at overall, including agricultural, development. Indeed, the 20/20 target agreed at the World Summit on Social Development (20percent of national budgets and 20percent of international assistance directed towards social goals) is premised on these twin requirements.

61. This twin-track approach to addressing food insecurity (both humanitarian and developmental goals) has been recognised as necessary in the technical documentation prepared by FAO for the WFS, as well as in the World Bank's paper on Rural Development: From Vision to Action and IFPRI's "2020 Vision for Food Agriculture and the Environment"and IFAD's Rural Poverty Report 2001. Translating it into reality in all LIFDCs, however, will require the mobilisation of resources as well as institutional capacities that far exceed those currently committed to addressing food insecurity.

62. Resources needed to improve the multi-dimensional health and nutrition conditions of the populations in those countries are of course difficult to quantify. The cost of providing the food required for those undernourished to be fed at a minimally adequate level has been notionally estimated²⁵ at around US$ 13 per person per year - for 800 million persons, this means US$ 10 billion per year, but the cost would decline to only US$ 5 billion with the WFS target met. UN system agencies²⁶ have calculated the cost of ensuring sound nutrition and health in the developing countries at US$ 70 to 80 billion per year - on top of the US$ 136 billion currently spent. With the constraints on the domestic public budgets of the poorest developing countries, and the necessity that their fragile macroeconomy not be handicapped by the full cost of such effort, the case for increased and sustained international assistance cannot be overstated. While the fruitful outcome of foreign assistance depends on its appropriate orientation and utilisation by both donors and recipients, no improvement can substitute the lack of resources beyond a certain point. Thus new forms of resource mobilisation must be explored.

63. The costs to be incurred in attaining the WFS target for reducing undernutrition depend very much on the strategy adopted. Sustainable improvements in food security can result from, but also contribute to, broad-based economic growth. However, the magnitude of the number of the undernourished - even if it were to be reduced from 800 to some 400 hundred million in the span of 15 years - calls for direct, targeted measures aimed at reducing their current undernourishment, in addition to policies and programmes which will improve their wellbeing in the future. It is essential, in considering the costs and benefits of such measures, to take into account the economic benefits resulting from their implementation, in addition to their humanitarian justification.

64. Poor health and malnutrition impair physical and mental capacities, and therefore the ability for productive work. This has been amply demonstrated at the individual level²⁷. Recent research conducted on the economic performance of a hundred countries over three decades in relation to their food insecurity status suggests that the economic losses incurred by the national economy when a large share of its labour force is handicapped by poor nutritional status are indeed significant - reaching magnitudes of the order of one point of growth in GNP per annum. Such are the conditions prevailing in countries with 30 percent or more of their populations undernourished, which FAO has estimated to have an aggregate of 600 million inhabitants. Indeed, since the mid-1980s the economic growth rate (per caput GDP) has been negative or nil in all countries with more than 50 percent of their populations under-nourished, and in a majority of those with 20 percent to 50 percent undernourished. Only in the group with less than 20 percent undernourished did a majority of developing countries experience positive growth per caput²⁸. Despite the fact that the cause-effect relationships are difficult to disentangle (from growth to nutrition and from nutrition to growth) these findings nevertheless suggest that fighting hunger is a growth-promoting economic investment, not only a human rights obligation.

VI. CONCLUSIONS

65. Despite the solemn commitment made at the World Food Summit, of a continuous effort to eradicate hunger in all countries with an immediate view to halving the number of undernourished before 2015, there are no signs of a significant change in the rate of reduction of undernourishment, which remains far too slow. Indeed, current projections for 2015 still leave the expected number of undernourished at that date at 580 million people, and the WFS target of a reduction to 400 million would not be achieved before 2030. It must be added that this is only an intermediate target: the ultimate aim is to eradicate hunger in all countries.

66. The urgency of remedial action cannot be overemphasised. It is indispensable that resource mobilisation for agriculture (a crucial sector for food security in the developing countries) moves towards the desirable change. Financial resources are only one element of the necessary actions to promote food security, and sustainable agricultural development is one of several indispensable components of a strategy to alleviate poverty, in particular food insecurity. Yet the importance of mobilising resources for agriculture, especially in the countries where the sector forms the basis for the livelihoods of the great majority of the poor, justifies that changes in resource allocations towards the sector be considered as a forewarning of positive changes taking place.

67. In this respect, the information and analyses presented in the paper do not provide any evidence that sufficient changes towards a new path have taken place, even though available data to monitor the situation are appallingly scarce. Investment in agriculture in developing countries seems to continue at the same pace which resulted in the insufficient progress observed since the beginning of the 1990s. Low productivity of agriculture in poor countries is associated with their low capital stock per worker and this backwardness in capital stock per worker and productivity has been steadily growing. Countries with low savings and investment capacity remain dependent on ODA as the main external finance source, but there is no shift in ODA trends to herald any response to this pressing need. The allocation by governments and donors of public resources towards agriculture remains well below the share of agriculture in income and employment generation. Yet, 70 percent of the poor and food insecure in developing countries depend on agriculture, fisheries or forestry, directly or indirectly, for improved livelihoods.

68. It is not only a humanitarian, but also an economic reasoning, which should lead to greater efforts towards alleviating the plight of the poor and food insecure. As a matter of fact, and in addition to development efforts, immediate food assistance to the hungry, in the case of emergencies due to climatic or conflict conditions, has individual and collective economic rewards as such assistance enables the undernourished to better contribute, in the short and long term, to economic growth and the prosperity of the nation.

69. The message should be clear: there can be no hope of meeting the Summit target if the political will to direct sufficient resources to food and agriculture that will push up and distribute productivity gains, enhance employment generation and access to food in the rural areas in particular, and to better conditions of life for the destitute, is not manifested through the allocation of public resouces. Many countries are in critical need of investable resources. International assistance for them, starting with a lasting solution to the debt problem, would be a tangible sign that the commitments made at the Summit are being honoured. All efforts should continue to ensure that policies followed at the national and international level create the appropriate incentive environment for farmers'and other private investment to flourish in a climate of peace, democracy and stability towards an inclusive human, social and economic development.

ANNEX TABLES

Annex Table 1: Rural and urban poverty percentages, developing countries

Annex Table 2: Incidence of undernourishment in the population by country, geographic region and prevalence category

Source: FAO Statistics

Annex Table 3: Total expenditure on agriculture - central+local+state (millions of US dollars) by country and region (1990-1998)

1 Regions are as follows:
1= Lat. Amer and Caribbean
2= Near East and N. Africa
3 =Africa South of the Sahara
4 = East and SE Asia
5 = South Asia
6= Oceania

Annex Table 4: Total expenditure on agriculture by undernourishment prevalence category - central+local+state (million of US$)

Undernourishment Prevalence Category

Annex Table 5: Government expenditure on agriculture as a percentage of agricultural GDP,
(by region)