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Promoting Agricultural Development

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
June 1970
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Dinesh Bahl

THE SECOND World Food Congress is being held at The Hague in June to discuss how agricultural production in the developing countries can be increased more rapidly in the coming years. Over the 7 years that have gone by since the first such Congress was held in an atmosphere of almost Malthusian gloom, the outlook for agriculture has changed radically. The “green revolution” has brought the hope that, given the resolution, the investment, and the effort, hunger need not be the inescapable fate of millions around the globe.

The change has occurred during a period when, responding to the seriousness of the problem, the World Bank Group has been increasing its support for agriculture throughout the less developed world. The support is now not only being greatly strengthened; it is being supplemented by preparations for a simultaneous attack on the more dangerous but less clearly recognized factor in the man-food equation: rampant population growth. With the major increase in its agricultural activities, starting in 1964, the Bank Group entered into arrangements for closer cooperation with the United Nations Food and Agriculture Organization (FAO), a body whose sponsorship of this month’s Congress at The Hague marks an important milestone in its 25-year history.

The Bank’s Interest in Agriculture

The World Bank’s interest in agricultural development is almost as old as the World Bank itself. It made its first loan for this purpose as long ago as March 1948—within 21 months of having opened its doors for business. But this was not a sector in which it was particularly active in its early years.

Although substantial sums were lent for agricultural development, particularly for buying farm machinery and for irrigation projects, the lending was constrained by four main factors. The first was that, in the developing countries themselves, the emphasis at the time was generally in favor of pushing ahead with industry rather than agriculture. Second, there was an acute shortage of sound and well-conceived agricultural projects of the sort the Bank would have been in a position to support, especially projects for which substantial sums of foreign exchange would have been required.

Third, in most developing countries, the assumption was that the chief precondition for agricultural progress was institutional reform rather than any scheme of large and carefully planned investment. Fourth, because of the neglect which agriculture had suffered, relatively little was known about how to get to the heart of an agricultural project—to the hundreds, thousands, sometimes perhaps millions of farmers—and persuade them to use effectively the new financial, material, and institutional facilities that may be placed within their reach. In sum, in many developing countries, the belief was widespread that agriculture would somehow jog along on its own, as it had done since the dawn of history, and therefore no special effort was required.

It was not until about the early 1960’s that the seriousness of the agricultural inadequacies in the less developed countries began to be properly recognized. In many countries, the economic consequences of the food shortages had for several years been cushioned by large-scale food aid programs, mainly those supported by the huge grain surpluses in the United States. But as those surpluses rose and fell, and as the political support for such programs waned, the disturbing realization emerged that food aid was no solution to the longer-term problems of hunger in the less developed world. Those problems were, on the contrary, being accentuated by the fact that the increase in the world’s food supplies had barely exceeded the growth of population. As a result, there had been hardly any improvement in living standards. What was worse, the growth of agriculture had generally been slowest in countries where the population problem had been severest—thus raising the specter of large-scale starvation in years to come.

A Crisis in Economic Development

The situation had in fact deteriorated so far that the developing countries, which taken as a whole had been large net exporters of food as recently as the 1930’s, had become large net importers of food by the 1950’s. By the 1960’s they were spending anything up to $3 billion or $4 billion of foreign exchange each year on food imports. Even so, their per capita consumption had improved negligibly, if at all. Food shortages had led to economic, political, and social instability. The instability showed that the development of agriculture was not only an important prerequisite for balanced economic growth; in countries where this single sector accounted for anything up to 50 per cent, or even more, of the gross national product, it was far and away the most important prerequisite in view of the serious neglect it had suffered over the years. Allied to the economic realization was the humanitarian one: that large numbers of the world’s population lived in conditions of extreme poverty, of which hunger was at once the ugliest feature and the surest test. For millions around the globe, economic progress had had little meaning since their most fundamental need, the need for food, had not been more adequately met.

As the seriousness of the food situation began to be more clearly recognized in the late 1950’s and early 1960’s, the developing countries themselves began to appreciate the need to do much more about agriculture. It was against this background that the World Bank Group found it possible to support agricultural development on a much larger scale. A broad measure of the extent to which it intensified its efforts is reflected in the statistics. From the time the Bank opened its doors for business in the summer of 1946, until June 1963, about $650 million or so had been lent specifically for agricultural projects. By June 1968, the total had risen to around $1,300 million. In other words, over the 5 years to mid-1968, the Bank Group had lent about as much for agriculture as in all the previous 17 years.

An Upswing in Lending

Now, as it crosses the threshold of the 1970’s, the Bank Group is in the midst of yet another, and sharper, upswing in its agricultural lending. In the 5 years to the middle of 1973, it plans to lend four times as much for agriculture as in the previous 5 years. The first landmark in that direction has already been reached: in fiscal 1969, the Group’s agricultural lending totaled almost $390 million, or about double the level of the previous year. In fiscal 1970, a further increase is expected. Another index to the relative importance of agriculture in the Bank Group’s work is that in 1962 agricultural projects accounted for only 7.8 per cent of the total lending to developing countries. By 1969, the proportion had risen to 20.7 per cent.

Yet even these proportions and totals do not tell the whole story. Apart from the loans provided specifically for agricultural development, much of the money given for transport, especially road transport, has gone to projects intended mainly or partly to serve the needs of farming communities. The same is true of many of the loans given for electric power development. Indeed, a substantial proportion of the lending in other sectors, such as industry or education, has also directly or indirectly helped agriculture.

The Bank’s involvement in agriculture in the early years did not start with any preconceptions of what might be called “a grand design.” Rather, it edged its way forward, picking and choosing projects of high economic priority. The aim was to concentrate on the crucial bottlenecks in a country’s agricultural economy that seemed particularly suitable for Bank financing. The very first agricultural loan—made in 1948—provided $2.5 million to Chile for imports of agricultural machinery. The loan was not untypical of what was to follow in those early years, in the sense that a large proportion of the lending, down to the late 1950’s, helped to finance the purchase of farm machinery. That was a period when there was a desperate shortage of such machinery, and of the dollars required to buy it from the United States, which was the main supplier at the time. The Bank’s loans helped to overcome the shortage and to push forward the modernization of agriculture.

Promoting Irrigation

As the Bank’s interest shifted later from the initial phase of reconstruction to positive development in the less developed countries, the scope for giving loans purely for the purchase of agricultural machinery decreased. And, in fact, no loans have been given specifically and exclusively for this purpose since 1957, although agricultural machinery continues to feature in other agricultural loans encompassing a wider range of purposes. In the second phase, broadly covering the late 1950’s and the early 1960’s, the increasing interest in the developing countries was reflected in the fact that the biggest proportion of the Bank’s agricultural lending then began to go for irrigation and flood control projects. That is indeed the case even now. For a variety of reasons, irrigation has proved a particularly suitable subject for Bank Group lending. It provides the farmer with what is often his most important input—a large, assured or regulated supply of water. The capital cost of irrigation projects is usually large. Much of it is in foreign exchange. And that is where institutions like the Bank and its soft-loan affiliate, the International Development Association (IDA), can be particularly helpful.

But in irrigation, as in other spheres of agricultural activity, experience has shown that a single narrowly conceived project, by itself, is not enough. The idea that one has simply to build a dam across a river, and then sit back and wait for a spectacular increase in agricultural productivity, does not really work. The project has to be planned in a broader setting, in the sense that a variety of supporting investments are required to make full use of the water resources the project might have created. Because this factor had often been neglected, many irrigation projects around the world were not giving the yields they could.

Simply providing more water through an irrigation project does not necessarily mean that farmers have to alter their traditional cultivating practices. But, if the extra water is to be fully used, a number of possibilities have to be considered. It may be necessary to grow new crops; or to go in for more intensive cultivation; or to introduce multiple cropping. In that case, traditional cultivating practices do have to be changed radically. For instance, if multiple cropping is proposed, a number of measures have to be taken. Early and late maturing varieties of plants have to be introduced. To cope with the extra work, field operations may have to be mechanized. To keep lands and plants in good condition, the use of fertilizers and pesticides has to be encouraged. To cope with the increase in production, new storage, processing, and marketing facilities have to be developed. Last, but by no means least, if farmers are to handle the bigger flow of inputs and outputs, and if they are to make the on-farm investments that are essential to the process of change, they have to be offered a bigger supply of agricultural credit since their own cash resources will often be inadequate.

Even if all these inputs and facilities are provided, it does not automatically follow that farmers will rush ahead to use them. Those living close to the subsistence level are hardly in an ideal position to take the risks implicit in radical change. There may be a host of social, institutional, and psychological barriers governing their responsiveness to reform. If these barriers are to be broken, it is necessary to organize agricultural services, and train qualified people to run them—people who can teach the farmers what to do and how to do it. The incentive to innovate has to be strengthened by providing a variety of services and facilities, and by introducing a framework of policies that will enable farmers to seek their own good beyond the risks of innovation.

A More Comprehensive Approach

The catena of changes illustrated here is of relevance not only to irrigation projects; similar changes, supported by appropriate effort and investment in related fields, are required in a variety of other agricultural projects too. The Bank Group’s response to the need has, therefore, taken two main forms in recent years. The first is that it has increased its support for general agricultural development, by adopting a more comprehensive approach. While loans for irrigation are still large, greater emphasis has been given to other aspects of agricultural development, such as farm credit, livestock production, land settlement, seed improvement, grain storage, and training and extension work. Secondly, agricultural credit projects, in particular, have been supported more vigorously. The support is based on the realization that agricultural credit is vital for changes that touch most closely on the daily routine of the farmer. It can provide a large part of the resources required for the purchase of inputs such as fertilizer, as well as much of the capital required for investment on the farm itself.

The result is that agricultural credit is now the second biggest category of the Group’s lending for agriculture, and its relative importance is growing. A variety of institutional arrangements have been made for channeling credit to the farmer. In Mexico, the credit has been routed through the central bank, which has then re-lent it through the commercial banks. In the Philippines, the money has flowed to the farmer through small rural banks. In Tanzania, the agricultural credit agency has relied on the strength of local cooperatives to distribute credit. A common feature, however, is that the program of lending to credit institutions does not provide them with only the money; it provides them also with extensive technical assistance for improving their organization and operations.

Preinvestment Preparation

Technical assistance for preinvestment preparation or for project implementation is of course provided not with agricultural credit alone but with many types of other projects; it is indeed offered as part of every capital aid project. Anticipating the need for it the Bank started making arrangements some years ago with institutions already operating in the field. In 1964, an agreement was reached under which the United Nations Food and Agriculture Organization cooperates with the Bank in assisting governments to bring new projects to the point where they can be considered for financing by the Bank or IDA. A special team established within the FAO for this purpose helps to identify and prepare projects. The Bank has also been coordinating its work with the United Nations Development Program (UNDP) and the FAO in cases where studies financed by the UNDP might lead to Bank Group financing. Similar cooperation has been established with the United Nations Educational, Scientific and Cultural Organization for preparing educational projects, some of which are intended directly or indirectly to benefit agriculture.

The Bank Group has thus diversified the nature of its agricultural work in terms of studies, preinvestment surveys, project preparation, and lending. The work has also been extended to many more parts of the world than was the case a few years ago. Until recently, most of the Bank’s agricultural lending was concentrated in a relatively small number of countries. Pakistan and India (including the Indus Basin Development Scheme) headed the list. The others included Colombia, Brazil, Iran, Malaysia, Mexico, Morocco, Peru, and Thailand. But the Bank Group now has some kind of agricultural work in progress in 75 countries.

A notable feature is the increase in its work in Africa. In 1965, permanent regional missions were established in Nairobi and Abidjan, primarily to assist governments in eastern and western Africa to identify and prepare agricultural and transportation projects for presentation to the Bank and IDA. The Bank’s Agriculture Development Service, based in Nairobi, is helping to overcome the shortage of qualified managerial personnel by making managers available to governments for agricultural projects on a reimbursable basis. Elsewhere, notably in Latin America, the Bank has employed on contract a number of project managers who have been seconded to governments to help implement projects which the Group is financing.

It is a sign of the Bank Group’s efforts to increase its contribution to agricultural development that at the end of 1963, 9 agricultural projects were being appraised or negotiated, and another 19 were in various stages of identification or preparation. The corresponding figures now are 58 and 117.

An important aspect of the Bank Group’s interest in agricultural development is the much greater emphasis given in recent years to the need to increase fertilizer production in the developing countries. The Bank Group has helped to finance a number of fertilizer ventures, particularly through the International Finance Corporation (IFC), which is concerned with promoting the flow of investments into private productive enterprises. In addition to eight projects in the fertilizer field, IFC has taken part in financing nine private ventures directly involved in the production and processing of food. It has put money into cattle raising, grain storage, sugar production, sugar refining, and flour milling, as well as into several food canning and processing activities aimed at production for both domestic and export markets. These ventures, together with the eight fertilizer projects, include all the lower income regions—Latin America, Africa, and Asia.

Stronger emphasis is being given to fertilizer manufacture because, with an adequate water supply, fertilizer yields results quickly and on a sustained basis; it also has a marked demonstration effect. Used in conjunction with other inputs, such as the high-yielding plant varieties, it promises major increases in farm productivity. This is an area in which the less developed countries lag far behind North America, Europe, and Japan. The amount of fertilizer used by farmers in developing countries is generally very low; their agricultural productivity, consequently, is also low. But as a result of the investments in irrigation, drainage, and flood control, the area of land which can be intensively cultivated is increasing. The demand for fertilizer promises to rise rapidly as intensive farming methods are adopted—with more adequate water supplies, multiple cropping, and the introduction of plant varieties which are responsive to the application of fertilizer. At the same time, the prospects for producing more fertilizer more cheaply are improving, for two main reasons. One is that the fertilizer industry has made major technological advances over the past decade and more. The second is that new sources of raw materials for fertilizer manufacture have been discovered within the developing countries themselves.

Promise and Limitations

In the sphere of agricultural development, the Bank Group has come a long way from where it was 20 years ago, or even 10 years ago. But it is clear that the real task of wiping hunger off the face of the earth is, in a sense, only just starting. The “green revolution” is a development of great promise. It has demonstrated that, within the space of a few years, crop yields can be increased by anything from three to five times—by creating new irrigation facilities, by providing more fertilizer, by supplying better seeds, and by establishing the policy and institutional framework which gives farmers a clear incentive to use all these things.

At the same time, there are important limitations to which the “green revolution” is subject. Increasing crop yields calls for an adequate and regulated supply of water; yet only 15 per cent or 20 per cent of the cultivable land in developing countries is irrigated so far. The so-called miracle seeds which work in one region do not always work in another; or, if they do, they bring second-generation problems in that the new plant varieties may be more vulnerable to pests, diseases, and other adverse factors in the environment. As far as fertilizer is concerned, it is not simply a question of producing more and dumping it liberally all over; the right type of fertilizer has to be applied in the right quantities at the right time—for which purpose a good deal of preliminary research and extension work is necessary.

Examples such as these bring the reminder that the “green revolution” is not about to thrust the developing countries into a new millenium of plenty. Indeed, its impact has been limited only to parts of Latin America, Asia, and the Middle East so far, leaving much larger areas elsewhere still untouched.

Even if hunger is eliminated, in the strictly physical sense of men having so many more bushels of grain to pour into so many hitherto empty stomachs, the problems of malnutrition will remain. All that the “green revolution” does is buy the world time—time to make the investment necessary to produce more food, and time to make the effort necessary to keep down the number of mouths waiting to be fed. That is where the Bank Group, the FAO, and the World Food Congress share a common objective: to do all they can to ensure that the world makes good use of the time.

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