Poverty and Hunger

INTRODUCTION

1. Poverty in its various forms has increasingly occupied the attention of the international
community during the last decade. Successive Summits have made commitments to
drastically reduce the misery from which so many humans suffer throughout their lives.
Such attention is in itself an encouraging step forward, but actual progress is still painfully
slow, even though measures to improve the livelihoods of the poor are affordable. Hunger
and food insecurity - the most serious forms of extreme poverty - have now become
international priorities, and participants in the 1996 World Food Summit made a solemn
commitment to halve hunger in the world by 2015.

2. The Millennium Declaration of 2000 consolidates and restates the commitments agreed
during the preceding decade, and can be seen as the final stage of the Summit process. For
the first time in a document of its kind, it stresses that, without policies and mechanisms to
mobilize private and public resources on a much larger scale, the internationally agreed
Millennium Development Goals (MDGs) for reducing poverty and hunger and for social and
sustainable development cannot be achieved. The Declaration is thus a starting point for
renewed action in the twenty-first century. The
International Conference on Financing for Poverty is the lack of basic
Development can redress the failures and biases of the human needs, such as clean
water, nutrition, health care,
past by making its prime objective that of ensuring education, clothing and
shelter, because of the inability
adequate funding for the achievement of the MDGs.
to afford them.

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Poverty and Hunger

3. The International Conference on Financing for Development offers

the opportunity to put an end to a paradox that characterized the
1990s: that, while global commitment to progress in the fight against
poverty seemed to be gaining strength and the means to tackle the
problem were increasing, the volume of resources actually mobilized
fell year after year. The gap between commitment and action has widened, which inevitably
raises questions about the genuineness of the commitment.

4. This paper looks at financing for the achievement of the MDGs. It does so from the
perspective of FAO, IFAD and WFP, the three Rome-based United Nations organizations
working on food, agriculture, and rural development issues. The paper shows how widespread
hunger is an impediment to overall growth and poverty reduction efforts. The paper emphasizes
that mobilizing and carefully deploying resources where the impact can be greatest, is
fundamental to the effort to reduce poverty, hunger and food insecurity. In that context it
illustrates that resources deployed in fighting hunger directly and in agricultural and rural
development can make substantial and sustainable contributions to overall poverty alleviation.

THE VICIOUS CIRCLE OF POVERTY AND HUNGER

Poverty and hunger: recent trends and future scenarios

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Poverty and Hunger

5. The international community has pledged to halve

poverty and hunger by 2015. But who are the poor and the
hungry? How many are there? Where are they located?
What is the relationship between hunger and poverty? The
next two sections address these questions and emphasize the
urgency of the fight to reduce hunger.

6. On the basis of the "one-dollar-a-day threshold", there are

1.2 billion poor people in developing countries. Of these,
780 million suffer from chronic hunger, which means that
their daily intake of calories is insufficient for them to live active and healthy lives.

7. Extreme poverty remains an alarming problem in the world's developing regions, despite the
advances made in the 1990s. Progress in poverty reduction has been concentrated in Asia and
especially East Asia. In all the other regions, the number of people in extreme poverty has
increased. In sub-Saharan Africa, there were 58 million more poor people in 1999 than in 1990.

8. World Bank projections (World Bank, 2001) show that by 2015, the proportion of people
living below the one-dollar-a-day poverty line will be 12.3 percent as compared to 29.0 percent
in 1990 - well below half the 1990 proportion. The projections assume substantially higher
economic growth rates than experienced in the recent past. If the assumptions turn out to be
accurate, the MDG of halving the proportion of people in poverty world-wide between 1990 and
2015 will have been met. However, even using the
optimistic growth assumptions, in sub-Saharan
Africa nearly 40 percent of the population will still
be in poverty by 2015 while there will be 45 million
more poor people in the sub-continent than in 1999.
Clearly, there is no room for complacency.

9. The proportion of hungry people in developing

countries was reduced by 3 percentage points in the
1990s, despite population growth. Although this

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constitutes progress, the prevalence of hunger is still

unacceptably high. At the start of the twenty-first
century, in a world of conspicuous affluence, 34 percent
of the people in sub-Saharan Africa suffer from chronic
hunger (Figure 1). This means 24 million more
undernourished people at the end of the decade than at
the beginning

Figure 1. Proportion of Undernourished in Developing Regions.

Actual and FAO Baseline Projections

Source: FAO 2000, 2001b1

10. Progress in reducing the number of undernourished has been alarmingly slow. The target set
at the 1996 World Food Summit was to halve the number of undernourished people by 2015
from their number in 1990-92. The latest data show that the number of undernourished is falling
by 6 million a year. This means that the annual rate of reduction has to be stepped up to 22
million for the target to be met. On the basis of current trends it will be 2030 before that target is
achieved. FAO projections show that none of the world's developing regions will achieve the
WFS target; only the two Asian sub-regions will come close (Figure 2).

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Poverty and Hunger

Figure 2. Number of Undernourished: Actual and FAO Baseline Projections

Source: FAO 2000, 2001b

11. Widespread and persistent hunger is a fundamental contradiction in today's world. The food
is there: world agriculture produces 17 percent more calories per person today than it did 30
years ago, despite a 70 percent population increase. Work in FAO shows that world agriculture
can produce enough to feed humanity in the future without putting excessive pressure on prices
or the environment. The existence of 780 million chronically hungry people in the developing
world today shows that there is something fundamentally wrong in the distribution of food and
the resources with which to access it.

12. Hunger and poverty will remain at unacceptable levels unless purposeful action is taken to
give them higher policy priority and to mobilize resources towards fighting them directly and
towards agriculture and rural development. That is our principle message. Placing the MDGs at
the centre of Financing for Development is a step in the right direction.

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Poverty and Hunger

Hunger
and

poverty: exploring the reverse linkages

13. Widespread hunger and malnutrition in a world of plentiful food implies that extreme
poverty is the root cause of undernourishment. It is not always understood, however, that hunger
and malnutrition (including micronutrient deficiencies) are in turn major causes of poverty. They
affect the ability of individuals to escape poverty in several ways (Box 1) through:

Reducing the capacity for physical activity and hence the productive potential of the
labor of those who suffer from hunger - and that is usually their only asset.
Impairing people's ability to develop physically and mentally, retarding child growth,
reducing cognitive ability and seriously inhibiting school attendance and performance -
thus compromising the effectiveness of investment in education.
Causing serious long-term damage to health, linked to higher rates of disease and
premature death.
Passing from generation to generation: hungry mothers give birth to underweight children
who start life with a handicap.
Contributing to social and political instability that further undermines government
capacity to reduce poverty.

Chronically undernourished people are, therefore, caught in a hunger trap of low productivity,
chronic poverty and hunger.

Hunger and conflict

14. During the last decade, food insecurity and malnutrition appear to have contributed to an
increasing frequency of crisis events as well as to the vulnerability of countries to shocks. Most

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of today’s armed conflicts and natural disasters are

concentrated in regions heavily dependent on agriculture
and in countries with a high proportion of food-insecure
households and classified by FAO as "low-income food
deficit".

15. As well as being a consequence of a conflict, food

insecurity can be the cause and lead to conflict. Very
few new conflicts start in a food secure environment.
Hunger may induce conflict when people feel they have
nothing to lose and military service offers a free meal and the power that goes with touting a gun.

16. The impact of various crises will be also amplified when they affect a population that is
already vulnerable and weakened by food insecurity. People in poor and food insecure countries
are more likely to die from natural disaster than those who have developed better coping
strategies to protect themselves. Crises often create the opportunity for underlying micronutrient
deficiencies to develop into large outbreaks, for instance of pellagra or scurvy.

17. The lack of sufficient resources for eradicating hunger will continue to put at risk the life of
many vulnerable groups and will be one of the elements which contribute to the resurgence of
emergencies. Therefore, savings from conflict avoidance should be understood as "returns" to
aid. Following emergencies, humanitarian interventions are
often necessary, but they are expensive and do not generally
tackle the underlying causes of the crises. The need for relief
will remain as long as vulnerable people do not get access to
adequate food and to gainful economic opportunities.
Timely investment in food, agriculture and rural
development can help to break the repetitive cycle of hunger
and conflict.

18. The preceding discussion shows that alleviating hunger

for those who suffer from it allows them to fully develop

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Poverty and Hunger

their physical and mental skills, increases their productivity and allows them to fully participate
in the development process. Hunger reduction should therefore be thought as a productive
investment in addition to a pressing moral obligation. Wisely conceived policies that target
hunger directly and in a timely fashion, can break the "hunger trap".

Box 1
Evidence on the Cost of Hunger

There is evidence that 46 million years of productive, disability-free life were lost in
1990, the result of lost social productivity caused by four types of malnutrition: stunting
and disorders related to iodine, iron and vitamin A deficiency.

156 million children under five in developing countries suffer from protein energy
malnutrition. 90 percent of all anemic pre-scholars and expectant mothers live in
developing countries. Vitamin A deficiency is the primary cause of preventable eye
defects and blindness in children.

About 17 percent of infants suffer from intra-uterine growth retardation, an indication of

poor maternal nutrition. Low birth weight means a high risk of illness and death during
infancy and reduced work capacity and strength in adulthood.

12 million deaths each year among children under five in the developing world - a
staggering 55 percent - are associated with malnutrition.

A study of Sierra Leonean agriculture showed that, on average, a 50 percent increase in

calories per consumer equivalent would increase output by 16.5 percent, or 379 kg of
food. The findings show that the lower the calorie intake is, the more significant output
response is to increased calorie intake. For example, based on a daily intake of 1 500
calories per consumer equivalent, a mere 10 percent increase in calorie intake would
increase output by nearly 5 percent.

A study in Ethiopia has shown that a 10 percent improvement in weight-for-height and

Body Mass Index (BMI) would lead to a 23 and 27 percent increase in output and wages
respectively. In the same study height, an indicator of past nutritional experience is
found to be a significant determinant of wages, with a person who is 7.1 cm. above the
average height, earning about 15 percent higher wages.

An FAO study found that raising Dietary Energy Supply (DES) to 2 770 kcal/day in
countries in which the average is below that level, would increase per capita GDP growth
by 0.34 to 1.48 percentage points per year in countries where DES is below that level.
Improved nutrition affects economic growth through greater labor productivity and life
expectancy.

3 percent of GDP every year is lost in some Asian countries through productivity losses
resulting from stunting and iodine and iron deficiencies. Given that GDP growth rates in
these countries were up to 7 percent per annum in the nineties - it follows that large
losses in GDP have taken place.

50 percent of the economic growth in the United Kingdom and France between 1700 and
1900 resulted from improvements in nutrition and health, according to Nobel laureate

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Poverty and Hunger

Robert Fugal.

Source: The State of Food and Agriculture, 2001 (FAO 200lb) which includes references to the
studies, methodological details and caveats.

POVERTY, AGRICULTURE AND

RURAL DEVELOPMENT

The rural face of poverty and hunger and

the role of agriculture

19. The slow pace of poverty and hunger reduction points to

an urgent need for strategies that better target the areas
where poor people live and the activities on which their
lives depend. A successful strategy for alleviating poverty
and hunger in developing countries must begin by
recognizing that they are mainly rural phenomena and that agriculture is at the heart of the
livelihoods of rural people.

20. Today, 75 percent of poor people in developing countries live in rural areas. In 2020, when
the majority of the world population is projected to live in urban areas, 60 percent of poverty will
still be rural poverty. And rural decline is among the root causes of premature urbanization and
urban poverty. There are several arguments supporting a rural focus for development aimed at
poverty reduction (IFAD: Rural Poverty Report):

 Major differences in incomes, poverty, nutrition, health and education between towns and
rural areas are not shrinking: most of the "dollar-poor" will still be rural in 2020.
 The decline in rural poverty has slowed in recent years; it was much more rapid in 1970-
85.
 Addressing rural poverty cuts urban poverty by reducing migration.
 Reducing rural poverty depends on rising the productivity of the poor - but most
approaches to urban poverty are welfare-oriented.
 Increases in worker/child ratios provide a window of opportunity for poverty reduction.
The rural poor need female empowerment and improved health and education to permit
reduced fertility.
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Poverty and Hunger

 Aid goes increasingly to non-rural sectors, where most

of the poor do not live or work. It is disproportionately
distributed among countries, to the detriment of
countries in greater need.

21. Agriculture is the principal driving force of the rural

economy and, for those developing countries without
substantial mineral resources, often the whole economy.
Dependence on agriculture for economic growth and export
earnings increases with the prevalence of hunger, and so does
the proportion of people whose lives depend on the rural
economy (see Table 1).2 Box 2 demonstrates that massive, sustainable poverty and hunger
reduction is inconceivable without growth in rural economies, and summarizes the evidence,
showing the potential of agricultural growth to reduce poverty.

22. Hunger and poverty reduction require that the incomes of poor people and the sources from
which they derive their livelihoods be enhanced. Therefore, pro-poor income growth needs to be
encouraged. The question is: under what circumstances is income growth pro-poor? The short
answer is that income growth originating in agricultural development will reduce poverty,
provided that it does not occur in a context of high inequality in asset ownership.

Table 1. The Importance of Agricultural Sector in Developing Countries by Prevalence of Undernourishment

Category (1990-1993 and 1995-1998)
  Undernourishment Prevalence Categories
Indicator 1 2 3 4 5
  <2.5% 2.5-4% 5-19% 20-34% > 35 %
  Year Year Year Year Year
  90/93 95/98 90/93 95/98 90/93 95/98 90/93 95/98 90/93 95/98
Share of 10.9 9.7 11.6 12.7 16.4 18.2 23.1 22.3 31.6 21.0
Agriculture
in GDP (%)
Share of 10.7 9.0 11.2 8.7 11.7 10.7 18.2 15.0 42.2 43.5
Agricultural
Exports in
Total
Exports
(%)
Share of 31.8 27.3 52.0 51.6 63.5 59.9 72.8 71.2 74.8 75.8
Rural
Population
in Total

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Poverty and Hunger

Population
(%)
Source: World Bank: World Development Indicators and FAO calculations

23. Rural households generate income from agriculture

or employment in non-farm rural activities.
Agricultural income originates from subsistence
production, revenues from the sale of produce or
employment in agriculture. The rural non-farm sector
provides goods and services linked to agriculture, such
as input preparation, repair of machinery and implements, output processing, transport and
marketing. Income earned from agricultural activities creates demand for the output of small
rural enterprises. It takes few skills to establish or work for such enterprises, so they are readily
accessible to the poor. Initial productivity-induced growth in agricultural output will create
multiplier effects in non-farm economies, increasing the incomes of those involved. It will also
raise the incomes of those directly engaged in farming.

Box 2
The importance of agricultural and rural growth for
poverty alleviation

Recent literature explores the role of agriculture in poverty reduction. Some results are
summarized here.

 Primary and tertiary sector growth reduce poverty, secondary sector growth has
no significant impact on poverty.
 Growth in rural areas reduces poverty in both rural and urban areas, urban
growth reduces poverty only in urban areas.
 Growth in small-farm production reduces the number of people in poverty and
reduces its severity: the consumption of the poorest may be increased.
 In countries where income inequalities are small, labor productivity increases in
agriculture are consistently more important than those other sectors in
generating income increases (Timer, 1997).
 In sub-Saharan Africa, sustained growth in rural incomes, when widely
distributed across households, is capable of unlocking significant additional
growth.

24. This process cannot work, however, if there are marked inequalities in access to agricultural
and other assets, especially land. Large capital-intensive holdings tend to use inputs imported
from abroad or from large towns and income is often invested outside the immediate area on
which the farm is located; interaction with local economies will be limited. Small farms are

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much more fully integrated with local markets even if,

ultimately, they are significant suppliers of export goods.3

TOWARDS A TWIN-TRACK STRATEGY

25. The above discussion shows that achieving massive and

sustainable poverty reduction entails (a) targeting hunger
directly so as to increase the productivity and productive
potential of those who suffer from it, and allow them to take
advantage of the opportunities offered by development and (b)
stimulating agriculture and rural development, both essential for both overall economic growth
and sustainable reductions in poverty. The productivity handicap caused by hunger must be dealt
with directly if agricultural development is to proceed as it should. People in abject hunger must
have enough to eat if they are to share the benefits of agricultural and rural growth. The vicious
circle of undernourishment leading to low productivity and growth perpetuates
underdevelopment and hunger. Hungry people must have better access to food, which requires
direct assistance. The vicious circle must be broken. At the same time, concentration of poverty
in the rural areas implies that growth in agriculture and overall rural development are essential
for a sustainable exit from poverty.

26. Creating a synergy between direct action against hunger and measures to stimulate
agriculture and the rural sector is fundamental to the twin-track strategy proposed here. The two
tracks are complementary. Hungry people must have better access to adequate food as a
precondition of their participation in development. At the same time, increases in agricultural
productivity and production will increase rural economic activity and expand employment
opportunities in the farm and rural non-farm sector. A case of "maximum synergy" is one in
which safety nets and food assistance programs are
supplied with local production: supplying safety nets with
locally produced food whenever possible will lead to an
expansion in market opportunities, farm output and
employment, while providing food to those who need it.

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Poverty and Hunger

27. In general, agricultural development by small farmers in conjunction with policies to enhance
the capabilities of the poor to access food, offers the best hope of a swift reduction in mass
poverty and hunger. This is the strategy advocated in this paper, and the resource mobilization
aspects of it are discussed in detail in the following paragraphs.

Implementing direct-assistance measures

28. There is now substantial evidence of the economic and social benefits of early health and
nutrition interventions. The lesson is that targeted nutritional interventions are a cost-effective
way of investing in alleviating human suffering, increasing productivity and generating
economic returns.

29. Nutrition problems are multifaceted and successful nutritional programs will therefore rely
on a combination of interventions. The mix of interventions will depend on the nature of the
problems, available resources and the social
context, which must be assessed in designing and
evaluating nutritional programs. Participatory
processes are the best in terms of achieving the
appropriate mix of interventions.

30. Improved nutrition can be achieved at low

cost. Direct nutrition interventions designed to
address the problem of malnutrition and
micronutrient deficiencies are effective and relatively low cost for the results obtained, but they
need to be combined with other types of interventions: promotion of breastfeeding, prenatal
nutrition services, communication and nutrition education, health-related services, and micro-
nutrient supplementation.

31. The cost-effectiveness of nutritional programs is well established. A World Bank study in
1993 found that nutrition interventions ranked high among health-related development actions.
More recent studies in Asia found that "nutrition interventions ... have high benefit-cost ratios
and low costs per death averted" (Horton, 1999).

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Poverty and Hunger

32. Food aid is one of the means whereby nutritional assistance

can be given to the hungry and needy. Project food aid in the
form of school feeding, supplementary feeding and food for work
is significant in addressing the needs of people living in marginal
areas bypassed by other development processes. It is a
mechanism that enables farmers to invest in their long-term food
security.

33. Studies commissioned by WFP have examined the developmental benefit of project food aid.
They confirm that its impact is often even more beneficial in the long term than in its immediate
nutritional effects.

34. School feeding was found to generate significant positive long-term results: it draws more
children into schools and enhances their ability to concentrate, thus raising their educational
performance and ultimately their earning potential. The main benefits of school feeding
programs are seen in attendance, enrolment and performance. Supplementary feeding has a
positive physical and mental impact on women and children and improves their prospects of
enjoying a healthy and productive life. These food aid interventions have proven to be effective
in providing necessary resource for the household to meet its basic needs, helping to preserve
and in some cases build new assets, thereby reducing risk and vulnerability. However food aid
flows continue to be small in relation to needs and nutrition interventions often lack the
necessary resources to effectively reach the socially marginalized and the poorest.

TRENDS IN RESOURCE MOBILIZATION FOR HUNGER

REDUCTION, AGRICULTURE AND RURAL DEVELOPMENT

35. The preceding section shows the importance of a or twin-track approach to hunger and
poverty reduction - combining direct action to improve the nutritional status of those most in
need and agricultural and rural growth to alleviate hunger and poverty.

36. In spite of the evidence supporting the underlying hypotheses, food security and poverty
reduction strategies have seldom adopted the approaches advocated in this paper, and they have
not been reflected in resource allocations. This is generally true at national and international

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level, as emerges clearly from recent trends in resource flows in support of nutritional
improvements, agriculture and rural development.

Trends in Resources for Food and Nutrition Programs

37. The cost of a twin-track approach comprising a combination of direct actions against hunger
and other development measures is difficult to quantify. There is no question, however, that
translating it into reality in the developing world will require mobilization of resources and
institutional capacities far in excess of present levels.

38. Probably as little as 10 percent of the required level of resources is currently devoted to
nutrition programs. A recent study of eight Asian countries4 - home to 60 percent of the
population of the developing world - inferred this from data on spending and coverage of major
programs (ADB, 2001). Similar spending gaps are likely
to be found in other developing regions although precise
estimates of current spending are not available.

39. Data on food-aid flows are more readily available.

Figure 3 depicts recent trends in cereal and non-cereal
food aid based on WFP/FAOSTAT data. Food aid trends
are volatile and closely linked to short-term shocks and
availability, as shown by the peak in response to the
1997-98 Asian crises. Apart from that peak, however,
there was a worrying fall in food-aid levels in the 1990s. The level in 2000 was only 56 percent
of the 1992 level, despite increasing needs. The share of food aid for low-income food deficit
countries (LIFDCs) has also fluctuated considerably over time. During the 80's LIFDCs received
between 90 percent of total food aid. However in the 90’s, their share has varied between 65 and
88 percent. Food aid is expected to account only for 8 percent of the import requirement of such
countries. In conclusion food aid is dramatically declining for the countries that need it most.

Figure 3. Total Cereal and Non-cereal Food Aid flows to Developing Countries by Region, 1980-2000 ('000MT)

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Source: WFP/FAOSTAT Data

TRENDS IN RESOURCE MOBILIZATION FOR AGRICULTURE

AND RURAL DEVELOPMENT

Trends in overall capital formation

40. Resources for rural-sector investment may be private or public, external or internal.
Information on investment in primary agriculture is available for some items, but there is little
reliable information on levels of investment in non-farm activities.

41. Trends in investment and capital formation for agriculture are shown for developing
countries grouped by the prevalence of undernourishment5 in order to demonstrate the
difficulties facing poor countries in mobilizing capital for agricultural development. Data for
capital stock per agricultural worker (Figure 4) show that between 1975 and 1999, countries that
managed to reduce the prevalence of hunger invested substantially more in agriculture than those
where undernourishment remains widespread. It is worrying that capital formation per
agricultural worker has remained stagnant or declined in countries where more than 25 percent of
the population is undernourished (Categories 3, 4 and 5) and where agricultural growth is
essential for poverty reduction and food security.

Figure 4. Capital Stock per Agricultural Worker by Undernourishment Prevalence Category

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Government expenditure on agriculture

42. Most of the capital for development of the agricultural sector will come from private sector
investment, especially from farmers themselves. However, public investment in agriculture is an
essential element in attracting private-sector investment. National investments in irrigation,
research and rural infrastructure, technology generation and dissemination, natural resource
conservation and standard setting and monitoring are necessary to increase productivity, reduce
transaction costs and improve the competitiveness of agriculture in developing countries.

43. Constraints faced in mobilizing public resources for agricultural development in countries
with widespread undernourishment are illustrated by relating government expenditure on
agriculture to the size of the agricultural labor force. Clear patterns emerge, despite gaps in data.
In countries where more than 35 percent of the people are undernourished, government
expenditure per agricultural worker averages US$14 or 50 times less than the US$880 in
countries with the lowest rates of undernourishment (Figure 5)6.

Figure 5. Government Expenditure per Agricultural Worker

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Poverty and Hunger

Source: FAO calculations based on IMF data

44. The extent to which government expenditures on agriculture reflect its importance in an
economy is shown in an "agricultural orientation index", in which the proportion of public-sector
agricultural expenditure is divided by the share of agriculture in GDP. The higher the index, the
closer expenditure on agriculture reflects the share of agriculture in GDP.7 The index is shown in
Figure 6 for countries grouped by undernourishment prevalence category.

45. Countries with very low prevalence of undernourishment - Category 1 - provide the strongest
agricultural orientation, with a distinct upturn in 1993. For countries in Category 5, the
agricultural orientation index is low and shows no signs of improvement over time.

46. Analysis of trends in government spending on agriculture may partly explain the trends in
capital formation discussed above. Public and private investments in agriculture are
complementary. Public investment in essential public goods must be stepped up to create the
conditions and incentives for private investment, otherwise under-investment will continue.

47. Inadequate government spending and low gross capital formation seriously compromise
agricultural productivity in countries with widespread poverty and undernourishment.
Productivity figures for the various categories mirror the differences in capitalization of
agriculture (Figure 7). Low capital stock per agricultural worker is reflected in low value-added
per agricultural worker (a measure of labor productivity). A sharp divide is evident between the
lower and higher hunger-prevalence categories. Between 1990 and 1999, value-added per worker

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Poverty and Hunger

in the lowest prevalence category was about 20 times higher than in the highest prevalence
category. This ratio far exceeds the ratio of capital intensities of the two groups shown in Figure
4 hinting at additional factors which affect productivity. While the differences may reflect
greater use of variable inputs in agricultural production in "better off" countries, they may also
reflect differences in the prevalence of hunger. Undernourishment itself makes labor less
productive, thus lowering the overall efficiency of capital investment.

Figure 6. Agricultural Orientation Index (1990-1998)8 by Undernourishment Prevalence Category

Figure 7. Agricultural Value Added per Agric. Worker by Undernourishment Prevalence Category

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Source: World Bank: World Development Indicators and FAO Calculations

External financial flows

48. External financial resources are extremely important for promoting economic and social
development and food security, especially in low-income countries with weak financial systems
and low domestic savings.

49. Foreign direct investment (FDI) flows are negligible in most low-income food-deficit and
least developed countries. The poorest countries cannot attract FDI, because of the high risks and
transaction costs associated with poorly developed financial markets, limited human capital
resources, insufficient information for potential investors and poorly developed infrastructure
and services.

50. Net private flows from Development Assistance Committee (DAC) countries to developing
countries and multilateral organizations has increased from US$25.6 billion in 1984-85 to
US$115.1 billion in 1999 although it declined to 74.5 billion in 2000. This is an important
development, but private flows were concentrated in a few newly industrialized economies.

51. The major bilateral and multilateral donors committed US$16484 million in Official
Development Assistance (ODA) to agriculture (broadly defined) in 1988, but only US$9078
million in 1999 (in 1995 prices). The ODA decline for agriculture (narrowly defined) was even
sharper from almost US$11736 million in 1988 to about US$4487 million in 1999 (Figure 8)9.
In terms of main purpose groups (activities) within agriculture, there have been sharp decreases

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Poverty and Hunger

in ODA for agricultural services, crop production and forestry, although the share of ODA for
environmental protection, research, training and extension has increased. The share of ODA for
land and water projects in 1999, returned to the 1990 levels (13 percent of total) after a sharp
increase (to 23 percent) in the mid 1990s.

52. In terms of Official Development Finance the proportion of commitments granted with
concessional terms declined from 77 percent in 1988 to 65 percent in 1998. The share of grants
in total commitments was 28 percent in 1998, having remained relatively stable during the
decade.

53. World Bank lending for agriculture declined from US$3.66 billion in 1990 to US$1.34
billion in 2000. Loans to agriculture accounted for 18 percent of World Bank lending in 1990,
but only about 9 percent in 2000. Except for IFAD, all of whose lending is to agriculture, there
was a substantial decline in total IFI lending to agriculture during the 1990s, both in absolute
terms and for individual lenders, as a proportion of loans (see Table 2).10

54. These figures show that the vital role of agriculture is just not reflected in a comparable flow
of domestic or foreign resources for its development. This mismatch must be addressed urgently
if the MDGs on poverty and hunger are to be achieved.

Figure 8. ODA Commitments to Agriculture: In 1995 US $

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Poverty and Hunger

Source: FAO calculations

55. It is difficult to reconcile the apparent contradiction between the recognised importance of
agriculture and rural development on one hand and the declining resources directed at them on
the other. Some of the possible reasons may have to do with (a) the abundance of food in the
world at declining prices (b) the perceived high potential of agriculture to respond to
technological opportunities even in the absence of substantial investment (c) the inherent
complexity of agriculture and rural development projects especially in relation to their
environmental implications and (d) the widely held view within the IFIs that agricultural and
rural development projects are risky and generate lower rates of return than other types of
projects (despite recent evidence to the contrary).

Table 2. Lending for Agriculture by Principal Fnancing Institutions

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Poverty and Hunger

  (loan approvals) (millions of US dollars)  

Year 199 199 199 199 199 199 199 199 199 199 200
0 1 2 3 4 5 6 7 8 9 0
TOTAL LENDING FOR AGRICULTURE (APPROVALS)
World 3 3 3 3 3 2 2 3 2 2 133
Bank/IDA(Fis 656 707 894 267 868 576 063 541 637 763 7
cal Years)
AfDB/F 683 854 502 592 106 14 105 228 238 458 228
(Calendar
Years)
AsDB    "    " 124 103 753 361 486 897 802 100 421 430 105
2 5 4 1
IDB      "    " 319 570 735 77 210 552 580 156 122 100 311
IFAD    "    " 308 276 324 336 349 392 408 398 413 433 409
EBRD    "    "           256 268 398 204 222 327
Grand Total * 6 6 6 4 5 4 3 5 3 4 3
208 442 208 633 019 431 958 327 831 184 336
AGRICULTURE AS PERCENTAGE OF TOTAL LENDING
WB/IDA 18 16 18 14 19 12 10 19 9% 10 9%
% % % % % % % % %
AfDB 21 25 17 24 7% 2% 13 13 14 27 9%
% % % % % % % %
AsDB 31 21 15 7% 13 16 14 11 7% 9% 18
% % % % % % % %
IDB 8% 11 12 1% 4% 7% 8% 3% 1% 1% 6%
% %
EBRD           7% 8% 16 7% 10 13
% % %
IFAD is 100% agriculture
* Does not include EBRD.
Source: Annual Reports.
N.B. As of FY 98, World Bank reclassified figures used.

Agricultural trade and trade liberalization

56. Trade has an important role to play in improving food security and fostering agriculture. The
potential gains from freer trade in agriculture could amount to an annual increase in global
welfare of US$160 billion dwarfing current aid flows. But the actual progress made in the
ongoing negotiations has been limited so far and the benefits remained modest. And even if
further liberalization occurred, the lion's share of the additional gains might be reaped by
developed countries, particularly if reforms focus too narrowly on a removal of OECD subsidies.
More important for developing countries are: a specific removal of trade barriers for products
where they have a comparative advantage (sugar, fruits and vegetables); a reduction or reversal
of tariff escalation for processed tropical commodities (coffee, cocoa); a further reduction of the
bias against agriculture in their own countries; more and deeper preferential access for the
poorest of the least developed countries; open borders for long-term foreign investments (FDI);

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Poverty and Hunger

and improved quality and food safety levels that enable developing countries to compete more
efficiently in markets abroad.

57. With such companion policies in place, a freer trading environment can also play an
important role in fighting poverty and undernourishment. But if left alone, trade liberalization is
unlikely to bring about a massive reduction in poverty and the benefits, if any, could remain in
the hands of a few. Support is required to strengthen the supply response of developing
countries. Lower export subsidies from or trade barriers to developed countries alone will not
generate the investments (in roads, irrigation, research and skills) needed in developing countries
to boost agricultural production and to improve competitiveness in international markets. Nor
will it bring quality standards up to the level needed to make significant inroads into industrial
markets. And even where exports increase and farmers in developing countries benefit, safety
nets may be needed for those who face higher food prices.

ADDRESSING THE DECLINE OF RESOURCES FOR HUNGER

AND POVERTY REDUCTION

Assessing the resource gap in the fight against hunger reduction and
agricultural development

58. Exactly how much needs to be spent globally on nutrition, agriculture and rural development,
particularly in the developing world? It is difficult to estimate current resource requirements in
the fight against poverty and hunger, but it is useful to try to get an idea of the magnitude of the
effort required.

59. The two tracks of the proposed strategy cannot be considered independently in terms of
mobilizing resources. Investing in measures to improve access to food for extremely poor and
undernourished people makes individuals more productive, which in turn enhances the
effectiveness of investments in agriculture. Separate assessments of the two elements of the
strategy are thus bound to be inaccurate.

60. In terms of direct action against hunger, an estimate has been recently attempted in the study
on Asia quoted earlier (ADB, 2001). The total resource needed to halve the prevalence of child
under nutrition in a decade for the eight countries included in that analysis (home to nearly 60

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Poverty and Hunger

percent of the developing world population), was set to about US$1.4 billion per year. These
costs are those corresponding to the setting up of effective large scale community based
programs directed at children (at a cost of US$5 per child per year). These should be
supplemented by micronutrient deficiency control programs, applied to all age groups, the unit
cost of which tends to be much lower, at about US$0.5 per caput/year, for a total cost of a further
US$1.4 billion per year11.

61. Scaling up the Asian estimates to the developing world as a whole, yields a total resource
need for nutrition intervention programs of just over US$5 billion per year12. This figure
probably underestimates the actual needs. It is calculated on the lower-bound assumption
regarding the costs for effective large scale community-based nutrition programs (US$5 per child
per year). The upper bound for such programs is US$15 per person. Using this higher figure the
total aggregate requirement would amount to US$15 billion per year.

62. FAO estimates that US$180 billion annually in gross agricultural investment in developing
countries is needed to achieve the WFS target of halving the number of undernourished people
by 2015. This is US$57 billion more than historical trends suggest would be invested without a
deliberate effort to increase investment in the sector. Experience suggests that 75 percent of this
amount will have to come from the private sector, especially farmers.

63. Only limited funding is available for global public goods (GPGs) relating to agriculture and
rural development, a point that needs to be stressed in the context of the International Conference
on Financing for Development. GPGs include technologies for sustainable management of land,
forest and marine resources, agro-biodiversity, food safety, Tran’s boundary animal and crop
pests and diseases, destruction of stocks of obsolete pesticides, and monitoring and predicting the
impact of climate change on agriculture and food supplies. The livelihoods of poor people are
profoundly affected if GPGs are neither nationally nor privately accessible. Grant funding for
GPGs by international agencies responsible for agriculture and rural development must keep
pace with the increasing importance of this category of goods, but not at the expense of ODA
flows.

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Poverty and Hunger

64. It is particularly worrying that, in spite of studies which point to the high returns on
expenditure on international agricultural research, the funding to the CGIAR system and on
technological research in the past 10 years has continuously declined and the CGIAR centers are
experiencing increasing financial stress. The inadequacy of funding could obviously lead to a
drop in the ability of these centers to conduct research and disseminate knowledge required for
raising food production in developing countries and taking people out of hunger and poverty,
where much of the required technology generates few privately appropriable returns and hence is
of little interest to the private sector.

Closing the resource gap: policies and resource mobilization issues at

national level

65. The private and public sectors have important roles to play in the battle against poverty and
hunger. These roles are complementary, although each sector may have advantages in different
areas.

66. The public sector has a catalytic role, providing the public goods without which private
initiative cannot flourish. However, the bulk of resources for agriculture and rural development
will be mobilized by the private sector.

67. It is essential to have a policy framework that promotes a pro-investment climate in

agriculture. In the last two decades, governments have addressed the anti-agricultural bias of the
past by adopting policies to deregulate agricultural markets, reduce price distortions and promote
private economic activity. Such measures are not always enough, however, to attract the
investments necessary for sustained productivity and production increases. It is now widely
accepted that a more active role by the public sector in public goods provision is an essential part
of an enabling environment for agricultural and rural development.

68. Public investment is essential for agriculture and rural development especially in areas such
as: agricultural research and extension; education; infrastructure and services; incentives and
regulation for sustainable management of water and natural resources; decentralized social
programs in partnership with the private sector and civil society; market institutions; property
legislation; food quality and food safeguards.

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Poverty and Hunger

69. Nutrition, like education, is a long-term investment. There are strong reasons why
governments must invest in nutrition. Investments by the poor in nutrition will be too low, and
gender bias may result in under-investment in girls' nutrition. The result is that poverty is passed
from generation to generation. It is unlikely that parents in developing countries are aware of the
importance of micronutrients and nutritional education in this respect is a public good with a
high payoff

70. Rural non-farm activities, in spite of their importance for rural economic growth and poverty
reduction, often fall victim to the "institutional vacuum": no executive branch of government has
responsibility for them. Expansion is thus constrained by lack of credit and market institutions as
well as of appropriate infrastructure.

71. Microfinance and other rural financial institutions can mobilize substantial resources to
enable poor people to become more productive by providing loans and mobilizing savings. They
are an established, cost-effective means of channeling external development assistance to the
poor. Migrants' remittances are an important part of savings and investments in rural areas.
Financial institutions to channel remittances into productive activities should be promoted.

Closing the resource gap: possible mechanisms for mobilizing

international resources

72. IFAD, FAO and WFP have been jointly exploring innovative ways of increasing the volume
of funding available for improving food security and rural livelihoods. Good progress has been
made in working with the Italian government and middle income highly indebted countries in
developing programs (in Egypt, Ecuador and Peru) under which bilateral debt is cancelled in
return for borrower commitments to commit the resources (in local currency terms) which they
would have used to amortize the debt for demand driven rural development and food security
programs. Our hope is that other donor countries will follow this example.

73. One of the surprising aspects of the FfD process is the lack of in-depth consideration given to
possible new financing mechanisms, given their potential importance in transferring resources
between developed and developing countries and hence the extent to which they could
supplement or even substitute for Official Development Assistance funded from the general

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Poverty and Hunger

fiscal revenue of developed countries. While the call for a significant rise in ODA is very
welcome, measures have to be taken to ensure adherence to agreed targets. Proposals have to be
made which would ensure smoother and more dependable replenishment arrangements
especially regarding concessional loan funds administered by the IFIs. It is important also that
credible recommendations are made on the financing of an expanded flow of the global public
goods - now in desperately short supply and competing with ODA - required to ensure the
smooth operation of the processes of globalization and the sustainable management of the
world's resources.

74. The fact that international trading in carbon has already started to build up to substantial
levels ahead of the ratification of the Kyoto Protocol and the formal establishment of the Clean
Development Mechanism (CDM), suggests that it is likely to be far easier to launch market-
based transfer mechanisms than to reach agreement on global taxes. The CDM, once it reaches
cruising speed, seems likely to generate annual transfers of at least US$10 billion and possibly
two or 3 times as much, putting it in the same league as ODA in terms of volume (US$50 billion
per year), but with comparative advantages related to low transaction costs, a high degree of
automaticity,
non-reimbursability and its support for least-cost approaches to reducing global warming. The
CDM can be thought of both as a market-based mechanism for rising the supply of an important
global public good (reduced rate of climate change) at least global cost and as a conduit for
shifting large amounts of resources between rich and poor countries to the mutual benefit of
both. IFAD, FAO and WFP are very interested in it and mechanisms which could emulate the
CDM in other ways because of their potential impact on the livelihoods of poor and hungry rural
people.

75. An important channel for the mobilization of resources for poverty reduction is the Debt
Initiative for Heavily Indebted Poor Countries (HIPC). Under the Initiative participating
countries elaborate Poverty Reduction Strategy Papers (PRSPs), and need to make demonstrable
progress in their implementation in order to be eligible for debt service relief. There are indeed
indications that the Debt Initiative has helped governments to raise resources devoted to anti-
poverty measures, but our agencies have also noted that many PRSPs have paid inadequate
attention to food security, agriculture and the rural sector. Given the importance of the

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Poverty and Hunger

agricultural and rural sector for poverty reduction in most of these countries, this is a bias that
needs to be addressed if the capacity of the Initiative to be effective in reducing poverty is to be
strengthened.

CONCLUSIONS

76. It is easily within the capacity of the global society to eradicate poverty and hunger in a short
period of time. There must be political will to achieve this, and the objective must be addressed
directly rather than obliquely. This is the main message of our Organizations, to be brought to
the world's attention in the context of the International Conference on Financing for
Development.

77. Economic growth, especially broad-based growth in agriculture and the rural economy, is a
necessary condition for sustainable poverty and hunger
reduction. At the same time, priority action needs to be taken to
reduce hunger directly. Hunger is not only an effect but also a
cause of poverty. There is plenty of evidence which shows that
fighting hunger is an investment with high returns in growth and
overall welfare and not just a moral imperative or an act of
human compassion. We now know a great deal about what
works in the fight against hunger and
food insecurity.

78. It is most encouraging that the DAC group of major donors has recognized the need to
include an explicit hunger target among its priority development goals, as set out in the
Millennium Declaration. The specific reference to food security, hunger and the importance of
agriculture in the communiqué of the G8 meeting in Genoa in 2001 is also a sign of increased
political sensitivity towards these important issues. The World Food Summit in Rome in June
2002 will be a significant opportunity for the international community to reaffirm its
commitment to the 1996 Rome Declaration and Plan of Action.

79. The need to achieve substantial and sustainable poverty reduction requires that concrete steps
be taken to promote agriculture and rural development. Three fourths of the poor live in rural

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Poverty and Hunger

areas and derive the basis for their livelihoods from agriculture or from rural activities which
depend on the agricultural sector for their survival. Agriculture and rural development is
therefore key to achieving overall economic growth and poverty reduction for most developing
countries.

80. The peoples and governments of the countries concerned have the main responsibility for the
achievement of hunger and poverty reduction targets. However, countries with widespread
extreme poverty and malnutrition cannot raise the resources domestically to directly assist the
needy and to foster growth in the productive sectors. These countries cannot make progress in
the battle against hunger and poverty without a sustained flow of external resources.

81. National and international funding for hunger eradication and agriculture and rural
development must be sufficient to meet requirements. It must be advanced under affordable
terms and conditions that do not lead to increased indebtedness among developing countries. Our
Organizations consider alarming the declining trend in overall resources for hunger reduction
and agriculture and rural development. FAO, IFAD and WFP emphasize the need for
concessional funds and grants appropriate to the situations of recipient countries, which has been
noted in the review of international cooperation being prepared for the International Conference
on Financing for Development.

82. Innovative and market-based means of resource mobilization need to be studied and adopted.
Some have been discussed in this paper; others may be developed in the follow-up to the
International Conference on Financing for Development.

83. Developed countries, backed by international trade institutions, have an opportunity to

demonstrate their willingness to make significant contributions to hunger and rural poverty
eradication. They can open their markets, especially to agricultural exports from developing
countries, reduce subsidies on farm production, share technology and assist developing countries
to take advantage of expanded international markets. The question is not "aid versus trade" but
"aid to expand trade".

84. Civil organizations, especially international and national NGOs operating in developing
countries, must commit themselves with renewed vigor to addressing the problems of hunger and

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rural poverty. They have important roles in mobilizing resources and providing technical
services and advocacy. They may assume responsibility for monitoring performance against
reaffirmed commitments, using score cards as a basis for measuring achievements.

85. The Financing for Development Conference presents a unique opportunity for building a
global partnership among all those involved in the effort to achieve the internationally agreed
goals on poverty, hunger and development. Such a partnership would act as a guarantee that
pledges made are adhered to and that objectives set are achieved. It is through such a partnership
that the global community can promote a process of globalization in which the benefits are more
equitably shared than in the past and which is inclusive rather than exclusive. Such an
opportunity should not be missed.

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