Agribusiness may help uplift rural poor

Bungaran Saragih, Minister for Agriculture, Jakarta

Borrowing from Amartya Sen, the Nobel laureate of economics, the framework on valuing food security and poverty eradication has both intrinsic and instrumental values. It is invaluable in itself because poverty is the condition of suffering from a bad quality of life or living in destitution. Poverty eradication is necessary to assure the basic right of all people for a healthy, productive and dignified life.

Poverty eradication is instrumental for achieving all other development goals such as food security, health security, living security, education security, employment security, environmental security and social as well as political participation.

Urban poverty to a large extent is the spill-over effect of rural poverty. Accordingly, the best strategy on attacking poverty is a concerted effort for rural development. Since most rural economies are based on agriculture, then the appropriate approach to rural development is "agribusiness-led development".

Studies have shown not only that agribusiness-led development is the most effective strategy for poverty alleviation, it is also consistent with high economic growth for developing countries which have large rural populations and where its economy is largely dependent on agriculture.

Hence, to reach the aptly named millennium development goals a crucial step would be the adoption of an agribusiness-led development strategy.

Economic development in developing countries tends to be biased against agriculture and rural people in favor of the industrial sector and urban people. So another recommendation would be a political economy campaign to advocate agribusiness- led development to reach the millennium development goals to eradicate poverty.

Our great challenge is to reverse the seemingly persistent paradox: That developing countries tend to suppress the agricultural sector, their dominant economic sector, while developed countries tend to heavily support the agricultural sector although it is often just a minor slice of their economies.

With such a paradox of the political economy, agribusinesses in developing countries surely cannot compete with counterparts from developed countries. And we all know that developing countries have a comparative advantage in agriculture while the developed countries have a comparative advantage in high technology or knowledge-based industries.

Perhaps, it is now the right time to reach an agreement on "a new architecture of global economic structure" based on natural comparative advantage. The developed countries, which do not have a comparative advantage in agriculture should voluntarily stop supporting their own agricultural development and hence give way for agriculture in developing countries to progress.

Further, enabling the rural poor to overcome their poverty may be the most effective way of developing the rural economy. Helping the rural poor to help themselves requires targeted and participatory rural development programs that can be divided into a system of five components: Business or employment opportunity creation, capacity building, supporting facility creation, institutional innovation and incentive and risk protection. This system approach to the rural poor enablement program is my fifth recommendation.

The best strategy would be the promotion of agribusiness development in rural areas. Included in this component are investments in the production base, such as land, livestock, ponds, tools and machinery, transportation and marketing facilities for market creation and marketing efficiency, etc.

Capacity building is intended to increase human resource quality of the rural poor, provision of innovative technology and provision of working capital. This can be done through a targeted extensive service and vocational training, and developing a rural financial system. Supporting facilities are intended to develop the agribusiness infrastructure in rural areas such as irrigation, input supply distribution systems, rural electricity, etc. Most of these are public investments.

Institutional innovations include agrarian reform, labor relation reform, and transformation of other business relations which are so far biased against the rural poor. This is especially important where "structural poverty" is dominant. Incentive and risk protection for small scale agribusinesses includes innovation incentives, investment incentives and protection against various agribusiness risks.

This component is of particular importance because the rural poor areas are generally unfavorable for business enterprise development due to both limited profit prospects and high risks.

Finally, decentralization of project management is a must. Project implementation units should be located in rural areas. The roles of non-governmental organizations may be critical in the project planning and implementation control. This may imply a radical reconstruction of project governance in some developing countries.

The above is abridged from the writer's presentation at the 25th anniversary session of the Governing Council of International Fund for Agricultural Development in Rome on Feb. 19.