April 25, 2008 - The continuing increase in world food prices has brought agriculture into focus in many South Asian countries. About 75 percent of South Asia’s poor live in rural areas and agriculture sector employs about 60 percent of the labor force.
The region has made enormous strides during and after green revolution in improving agricultural productivity. In recent years, however, agricultural growth in South Asia has been less than 3 percent, far below the growth rates of other economic sectors. "In a number of countries, the policies that helped make the green revolution possible remain pretty much the same. The environment around agriculture is dramatically changed, but many of the policies have not kept up to these changes," said Adolfo Brizzi, World Bank Sector Manager for Agriculture & Rural Development in the South Asia Region.
Brizzi believes that while it is important to mitigate the impact of higher food prices on poor consumers, this situation also brings to the forefront an opportunity to revive the agriculture sector so as to generate the needed supply response. "This provides an opportunity to revisit the policy environment and the effectiveness of public expenditures for agriculture. This requires a change of mindset in recognizing that a more demand-driven approach to agriculture development will require greater involvement of the private sector and more effective investments by Governments," said Brizzi.
Analysis on the state of Agriculture in South Asia
Adolfo Brizzi, World Bank Sector Manager for Agriculture & Rural Development talks about the need for a revival of agriculture in South Asia.
Adolfo Brizzi
- Role of biofuels in world food prices (1m:02s) wmv
- On South Asia's agriculture productivity (1m:44s) wmv
- Will there be a revolution in agriculture? (1m:49s) wmv
- Who benefits from rising food prices? (2m:13s) wmv
- On Brazil's experience with bio-fuel production (1m:09s) wmv
- On agricultural subsidies by developed countries (2m:31s) wmv
Agricultural Revival
Agricultural growth depends on investments in rural infrastructure such as irrigation, roads, transport, and power. In addition, investments in rural finance and access to markets and technology are also critical to revive and sustain agriculture productivity. Moreover, Brizzi believes that it will be critical to transform the agriculture sector from unorganized and loosely structured small landowners to organized communities.
"Organizing and providing economy of scale to small producers will significantly reduce the cost of doing business in rural areas and facilitate their integration into value chains. This will transform small farmers into an attractive market with greater bargaining power in dealing with the public and the private sector," said Brizzi. While these investments will not affect food prices in the short term, they can help to achieve food security in the future.
Crop Yields
The growth of yields of food crops has been stagnant around the world. The yields have declined from 2.1 percent a year between 1950 and 1990 during the height of the "green revolution" to 1.2 percent a year since then.
Brizzi believes technology will bring about an important improvement in agricultural productivity and competitiveness. While technology is important, "how that technology is driven by market demands will be the key for South Asia.
South Asian countries continue to spend a large share of public expenditure on Agriculture. Brizzi said "India invests a substantial amount of money in the agricultural sector, but a large share goes to subsidies for fertilizer, electricity, water, and the Minimum Support Price (MSP) for cereals. The spending on subsidies is about 4 times greater than the spending on investments."
A highly regulated market discourages private investments in rural areas. Since the agricultural sector is becoming more responsive to market demands, Public-Private partnership have an opportunity to play a larger role. This likely to improve agriculture productivity, competitiveness and supply response, and will be critical in responding to the new challenges of the agriculture sector.
Spikes in World Food Prices
Brizzi said that increases in food prices have happened before but were mostly short-term phenomena. In the past, the spikes were usually because of bad crops due to floods, drought, and other natural disasters. "The current increase looks more permanent at least for the next few years because there are more structural elements that came into play" said Brizzi.
Brizzi attributed the increase in the world food prices to raising standards of living in countries like China and India, increased use of food crops for bio-fuels, and increased oil and fertilizer prices. The major grain exporting countries such as Australia has experienced a substantial drop in its production due to weather-related shortages. Increasing demand for meat and protein diet, which requires more input than cereals, in the developing countries have added a new dimension to this phenomena. Also the high international oil price has accounted for increased fertilizer and transportation costs. More analysis is required to determine the impact of these changes on world food prices.
Nevertheless, the growth in bio-fuel market seems to account for a substantial share.
Bio-fuels
The demand for bio-fuels has diverted some agricultural commodities such as sugarcane, maize, and oil seeds away from the food chain in order to meet the growing demand for alternate fuels. Continued increases in the price of crude oil will only encourage this diversion.
The United States, the world’s largest producer and exporter of maize, diverts about 30% of its total maize production for ethanol. In 2007, the country produced and consumed 6.48 billion gallons of ethanol. The Renewable Fuels Association predicts that in 2008, the demand for ethanol likely to be around 7 billion gallons, which is an increase of 1.5 billion gallons from 2006. This demand resulted in farmers switching to maize from other food crops such as wheat and soybean. As the U.S. government subsidizes farmers to grow crops for energy, the availability of wheat and soybean in global market will continue to decrease rapidly.
Ethanol not for everyone
Brazil's ethanol program was started in 1975. Brazil, the largest producer and user of sugarcane based ethanol, has a well established network of production and distribution system for ethanol. Sugarcane based ethanol is proven to be more efficient and cost effective than corn based ethanol. Brazil currently does not provide subsidy support to the bio-fuel industry. Brizzi, however, warned that Brazil success story will not necessarily apply to South Asia. He pointed out that sugarcane is a water-intensive crop and in Brazil it is largely rain-fed in contrast India, which is mostly based on irrigation. The feasibility of producing fuels with other crops still needs validation in South Asia.
Environment Issues
The high food price provides an incentive for farmers to increase their production in order to meet the demand. But Brizzi pointed out that agriculture also contributes significantly to underground water depletion, fertilizer overuses, loss of topsoil, and global greenhouse gases. Addressing these issues requires a combination of policy reforms and technological innovations, he added.
Additional Resources
- World Food Prices: South Asia's poor at risk Expanding existing social assistance programs that directly targets poor households is necessary to protect South Asia’s poor. (Read More »)
- Bangladesh: Cyclone Sidr Praful Patel, Vice President, World Bank, recently visited the cyclone-affected Kalapara upazilla of Patuakhali District and Barisal division. (Read More »)
- World Bank Aid to Bangladesh Cyclone Recovery The World Bank has offered up to US$250 million in the aftermath of Cyclone Sidr to help millions of Bangladeshis recover and to strengthen the country’s disaster mitigation systems. (Read More »)
- 2007 South Asia Floods Providing cash transfers to people affected by the floods that have devastated parts of Bangladesh, India, and Nepal is one of the most effective ways to help rebuilding lives and stimulate local markets. (Read More »)
- Agriculture for Development The 2008 World Development Report calls for a revival of agriculture in South Asia. Agricultural development is key to eradicating poverty and creating conditions for sustainable and equitable growth. (Read More »)
- South Asia: Development Data A wide range of social and economic measures on South Asia, including links to the World Bank's most important online development databases. (Read More »)
- South Asia: Analysis and Research Compilation of all the World Bank's publications on South Asia, with 'search' options and links to analysis and research on other South Asian countries. (Read More »)
- World Bank Program in South Asia Launching pad to all information on World Bank activities in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.(Read More »)
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