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There are three UN food agencies all based in Rome. What separates them and justifies ongoing international support? On this week’s podcast, the head of one those agencies makes his pitch for more resources.
“Between 2010 and 2015, independent assessment [found] that IFAD has helped 24 million out of poverty,” former Prime Minister of Togo Gilbert Houngbo tells me in the podcast. “So I’m saying that the results speak for the need to keep us in business.”
IFAD—the International Fund for Agricultural Development—is part implementing agency, part development bank, and works on the idea that food security can drive a nation’s development, peace, and prosperity.
Houngbo joined me on the podcast just after the UN warned that 20 million people are facing famine in four countries—Yemen, South Sudan, Somalia and north-eastern Nigeria. How can IFAD help?
“Beyond the moral side of it … investing in long-term development turns out to be cheaper than jumping from one crisis to another,” Houngbo says, clarifying that IFAD is not a humanitarian agency. “When you start talking about the transition economics, that’s where we start working with the government … or at the local level to start building new programs for long-term development.”
Senator Bob Corker (R-TN) and Representative Ed Royce (R-CA) have teamed up with Democratic colleagues Senator Chris Coons (D-DE) and Representative Earl Blumenauer (D-OR) to introduce new legislation that would reform US international food aid to deliver more help to more people in crisis, faster.
This bipartisan group of lawmakers has championed changes to the inefficient policies associated with US global food assistance for years. But both Corker and Royce have announced they will retire from Congress at the end of the current session. This bill represents their last push to see food aid reform over the finish line, and recent changes in the landscape suggest it might also be their best chance to do so. The American Farm Bureau Federation, which long resisted changes to existing international food assistance programs that require the US government to purchase commodities in the United States and ship them long distances to those in need, recently embraced reform.
Giving the US Agency for International Development the flexibility to use cash, vouchers, or locally purchased food when one of those would be faster and more effective in helping hungry people in need
Stretching US food aid dollars by eliminating monetization, a slow and costly process whereby the US government provides NGOs with food that they must arrange to ship and then sell in developing countries to raise funds for their programs
Both bills would also preserve 25 percent of food aid for purchases of US commodities. Senators Corker and Coons estimate that reform could save $300 million that could be used to help feed an additional nine million more people.
As noted in the press release from the Corker and Coons offices, food aid is just 0.2 percent of total US agricultural production, so reducing the share of food aid that is purchased domestically would have a trivial effect on demand and no effect on prices. Recognizing that reality, the head of the American Farm Bureau Federation, Zippy Duvall, recently joined Senators Corker and Coons in an op-ed that called for modernization of food aid programs in the farm bill that Congress must pass this year.
The US shipping lobby—which benefits from requirements that at least half of US-sourced food aid must be transported on US-flagged ships—remains a stalwart opponent of sensible reform. But it’s the House and Senate Agriculture Committees that will draft the new farm bill. And with the Farm Bureau on board, this may be the last, best chance for long-time reform champions to ensure US international food aid reaches more of the people who need it most.
As donors gather next week in Rome to pledge funds to the International Fund for Agriculture Development (IFAD), they may be wondering where the United States is. During a recent debate on the floor of the US House of Representatives, Congresswoman Maxine Waters raised the possibility that the Trump administration may not make a pledge to IFAD. If true, this would represent the loss of the fund’s largest donor and could jeopardize funding from other donors this year. Given the generally high marks this independent fund earns for development effectiveness, the uncertainty around a US pledge is troubling.
In this “America First” moment, it’s worth asking when it comes to IFAD, what’s in it for the United States and what will be lost if the United States drops out?
IFAD is the only multilateral institution dedicated exclusively to eradicating poverty and hunger in rural areas of developing countries. It was established in 1977 as one of the major outcomes of the 1974 World Food Conference, which was organized in response to the food crises of the early 1970s. To date it has granted or lent about US$12.9 billion for over 1,000 agriculture and rural development programs in 124 different countries.
The need for this support is clear. According to the 2017 State of Food Security and Nutrition in the World report, for the first time since 2003 the number of chronically undernourished people in the world has increased, up to 815 million from 777 million in 2015. And the Food and Agriculture Organization estimates that keeping pace with population growth in the developing world will require a 50 percent increase in the production of food and other agricultural products between 2012 and mid-century.
Because most of IFAD’s financing is provided at highly concessional rates that low-income countries can afford, its capital must be periodically replenished in order to prevent a drop in lending capacity. Next week, the fund’s 176 members will wrap up discussions on the parameters for the eleventh such replenishment and the fund’s donors will make their pledges.
Reflecting its economic status and long-standing leadership role in the multilateral system, the United States has traditionally been the largest single contributor to IFAD replenishments. Its US$90 million pledge to the Tenth Replenishment of IFAD’s resources (2016-2018) represented 8.7 percent of the total. While significant, this share is much smaller than is the case for other international funding bodies, such as the Global Fund (33 percent) or the World Bank’s International Development Association (17 percent). Moreover, this US$90 million pledge helps leverage financing that enables IFAD to support a $7 billion program of work, representing a remarkable “leverage” ratio of almost 80 to 1.
IFAD has had a practice of complementing US bilateral assistance programs, thus magnifying the impact of USAID’s work. For example, in northern Ghana, USAID and IFAD have worked together to improve the production and distribution of maize, soya, and sorghum by smallholder farmers. IFAD, USAID, and the US Department of Agriculture have also worked together on agricultural research and pest eradication, including the highly successful eradication of the screwworm in North Africa.
Whatever reason US officials might decide to withhold a pledge from IFAD, it can’t be due to the fund’s effectiveness. In a joint CGD-Brookings assessment, IFAD outscored US bilateral assistance on all dimensions. And another recent independent assessment noted that IFAD has sound fiduciary policies and practices and is fully committed to a results agenda.
When it comes to a US pledge, the good news may be that congressional support for the fund has been very strong on a bipartisan basis over many years. Even as Congress routinely cut Bush and Obama administration requests for funding to the World Bank and other regional development banks, congressional funding for IFAD was routinely protected. More recently, the US government’s global hunger and food security approach embodied in the bipartisan Global Food Security Act (GFSA) of 2016 closely mirrors the fund’s mandate and strategic priorities. These forces could ultimately prevail upon a reluctant Trump administration to come back to the pledging table sometime this year.
But as all of IFAD’s donors meet next week, it will be important for IFAD’s allies in Congress and elsewhere to make clear that US support for the fund remains strong and any lack of pledge at the moment is a temporary problem.
One of the mysteries of development economics is why more people in subsistence agriculture don't migrate to cities where incomes are much, much higher. New data suggests one answer: when they move, their incomes may not go up as much as we thought.
Poverty in poor countries is largely a rural phenomenon. The original engine of development in Arthur Lewis's Nobel-winning work in the 1950s was the movement of people out of farming in pursuit of higher urban incomes, and this same movement away from agriculture remains a focus in work on structural transformation today (see CGD work by Peter Timmer and Selvyn Alkus, and others like Margaret MacMillan and Dani Rodrik's here).
The agricultural productivity gap—or the ratio of value-added per worker in other sectors compared to agriculture—is huge. A couple years ago, Doug Gollin, David Lagakos, and Michael Waugh published a paper in the Quarterly Journal of Economics systematically documenting these gaps across a sample of 151 developing countries, and found that on average, value-added per worker in other sectors was roughly three times higher than in agriculture.
Click on citations in the legend to view the cited paper.
Economists see income gaps and begin to tear up at the inefficiencies and arbitrage opportunities. As Gollin et al. wrote, if we take these gaps at face value they suggest that “by reallocating workers out of agriculture, where the value of their marginal product is low, and into other activities, aggregate output would increase even without increasing the amount of inputs employed in production.”
Maybe farmers are just different
Perhaps the most obvious explanation for income differences between farmers and non-farmers is the difference in human capital between workers in each sector. And it's true, education differences are big. But when Gollin et al. try to adjust for these schooling differences—allowing not just for differences in years of schooling, but also for actual learning measured by literacy—the agricultural productivity gap only falls from about 300 percent to about 200 percent. It's still huge.
If the potential income gains are so big, why doesn't everyone move to the city?
Enter a new paper, presented at the American Economic Association conference in Philadelphia last weekend, by Joan Hicks, Marieke Kleemans, Nicholas Li, and Ted Miguel, which attempts to resolve this mystery.
Hicks et al.’s data allows them to go a couple steps further. They measure cognitive ability more carefully than most economic surveys, and find higher-skill farmers select into migration. But perhaps more interestingly, they focus on two long-term longitudinal data sets that track migrants over many years as they move jobs between sectors. This allows them to compare the same worker—with the same education, cognitive skills, and other possibly unmeasurable attributes—in different sectors to estimate the agricultural productivity gap.
What they find is, essentially, nothing.
In Indonesia they find individuals earn about 8 percent more working outside agriculture than from farming, and in Kenya about 6 percent more. When they focus on the rural-urban divide rather than farming versus non-farming, the gap is almost precisely zero in Indonesia and about 17 percent in Kenya. Perhaps 17 percent is not trivial, but it's a very far cry from 200 to 300 percent.
Ruminating on the intellection implications for economists, Dietz Vollrath has an insightful blog post discussing the Hicks et al. paper and the broader literature, provocatively titled “The Return of Peasant Mentality.” As he notes, the modern assumption in development economics is that rural farmers are just like everyone else, i.e., rational maximizing agents, just stuck in a more challenging context. The Hicks et al. evidence suggests instead that they self-selected on measures of cognitive skills. Would we find the same if we measured risk aversion and other psychological attributes? Maybe, as Vollrath speculates, peasants really are different, as an earlier era of development scholars assumed.
So should policymakers turn away from rural-urban migration as an anti-poverty tool? (No.)
The “No Lean Season” initiative in Bangladesh has garnered a lot of attention recently for showing the large welfare benefits from encouraging rural-urban migration. A randomized trial by Gharad Bryan, Shyamal Chowdhury, and Mushfiq Mobarak offered individuals in rural Bangladesh an incentive of about $8.50 to migrate to the city for work during the hungry season. That relatively small incentive induced about 22 percent of people to move temporarily. The result is that family members who stay behind increase consumption by 30 to 35 percent, and eat 550 to 700 more calories per day.
There's a lot of space between 300 percent and zero. Even if the agricultural productivity gap overestimates the gains from moving out of agriculture, the returns to rural-urban migration may still be significant—and well worth promoting through public policy.
Bryan et al.’s RCT in Bangladesh also provides interesting answers to why more people don't migrate spontaneously: they document important roles for risk, subsistence constraints, and for learning about the returns to migration—which induced remigration for years after the treatment incentives are removed once people have gone and seen what they can earn.
Reproduced from Bryan, Chowdhury, and Mobarak (Econometrica 2014)
There's also some evidence that the returns to more permanent (as opposed to the seasonal migration in the Bangladesh study) may be higher in other places.
While Hicks et al. find very little in Kenya and Indonesia, an earlier study in Tanzania by Kathleen Beegle, Joachim De Weerdt, and Stefan Dercon find that rural-urban migrants experience consumption gains of around 30 percent (still a far cry from 300 percent). And while the results are slightly less clean for a variety of data reasons, Alan De Brauw, Valerie Mueller, and Tassew Woldehanna find much, much bigger gains from movement when tracking rural-urban migrants in Ethiopia over many years.
At a bare minimum though, this new evidence from Kenya and Indonesia suggests policymakers should be reluctant to assume that leaving the farm is better for people than they realize, and attempt to coerce movement. Here Hicks et al. invoke Tanzania's disastrous forced villagization policy of the 1970s—hopefully not a policy with many contemporary analogs, but still worth ruling out. And they also highlight that positive selection into migration (i.e., movement of higher skilled people, even on unobservable dimensions) reinforces the tendency for this ladder out of poverty to leave the least fortunate behind, which could be read as a plea not to forget rural development and social protection programs during the structural transformation process.
Should this dampen your enthusiasm for international migration? (Also no.)
While poor farmers in many developing countries are “free,” in the narrowest legal sense, to migrate to urban areas and search for a non-farming job, that's not true for international migrants, who face walls and fences and police demanding papers. With those “frictions,” it makes sense that international income gaps are larger and somewhat more robust.
In one of my favorite CGD papers, my colleagues Michael Clemens and Lant Pritchett together with Claudio Montenegro from the World Bank compare immigrants in the US to observationally identical workers (i.e., same education, age, etc.) in their home countries, and find a lower-bound estimate of an earnings increase of over $13,000 per year in PPP dollars from living and working in America.
The same biases that Hicks et al. identify in rural-urban migration apply internationally—higher-earners select into migration—but once that's accounted for, the returns remain large. Using a lottery of Tongans admitted to New Zealand, David McKenzie, Steven Stillman, and John Gibson show that naive non-experimental estimates of the income gains from international migration overstate the truth by twofold. Nevertheless, they show that randomly selected migrants still experience a 263 percent increase in income (!) one year after migrating.
In sum, there is a risk that “why don’t they just move” becomes the “let them eat cake” of 21st-century development economists. The Hicks et al. paper is perhaps a good reminder to focus on removing the barriers to people’s movement, rather than thinking we know what’s best for them. While the gains to migrants in Kenya and Indonesia appear disappointing, the centrality of structural transformation to poverty reduction in history remains uncontested. It’s not always a simple story though, and more research like this will help us understand that messy process better.
Thanks to Doug Gollin for long and patient answers to my questions, to Michael Clemens for helpful suggestions, and to Divyanshi Wadhwa for research assistance.
Members of the World Trade Organization will be meeting next week in Buenos Aires to discuss the future of agricultural and other trade policies that could have important implications for food security and jobs in developing countries (eventually). And members of the US House and Senate agricultural committees will be meeting through next year to craft a new five-year farm bill that will help shape global markets and determine how much and how quickly US food aid can be delivered to people in desperate need around the world.
Conditions in agricultural markets are not nearly so dire today as they were in the early 2000s, when prices were through the floor, or in 2007-08, when prices doubled and tripled in just a few months. But extreme poverty around the world remains primarily a rural problem and agriculture provides employment for half or more of the people in low- and lower-middle-income countries. And the conditions creating the continuing need for food aid in conflict-ridden areas in Africa and the Middle East are more desperate than at any time in recent memory. That makes the urgency of reforming the US program to make it more responsive and less expensive even greater.
For those interested in these issues and in the implications for the poor and food insecure in developing countries, there are a number of new resources to check out. My recent CGD book, Global Agriculture and the American Farmer: Opportunities for US Leadership, shows why and how agriculture is important to developing countries, and how US (and other) policies affect global agricultural markets. It suggests ways that WTO members could revive their efforts to ensure that these policies are not to the detriment of poor farmers in developing countries. The accompanying brief focuses on a few priorities to make the farm bill less costly for American consumers and taxpayers, as well as the rest of the world, including removal of the in-kind and cargo preference policies hampering food aid deliveries. In other chapters of my book, I focus on US agricultural policies mostly outside the farm bill that undermine global public goods, including biofuels and climate change, and antibiotic use in livestock that contributes to the spread of drug-resistant superbugs.
I also had the pleasure of being a discussant this fall at the launch of two projects hosted by the International Food Policy Research Institute (IFPRI). In an edited volume for IFPRI, Antoine Bouёt, David Laborde, and colleagues provide incredible depth and detail on how the WTO tried to put disciplines on agricultural protection and support in the Doha Round of trade negotiations, with a focus on implications for developing countries. The authors in this volume also look at issues that emerged as a result of the food price spikes in 2007-08, including the role of export restrictions in exacerbating price volatility and of public food stocks and crop insurance in managing volatility.
The second project, involving IFPRI senior research fellow Joe Glauber (also the former chief economist of the US Department of Agriculture) and coordinated by American Enterprise Institute fellow Vincent Smith, takes an in-depth, and critical, look at a dozen farm bill issues. Among those of most interest for developing countries are papers proposing significant reforms to the food aid program (similar to what I recommend in my book and brief) and elimination of import protection and price support for US sugar cane and beet growers.
If you’re interested in the short versions of these resources, the podcast of my conversation with CGD’s Rajesh Mirchandani about my book is here, and video of the two IFPRI events is here and here. The International Centre for Trade and Sustainable Development also has a series of briefings on key WTO ministerial issues here, and will be providing updates from Buenos Aires.
For more on this topic—my colleague Ian Mitchell has written a post exploring key issues where WTO action next week could help prevent future food price spikes. Lots of food for thought!