Essay About Agricultural Development And Allocation Of Aid

What Factors Determine the Allocation of Aid to Agriculture?
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What Factors Determine the Allocation of Aid to Agriculture?
MICHIEL VAN DIJK
LEI – Part of Wageningen University
International Trade and Markets
P.O. Box 29703
2502 LS The Hague, The Netherlands
[email protected]
+31 70 335 82 33
Paper prepared for presentation at the EAAE 2011 Congress
Change and Uncertainty
Challenges for Agriculture,
Food and Natural Resources
August 30 to September 2, 2011
ETH Zurich, Zurich, Switzerland
Copyright 2011 by Michiel van Dijk. All rights reserved. Readers may make
verbatim copies of this document for non-commercial purposes by any means,
provided that this copyright notice appears on all such copies.
1 Introduction
After a long period of relative neglect, the recent global food crisis has put
agricultural development and food security firmly back on the development agenda. A
key example of this development was the release the 2008 World Development
Report by the World Bank that was fully devoted the theme of “Agriculture for
Development” (World Bank 2007). The estimated 100 million rise in food insecure
people (FAO 2010) combined with social unrest and political instability in a
substantial number of developing countries, has led to a proliferation of new
agricultural aid programs by international institutions, bilateral donors and developing
countries (see Abbott and Batisti (2009) for a recent overview). During the G8
summit in LAquila developed countries pledged to allocate no less than €20 billion to
support agricultural development in food insecure regions. As a consequence, aid
flows to agriculture have started to increase again after 15 years of decline (Figure 1).
Taking into account the present discussions on climate change, energy crisis and food
security, a new food price surge in 2011 and the implementation of the proposed
intervention programs, aid to agriculture is expected to keep on growing in the future.
Figure 1: Bilateral aid to agriculture, 1967-2009
Source: OECD DAC Aid statistics Database.
But what determines the allocation of aid to agriculture? Is it distributed on the basis
of good governance and general needs, mainly poverty. Do donor self-interest play a
role? Or are agricultural specific factors important such as the state of the agricultural
sector and domestic food security issues? Answers to these questions are important
for several reasons. First, agricultural aid flows, which are already substantial in a few
countries, are expected to become larger in the future. An example is the increasing
support of donors to implement the Comprehensive Africa Agriculture Development
Programme (CAADP), an Africa-wide initiative to boost agricultural expansion. As
new agricultural initiatives by donors are expected to have considerable economic and
social impact on recipient countries, understanding how aid to agriculture is allocated
is relevant. Second, although not undisputed, several studies have found that aid is
most effective when it benefits poor countries with reasonable adequate institutions
and economic policies (Burnside and David Dollar 2000; Collier and David Dollar
2002).1 This has reinforced the view that aid should be allocated selectively and only
should benefit countries with the highest need as well as a good governance record.
This paper examines whether these criteria also play a role in the allocation of aid to
agriculture.
There exists an extensive literature, examining the allocation of aid that goes back to
the 1970s (see Neumayer (2003a) for an overview). Almost all work, however, has
analysed aggregate aid flows. A notable exception is Thiele et al. (2007), who test if
sectoral aid allocation is in accordance with the Millennium Development Goals.
Another group of studies, which is related to this paper, that also takes a disaggregate
approach, investigates the allocation of food aid (Neumayer 2005; Kuhlgatz, Abdulai,
and Barrett 2010).
This paper is a first attempt to analyse the allocation of aid to agriculture. More
specifically, it looks at the aid patterns of three donor countries: USA, Japan and the
Netherlands, taking into account donor self-interest, recipient need and governance
factors for the period 1995-2008.2 These countries differ substantially in terms of
development policy, aid strategies and geopolitical interests and are therefore
interesting to compare. The USA and Japan are known as big aid donors, which tend
to pursue their own interest, while the Netherlands is considered as one of the likeminded
countries