Module 12 - Targeting Agriculture Investments to Maximize Poverty Impacts

There is considerable evidence that progress in the agricultural sector can have major impacts on poverty reduction. While broad-based agricultural growth strategies continue to be important in fighting poverty, investment programs must be increasingly targeted to ensure maximum impact on the poor. Key mechanisms for targeting to directly improve the incomes of the poor include focusing investments on commodities that are important to the poor or regions where poor people are concentrated, mechanisms to reduce household vulnerability and improve access to assets, and encouraging inclusive participation. Pro-poor investment design is built on effective poverty diagnosis, appropriate project strategy, and inclusive implementation mechanisms.

The major theme running throughout the World Bank’s current rural strategy, Reaching the Rural Poor, is a focus on reaching the rural poor by promoting a holistic approach to rural development. The first Millennium Development Goal (MDG),which is to halve by 2015 the proportion of people living on less than a dollar a day and suffering from hunger, is now the major driving force for Bank investments, including those in the agricultural sector.

The modules of this Sourcebook have outlined approaches to addressing poverty reduction for specific investment areas. This investment note outlines the more generic lessons involving design processes for agricultural investments.

Linkages Between Agricultural Growth and Poverty Reduction

In low-income countries, the agricultural sector is the primary engine of overall economic growth, providing around 60 percent of total employment and 20 percent of GDP. Since most of the world’s poor depend directly or indirectly on agriculture for their livelihoods, broad-based productivity increases in the sector are one of the most effective ways of reducing poverty (box 12.6). Agricultural modernization and productivity growth raises incomes of small-scale farmers and creates jobs in related industries (processing, marketing, inputs) that are labor intensive. Increased productivity also indirectly benefits the poor through lower food prices (food forming a large share of expenditure of poor households). Overall, the estimated elasticities of poverty reduction with respect to agricultural productivity are high. For example, the elasticity of poverty reduction with respect to agricultural yields is about 0.72 percent in Africa (Thirtle et al. 2003), and in India it has been estimated to be 0.41 percent in the short run and 1.9 percent in the long run (Ravallion and Datt 1998).