US Launch of The State of Food & Agriculture 2012 at IFPRI "Investing in Agriculture for a Better Future". Presentation by Tewodaj Mogues, IFPRI.

1. IFPRI Policy Seminar
Washington DC launch of FAO’s
State of Food and Agriculture 2012:
Investing in Agriculture for a Better Future
22. January 2013
Public Investment in and for Agriculture:
What Has it Achieved,
and What Determines it?
Tewodaj Mogues
International Food Policy Research Institute (IFPRI)

2. Outline
Public
Determining Investments in Outcomes
factors and for
Agriculture

3. What do we Know about the Impacts
of Public Investments
in and for Agriculture?

4. What do we Know about the Impacts of
Public Investments in and for Agriculture?
Public
Determining Investments in Outcomes
factors and for
Agriculture

5. What do we Know about the Impacts of Public
Investments in and for Agriculture?
• Study is comprehensive review of academic
literature on this topic
• Based on both IFPRI research and other research
• IFPRI work on public investments in agriculture
pioneered by Shenggen Fan starting late 1990s
and onward; seminal literature by Fan, Peter
Hazell, Xiaobo Zhang (and other co-authors)
• In this presentation, only selected highlights of
the review study discussed

6. Returns to Investments across Sectors:
Agricultural Performance
• Ag. R&D
investments
consistently
greatest returns
• Returns to other
ag. investment
(irrigation)
positive but often
surpassed by
non-ag.
investment
returns
Graphical illustration of estimation results from: Fan, Zhang and Zhang (2004); Fan Hazell and
Thorat (2000); Fan, Yu and Jitsuchon (2008); Fan and Zhang (2008)

7. Returns to Investments across Sectors:
Agricultural Performance
Ranking of dollar-for-dollar returns in different types of public
investments (1=highest)
Sector Ghana Uganda Ethiopia Tanzania
Agriculture 1 1 3 1
Education 4 2 2 3
Health 3 4 4 n/a
Roads 2 3 1 2
Chapters in: Mogues, Benin [eds.] 2012 (book): * Benin, Mogues, Cudjoe
& Randriamamonjy; * Fan & Zhang; * Mogues; * Fan, Nyange & Rao.
• Diversity across countries in relative returns across sectors
• In some cases, aggregate public spending in agriculture appears
to have low or insignificant impact on incomes and welfare (e.g.
Mogues 2011; Easterly & Rebelo 1993; Milbourne et al. 2003; Mosley et al. 2004)

8. Returns to Investments across Sectors:
Poverty Reduction
• No apparent trade-
off between ag.
growth and poverty
reduction, in terms
of contribution of
ag. R&D
• But for poverty,
other types of
investment can be
more important
than R&D (but latter
remains close
second)
Graphical illustration of estimation results from: Fan, Zhang and Zhang (2004); Fan Hazell and
Thorat (2000); Fan, Yu and Jitsuchon (2008); Fan and Zhang (2008)

9. Returns to Subsidies vs. Investments
across Time
1960s-70s 1980s 1990s
Credit subs Credit…
Credit subs
Power subs Power…
Power subs
Fertilizer subs Fertilizer subs Fertilize…
Irrigation subs Irrigation subs Irrigatio…
R&D R&D R&D
Irr. Investm. Irr. Investm. Irr.…
Edu. Edu. Edu.
Roads Roads Roads
0 2 4 6 8 10 12 14 16 18 20 0 1 2 3 4 5 6 7 8 90 1 2 3 4 5 6 7 8 9 10
• In early stages of green revolution, returns to spending on
subsidies were similar to that of investment in public goods
• In subsequent decades, while overall returns to investments
declined somewhat, they remained very high
• Over time, the marginal contribution to subsidies started to fall
behind returns to public goods spending
Graphical illustration of estimation results from Fan, Gulati, Thorat (2008)

10. Returns to Investments across
High- and Low-Potential Areas
• Marginal impact on (i) agricultural productivity, and
(ii) poverty reduction
• Examples from: India, China, Uganda
• Effects of public investments are generally higher in
marginal areas than in ‘high-potential’ areas within
the country
• True not only in terms of poverty reduction but also
agricultural performance
Fan, Hazell and Haque (2000); Fan, Zhang and Zhang (2004), Fan and Zhang (2008)

11. Agricultural Productivity Poverty Reduction _
80 60
Irrigated
70 INDIA Rainfed, hi qual. 50
60 Rainfed, low qual.
40
50
40 30
30
20
20
10 10
0 0
HYV Roads Canal irr. Electr. Educat. HYV Roads Canal irr. Electr. Educat.
12 Coastal 28
10
CHINA Central 24
Western
8 20
16
6
12
4 8
2 4
0
0
R&D Irr. Roads Edu. Electr. Tel. Pov.
R&D Irr. Roads Edu. Electr. Tel.
16 200
Central
14 UGANDA East 160
12 West
10 North 120
8
80
6
4 40
2
0 0
R&D Edu Feeder R. Health R&D Edu Feeder Murram Tarmac Health
R. R. R.

12. Returns to Investments across
High- and Low-Potential Areas
• Marginal impact on (i) agricultural productivity, and
(ii) poverty reduction
• Examples from: India, China, Uganda
• Effects of public investments are generally higher in
marginal areas than in ‘high-potential’ areas within
the country
• True not only in terms of poverty reduction but also
agricultural performance
Fan, Hazell and Haque (2000); Fan, Zhang and Zhang (2004), Fan and Zhang (2008)

13. What Drives Public Investments
in and for Agriculture?

14. What Drives Public Investments
in and for Agriculture?
Public
Determining Investments in Outcomes
factors and for
Agriculture

15. Public Investment Decisionmaking and its
Determinants – A Conceptual Framework
Adapted from
Mogues (2012)

16. Processes of Budgetary Decisionmaking
• Formal procedures and informal/ de-facto processes
• ‘Garbage-can budgeting’ model: Allocations are
random (Cohen et al. 1972)
• Budgetary model of incrementalism: Inertia and path-
dependency in investment decision-making (Davis 1971;
Cowart et al. 1975; Ostrom 1977, Foelscher 2007a, 2007b)
• Budget implementation (vs. approved budgets)
• E.g. in Nigeria, on average 21 % of agricultural budget never
spent (Mogues et al. 2012)
• Striking results from public expenditure tracking surveys (e.g.
Uganda) (Reinikka & Svensson 2004)
• Sudden revenue short- (or wind)falls; use of funds for other
purposes; leakages/corruption; etc.

17. Role of Various Actors in Public
Investment Decision-making
• Policymaker as benevolent and unencumbered social
planner? (Tridimas 2001; Reddick 2002)
• Politicians vs bureaucrats (Niskanen 1971)
• Strength of ‘interest groups’ to lobby for provision of
public investments benefiting them is larger when
• ‘Interest groups’ more spatially concentrated  dispersed
agricultural households vs. concentrated urban residents (Olson
1985)
• Better access to transport and communications infrastructure
 urban vs rural
• Size of group small  agricultural population much larger in
many developing countries, reverse in rich countries (Olson 1965)
• Average income and education of group member is higher 
low among smallholder agricultural households (Binswanger &
Deininger 1997; Krueger 1996)

18. Characteristics of Public Investments
• Attributability of investments to conscious decisions
made by politicians (e.g. visibility, “markability”) (Keefer
& Khemani 2005)
• Temporal features of public investments
• Long lag perturbs attributability
• Lag of investments vs. political cycle
• Time allows for “things to go wrong”

19. Policy Considerations

20. Policy Considerations:
Impacts of Public Investments
• Compelling evidence on the high social returns to public
investments in agricultural research & technology
• Policymakers should choose judiciously between
different agricultural subsectors and functions (blanket
recommendations to invest more in “agriculture”, vs. in
high-payoff activities within the sector)
• Time-dimensions of public investment effects:
• Gains in some investments may materialise only in a longer
time-horizon; take that into consideration when evaluating payoff
• Relative returns do not remain static over time, thus policy
priorities should change as well
• Gains are heterogeneous across space: undertake
spatially differentiated policies/investments

21. Policy Considerations:
Determinants of Public Investments
• Is there some value in incrementalism models? Identify
what tends to break inertia and path dependency in
order to be able to use windows of policy opportunities
• Revisit validity of the notion of ‘unencumbered
benevolent social planner’
• Development interventions strengthening cooperatives/
farmers’ unions may have additional benefits beyond
lowering market transactions costs
• Need sharper understanding of how attributability/
visibility/ lag in agricultural public investment affect
resource allocation

22. IFPRI Policy Seminar
Washington DC launch of FAO’s
State of Food and Agriculture 2012:
Investing in Agriculture for a Better Future
22. January 2013
Public Investment in and for Agriculture:
What Has it Achieved,
and What Determines it?
Tewodaj Mogues
International Food Policy Research Institute (IFPRI)