Rural-Urban Linkages for Growth, Employment and Poverty Reduction

Rural-Urban Linkages for
Growth, Employment and
Poverty Reduction

Joachim von Braun
International Food Policy Research Institute

World Bank Rural Day
Washington, DC
November 9, 2006

Outline

1. Concept: Rural / urban “linkages” and
“divides”

2. Old and new rural-urban linkages

3. Ways forward

Joachim von Braun, IFPRI, Washington DC, November, 2006

The development goals and economics
of rural-urban linkages
So what? Lack of r/u-linkages is divisive, bad
for growth, & poverty, & equity

Goal: Facilitate resources to flow where they
will have the largest growth and poverty
reduction benefit

Economics of linkages:
• Cutting transactions- and transfer-cost
• Stimulating externalities and spill-over
effects that foster well-being


Rural & urban:
on linkages, and externalities

AGRICULTURE OTHER SECTORS

Infrastructure

RURAL URBAN


Rural/Urban divide still exists

Ratio of Urban to Rural Capita Income
3.5
3
2.5
2
1.5 China
1
0.5
0
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2

1.5

1

0.5
India
0
51

54

57

61

65

68

71

78

88

91
19

19

19

19

19

19

19

19

19

19

Small farms dominate world agriculture

Number of farms
Farm Size (ha) % of all farms
(millions)
<2 85 387
2 - 10 12 54
10 - 100 2.7 12
> 100 0.5 2
Total 100 456

The big transformation challenge: grow or diversify or exit

Source: von Braun (2003)


The Continuum under the “divide”

VERY RURAL
Spatial Sectoral
flows RURAL flows
•Migration & •Crop/ livestock
remittances SMALL TOWNS for local use
•Goods, services •Input markets
& waste PERI-URBAN •High value
•Information agriculture trade
•Resources/water •Peri-urban &
VERY URBAN
multi-functional
(Metropolitan areas) agriculture

Outline

1. Concept: Rural / urban “linkages” and “divides”

2. Old and new rural-urban linkages

3. Ways forward


The types of linkages

1. Technology opportunities
2. Trade, processing, and retail
3. Services and infrastructure
4. Human capital and migration
5. Environmental and natural
resources


1. Technology opportunities -
powerful and changing

1. Agriculture technology linkages (factor
markets and inputs; output processing;
consumption linkages)

2. ICT (and network externalities)

3. Energy (and biofuels)


1) The lasting “Green Revolution” story: National
agricultural growth multipliers

• Asia: 1.6 – 1.9

• Africa: 1.3 - 1.5

Source: a synthesis by Steven Haggblade, Peter Hazell,
Paul Dorosh 2006

…are driven by research, technology, policy

Cause for concern: Bifurcation in
agricultural R&D

• 80 developing countries spend a total of
$ 1.4 billion on agricultural R&D = 6% of global
agr. R&D expenditure

• China & India represent = 22%

• High income countries = 44%

Toward agriculture “R&D orphans”

Source: IFPRI/ASTI 2005


A green revolution:
pioneer and challenge

Ethiopia: the technical
and institutional
challenges can be
addressed;
agr. growth 2001…04:
+11, -2; -13; +19%
Mr. Harrar, Punjab farmer,
among first adopting Green
Rev. seeds in 1960s


2) ICT: Results at the macro level

• ICTs reduce transaction costs + open
markets + additional network externalities

• Tele-density is positively associated
with growth:
- 10 more mobiles per 100 people increse
GDP p.c. by 0.6% (Wavermann et.al. 2004)
- Minimum threshold: around 15% to get
strongest growth effects (actual is only
6% (Torero, von Braun 2005)

ICT: Results at the micro rural level
e.g. households in Peru
Consequences of limited rural access
Estimated gains in welfare with respect to
alternatives:
US$ 1.62 to 2.91 per call

Rural households willing to pay more than
the prevailing tariff rates per local call:
US$ 0.25 to 0.35

Source: Torero and von Braun 2005


3) Energy and biofuels: markets and
technologies

Changing the world agriculture and food
equations and the rural - urban linkages?

• New opportunities
• Risks for the poor if investment in
technology lags behind


World food and energy prices
1998-2006 [1995 index=100]

350 sugar
crude oil
300
maize
250 rice
wheat
200

150

100

50

0
1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: IMF World Economic Outlook 2006 and UNCTAD commodity price statistics database 2006
*2006 figures were extrapolated from the difference between September 2005 and September 2006 prices.


Scenarios: Biofuels’ crop price effects?

Biofuel scenarios (not predictions) by 2020:

1. With current plans for expansion and no
technological change:
oilseeds ca. + 80%; maize ca. +40%

2. Like 1., but with second-generation cellulosic
conversion and crop productivity increases:
oilseeds ca. + 40% ; maize ca. +20%

(source: IFPRI IMPACT-model scenarios, 2006, Rosegrant, Msangi)


2. Trade, processing and retail

Trends:
• Shrinking farms
• Growing food processors
• Even more growing retailers

Issue: Linking farmers and small
processors to markets


The corporate world food system, 2005

Consumers
Agricultural Food
input processors Food
industry Farms and traders retailers

top 10: $37 bln Agricultural top 10: $363 bln top 10:$777bln
value added:
• Syngenta $1,315 bln • Nestle • Wal-Mart
• BASF • Unilever • Carrefour

$4.000 billion
• Monsanto 450 million • ADM • Metro AG
>100 ha: 0.5%

< 2 ha: 85%

Source: von Braun 2005


High-value agricultural products

• Strategies for small farmers:
1. Producer-marketing cooperatives:
horizontal (coordinate, negotiate)
2. Contract farming schemes: vertical

Both
 are information intensive;
 need legal frameworks!
 cost and quality of monitoring


Impact of contract farming on
households – e.g. in Bangladesh
Changes in per capita household expenditure related to contact
1300 farming
1200 (current taka of 2004)

1100
1000
900
800
700
600
500
400
Current situation Contract farming

Simulated effect of contract farming

Source: Chowdhury and Torero 2005

Small farms and small businesses
can participate

+25 jobs

From a 2 ha. rice farm to fruit
processing firm
in Uttar Pradesh: training (her)
and banking was key;
and the road

3. Infrastructure and services – linkages

• Infrastructure
- Capital intensive (transport,
communications, energy, water)

• Services:
- Finance & credit
- Insurance services in rural areas
(facilitating more risky employment)


When electricity comes to the village…


Returns to investment in roads in
China
Urban roads Rural roads

Total GDP (Yuan for 1.55 5.99
Yuan)
Urban poverty 0.05 0.19
reduction (persons
per 10000 Yuan)
Rural poverty 0.31 5.67
reduction (Persons
per 10000 Yuan)

Source: Fan et. al., 2005


Africa: Access to roads

Source: Torero 2006


More than one piece of infrastructure:
Complementarities e.g. Peru (2002)

60%
% change of PC HH Income

50%

40%

30%

20%

10%

0%
Pipe water Water + Water + elect + Water + elect +
electricity phone phone + road

Source: Escobal and Torero, 2004.


4. Human capital conditioned
employment linkages

• Migration (seasonal and permanent)

• Nutrition and health linkages

• Education


BIG PICTURE: global employment
2005 – 2020 (Billions)

Farm Services & Services & Total
Industry Industry-
Rural areas Urban areas
2005 0.9 0.6 1.5 3.0

2020 0.6 1.0 1.9 3.5

Change - 0.3 +0.4 +0.4 +0.5
2005-2020

Estimates based on ILO economically active populations projections
and own estimates of sector shares, 2005


Migration and exit from farming

• Migrations as a …
Risk management strategy
Ease liquidity constrains in absence
of insurance and credit market
• From rural to urban (e.g. China)
• From poor rural to more prosperous
rural (e.g. West Africa)

Does not work for all


Changing neighborhood:
Remittances and education

Next door poor and well

remittances ->

<-education grant


5. Environmental and natural
resources

Ecosystems changes to meet the growth in the
demand for food, water, timber, fiber, and fuel
Growing competition over water
•70% used for agriculture; 15% - 35% of unsustainable
Declining soil fertility & expansion into marginal lands
Lack of investment in genetic resource conservation
 Increasing urban sprawls

Source: Millennium Ecosystem Assessment 2005


Actors & factors affecting the
nature of urban-rural linkages
Global level National level Local level
• Trade & •Macro policies • Nature of
production agricultural land
regulation and •Regulatory policies •Population density
liberalization (market, legal) and distribution
•Land use
•IPR •Decentralization •Roads and
transportation
•Science •Choice of public •Water management
investments •Quality of local
government
•Access to ICTs •Social networks


What where?
For instance in remote areas
Emphasis on small scale agriculture that will
fuel the diversification of the rural economy.

Investments in:
- Roads
- Investment in agricultural research and
education
- Water management
- Electricity and telecommunications at local
levels
- Activation of financial and land markets


Ways forward

1. Scaling up agriculture innovation together
with infrastructure investment
2. Decentralization to better determine and
meet local needs
3. Scope for public-private partnerships
4. Filling the knowledge gaps (multi-sector,
spatial, and institutional data)


Rural & urban: great investment potentials
in the linkages

AGRICULTURE OTHER SECTORS

Infrastructure

RURAL URBAN


Rural-Urban Linkages for Growth, Employment and Poverty Reduction

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