Rural poverty policies ‘should move away from subsidies’

6 Mar 12
Policies aimed at reducing rural poverty in the developing world should focus on improving productivity in the agricultural sector, the Organisation for Economic Co-operation and Development has said.

By Nick Mann | 5 March 2012

Policies aimed at reducing rural poverty in the developing world should focus on improving productivity in the agricultural sector, the Organisation for Economic Co-operation and Development has said.

Its report, published on Friday, says market interventions such as price guarantees and subsidies for farmers should be used as a last resort because they are ‘inefficient’ at addressing income concerns in the long term.

‘Market interventions treat the symptoms of market failure and underdevelopment rather than the causes,’ according to Agricultural policies for poverty reduction. It says price stabilisation can ‘export instability’ into global markets, while input subsidies can impede the development of private markets.

Instead, priority should be given to improving farming productivity and competitiveness, the report adds.

There are rising commercial opportunities for smallholders, who traditionally underpin developing countries’ agricultural sectors, the OECD notes. But it says that this would push less productive farmers outside the agricultural sector.

It urges governments to enable that adjustment by both strengthening agricultural opportunities for farmers with commercial potential while also supporting potential new jobs outside farming which could, in time, be more profitable for the rural poor.

According to the OECD, many of the policies needed to reduce poverty both in and outside the farming sector are non-agricultural. Countries should focus on improving rural education and primary health care in particular, it says.

They should also improve the ‘overall investment climate’, it adds, creating peace and political stability, strong institutions and good governance, as well as investing public money in areas such as rural roads and farming research.

‘This long-term approach is consistent with the overall policy recommendation for OECD countries, which suggests that governments can promote long-term agricultural development by reducing market failures, ideally by tackling them at source, and by providing public goods,’ it says.

‘It leaves an important role for targeted social policies in helping farmers who cannot adjust within the current generation, and for addressing immediate concerns about the level and distribution of income.’

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