Agriculture in Developing Countries

Introduction

Structural transformation is the process by which low-income societies, in which agriculture absorbs most labour and generates most economic output, become high-income societies characterised by a relatively smaller but more productive agricultural sector (Barret et al.,2017). Agricultural transformation is typically at the center of economic transformation. It is the prodcess of shifting from the less productive subsistence agriculture to more commercially-oriented and highly productive agriculture sector that is off-farm centered (Timmer 1988). The characteristics of structural transformation are as follows: for many developed countries, prior to rapid economic growth and structural transformation, agriculture plays a crucial role employing the majority of the labour force and contributing the highest share to the gross domestic product (GDP) (Lewis, 1954, Timmer 2009). At this stage, the population is largely rural and agricultural productivity is less than the productivity in the non-agricultural (industrial) sector (ibid).

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As the industrial sector takes off, labour is pulled out of agriculture, productivity in the modern (industrial) sector is higher and it contributes more to GDP. This leads to a widening of the productivity differential between the two sectors. This is the classic structural transformation described in the early development economics literature (Lewis 1954). Over time, due to rapid agricultural productivity growth, the productivity differential between the agricultural and industrial (or modern) sector diminishes and tends towards zero (e.g. see Figure 1). The point at which productivity diminishes is what Lewis (1954) calls the Turning point. This point is also achieved when surplus labor has been moved out of agriculture and consequently further migration to the cities requires an increase in the real economy-wide wage in general and rural wages in particular (e.g. see Zhang, Jang, & Wang, 2011).

Figure 1: Structural Transformation: A Classic Example

The slope of the curve line showing the difference in the share of agriculture in GDP and the share in employment rate shows the rate of structural transformation, where it is relatively flat, structural transformation is slow and conversely, where it is steep, it is proceeding at a fast rate (Badiane 2014). Further, the extent of structural transformation is indicated by how far the curve is from approaching zero, with zero being the goal (ibid; Lewis 1954). The fact that rapid productivity growth in agriculture is required for rapid agricultural and structural transformation implies that policies that discriminate against agricultural productivity growth are likely to adversely affect the transformation process leading to sub-optimal outcomes. More importantly, it is coherence in policy implementation of pro-productivity policies that is likely to lead to a successful transformation.

Against this backdrop, this paper assesses the extent to which structural transformation has occurred in Zambia. In view of the importance of agricultural policies in the structural transformation process, I also discuss the agricultural policy framework and cross-cutting policies, the coherence in policy and policy implementation and how this affected or is likely to affect the rate and extent of agricultural transformation.

Zambia is a lower-middle income country that is primarily agrarian with an estimated population of 16.4 million in 2017 (CSO, 2017). In 2017, Agriculture employed close to 25.9% of the national labour force (ibid). The agricultural sector is dual comprising of roughly 1000 large-scale and 1.6 million smallholder farmers (Chapoto et al., 2012). Public expenditure on agriculture is largely targeted at smallholder farmers in the form of subsidies, and to a lesser extent the commercial farmers. Smallholder farmers cultivate several crops and they are the major producers of the national staple food, maize. The commercial farmers produce crops mainly for the urban and export markets (e.g. wheat, soyabeans, potatoes) (Kabaghe 2018). Recent evidence suggests a change in farm structure, with emergent farmers on then rise and controlling close to 50% of farmland (Jayne et al.,2016). The share of agriculture in employment is at 48.8% while that in GDP is at has averaged 7.7% for the period 200-2018 (World Bank,2019). Mining and export of copper and cobalt is a major economic activity; however, this sector is susceptible to international price movements. The services sector is the highest contributor to gross domestic product at almost 54.1% while, agriculture and industry account for 7.7 and 7.6% respectively (ibid). However, agriculture is still seen as a key option in government efforts to diversify away from mining, despite several years of failure to realise its full potential and contribute to developmental objectives (Sitko & Chapoto 2015; GRZ 2017a).

The remainder of the paper is structured as follows, next, I discuss the status of structural transformation in Zambia in relation to the key characteristics of transformation. This relies heavily on data from the World Bank’s World Development Indicators. Thereafter, an analysis of the government priorities based on policy pronouncements is conducted. Lastly, I discuss the extent to which the government is promoting agricultural transformation through policy and policy implementation. Essentially analysing the the quality of public spending within the agriculture sector vis-à-vis the key drivers of agricultural growth.

the status of structural transformation in zambia

In this section, I assess the extent to which structural transformation has occurred in Zambia using the key characteristics earlier alluded to. The share of agriculture in GDP and employment have both declined, with the former declining faster (Figure 2a). Similar to other developing countries, almost 53.9% of the Zambian population is employed in agriculture (ibid). Other sectors have not grown fast enough to keep up with the rapid rural population growth in rural areas. There is a rapid increase in the share of services in GDP, with services being the largest contributor to national income at 54.1%. Manufacturing is second at 8.5% but like agriculture, growth in manufacturing is slow and in some periods negative (ibid).I note that the reduction in GDP contribution by agriculture in recent times is driven by the sector’s vulnerability to droughts (see Al Mammun et al.,2018; Braimoh et al.,2018). However, over then period 2008-2018, it has averaged 7.7%, almost equal with manufacturing at 7.65%, while the services sector accounted for 52.7% over the same period (World Bank,2019).

Figure 2b shows that prior to 2000, Zambia’s population was almost 40% urban, perhaps due to the wave of activity in the mines and industries in urban areas during this time. This reduced to almost 34% as mining activity reduced due to global economic slow-down and the structural adjustment programmes. Since 2000, Zambia has undergone rapid urbanization, a key feature of the transformation process. The share of the urban population is almost 44%, however, this shows that Zambia’s population is still predominantly rural.

When all three sectors are compared, productivity is highest in industry and growing, while that in agriculture is reducing and is the lowest (Figure 3b). This suggests that Zambia is not following the classic structural transformation case where labour released from agriculture is expected to spur industrial productivity growth (Lewis 1954).

Figure 2A: Sector Shares in Employment (1990-2018)

Figure 2B: Urban Population (% of Total)

In Figure 2a, clearly, Zambia’s structural transformation is slow and far from expectations. The slope of the curve showing the difference between agriculture’s share in GDP and its share in employment is relatively flat, indicating slow transformation, while the the same curve is far from approaching zero. This is no different from Africa as a whole, and Southern, Eastern and Central Africa in particular (Badiane 2014). A slow-growing agricultural productivity could explain this (Figure 3b). Clearly agricultural productivity growth has been poor, and appears to be stifling both agricultural and structural transformation. Later, this is explained by the poor quality of public expenditure in the sector among other challenges. Taken together, it is clear that Zambia is far from attaining convergence in productivity between the modern sector (industry and/or services) and agriculture. A key question that emerges is whether government policies seek to transform the agricultural sector. Even more important is whether policy pronouncements are matched by resource allocations and disbursements that target agricultural research and development, extension, irrigation and rural infrastructure development—the proven drivers of agricultural growth identified in the lieterature (see Fan, S. and Chan-Kang, C., 2004; Fan, S., Hazell, P. and Haque, T., 2000).

Figure 3a: Sector Shares in GDP(1990-2018)

Figure 3b: Sector Productivity (1990-2019)

national priorities based on policy documents and public expenditure

In the 7^th National Development Plan (7NDP), the Zambian government has spelt out four priority sectors to drive the development agenda. These are reflected in the following policy statement:

“During the 7NDP period, the Government will accelerate Economic Diversification and Growth. This will be achieved by having: a diversified and export-oriented Agriculture, and Mining sectors; a diversified Tourism sector; improved Energy production and distribution; improved transport system and infrastructure; enhanced Information, Communication and Technology; enhanced decent job opportunities in the economy; and enhanced research and development.” (GRZ,2017a)

In view of the role of agriculture in development from the early development economics literature (e.g. Johnston & Mellor 1961), its notable that on paper, the Zambian government seeks to promote agricultural transformation through various policy pronouncements. The key government documents related to development is the 7NDP. In agriculture, the Second National Agricultural Policy (SNAP) is the main policy document guiding sectoral investments. Other cross-cutting policies such as the 2018 draft Land Policy, National Policy on Climate Change, Climate Smart  Agriuclture Investment Plan, the National Financial Sector Development policy, Financial Inclusion Strategy all seek to contribute to sustainable agricultural growth in various ways (see GRZ 2012, 2017a,2017b,2017c,2018). These are embedded and considered in the agricultural policy and thus discussed to a less-extent here. There are detailed plans on how to transform the agricultural sector, increase its productivity, and export earning share by addressing inherent challenges such as the effects of climate change, market failures, institutional weaknesses,poor access to finance, pest and diseases, and limited access to land. In the SNAP, research and development is mentioned as a key area of public investements, including the development of feder roads, and other public infrastructure. This is in line with development evidence that investments in key growth drivers translates into rapid agricultural growth that ultimately transforms the economy. Further, the Ministry of National Development Planning was recently created to coordinate development planning and promoting inter-sectoral linkages. At the institutional level, various working groups exist, and these strive to coordinate development efforts.

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Zambia has also ascented to international efforts aimed at transforming the agricultural sector such as the 2003 Maputo Declaration which underpin the African Union’s effort to stimulate agricultural transformation in Africa through the Comprehensive Africa Agriculture Development Programme (CAADP). There are various other protocols on climate change aimed at improving resilience to the effects of climate change and addressing global warming (e.g. the 2015 United Nations Framework Convention on Climate Change). .

To what extent is Zambia promoting a structural transformation?

In the previous section, it is clear that the Zambian government has made policy pronouncements that could translate into agricultural and economic transformation. However, such a transformation cannot happen if pronouncements are not matched with resources. Despite all these policy pronouncements, it is coherence in policy implementation that is a challenge for Zambia as is the case in most Sub-Saharan African countries.

Zambia has in some periods performed well with respect to agricultural budgetary allocations. Between 2007 and 2011 the Government of Zambia spent an average of 10.8% of its national budget on agriculture. This exceeds the spending goals of the 2003 Maputo Declaration (Zulu, Sitko & Namonje-Kapembwa,2015). However, the budgetary allocation to agriculture has averaged 8% of the national budget since 2013, this is below the CAADP target of 10% (GRZ,2018).

The most important challenge facing Zambian Agriculture revolves around the politics of maize, a key staple food. Most policies and resource allocations are towards this crop at the expense of both the growth of other sub-sectors such as livestock, and the key drivers of agricultural growth in general. In 2019, the share of the agricultural budget that went to fisheries and livestock was only 21.8%, this was an improvement from previous years (e.g. 15.2% in 2018) before creation of a standalone Ministry of Fisheries of Livestock in recognition of this challenge—a positive policy direction (Kuteya 2018). Similarly, the share of the agricultural budget allocated to research and extension has been below 2.5% in most years. This is in contrast to periods before the early 2000’s, where the government of the republic of Zambia invested substantial amount of resources in agriculture, specifically, this was done for the key drivers of agricultural growth which include extension, research and development, and public infrastructure.

Figure 4: Agriucltural Expenditure (% of National Expenditure)

Source: Adapted from GRZ, (2018)

During this period, the agricultural sector grew, and performed better with these policies in place. This was largely in relation to increases in the production and productivity of the country’s main staple, maize (Sitko, Zulu & Namonje-Kapembwa, 2018). However, since then, the quality of public expenditure has deteriorated, with most expenditure channelled towards maize input and output subsidies under the Farmer Input Support Programme (FISP) and the Food Reserve Agency,respectively. Very little has been spent on the proven drivers of agricultural growth. In fact, the two subsidy programmes which include the farmer input support programme, and the Food Reserve Agency’s price support system take up almost 46% of the agricultural budget on average, for the period 2008-2019 (Figure 4). In view of the evidence that input and output subsidies generate the least returns to investment(Fan, S. and Chan-Kang, C., 2004; Fan, S., Hazell, P. and Haque, T., 2000), this situation has potential to stifle future growth if unaddressed. Moreover, there is mounting evidence that the FISP programme faces enormous challenges including poor targeting, leakages, and stifling privatate sector growth. Efforts to reform the delivery mechanism and thus address these challenges experienced teething problems, with the government resorting to a revert to the traditional delivery mechanism in some areas whereby the government procures and disburses inputs to farmers (Harman and Chapoto 2017; Mason, Jayne & Mofya-Mukuka, 2013 ).

Figure 4: Share of FRA and FISP in the Agricultural Budget

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