Throwing Light on Cats in the Dark: Agricultural Economists

SUMMARY This paper explores some of the policy and institutional choices to which the agricultural economics profession has most to contribute over the coming few years. The starting point of the paper is that policy needs to address aims of both efficiency and greater diversity within the sector, diversity being seen broadly as involving a wider range of participants in terms of ethnicity, gender, and aims and resources, as well as large, medium and small producing and service enterprises. The policy agenda is defined (section II) in terms of three linked elements: the analysis and choice of policy and defining a strategic vision; the reform of institutions and organisations; and public expenditure management. In all of these, the paper suggests there is an active role for economists. Policy analysis is discussed in section III. No single definition is found which adequately captures the complex of activities involved. The relationship between political and technical dimensions of policy analysis is discussed, and the view expressed that there has in recent years been an unusually wide scope for policy reform in agriculture in South Africa but that this may inevitably reduce in the future. Considerable progress has been made in defining policy to promote efficiency and growth; less progress has been made with defining policy for achieving greater equity. A challenge for policy analysis is to combine (a) a holistic approach to understanding the problems and to linking the sector upwards to the macro-economy and horizontally to other sectors, with (b) identifying practicable means of implementation. The shortcomings of the information base for policy choices are discussed, as is the role of economists in addressing them, but the problem with inadequate information is often as much on the demand side as on the supply side. This is followed by a brief discussion of the growing use of participatory processes in policy analysis in increasingly open societies. Section IV distinguishes institutions in the sense of the rules of the game from institutions as organisations, noting that the South African government has a range of instruments under both of these categories for implementing policy in agriculture. There exist institutional economies of scale which mean that a more active state role is necessary to promote medium and small-scale farming than to promote commercial farming. However, interventions need to be selective and strategic and to avoid the many past pitfalls. The paper suggests that the New Public Management may have much to offer as an approach to institutional reform in rural and agricultural development, but that it is no overall solution, and government is still faced with large tasks of ensuring that it builds up the capacity to manage its role. The importance of private sector capabilities if these approaches are to be successful is noted. The paper briefly discusses decentralisation, community support and the roles and limitations of civil society organisations as a part of new approaches to supporting rural and agricultural development. While all of these will have a part to play, a realistic view needs to be taken of the likely pace of progress. The paper discusses the types of policy analysis skills required, whether inside or outside of government, to allow government to play a more selective and strategic role. The paper suggests there is a good deal of scope for government to contract outside organisations to undertake a range of policy analysis, but the need for a critical minimum mass inside government remains. Section V discusses the third element of the policy agenda, public expenditure management. This may to be addressed at three levels: contributing to budget discipline at the macro-economic level, and to a rational inter-sector allocation of resources; allocative efficiency within the sector to ensure maximum effectiveness in achieving goals for agricultural development; and technical efficiency in the way funds are spent, to ensure maximum value for money. Economic analysis has a great deal to offer in ensuring these three levels are addressed effectively, principally through applying market failure analysis and measuring the cost-effectiveness of measures designed to achieve political and social objectives. The paper suggests that the failure of departments of agriculture in many countries to measure outcomes, and inputs and outputs, and therefore to be able to demonstrate value for money, has contributed to the decline in their budget share. Section VI applies the three perspectives developed above to a set of measures designed to support growth and equity in agriculture. The importance of the enabling framework at the level of the macro-economy and the legal system, among others, is noted, together with the importance of agricultural economists undertaking analysis at this level to identify distortions which will affect sectoral performance, and to be prepared to engage with ministries of finance and of trade. Several ‘inclusive measures’ are discussed, which constitute the bulk of the agenda of sector departments, including: • rural infrastructure; • the knowledge system (primarily extension and research); and • output markets The importance of measures which are targeted on political and social objectives, such as land reform, basic social and economic services, and community support, is noted. The sobering experience in sub-Saharan Africa with attempts to target rural financial services on groups who had formerly been neglected by the formal banking sector is discussed. Finally, section VII draws out several broad conclusions, and identifies some priority elements of an agenda for agricultural economists in contributing to agricultural policy in South Africa.