IMF Survey: Poorer Countries Should Try to Reduce Reliance on Agriculture

IMF News, November 11, 2011

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Low-income countries should strive to move beyond their traditional reliance on agriculture to achieve higher growth and protect their economies from food prices volatility.
The rural sector is an imperfect insurance mechanism; most developing countries do not really have a safety net.
Shift to other sectors can increase labor productivity, but countries also need higher investment and productivity in agriculture.

China's growth—and to a lesser extent India's growth—are increasing demand for a set of commodities; net buyers of those commodities face difficulties.
Food-scarce countries are particularly impacted by the combination of drought and the general rise in world food prices; specific regions cited include Eastern Africa.
Commodity price instability raises the riskiness of agriculture as a livelihood: "If that safety net goes away, what is left?"

Encourage labor to move away from agriculture toward more urban, skill-intensive employment, while increasing investment and productivity in agriculture for those who remain.
Create insurance mechanisms to protect main crops and link to commodity prices.
- Existing futures markets are acknowledged but are described as "not great for providing insurance as such."
- Recommendation: "think of mechanisms for linking to commodity prices" and develop insurance markets where countries can insure their main crops.
Recognize that jobs to absorb workers leaving agriculture will need to be created; the specific industries are often not predictable in advance.

Moving people out of agriculture is "politically, extremely fraught" because of the question of what to do with those who end up without an occupation.
This transition is characterized as "a very delicate issue, probably the most difficult issue."
All problems ultimately have micro dimensions because different people's lives are affected differently (example: a soybean producer with acres benefits from rising prices, whereas a one-acre net buyer of food is harmed).

"If we really think that commodity price instability is the way of future, do we really want poor people to be involved in the commodity industries, in particular agriculture?"
"Right now, the rural sector is an imperfect insurance mechanism."
"How do you get people out of agriculture? This is going to be the big challenge for the next 20 years."
"I am not a huge believer in the power of macro policy to directly help poor people."
"All problems are eventually micro problems because it is people's lives that get affected by them…"

IMF Survey online, November 11, 2011.