What Factors Determine the Allocation of Aid to Agriculture?

What Factors Determine the Allocation of Aid to Agriculture?

MICHIEL VAN DIJK

LEI - Part of Wageningen University

International Trade and Markets

P.O. Box 29703

2502 LS The Hague, The Netherlands

Michiel.vandijk@wur.nl

+31 70 335 82 33

Paper prepared for presentation at the EAAE 2011 Congress

Change and Uncertainty

Challenges for Agriculture,

Food and Natural Resources

August 30 to September 2, 2011

ETH Zurich, Zurich, Switzerland

Copyright 2011 by Michiel van Dijk. All rights reserved. Readers may make

verbatim copies of this document for non-commercial purposes by any means,

provided that this copyright notice appears on all such copies.

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1 Introduction

After a long period of relative neglect, the recent global food crisis has put

agricultural development and food security firmly back on the development agenda. A

key example of this development was the release the 2008 World Development

Report by the World Bank that was fully devoted the theme of "Agriculture for

Development" (World Bank 2007). The estimated 100 million rise in food insecure

people (FAO 2010) combined with social unrest and political instability in a

substantial number of developing countries, has led to a proliferation of new

agricultural aid programs by international institutions, bilateral donors and developing

countries (see Abbott and Batisti (2009) for a recent overview). During the G8

summit in L'Aquila developed countries pledged to allocate no less than €20 billion to

support agricultural development in food insecure regions. As a consequence, aid

flows to agriculture have started to increase again after 15 years of decline (Figure 1).

Taking into account the present discussions on climate change, energy crisis and food

security, a new food price surge in 2011 and the implementation of the proposed

intervention programs, aid to agriculture is expected to keep on growing in the future.

Figure 1: Bilateral aid to agriculture, 1967-2009

Source: OECD DAC Aid statistics Database.

But what determines the allocation of aid to agriculture? Is it distributed on the basis

of good governance and general needs, mainly poverty. Do donor self-interest play a

role? Or are agricultural specific factors important such as the state of the agricultural

sector and domestic food security issues? Answers to these questions are important

for several reasons. First, agricultural aid flows, which are already substantial in a few

countries, are expected to become larger in the future. An example is the increasing

support of donors to implement the Comprehensive Africa Agriculture Development

Programme (CAADP), an Africa-wide initiative to boost agricultural expansion. As

new agricultural initiatives by donors are expected to have considerable economic and

social impact on recipient countries, understanding how aid to agriculture is allocated

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is relevant. Second, although not undisputed, several studies have found that aid is

most effective when it benefits poor countries with reasonable adequate institutions

and economic policies (Burnside and David Dollar 2000; Collier and David Dollar

2002).1 This has reinforced the view that aid should be allocated selectively and only

should benefit countries with the highest 'need' as well as a good governance record.

This paper examines whether these criteria also play a role in the allocation of aid to

agriculture.

There exists an extensive literature, examining the allocation of aid that goes back to

the 1970s (see Neumayer (2003a) for an overview). Almost all work, however, has

analysed aggregate aid flows. A notable exception is Thiele et al. (2007), who test if

sectoral aid allocation is in accordance with the Millennium Development Goals.

Another group of studies, which is related to this paper, that also takes a disaggregate

approach, investigates the allocation of food aid (Neumayer 2005; Kuhlgatz, Abdulai,

and Barrett 2010).

This paper is a first attempt to analyse the allocation of aid to agriculture. More

specifically, it looks at the aid patterns of three donor countries: USA, Japan and the

Netherlands, taking into account donor self-interest, recipient need and governance

factors for the period 1995-2008.2 These countries differ substantially in terms of

development policy, aid strategies and geopolitical interests and are therefore

interesting to compare. The USA and Japan are known as big aid donors, which tend

to pursue their own interest, while the Netherlands is considered as one of the likeminded

countries