Sustainable land use and food security in developing countries: DLV's approach to policy support

Sustainable Land Use and Food Security in DevelopingCountries: DLV's Approach to Policy Support

Herman van Keulen,a* Arie Kuyvenhovenb & Ruerd Rubenb

aInstitute for Agrobiological and Soil Fertility Research, Agricultural Research

Department (AB-DLO), P.O.Box 14 6700 AA, Wageningen, The NetherlandsbDepartment of Economics and Management, Wageningen Agricultural

University (WAU), Hollandseweg 1 6706 KN, Wageningen, The Netherlands

ABSTRACT

During the past decades, major changes have taken place with regard to theavailable policy instruments for food security and rural development. Thesechanges are reviewed against the background of the structural adjustmentprogrammes carried out in the agricultural sector. The linkages betweenagricultural policy and farmers' supply response are discussed, emphasizingthe in¯uence of macro-policy for decision-making at the micro-level of afarm household. An integrated bio-economic modelling framework is pre-sented that allows a better understanding of the e�ects of macro and sec-toral policy interventions for food security and sustainable land use at thefarm and (sub)regional level. Critical areas where the understanding ofmacro±micro linkages is still weak are identi®ed. Major conclusionsregarding a suitable analytical framework for policy analysis and supportare presented. # 1998 Elsevier Science Ltd. All rights reserved.

INTRODUCTION

During a substantial part of the postwar period, agriculture was regarded inmost developing countries as instrumental for and subordinate to urban andindustrial development. The waning importance attached to agriculture dur-ing the development process and the inward-looking industrialization strat-egy dominant at that time, added to the misconception that agriculture did

Agricultural Systems, Vol. 58, No. 3, pp. 285±307, 1998# 1998 Elsevier Science Ltd. All rights reserved

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* To whom correspondence should be addressed. E-mail: [email protected]

not have a signi®cant part to play. Unfortunately, many policy-makers haveconcluded from the empirically observed relative decline in importance ofagriculture in total economic activity that priorities for development bebetter put elsewhere. The excessive emphasis placed on skimming o� sur-pluses from agriculture and the general ignorance of incentives for the pro-cess of agricultural development have resulted in neglect, limited investmentactivities and unfavourable internal terms of trade.The poor harvests in Asia in the 1960s and in Africa in the 1970s marked a

turning-point in the view taken of agriculture as an adjusting sector. Notonly was agriculture's role as a labour reserve and a source of domestic sav-ings and foreign exchange increasingly recognized, but also its importance inimproving food supplies and enlarging the market for industrial goods. Inthe 1970s, the emphasis on employment and rural development led to theinclusion of agriculture in economic thinking when the redistribution-with-growth and basic needs strategies were formulated. In the 1980s, consider-able emphasis was placed on the role of macro-economic policy as arequirement for agricultural development. It also became clear that inad-equate incentives for agricultural production were occasioning seriousdamage to the environment: soil and water pollution in the high-incomecountries, deforestation and soil degradation in developing countries. Main-taining agriculture's productive capacity for future generations, thus becamea matter of urgency. With a growing number of people living in rural areaswith modest agricultural potential, increasing attention is being asked forpolicy incentives that enhance farm-level adoption of sustainable, yield-enhancing technologies in those areas as well.The neglect of agriculture in terms of incentives during the early stages of

development can be a costly mistake, retarding the growth of other sectors aswell. Although the rate of expansion of agricultural output is usually lowerthan for most other economic activities, a rapid increase in productivity isrequired in order to improve rural incomes and maintain the food supply forthe urban population, the raw materials supply for agro-industrial develop-ment, and cash crop production for export earnings and taxes. These con-tributions of agriculture to economic development ask for the de®nition of apolicy framework that o�ers appropriate incentives to farmers to improveproductivity in a sustainable manner, while reducing past demand on publicexpenditures and restoring the foreign exchange balance.The analytics of the agricultural sector's response to policy measures

(particularly relative prices for agricultural inputs and outputs, trade andexchange rate policy, availability of public goods and services, and access tomarkets and information) is largely based on supply response analysis(Nerlove, 1958; Askari and Cummings, 1976; Bond, 1983; Binswanger,1989). Supply response can take the form of area expansion, technological

286 H. van Keulen, A. Kuyvenhoven, R. Ruben

change, or substitution in crop choice, each with rather di�erent consequencesfor resource allocation and for the environment. Responses will vary amongdi�erent types of rural households (i.e. dependent on their resources and riskattitudes) and can be lagged as a result of di�erences in expectations andadjustment costs. For an adequate understanding of the determinants ofagricultural supply, the di�erences between short- and long-run response,and the e�ectiveness of di�erent policy instruments for the adjustment ofresource use within prevailing farming systems, the development of newanalytical tools is required.During the past decades, major changes have taken place with regard to

the available policy instruments for food security and rural development.These changes are reviewed in the next section against the background of thestructural adjustment programmes carried out in the agricultural sector.y Inthe Supply Response and the Environment section, the linkages betweenagricultural policy and farmers' supply response are discussed. In both sec-tions, the in¯uence of macro-policy on decision-making at the micro-level ofa farm household is emphasized. The section on DLV's approach to policysupport discusses the particular contribution of the research programmeSustainable Land Use and Food Security (abbreviated to DLV in Dutch) toa better understanding of the e�ects of macro and sectoral policy interven-tions for food security and sustainable land use at the farm and (sub)regionallevel.{ The Operationalization and Results section presents several modellingresults and summarizes the areas where the understanding of macro±microlinkages is still weak. Finally, major conclusions regarding a suitable ana-lytical framework for policy analysis and support are presented.

POLICY INSTRUMENTS FOR FOOD SECURITY ANDSUSTAINABLE LAND USE

Agricultural and rural development objectives can be achieved by a widevariety of policy instruments, which can be imposed directly at the farm level(production subsidies, food procurement), the national border (trade instru-ments, exchange rate), or at some other point in the market (parastatals,price instruments, public investment) (Colman and Young, 1989, p. 269).Each intervention is characterized by a multitude of intended and side e�ectson prices, e�ciency in production and consumption, ®scal and foreignexchange balances, income distribution, nature and environment, and the

yThis section bene®ts from earlier contributions of the second author to the policy document

NAR (1991).{Earlier results were reported in Kuyvenhoven et al. (1995).

Sustainable land use and food security 287

overall structure of the sector. Careful analysis is, therefore, a necessity toestablish the quantitative link between these interventions and their e�ectson agricultural resource allocation and farmers' welfare.In probably no sector of the economy has policy intervention been more

pervasive than in agriculture. Sadoulet and de Janvry (1995) summarize thewide variety of policy measures related to the agricultural sector:

... farm subsidies [in developed countries], usually through price supportprograms; taxation of agriculture in the LDCs through overvaluedexchange rates, industrial protectionism, and export taxes; price stabili-zation interventions through food stocks and variable levies; minimumacreage (cotton in Egypt) and maximum acreage planted (land set-asidesin the United States and Europe); consumer food subsidies throughcheap food policies, fair price shops, and food stamps; input subsidies,particularly to credit and fertilizers; monopolistic control of marketsthrough parastatal agencies; regulation of competition on agriculturalmarkets; direct income (decoupling) and asset (land reform) transfers;and public investment in agriculture such as infrastructure, irrigation,research, and extension.

The reasons for these extensive policy interventions are related to a num-ber of important characteristics of the sector and follow directly from thetheory of public choice (Stiglitz, 1987). Agriculture not only produces stra-tegic wage goods, depends crucially on the natural resource base and has amajor spatial impact, it is also characterized by:

. a generally limited sensitivity of total demand for food to changes in therelative price levelx;

. a similarly modest short-term response of total agricultural output tochanges in the price level (due to the comparative immobility of factorsof production and the high proportion of ®xed costs in family farms);

. a pronounced substitutability of individual agricultural products bothon the demand side and in each farm's production plan; and

. the importance of physical infrastructure and institutional factors foragricultural production, which is overwhelmingly characterized by pri-vate decision-making.

Theoretical reasons for state intervention include such market failuresas imperfect competition, public goods (infrastructure, technological

xAs the sensitivity of aggregate output and consumption to price changes is relatively low,

minor changes in volume will be accompanied by major price ¯uctuations in a free market,causing substantial changes in income distribution between consumers and producers and, inthe case of producers, between de®cit and surplus farmers.


innovations), externalities (pollution, erosion, common property), hightransaction costs and imperfect information. The latter two imperfectionsplay an important role in explaining agrarian institutions that try to copewith market failures to supply credit, insurance, management and super-vision. Among the interventions to serve `non-economic' goals, improve-ments in the distribution of income (including poverty reduction),sustainability in resource use and food security prevail. Government's role isseverely constrained, however, by information, implementation and motiva-tion failures, especially in many LDC administrations. Complex side e�ectsof interventions pose serious problems in predicting overall e�ects.{ In thepresence of market failures, the theory of second best explains that publicaction to correct one imperfection may actually result in a welfare loss com-pared with no intervention.

Macro-economic policies

In many LDCs, in particular in Africa and Latin America, an implicit andexplicit burden has been placed on the agricultural sector. The implicit bur-den is the outcome of macro-economic policy geared to the promotion ofindustrial activities (by means of tari� protection, quotas, subsidies, govern-ment investment, etc.) and of the resulting overvalued exchange rates. Theexplicit burden on agriculture consists, for example, of taxes on agriculturalexports and major price disparities where marketing boards are responsiblefor buying and selling.k These and other price interventions have resulted inunfavourable internal terms of trade between agriculture and other sectors.Rather than sectoral policies, exchange rate, trade and tari� policies havebeen the major determinants of agricultural prices. Protection of the indus-trial sector has raised the prices of inputs used in agricultural production andof consumer goods. Regulation of agricultural markets, taxation and cur-rency overvaluation have led to low prices for farm products.

{The e�ectiveness of government intervention depends on the ability and willingness to actaccording to shared objectives. Most problematic is the rent-seeking aspect of governmentbehaviour: while paying lip-service to e�ciency and distributional objectives, many govern-

ments intervene for reasons of narrow self-interest and are responsive to discriminativelobbying activities (Ellis, 1992).kIn view of the size of the agricultural sector and the limited opportunities for government in

developing countries for levying taxes, the direct and indirect taxation of agriculture is amajor and essential source of public revenues. The question is, thus, not whether, but howagriculture can be taxed. Indirect taxes on production and exports are administrativelyattractive, but they may quickly reduce e�ciency. Turnover taxes, valued added taxes and

such direct forms as land and income taxes are more attractive in terms of e�ciency, butusually encounter greater social resistance.


The anti-agricultural bias in macro-policy in most of the developing worldhas left a clear mark on the sector's performance. Advances in productivitygrowth slowed down in much of the 1970s and 1980s, particularly in LatinAmerica and Africa, and the gap between agricultural and other incomecontinued to widen. As Norton (1992) observes, the policies to counteractthis phenomenon have mainly relied on instruments with a signi®cantbearing on the budget (input subsidies, subsidized grain marketing). Thedown-turn in agriculture commodity prices starting in the late 1970s, thedebt crisis following the two oil shocks and the reluctance to reduce publicexpenditures to balance lower revenues, revealed the unsustainable con-sequences of those policies. Fundamental macro-economic balances neededto be restored and new sectoral policy orientations to be formulated. Foragriculture, this meant a change from a controlled but unprotected sector toa more free but moderately protected sector, without major claims on thebudget.Structural adjustment programmes sought to achieve this ambitious turn-

around toward restoring equilibrium and enhancing e�cient supplyresponse. Most reforms, therefore, stressed the need for higher productionand net export of agricultural products. To this end, e�orts were made toimprove the internal terms of trade for agricultural products, to adjust thereal exchange rate and to increase productivity and e�ciency in agriculture.While the measures taken di�er among countries, a number of commonfeatures can be detected in most adjustment programmes:

. Price liberalization: abolition of direct price controls of agriculturalproducts; adjustment of guaranteed prices, commodity taxes, interestrates (a rise towards the equilibrium level), and the exchange rate(usually devaluation); reduction of subsidies (on food consumption,fertilizers and other agricultural inputs).

. Rede®ning the role of government: privatization of public enterprises,or increasing the e�ciency of viable public enterprises and support ser-vices.

. Stimulating the private sector: public expenditure measures to stimulatethe private sector are designed to improve access to credit, the provisionof information, transport, storage facilities, etc.

. Removal of quantitative and administrative trade barriers and tari�structure reform: abolition of quotas and licensing, and the introduc-tion of a more uniform system of (modest) tari�s to ensure comparablee�ective protection in industry and agriculture.

In many Latin American (and Asian) countries, reforms have worked outpositively. The `East Asian miracle' in agriculture has been sustained byavoiding overvalued exchange rates, targeting of subsidies, concessional


creditÐusually tied to prescribed input packages for high-yielding varieties,and sensible output support packagesÐif necessary with protecting tradeprovisions. African countries have shown mixed results. Among the reasonsare incomplete price reforms, insu�cient abandoning of negative protectionof agriculture due to falling world market prices and ®scal constraints, andthe failure of governments to make complementary investments ininfrastructure, technology, human capital, and to initiate speci®c supportprogrammes. (For a review of African experiences, see van der Geest,1994).

Price policies

Agricultural price policies have been largely insu�cient to compensate forthe strong price-depressing e�ect of macro-policies. Other compensatinginterventions (i.e. input subsidies) have often been regressive and dis-criminating against the poor. The high costs in terms of e�ciency anddistribution of price distorting interventions in agriculture, insu�cient tar-geting and underinvestment in overhead provisions are by now well docu-mented (World Bank, 1986a,b; Timmer, 1988; Norton, 1992; Sadoulet andde Janvry, 1995). Sectoral policies heavily relied on ®scal measures, pricestabilization, market policy and the subsidization of consumers and pro-ducers. These policies mostly resulted in adverse e�ects on agriculture and,consequently, on the incomes of those who depend on this sector for a living.Compensating policies to support input acquisition through price subsidies

and/or subsidized credit supply are commonly used in developing countries.Taking into account suppressed farm-gate prices, these instruments ful®lledan important role in stimulating market supply of agricultural products.Institutional arrangements through marketing boards, parastatal tradingagencies and state-managed rural development banks, have been used tolink-up input or credit subsidies with compulsory delivery contracts.Allocational consequences of input and interest rate subsidies have been

widely analysed. Adams et al. (1984) demonstrate how cheap credit provi-sions tend to undermine rural development due to perverse incentives fore�cient resource use and a tendency of high default as screening of reliableclients becomes impossible (Ho� and Stiglitz, 1993). Similarly, input sub-sidies on fertilizers, seed and the purchase of equipment will distort theinformation on marginal costs and may lead to substitution of locally avail-able resources by externally purchased inputs. Both instruments have a clearregressive in¯uence on rural income distribution. Price control for industrialconsumer goods is sometimes used as an additional incentive to enhance thetradeability of agricultural commodities. The e�ects may be limited if gov-ernment price control or export taxation result in rationing peasants'


demands for consumer goods and eventually lead to reduced supply response(Bevan et al., 1987).

Public goods and services

It has been noted in many developing countries that the price- and income-depressing e�ect of a decline in the internal terms of trade for agriculturalproducts has not been the only factor in¯uencing rural development. Thelimited importance attached to agriculture for many yearsÐcertain Asiancountries asideÐhas also been disadvantageous for agricultural structurepolicy. Investment in research, services, rural infrastructure, training andextension and the creation of institutions and other facilities that can beregarded as public goods, has often been insu�cient to promote the devel-opment and adjustment of the agricultural sector.Access to public goods and services is usually considered an important

condition to improve supply responsiveness in agricultural production. Antle(1983) and Binswanger and Kandler (1993) demonstrate the positive e�ectsof investment in infrastructure for transport and communication on agri-cultural productivity and on the functioning of commodity markets. Simi-larly, Hayami and Ruttan (1985) relate public investment in agriculturalresearch to agricultural growth. Whereas their approach relies on inducedinnovation as a response to relative factor prices, de Janvry et al. (1989) referto the explicit state biases in budget allocation and in the delivery of publicgoods. Technology development is conditional on the distribution of assetsand is highly in¯uenced by collective action of farmers' groups, occasioning afairly regressive distribution of welfare gains. Without structural policiesaiming at a reduction in transaction costs for access to market and infor-mation, the allocative role of prices tends to be restricted and supplyresponse and input-intensity will remain low.The explanation for the decline of public investment in agricultural devel-

opment is complex. Lipton (1977), for example, refers to the political powerstructure, which is characterized by `urban bias' and so imposes limits onprice and structural policy in agriculture. Little (1982) and Timmer (1988)stress the lack of understanding in policy-making bodies of the speci®c fac-tors that distinguish agriculture from the other sectors. Rent-seeking gov-ernment behaviour explains the limited attention for both e�ciency andincome distribution.

Food security

Given pre-adjustment distortions in agriculture, the implementation ofstructural adjustment programmes has often been progressive in terms


of income distribution. Producers and traders stand to gain from better priceincentives, whereas urban consumers' welfare declines. Rural workers are hitby higher food prices in the short run, but face better employment prospectsif supply response is forthcoming. Food security is, therefore, likely toincrease in the rural areas; urban areas face immediate declines. The dis-appearance of black markets and the elimination of rents result in an almostimmediate reduction in income disparities (Azam, 1996).Production increasesÐthe major objective of agricultural policyÐare a

means to improved food and nutritional security, although neither a neces-sary nor a su�cient one. E�cient (implying favourable) producer pricesserve both production and rural incomes.** Many would agree, followingthe argument of Norton (1992), that rural welfare is best served by improvednutritional status of the rural population. Higher rural incomes are a majorcondition for improved nutritional conditions, provided basic staple foodsare su�ciently available. With land fully utilized, higher production can onlybe realized through productivity increases per hectare, i.e. higher yields andan economically more attractive crop mix.

Sustainable land use

Empirical studies on the impact of agricultural policies and structuraladjustment on sustainability of land use are not conclusive. Some authorsargue that price reforms will encourage soil depletion, while others claim apositive e�ect on farmers' investment in soil conservation activities (Barrett(1991) provides a summary of the arguments). These di�erent opinions onthe relationship between prices and soil degradation originate from di�er-ences with respect to the speci®cation of discount rates and relative riskaversion. Moreover, market imperfections may hinder the transmission ofhigher output prices towards the farm household level.For a comprehensive analysis of the impact of changes in relative prices on

agricultural resource allocation, four di�erent potential response reactionshave to be distinguished: (i) area expansion (extensi®cation); (ii) increasedinput use (intensi®cation); (iii) technological change (input substitution); and(iv) crop choice adjustment (output substitution). A distinction should bemade between adjustment of recurrent costs (productivity enhancing invest-ment) and investment in ®xed assets to prevent further soil deterioration (i.e.terraces, windshields, etc.).Currently available analytical models rely on utility maximizing farmers'

behaviour and analyse the optimal input package required to optimize the

**E�cient prices also mean that prices are in line with the world market with a protectivecorrection for EU-type budgetary price distortions.


discounted stream of net revenues while taking into account the loss of pro-duction capacity due to deteriorating soil quality. Major emphasis is given toaspects of input substitution (technological choice) and output composition(changes in cropping pattern). These models lack a basic understanding ofthe biophysical relationship between soil quality (organic matter content, soildepth) and the derived marginal e�ciency of external input applications(de Wit, 1992). Interactions between stock and ¯ow variables are generallyabsent in these models.Supply response reactions to changing relative prices are usually analysed

from the perspective of substituting fertilizers for reduced availability ofnutrients from natural sources due to soil loss. Alternative approaches treatnatural soil fertility as a function of capital and/or labour investment inconservation measures. Both factors tend to be scarce, especially in Africanagriculture. Soil mining practices appear to be a recurrent phenomenon andpromotion of sustainable land use requires complementary strategies forselective intensi®cation and productivity-enhancing soil conservation meas-ures (Reardon, 1995).E�ective policy interventions to enhance sustainable land use will probably

ask for a strategy of complementary private and public investment, aiming atcropping systems and technologies that are supportive to farm householdwelfare and food security and that contribute to income stability. Supplyresponse is simultaneously dependent on input, output and consumptionprices, while additional policy instruments have to be considered to addressaspects of property rights and access to information as important precondi-tions for land improvement.

SUPPLY RESPONSE AND THE ENVIRONMENT

The recognition of both market and policy failures has led to a morebalanced view of the e�ectiveness of policy intervention. At the micro-level,this view is supported by a growing understanding (and relearning) of farmhouseholds' behaviour and their potential supply responsiveness to relativeprices. Interventions are considered to be most e�ective if they create anenabling (i.e. improving access and correcting for classical market failures)environment for basically private decision-making, and focus on structuraland competition policy rather than direct price and market interventions.The latter can be con®ned to policies to stabilize prices, be restricted to a fewstrategic crops or inputs, and make better use of international (or largenational) markets.Supply response analyses are not unambiguous about price elasticities of

agricultural production. Individual commodity studies show considerable


short-term response to higher real prices, but long-term aggregate supplye�ects are mostly fairly small (Binswanger, 1989). The results of supply res-ponse models are strongly in¯uenced by the aggregation procedures (coun-tries, regions or crops do not necessarily face the same binding constraints;Rabbinge and van Ittersum, 1994) and by the use of market prices instead ofsubjective reservation prices. For locally tradeable food crops, demanddepends on purchasing power, that in turn is determined by supply, givingrise to a simultaneity problem. While recorded values for short-run priceelasticity range between 0.02 and 0.40, elasticities for other factors in¯uen-cing supply response (rainfall, land quality, road density, rural ®nance, lit-eracy and population density) are higher and their inclusion stronglyimproves the explanation of supply response.Further methodological problems arise if aspects of technological change

(usually captured by a time trend) and substitution between crops areaddressed. Supply response is expressed in terms of adjustment of factordemand, production and cultivated area. Implications for changes within thefarm household cropping systems can, however, not be directly derived.Since price changes give rise to both income and substitution e�ects, choicesbetween labour and leisure, substitution of internal by external inputs, and®ne-tuning of decisions related to changes in cropping frequency and crop-ping density deserve additional attention, the more so as these aspects have adecisive impact on the sustainability of resource use.A lack of synchronization in input and output price adjustment has often

been observed to retard a positive supply response. Even if both prices riseproportionally, higher input costs inevitably preceed higher output revenues.Credit-constrained farmers may, therefore, refrain from adjusting their cur-rent production plans. This e�ect is reinforced if adjustments in input pricesare stronger than in output prices, moderating the real increase in the pro-ducer's margins. When inputs are imported and subsidies are simultaneouslyeliminated with exchange rate adjustment, such developments are not un-likely for non-export crops.It is generally understood that supply response structurally increases with

the level of development. However, two important remarks need to be made(Binswanger, 1989). The ®rst concerns price vs structural policy. Empiricalresearch has shown that for a given technology, production increases inresponse to sustained price increases are limited. Almost all growth in agri-cultural production is due to investment in capacity expansion and to tech-nological advances. Price policy is important in this context, primarily as ameans of supporting favourable expectations by producers regarding thefuture pro®tability of their private (investment) activities. Other forms ofprice policy may also be important in the context of structural adjustment.For example, where price controls led to the rationing of consumer goods in


rural areas, their abolition may be followed by a sharp increase in agri-cultural production.A second issue refers to the choice between government and on-farm

investment. Both types feature a high level of complementarity. In mostsocieties, decision-making at the level of the individual farm is a highlydecentralized and private activity. At the same time, this decision-makingtakes place in an environment that is heavily dependent on governmentactivities in the areas of research, infrastructure and market conditions.These activities are vital to the promotion of private investment in agri-culture, as are satisfactorily functioning rural ®nancial markets, with formsof security accessible to as many farmers as possible.The relationship between agricultural policies, farmers' supply response

and the implications for sustainable land use is not fully understood. Whenincreased agricultural supply originates from area expansion, environmentale�ects in terms of deforestation, overgrazing, erosion and sedimentation areto be expected. Binswanger et al. (1987) indeed ®nd that a 1% increase inoutput prices leads to a 1.1% increase in area and only a 0.1% increasein yields. Area expansion could be consistent with improved land use if,simultaneously, shifts in cropping activities occur, the ®nal e�ect beingdependent on the negative e�ects of cropping activities on resource (i.e. soil)quality. Complementary e�ects between input use and chemical or physicalsoil properties are mostly not considered. Therefore, changes in input e�-ciency (of fertilizers and labour) related to soil organic matter contents orsoil conservation investments cannot be adequately captured. Further ana-lysis of these issues requires a more detailed modelling framework based onlinkages between welfare and sustainability e�ects. Such a framework will bepresented in the following section.To summarize, agriculture's contribution to welfare goals depends on

three major areas of policy concern: e�cient pricing, improved yields andshifts to higher-value crops. Attainment of environmental goals asks forclear incentives to maintain nutrient balances and to invest in land manage-ment, requiring selective interventions and especially more stable pricingregimes. A more integrated approach to agricultural policy will, therefore,emphasize good macro-economic and trade policies to ensure correct incen-tive pricing, selective incentives to promote proper management of the natu-ral resource base of agriculture, and an enabling structural and institutionalpolicy to overcome access constraints to markets, input supply and technol-ogy. In general terms this means:

. less use of direct and general price interventions;

. more emphasis on public expenditure for infrastructure and supportingservices;


. selective use of price policies to enhance input substitution or changes incrop composition;

. appropriate and targeted interventions in the case of genuine marketfailures (distribution, food security, natural resource management).

The latter two arguments justify state intervention to alleviate malnutri-tion, establish credit programmes (not subsidized interest rates), encouragepositive environmental activities, or promote the transition to new technol-ogies and input packages.

DLV'S APPROACH TO POLICY SUPPORT

In the preceding section, policy priorities were discussed and a variety ofinstruments relevant for agricultural policy-making critically reviewed. For abetter understanding of the e�ectiveness of di�erent instruments on agri-cultural development and rural welfare, a micro-oriented, integrated analysisof farm-level response is indispensable. Such an approach takes into accountthe di�erent objectives and resources of farm households, the characteristics ofrelevant factor and product markets, the institutional environment and tech-nological options with regard to (natural) resource use, crop choice and animalproduction systems. Through adjustments in land use, the e�ects of price andnon-price instruments on farm household and regional objectives can then beestablished. Themethodological background toDLV's integrated approach toagricultural research and policy analysis is discussed in Ruben et al. (1997).Kruseman and Bade (1998) present DLV's modelling framework.

Background

The Wageningen research programme `Sustainable Land Use and FoodSecurity in the Tropics' (DLV) started in 1992 as a joint e�ort of the Insti-tutes of the Agricultural Research Department (DLO) of the Ministry ofAgriculture, Nature Management and Fisheries in The Netherlands andseveral Departments of Wageningen Agricultural University (WAU). Theprogramme aimed at co-operation between agronomists and agriculturaleconomists in developing operational methods for analysing rural develop-ment policy. The initiatives to set up the programme were rooted in the workthat had been carried out in the framework of the Centre for World FoodStudies (SOW) in the period 1977±87 (van Keulen and de Wit, 1982).The immediate reason to establish the programme was the need felt for

scienti®c support for rural development programmes in tropical low-incomecountries, to explore options for sustainable land use, and to analyse the


e�ects of agronomic (technological) innovations and policy measures onland use, food security, income, employment and objectives pursued by thedi�erent stakeholders in the development process. Most research on land usein developing countries has had a strong disciplinary or sectoral emphasis(Beek, 1978; van Diepen et al., 1991; Fresco et al., 1992). Insu�cient attentionwas paid to integration of agro-ecological and agro-economic aspects, andthe operationalization of sustainability, which is a�ected by the integratede�ects (Kruseman et al., 1993; Fresco et al., 1994; Bouma et al., 1995).

Aims and objectives

The overall objective of the DLV programme is the development of a generaloperational methodology allowing integration of agro-ecological and socio-economic information for the formulation, exploration and evaluation ofpolicy options aiming at sustainable land use and food security at (sub)-regional and farm level. The methodology aims at decision support forpolicy-makers (Kuyvenhoven et al., 1995; Hengsdijk and Kruseman, 1993).To this e�ect, a methodology was developed that: (i) combines insights andknowledge from the relevant disciplines; (ii) de®nes the inputs and outputs atinterdisciplinary level in quantitative terms; (iii) allows de®nition of researchpriorities and generation of appropriate, new, improved or adapted technol-ogies in both socio-economic and agro-ecological terms; and (iv) allowsgeneration of scenarios and exploration of policy options, taking intoaccount socio-economic, agro-technical and sustainability indicators.

Approach

The approach of DLV can be described in general terms as the explorationin quantitative terms of agro-ecological options for sustainable land use atregional and farm household level and the de®nition of socio-economicpolicy scenarios, based on induced decisions at farm level that may lead tothe implementation of these scenarios. During the ®rst phase, the pro-gramme emphasized operationalization of sustainability issues in bothagro-ecological and socio-economic terms, in identifying land use optionsand in policy scenario formulation. One of the major di�culties thatemerged is that sustainability has both spatial and temporal dimensions(Fresco and Kroonenberg, 1992). Operationalization of sustainability,therefore, required explicit choices about the heritage in terms of naturalresources that the present generation wants to leave behind for future gen-erations. It was, therefore, decided that the methodology should allowanalysis of the consequences of present and future land use on the variousdeterminants of sustainability, with special emphasis on the quality of the


natural resources. To link the farm and the regional level, the programmeinitially aimed at the development of a static regional model determining aregion's technical outer boundaries under various goals and restrictions. Atfarm level, it focussed on the development of a farm household model,describing the likely e�ects of policy changes on the socio-economic envi-ronment of the various producers-cum-consumers, and the subsequente�ects on land use (changes).Much attention has been paid to de®ning sustainability and deriving cri-

teria (Kruseman et al., 1993, 1996). Following a critical analysis of variousconcepts of sustainability, it is argued that at the micro-level reproduction ofthe resource base for di�erent land use forms needs to be conceptualized,using indicators related to e�ciency in comparison with stability and resili-ence of production and production levels. At the regional level, criteria forequity are incorporated. It is envisaged that agro-ecological sustainabilitycriteria (soil quality indicators, erosion, pollution, etc.) are incorporated infarm household models as a component of the objective function for repro-duction of the household resource base. At the regional level, sustainability istranslated into goals and threshold values to explore the consequences ofpolicy options.DLV's approach can, therefore, be characterized by the following features:

. biophysical and socio-economic characteristics are integrated at thelevel of farm households;

. a micro-economic framework is used for the implementation of anexogenous macro regulatory system through di�erent types of house-hold models;

. higher yields, higher-value crops and more sustainable farming practicesare speci®ed in the micro-modelling of land use decisions;

. in contrast to explorative models, widely used for eco-regional studies(Rabbinge, 1995), DLV also analyses options for sustainable agri-cultural systems in combination with policy instruments to reach themin the medium term (Kuyvenhoven et al., 1995);

. as sustainability issues do not necessarily ®gure prominently amongfarm household objectives, trade-o�s against consumptive needs andlabour demand are established and policy alternatives analysed thatpermit win±win situations that both increase household welfare andpromote sustainable land use;

. policy incentives reach farmers directly through market exchange andindirectly through better access to markets and technology via struc-tural policy instruments;

. at the (sub)regional level, aggregate supply response is modi®ed byadjustment of supply and demand.


OPERATIONALIZATION AND RESULTS

Methodology development was linked to case studies executed in CostaRica (Atlantic Zone) and Mali (Koutiala region). In both regions, thetechnical coe�cients of agricultural activities were established ®rst. A tech-nical coe�cient generator has been developed, for Costa Rica in co-operationwith the Atlantic Zone Programme of Wageningen Agricultural University(currently called REPOSA; Alfaro et al., 1994; Jansen and Schipper, 1995;Stoorvogel, 1995), for Mali in co-operation with the Institut d'EconomieRurale and the project Production Soudano-SahelieÁ nne (Hengsdijk et al.,1996). Activities are de®ned on the basis of point estimates for inputs andoutputs for di�erent land use systems and technologies, including their tem-poral distribution, for both cropping and livestock activities (Stomph et al.,1994). In both cases, actual and sustainable (alternative) cropping activitieswere de®ned to allow analysis of the scope for improvement of sustainabilityin comparison with attainment of other objectives.

Costa Rica

For the Atlantic Zone of Costa Rica, a linear programming model wasdeveloped to analyse the possibilities to introduce more sustainable land usesystems and to assess their consequences for socio-economic indicators(Schipper et al., 1995; Schipper, 1996). The results of the model (optimizingfarm income) show that more sustainable land use systems can be introducedwithout a�ecting farm income too much. The sustainability indicators usedin this study were the use of biocides and soil nutrient losses. The questionremains, however, why, under the current conditions, such `more sustain-able' systems are not introduced in actual practice.The farm household response to speci®c policy instruments was analysed

with the aid of a farm household model (Ruben et al., 1994; Kuyvenhovenet al., 1995). The model was used to identify those price instruments thata�ect two regional development objectives: (i) improvement of the com-petitiveness of agricultural production in the Atlantic Zone; and (ii)improved natural resource management. These objectives were translatedinto four explicit goal indicators at farm household level: income (or util-ity) and plantain and cassava production were used as indicators forimproved competitiveness, whereas biocide and fertilizer use served asindicators for natural resource management. Model results showed thathigher product prices, lower fertilizer prices and reduced transaction costsfavour substitution of actual by alternative production activities, leading,in general, to more sustainable land use. Increased biocide prices resulted in adecrease in biocide use, mainly as the result of a reduction in cultivated area.


Mali

A (interactive) multiple goal linear programming technique was applied toanalyse options for rural development in the Cercle de Koutiala, based onthe availability of actual and alternative (sustainable) production techniques.Such technical innovations include: (i) more e�ective integration of arablefarming and animal husbandry, based on the use of crop residues and foddercrops to provide high quality forage; (ii) the use of animal manure fornutrient cycling in cropping systems (Bosma et al., in press); and (iii)improved access to animal traction. Di�erent constraints are applied to othervariables re¯ecting various kinds of market imperfections, such as the possi-bility of hiring outside labour, the availability of chemical fertilizers, andprice setting for inputs and outputs. The results indicated that with fullknowledge of alternative (agro-ecologically sustainable) production tech-niques, the values of the sustainability indicators (soil nutrient and organicmatter depletion, i.e. soil mining) can be improved up to 55±80% by intro-ducing these production techniques, without sacri®cing regional income.However, even such integrated systems can only be agro-ecologically sus-tainable with higher and more e�cient application of chemical fertilizers.A farm household modelling approach was applied to identify micro-

economic supply reactions to various policy measures (Ruben et al., 1998).Production and consumption decisions are simultaneously analysed,permitting an appraisal of adjustments in land use in accordance with farmhousehold welfare objectives. In the model, four farm household types aredistinguished, identi®ed according to resource endowment and objectivefunctions, to account for di�erent directions of supply response. Dynamicproperties are included in the model through the savings and investmentmodule, while di�erent time discount rates account for subjective time pref-erences by type of household. Food and labour balances are identi®ed for theappraisal of market interactions and exchange among farm types. Agro-ecological sustainability indicators are the balances of the macro plantnutrients (nitrogen, phosphorus and potassium) and soil organic mattercontent.The results of the model show that given the farm households' resources,

their goals and aspirations and their subjective time discount rates, non-sustainable technologies (resulting in soil nutrient depletion) remain to bepracticed. It appears that the major constraint for stimulating agriculturalintensi®cation (necessary for the adoption of more sustainable productiontechniques) in the area is the low supply response, causing price policies to belargely ine�ective. It can, therefore, be argued that structural policies(improving rural infrastructure, credit systems, land policies, etc.) arerequired to promote adoption of technological innovation.


As the two cases illustrate, the impact of policy instruments depends onthe market and institutional environment and overall resource availability.In low-income regions, like southern Mali, where factor markets for landand capital are not very well developed, instruments of price policy appearto have limited in¯uence on resource allocation, and market and institu-tional development are the required instruments. By contrast, in a highlycommercialized region, like the Atlantic Zone of Costa Rica, modi®cationof input prices and lower transaction costs appear as suitable instruments topromote sustainable land use, while maintaining household consumptionprospects. Other results point to the e�ectiveness of targeted fertilizer sub-sidies in Mali, and the role of ®scal policies (taxation) to reduce biocide usein Costa Rica.

SUGGESTIONS FOR FURTHER RESEARCH

Activity de®nition

In the technical coe�cient generators, single annual cropping activitiesare satisfactorily described at the moment, but crop rotations andmultiple cropping (including agro-forestry) activities, need more atten-tion. Dynamic de®nitions of crop and animal production systems,taking into account modi®cations in soil quality during the productioncycle, should be considered. Finally, speci®c land use types for for-estry exploitation and nature conservation should be developed. Agro-ecological sustainability indicators have been limited so far to nutrientbalances, biocide emission and organic matter contents, and need fur-ther elaboration.

Agro-ecology and production economics

The de®nition of discrete technical input±output coe�cients implies thatmarginal factor productivity cannot be determined and direct factor sub-stitution is ruled out. Such a technology speci®cation may, therefore, limitfurther integration of biophysical and economic modelling. A careful analy-sis of the synergy e�ects in crop growth models may contribute to a betterunderstanding of the possibilities to link crop growth models with con-tinuous production functions allowing for factor substitution. To improvethe assessment of low vs high external input agriculture, the linking ofnutrient balances to production functions deserves attention. Finally, theassumption of costless and immediate adoption of alternative (sustainable)technology needs modi®cation.


Farming systems research and policy analysis

Farming systems databases are generally insu�ciently used for policy simu-lations at the local and regional level. To improve this, the present modellingapproach needs to be re®ned and extended in several directions: a moredetailed approach to the strati®cation of farm types and their modelling, thedevelopment of risk-coping strategies, establishing procedures for aggregateanalysis at the regional level (Kruseman and Bade, 1998), and the develop-ment of village models to account for interlinked transactions and communalmanagement of resources (Barbier, 1998).

Micro±macro aspects

In the present modelling exercises, the increasingly recognized role of non-agricultural income in farm household decision-making is hardly taken intoaccount. While aggregation is incomplete at higher levels than the farmhousehold, local and regional speci®cation of relevant product and factormarkets is required, e.g. by using a multi-market analysis. In this way, rele-vant linkages with non-agricultural activities, the e�ect of restrictions onlabour and capital markets on technology choice, and the development inadjacent regions can be captured.

CONCLUSIONS

Agricultural development policies are commonly aimed at satisfying broadand con¯icting objectives, de®ned in terms of e�cient economic growth(through higher yields and higher-value activities), income distribution(including food security), and conservation of the natural resource base(through sustainable land use). To attain these objectives, economic incen-tives need to be identi®ed that in¯uence farmers' decisions on land use andallocation of other resources.During substantial parts of the postwar period, policy interventions

have implicitly and explicitly placed a burden on agriculture at the cost ofe�ciency and a deteriorating income distribution. Macro rather than sec-toral policies appear to have been the major determinant of (depressed)agricultural prices. Direct price interventions have proven to be insu�-cient to compensate for these negative e�ects; in many cases (exporttaxation, marketing board operations) these interventions have exacer-bated the anti-agricultural bias. Compensating interventions through sub-sidized inputs have often been regressive, favouring large market suppliersmost.


In the majority of developing countries, the domestic policy reforms of the1980sÐoften under structural adjustment programmesÐhave (partly)reversed the anti-agricultural bias. Better macro-economic policy, lessdiscriminatory trade policies, and less and better-targeted price interventionshave created a more favourable policy environment for agricultural develop-ment. However, public expenditures on rural development strongly decreasedunder structural adjustment, and policy interventions to support more sus-tainable resource use are far from optimal (underpricing of water, energy,access fees) or non-existent, and controversies on subsidies abound. Againstthe background of misguided interventions in the recent past, many genuinemarket failures remain uncorrected, because their case seems hard to argue.Against the background of much recent debate about the e�ectiveness of

various economic interventions, the proposed DLV framework is useful inland use planning exercises at farm and regional level, supporting the publicdebate on policy alternatives. Additionally, the approach allows improvedinteraction between policy analysis and agricultural research. Using techno-logical innovations as a startingpoint, the procedures canbeused to explore thepossibilities to induce adoption of new technology throughwell-directed policymeasures. Similarly, analysis of policy impact may guide agricultural researchin the development of appropriate technologies, that have a better chance ofadoption, taking into account both production and welfare implications.Further re®nement of the methodology is required, however, to cope with

two major limitations: the absence of the increasingly recognized role of non-agriculture income in farm household decision-making, and the incompleteaggregation procedure between farm and regional level. The ®rst can behandled by extending the modelling framework to account for non-agricultural factor use and migration. The second requires regional speci®-cation of relevant product and factor markets, and can best be undertakenby developing a multi-market model. Both extensions would further enhancethe policy relevance of the present methodology.

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Sustainable land use and food security in developing countries: DLV's approach to policy support

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