CHAPTER FOUR

RURAL DEVELOPMENT POLICIES AND STRATEGIES

4.1 The Concept of Policy
Policy formulation is an integral part of the planning process and is specified successively at the macro,
sector, sub-sector, program/project and operation of an economic unit level. Generally speaking, “policy"
implies state intervention in the economy, whereas "policies" refers to the specific types of intervention
further down the planning process. It is essential that these are consistent and complementary to each
other. For example, once the general economic policy has been formulated, it is imperative that sector
level policies are drawn up that are consistent with the general policy. Governments’ general objectives
for economic development are usually defined in the form of policy statements. They specify the major
goals to be achieved and the forms of suitable economic organization for resource ownership and
management. Consistent with this are then drawn up sector policies, sub-sector policies, etc.

In the case of agriculture development, typical objectives may include faster growth of agricultural
output, peasant sector development, reduction of rural poverty, more efficient marketing, more stable
prices of agricultural products, more equitable rural land distribution and more attractive rural land tenure
system, privatization of agriculture, improvement of status of pastoralists, etc. As regards organizational
arrangements, agriculture sector policies may define the types of economic enterprise that will be
encouraged (e.g., small farmers, pastoralists, cooperatives, private commercial farms, state farms, etc.),
the role and size of domestic and foreign participation, and the extent to which markets and prices will be
subject to official regulation. These policy declarations about the ends and means of agricultural
development represent the fundamental terms of reference for any agricultural planning exercise.
4.2 The concept of strategy
A strategy represents government's plan of action aimed at moving the economy further along the path
towards the goal stated in the economic policy. It takes full account of current circumstances, both within
the country and in its international environment, assesses the resources which are likely to be available
and explains how the government would like to see these resources used to achieve the desired forms of
growth and development. There may be many alternative approaches of achieving the stated goals, but the
approach, which stands most chance of being successful, is selected. Needless to say, this requires a great
deal of analysis.
Development strategies are usually cast in a fairly long time frame and are basically intended to provide
planners with general guidelines for their detailed work in specific sectors. Thus, an agricultural sector
strategy may signal an intention to put less emphasis on the expansion of a cash crop production in order
to devote more resources to increasing the output of food crops. It may also indicate the policy makers'

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desire to achieve greater foreign exchange earnings in the agricultural sector by phasing out taxes on
export crops in order to encourage more production.
There is an organic link between a development strategy and an economic policy, because the former
emanates from the latter. A strategy provides a long-term perspective and framework for achieving the
basic issues addressed in the economic policy, and indicates directions and priorities.
Considerations in strategy formulation
The formulation of a development strategy, which is an integral part of the national development planning
exercise, is concerned with the drawing up of a long-term plan specifying the general objectives,
priorities, different phases of development, arrangements to be made for organizing the necessary forces
for its fulfillment, and the major measures to be adopted. The strategy is based on an assessment of the
various factors and conditions of economic development, and its various aspects that would affect the
economic situation as a whole.
For most developing countries, the economic problems they face are deep-rooted and structural in nature.
Such problems cannot be resolved in the short and medium-term strategy. Under such circumstances, the
strategy would have carefully to review and assess all past strategies, including their basic problems,
weaknesses and strengths. The formulation of a strategy would also have to assess rigorously:
 The resource base of the country under consideration,
 National priorities,
 Interests of producers and consumers, and
 The role of the state.
Assessment of the resource base of a country requires consideration weather conditions, land and water
resources potential, mineral potential, agricultural production potential (e.g., crop, livestock and fisheries
production), etc. Having assessed the resources potential, it is then possible to identify national
development priorities, having regard to such issues as comparative advantages and weaknesses of the
economy. This analysis is made at the macro, sector and sub-sector levels of the economy.
In formulating an agricultural development strategy, consideration of the interests of the main actors in
agricultural production and consumption is of paramount importance.
4.3 Framework for policy and strategy analysis
The framework for policy and strategy analysis emanates from the basic goal of government to maximize
social welfare, i.e., to maximize the material wellbeing of society as a whole. In pursuit of this
fundamental objective, government chooses "target variables" which it sets out to achieve, e.g., income
per capita, output per hectare of land, grain stores per district. The next task is then to select the best
instruments or measures to achieve the selected targets, given (i) constraints, e.g., in the form of limitation
in availability of resources or administrative capacity, (ii) the existence of certain factors over which the

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government may not have control, e.g., natural phenomena, and (iii) side-effects which, if they are
harmful, must be minimized.
Policy interventions are intended to achieve a set of stated objectives using selected instruments to
overcome constraints. Therefore, any framework for policy analysis comprise of:
 Analysis of objectives
 Analysis of constraints, and
 Analysis of instruments
A. Analysis of objectives
The objectives of agricultural policy interventions are many and varied. Depending on existing socio-
economic conditions, the scope of the goals may be of local in nature (e.g., to raise the incomes of a
certain group of small poor farmers), provincial (e.g., to improve the supply and delivery of fertilizer in a
specific region), or national (e.g., to overcome a balance of payments deficit). Most of the diverse and
numerous social objectives fall into two main categories:
(i) Goals of economic growth, sometimes known as the efficiency objective, and
(ii) Goals of improved income distribution, otherwise known as the equity objective.

Strictly speaking economic growth and efficiency are not synonymous, because the former one is a
dynamic concept whereas the latter is a static concept. Be that as it may, efficiency refers to the optimum
use of a given set of national resources, i.e., the attainment of the highest level of material welfare for the
consumers of society as a whole, for a given set of prices in resource and output markets. Growth can take
place either by moving from a less efficient to a more efficient utilization of existing resources, or by
increasing the productivity of resources so that more output can be obtained from a given level of
resources. In either case, since the resulting outcome can be specified for a given initial income
distribution, efficiency can be taken as an objective phenomenon.

Equity, on the other hand, refers to the distribution of total output among individuals or social groups
within a society. Decisions about income distribution require value judgments concerning the 'fairness' or
otherwise of the outcome for different groups of people. As such, equity is a subjective phenomenon.
Then, an important function of policy analysis is to try to quantify both the efficiency and equity results
of choosing one policy instrument rather than another in pursuit of a particular objective.
B. Analysis of constraints
For the attainment of a particular objective, policy instruments are designed to overcome expected
constraints. For instance, in places where lack of adequate rainfall proves to be a real constraint to
increased agricultural production, then irrigation would be the focus of the policy analysis. Likewise,

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where price instability is considered to be a constraint to increased small farm output, then analysis of a
policy aimed at stabilizing prices would be appropriate.
There are different types of constraints, e.g., those related to natural, economic and political phenomena.
Natural phenomena like rainfall, climate, soils, etc. may limit agricultural production. Also, in the
economic sphere, the availability of foreign exchange, government budget, international prices of farm
outputs and inputs, may impose limitations on goals and policy options. Further, political considerations
such as national security, stability of the government in power and the basis of its political support in
society, and rivalry between factions or between different ethnic groups or between the various branches
of the bureaucracy, may constrain policy choice.
C. Analysis of instruments
In the event a particular constraint is absolute, e.g., because of natural phenomena, then policy
instruments may be devised to get around the constraint, e.g., by growing a different type of crop that is
more suitable to the natural phenomena in the region. However, if a constraint happens to be relative, e.g.,
foreign exchange shortage, it may be part of the policy to alleviate the constraint in addition to pursuing
another ultimate goal.
It is sometimes possible to attain more than one basic objective by applying a single policy instrument.
For example, if teff is the staple diet, and all teff farmers are poor, then increasing the price of teff may
accomplish both goals of growth, through increased output of teff, and equity, through improved income
distribution. More commonly, however, there are several potential policy instruments that, separately or
in combination, can contribute to the achievement of stated objectives. The task of agricultural policy
analysis is thus to assess the advantages and disadvantages, i.e., the benefits and costs, of the alternative
policy instruments available.
As instruments are the methods of state intervention, in analyzing instruments, the following aspects may
need to be considered:
 Whether the choice of instruments was appropriate?
 Whether the timing of the use of instrument was appropriate?
 What are the side effects?
 How to counter the side effects?
4.4 Specific policy analysis
4.4.1 Farm output price policy
Price policy is designed to influence the level and stability of the price received by farmers and paid by
consumers for farm outputs. It is a very important factor since it influences the entire fabric of an
agriculture economy. In general, it has three main functions;

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 I. Allocation of farm resources: it follows from the optimization behavior of producers in a market
system described by neoclassical production economics as “increase in the general level of
output prices increases returns to all inputs in production, encouraging higher use of variable
inputs”.
II. Income distribution: it follows from the implication that high farm prices raise producer income
and lower the real incomes of consumers.
III. Determination of the level of investment and capital formation in agriculture: this looks into
the long-run cumulative effects of high farm out -put prices – high farm prices relative to those
in other sectors increase the rate of return to capital in agriculture and encourage investment in
various ways. Besides, it permits saving at farm household level across seasons, encourages the
flow of credit into agricultural activities….
Objectives of output price policy
Primary objectives of the policy include:
 To influence agriculture output
 To achieve desired changes in income distribution
 To influence the role and contribution of the agriculture sector to the overall process of economic
development
Secondary objectives include:
 To increase aggregate agriculture output (across all crops and enterprises)
 To increase the output of individual crops (export versus food crops, perennial versus annual
crops, etc)
 To stabilize agricultural prices, both in order to reduce uncertainty for farmers and to ensure
stable food prices for consumers.
 To stabilize farm incomes, as distinct from price stability.
 To achieve food self-sufficiency (it has links with the above)
 To generate government tax revenue either from export taxes or import taxes
Instruments of price policy
The description of price policy instruments is followed by some observations concerning the interaction
between instruments, and the relationship of instruments to objectives. Farm output prices can be altered
by government intervention in many different ways. Instruments are grouped here according to their type
of impact on the level and stability of farm prices.
A. Trade policy instruments
These instruments affect domestic agricultural prices by operating on the prices or quantities of either
imports or exports. They include:

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  Import taxes or subsidies, which increase or decrease domestic prices braising/lowering the cost
or imports in domestic currency;
 Quantitative restrictions on imports, which raise the domestic price above the import prices;
 Export taxes, which lower the domestic price passed back to producers.
B. Exchange rate policy instruments
The official conversion rates between the national and foreign currencies have a major impact on the
domestic prices of agricultural commodities, and this impact is the same in direction for both import
substituting and export commodities.
 A higher exchange rate (when less domestic currency can be purchased for a given amount of
foreign currency) results in a lower domestic currency equivalent of the world market price for
both food and export crop.
 A lower exchange rate (i.e. more domestic currency for a unit of foreign currency) results in a
higher domestic currency equivalent of world market price.
C. Taxes and subsidies Instruments
In addition to import/export taxes, farm output price levels can be affected by many types of domestic tax
or subsidy imposed at different points in the marketing chain. Some examples are:
 Local government levy on producers when they sell through specified marketing agents, this levy
being deducted from the farm-gate price;
 Tax on the unprocessed commodity at the point of entry into processing;
 Consumption tax levied on the commodities in wholesale markets or at retail outlets;
 Consumption subsidy applied to the commodities at retail outlets;
 Deficiency payment, i.e. the difference between target farm-gate price and actual farm-gate price
covered by the government;
D. Direct interventions
In addition to fiscal or exchange rate policies, governments frequently seek to influence prices by direct
controls on the price formation, marketing, and storage of agriculture commodities. These controls
require the creation of public marketing agencies in order to secure control over part or all of the
marketed supply of designated commodities. Some examples are:
 Marketed output confined to sale through state channels at fixed prices;
 Enforced procurement by the state at fixed prices;
 Fixed or minimum retail prices for staple foods, with supplies being confined mainly to state
outlets and penalties for illegal pricing by private traders;
 Fixed minimum prices to producers (floor prices) linked to state procurements;

Impact and effectiveness of price policy

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 I. Price policy and farm output
The critical features in considering the output impact of price policies is to distinguish between the:
a) Aggregate farm output
b) Individual crop output
c) Household decision making in the semi-subsistence food-producing peasant.
The response of aggregate farm output to change in the general level of farm prices is likely to be low in
the short-term, rising only gradually in the long-term. The main reason is some farm resources (land,
fixed capital and technology) are fixed in the short term.

With individual crop output, changing relative prices between individual crops can have dramatic effects
on the intercrop composition of total farm output, and on the marketed supply of individual crops (high
price responsiveness). But the degree of responsiveness depends on the type of crop and on the scope of
intercrop substitutability at the farm level in terms of climate, soils, and other resource constraints.

With household decision-making, the impact of a staple good output price rise involves complex trade-
offs between competing objectives in the peasant household. The price rise is an incentive to higher
output (positive substitution effect) but also increases income, which may lead to increase in family food
consumption (negative substitution effect).
4.4.2 Marketing Policy
Some concepts in the study of marketing
The marketing of farm output is typically thought to play a dual role. One dimension is the transmission
of price signals between consumers and producers. As an example, an increase in demand for maize
causes prices to rise in an urban center and this information is passed back to producers through the
marketing system. The other dimension is the physical transmission of the commodity from points of
production by farmers to points of purchase by consumers. The traditional starting point for analysis of
markets is the concept of adding utility to a commodity. This is achieved in three ways: -
I) Form utility: changes in the physical attributes of the commodity between farmer and consumer
(grain to bread) as compared to its sale by farmers. Achieved through grading, sorting, cleaning,
labeling, packaging, etc.
II) Place Utility: created through transporting a product from one place to another. Transport
distances may be local, medium, or long distance.
III) Time utility: created if products sold at a different time through storing them. This refers to all
aspects of storage across seasons and years.

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If a product passes through any or all of these stages and add utility, its price expected to vary at various
levels. The overall difference between the purchase price of a commodity by consumers and its sale price
by producers is called the marketing margin. The marketing margin covers part or all the above
utilities/dimensions of marketing and can sometimes be used as the sum of form margin seasonal margin,
and a spatial margin, respectively.

The form margin refers to all changes in the physical attributes of the commodity between farmer and
consumer. It includes not only direct processing but also cleaning, sorting, labeling, packaging, canning
and others. The form margin varies greatly between commodities, and is also the one that changes most as
development proceeds due to changing demand patterns as incomes rises.

The main sequential stages in marketing are: -

a) Primary procurement (assembly), in which the commodity is purchased from farmers and
assembled at local village, or district level stores, or mills;
b) Processing, in which the commodity is milled or transformed prior to onward distribution;
c) Wholesale, in which the commodity changes hands in bulk at wholesale markets; and
d) Retail, in which the commodity is sold to its direct consumers;
Objectives of marketing policy
The objective most commonly advanced for government marketing policy is to protect farmers and/or
consumers from parasitic traders, specifically;
 To stabilize or increase farm-gate prices
 To reduce the marketing margin (state intervenes to narrow the gap between consumer and
producer prices)
 To improve quality and minimum standards of consumable or exportable agricultural
commodities (more of regulatory than direct intervention)
 To increase food security (traders hoard grain for speculative purposes, which exacerbates food
shortage and increase price instability)
4.4.3 Input Policy
Variable input policies have four dimensions:
I. Price level of variable inputs, concerns state actions to influence the prices paid by farmers
for inputs
II. Delivery system for variable input, concerns state actions to improve the physical flow of
inputs to farmers
III. Information provision to farmers concerning the type, quantity and combination of inputs
IV. Credit for the purchase of variable inputs

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New seeds, fertilizers and irrigation water are complementary input – meaning the highest levels of yield
are only achieved by the simultaneous increase of all variable inputs in the correct proportions. If one is
missing the intended result will not be achieved. The complementarity of the variable inputs leads to the
idea of delivery of an input package to farmers to achieve desired output. The package approach foresees
a major role for the state: investment in public irrigation schemes, delivery to farmers of certified seeds
together with the appropriate quantities of fertilizers and other farm chemicals, provision of credit, and
advice concerning the proper agronomic practices to put into effect. The package approach to inputs,
however, has become less prevalent because of high overhead cost per farmer and failure of credit
repayment and input delivery.

Objectives of input policy

The general objective of government intervention in input policy is to accelerate and make more uniform
the adoption of new technology by farmers, in situations where, first farmers are thought to underestimate
the gains to be made by adopting new input combinations, and second where markets are considered
unable to deliver the new inputs with sufficient competitiveness, timeliness, quality, accuracy of
information, and geographical coverage.

It assists farmers
a) To overcome risk-averse behavior by farmers, which causes them to underestimate the returns to
using new inputs;
b) To avoid mistakes in input use by farmers, which might happen on a trial and error basis, because
a high occurrence of such markets will tend to accentuate risk aversion and slow down the uptake
of new inputs by farmers;
c) To avoid the adoption of wrong/dangerous inputs by farmers caused by
Over-zealous sales behavior by private input supply companies in poorly regulated markets;

For input markets;

a) To provide a delivery system for inputs under conditions where private markets in farm inputs are
non-existent, unevenly developed, or non-competitive.
b) To combine input delivery with credit provision in order to alleviate the working capital
constraint on the adoption of new inputs.
c) To regulate and control the market for improved seeds, in order to ensure the genetic quality of
named varieties in seed replication and seed delivery to farmers.

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 d) To regulate and control the market for improved pesticides or disease control chemicals in the
context of measures designed to contain the spread of pests and diseases in crops grown under
monoculture or near monoculture conditions

4.4.4 Land reform policy

Land reform policy covers a wide range of social changes involving access of people to land, the
ownership structure of land, the size structure of land holdings, and legal or contractual forms of land
tenure. In the hierarchy of state interventions which affect farm inputs and outputs, land reform is a
special case.

Thus, land reform differs from other policies due to its often-political controversial nature. This becomes
apparent when we go through the same exercise in defining the nature, intent, scope, and problems of
land reform policy as we have done for other policies.

The fundamentally political nature of land reform must be recognized at the outset. Land reform seldom
involves making only a minor adjustment in the socioeconomic environment. Historically, many
landforms have attempted to change social relationships of property ownership, wealth, social status, and
political power. As such they tend to be contested, in the political sphere, between those forces seeking to
put land reform into effect, and those often-powerful members of society expecting to lose from it.

Objectives of land reform

There are basically two broad objectives of land reform; the political objectives and the social and
economic objectives.

A. Political objectives
The political objectives of land reform depend on the forces and pressures that resulted for a land reform
to be considered, and on whether a revolutionary change in political power is involved. Several different
possibilities are:
i. Land reform occurring as the outcome of revolutionary political change, its main objective
being to strengthen and consolidate the basis of the new state;
ii. Land reform as a platform for liberal ('market-orientated') political groups, its main objective
being to undermine the power of a land-based elite;
iii. Land reform as a platform for socialist political groups, its main objective being to institute
cooperative, collective, or state forms of agricultural production;
B. Social and economic objectives

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The social objective of land reform emanates from some concept of social justice. This is allied to both
political and economic reasons and motivations. On the political side, in different ways and for different
reasons, increased social equality may feature as an argument of both liberal and socialist advocates of
land reform. On the economic side, social justice is linked to questions of employment, income
distribution, efficiency, and the size of the domestic market.

Social justice also has force of its own. An idea about what is unacceptable in terms of the power that
some members of society have over other members evolved and changed over time. Some features of
feudal and semi feudal land tenancy (bonded labor, labor service tenancy, peonage and so on) are
generally regarded as offensive and unacceptable. So too are the extreme states of wealth with poverty,
power with servitude, associated with such land tenancy practices.

The two main economic objectives for land reform are to reduce poverty and to increase agricultural
output so as to enlarge the size of the domestic market as economic development proceeds. A mass of
very poor tenant farm families paying landlords in kind in order to till land for bare survival does not
provide a market for the outputs of domestic industry.

Instruments of land reform

Three main groups of land reform instruments can be identified. These are:
(i) Instruments of tenancy reform,
(ii) Instruments of land redistribution,
(iii) Instruments of land settlement

The first and third of these groups can be dealt easily because tenancy reform does not involve the
redistribution of existing private titles to land; it merely means changing the rules concerning legal and
illegal types of contract between landowner and tenant. Tenancy reform typically means the prohibition
of certain feudalistic types of tenancy mainly tied labor of various kinds and the modification of others -
e.g. by imposing a ceiling on the landowner's share in share tenancy contracts.

The effectiveness of these instruments are compromised in practice by the diversity and unwritten nature
of the relations between landowners and tenants in many rural situations. Further instruments of tenancy
reform are to convert feudal or semi-feudal tenancy arrangements to a cash rent basis, and to impose rules
on landowners regarding the security of tenure of their tenants.

Land settlement likewise does not involve forced redistribution of previous private titles to land. It
usually involves the release of state land for settlement, the opening up of new lands for settlement, or the
resettlement of land abandoned by former owners.

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Land redistribution does mean reallocating the ownership of land between people, and the rules of this are
to a great deal more difficult to formulate and to implement than in either of the other more modest types
of land reform. There are four main components (stages) to be dealt in this regard. These are:
expropriation, compensation, exemption, and distribution.

i. Expropriation
The first step in a redistributive type of land reform is to expropriate the land that it is intended to
reallocate. This is politically the most difficult action amongst all instruments of land reform. Where land
reform comes about as a consequence of a socialist revolution, expropriation may be automatic and
widespread with few exemptions. In all other cases, expropriation is the outcome of a political process
involving much trade-offs and compromises.

The most common instrument is to set a ceiling for the amount of land that landowners can retain for their
own continued use, and to expropriate all land above that area. The ceilings tend to reflect the pre-existing
farm size structure, intensity of cultivation, and the nature of the pressure for land reform by peasant
political groupings.

ii. Compensation
This is about paying compensation for land previously owned but in the interest of the government for
reallocation. The amount of compensation for land reallocated in land reform legislation is another
difficult and highly challenging matter. It is rare for there to be no compensation at all, but also equally
rare for the full market price of land to be paid. It has usually been beyond the financial capacity of land
reforming states to pay the full market price for land confiscated. It is even doubtful whether a
meaningful market price could be defined in the political atmosphere that typically accompanies land
reform.

One method of paying compensation is to take the value of land as registered for land tax purposes. This
undervalues the land by market price criteria, but is at least consistent for all landowners. Compensation
is often split into two components: an immediate cash payment and an allocation of government bonds
redeemable at some future date.

iii. Exemptions
Many land reforms in practice contain exemptions to the criteria that are established in law for
expropriation. These exemptions represent political compromises in the drafting of legislation, and they
can be fatal for the realization of the goals of the reform. A common exemption in Latin American land
reforms was to exempt land that could be shown to be already under 'efficient' farm production. Apart

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from opening the door to interminable legal proceedings as to the meaning of efficient agricultural use,
this type of exemption means that the beneficiaries of the land reform end up with the least fertile land.
Other exemptions relate to institutional landowners (charitable bodies, mission stations, Church lands,
etc.), corporate landowners (land farmed by registered capitalist companies), or foreign landowners (land
operated by foreign companies).

iv. Distribution
Land redistribution does mean reallocating the ownership of land between people. Then land reform
legislation must also set down the criteria and instruments for post-reform land allocation. In part, this
involves decisions we have already discussed, such as whether to distribute or to collectivize, whether to
go for tenancies or owner-occupier farms, whether to retain land under state ownership or permit freehold
registrations, and so on.

The allocation of land distributed after a land reform also involves criteria concerning maximum and
minimum sizes of holdings, unless land is reassigned to former tenants with no planned changes in
holdings size. A failure to set minimum farm sizes could mean the advent of a large number of holdings
that are below family subsistence in output, and with fragmentation in later years these might become
uneconomic to operate.

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