Global Forum on Agriculture November 2010 Policies for Agricultural Development, Poverty Reduction and Food Security OECD Headquarters, Paris

Transcription

1 Global Forum on Agriculture November 2010 Policies for Agricultural Development, Poverty Reduction and Food Security OECD Headquarters, Paris A proposed methodology for measuring government expenditures in support of food and agriculture sector development and application in the case of Uganda Joanna Komorowska, OECD Joanna.Komorowska@oecd.org

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3 TABLE OF CONTENTS A PROPOSED METHODOLOGY FOR MEASURING GOVERNMENT EXPENDITURES IN SUPPORT OF FOOD AND AGRICULTURE SECTOR DEVELOPMENT AND APPLICATION IN THE CASE OF UGANDA Introduction Methodology Scope Proposed classification and disaggregation Complete coverage of institutions, administrative levels and financing instruments Budgetary transfers versus revenue forgone Mapping aid onto national expenditures Types of external aid Budget planning versus actual spending Treatment of policy administration costs Treatment of one-off investments versus recurrent expenditures Analysing public expenditures Classifying support to the food and agriculture sector: Uganda case study Motivation and scope Agriculture, poverty and public expenditures in Uganda General trends in Uganda s public expenditure in support of agriculture Composition of Uganda s public expenditures in support of the food and agriculture sector Role of aid in agriculture related public spending in Uganda Analysing public expenditures Conclusions REFERENCES ANNEX Tables Table 1. CRS Agriculture-Specific Categories Table 2. Agriculture and poverty in Uganda, Table 3. Public expenditures in support of food and agriculture sector in Uganda Table 4. Budget allocations versus actual spending under PMA Table A1. CRS sectors and purpose codes potentially relevant for agriculture Figures Figure 1. Public expenditures in agriculture and Maputo declaration target, Figure 2. Mapping aid on national expenditures Figure 3. Share of agriculture in GDP and GDP per capita in Uganda, Figure 4. Agricultural support in total government expenditures: PMA versus agriculture-specific support, approved budget 2001/ / Figure 5. Agricultural support in total government expenditures: PMA versus agriculture-specific support, actual spending 2001/ /

4 Figure 6. Composition of agricultural-specific public expenditures in Uganda, average 2005/ / Figure 7. Composition of agricultural supportive spending in Uganda, average 2005/ / Figure 8. Agriculture in DAC commitments and disbursements in Uganda, Figure 9. Agriculture relevant DAC commitments and disbursements in Uganda, Figure 10. Average shares of aid in total spending in Uganda, 2005/ / Boxes Box 1. Proposed classification of public expenditures in support of the food and agriculture sector

5 A PROPOSED METHODOLOGY FOR MEASURING GOVERNMENT EXPENDITURES IN SUPPORT OF FOOD AND AGRICULTURE SECTOR DEVELOPMENT AND APPLICATION IN THE CASE OF UGANDA Discussion paper Summary In this paper we propose a methodology for the systematic measurement of public expenditures in support of the food and agriculture sector. The methodology has been developed in the context of the FAO/OECD Monitoring African Food and Agricultural Policies (MAFAP) project, which will be implemented progressively across a growing number of African countries. The proposed methodology builds upon the approach that OECD has taken to measuring budgetary support provided to the agricultural sector, and adapts that to the specific needs of African and other developing countries. The proposed classification seeks to clarify the choices governments and donors have made and are making among competing spending priorities. The principle behind the classification system is to categorise expenditures according to their economic characteristics. This should facilitate further analysis of the extent to which expenditures and investments are addressing national policy objectives, including qualitative analysis based on an understanding of the way in which programmes operate, as well as quantitative analysis (econometric studies and simulation models) for which the underlying data would provide an important input. The application of the methodology is demonstrated using a case study of Uganda. 1. Introduction 1. African governments often lack organised information that would enable them to analyse systematically the performance of expenditures affecting the food and agricultural sectors. They recognise the need to develop such information on a regular basis in order to make rational evidence-based policy choices, and that the development of appropriate indicators is an important pre-requisite for policy analysis and for efficient budgetary process (MAFAP, 2010b). 2. The need to fill these information gaps is particularly important given increasing recognition of the role that the agriculture sector has to play in raising incomes, reducing poverty and improving food security (reflected in the World Bank s 2008 World Development Report), and a range of policy commitments that have flowed from that change in policy thinking. In particular, the African Union s 2003 Common African Agricultural Development Programme (CAADP) framework sets a target of 6% for agricultural growth, while under the 2003 Maputo Declaration its members are committed to allocate at least 10% of public expenditure to agriculture and rural development. As aid and national resources allocated to agriculture increase, it is important to put in place systems for monitoring the effectiveness of different types of expenditure. 3. Most existing studies of public expenditures in agriculture in Africa focus their attention only on those investments that occur in agriculture dedicated government bodies, such as ministries of agriculture. Figure 1 reports agriculture-specific public expenditures in 36 Sub-Saharan Africa countries. Most countries fall below the Maputo 10% target, with only eight allocating more than 10% of their resources to 5

6 Congo, DF Guinea-Bissau Seychelles Sierra Leone Cameroon Cote d'ivoire Central African Rep. Djibouti Lesotho Namibia Rwanda Tanzania Togo Liberia Botswana Sao Tome & Principe Kenya Uganda Mauritania Swaziland Cape Verde Burundi Zambia Nigeria Burkina Faso Benin Chad Sudan Senegal Ethiopia Madagascar Mali Nigeria Malawi Zimbabwe Comoros agriculture. However, the Maputo declaration target does not refer to agriculture-specific expenditures only, but recognises the importance of spending on rural development more generally. Likewise, the methodology proposed in this paper recognises that many expenditures of greatest importance to agricultural development may not be specific to agriculture, but could be of a more general nature such as investments in rural infrastructure. The adoption of a broader definition implies screening public expenditures that occur in all government bodies that may implement policy measures in support of agriculture, be they sector-specific or more general like rural development. If all relevant measures were taken into account, the pattern of public expenditures observed in Figure 1 could be quite different. The relative importance of agriculture-specific and more general agriculture supportive expenditures is illustrated using information from Uganda s Plan for the Modernisation of Agriculture (PMA), which considers both aspects. Figure 1. Public expenditures in agriculture in Sub-Saharan Africa, % agriculture public expenditure (% of total) Maputo declaration target Source: CAADP (2009) 4. The composition of public expenditures in support of agriculture is just as, if not more, important than the total level. There may be trade-offs between spending in different categories (for example spending on rural infrastructure versus subsidies for seed and fertiliser) and there may be complementarities (for example between spending on extension services and the development of infrastructure that would enable farmers to get their output to market). The indicators of public expenditures proposed here seek to keep track of both the level and composition of expenditures in support of food and agriculture sector development, and to establish a link between aid allocations and national expenditures. This should make it easier to assess whether resources are being allocated to priority areas, whether they address investment needs, and whether they are consistent with government policy objectives. Overall, they should also reveal whether aid allocations are coherent with national priorities. The case study of Uganda illustrates some of these points. 5. The methodology presented in this paper has been developed in the context of a broader project which aims at improving monitoring of agricultural policies in Africa. Monitoring of African Food and Agricultural Policies (MAFAP) is a joint FAO-OECD initiative funded by Bill and Melinda Gates Foundation that intends to help African policy-makers and other stakeholders ensure that policies and investments are fully supportive of agricultural development, the sustainable use of natural resources and enhanced food security (MAFAP, 2010a). It aims to support decision-making at national, regional and pan- African levels, and thereby contribute to the Comprehensive Africa Agriculture Development Programme 6

7 (CAADP) of the New Partnership for Africa Development (NEPAD). A draft of the MAFAP methodology is available on the project s web-site (MAFAP, 2010b). The full MAFAP methodology proposes indicators in three broad areas: price incentives and disincentives facing agents in the food and agricultural sector, public expenditures in support of the food and agriculture sector and a set of complementary development indicators. The methodology section presented below draws on elements of this draft and as such is still a work in progress, shared for discussion and subject to further elaboration and revision. 6. Typically, a comprehensive analysis of public expenditures requires a close collaboration with governments to identify all policy measures that are agriculture-supportive and to collect the necessary data. MAFAP project is at its early stages of implementation and this case study has used secondary data sources, implying a number of data limitations, which are signalled in the text. The purpose of the case study is to consider what can be achieved within the proposed framework and obtain comments and feedback. 7. The paper is structured as follows. Section 2 outlines the methodology for measuring public expenditures in support of the food and agriculture sector. Section 3 presents an application of the methodology to a case study of Uganda. Section 4 concludes. 2. Methodology 2.1. Scope 8. The methodology proposes to capture all public expenditures that are undertaken in support of food and agriculture sector development. That includes expenditures from the national budget, either central or regional government, regardless of the ministry that implements the policy, and external aid, provided either through local governments or specific projects conducted by international organisation or NGOs. 9. We focus primarily on the food and agriculture sector, however, for some countries forestry and fisheries may be an important part of rural activity and can also be included in the scope of the project if desired by national partners. However, they will be treated separately from the classification proposed below to ensure comparability between the countries. 10. We seek to capture all public expenditures in the rural areas, as they may also have an important role in agriculture s sector development, even if they are not specific to the sector. The latter information will also help to establish a view of a country s general policy environment and whether there is a pro or anti-rural bias in supporting expenditures in such important areas as infrastructure, health and education. 11. It is important to note that CAADP requires African countries to report their expenditures according to the United Nations Classification of Functions of Government (COFOG). COFOG broadly distinguishes between agriculture, fisheries and forestry. The classification proposed here is compatible with COFOG in the sense that we also distinguish between agriculture, fisheries and forestry, while our categories allow calculation of COFOG-defined agriculture expenditures, and also allow further decomposition within those totals. 1 1 Interestingly, the Maputo declaration calls for investments in agriculture that are defined more broadly than what COFOG includes, while it is usually the latter that is used to monitor progress towards the target. A broader classification could help overcome this inconsistency, given it can provide information of COFOG agriculture spending, but also on more broadly understood agriculture supportive spending. 7

8 2.2. Proposed classification and disaggregation 12. Many expenditures of greatest relevance to agricultural development, in terms of their ability to expand the production frontier, may not be specific to agriculture, but could fall into other categories. Moreover, support can be provided in several different ways. Support to agricultural producers may be provided via reduced input prices (e.g. a fertiliser subsidy), cost sharing for fixed capital (e.g. machinery), revenue forgone by the government (tax concession), reimbursement of taxes or charges or services in kind (e.g. delivery of extension services). Agriculture-specific support to the sector more generally may be provided via spending on agricultural education, research, marketing of agricultural goods, irrigation etc. Some policies which benefit agriculture may be even more general, such as expenditures on rural infrastructure, rural education or rural health. Although the latter are not sector specific, they may be sector supportive. In order to capture all public expenditures in support of the food and agriculture sector, the following breakdown is proposed. i) A broad distinction between policies that are: agriculture-specific, agriculture supportive and non-agricultural expenditures. ii) Within the agriculture-specific category, a distinction between support to producers and other agents in the value chain, and general sector support. The agents in the value chain include farmers (producers), input suppliers, processors, consumers, traders and transporters. 13. The detailed classification of support follows the OECD s principle of classifying policies according to their economic characteristics i.e. the way they are implemented, which provides the basis for further policy analysis (OECD, 2008). The particular categories, however, should be designed to reflect the types of policies applied in African countries. Likewise, the categories proposed in Box 1 have been elaborated based on the experience of various agencies, including FAO (e.g. FAO, 2006), working on public expenditures in developing countries (for a comprehensive overview, see MAFAP, 2010c). Further, drawing on the OECD s experience, the classification proposed aims at distinguishing, to the extent possible, policies providing private goods as opposed to public goods, given their different economic effects. Box 1. Proposed classification of public expenditures in support of the food and agriculture sector I. Agriculture-specific policies Payments to agents in the agro-food sector A. Payments to producers Production subsidies and payments to farmers via development projects Input subsidies: variable inputs seeds fertiliser energy credit other capital machinery and equipment on-farm irrigation 8

9 other basic on-farm infrastructure on-farm services pest and disease control/veterinary services on-farm training, technical assistance, extension etc. other Income support Other B. Payments to consumers food aid cash transfers school feeding programmes other C. Payments to input suppliers D. Payments to processors E. Payments to traders F. Payments to transporters 1.2. General sector support Agricultural research Technical assistance Training Extension/technology transfer Inspection (veterinary/plant) Infrastructure roads non-farm irrigation infrastructure Storage/public stockholding Marketing Other II. Agriculture supportive policies Rural education Rural health Rural infrastructure roads water telecommunication energy other 9

10 14. The proposed classification will be used for categorising all public expenditures regardless of their source of financing (national budget or external aid). However, when classifying expenditures into these categories, each of them will be labelled with respect to the financing source (budget only, donor only or co-financed with shares provided). Similarly, commodity information will be provided in the form of a label, distinguishing between programmes that are supporting single, group or all commodities. 15. Sector-specific and sector-supportive expenditures will be analysed relative to non-agricultural expenditures. This will help to establish the importance of the sector in overall public expenditures and monitor progress towards the Maputo declaration 10% target. Further, the inclusion of rural expenditures in the agriculture-supportive category should demonstrate the extent to which there is a pro or anti-rural bias in infrastructure, health and education as spending in these categories will be compared to overall levels of spending. 16. The fisheries and forestry sectors will be treated separately to ensure comparability of the indicators between countries. A similar classification is proposed for policies specific to these sectors (for details see MAFAP, 2010b). Note that we are interested only in those aspects of the forestry sector that are linked to food Complete coverage of institutions, administrative levels and financing instruments 17. It is important to identify all budgetary expenditures in support of the food and agriculture sector, regardless of the source of financing national or external aid. All financing through public institutions should be covered, as implementation and funding of some measures occurs outside the agricultural ministries. Further, funding at all administrative levels should be considered and many relevant policies may be financed at various levels of government (central, state, district, regional). Finally, all public finance instruments should be covered, regardless of whether they come from the regular budget or are financed from some type of extra-budgetary funds that do not constitute part of the regular national budget but are used for implementation of specific programmes Budgetary transfers versus revenue forgone 18. Transfers in support of food and agriculture sector development may be provided in two forms: actual budgetary transfers (such as production subsidies) and the revenue forgone by the governments (such as tax concessions). Both types of transfers should be included in the calculations. 10

11 2.5. Mapping aid onto national expenditures Figure 2. Mapping aid on national expenditures budget actual spending DAC donors Other bilateral Other multilateral DONORS National budgets Central government Local government Specific projects conducted by NGOs or international organisations Agriculture specific Payments to agents in agro-food sector General sector support Agriculture supportive MAFAP public expenditure classification commitments disbursements 19. In order to capture all expenditures in the agro-food sector, external aid information has to be taken into account. The aid relevant to the scope of the project can be provided in various forms and we need to assure that all are taken into account. 20. Figure 2 presents a schematic mapping of aid on national expenditures. First, all donors need to be identified. These may be either bilateral, i.e. aid is provided by one donor country to the given recipient country, or multilateral, i.e. aid is provided by several countries, such as in case of European Commission, or via projects conducted by international organisations or international NGOs. We distinguish between Development Assistance Committee (DAC) donors and others, because of the available data sources. The information on the former will come from the Creditor Reporting System (CRS) database of the OECD, while the latter will need to be collected based on the recipient s information on sources of external aid Second, we will distinguish to the extent possible, between commitments and disbursements, using the latter to map to the recipient s budget. It is important to remember that commitments reflect donors programming and changes in their policies and hence they provide indication on the future flows, while disbursements provide information and actual spending. Consequently, commitments and disbursements are not directly comparable for the same year, as commitments for a given year will be disbursed over several subsequent years. 2 DAC members: Australia, Austria, Belgium, Canada, Denmark, European Commission, Finland, France, Germany, Greece, Ireland, Italy, Japan, Korea, Luxembourg, Norway, Netherlands, New Zealand, Portugal, Spain, Sweden, Switzerland, United Kingdom, United States. Multilateral donors included in the CRS database: World Bank, African Development Bank, Asian Development Bank, Inter American Development Bank, IFAD, UNICEF, other United Nations agencies. 11

12 22. As a next step we need to identify channels through which aid is provided: to the central government, to the local government or to the specific projects conducted by NGOs, international organisations and other institutions. This information will be then linked with budgets reported by the recipient institutions. It is important to note that we will distinguish the three aforementioned channels only at an aggregate level to provide an overview of the importance of each of the channels in providing aid. When classifying support measures in the categories proposed in Box 1 we will cover exclusively public expenditures and therefore consider only those aid programmes that are channelled through the government. 23. Recording aid flows at every step of its distribution, i.e. from donors commitments through donors disbursements, recipients budget allocation to recipients actual spending, will bring lots of valuable information. It will help clarify how effective donors are in disbursing committed money. It will show the extent to which aid is provided for a specific purpose or in a form of general support to the budget. Finally, it will be possible to see how much of the aid money was actually spent as compared to the planned budget. 24. The CRS database provides information on aid by sector and purpose code (a subsector). The following table lists all agriculture specific categories. However, there are numerous other sectors or purpose codes that may be of relevance to agriculture and will need to be examined. For example, General Budget Support, once integrated in developing countries domestic budgets, will contribute to the development of the agricultural sector. The amounts relevant to agriculture cannot be precisely specified since support is of a general nature, without any specific use indicated, although it may be accompanied by various exclusions or understandings as to the government s development strategy, and they may include commitments to agriculture development. The exact numbers pertaining to agriculture, therefore, need to be captured at the country level, analysing the state accounts. Table 1. CRS Agriculture-Specific Categories Purpose code Description Notes on coverage Agricultural policy and administrative management Agricultural sector policy, planning and programmes; aid to agricultural ministries; institution capacity building and advice; unspecified agriculture Agricultural development Integrated projects; farm development Agricultural land resources Agricultural water resources Agricultural inputs Food crop production Industrial crops/export crops Including soil degradation control; soil improvement; drainage of water logged areas; soil desalination; agricultural land surveys; land reclamation; erosion control, desertification control. Irrigation, reservoirs, hydraulic structures, ground water exploitation for agricultural use. Supply of seeds, fertilizers, agricultural machinery/equipment. Including grains (wheat, rice, barley, maize, rye, oats, millet, sorghum); horticulture; vegetables; fruit and berries; other annual and perennial crops. Including sugar; coffee, cocoa, tea; oil seeds, nuts, kernels; fibre crops; tobacco; rubber Livestock Animal husbandry; animal feed aid Agrarian reform Including agricultural sector adjustment Agricultural alternative development Projects to reduce illicit drug cultivation through other agricultural marketing and production opportunities Agricultural extension Non-formal training in agriculture Agricultural education/training 12

13 31182 Agricultural research Plant breeding, physiology, genetic resources, ecology, taxonomy, disease control, agricultural bio-technology; including livestock research (animal health, breeding and genetics, nutrition, physiology) Agricultural services Plant and post-harvest protection and pest control Agricultural financial services Marketing policies & organisation; storage and transportation, creation of strategic reserves. Including integrated plant protection, biological plant protection activities, supply and management of agrochemicals, supply of pesticides, plant protection policy and legislation. Financial intermediaries for the agricultural sector including credit schemes; crop insurance Agricultural co-operatives Including farmers organisations Livestock/veterinary services Source: CRS database Animal health and management, genetic resources, feed resources. 25. Overall, the following sectors are considered as potentially providing aid to agriculture: general budget support trade policies and regulations transport and storage developmental food aid (but not emergency food aid) rural development agro-industry fertiliser (mineral and plant) water supply and sanitation forestry fishing energy health education telecommunication support to non-governmental organisations 26. Table A1 in the annex provides full detail of the sector and purpose codes mentioned above. In these particular sectors, elements linked to the food and agriculture sector will be included in the calculations. 27. The disaggregation in the CRS database is based on the general purpose of aid (hence the name purpose code ) and does not reflect the different economic impacts that aid expenditures may have. For example, the support categories for agricultural development and for land and water resources are likely to be a range of subsidies and expenditures, some of which may be considered as public goods, but other will be clearly private and hence have very different economic effects. Consequently, the CRS purpose codes only partially match the classification proposed in Box 1. They need to be further disaggregated using the information on specific projects in order to map them onto our classification. This will be done using project description information available in the CRS database. 13

14 28. Data on non-dac donors will need to be collected on a more ad-hoc basis. For each country main non-dac donors will be identified as well as institutions disbursing the money. These institutions will be contacted to establish whether the data we seek are available. 29. The data needs and limitations section at the end of this section provides a more in-depth discussion of data sources Types of external aid 30. Donors provide aid via both grants and loans. It is important to distinguish between these two types of aid, as loans may have important impacts on the economy via the accumulation of debt and debt servicing requirements. Moreover, short-term loans for current expenditures have significantly different economic effects from longer-term loans for investment projects. The CRS database provides information on types of loans as well as on repayments periods and interest rates. However, it may be the case that loans are not repaid within a given time-frame or not repaid at all, thereby contributing to debt accumulation. In some cases debt may be cancelled or partially written off. Hence, it is not clear a priori how much of a given amount of loans will effectively constitute loans with initially defined interest rates, how much will be re-scheduled and how much will de facto turn into grants. This type of information may be very difficult to obtain. 31. As a general approach, we propose to distinguish as far as possible between loans and grants using information available in the CRS database. Data on loan conditions, such as interest rates, repayment periods etc., should also be considered to keep track of potential pressures on the government s budget that borrowing will cause. Additionally, information on the overall level of loans will be collected to calculate the share of loans to the food and agriculture sector in overall borrowing. This calculated share will be further used to estimate the share of the food and agriculture sector in overall debt and debt servicing (information on the latter can be obtained from relevant government bodies) Budget planning versus actual spending 32. Ideally, for the public expenditures calculations we would always want to record actual spending. Therefore, it will be important to collect the information on actual expenditures whenever possible. Budget allocations data will be used only when actual expenditure data are not available. When estimations are done on an annual basis, the amounts effectively disbursed may not be available for the most recent years. In this case, budget allocations will be used as a proxy and will be updated the following year to reflect the actual spending. 33. National budget planning and donor commitments will also be collected. This will allow comparison of budget allocations and actual spending to establish the efficiency of public expenditures (see below for details) Treatment of policy administration costs 34. Administration costs include costs of formulation, implementation and evaluation of agricultural policies and generally should not be included in the calculations of support to the agro-food sector. This is because they are not policy transfers as such. However, when support is provided via services, e.g. extension, training, research or inspection, expenses associated with delivery of the services, e.g. salaries of extension advisors, salaries of inspection officers or researchers, should be included in the calculations. 35. The data on administration costs not included in the public expenditure calculations will be collected separately. This will make it possible to establish the shares of administrative costs in overall government spending and contribute to analysis of the efficiency of public expenditures. 14

15 2.9. Treatment of one-off investments versus recurrent expenditures 36. Both investments and recurrent expenditures should be recorded on an annual basis using actual spending information. If the actual expenditures data are not available then budget allocations will need to be used instead, and the overall budget for a given investment will need to be allocated over time according to the investment implementation plan. Conceptually, it is similar to the commitments versus disbursements issue and should be handled in the same way. 37. It is important to note, however, that one-off investments have different economic impacts than recurrent expenditures. Although investments funds may be disbursed over relatively short time period, the benefits may be enjoyed over several consecutive years. In the public expenditure classification we are seeking to record actual year-to-year spending to analyse the government s efforts in enhancing sector development. However, when analysing the profitability of the investments, those investments will need to be allocated over time. Standard methods, such as net present value (NPV) may be employed to evaluate investments at hand Analysing public expenditures 38. In analysing public expenditures, it is important to keep track of three different aspects. The first is how much of a given budgetary allocation is actually spent. Comparing budget allocations with actual spending should help identify leakages in the system. A second aspect is the extent to which the pattern of expenditures is consistent with the government s stated policy objectives and policy needs. Analysing the pattern of expenditures financed by external aid may be of particular importance to donors, in helping them ensure that their support for specific projects is coherent with domestic policy objectives. Both these elements fall within the scope of MAFAP. A third aspect, which falls beyond the scope of the MAFAP methodology, is the effectiveness of expenditures in attaining the policy objectives with which they are associated. However, because the proposed classification is based on the economic characteristics of support measures, it provides information on the first incidence of a given support measure and thus constitutes a good basis for analytical work to investigate how effective the support measures are in meeting national development objectives. Econometric techniques, in particular, can be employed to explore the effectiveness of various types of public expenditures such as agriculture, health, education, nutrition, infrastructure, research etc. in meeting objectives of economic growth and poverty reduction (see for example Fan and Zhang, 2008). 3. Classifying support to the food and agriculture sector: Uganda case study 3.1. Motivation and scope. 39. The case study presented here serves as a worked example. Uganda is one of ten countries that it is hoped will participate in the MAFAP project, and which has sufficient publicly available secondary data to provide useful illustrative results. 3 As when OECD measures public expenditures in agriculture, the MAFAP project team seeks to collaborate closely with governments to identify the appropriate expenditure measures and collect the necessary information. However, given that the project is at its early stages of implementation, and appropriate partners in countries covered by MAFAP have not yet been identified, this case study relies on secondary data, which means that not all aspects of the proposed methodology can be implemented to the desired degree of detail. Limitations are signalled as appropriate. 40. The analysis focuses on the Plan for Modernisation of Agriculture framework that has shaped public expenditures in support of the agriculture sector in Uganda during the past decade. In order to 3 MAFAP covers 5 countries in East Africa: Ethiopia, Kenya, Malawi, Tanzania and Uganda, and 5 countries in West Africa: Burkina Faso, Cameroon, Ghana, Mali and Nigeria. Five of these ten countries, will be subject to more indepth analysis. MAFAP plans to start in Burkina Faso. For further details see the project s web-site: 15

16 demonstrate the value added of the proposed methodology, the results are contrasted with more traditional approaches to measuring public expenditures in agriculture that focus exclusively on those expenditures that are agricultural sector specific. Among the latter, the most comprehensive work has been done by the World Bank Uganda: Agricultural Public Expenditure Review (World Bank, 2010) as part of the wider initiative of the World Bank Agriculture and Rural Development - Department for International Development (ARD-DFID) partnership on the Analysis of Public Expenditures in Agriculture Agriculture, poverty and public expenditures in Uganda 41. Uganda is largely an agriculture-based economy. Despite falling agriculture s contribution to the GDP, currently it still accounts for about a third of the GDP (Figure 3). Almost 90% of the population is rural and about 70% of the employed work in agricultural sector (Table 2). Table 2. Agriculture and poverty in Uganda, 2008 Agriculture, % GDP 29.9 Employment in agriculture a 68.7 GDP per capita (constant 000 UGX) 541 GDP per capita (constant 2000 USD) GDP per capita (PPP 2005 USD) Poverty headcount ratio 51.5 USD PPP 1.25 a day (% of population) b Poverty headcount ratio 75.6 USD PPP 2 a day (% of population) b Rural population (% of total population) 87.0 Population (million) 31.7 Notes: a 2003 estimate. b 2005 estimate. Source: WDI Figure 3. Share of agriculture in GDP and GDP per capita in Uganda, UGX % Source: WDI GDP per capita (constant 000 LCU) Agriculture, % of GDP (right scale) 42. Although per capita income has grown continuously for the past 20 years (Figure 3), Uganda s 2008 per capita income of 541 thousands UGX (345 constant 2000 USD) places it among world s poorest countries. According to the latest World Bank figures, more than 75% of the population lives on less than 2 dollars a day and more than 50% is estimated to live on less than 1.25 dollar-a-day, a level that defines extreme poverty. Given that most of the Ugandans live in rural areas and derive their livelihoods from agriculture, agriculture sector development, and rural development more generally, have a huge role to play in poverty reduction. 43. Until the late 1990s, Uganda s government attention was mostly focused on social sector activities, such as health and education, where there was a clear need and rationale for significant expenditures to address poverty in broad terms (Danida/OPM, 2005). The potential for agriculture in contributing to both growth and poverty reduction was recognised when the Plan for Modernisation of Agriculture was implemented as part of national 1997 Poverty Eradication Action Plan (PEAP). 44. The PMA was implemented in 2001 and has shaped public expenditures in support of the agriculture sector in Uganda for the past decade. The plan was designed as a holistic strategic framework to eradicate poverty through multi-sector interventions enabling people to improve their livelihoods in a sustainable manner (Government of Uganda, 2010). Agricultural transformation was considered as a key element in poverty reduction through creation of a profitable, competitive, sustainable and dynamic 16

17 agricultural and agro-industrial sector by changing the (mostly) subsistence agriculture into commercial agriculture. This broad vision was expected to be accomplished by: Improving incomes and living standards of poor subsistence farmers through increased productivity and marketed share of production Improving household food security through markets (as opposed to emphasising household food self-sufficiency) Increase in off-farm employment by enhancing agro-processing and services in rural areas Improving management and sustainable use of natural resources through improved land management policy and promotion of environmentally friendly technologies 45. To achieve these objectives a set of broad strategies was designed following the main government s principles of privatisation, liberalisation, democratisation, decentralisation and gender sensitivity, that led to establishing the PMA s seven pillars, namely: 1) research and technology development, 2) agricultural advisory services, 3) agricultural education, 4) rural finance, 5) agroprocessing and marketing, 6) natural resource utilisation and management and 7) physical infrastructure. Under each of these pillars a set of programmes was implemented and these programmes are analysed below to reveal the overall level and patterns of agriculture support in Uganda General trends in Uganda s public expenditure in support of agriculture 46. Public expenditures in agriculture in Uganda have been typically measured taking into account those resources that were expended by agencies specifically responsible for agricultural matters. At the national level these included the Ministry of Agriculture, Animal Industry and Fishery (MAAIF), the main government body responsible for agriculture and four autonomous organisations: National Agricultural research Organisation (NARO), the National Agricultural Advisory Service (NAADS) Secretariat, the Uganda Cotton Development Organisation (UCDO) and the Uganda Coffee Development Agency (UCDA). At the local level agricultural expenditures are executed by District Agricultural Extension, NAADS and programs under Non-Sectoral Conditional Grant (NSCG). 47. According to the most recent Uganda Agriculture Public Expenditure Review (PER; World Bank, 2010) the approved budget managed by these agencies grew by 46 percent from 2001/02 to 2008/09, reaching billion UGX, and it is expected to grow further by 30% up to 2012/2013. In relative terms, however, the agriculture-specific budget declined from 5.7% of total government expenditure in 2001/2002 to 3.8% in 2008/2009. As with preceding studies (e.g. OPM 2007a and OPM, 2007b) the authors conclude that this level of budget is small and a long way from the 10% share committed under the Maputo declaration. However, a broader definition, capturing all aspects of the PMA framework, might qualify this conclusion. 48. Much of the expenditures that are important for the agricultural sector may occur outside the agricultural ministries and institutions. In the case of Uganda, many programmes under the PMA framework are managed by ministries that are not directly linked to agriculture. Among the most important ones are the Ministry of Finance, Planning and Economic Development, Ministry of Energy and Mineral Development, Ministry of Works and Transport, Ministry of Local Government, Ministry of Water and Environment, Ministry of Health, Ministry of Education and Sports, Ministry of Tourism, Trade and Industry and even the Office of the Prime Minister. 4 It is quite likely that some important measures occurred outside the PMA framework. However, given limited sources of information, we were not able to establish whether PMA exhausts all the expenditure measures in support of agriculture sector in Uganda. 17

18 49. Further, the PMA includes investments that are usually excluded from agriculture spending data, but which account for a major share of spending in rural areas and have been suggested to have strong positive effects on agriculture productivity such as spending on rural infrastructure, including roads (Akroyd and Smith, 2007). PMA planned expenditures in 2001/2002 period already exceeded the 10% Maputo target and were equal to 14.5 % of overall government expenditures (390 billion UGX). By 2007/2008 they had reached 20% of total government expenditure (947 billion UGX). 5 Figure 4 illustrates the differences between agriculture-specific and PMA approved budgets. Clearly, focusing on spending executed by agricultural ministries and institutions, omits about two thirds of expenditures that may play a crucial role in agricultural development. Figure 4. Agricultural support in total government expenditures: PMA versus agriculture-specific support, approved budget 2001/ /09 % / / / / / / / /09 agriculture (% of total) PMA (% of total) Maputo declaration target Source: Own calculations based on World Bank 2010, Danida/OPM (2005) and Government of Uganda (2008) 50. Ideally, we would like to analyse the actual spending rather than approved budget, since it is the former that ultimately has impact on the agricultural sector. Unfortunately, data from the PMA actual spending were insufficient for that purpose, and we can just provide a rough approximation for a limited number of years. Figure 5 reports the results. Both the PMA and agriculture-specific actual spending were generally lower than the approved budget, with the exception of agriculture-specific expenditure in 2001/2002, where the released budget was higher. Although the PMA actual spending was significantly lower than the approved budget, with 2002/2003 and 2003/2004 expenditures falling below the 10% target, the increasing trend in approved budget indicates that PMA actual spending has surpassed the Maputo target in the most recent years. Overall, public expenditures in support of the agricultural sector may have been higher than most studies suggest. 5 The shares of PMA in total government expenditures are slightly higher than found in other studies (e.g. Akroyd and Smith, 2007). This is because they calculate PMA expenditures based on programmes under the seven PMA pillars, omitting the expenditures under category other, policy and institutional, which should be considered to keep comparability with agriculture-specific expenditures that include administrative spending. 18

19 Figure 5. Agricultural support in total government expenditures: PMA versus agriculture-specific support, actual spending 2001/ /06 % / / / / /06 agriculture (% of total) PMA (% of total) Maputo declaration target Source: Own calculations based on World Bank 2010 and Danida/OPM (2005) 3.4. Composition of Uganda s public expenditures in support of the food and agriculture sector 51. Among the secondary data sources at our disposal, only one document Government of Uganda (2008) contained information allowing for a breakdown of public expenditures proposed in Box 1. The document provided data on budget allocations 6 to 181 programmes under PMA pillars for three fiscal years: 2005/2006, 2006/2007 and 2007/2008. Unfortunately, we did not find any information on actual expenditures at such a detailed level and therefore we had to base our analysis on budgeted amounts. On the descriptive side, the document provided information only on programmes names and the pillar under which they have been implemented. That was not sufficient to classify correctly most of the expenditure measures, given they should be classified based on their economic characteristics i.e. the way in which they were implemented. Information contained in programmes titles and pillar descriptions reflects more programmes objectives than implementation. Missing information on implementation was partially available in other data sources, mainly in 2005 PMA evaluation report (Danida/OPM, 2005) and in EPRC (2009). Other measures we have classified based on our own judgement on the way they were implemented. 52. The results are shown in Table 3. It is interesting to note that expenditures on agriculturesupportive investments exceed expenditures on agriculture-specific measures. That means that even if all government bodies that provide investments into agriculture are taken into account, agriculture-specific expenditures amount, roughly, to only a half of all expenditures in support of the agriculture sector in Uganda. This reinforces the general conclusion that in order to measure properly investments in support of agriculture sector, it is important to look at agriculture spending in a broader sense than it is commonly done. 6 No information on transfers to agriculture in form of forgone revenue (e.g. tax concessions) was available, neither in this document nor in any other sources of information at our disposal. 19

20 Table 3. Public expenditures in support of food and agriculture sector in Uganda UGX billion 2005/ / /08 I. Agriculture specific policies I.1. Payments to the agents in the agro-food sector I.1.1. Payments to producers Production subsidies and payments to farmers via development projects Input subsidies variable inputs capital on-farm services Income support Other I.1.2. Payments to consumers I.1.3. Payments to input suppliers I.1.4. Payments to processors I.1.5. Payments to traders I.1.6. Payments to transporters I.2. General sector support Agricultural research Technical assistance Training / agricultural education Extension Inspection (veterinary/plant) Infrastructure roads irrigation other Storage/public stockholding Marketing Other II. Agriculture supportive policies Rural education Rural health Rural infrastructure rural roads water and sanitation energy other III. Total expenditures in support of food and agriculture sector development Source: Own calculations based on Government of Uganda (2008) 20

21 53. Among agricultural-specific expenditure measures, most are in the general sector support category (Figure 6). The only policy transfers directed to individual agents in the sector are input subsidies provided to agricultural producers. Although officially the government has abolished most nationwide subsidies on inputs, subsidised inputs and livestock are increasingly channelled through development projects, such as NSCG and extension programmes, such as NAADS (World Bank, 2010). Other expenditures falling in the input support category are on-farm pest and disease control measures. 7 Among the general sector support measures, the most important are extension services, absorbing on average almost half of the expenditures falling within that category. Other important expenditures include training and marketing. Agricultural research accounts only for about a fourth of what is allocated to extension and agricultural infrastructure receives even a smaller share. Figure 6. Composition of agricultural-specific spending in Uganda, average 2005/ /08 Infrastructure 3% Marketing 15% Payments to producers (input subsidies only) 20% Agricultural research 13% Extension 42% Training 7% Source: Own calculations based on Government of Uganda (2008) 54. The agriculture-specific measures are accompanied by almost equally high expenditures on rural development. Among the latter by far the largest investments are in rural infrastructure and particularly in rural roads, but also in rural energy and water and sanitation (Figure 7). There are also significant expenditures on rural health and a modest amount of spending on rural education. Whether this level of spending in agriculture supportive policies signifies pro-rural government expenditures depends on the overall expenditures in these areas and hence the share that occurs in urban areas. Unfortunately, we could not obtain the latter piece of information. 7 It is important to note here that we did not find any programme directed to other agents in the sector. Whether that is effectively the case in Uganda or whether this is because PMA framework does not cover transfers to consumers, traders, processors and/or input suppliers is unclear. 21

22 Figure 7. Composition of agricultural supportive spending in Uganda, average 2005/ /08 Rural infrastructure - energy 18% Rural infrastructure - other 3% Rural education 1% Rural health 16% Rural infrastructure - water and sanitation 14% Rural infrastructure - roads 48% Source: Own calculations based on Government of Uganda (2008) 55. Overall, most public expenditures are aimed at the provision of public investment, with a particularly strong focus on agricultural extension and investments in rural infrastructure. This conclusion is slightly different than in other studies that underlined insufficient investments in infrastructure, but by focusing exclusively on agricultural-specific expenditures have neglected an important part of public investments in support of the food and agriculture sector. 56. It s important to note that not all PMA expenditures were included in the classification presented in Table 3. As a consequence, the total expenditures in support of food and agriculture sector shown at the bottom of Table 3 (item III) are different to the total PMA expenditures used to analyse the general trends in public spending to agriculture in section 3.3 and presented on Figure 4. The reasons for this discrepancy are twofold. First, the World Bank s PER data on agriculture-specific expenditures provides data on public expenditures including all the expenditures executed by agricultural ministries and institutions regardless their nature (as long as they pertain to agriculture). In order to keep our numbers comparable in the analysis of the general trends in spending to agriculture (Figure 4) we have also included all types of spending under PMA pertaining to agriculture. That typically is not the case when classifying public expenditures into our categories as explained in the methodology section. In particular, all expenditures related to policy formulation, implementation and evaluation are excluded, because are not policy transfers as such. These should be considered separately together with administration costs and treated at the general level when analysing public expenditures. Unfortunately, the information available on PMA expenditures did not allow for elimination of all administrative costs. 57. Secondly and perhaps more importantly, on a similar basis, we have excluded all expenditures related to institutional development. Such expenditures, however, may be crucial to agricultural development and successful implementation of various expenditure measures. In the case of Uganda, projects aiming at setting up land tribunals or land reform may have an important role to play for farmers who either do not understand what they rights are legally to land or do not have faith in juridical systems to enforce these. This may deter them from investing in infrastructure or perennial crops and may lead to reduced benefits from various public investments such as extension (Danida/OPM, 2005). Similarly, although all projects under the rural finance pillar are excluded from the classification because they help to establish financial institutions in rural areas rather than provide agricultural credits per se, they may play an important role in increasing access to credit. We recognise that these measures constitute an important element of public expenditures in developing countries and therefore we propose to consider them separately in the country reports that will be done under the MAFAP project. 22

23 58. Finally, as mentioned above, we had limited information on programme implementation criteria, which would allow us to identify more accurately the appropriate classification category. In many cases we had to make our own judgements based on programme names, but in some cases even that was not possible. As a consequence some potentially relevant measures could not be included in our classification purely due to lack of information on what these programmes were Role of aid in agriculture related public spending in Uganda 59. The official aid flows to the agriculture sector (as defined by CRS database sector and purpose codes) in Uganda constitute a very small share of donors commitments and hence disbursements (Figure 8). Although the disbursements of agriculture sector aid have been increasing since 2005, they account for only about 7% of overall disbursements in Figure 8. Agriculture in DAC commitments and disbursements in Uganda, (mn USD) mn USD Source: CRS database Agriculture Other 60. Nevertheless, as argued in the methodology section, there are numerous other sectors, or purpose codes, that may be of relevance to agriculture. Figure 9 shows the share of all sectors that potentially can be relevant for agriculture supportive spending. The share of the latter is much higher than that of agriculture-defined aid. Unfortunately, at the current stage of the project, we were not able to identify precisely how much of these potentially relevant flows indeed support the agriculture sector. This is because we would need to study project descriptions carefully that were not available for many of the aid programmes found in the CRS database. Consultations within the country are indispensable. Further, given that we could not establish which projects contribute to agriculture sector development, we were not able to analyse the types of external aid (i.e. loans versus grants). 8 Note that in 2006 the total disbursements were exceptionally high due to a significant debt relief. 23

24 Figure 9. Agriculture relevant DAC commitments and disbursements in Uganda, (mn USD) mn USD Source: CRS database Agriculture specific Agriculture relevant Other 61. Information on donors contributions to PMA spending was available, however, in the document used to analyse PMA spending by programme (Government of Uganda, 2008). Figure 10 presents the average shares of donor-financed expenditures in the overall spending by classification category. Categories with zero spending were omitted to simplify the presentation. 62. On average, donor spending accounts for about half of overall public expenditures in support of the food and agriculture sector in Uganda. Both agriculture-specific and agriculture supportive measures are half-funded by external aid. Within each of the main categories, the distribution of aid varies. Among agriculture-specific expenditures, in terms of proportion of total spending, donors contribute the most to marketing, training and agricultural extension. In terms of the level of spending, agricultural extension services receive highest support from external funds. Among agriculture-supportive expenditures, rural health and rural infrastructure receive the highest proportion of aid, while the highest amount of donor funding goes to rural infrastructure. Further, the latter category is the most donor-supported among all expenditures in support of the food and agriculture sector in Uganda. It is interesting to note that, based on available data, it seems that donors contribute very little to agriculture specific infrastructure, while they invest a lot of resources in more broadly defined rural infrastructure. Among all spending categories, rural education seems to be the only one that does not receive any external support. 24