Returns to Investment in Agriculture

Investment in agriculture is necessary for ensuring rapid economic growth and poverty reduction in Zambia, as elsewhere in Africa. Yet many of the key investments required to accelerate agricultural growth – technological research, rural infrastructure and market standards, organization and enforcement -- are public goods. Because the private sector cannot capture gains from these investments, they will not invest in amounts sufficient to ensure broad-based agricultural growth. Therefore, the public sector needs to provide the necessary research, transport and market infrastructure necessary to stimulate agricultural growth. Zambia currently allocates 6% of government outlays for agriculture. This is less that the 10% commitment Zambia has made under the CAADP agreement and far less than the 15% spent by Asian countries at the launch of their Green Revolution. In allocating these funds, Zambia spends the majority of its discretionary agricultural budget on recurrent subsidies for private farm inputs, primarily fertilizer, while spending far less on rural infrastructure and technology development. Yet international evidence suggests that returns to private input subsidies are typically lower than returns to investments in public goods, in part because private input subsidies are prone to rent-seeking and in part because public input subsidies substitute for private financing of these private inputs. Investment in public goods such as agricultural research and extension, rural roads and irrigation typically produce returns two to six times greater than spending devoted to input subsidies. Therefore, a reorientation of public spending, away from private input subsidies and towards increased investment in public goods, would likely accelerate agricultural growth in Zambia.