Agriculture has special powers in reducing poverty. Agricultural growth has special powers in reducing poverty across all country types. Cross-country estimates show that GDP growth originating in agriculture is at least twice as effective in reducing poverty as GDP growth originating outside agriculture (figure 3). For China, aggregate growth originating in agriculture is estimated to have been 3.5 times more effective in reducing poverty than growth outside agriculture-and for Latin America 2.7 times more. Rapid agricultural growth - in India following technological innovations (the diffusion of high yielding varieties) and in China following institutional innovations (the household responsibility system and market liberalization) - was accompanied by major declines in rural poverty. More recently, in Ghana, rural households accounted for a large share of a steep decline in poverty induced in part by agricultural growth.

Agriculture can be the lead sector for overall growth in the agriculture- based countries. Agriculture has a well-established record as an instrument for poverty reduction. But can it also be the leading sector of a growth strategy for the agriculture-based countries? Besides the sheer size of the sector, two arguments, applied to the agriculture -based countries of Sub-Saharan Africa, support the view that it can.

The first is that in many of these countries, food remains imperfectly tradable because of high transaction costs and the prevalence of staple foods that are only lightly traded, such as roots and tubers and local cereals. So, many of these countries must largely feed themselves. Agricultural productivity determines the price of food, which in turn determines wage costs and competitiveness of the tradable sectors. Productivity of food staples is thus key to growth.

The second is that comparative advantage in the tradable subsectors will still lie in primary activities (agriculture and mining) and agroprocessing for many years, because of resource endowments and the difficult investment climate for manufactures. Most economies depend on a diverse portfolio of unprocessed and processed primary-based exports (including tourism) to generate foreign exchange. Growth in both the nontradable and tradable sectors of agriculture also induces strong growth in other sectors of the economy through multiplier effects.

That is why, for many years to come, the growth strategy for most agriculture -based economies has to be anchored on getting agriculture moving. Success stories of agriculture as the basis for growth at the beginning of the development process abound. Agricultural growth was the precursor to the industrial revolutions that spread across the temperate world from England in the mid-18th century to Japan in the late-19th century. More recently, rapid agricultural growth in China, India, and Vietnam was the precursor to the rise of industry. Just as for poverty, the special powers of agriculture as the basis for early growth are well established.

Yet agriculture has been vastly underused for development. Parallel to these successes are numerous failures to use agriculture for development. Many agriculture based countries still display anemic per capita agricultural growth and little structural transformation (a declining share of agriculture in GDP and a rising share of industry and services as GDP per capita rises). The same applies to vast areas within countries of all types. Rapid population growth, declining farm size, falling soil fertility, and missed opportunities for income diversification and migration create distress as the powers of agriculture for development remain fallow. Policies that excessively tax agriculture and underinvest in agriculture are to blame, reflecting a political economy in which urban interests have the upper hand. Compared with successful transforming countries when they still had a high share of agriculture in GDP, the agriculturebased countries have very low public spending in agriculture as a share of their agricultural GDP (4 percent in the agriculture-based countries in 2004 compared with 10 percent in 1980 in the transforming countries, figure 4). The pressures of recurrent food crises also tilt public budgets and donor priorities toward direct provision of food rather than investments in growth and achieving food security through rising incomes. Where women are the majority of smallholder farmers, failure to release their full potential in agriculture is a contributing factor to low growth and food insecurity.

Underuse of agriculture for development is not confined to the agriculture -based countries. In transforming countries with rapid growth in nonagricultural sectors, the reallocation of labor out of agriculture is typically lagging, leaving large numbers of poor people in rural areas and widening the rural-urban income gap. The farm population demands subsidies and protection. But weak fiscal capacity to sustain transfers large enough to reduce the income gap and continuing urban demands for low food prices create a policy dilemma4. The opportunity cost of subsidies (which are three times public investments in agriculture in India) is reduced public goods for growth and social services in rural areas. Raising incomes in agriculture and the rural nonfarm economy must be part of the solution.

New opportunities are emerging. The world of agriculture has changed dramatically since the 1982 World Development Report on agriculture. Dynamic new markets, far-reaching technological and institutional innovations, and new roles for the state, the private sector, and civil society all characterize the new context for agriculture. The emerging new agriculture is led by private entrepreneurs in extensive value chains linking producers to consumers and including many entrepreneurial smallholders supported by their organizations. The agriculture of staple crops and traditional export commodities also finds new markets as it becomes more differentiated to meet changing consumer demands and new uses (for example, biofuels) and benefits from regional market integration. However, agriculture faces large uncertainties that are difficult to predict and call for caution in managing the global food supply.

An emerging vision of agriculture for development redefines the roles of producers, the private sector, and the state. Production is mainly by smallholders, who often remain the most efficient producers, in particular when supported by their organizations. But when these organizations cannot capture economies of scale in production and marketing, labor-intensive commercial farming can be a better form of production, and efficient and fair labor markets are the key instrument to reducing rural poverty. The private sector drives the organization of value chains that bring the market to smallholders and commercial farms.