This call to increase ODA has been successful. The official net ODA increased from a yearly average of US$ 55 billion in the 1990s, to US$ 80 billion in 2004, and about US$ 110 billion in 2005. Theoretically, this substantial augmentation of aid should increase investment in the most vulnerable sectors in poor countries such as the agricultural sector. This sector is considered to be the first one to be stuck in poverty and a key sector for poverty alleviation.

Poverty is largely a rural phenomenon. Over 70 per cent of the poor live in rural areas and make their living from agriculture. In many countries (mostly in Africa), over 70 per cent of the total workforce is involved in agriculture. Therefore, rural development is fundamental for food security, economic growth and poverty reduction. However, fundamental changes in the agriculture sector of developing countries are improbable due to lack of knowledge and capital. Moreover, in this sector, commodities are produced under decreasing returns to scale. Consequently, the sector receives weak private investment, which in turn leads to weak production; leading to the 'poverty trap'. A significant external stimulus is needed to break this trap. A large injection of aid can do this. Once out of the trap, the sector can attract private investment, and innovation is possible. That is a theoretical explanation of the call for more aid.

An example of this phenomenon can be seen in the role of massive aid to agriculture in the development of the Republic of Korea (Mahn-Je Kim, 1997). Between 1960 and 1980, aid to agriculture helped the country to improve the use of water in agriculture, to provide adequate seeds and knowledge to farmers and to promote intensive use of fertilizers. By this process, total production of the agricultural sector grew yearly by 4 per cent on average. The growth of the agricultural sector substantially increased the government's tax revenues and investment in other sectors. Poverty has been considerably reduced in the Republic of Korea.

The importance of ODA to the agricultural sector is widely recognized. Recently, the G8 summit in 2001 and 2003, and the Financing for Development meeting in 2002 all reaffirmed the importance of agriculture in poverty alleviation. Adequate food supplies and rural development were cited as central objectives of the poverty reduction strategy, and support to agriculture was considered to be a crucial target of ODA, because agriculture provides a sustainable basis for health, education and social safety.

Nevertheless, contrary to the case of the Republic of Korea, aid during the last two decades has failed to alleviate poverty in many countries. What can explain this?

An answer may lie in the amount of aid of aid allocated to the agricultural sector. In the period from 1980 to 2002, the total ODA increased by 65 per cent, from US$ 37.1 billion to US$ 61.4 billion. Over the same period, the amount of ODA allocated to agriculture decreased from US$ 6.2 billion to 2.3 billion, a surprisingly steep fall from 17 to 3.7 per cent of total ODA. Geographically, the largest reduction occurred in Asia. Aid to agriculture in South and Central Asia decreased by 83 per cent from 1980 to 2002 (OECD, 2006).

The above discussion exposes a paradox. On the one hand, high-level international meetings and forums recognize that more aid is needed to make a significant impact on poverty; and that the agriculture sector is central to poverty reduction strategies. Yet on the other hand, while the total ODA is increasing, aid to agriculture is decreasing in both volume and share of total ODA. Theoretically, only large inflows of aid will help to break a poverty trap. Therefore the sharp decrease of aid to agriculture during the last two decades can help explain aid's failure in alleviating poverty. Reallocation of aid should be considered as a way to improve the current situation.

Written by Agbessi Komla Amewoa, Associate Expert, UNESCAP-CAPSA, Bogor, Indonesia.

(References available upon request)