- An IDB study in 17 countries in the region finds R&D, extension, and infrastructure boost productivity more than price distortions, guiding better agricultural policy
Highlights
- Not all agricultural support is effective: price distortions reduce productivity, while investment-based policies perform better.
- Direct transfers and public investment in R&D, extension, and infrastructure are key drivers of productivity growth.
- Reorienting public spending toward efficient, evidence-based policies is essential for a more competitive, resilient, and sustainable agricultural sector.
By Carmine Paolo De Salvo, and Natalia Valeria Tellez Lara
Agricultural productivity is one of the main drivers of economic development, rural poverty reduction, and food security in Latin America and the Caribbean (LAC). However, despite its strategic importance, productivity growth in the region slowed to around 0.9 percent annually between 2010 and 2020. This deceleration has contributed to slower agricultural output growth in a context marked by rising environmental demands, price volatility, and increasing climate risks.
Against this backdrop, a key question emerges: what types of public policies effectively enhance agricultural productivity? The issue is not only how much support the sector receives, but how that support is delivered. In the flagship publication of the Inter-American Development Bank, Agricultural Productivity in Latin America and the Caribbean: What We Know and Where We Are Heading, we provide rigorous evidence to address this question and offer relevant lessons for public policy design in the region.
Not all agricultural support is equal: key findings
Historically, most countries worldwide have implemented public policies to support agriculture, aiming to sustain production, stabilise rural incomes, and ensure food supply in the face of climatic, economic, and geopolitical risks. The report examines the relationship between different agricultural support instruments in 17 LAC countries over the 1995–2021 period and total factor productivity (TFP). The analysis is based on the Producer Support Estimate (PSE) methodology developed by the OECD and applied to the region through the IDB’s Agrimonitor initiative since 2014.
Under this framework, agricultural support is classified into three main categories:
- Market price support.
- Direct transfers to producers.
- General services support (including investment in research and development (R&D), health services, infrastructure, extension, and information systems).
The main findings indicate that not all types of support have the same effects. Different policy instruments have markedly different impacts on agricultural productivity. Market price support, like price distortions, one of the most widely used instruments historically, is negatively associated with agricultural TFP. By distorting price signals, it tends to discourage efficiency, resource reallocation, and the adoption of more productive technologies.
Direct transfers and R&D investment: Drivers of growth
In contrast, direct transfers to producers show, on average, a positive relationship with productivity. When a country allocates an additional 1 percent of its agricultural GDP to these transfers, total factor productivity could increase by approximately 0.5 to 0.75 percentage points, depending on the measurement used. These supports can ease liquidity constraints, reduce risks, and facilitate investment decisions in technology, human capital, and more efficient production practices. However, their design is critical: when poorly targeted or when they incentivise the persistence of inefficient production structures, their impact on productivity tends to diminish.
Support for general services, particularly public investment in agricultural R&D is also associated with higher productivity. When the accumulated stock of public knowledge increases by 1 percent, total factor productivity could rise by approximately 0.01 to 0.015 percent, depending on the measurement. Although these effects are not always immediate, the sustained accumulation of knowledge, technical capacity, and innovation is essential for long-term productivity gains at the sector level.
Overall, these findings reinforce a central conclusion: shifting agricultural support away from distortive instruments toward well-designed transfers and policies based on investment and public goods can generate greater and more sustainable productivity gains.
Roadmap: Reorienting spending for a more competitive agricultural sector
These conclusions have direct implications for the region. In a context of fiscal constraints, growing social demands, and pressure for results, improving the composition of public agricultural spending is as important as its overall level.
Investing in R&D, extension services, rural infrastructure, agricultural health, and information systems—and complementing these investments with well-designed direct transfers—not only boosts productivity growth but also enhances sector competitiveness, climate resilience, and environmental sustainability. Moreover, these policies tend to generate broader benefits by reaching small and medium-sized producers and reducing territorial gaps.
The study also underscores the importance of improving the coherence, monitoring, and evaluation of agricultural support, strengthening institutional capacity to design evidence-based policies and assess their impacts over time.
Ultimately, one of the publication’s key messages is that boosting agricultural productivity in LAC requires rethinking the role of the State in the sector—prioritising policies that promote investment, innovation, and efficiency, while ensuring that direct support measures are properly designed to complement, rather than substitute for, investments in public goods.
In a context of growing challenges for agri-food systems, the evidence shows that a well-designed policy agenda can turn these challenges into opportunities. Rethinking agricultural support is therefore a necessary condition for advancing toward more productive, resilient, and inclusive agri-food systems in the region.
To learn more about these findings and how your country supports the agricultural sector, we invite you to explore Agrimonitor, the IDB platform that has provided comparable cross-country data for over a decade, helping governments, the private sector, and civil society make better decisions about the future of agriculture in the region.
*Lina Salazar, Gonzalo Rondinone and Diana Tadeo contributed to this blog post.