and land expansion. However, since the late 1990s, prices have fallen dramatically (notably coffee prices) and opportunities for land expansion have become more limited. Furthermore, there is not much optimism for sustained commodity price increases in the near future, with many commodities experiencing negative price trends (FAO 2002). Thus agricultural growth rates have declined and there has been perception of a crisis in rural areas. The “rural crisis” in Central America (see Varangis and others 2003) has been compounded by natural disasters such as Hurricane Mitch and recurring droughts that have increased vulnerability in agricultural-dependent rural areas (de Ferranti and others 2000; IADB 2000; Keipi and Tyson 2001; Kiesel 2001). Increased market and trade liberalization and decentralization all have the potential to create conditions for growth over time, but these changes, including the Central American Free Trade Agreement (CAFTA), further contribute to uncertainty in the short term.

Most vulnerable among the rural poor in the region are those with small landholdings and landless farm workers living in ecologically fragile areas, such as hillsides and sub-humid drought-prone areas. Many of these areas lack basic transport, communication and social infrastructure. Households in such areas have limited assets and livelihood opportunities. They tend to have lower levels of education, larger families, and strong communal traditions and cultural values that are not well understood in the context of the market economy. They produce for subsistence or the local market and are often net purchasers of food. Their productivity has not kept pace with other sectors of the economy, and many see migration as their best opportunity to escape poverty. Traditional policy and market-based reforms cannot quickly resolve decades of structural limitations facing the rural poor, including highly unequal access to productive and social infrastructure and unequal asset distributions.

# **I.2. Need for New Rural Development Perspectives in Central America**

Governments and donors seldom understand what drives rural growth and poverty reduction. As a result they have little guidance on how they can formulate strategies and prioritize investments for the rural sector (Echevarria 2001a). See box 1.1.

**Box 1.1: Diagnosing Causes of Rural Poverty versus Prioritizing Solutions**

At a recent DFID-RUTA-ODI workshop on rural poverty in Central America it was noted that: “It is clear that the various rural development strategies must be simultaneously pursued since they are complimentary. But it is easier to diagnose the problems and come out with a set of apparently comprehensive multi-sectoral and “pluriactive” solutions, than to prioritize them in terms of scarce state and donor expenditure, and effectively implement the resulting packages. There are disappointingly few success stories (Richards and others 2002, p.10).” The Latin America and Caribbean (LAC) Regional Rural Development Strategy (World Bank 2002b) and others<sup>4</sup> acknowledge that new approaches are needed to conceptualize,

> 4 See for example: de Janvry and Sadoulet 2000; 2001 Echeverria 2001b; Ashley and Maxwell 2001; IFAD 2001; 2002; Valdes and Mistiaen, 2001; USAID 2001; 2002; IFPRI 2002; Richards and others 2002; ODI 2003). There is also a World Bank-wide rural development strategy (World Bank 2002a).

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