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This paper reviews the diverse and changing roles of livestock as they relate to the process of economic development and poverty reduction, departing from the premise that livestock production plays an important role in contributing to the livelihoods of most of the world's poor and in meeting the fast growing demand for livestock products in the developing countries. It is argued that investment in livestock raises farm production by extending the area of land utilised, diversifying productive activity for crop cultivators or intensifying production, and that changes from grassland-based systems to mixed farming systems and thence to landless production systems represent stages of increasing intensity. The author draws on New Institutional Economics concepts such as property rights, transaction costs and agency theory to provide insights into the institutions affecting livestock development. Thus, patterns of land tenure, intra-household rights and gender issues, credit provision, contractual arrangements, animal health services and their change over time are examined. The lack of circulating capital is recognized as a major constraint for smallholder livestock development. The development of world trade in livestock and livestock products is analysed. Despite expanding markets for livestock products the developing countries as a group have recently switched from being net exporters and become net importers of livestock products. Although patterns of trade depend on differences in comparative advantage between countries they are also influenced by trade regulations. Domestic producer protection by the European Union, the USA and Japan in particular is identified as destabilising world prices and imposing cheap priced competition on developing country producers. Nevertheless, the overall gains from trade liberalisation for developing countries are expected to be small. The paper concludes by stressing the need for increased investment in livestock production, given the rapidly growing demand for animal products and the important contribution of livestock to the incomes and welfare of the rural poor and outlines policy options that could be pursued by developing country governments as well as by the donor community.
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