globalization,rural sector transformation, and poverty

International perspectives on poverty and transition in rural areas

Globalization,

Rural Sector Transformation,

and Poverty

Joachim von Braun

International Food Policy Research Institute

IAMO Forum 2007

Halle, June 27-29, 2007

Joachim von Braun, IFPRI, June 2007

Overview

1. Issues and conceptual framework to

assess globalization – poverty links

2. Key drivers of globalization

- 1) Markets and trade

- 2) Investment & capital flows

- 3) Information & innovation

and impact on poverty

3. Policy and research implications


Context of change around the

world food and agriculture system

1. Global economy’s fast growth

2. Governance and decentralization

3. Energy price and climate change

4. Health risks and agriculture

5. breakthroughs in science and

technology

6. Urban/rural change & migration

Not all global change is “globalization”


Questions

1. what are the effects of globalization of

the agri-food system on the poor?

2. Institutional challenges of (erstwhile)

transforming economies & globalization:

how did globalization impact on poverty

in these economies?


Patterns in TCs: Growth

Source: WDI 2006

ETH UZB VIET UKR CHIN

RUSS

FED POL HUN

LOW

&

MID

Y

Agriculture, value added (annual % growth)

1990

-94 1.4 -0.1 3.3 -8.0 4.6 -7.2 -4.2 -7.5 2.2

2000

-04 3.5 6.0 3.8 6.8 3.4 7.1 2.6 7.4 3.1

GDP growth (annual %)

1990

-94 0.7 -3.5 7.3 -12.3 10.9 -8.8 1.1 -3.2 2.8

2000

-04 5.2 4.8 7.2 8.4 9.2 6.9 3.1 4.4 4.9


Towards urbanization of poverty?

199318.88

81.13

2002

24.67

75.33

urban share of the poor (%)

rural share of the poor (%)

Source: Ravallion et al., 2007

Note: Poverty line is set at $1.08/day

Urban and rural share of the poor (%)


Mixed Evidence: Poverty headcount ratio at

$1 and $2 a day (PPP) as % of total population

Share of people living on less than $1 a day

(% of population)

0

10

20

30

40

50

60

70

1981 1984 1987 1990 1993 1996 1999 2002

East Asia & Pacif ic Europe & Central Asia

Latin America & Caribbean Middle East & North Africa

South Asia Sub-Saharan Africa

Share of people living on less than $2 a day

(% of population)

0

10

20

30

40

50

60

70

80

90

100

1981 1984 1987 1990 1993 1996 1999 2002

East Asia & Pacific Europe & Central Asia

Latin America & Caribbean Middle East & North Africa

South Asia Sub-Saharan Africa

Source: Based on data from the 2006 WDI database

Note: 2002 data are preliminary


Regional Hunger Trends

Source: Wiesmann, 2006

11.412.6

40.3

27.9

22.5

9.48.4

15.1

32

27.3

7.98.0

11.9

26.627

6.07.5

10.9

25.125.4

6.6 5.6

0

5

10

15

20

25

30

35

40

45

Sub-Saharan

A frica

So uth A sia So utheast

A sia

N ear East &

N o rth A frica

Lat in A merica

& C aribbean

Eastern

Euro pe &

F o rmer So viet

Unio n

GH I 1981

GH I 1992

GH I 1997

GH I 2003


What is “globalization

of agriculture and food systems”?

Definition: Global integration—across national borders—of

production, processing, marketing, retailing, and

consumption of

agriculture and food itemsSource: von Braun and Diaz-Bonilla (2007)


Conceptual framework: drivers and examples

of changes at different levels of analysis

Source: von Braun, 2007

MARKETS INVESTMENT &

CAPITAL FLOWS

INFORMATION &

INNOVATION

SOCIAL POLICY

LE

VE

L I

GL

OB

AL

IZA

TIO

N

Exo

gen

ou

s fa

cto

rs

Increased access to outputs, inputs, labor

Expansion of FDI

Improved ICTs

Innovation & IPR

Aid; human right to

food

LE

VE

L II

DO

ME

ST

IC

PO

LIC

Y

Market opening

Competition policy

Political &

institutional changes

Technology policy

Public R&D investments

Pro-poor social

actions

LE

VE

L II

I

HO

US

EH

OL

DS

RIGHTS

PRICES

EMPLOYMENT HOUSEHOLD

ENDOWMENTS

PRODUCTION CONSUMPTION


1) Markets and trade


1. Trade: Stagnation of developing countries’ export shares,

more global integration on the import side

Agriculture trade in percent of production

Data source: World Bank, WDI 2005

Export/Production 1960s 1970s 1980s 1990s 2000-02

Latin America and the Caribbean 23.6 24.7 24.5 26.7 31.4

Sub-Saharan Africa a 28.5 23 17.2 15.3 13.2

Asia Developing 5.4 5.7 6.4 6.4 6.4

All Three Regions 12.1 11.8 11.3 11.0 11.6

Import/Production 1960s 1970s 1980s 1990s 2000–02

Latin America and the Caribbean 6.7 8.6 11.2 14 15.7

Sub-Saharan Africa a 8.1 9.4 12.6 12.3 13.5

Asia Developing 7.1 7.7 9.2 8.9 8.8

All Three Regions 7.1 8.0 10.0 10.1 10.5

a Does not include South Africa.


Regional trade trendsAgriculture trade in percent of total merchandise trade

Agr. Exports/Total Merchandize 1980 1990 2000 2003

Transition countries 7.6 5.9 5.3 5.5

Latin America and Caribbean 27.8 26.1 17.4 20.6

Sub-Saharan Africa a 19.8 20.0 15.2 16.9

East and Southeast Asia 13.3 7.7 3.7 3.8

South Asia 33.8 18.6 10.8 10.6

Data source: FAO, 2004; Note: a Does not include South Africa

Agr. Imports/Total Merchandise 1980 1990 2000 2003

Transition countries 18.4 14.1 9.3 8.4

Latin America and Caribbean 11.6 12.3 9.0 10.3

Sub-Saharan Africa a 15.4 16.3 17.1 17.9

East and Southeast Asia 14.2 8.0 4.8 4.7

South Asia 13.8 10.3 9.3 9.3


But: global increased trade in processed

and high-value goods

Data source: based on data from FAOSTAT 2006

World export value (billions of US$)

0

10

20

30

40

50

60

70

80

90

100

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Coarse Grains

Fruits & vegetables

Meat

Milk


Poverty effects: Trade

• Empirical results mixed

• Trade reform impacts at household levele.g. Hertel et al., 2003 (Brazil)

Higher poverty in non-agricultural and wage dependent households

Lower poverty in agriculture-dependent households

Winners (majority) and losers;

effect of trade liberalization on poor households’ income small

Source: von Braun (2007)


Estimations of welfare benefits of trade

liberalization: studies 1999 - 2006

Source: Bouët, IFPRI, 2006


2) Investment & capital flows


Drivers:

(2) Investment and capital flows

0

20

40

60

80

100

Agriculture, hunting,

forestry and fishing

Food, beverages and

tobacco

Industrial countries Developing countries

Source: based on data from UNCTAD, 2004

FDI in food and Agriculture

as % of world total FDI

1990 and 2004

0

20

40

60

80

100

Agriculture, hunting,

forestry and fishing

Food, beverages and

tobacco

Industrial countries Developing countries

Transition countries

1990

2004


Poverty effects: FDI

• Other: Economic growth through forward and backward linkages + knowledge spillovers;

• government revenue from corporate taxes for pro-poor investmentsVietnam: FDI in rural areas, direct impact on poverty

insignificant (Nguyen, 2003)

Reduced

Poverty

FDI

Capital / Knowledge

Intensive Sector

Labor Intensive

Sector

Increased

Poverty

Unskilled labor Skilled labor

Source: von Braun (2007)


With a blending target of 15 percent of

transport fuel…

3) Information & innovation


Ongoing technological advances

Privatization of national telecom.

monopolies in many developing

countries in 1980s and 1990s

Drivers:

ICT and information flows


Drivers: ICT Revolution

Fixed line and mobile phone subscribers

(Per 1,000 people)

0

100

200

300

400

500

1975 1978 1981 1984 1987 1990 1993 1996 1999 2002

Data source: World Bank, 2006

Internet users

(Per 1,000 people)

0

50

100

150

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

World

Low income

Middle income


Poverty effects: ICT

(macro-level results)

• ICTs reduce transaction costs + open

markets + additional network externalities

• Tele-density is positively associated with

growth:

- 10 more mobiles per 100 people increase

GDP p.c. by 0.6% (Wavermann et. al., 2004)

- Minimum threshold: around 15% to get

strongest growth effects, actual is only 6%

Torero and von Braun, 2006

Regional integration: trading Systems in Comesa

Warehouse Receipt

Commodity Exchange

IFPRI

Uganda Commodity

Exchange

Warehouse Receipt

EU

Commodity Exchanges

• ACE

• MACE

Warehouse Receipt

• ZACA

SAFEX

EAGC

• Rules of Trade

•Contracts

KACE


Consequences of limited rural access

• Rural households willing to pay more than prevailing

tariff rates per local call:

Peru: US$ 0.25 to 0.35

Bangladesh: US$ 0.10 to 0.26

Source: Torero and von Braun, 2006

Poverty effects: ICT

(micro-level results)


Science and technology

• Rapid expansion of R&D spending:- China: 2007 = No. 2 (136 Bill.$; 926.000

Scientists) ; USA = 330 Bill$; EU = 230 Bill$)

- India: fast growth

- Africa’s new policy (AU Summit)

• Rural / Agriculture science and R&D?

9 of 17 innovations scoring highest in the 2006 RAND assessment relate to rural & agric.

• China, India, Brazil go global with their innovation systems in agriculture (in different ways; research, higher education)


0%

20%

40%

60%

80%

100%Middle East-North Africa

Latin America-Caribbean

Other Asia-Pacific

India

China

Sub-Saharan Africa

Developed

Global Public Agricultural R&D: 1981 and 2000

1981

$15.2 billion*

2000

$23.0 billion*

* in 2000 international prices


A changing environment for

innovation

• Introduction of patent rights for

agricultural inventions under TRIPS

agreement

• Bio-safety regimes and reduced exchange

(e.g. genetic resources)

- Technology spillover pathways to

developing countries for productivity

enhancement reduced

- Less global public goods research when

we need more of it (climate, etc.)


3. Policy implications for pro-poor

globalization

• Global and national market & trade policy

• Facilitation of capital and aid flows

• Development in rural areas, where the poor are (ICT, and infrastructure)

• Enhancing the global innovation systems

• Rural social protection policy


Toward global social policies

• Global social policy ? Promising but not comprehensive efforts: - Human right to food

- Global emergency aid

- Disaster response

- Child labor in agriculture

- Global health policy initiatives

• Innovations in social policy [e.g. conditional cash transfers]

• G8 call for social protection



Food

retailers

top 10:$777bln

• Wal-Mart

• Carrefour

• Royal Ahold

• Metro AG

• Tesco

C o

n s

u m

e r s

$4

,00

0 b

illion

The world food system globalizes:

global value added and competitiveness ?

Food

processors

and traders

top 10: $363 bln

• Nestle

• Cargill

• Unilever

• ADM

• Kraft Foods

Agricultural

input

industry

top 10: $37 bln

• Syngenta

• Bayer

• BASF

• Monsanto

• DuPont

Farms

Agricultural

value added:

$1,315 bln

450 million

>100 ha: 0.5%

< 2 ha: 85%



What future for the small farms?

Farm Size (ha) % of all farmsNumber of farms

(millions)

< 2 85 387

2 - 10 12 54

10 - 100 2.7 12

> 100 0.5 2

Total 100 455

The numbers still increase in Africa and South Asia



Where will be the jobs?

sectoral & spatial labor flows

in global employment …2020 (Bill.)

Farm Services &

Industry

Rural areas

Services &

Industry-

Urban areas

Total

2005 0.9 0.6 1.5 3.0

2020 0.6 1.0 1.9 3.5

Change

2005-

2020

- 0.3 +0.4 +0.4 +0.5

Estimates based on ILO economically active populations projections

and own estimates of sector shares, J. von Braun, 2005


Small farms and small businesses

can participate

From a 2 ha. rice farm to fruit

processing firm

in Uttar Pradesh: training (her),

banking was key;

and the road

+25 jobs


Questions & preliminary answers

1. what are the effects of globalization of the agri-food system on the poor?

• Generally favorable but mixed;

• exclusion of the poorest in rural areas

2. (erstwhile) transforming economies + globalization: how did globalization impact on poverty in these economies?

• Strong evidence of poverty reducing growth

• domestic policies more important than global context

And all these remain research issues

globalization,rural sector transformation, and poverty

Documents

trade joachim

globalization joachim

south africa joachim

data source

asia developing5

asia developing7

food items joachim

subsaharan africa a28