why agriculture has grown differently? lessons from asia and latin america

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Fostering Growth and Reducing Poverty and Hunger in Asia and Latin America: Opportunities for Mutual Learning March 22-24, 2010 Lima, Peru

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  • 1. Why Agriculture Has Grown Differently?Lessons from Asia and Latin America Shenggen Fan, Ashok Gulati and Joanna BrzeskaPresentation at Fostering Growth and Reducing Poverty and Hunger in Asia and Latin America: Opportunities for Mutual LearningMarch 22-24, 2010 Lima, Peru

2. Outline Growth performance and impact on poverty & inequality Growth strategies (economic and agricultural) Key challenges & opportunities for development supply chains; social protection; assetdistribution; rural non-farm economy; tradeliberalization Lessons for & from LAC & Asia 3. Overall Growth higher than Ag GrowthOverall GDPAgricultural GDP 10 East Asia & Pacific 10East Asia & PacificSouth Asia 8LAC South Asia 8LAC 6 6 4 4 2 2 0 0 Source: World Bank 2009. 4. GDP per capita, PPP (constant 2005 international $) Source: World Bank 2009. 5. Agriculture, value added (% of GDP) 35 East Asia & Pacific30 South AsiaLAC 25201510 5 0Source: World Bank 2009. 6. % Share of trade in total GDP Source: World Bank 2009. 7. Poverty: % share of people living below $1.25 a day 80East Asia & PacificSouth Asia 60 LAC 40200Source: Chen and Ravallion 2008 1 bil. people in Asia and 45 mil. people in LAC live below $1.25/day Rural poverty continues to pose problems: Large segment of poor live in rural areas Rural areas have larger poverty rates than urban areas 8. Inequality Trends ~Gini coefficients LAC Year GiniAsiaYearGini Argentina1996 0.486Cambodia1994 0.3832003 0.5132004 0.429 Brazil 1995 0.615China 2004 0.4702004 0.570India 2004 0.368 Bolivia2002 0.602Indonesia 2002 0.343 Chile1994 0.552Nepal 1996 0.3772003 0.5492003 0.473 Mexico 1995 0.537Philippines 1994 0.4292004 0.4612003 0.455 Peru 1994 0.449Sri Lanka 1996 0.3442003 0.5202002 0.402 Venezuela1995 0.468Vietnam 1993 0.3572003 0.4822004 0.371 Source: Ferreira and Ravallion 2008. 9. Economic Development Pathways EAP & South Asia Explaining an Asian model is complicated For Asian-Tigers it is East Asian Miracle Short period of IM substitution in early 1960s followed byexport-led growth in labor-intensive consumer goods(Adelman, 1999) Mkt-friendly institutional & policy reforms alongsideinvestments in infra. & human capital Certain mkt distorting export subsidies existed but wereremoved Lately, Chinas exchange rate under debate - India corrected over-valued exchange rate in 1991,and gradually opened the system to market forces 10. Economic Development Pathways China firing from the bottom India trickle down from the topSource: Gulati & Fan 2007 11. Economic Development Pathways LAC Starting in 1960s, industrialization thru government intervention & barriers to trade Continued with IM substitution policies until the debt crisis in 1980s Reforms centered on macroeconomic stabilization, trade liberalization, & deregulation Considerable re-assessment of the role of govt. in econ. dev. Trade policy~ remove QRs on EX&IM, elimination of export taxes & reduction in import tariffs (implicit taxation on agri. emanating from overvalued ex.rate removed)(Anderson & Valdes 2008) 12. Agricultural Development Pathways EAP & South Asia Ag in Asia is unimodal: dominated by smallholders, role of ag in dev has varied (ex: China & India) China (1978) & later Vietnam commenced economic liberalization with ag & land reforms Including decentralization of ag production sys, liberalizing pricing & marketing sys. Investments in agri R&D and rural infrastructure were crucial Indian agri policy getting tilted towards input subsidies at the cost of investments 13. Agricultural Development Pathways LACDual ag sys (large scale commercial sector alongside small farms) Resources squeezed out of ag (Birdsall et.al. 2008) Industrial protection & overvalued exchange rate posed as an indirect taxation on ag Decline is distortions to ag incentives thru cuts in non-ag protection & ag policy reforms since early 1990s Also, reduction of assistance to non-farm tradable sector induced growth in ag exports (Source: Anderson and Valdes, 2007) 14. Key Challenges and Opportunities Modern supply chainsLAC ahead of Asia, though Asia catching up fast: Mainstreaming small holders and vendors a challenge; Social Protection: LAC spending much higher % of public expenditure than Asia, more targeted and towards conditional cash transfers (Asia to catch up) Asset distribution:LAC highly unequal land holdings, Asia dominated by small holders Non-farm income:51% in LAC and 47% in Asia, investment in education and infrastructure key for off-farm employment Broad based growth: Asia doing better than LAC 15. Key Challenges & Opportunities: ~ Modern supply chains of Food & Grocery (Growth of Top 5 retailers in each country)Comparing selected Asian & LAC countries 2001 to 2008 Source: Planet Retail Note: Categories as defined by Planet Retail for Banner Food sales 16. Key Challenges & Opportunities ~Social Protection ProgramsAsia Latin America19801990 2000 20051980 1990 2000 2005 Agriculture14.912.3 6.3 6.5 7.8 2.12.5 2.614.4 9.3 6.9 5.5 6.1 4.53.1 2.5 Education13.817.4 16.9 17.910.4 7.9 14.8 14.313.715.5 16.3 17.017.0 14.5 17.8 16.3 Health5.3 4.3 4.3 5.4 5.9 6.17.6 8.4 5.9 4.6 5.5 5.4 8.8 9.3 16.0 11.4 T&C11.7 5.2 3.8 4.5 6.8 2.72.6 2.414.1 7.3 7.7 7.2 9.0 7.06.1 7.3 Social Security 1.9 2.4 6.4 8.723.7 21.8 36.4 36.6 3.5 4.3 6.3 8.713.7 16.8 22.4 15.8 Defense17.612.9 8.3 7.9 6.1 5.04.6 3.816.012.7 10.69.8 9.3 9.75.7 7.4 Other34.845.5 54.0 49.139.5 54.4 31.6 32.032.446.3 46.9 46.536.1 38.2 28.9 33.7 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 17. Key Challenges & Opportunities ~Asset Distribution (land ownership) LAC Inequality is partially a reflection of unequal land ownership (legacy of regions colonial past) Large farm owners make up less than 7% of all farms but occupy 82% of ag land; lack of land titles (Todaro, 2008; Birdsall et al, 2008) Abundance of land & failure to implement agrarian reforms partially explain diff in growth between LAC and EAP (Kay 2001). EAP & South Asia In China, egalitarian access to land was ensured by early land reforms, help distribute benefits from ag price & mkt reforms (Yao, 2008) 18. Key Challenges & Opportunities ~Rural Non-farm Economy Non farm income accounts for 47% of rural income in LAC &51% in Asia (approx.) Pressure on China & India to find viable exit & absorptionstrategies In China, an estimated 5-7 million worker per year expected toexit ag b/w 2000 & 2015, up from 0.4 million per year in 1990s Rural manuf. a/c for only 20% of total RNF employment inAsia, rest being service, trade & construction Chinas rapid growth centered on small pvt firms specializingin these sectors 19. Key Challenges & Opportunities ~Broad based growth EAP & South Asia Growth in EA focused on shared growth (Birdsall & Sabot, 1994) Credit & export assist. for SME in South Korea & Taiwan Massive investments in rural infra in Indonesia, China LAC Growth has not been pro-poor despite Brazil: ag led by exports grew faster than industry since 1990 (Byerlee et al., 2005). Land reforms in Chile, Peru, etc (not supported by dev. programs & policies to build capacity, access to tech., etc.) 20. Lessons for & from LAC & Asia Asia stands to benefit from LACs experience in Supply chain innovations Targeting of social protection Trade liberalization Lessons for LAC from Asia Equitable asset distribution Rural non-farm economy Institutional framework & Broad-based growth