Why Agriculture Has Grown Differently? Lessons from Asia and Latin America

Shenggen Fan, Ashok Gulati and Joanna Brzeska

Presentation at

Fostering Growth and Reducing Poverty and Hunger in Asia and

Latin America: Opportunities for Mutual Learning

March 22-24, 2010

Lima, Peru

Outline

Growth performance and impact on poverty &

inequality

Growth strategies (economic and agricultural)

Key challenges & opportunities for development

• supply chains; social protection; asset

distribution; rural non-farm economy; trade

liberalization

Lessons for & from LAC & Asia

Overall Growth higher than Ag Growth

Overall GDP Agricultural GDP

0

2

4

6

8

10 East Asia & PacificSouth AsiaLAC

0

2

4

6

8

10 East Asia & Pacific

South Asia

LAC

Source: World Bank 2009.

GDP per capita, PPP (constant 2005 international $)

Source: World Bank 2009.

Agriculture, value added (% of GDP)

0

5

10

15

20

25

30

35 East Asia & Pacific

South Asia

LAC

Source: World Bank 2009.

% Share of trade in total GDP

Source: World Bank 2009.

Poverty: % share of people living below

$1.25 a day

0

20

40

60

80East Asia & Pacific

South Asia

LAC

• 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

Source: Chen and Ravallion 2008

Inequality Trends

~Gini coefficients

LAC Year Gini Asia Year Gini

Argentina 1996 0.486 Cambodia 1994 0.383

2003 0.513 2004 0.429

Brazil 1995 0.615 China 2004 0.470

2004 0.570 India 2004 0.368

Bolivia 2002 0.602 Indonesia 2002 0.343

Chile 1994 0.552 Nepal 1996 0.3772003 0.549 2003 0.473

Mexico 1995 0.537 Philippines 1994 0.429

2004 0.461 2003 0.455

Peru 1994 0.449 Sri Lanka 1996 0.344

2003 0.520 2002 0.402

Venezuela 1995 0.468 Vietnam 1993 0.357

2003 0.482 2004 0.371

Source: Ferreira and Ravallion 2008.

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 by

export-led growth in labor-intensive consumer goods (Adelman, 1999)

– Mkt-friendly institutional & policy reforms alongside

investments in infra. & human capital

– Certain mkt distorting export subsidies existed but were

removed

– Lately, China’s exchange rate “under debate”

– - India corrected “over-valued” exchange rate in 1991,

and gradually opened the system to market forces

Economic Development Pathways

• China – “firing from the bottom”

• India – “trickle down from the top”

Source: Gulati & Fan 2007

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 gov’t. 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)

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

Agricultural Development Pathways

LAC

Dual 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)

Key Challenges and Opportunities

Modern supply chains…LAC 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

Key Challenges & Opportunities:

~ Modern supply chains of Food & Grocery (Growth of Top 5 retailers in each country)

Source: Planet Retail

Note: Categories as defined by Planet Retail for Banner Food sales

Comparing selected Asian & LAC countries 2001 to 2008

Key Challenges & Opportunities

~Social Protection ProgramsAsia Latin America

1980 1990 2000 2005 1980 1990 2000 2005

Agriculture 14.9 12.3 6.3 6.5 7.8 2.1 2.5 2.6

14.4 9.3 6.9 5.5 6.1 4.5 3.1 2.5

Education 13.8 17.4 16.9 17.9 10.4 7.9 14.8 14.3

13.7 15.5 16.3 17.0 17.0 14.5 17.8 16.3

Health 5.3 4.3 4.3 5.4 5.9 6.1 7.6 8.4

5.9 4.6 5.5 5.4 8.8 9.3 16.0 11.4

T&C 11.7 5.2 3.8 4.5 6.8 2.7 2.6 2.4

14.1 7.3 7.7 7.2 9.0 7.0 6.1 7.3

Social Security 1.9 2.4 6.4 8.7 23.7 21.8 36.4 36.6

3.5 4.3 6.3 8.7 13.7 16.8 22.4 15.8

Defense 17.6 12.9 8.3 7.9 6.1 5.0 4.6 3.8

16.0 12.7 10.6 9.8 9.3 9.7 5.7 7.4

Other 34.8 45.5 54.0 49.1 39.5 54.4 31.6 32.0

32.4 46.3 46.9 46.5 36.1 38.2 28.9 33.7

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Key Challenges & Opportunities

~Asset Distribution (land ownership)

LAC

• Inequality is partially a reflection of unequal land ownership (legacy

of region’s 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)

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 & absorption

strategies

In China, an estimated 5-7 million worker per year expected to

exit 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 in

Asia, rest being service, trade & construction

China’s rapid growth centered on small pvt firms specializing

in these sectors

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.)

Lessons for & from LAC & Asia

Asia stands to benefit from LAC’s 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