Dalila Cervantes-Godoy Trade and Agriculture Directorate · SMALLHOLDER ADJUSTMENT: ISSUES AND...
Transcript of Dalila Cervantes-Godoy Trade and Agriculture Directorate · SMALLHOLDER ADJUSTMENT: ISSUES AND...
SMALLHOLDER ADJUSTMENT: ISSUES AND POLICY RESPONSES
Global Forum on Agriculture, 20-21 November 2008
Dalila Cervantes-GodoyTrade and Agriculture Directorate
OECD Trade & Agriculture Directorate 2
Outline
• Introduction
• Historical context
• Policy responses
• Strategic framework for smallholder development
• Conclusions
OECD Trade & Agriculture Directorate 3
Introduction
• Agriculture faces adjustment pressures as part of the general process of economic development
• Some pressures are country specific, but many are universal in nature…
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• Agriculture’s share of GDP has a long-term tendency to decline
Adjustment pressures in agriculture
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India
Indonesia
China
Brazil
South AfricaUruguay
Turkey
Argentina
Mexico
Rusia
Chile
Poland
Korea
Israel
New Zealand
Spain
ItalyJapan
Germany
Finland
France
UK
Australia
Belgium
Austria
Netherlands
CanadaUSA
India
Indonesia
China
Brazil
South Africa
Uruguay
Turkey
Argentina
Mexico
Rusia
Chile Poland Korea Israel
New Zealand
Spain Italy
JapanGermany
Finland
France UK
AustraliaBelgium
Austria
Netherlands
Canada USA0
10
20
30
40
50
60
70
80
% AGR GDP/GDP (%) 1961 AGR GDP/GDP (%) 2005
GDP per capita PPP Current USD, 2005USD 2 000 USD 42 000
Evolution of agriculture’s share of GDP various
countries, 1961 & 2005
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• Agriculture’s share of employment also tends to decline over time
Adjustment pressures in agriculture
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India Indonesia
China
Brazil
South Africa
Uruguay
Turkey
Argentina
Mexico
Rusia
Chile
Poland
Korea
Israel New Zealand
Spain
ItalyJapan
Germany
Finland
France
UK
Australia
Belgium
Austria
Netherlands
Canada
USA
India
Indonesia
China
Brazil
South Africa
Uruguay
Turkey
Argentina
Mexico
Rusia
Chile
Poland
KoreaIsrael
New Zealand
Spain
Italy Japan
Germany
Finland
France UK
Australia
Belgium
Austria
Netherlands
Canada
USA0
10
20
30
40
50
60
70
80
%
AGR EMPL (%) 1961 AGR EMPL (%) 2005
USD 2 000 USD 42 000
GDP per capita PPP Current USD, 2005
Evolution of agriculture’s share of employment various
countries, 1961 & 2005
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• Difference between agriculture’s share of GDP and its share of employment tends to diminish
Adjustment pressures in agriculture
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18
13 13
6
3
9 11 9
46 4 5
3
3
9
3 2 2 1 3 2 1 3 1 2 2 2 1
40
31 31
15
74
19
8
11
4912
5
12 2 2 2 1
2 20 1 1
4 1 1 1
58
44 44
21
10
5
30
1
15
10
13
17
8
27
54 4 2
54
14 2
63 3 2
0
10
20
30
40
50
60
70
Indi
a
Indo
nesi
a
Chin
a
Braz
il
Sout
h A
fric
a
Uru
guay
Turk
ey
Arg
entin
a
Mex
ico
Rusi
a
Chile
Pola
nd
Kore
a
Isra
el
New
Zea
land
Spai
n
Italy
Japa
n
Ger
man
y
Finl
and
Fran
ce UK
Aus
tral
ia
Belg
ium
Aus
tria
Net
herl
ands
Cana
da
USA
% AGR GDP/GDP (%) 2005 Difference AGR EMPL (%) 2005AGR GDP (%) 2005
GDP per capita PPP Current USD, 2005
USD 2 000 USD 42 000
Difference between agriculture’s share of GDP and
employment, various countries 2005
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• The pace of adjustment is speeding up!
Adjustment pressures in agriculture
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Agriculture share of GDP Agriculture share of employment
Year of 40% Year of 7% Years required Year of 40% Year of 16% Years required
Netherlands 1800 1965 165 1855 1957 102
Denmark 1850 1969 119 1920 1962 42
UK 1788 1901 113 1800 1868 68
Chile 1875 1980 105 1950 1993 43
Mexico 1890 1992 102 1969 2000 31
USA 1854 1950 96 1897 1950 53
France 1878 1972 94 1921 1965 44
Brazil 1910 2003 93 1960 2005 (20.5%) >45
Germany 1866 1958 92 1900 1942 42
Japan 1896 1969 73 1940 1971 31
Poland 1935 1991 56 1968 2006 (18.7%) >31
India 1962 2006 (17.5%) >44 2005 (58%) --
China 1967 2006 (11.7%) >39 2006 (43%) --
Turkey 1970 2007 (8.9%) >37 1998 2007 (28.7%) >9
Korea 1965 1991 26 1977 1991 14
Indonesia 1971 1997 26 2006 (42%) --
Pace of adjustment in various countries, based on
agriculture’s share of GDP and employment
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• Who faces adjustment pressure as a result of these changes?
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• Farmers that do not participate in the productivity gains and therefore cannot compete with efficient domestic agricultural businesses or imports.
• Often these farmers are smallholders.
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• If smallholders' incomes are comparable with incomes in other sectors, and smallholders can adjust easily, then there would be no need for a policy response.
• But smallholders in middle income countries often have relatively low incomes which are put under further pressure by productivity improvements in which they do not participate.
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How have governments responded?
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• Support in OECD countries has in many cases sought to put a brake on the process of adjustment rather than facilitate it.
• Support has typically been provided to all farmers, not just smallholders
• Large share of support is still provided through market price support, which is linked to production and concentrates benefits among large producers rather than smallholders.
In the case of high income OECD countries:
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In the case of emerging economies:
• As income rise and agriculture’s share of employment decreases, countries can afford to support agriculture.
• Emerging economies have followed a similar path to high income OECD countries:
– Tendency to start subsidising farmers rather than taxing them
– Provision of support mostly through market price support
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-10
0
10
20
30
40
50
60
70
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007p
%
Brazil Chile China Russia South Africa Ukraine Mexico Korea Turkey OECD Average
Evolution of the PSE’s in OECD and selected countries,
1997-2007
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-30
-20
-10
0
10
20
30
40
50
60
1955-59 1960-64 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04
perc
ent
HIC & ECA* Developing countries
Nominal Rate of Assistance to agriculture in developed
and developing countries, 1955-2004
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USA
W-EU
CAN
Japan
AUS NZL
Korea
MEX, 2000-04
Turkey
ChileBrazil China
SA India , 2001-04Indonesia , 2001-04USA
W-EU
CAN
Japan
AUSNZL
Korea
Mexico, 1980-84
Turkey
Chile
Brazil, 1966
China
South Africa India, 1965-68
Indonesia, 1970-73
-60
-45
-30
-15
0
15
30
45
60
75
90
105
120
135
150
165
0 10 20 30 40 50 60 70 80 90
NR
As
(%
)
Agriculture's share of employment,
2005 1961
Level of support and agriculture’s share of
employment, 1961 & 2005, selected countries
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What policies are needed for smallholders?
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• If policy objective is to keep smallholders in farming, it needs to be stated explicitly.
– Not possible to have coherent policies that seek to improve productivity yet protect smallholders from competitive/adjustment pressures .
• If policy objective is to encourage a productive and competitive agricultural sector then
– There is a need to embrace structural adjustment and identify policies that can facilitate that process.
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• A strategic framework for smallholder development.
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Policy instrument
Within agriculture Outside agriculture
Investment in human
capital
Minor effects of formal education
for this generation; technical
training more appropriate for
productivity.
Can help farm family
members and rural workers
move into skilled jobs
Important for farm family
members and rural workers
Important for managing
inter-generation change
Investment in
infrastructureHelps with market integration
Can ease migration
decisions for offspring
R&D and extension
Public and private sector
important; gains from adoption and
adaptive research.
Can expand agricultural
employment
CreditShould focus on correcting market
failuresIndirect impacts
Labour market
reforms
Cash transfers
(possibly conditional)
Conditional school
attendance may
complement investments
in schools
The most important policy for
those unable to adjust. Some
examples: Chile-solidario,
Oportunidades-Mexico, Bolsa
Familia-Brazil
Regional policiesImportant for improving market
integration
Expanded non-farm activity
would raise farm wages
Develop producer
associations
Reduce transaction costs and help
exploit economies of scale.Indirect impacts
Land policies and
property rights
Need to encourage rental markets
and facilitate land purchases by
small farmers
Important for raising employment opportunities and wage incomes
Important for building a diversified rural economy with
wider job opportunities
Development pathway
Help farmers become more
competitive within agriculture
Diversify income sources Leave the sector for off
farm work
Safety nets for those unable
to adjust
Helps improve local job opportunities
Framework
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Policy instrument
Within agriculture Outside agriculture
Investment in human
capital
Minor effects of formal education
for this generation; technical
training more appropriate for
productivity.
Can help farm family
members and rural workers
move into skilled jobs
Important for farm family
members and rural workers
Important for managing
inter-generation change
Investment in
infrastructureHelps with market integration
Can ease migration
decisions for offspring
R&D and extension
Public and private sector
important; gains from adoption and
adaptive research.
Can expand agricultural
employment
CreditShould focus on correcting market
failuresIndirect impacts
Labour market
reforms
Cash transfers
(possibly conditional)
Conditional school
attendance may
complement investments
in schools
The most important policy for
those unable to adjust. Some
examples: Chile-solidario,
Oportunidades-Mexico, Bolsa
Familia-Brazil
Regional policiesImportant for improving market
integration
Expanded non-farm activity
would raise farm wages
Develop producer
associations
Reduce transaction costs and help
exploit economies of scale.Indirect impacts
Land policies and
property rights
Need to encourage rental markets
and facilitate land purchases by
small farmers
Important for raising employment opportunities and wage incomes
Important for building a diversified rural economy with
wider job opportunities
Development pathway
Help farmers become more
competitive within agriculture
Diversify income sources Leave the sector for off
farm work
Safety nets for those unable
to adjust
Helps improve local job opportunities
Framework
OECD Trade & Agriculture Directorate 26
Policy instrument
Within agriculture Outside agriculture
Investment in human
capital
Minor effects of formal education
for this generation; technical
training more appropriate for
productivity.
Can help farm family
members and rural workers
move into skilled jobs
Important for farm family
members and rural workers
Important for managing
inter-generation change
Investment in
infrastructureHelps with market integration
Can ease migration
decisions for offspring
R&D and extension
Public and private sector
important; gains from adoption and
adaptive research.
Can expand agricultural
employment
CreditShould focus on correcting market
failuresIndirect impacts
Labour market
reforms
Cash transfers
(possibly conditional)
Conditional school
attendance may
complement investments
in schools
The most important policy for
those unable to adjust. Some
examples: Chile-solidario,
Oportunidades-Mexico, Bolsa
Familia-Brazil
Regional policiesImportant for improving market
integration
Expanded non-farm activity
would raise farm wages
Develop producer
associations
Reduce transaction costs and help
exploit economies of scale.Indirect impacts
Land policies and
property rights
Need to encourage rental markets
and facilitate land purchases by
small farmers
Important for raising employment opportunities and wage incomes
Important for building a diversified rural economy with
wider job opportunities
Development pathway
Help farmers become more
competitive within agriculture
Diversify income sources Leave the sector for off
farm work
Safety nets for those unable
to adjust
Helps improve local job opportunities
Framework
OECD Trade & Agriculture Directorate 27
Conclusions
• Smallholder adjustment is part of the general process of economic development and should be welcomed.
• For the majority of smallholders in middle income countries, the long term (i.e. inter-generational) future lies outside the sector.
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• Government cannot judge which individual farmers are potentially competitive, but a degree of targeting is necessary.
• No easy solutions, but case study experiences may offer some practical insights.
Conclusions
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Thank You
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