The structural dimensions of liberalization in agriculture and rural

development

World Bank (ESSD Africa)

- RuralStruc Program –

M’Bour Workshop

11-13 April 2006

A prerequisite: “Agriculture matters”

In 2000: 1.27 Billion people work in agriculture in developing countries - or: 96% of global EAP in agriculture - providing livelihood for 2.5 billion people (42% world population)

70% of the poor live in rural areas Agricultural EAP rates are very variable:

– Asia (including India and China) and Africa = 60%– Latin America = 20% (but 46% Guatemala vs. 15% Chile)– EU15 = 4%; USA = 2%

World’s Economically Active Population (EAP) in Agriculture

Economically Active Population in Agriculture (2000)

China38.7%

Japan0.2%

India20%

Africa14.8%

Latin America& Caribbean

3.3%

Others Asia & Oceania

19.5%

Others0.9%

ex-USSR1.6%

USA0.2%

Aus-Can-NZ 0.1%

EU (15)0.6%

Others3.6%

Economically Active Population in Agriculture (% of change 1975-2000)

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

1 2 3 4 5 6 7 8 9 10 11

A necessity:to put the debate back into perspective

Liberalization > trade dimension To replace trade liberalization in its

context…

Like the iceberg…

To put the debate back into perspective (1)

To draw attention to the overall « configuration » :

– The general globalization movement (transport and information revolutions => mobility of products, capital, ideas, people)

– Role of the State => new role of firms Adjustment / State withdrawal / privatization Institutional change / democratization / decentralization New nature and new contents of policies.

To put the debate back into perspective (2)

To draw attention to «density» :– What is the nature of the new economic and

demographic polarizations? Sectors/regions

– What reconfigurations? Demographic growth Urban/rural relations New consistence of the rural sector Economic structure (activities)

To put the debate back into perspective (3)

… to better appreciate the «trajectories»– What are the trends?– What is the margin of maneuver?– What are the alternatives => what projects for the

society/ political / national ?– What policy choices?

Reminder: the rationale about liberalization

The “standard” rationale:– Internal and external liberalization (« less State + more

market ») = efficiency => growth => poverty reduction

The “reformed” rationale (beginning of 1990’s):– Existence of winners and losers– To better identify the impacts / to identify the losers– To define the security nets– To identify the roads for a «pro-poor growth»– « better State + more market »

The 5 limits of the debate on liberalization

1. Amplification of price effects (first order effects)

2. Underestimation of structure effects (second order)

3. Underestimation of confrontation effects 4. Concealment of transition questions 5. Lack of a historical perspective

The limits of the debate on liberalization (1)

Amplification of the “first order” transmission effects:

– Focus on the prices of agricultural products – Reinforced by the methodological choices: the

use of econometric models which define the gains of producers and consumers Technical limits of the design: prices elasticity And a partial theoretical rationale that underestimates

imperfect competition

However:– the downward trend of agricultural prices is not

just the consequence of overproduction attributable to dumping and subsidies (the “classical” distortions)

– there is a gap between the producer prices and the retail prices, which expresses new “market powers”

Thus:

The limits of the debate on liberalization (2)

Underestimation of the “second order” transmission effects, due to structures => beyond prices, new market configurations

– concentration and oligopolization– vertical integration through agro-food commodity chains:

first and second transformation– “horizontal” integration through distribution systems– which modify:

the rules of the game: new purchasing, selling and production methods… (norms, standards => contracts)…

the market access and the number of “players” (insiders / outsiders)

the conditions for negotiation

The limits of the debate on liberalization (3)

Underestimation of the “confrontation” effects:

– Confrontation of productivities between agricultural systems / contexts (technological gaps)

– Confrontation of competitiveness (costs, qualities, volume)

– … which result in risks of market marginalization

Overall presentation of productivity gaps

Number of % Green Mechanization Hectares Yield Productivityworkers (M) Revolution

30 2 Yes Tractor 100 10 1000423 33 Yes Animal 5 10 50423 33 Yes Manual 1 10 10423 33 No Manual 1 1 11300 100

Source: Mazoyer 2001, simulation with cereals

The limits of the debate on liberalization (4)

A relative concealment of the “transition” question: – a risk of failure of the implicit evolutionary model

underlying the analyses (increase of productivity => capital accumulation, labor force surplus => transfers towards other sectors)…

– …which bumps on demo-economic characteristics (importance of population involved and lack of exit options in an increasing competitive context) => see works on “Trade and Poverty”

The limits of the debate on liberalization (5)

A lack of historical perspective and ignorance of the specific conditions of the first industrial revolutions:

– Imperial / colonial world order: commercial openness + territorial control (captive markets)

– adjustment through large international migrations: the “colonial project” : colonization as an exit option to

revolutions the “new worlds”

In fine

The need to differentiate national situations: – demographic size=> internal market– economic diversification: alternative sectors (absorption)– fiscal base of the State (for safety nets)– migrations options

The need to pay particular attention to the “small and medium” size countries with heavy rates of EAP in agriculture. Is there a risk of a “transition impasse”?

– low income countries and least developed countries: Sub-Saharan Africa, but also Andean, central and insular America, and central Asia

The need to differentiate the regional situations within countries: territorial marginalization and polarization, specific regional challenges

RuralStruc Program

Justification and objectives

The need to better understand the current evolutions: “A better understanding for a better policy making”

1. to adopt a global approach of the processes of change by including structural dimensions

2. to “face” the question of the transition for certain categories of countries

3. to modify the method: to go from the “corrective” ex-post measures to an ex-ante political debate and to test new comparative approaches

Hypotheses

Three main hypotheses :– The rapid segmentation of production and

marketing structures– Structural locking/ transition impasses– The reshaping of rural economies

The segmentation

Concentration of market structures and integration processes => concentration / marginalization / exclusion among the production structures

Emergence of 2 or 3 track sectors:– 1. integrated competitive agriculture (with development of

wages)– 2. marginal agriculture and insecure households (multiple

and uncertain activities and incomes)– 3. an intermediate group at risk (limited market integration

and difficulties to adapt)

The segmentation (2)

Production structures: number and size / technical and economic results

Market structures:– commodity markets– factors markets (inputs, credit, land)

The impasses

What are the demo-economic trends: rural / agricultural / urban – rural depopulation?

And the existing alternatives:– economic diversification: new sectors of activity

=> capacity of absorption (jobs created)– migratory options?

The reshaping

Development of a new configuration of rural households (“archipelago type” of rural economies, mixing activities and incomes from local or distant origin) in response to global changes

The reshaping (2)

New composition of rural incomes:– Agricultural / non agricultural (the “non-farm” = the

solution to agricultural marginalization?)– Public / private transfers (subsidies / remittances)

New networking and town-country linkages