Jonathan Brooks OECD Trade and Agriculture

Chatham House – Friday 2nd March 2012

Agricultural Policies for

Poverty Reduction

Contributors:

Phil Abbott, Purdue University

Jonathan Brooks, OECD

Katia Covarrubias, FAO

Mateusz Filipski, UC Davis

Erik Jonasson, Lund University

Ed Taylor, UC Davis

Steve Wiggins, ODI

OECD Trade & Agriculture 3

What role for agricultural policy in raising

incomes and reducing poverty in developing

countries?

– Does that role differ from what we would

recommend for OECD countries?

– To what extent should policies focus on

smallholder development?

– When might there be a need for market

interventions?

• Renewed interest in “smart” input subsidies

• Market stabilisation as a response to high and

volatile food prices

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• Protect incomes in the short term

– Targeted social policies

• Strengthen incomes in the long term

– Support the “enabling environment”

– Correct market failures, provide public goods

• Avoid market interventions

– Inefficient at transferring income

– Inequitable

– Adverse spill-overs (including onto developing

countries)

Best practice advice for OECD

countries

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Policies over what time frame?

• Short to medium term: economic

structures are fixed

• Long-term: economic structures evolve

• How can we achieve impact given current

structures and facilitate transition to structures

that can generate higher incomes?

– What are the trade-offs and

complementarities?

– How do priorities vary with context / “stage of

development”?

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The agricultural transformation

With successful economic development:

1. Agriculture’s share of GDP declines

– the economy diversifies

2. Agriculture’s share of employment

declines

– “push” of labour productivity improvement

– “pull” of labour demand from other sectors

3. Agricultural output increases

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Agriculture’s share of GDP: Asia

Nepal

Bangladesh

Cambodia

Pakistan

Vietnam

India

Philippines

Mongolia

Indonesia

Sri Lanka

Georgia

Jordan

China

Thailand

Iran

Malaysia

Saudi Arabia

Korea

Japan

Nepal

Bangladesh

Cambodia

Pakistan Vietnam

India

Philippines

Mongolia

Indonesia

Sri Lanka Georgia

Jordan

China Thailand Iran Malaysia

Saudi Arabia

Korea Japan 0

10

20

30

40

50

60

70

80 1980-82 2006-08

Countries ordered by GDP per capita, current USD PPP,

2008 USD 1 106 USD 33 799

%

OECD Trade & Agriculture 8

Agriculture’s share of GDP: Africa

Congo Dem. Rep.

Liberia

Guinea- Bissau

Central African

Republic

Sierra Leone

Malawi

Mozambique

Ethiopia

Rwanda

Madagascar

Mali

Uganda

Burkina Faso

Chad

Zambia

Ghana

Kenya

Lesotho

Cote d'Ivoire

Senegal

Mauritania

Sudan

Cameroon

Congo, Rep.

Morocco

Swaziland

Namibia South Africa

Mauritius

Botswana

Gabon

Congo, Dem. Rep.

Liberia Guinea- Bissau

Central African

Republic

Sierra Leone

Malawi

Mozambique

Ethiopia

Rwanda

Madagascar

Mali

Uganda

Burkina Faso

Chad

Zambia

Ghana

Kenya

Lesotho

Cote d'Ivoire

Senegal

Mauritania

Sudan

Cameroon

Congo, Rep.

Morocco

Swaziland

Namibia

South Africa

Mauritius

Botswana

Gabon

0

10

20

30

40

50

60

70

80 1980-82 2006-08

Countries ordered by GDP per capita, current USD

PPP, 2008 USD 314 USD 14 598

%

Ag’s share of GDP versus Ag’s share

of Emp, 2008

0

5

10

15

20

25

30

35

40

45

50

55

0 10 20 30 40 50 60 70 80 90 100

Agriculture (% of GDP)

Employment in agriculture as % of total employment

OECD Europe non-OECD Middle East and North Africa Latin America Asia Sub-Saharan Africa

45⁰ line

Brazil

Guatemala

Nicaragua

Argentina

Russia

Turkey

Chile Korea

Indonesia China

Vietnam Bangladesh

India

Burkina Faso

Tanzania Ethiopia

Uganda

Cameroon

Mali Ghana Malawi

Kenya

OECD Trade & Agriculture 10

Stylised development path

Agriculture’s share of GDP

Agriculture’s share of

employment

Rising GDP per capita

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The future for smallholders?

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What about smallholders?

• Unnecessarily polarised debate

• Smallholders dominate farming in poor

countries

• Paradox: rising opportunities go hand-in-

hand with adjustment stress

– Economies of scale, but larger farms does not

mean latifundia

– Need to improve competitiveness within

agriculture, but also to enhance opportunities

outside the sector

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Where do the poor live?

Of the 1.3 billion on less than USD 1.25 a day:

• 72% in middle income countries, 28% in low

income

• 1/3 in India, 1/3 in Sub-Saharan Africa

• 20% in China, compared with 40% in 1990

• 23% in fragile / conflict affected states

Priorities vary according to stage of development:

Globally, smoothing the transition out of

agriculture may be the biggest challenge

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A strategy for strengthening rural

incomes Situate agricultural policy within economy-wide context

• Education, primary healthcare, investment climate,

macroeconomic policies, institutions and

governance

Create pathways within and outside agriculture

• Help Farmers become more competitive within

agriculture

• Diversify Income sources

– Within agriculture

– Outside agriculture

• Leave the sector for off-farm work

• Social protection for those unable to adjust

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Is there a need for market

interventions? • Input subsidies increasingly popular

– Perceived success – e.g. in Malawi

– Hope that innovative design features can

avoid known pitfalls (“smart” subsidies)

• Price stabilisation a reality

– Major price shock in 2007-08

– Fears of increased price volatility

[Simulation model (DEVPEM) looking at efficiency &

distributional effects of alternative interventions]

OECD Trade & Agriculture 16

Market interventions

• Relatively easy levers to pull

• Offset rather than eliminate market failures

• Not the best way of transferring incomes

• Can impede the functioning of private

markets

• Prone to political capture and can become

a budgetary millstone

• But they may be the only tools

policymakers have in the short term

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Conclusion

• OECD best practice principles for agricultural

policy are valid for poorer countries too

– Improve the functioning of markets (correct market

failures and provide public goods)

– Establish effective systems of social protection

• There may be reasons to resort to “second

best” instruments

• But it is important to move towards best

practice

– More productive to talk about balance and

sequencing than absolutes

OECD Trade & Agriculture 29

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