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
OECD Trade & Agriculture 5
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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