Fostering Growth and Reducing Poverty and Hunger in Asia and Latin America: Opportunities for Mutual Learning March 22-24, 2010 Lima, Peru

1. 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

2. 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

3. Overall Growth higher than Ag Growth
Overall GDP Agricultural GDP
10 East Asia & Pacific 10 East Asia & Pacific
South Asia
8 LAC South Asia
8 LAC
6 6
4 4
2
2
0
0
Source: World Bank 2009.

4. GDP per capita, PPP
(constant 2005 international $)
Source: World Bank 2009.

5. Agriculture, value added (% of GDP)
35 East Asia & Pacific
30 South Asia
LAC
25
20
15
10
5
0
Source: World Bank 2009.

6. % Share of trade in total GDP
Source: World Bank 2009.

7. Poverty: % share of people living below
$1.25 a day
80
East Asia & Pacific
South Asia
60 LAC
40
20
0
Source: Chen and Ravallion 2008
• 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

8. 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 0.377
2003 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.

9. 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

10. Economic Development Pathways
• China – “firing from the bottom”
• India – “trickle down from the top”
Source: Gulati & Fan 2007

11. 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)

12. 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

13. 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)

14. 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

15. Key Challenges & Opportunities:
~ Modern supply chains of Food & Grocery
(Growth of Top 5 retailers in each country)
Comparing selected Asian & LAC countries 2001 to 2008
Source: Planet Retail
Note: Categories as defined by Planet Retail for Banner Food sales

16. Key Challenges & Opportunities
~Social Protection Programs
Asia 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

17. 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)

18. 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

19. 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.)

20. 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