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2.    The phenomenal growth of China and India

Of the many successes in recent times, two stand out: China and India. The two countries are by their sheer size economic giants and while they grow at the rates observed in recent years (decades in the case of China) it is obvious that their transformation will have profound effects, not just internally but for the rest of the world. Such effects, already in evidence, are a combination of new market opportunities arising from enhanced purchasing power and greater competitiveness of these mega-economies as producers of selected products. It is important to assess the likely impact in order to put in place policies and strategies that anticipate the changes so as to best capitalize on emerging opportunities, while also attenuating whatever anomalies could arise in subsectors that cannot meet the challenges.

Much has been written about China and India recently. The two countries have experienced very rapid growth which has resulted in notable achievements, particularly reduction in poverty. They also share common problems associated with rapid growth such as the widening rural-urban income gap and environmental degradation. Rising incomes create impetus for structural change in the agriculture and food sectors as demand and consumption patterns shift; concomitantly the impact will extend to trade, commerce and investment. Both China and India have experienced impressive growth in agriculture, a Green Revolution, followed by rapid industrial growth and a sharp decrease in relative poverty. But the preconditions and the driving forces behind the growth were in both cases very different. In this subsection we discuss separately for each country the policy and institutional changes that have led to these transformations. Then we compare and contrast China and India in terms of prospects for future growth, the likely impact that this growth will have on their domestic economies and the impact on other Asia-Pacific countries. We identify the challenges that both countries face in sustaining agricultural and economic development and meeting Millennium Development Goals (MDGs). Finally, we highlight the lessons learned .

It is clear that the rising incomes in these countries will continue to create pressure for structural reform of their own agriculture/rural development and food sectors to cope with changing demand size and evolving consumer tastes. Changing incomes will also offer expanded two-way trade opportunities with countries in the region and the rest of the world. As a United Nations study points out:

China and India have a combined population of 2.3 billion people, about 37 percent of world's total. A 100 dollar increase in the per capita income of these two countries would translate into about 230 billion dollars in additional demand for commodities.

The continued growth of these two populous countries will therefore significantly affect the balance and direction of trade, trading opportunities and level playing field for smaller countries in the region. It calls for timely diagnosis of the growth pattern in these emerging economies in order to put policies in place to optimize gains and minimize losses and marginalization.

Both China and India have large agriculture sectors. The Chinese experience shows the crucial role agricultural development has played in the initial years of reform. In India, which is not as industrialized as China, agriculture continues to be a critical sector. While agriculture's share in the GDP has been decreasing, the sector still employs a substantial part of the workforce. Performance in this sector is therefore of great significance for future policies and strategies to achieve the MDGs, especially Goal 1 of eradicating extreme poverty and hunger, with the specific targets of halving between 1990 and 2015, the proportion of people living in extreme poverty and who suffer from hunger, sustainable food security and overall socio-economic development. As China and India still have many poor people (significant numbers in India) further reduction in poverty in these two countries would dramatically impact the overall numbers of poor in the region as well as change the global scenario in this regard. Their recent rapid development therefore has implications for their domestic policy issues, particularly rural poverty, inequitable wealth distribution, natural resource management and sustainability.

There is potential to draw lessons from the developmental experience of both China and India, i.e. how they have responded to adjustments with respect to trade liberalization, globalization, agriculture, rural development and poverty eradication despite their contrasting approaches to development. In addition, both countries are emerging as dominant players in the field of agricultural research and technology generation in the region. This is of particular significance for the smaller countries of the region that are refocusing their research efforts in the face of relative decline in support from regional and international research institutions/bodies, such as the Consultative Group on International Agricultural Research (CGIAR).

2.1    China — achievements

2.1.1    Overall economic growth

Increase in economic growth began with the sharp rise in GDP in agriculture in the early reform period (1979-1984). Rising incomes stimulated domestic consumption and high savings rates with savings appropriately transferred into physical capital investments in the non-agricultural sector. From the mid-1980s growth in the non-agricultural sector was stimulated by the growth of township and village enterprises (TVEs). Collectivization and the associated self-sufficiency of the commune also seem to have been an important precondition for the growth in the TVEs. This distinctly Chinese institutional development, not replicable elsewhere, was a major factor in contributing to the sharp decline in poverty.

Aided by the growth of TVEs, the average annual growth in the GDP has reached 10 percent annually since 1980. Non-agricultural farm household income has come to exceed agricultural income in many parts of China. Reforms during the 1990s provided for trade and market liberalization, fiscal and financial expansion, devaluation of the exchange rate, expansion of special economic zones to attract foreign direct investment (FDI) and reform of state-owned enterprises. In 2004 China overtook the United States as the world's largest recipient of FDI; for a long time it has been by far the leading recipient of FDI among developing countries.

2.1.2    Growth in agricultural production and productivity

The China paper documents the rapid growth in agriculture in the early reform period, 1978 to 1984. The reforms in Chinese agriculture began in 1978. While the collectivization of agriculture is not generally regarded as a sound strategy for agricultural and rural development, there were certain policies under collectivization, e.g. education, health, development of rural infrastructure and agricultural technology, which laid the foundation for subsequent rapid growth in agriculture. Except during the famine years, the country achieved rates of production growth that outpaced the rise in population. From 1961 to 1978 China's cereal yields increased from 1.2 to 2.8. tonnes/ha. Subsequently yields have risen from 2.8 to 5.4 tonnes/ha. Following the adoption of the Household Responsibility System (HRS), agriculture grew at the phenomenal rate of 7 percent. The major policy factor explaining growth during this period, the HRS, gave as incentives the rights of individual farmers to control land and income from their agriculture. The egalitarian nature of these reforms, each household receiving a share of land equal in quality, ensured that the benefits derived from growth in the rural economy were widely shared.

Since 1984 the annual growth in agricultural GDP has been approximately 3 to 4 percent but over a much larger base. The primary engine of agricultural growth during this period has been labour-intensive technological change — in particular the use of modern varieties and inputs such as chemical fertilizers and irrigation. The growth has been sustained by public investment in rural infrastructure and in research and technology development.

Rapid agricultural growth has taken place against the backdrop of significant structural changes in China's economy. While agriculture accounted for more than 35 percent of the GDP in 1970, it fell to 15 percent in 2004. Rising incomes and urbanization have been among the driving forces for significant changes in the level and pattern of food consumption. The farming sector has diversified production to meet changing food demands. Meat consumption (pork and poultry) shot up and with it the demand for feedgrains (maize and soybeans). Consumption of aquatic products also showed very rapid growth.

As a result of market and trade liberalization, what we witness in general is the gradual shift from land-intensive commodities to high-value labour-intensive commodities such as horticultural crops, livestock and fisheries. Trade policy and exchange rate reforms have given a further boost to agricultural production for export. The ratio of total exports to the GDP increased from 6 percent in 1980 to 36 percent in 2004 and, while agriculture's share of exports declined from 3 to 2.5 percent, the US dollar value of net agricultural exports increased 100-fold over the two decades.

2.1.3    Poverty reduction

Based on China's official poverty line, poverty has declined from over 33 percent to less than 3 percent of the total rural population, and as indicated earlier most of this occurred in the early reform period. Based on the dollar-a-day poverty line index, the incidence of poverty dropped from 33 to 16 percent from 1990 to 2002. The estimated decline in numbers in this period was from 377 to 203 million. Overall economic growth (as measured by per capita GDP) has been a primary source of rural poverty reduction in China. The TVEs have played an important role in contributing to rural poverty reduction. However, the effect of economic growth on poverty reduction has weakened since the 1980s. Furthermore, agricultural growth, not just economic growth, matters for poverty reduction. The widening urban-rural income gap affects poverty reduction and suggests that in the future growth has to be more broadly based.

Trade liberalization is a source of regional income disparities. The coastal areas benefited from growth in agricultural exports, whereas central China, the largest producer of soybeans and edible oils, was hurt by trade liberalization.

2.1.4    Food security

One measure of food security is the change in per capita food availability. Between the early 1960s and early reform years daily per capita food availability in China increased from 1 717 kcal to 2 328 kcal. By 2000 it exceeded 3 000 kcal per day, a level nearly comparable to most developed countries. Over time the food security picture has changed. Initially most farm households produced food for their own subsistence. With the passage of time, however, markets have developed and agriculture has become a more commercial enterprise. Farmers face market price risks, but as almost 50 percent of the land area is irrigated, production risks are lower than in most other countries. Diversification of farm household incomes, with at least one family member in non-farm employment, helps to improve food security.

2.2    India — achievements

2.2.1    Overall economic growth

In contrast to China, the sweeping economic reforms in the 1990s in India were not directed at agriculture and growth in agriculture in India did not result in an immediate increase in growth in either the rural or urban non-farm sector.

India's growth performance after independence until the 1960s was moderate, edging up slowly in the 1970s and 1980s to about 5.5 percent per annum. After the 1991 reforms, however, growth has been much faster: an annual average of 6.8 percent in 1992 to 1997 and 5.6 percent during 1997 to 2002. The average annual growth rate for the decade 1993 to 2004 was 6.2 percent. India's high growth performance has therefore commenced later than China's, but appears to have reached sustained high levels over the past 15 years.

Much of the growth in the economy since the 1990s has centred on the services sector covering communication services, hotels, restaurants, tourism, finance, insurance and real estate, including information technology where outsourcing work to India has become a global phenomenon. Growth of the primary and secondary sectors has not fared as well: Regulations and infrastructural bottlenecks restrict growth in these sectors. The dramatic success in information technology stands in contrast to the rest of the economy and in particular the agriculture sector. As with China, so also with India rural-urban and regional income disparities have widened. The solution seems to lie in large measure in removing the constraints to growth in the industrial and agriculture sectors, a process that is now underway.

2.2.2    Growth in agricultural production and productivity

Prior to the mid-1960s India relied on imports and food aid to meet domestic requirements. However, two years of severe drought in 1965 and 1966 convinced the Indian leadership that they could not rely on foreign imports for food security. Consequently, they adopted significant policy reforms focused in particular on the production of cereal grains, and concomitantly, the goal of foodgrain self-sufficiency that has shaped Indian agricultural policy ever since (Gulati et al. 2005).

India's Green Revolution began with the decision to import seeds of high-yielding varieties of wheat and large scale adaptive research. The initial increase in production was centred on the irrigated areas of the Punjab, Haryana and western Uttar Pradesh. Total foodgrain production soared and by the early 1970s India became self-sufficient. Gulati et al. (2005) attributes this success to the price incentives provided to farmers, the dynamism of the national research system and the availability of credit and inputs such as improved seeds, canal irrigation and fertilizer. The success of this coordinated approach demonstrated that even in a country as diverse as India, the government can play an important role in setting the agriculture sector on a high growth path.

The Green Revolution technology spread to rice and, using tubewells, to other parts of India. When gains from the new technology reached their limits in the states of initial adoption, the technology spread in the 1970s and 1980s to the states of eastern India — Bihar, Orissa and West Bengal. But the benefits of the new technology extended principally to the irrigated areas which account for about one-third of the harvested crop area. In the 1980s the policy also shifted to "evolution of a production pattern in line with the demand pattern" leading to a shift in emphasis to other agricultural commodities like oilseed, fruit and vegetables. Impressive strides were also made in other subsectors such as dairying, fisheries and livestock, and meeting the diversified food needs of the growing population.

In India as in China, the agricultural economy is undergoing structural changes. Between 1970 and 2003 the GDP in agriculture has fallen from 43 to 22 percent. The growth in agricultural GDP was approximately 3.6 percent per annum during the early Green Revolution period (1970s) and in this period growth in agriculture led to a decline in poverty. However, the greatest increase in productivity occurred in the 1970s and 1980s and the greatest decrease in poverty in the 1980s and 1990s. The growth rate in agricultural GDP rose gradually from 3 to 4 percent in the 1960s and 1970s, to 5-6 percent in the 1980s, to 6-7 percent following the financial reforms in 1991, but declined sharply in the late 1990s, to less than 2 percent.

What explains this decline? In part it is because the benefits of the Green Revolution technologies had been largely exploited, although this may be questioned as India's crop yields on average are relatively low when compared with other countries, with stark regional variations in productivity. With increasing budgetary pressures, the government has faced a trade-off. As the India report points out, resources used for subsidies increased while expenditure on public goods — rural infrastructure and agricultural research — was largely neglected. There are signs that under the present government, which came to power in 2004, this policy is being changed.

The lack of radical institutional change in Indian agriculture may also be part of the explanation. China, in its de-collectivization process, created millions of smallholder farmers. In India, on the other hand, land reforms were successful in some states, but not in others. While 80 percent of operated holdings in India are small, 2 ha or less (1995-1996)1, there is a large landless population. In China only 2 percent of holdings were larger than 2 ha in 1997.2 As India is a federal state and most agricultural issues are dealt with at the state level, uniform institutional change is far more difficult to achieve than in China.

2.2.3    Poverty reduction

Beginning in the late 1960s there was a significant decline in poverty. From the late 1970s to the late 1980s the poverty ratio fell from 51 to 39 percent (based on India's official poverty line), due largely to gains in agricultural production and productivity. One difficulty that India faces is the unequal distribution of landholdings and the large landless population mentioned earlier. As a result, further reductions in rural poverty depend on the continuing shift of labour out of agriculture. There are also significant regional variations within India, such as between states or between districts. The drop in the proportion of the population below the dollar-a-day poverty index from 42 percent in 1990 to 34 percent in 2002 seems to have been largely due to the growth of the industrial and service sectors. Yet due to fairly rapid population growth, absolute numbers in poverty increased from 351 to 357 million3.

2.2.4    Food security

India achieved national food security and there were several positive developments associated with the Green Revolution period. Per capita availability of food increased as did per capita generation of income. Indian agriculture became much more insulated from the effects of drought. There was greater commercialization and diversification of cropping patterns from foodgrains to higher value crops, even for small and marginal farmers. There were also improvements in the livestock and fisheries sector. Consumption patterns also changed, even for the bottom 30 percent of the population, with the shares of non-cereal food (fruit and vegetables, dairy products) increasing. Nonetheless, food security and hunger remain a problem particularly in rural areas and in less-advanced states.

2.3    Future scenarios for China and India and their implications

In the country studies for China and India, analysis was undertaken using the Global Trade Analysis Project (GTAP) model and projections of future growth were made to the year 2020. Through this exercise the implications of rapid growth for production and consumption of agricultural products and trading opportunities for other countries in the region and the world have been assessed, based on certain assumptions.

2.3.1    Prospects for growth and domestic implications

The analysis conducted in the China case study projects average annual growth in GDP of 8 percent in 2006 to 2010 gradually slowing to 6-7 percent in the following decade. Several factors favour this strong growth performance, including macroeconomic stability, high domestic savings, increased spending on research and development, continued high levels of FDI, improved market environment and trade liberalization, and the commitment to greater equity — granting higher purchasing power to lower income groups. Also noted are obstacles that will tend to reduce growth particularly in the long run — a decline in the domestic savings rate, an ageing population and pressures on the natural resource base for sustained agricultural production.

While China's growth rate is projected to decline somewhat in the near future, the India study suggests that GDP growth could be rising from the current levels of 6-7 percent to 7-8 percent. It should be noted that these growth projections apply to two economies of considerably different size. Nevertheless, how does one explain the divergence? Part of the explanation is related to the incremental capital output ratio (ICOR). In India it is currently about 4 and expected to decline. In China while the ICOR was 4 in the early 1980s it has steadily risen since then and in 2002 was 5.4 (Restall 2006). In short, despite reforms in state-owned industries in China, India uses capital more efficiently. Also favouring India is the demographic dividend, with the percentage of the population in the 15 to 59 age group increasing from 59 percent in 2001 to over 63 percent in 2011 which could add 1 percent to GDP growth. In China, by contrast, the ageing population and sharp decline in population growth due to the one child policy will eventually slow overall economic growth.

The picture for agriculture is somewhat mixed. The land area used in crop production is gradually shrinking due to urbanization and in some instances environmental degradation. Thus for staple crops, production growth depends on an increase in yields. China has already achieved high yields in staple crops, and further gains will depend on technological breakthroughs. Indian crop yields are low by comparison with China and other countries. This is attributed in part to the neglect of investments in research and extension beyond the early Green Revolution years. In both China and India the yields for the principal Green Revolution crops, rice and wheat, have plateaued, due in part to falling groundwater tables and environmental degradation. However, if priority can be given to investment in research and development and infrastructure, there appears to be ample scope, particularly in India, for increasing yields and agricultural productivity.

As a result of continued rapid economic growth and increase in income per capita, demand for high income elasticity products, like milk, livestock and horticultural products will continue to grow. China and India are committed to maintaining cereal grain self-sufficiency. The projections for both economies indicate that food security can be maintained at a national level without resorting to significant imports. The baseline scenario presented in the China study, for example, indicates that in 2020 China will maintain or surpass self-sufficiency in rice, horticulture, pork and poultry, fish and processed foods, and come close to self-sufficiency in wheat, fibre and beef and mutton. In the case of India, despite low current growth rates of output for many crops, the expectation is that self-sufficiency can be maintained in rice, wheat, coarse grains, sugar, cattle and meat, fish and other foods. The country should also come close to self-sufficiency in other crops (although the model predicts significant decline in both production and consumption of these crops) and milk. However, both countries will need to adopt policies that ensure food security at a regional and household level where hunger and poverty still persist.

China's agricultural production structure is expected to shift more towards labour-intensive products such as vegetables, fruit, fish and processed foods, while self-sufficiency in land-intensive products such as oilseed, fibres and coarse grains is predicted to fall further from current levels. The largest increases in Indian agricultural production are predicted for oilseed, sugar, fibres, milk, fish, other agricultural products and other foods, while negative or low growth rates are expected in cattle and meat, rice, wheat, coarse grains and other crops. Nevertheless, for some of the high growth products India will continue to require significant imports, especially of oilseed, fibres and other agricultural products.

The dollar-a-day-poverty index had fallen to 16 percent in China in 2002 while it was 34 percent in India. Poverty is projected to continue to decline in India. With a GDP growth rate of 8 percent or more the poverty rate should fall from 26 percent in 1999-2000 to 14 percent in 2010 and then to 8 percent in 2015. There appears to be an implicit assumption in these figures that the reduction in poverty will come largely from growth in employment in the non-farm sector. The analysis of the Chinese experience suggests that the impact of rapid economic growth on poverty reduction tends to slacken eventually if the rural sector does not grow hand in hand. As incomes have grown, the impact and effectiveness of general economic growth on poverty reduction have weakened.

2.3.2    Implications for Asia and the greater Pacific region

Trade liberalization, globalization, and pressures to meet WTO and FTA agreements are generating a substantial growth in trade. China will have the largest impact on Asia and the Pacific region because China's economy is two-and-a-half times larger than that of India, it is growing faster and it is more integrated with the rest of the world. For example, China received some US$60 billion of FDI last year while India received only US$5 billion. FDI and multinational investments are a means of importing technology and entrepreneurial and management skills. By 2020 China is projected to be the world's second largest importer and exporter.

At the level of the overall economy, both China and India will be major importers of energy and minerals principally from Australia, the Russian Federation and the Middle East. China is projected to drop from 92 percent self-sufficiency in energy in 2001 to 67 percent in 2020. Recognizing this as a potential constraint to growth, China is taking steps to improve efficiency in the use of energy. The high total factor productivity (TFP) growth projection in the China country report indicates that reliance on energy imports can be reduced by as much as 60 percent and minerals by 50 percent. Aided by FDI and information technologies, China and India along with other developing countries are finding it increasingly easy to transfer technology from developed countries to exercise their comparative advantage in manufacturing. However, both countries have historically made low use of external resources, relative to their economic size, and national initiatives will continue to play an important role in determining their growth paths.

As noted previously, both China and India are projected to be self-sufficient in cereal grains and do not provide a serious threat to global food security. India is projected to continue its current role as a major net exporter of rice. Both China and India will be major importers of oilseed, plant-based fibre and forestry products. Soybean meal, for example, will come from destinations as distant as Brazil. In China there is already a trend in trade away from land-intensive crops such as food and feedgrains and sugar, and towards export of labour-intensive, high value commodities — horticultural crops, livestock, and aquaculture products. Table 1 provides a summary of the predictions of the two country reports with regard to net exports and imports in 2020. The use of different scenarios in the China report indicates that China presents considerable opportunities for other agricultural exporters under the baseline and high GDP growth scenarios, but these opportunities are significantly reduced under the high TFP growth scenario. The Indian data, on the other hand, under-represent opportunities for catching up in productivity via technological change.

Table 1. Net export share of world exports in 2020, China and India (percent)




Baseline scenario

High GDP growth

High TFP growth


Food and feed crops






Processed food






Animal products




Coarse grain


















Plant-based fibre


Textiles and apparel




Other crops






Cattle and meat






Other agric. products












Other food





The China report examines changes in the patterns of agriculture and food trade that are likely to emerge by 2020. Interestingly, Chinese exports to India are predicted to increase by 1 179 percent over their 2001 level, while Indian exports to China are predicted to grow by only 79 percent. The Indian study did not undertake a comparable analysis, but the figures presented in the China report tend to reflect the relatively narrow range of India's net agricultural exports at present — mainly rice, followed by wheat and sugar. The major diversification in China's exports is predicted to take place in Southeast Asia and "other" Asia, while exports to Japan, Republic of Korea, Hong Kong Special Administrative Region, China, and Taiwan Province of China are predicted to remain fairly stable. Less important growth areas for China include the Russian Federation, Australia and New Zealand, and Central and South America. On the import side, however, major growth in agricultural trade should come from the more developed Asian countries as well as most other parts of the world excepting Southeast and other Asian countries. For the developing countries in Asia, China is emerging as a significant competitor in agricultural products. In particular the current trade surplus in agricultural products that the Southeast Asian region enjoys with China is predicted to turn negative. Meanwhile many Asian countries will find it difficult to compete with non-agricultural exports from India and China such as textiles, given the comparatively low wages in these two economies.

2.4    Challenges and implications for domestic policy reform

The challenges facing China and India for sustaining rapid economic growth and meeting the MDGs are similar in nature. First there is the matter of continuing to reduce poverty and hunger and maintain food security. Two other serious issues concern the widening rural-urban income gap and the degradation of the environment. Also of concern is the need to restructure agriculture and markets to meet more diversified consumer and export market food demand, and the need to adopt policies that enable both countries to maintain comparative advantage in commodity production. How these challenges are addressed will determine to a large degree the success in meeting the MDGs, the ability to sustain growth and the role that these economies will play in world markets.

2.4.1    Food security and poverty

Two important questions related to achieving the MDGs of poverty and hunger reduction need to be answered. How does the growth in agriculture and in the non-agricultural economy affect poverty alleviation? What can we learn from the experience of China and India?

Ravallion and Chen (2004) for China and Ravallion and Datt (1996) for India conclude that there is a strong link between poverty reduction and increased agricultural productivity. However, Besley et al. (2004) argues on the basis of an enormously rich data set and very sophisticated econometrics that agriculture has played a minimal role at best in India's reduction of poverty (Timmer 2005). The China case study provides several interesting results on key factors that have determined the changes in rural poverty in China. Overall economic growth has been a key primary source of rural poverty reduction. But while economic growth is an essential and necessary condition for nationwide poverty reduction, it is not a sufficient condition. As incomes have grown the impact and effectiveness of general economic growth on poverty reduction has weakened. Fan et al. (2002) for China and Fan et al. for India (2002) examine the poverty impact of various agricultural investments and subsidies. Their work suggests that there are important multipliers at work and that the impact of these multipliers changes over time. In addressing the question of poverty impact of agriculture per se we need to look at the links between the agricultural and non-agricultural economy including rural non-farm employment.

Taking the aforesaid views into consideration, we observe in China that the TVEs provided a strong link between agricultural and non-agricultural economy which undoubtedly accounted for the sharp drop in poverty. Also fostering poverty alleviation has been the egalitarian nature of the reforms under the HRS. By contrast, the links between the agricultural and non-agricultural economy have been less strong in India and have been hampered by a host of regulations which have slowed the development of both agriculture and industry. Overall growth in the GDP is increasing in India while growth in agricultural GDP has been declining which does not speak well for reducing rural poverty.

Based on projections using the GTAP model both country studies conclude that they can meet domestic cereal grain demands without reliance on significant imports. Since the food shortages of the mid-1960s, foodgrain self-sufficiency has been a dominant feature of Indian agricultural policy. China also sets a high priority on foodgrain self-sufficiency. However, maintaining self-sufficiency in wheat production will almost certainly require improved management of water resources in the Punjab and neighbouring states and in the North China Plain.

Foodgrain self-sufficiency at the national level does not ensure food security at the regional or household level. It is a paradox that with more than 260 million people below the official poverty line in 1999-2000, India is one of the leading exporters of rice. Poverty incidence is expected to continue to fall in India from 26.1 percent in 1999-2000, reaching 8 percent in 2015 well beyond the MDG. But achieving this goal would appear to depend on the success of the reforms which target the growth in agriculture to rise from the sluggish 1.5 percent to 4 percent per annum.

From the experience of both China and India, the policy implications seem clear. Attention must be given to raising agricultural productivity and incomes in those areas that have thus far not benefited from new technologies or trade liberalization. At the same time emphasis should be on creating jobs in the non-farm sector, whether rural or urban based. For China this will require continuing reform of state-owned enterprises (SOEs) and encouragement of labour-intensive private industry. India's continuing reforms should foster growth in employment in both the manufacturing and service sectors.

2.4.2    The widening income gap

In addition to the rural-urban income gap, especially that between agriculture and new, dynamic industries, there are regional disparities such as between the coastal and the central and western provinces in China or between the Punjab and Haryana and the states of Eastern India. Further within regions there is the disparity between those that have become commercialized, for example through contract farming and those that follow traditional practices. Disparity in India exists between the more commercialized farmers in the Punjab and Haryana as opposed to those in Bihar and Orissa.

The issue here is not necessarily absolute poverty, but what Hayami (2005) describes as relative poverty. The less favourable areas need better education and health services and equal access to social services. Gulati et al. (2005) argue to this end that China and India should accelerate growth, improve efficiency and at the same time ensure that growth is both equitable and sustainable. To improve efficiency, India should phase out subsidies and efforts should be focused on developing infrastructure and new technologies. However, for many the path out of poverty lies not in agriculture but in non-farm opportunities. Both countries are experiencing rapid migration from rural to urban areas. But too little attention is paid to facilitating migration of rural workers to urban jobs where investments in the rural economy have a low payoff.

Both China and India are committed to addressing the income gap, but the approaches will be very different. China recently approved a 15 percent increase in the money earmarked for agricultural development, and rural services. Also China has initiated the "Five Balanced Development Strategies: balanced development between rural and urban, between economic growth and social progress, among regions, between human intervention and environmental conservation, and between internal and external economies." The proposed strategies and reforms are bold but there are many barriers to achieving the lofty goals of the programme.

The UPA Government came to power in India in May 2004 and the National Common Minimum Programme forms the bedrock of economic policy with the highest priority for agriculture and a holistic approach to agriculture and rural development. But India faces a different set of policy and institutional constraints. Rationalizing subsidies and extending reforms that liberalized industry to agriculture through the removal of regulations and restrictions to trade seem to be crucial. India also must address the problem of a high variability in income and livelihood among regions and states.

2.4.3    Environmental issues

Rapid economic development challenges the ability of China and India to manage resources, sustain agricultural growth rates and meet food security and poverty reduction objectives. In both countries, economic development has taken precedence over protection of the environment.

The environmental issues can be summarized under five main headings: air, water, soil, habitat destruction and biodiversity losses. Of particular concern to sustainability of agricultural growth and to food security are problems relating to misuse of land and water resources.

Soil problems — erosion, fertility losses, salinization and desertification are reducing the land area suitable for cultivation. Overuse of fertilizer (China's use of nitrogen is three times the world average) is resulting in both environmental problems and problems related to food and water safety. For example, the high levels of nitrates found in the drinking water in many cities in north China pose a threat to the health of infants.

Of immediate concern to both China and India is the growing scarcity and competition for water and declining water quality. The overexploitation of groundwater has contributed to the slowing of growth in grain production in two of Asia's breadbaskets, Northwest India and the North China Plain. This has important implications in particular for the long-term growth in wheat production in these regions.

The Indian National Common Minimum Programme, a politico-economic agenda that guides new government policy decisions, lists among its reform priorities stopping the misuse of water and the unsustainable use of land. In China and India major schemes are underway both to conserve water and to reallocate water between basins — for example from the Yangtze (north). These are long-range projects. Meanwhile, institutional changes are being tested and implemented with mixed success to improve the efficiency of water use and provide equitable allocation of water among competing uses and users. This includes programmes and projects designed to transfer operation and management responsibilities to local user groups — known as irrigation management transfer. Managing the common property resource, groundwater, to avoid overexploitation presents the biggest challenge.

2.4.4    The restructuring of agriculture

Figure 1 provides a conceptual framework plotting the transformation of agriculture against the degree of diversification. As incomes rise, food consumption moves at first toward less diversification. Households give up consumption of inferior sources (maize and root crops) for preferred cereal grains (rice and wheat). This is followed by diversification into horticultural crops and livestock products (including fisheries). This transformation set off by a rise in incomes began in China in the early reform period (1978-1984) and occurred in India largely as a result of the 1991 reforms. The result of these non-agricultural reforms in India was to improve the terms of trade for agriculture and bring forth private investments in horticultural and livestock products (Gulati et al. 2005). Farms may become more specialized, but agriculture as a whole becomes more diversified to meet changing consumer demands and the potential for exports. Finally, as suggested above, farm household incomes are likely to become more diversified. Countries, regions of countries, and farm households may, of course, be at different stages in this transformation process. The challenge is to provide as wide a scope as possible for participation in the transformation process at the farm level.

Rapid growth of selected Asian economies. Lessons and implications for agriculture and food security: Synthesis report

Source: Adapted from Timmer 1997.

Figure 1. Conceptualizing agriculture's transformation in Asia

Farms in Asia are small (2 ha or less) and in many instances are getting smaller. There is currently a sharp debate among academics as to whether small-scale agriculture can continue to play its historic role. In short, how will agriculture be commercialized? Can small farms have productive cultivation let alone provide the minimum output required to earn a livelihood? Does commercialization of agriculture imply larger farms?

Increasing commercial orientation, vertical integration and coordination of the farming sector with large-scale food processors, wholesalers and retailers who have private standards of food quality and safety could affect the viability of small farms. Evidence from China and India and elsewhere in Asia suggest that small-scale farms will continue to have a role to play. But restructuring of agriculture implies a change in the farm household unit to accommodate changes in domestic and export marketing. While there are economies of scale in distribution and marketing, there are few, if any, economies of scale in the production process. In fact, as demonstrated in China with both family plots under collective agriculture and with smallholdings under the household responsibility system, small-scale farming can be more efficient than large-scale enterprises. At the same time the high degree of fragmentation in farm holdings, particularly in China where the farm may be divided into five or more scattered plots, presents an obstacle to efficient management. Furthermore, there are advantages for farms to work together or to form groups to share services such as extension or tractor provision or for contracting with private sector marketing firms.

The farm size issue has important policy ramifications. The skewed land tenure situation in India suggests that large farms are likely to be more commercially oriented. In China and other parts of Asia there is often a restriction on farm size to maintain an egalitarian policy.

2.4.5    Maintaining competitive agriculture

A traditional response to the widening rural-urban income gap has been to subsidize agriculture. Countries have taxed agriculture in the early stages of development and then subsidized agriculture. The transition from tax to subsidy tends to occur when agriculture declines to 15 percent of the GDP.

The experience of India shows that continuing the current pattern of subsidies can be costly. They absorb funds that could be more effectively used for measures to enhance agricultural productivity — rural infrastructure and agricultural research. Furthermore, WTO and FTA agreements are putting pressure on developing countries to reduce protection. China has looked upon this as an opportunity to promote trade liberalization and decrease the highly protected state-owned industries. Trade liberalization has brought about a sharp shift in trade of goods in a manner consistent with comparative advantage. The export of less labour-intensive bulk commodities such as grains has declined while the export of labour-intensive higher valued commodities such as horticultural crops and animal products has risen. In India there has been trade liberalization since the 1990s. Contingent on domestic reforms, the India study argues that present high levels of bound tariff for agricultural commodities can be further reduced, barring certain sectors identified as sensitive (notably edible oils and dairy products), as India is cost competitive in agricultural products.

The India country study refers to the "spaghetti bowl" of trade agreements that India has with trading partners and the same would hold true for China. Multilateral trade agreements are preferable to discretionary regional agreements although progress in negotiating the latter has been slow. This fact notwithstanding, it is clear that Asia is moving toward a more liberalized trading environment. This stands in sharp contrast to the developed countries who continue to protect their farm economies. Subsidies to farmers in these countries are extremely large despite promises made in the Uruguay Round to reduce them significantly.

2.5    Lessons learned

For both China and India the prospects for continued fast economic growth appear to be excellent. Both studies identify possible constraints to growth and reforms needed to ensure that growth continues at a fast pace. To this end, several lessons, both positive and negative, can be drawn from the experience of the two countries.

Agricultural reforms. The initial conditions and institutional structure of agriculture determine to a large degree the nature of reforms needed to increase agricultural production and productivity in the early stages of economic development. Both governments have undertaken reforms and adopted policies that have accelerated agricultural and economic growth. Chinese agriculture benefited from a major reform awarding decision-making and control over income to smallholders. India's reforms, although less drastic and not specifically targeted at agriculture, provided the incentives and technologies that farmers needed to increase productivity and incomes.

Provision of public goods and services. Public goods in the form of infrastructure, education, research and technology are essential to initiate and sustain growth in agricultural production and productivity. In China, growth in total factor productivity came first principally from institutional change and then subsequently from technology. The slowing of growth in Indian agriculture in recent years has been attributed in large measure to neglect of public goods needed for agricultural and rural development and to distortions resulting from the excessive use of farm subsidies and price support.

Poverty reduction. Poverty reduction is stimulated by growth in both the agriculture and non-agricultural sectors. This is particularly illustrated by the success of China in the early reform period in developing TVEs. Whether rural or urban based, growth in non-farm employment is a critical factor in poverty alleviation. In both India and China, policy and institutional reforms are currently needed to promote non-farm employment.

Income disparities. An inevitable consequence of rapid economic growth is an increase in income inequality. This is reflected in the growing disparity between rural and urban incomes and the growing regional disparity. Even as the percentage of those in poverty is declining relative poverty is increasing and in some instances causing civil unrest. Both China and India are attempting to address this problem initially by schemes such as reducing taxes and approving money for "make-work" schemes, but as with poverty reduction, the long-term solution lies in developing non-farm employment opportunities.

Environmental degradation. Another consequence of rapid economic growth is environmental degradation. Air, soil and water pollution are widespread. Environmental issues tend to be overlooked in favour of policies that promote growth in the short term. The objective should be sustainable growth. Eventually a point is reached where overexploitation can inhibit further growth. For both China and India this point seems to have been reached with regard to water resources and efforts are being made to improve water-use efficiency.

Technology development. By developing country standards, the investments in research and technology development in agriculture are low. However, both countries have well-established research systems and the capacity for developing new technologies exceeds that of smaller neighbouring countries. Although the spread of technologies will be governed in part by the protection of intellectual property rights, other Asian countries have in the past and should in the future benefit from technology developments in both China and India.

Commercialization of agriculture. In both China and India there are sections of agriculture that are becoming more commercialized to meet consumer demands for a wider variety of products of good quality. A central question is whether the process of commercialization will require a change in farm size. There are clearly economies of scale to be gained in marketing and distribution, but the argument in favour of small-scale agriculture rests on the fact that there are no significant economies in agricultural production.

International trade. International trade is being significantly impacted by WTO and FTA policies. With more liberalized markets China is becoming one of the world leaders in international trade. The impact on agricultural trade will be felt not only in Asia but also in the Pacific Rim countries. A similar pattern could emerge for India with reforms that increase the competitiveness of industry and agriculture. Both countries will be major importers of energy, minerals and forestry products.

1 Agriculture Census Division, Ministry of Agriculture, Government of India.

2 Abstract of the First National Agricultural Census of China, Food and Agriculture Statistics Centre, Beijing, 1999;
(http: / / / es / ess / census / wcares / china_2000.pdf).

3 United Nations Population Division, World population prospects: the 2002 revision.

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