In drawing lessons to address poverty and hunger, the adaptability of experiences of China and India to small country situations needs to be carefully analysed. In this context, it would be useful also to study relatively small economies which have shown spectacular and resilient growth and have achieved reduction in poverty and undernutrition within a short period of time. The experiences of three countries — the Republic of Korea, Thailand and Viet Nam — are of interest in this regard. The Republic of Korea achieved extremely rapid growth beginning in the 1960s and is now among the high-income countries. Thailand has had export-led growth with innovative marketing, product diversification, agribusiness and value addition. The recent experience in Viet Nam offers evidence that increasing agricultural exports and integration into international markets can contribute both to economic growth and to reducing poverty, especially when combined with investments in infrastructure and policies that encourage agricultural and rural development (FAO 2003).
The Republic of Korea, one of the so-called "East Asian tigers", achieved extremely rapid economic growth and industrialization following the upheaval resulting from the Korean War (1950-1953). This growth was marked by the ability of the economy to absorb surplus agricultural labour, increase the productivity of farm labour and avoid a serious discrepancy between rural and urban incomes.
The Republic of Korea was a colony of Japan prior to the Second World War. Although Korea benefited from the Green Revolution in the 1970s, it also experienced significant growth in agriculture prior to the Second World War. Between 1925 and 1935 rice yields grew in Korea and Taiwan Province of China at more than 2 percent per annum (Kang and Ramachandran 1999). By 1960, when Korea began its industrial takeoff, rice yields were 4 tonnes/ha, more than twice the level of neighbouring China. Even more important, farming was practised traditionally by tenants, but in 1950 a comprehensive land reform created smallholder agriculture. Thus the agricultural economy was in a position to support rapid economic development.
From the 1960s through the 1980s the Republic of Korea's economy grew at 9 percent per annum. Per capita income grew at 7 percent per annum. Agricultural growth exceeded 4 percent in the 1960s but gradually declined to 3 percent in the following two decades and 1 percent in 1990 to 2003. The contribution of agriculture to GDP declined from 27 percent in 1970 to 3 percent in 2004. This was accompanied by a decline in the labour force in agriculture from 45 to 7 percent.
The shifts in agricultural policy in Korea are instructive. From 1960 to 1969, agriculture was taxed and grain prices were kept low with the import of PL480 shipments. Beginning in the 1970s there was a shift in policy to subsidizing agriculture. The share of agriculture in GDP at that time was about 15 percent. A two-price system was adopted for rice, high for producers and low for consumers, which was extremely costly for the government.
By the 1980s emphasis was placed on the commercialization and spread of capital intensive farming. However, Korean agriculture remains rice dominant, and for the farm households roughly 50 percent of income comes from farming. Self-sufficiency in rice remains a strong political objective in part due to relations with the Democratic People's Republic of Korea.
A major challenge facing Korean agriculture is to obtain a "soft landing" on the WTO / FTA plateau. The WTO Doha Development Agenda (DDA), yet to be completed, will pressure the Korean Government to lower tariffs. A study undertaken by the Korean Rural Economic Institute projects that the lowering of tariffs could result in a decline in farm income of 7.5 to 35.6 percent depending on the speed of the tariff reductions. The Korean Government wants to lower tariffs gradually, but is encountering strong opposition from Korean farmers who do not wish to be exposed to the uncertainties of global markets.
The government is taking a strong hand in encouraging sustainable agriculture. Plans are to reduce the amount of chemical fertilizers by 40 percent over the coming decade and to emphasize the use of livestock manure. The government will also continue to invest in agricultural research and development and rural infrastructure in an effort to close the gap between rural and urban incomes.
The Korean Government has been slow to ease regulations related to farmland ownership and farm size. Reforms are now taking place in the distribution system of agricultural products which should speed the process of commercialization of agriculture. However, there is a widening income gap between the larger commercially oriented farmers and small farmers.
In one sense Korea is typical of other Asian countries undergoing rapid industrialization — the widening rural-urban income gap (reduced in the case of the Korea by heavy subsidies for agriculture); the ageing agricultural population and environmental issues related to intensification. From the outset in Korea, the government has played a major role not only in agricultural but also in industrial development. Government policy has clearly influenced the allocation of resources and slowed the rate of diversification at the farm level.
The following lessons have been learned from the Korean experience.
Thailand, a middle income country, has achieved remarkable success in agricultural and economic development. Agriculture was taxed to support industrial growth until the mid-1980s. Although agriculture's share of the GDP has fallen to less than 10 percent, Thailand has maintained its strength in the export market. At the same time there has been a shift to high-value crops particularly by professional farmers who, working independently or together with private marketing firms and with government agencies, are pioneering innovative technologies and management practices.
Thailand experienced rapid agricultural and economic growth over three decades from the 1960s to the 1980s. Throughout much of this period the GDP grew at 7 to 8 percent and agricultural GDP at 4 to 5 percent. Agricultural growth was spurred on in part by the fact that Thai farms were larger than in most other Asian countries (6 ha as opposed to 2 ha) and forest areas could be brought into cultivation. From 1960 to 1980 the main source of agricultural growth was land and labour. Subsequently, the largest contributor to agricultural growth was capital accumulation followed by technological progress. Technical progress as measured by total factor productivity, accounted for 25 percent of agricultural growth in 1980 to 1995.
The incidence of poverty declined from 57 percent in 1962 to 1963 to 10 percent in 2002. Until the mid-1980s the decline in poverty was due principally to the growth in agriculture. But since then, the cause of poverty reduction has been principally the growth in industry. Evidence shows that in this latter period growth in the rural economy was highly linked to growth in industry.
The mid-1980s witnessed major changes that impacted on agricultural growth. The limits to expansion of the land area were reached. There was a global depression in prices which, coupled with a rise in wage rates, resulted in a cost-price squeeze for farmers. Water shortages were also experienced in many areas. Finally, the liberalization of financial markets as a result of the Plaza Accord led to heavy foreign investment in Thai industries, with a negative effect on agriculture described in the Thai report as the "Dutch disease."
Growth in agriculture declined. Nevertheless, several steps were taken by farmers, private marketing firms and by the public sector to ensure continued strength in exports and to meet the growing domestic demand for a broader range of quality foods. The government ended taxation of exports. Farmers mechanized to reduce labour costs and invested in water pumps and pond digging to reflect the growing scarcity of water. To meet changing consumer demands they switched to the production of higher value commodities: horticulture, livestock and fisheries. Professional farmers either singly or in groups developed contracts with marketing firms introducing new technologies and management practices. In short, this restructuring of agriculture, to the degree that has occurred, has forged new linkages among farmers, marketing firms and government agencies. There also are spill-over effects in terms of public goods that benefit the whole farming community.
Thailand has developed a successful strategy for dealing with employment in the northeast with its poor soils and lack of irrigation. Farm family members are employed in local industries or in Bangkok to supplement farm household income. The amount of time devoted to crop production has been sharply reduced. By contrast, in the south the agricultural labour force is fully employed primarily in rubber production and Thailand has surpassed Malaysia as the world's leading rubber exporter.
While meeting new domestic demands, Thai agriculture has maintained its strength in exports being a world leader in exports of rice, cassava and rubber and having a global reputation for the quality of its exports. Thailand has supported the move toward trade liberalization recognizing that it would give a boost to export prices. With the slow progress on the Doha round negotiations, Thailand has signed a number of FTAs, the main benefit of which is to gain access to foreign markets not only for traditional exports but for a wide range of agricultural products.
As agriculture's share of the GDP shrinks, there is an almost universal tendency to provide various price-support and subsidy schemes driven by the desire to boost agricultural incomes. Thailand seems to be no exception. The several schemes tried so far by the Thai Government to provide farm support have been generally unsuccessful. But, by and large, to date these programmes have not been at a level to cause major distortions in the economy or disrupt Thailand's comparative advantage. Thailand must continue the shift to higher value and safe food products if it is to remain a major exporter of agricultural products and to supply an increasingly sophisticated domestic consumer demand. This restructuring of agriculture will require more sophisticated and intensive management provided either by individual farmer-entrepreneurs or by contract farming. There is a need to promote professionalism in farming, to provide farmers with information on new farming techniques and to lower the cost in establishing business relations with modern food marketing firms. Farmers' groups may achieve economies of scale in obtaining extension services and in dealing with marketing firms.
Technological change has been one of the main driving forces in the growth of agricultural productivity and Thailand will have to continue to invest in research if it is to remain competitive. However, there is a need to prioritize public sector research to focus on those areas not covered by the private sector. Furthermore, there is currently in the public sector a shortage of qualified research and extension workers due to an unattractive reward system.
In restructuring toward land-intensive but less water-intensive commodity production there is a need to re-examine land and water policy. In the process of commercialization, laws are needed to facilitate land transfer and the increase in farm size. In the case of water, there is a need to shift from ineffective supply augmentation to demand management. Institutional reform or innovation is needed to establish water rights and regulate the allocation of water among sectors.
As Thailand expands FTAs and comes under increasing pressure from the WTO it will be necessary to make some adjustments in domestic agriculture, for example shifting out of commodities such as fruit and dairy products for which the temperate zones have a comparative advantage. At the same time it will be necessary to negotiate with trading partners to remove restrictions on Thai exports.
The following lessons have been learned from the Thai experience:
Viet Nam, a low-income country, is one of the fastest growing Asian economies, being outpaced only by China. As we will note below, there is a remarkable similarity in the policies and institutions adopted by China and Viet Nam as both countries shifted from planned to market economy.
Viet Nam faced a series of crises both external and domestic following the war with the United States. The transition from a planned to a market-oriented system began with the promulgation of Doi Moi (Renovation) in 1986. But the decision to decollectivize agriculture (resolution 10 of the Politburo) was in large measure influenced by a disastrous crop year and shortfall in rice production in 1987. This was followed by the liberalization of the markets beginning in 1989. Devaluation of the currency and other measures led to control of inflation and provided macroeconomic stability. Another critical piece of legislation was the 1993 land law which increased the security of tenure and allowed for transfer of land-use rights.
These steps laid the foundation for rapid economic growth. Between 1990 and 2003 the Vietnamese economy grew at 7.5 percent and the GDP in agriculture grew at 4.2 percent. The share of agriculture, forestry and fisheries in GDP fell from 39 to 22 percent. Over roughly the same period (1990 to 2002) the dollar-a-day poverty index dropped from 50.7 to 13.1.
This same period saw a rapid growth in agricultural exports. Viet Nam became the world's second largest exporter of rice, coffee and pepper. Seafood exports rose dramatically surpassing rice and coffee in export earnings as world prices fell for the latter two commodities. Agricultural exports accounted for 38 percent of export earnings in 2003, increasing from 31 percent in 1995.
As in the case of China, total factor productivity in agriculture showed the largest gains in the early reform period (1985-1990). The Viet Nam study suggests that this was due to a dramatic increase in the quality of labour used for agriculture, but future gains will need to come from technological change.
Despite the decline in poverty and as a consequence of the rapid industrial growth, the rural-urban income gap is widening. There is also a growing regional disparity in income within agriculture and pockets of food poverty. There is a need in some regions to support agricultural and rural development and in others to facilitate migration to industry. The industrial sector has been unable to absorb surplus labour from the agriculture sector. This has been due in part to the restrictions on the expansion of labour-intensive private enterprises. Better incentives for the development of firms generating non-farm employment are needed.
As a result of the egalitarian nature of the land reform, operating units are highly fragmented. Steps need to be taken to facilitate consolidation and increase in size of landholdings to improve the efficiency of production and farm incomes and facilitate commercialization. Forty percent of all households are engaged in some degree of commercial production (90 percent in the Mekong Delta). A new stratum of commercial farms has emerged and policies should be adopted to facilitate increase in these numbers. At the same time, a strategy must be pursued that supports the majority of the farming community with lower levels of commercialization and to facilitate migration particularly from regions where agriculture is less productive.
The creation of non-farm employment has moved slowly. Only in the Red River Delta have the number and proportion of off-farm households increased rapidly. By contrast in the Mekong Delta and the Southeast heavy out-migration to the cities may have a negative impact on sustainable rural prosperity.
The rapid growth of exports has involved certain risks. For example, the expansion of coffee production was a major factor contributing to the decline in world coffee prices, and this was reflected in a loss of income by coffee producers. Another major concern is the need to improve the quality of exports to enhance competitiveness in world markets.
There are signs that agricultural output and productivity growth are slowing down; expansion of off-farm employment opportunities has not kept pace with the growth in rural population and labour force; poverty reduction is slower in rural than urban areas; pressure on land and natural resources has increased; growth in export earnings has slowed. All of these factors suggest the need to identify the policies and investments needed to sustain agricultural and rural development in the future.
The Viet Nam country paper lists nine lessons learned. These can be summarized briefly as follows:
4 In this report, the Republic of Korea is also referred to as Korea for the sake of brevity unless otherwise specified.