Asia and the Pacific

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REGIONAL OVERVIEW

Economic developments

Asia and the Pacific continued to outperform all other regions in 1994, recording an economic growth rate of 8.2 percent. GDP growth rates of 7 percent or more were achieved by nine countries, including the most populous ones: the People's Republic of China, India, Indonesia, the Republic of Korea, Pakistan and the Philippines. Prospects for 1995 and 1996 are also encouraging. The Asian Development Bank (AsDB) estimates the average regional growth rate to be 7.5 percent over the next two years.

The region's exports increased at a strong pace, growing by 11 percent in 1993 and nearly 1 7 percent in 1994. Factors that encourage export growth include the recovery in some Organisation for Economic Cooperation and Development (OECD) countries (especially the United States), substantial investments in information and electronics industries throughout the region in general and a rapid increase in foreign investment in South Asia in particular.

Trade within Asia and the Pacific continued to grow at a faster rate than trade with the rest of the world, while both formal and informal economic cooperation and integration efforts increased. In particular, countries are attempting to learn lessons from the positive experiences of the growth triangles in order to encourage further subregional economic integration. The recent depreciation of the US dollar relative to the Japanese yen is the one unsettling factor. Since many Asian and Pacific countries hold large portions of their debt in yen, their dollar-based export earnings will not go as far in repayment of that debt as in previous years.

China's economy grew by 11.8 percent in 1994, down slightly from its astonishing performance of 13.4 percent in 1993. China accelerated its economic reforms in 1994, taking steps to unify the official and market exchange rates, strengthen the central bank and reorganize commercial banks. The unification of the exchange rate resulted in an effective devaluation of 50 percent, contributing to the country's 30 percent increase in exports in 1994. The government is continuing its overall strategy of phasing out subsidies to farmers, urban consumers and state-owned enterprises.

Figure 7

In the region's second-largest developing economy, India, growth increased from 4.3 percent in 1993 to 5.3 percent in 1994. The stabilization programme and market-oriented reforms that India began in 1991 are credited with much of the country's recent success in increasing private investment, domestic savings and foreign capital inflows. Other South Asian countries have also achieved some success in stabilization and reform efforts. With a growth rate of 7 percent, Nepal had its best economic performance of the past decade and, in Bangladesh, overall economic growth increased by 4.6 percent in 1994 with the manufacturing sector growing by 13 percent.

The consistently strong economies of Southeast Asia, Indonesia, Malaysia and Thailand strengthened economic performance in all sectors in 1994. In contrast to past years, the Philippines also shared in the subregion's strong growth. The industrial sector led the economic recovery in the Philippines, with industrial growth increasing to 6.1 percent in 1994, compared with 1.6 percent in 1993. In addition to the Uruguay Round, the agricultural sectors of the Southeast Asian countries will be affected by the Association of Southeast Asian Nations (ASEAN) Free Trade Agreement in coming years, as negotiators decided to include agricultural commodities in the agreement's planned tariff reductions.

Average GDP growth in the Pacific Islands fell from 11.8 percent in 1993 to 1.4 percent in 1994 and exports fell slightly. Papua New Guinea accounted for most of the reduction in subregional growth and exports. However, this drastic drop in economic growth is mainly the result of national accounting methods and does not reflect a severe slowdown in economic activity. In 1993, the economic impact from newly developed oil fields was responsible for raising the industrial growth rate to 35 percent, but without this influence growth in the industrial sector fell by more than 4 percent in 1994. Among the other islands, Fiji (3.2 percent) and Tonga (4.7 percent) improved their growth performance during 1993 and the Solomon Islands maintained its previous year's growth rate at about 4 percent.

Agricultural performance and issues

In 1994, agricultural production in the Asia and Pacific region increased by 2.5 percent. The region's total cereal production, however, was lower by more than 5 million tonnes, primarily because of weather-related problems in China. Overall, regional agricultural performance remains strong - between 1990 and 1994, agricultural production increased by 13 percent and per caput food production by 7 percent. Table 11 presents agricultural GDP growth rates for 1992 to 1994 and estimates for 1995.

In China unfavourable weather held agricultural growth to 3.5 percent in 1994. Floods or droughts affected more than 50 million hectares of cropland. - Nevertheless, the country's 1994 total cereal production of 397 million tonnes was down only slightly from the record 1993 harvest level of 406 million tonnes. Cotton production increased by more than 13 percent, oilseed production by 10 percent and fruit production by 15 percent. Similarly, meat production increased by 12 percent, dairy production by 6 percent and fisheries by 15 percent.

China's agricultural policy-makers are concerned that the combination of relatively low procurement prices for cereals, large increases in fertilizer and other input prices and expanding economic opportunities in non-farming activities are leading to lower-levels of private investment in agriculture and a reduction in the area planted to cereals. Moreover, the disparity between rural and urban incomes is widening, contributing to rural-urban migration. In 1995, the government plans to address these important issues by improving availability and access to agricultural inputs, strengthening irrigation systems and related infrastructure, increasing investment in mineral fertilizer production and expanding agricultural education, research and extension services.

In South Asia, the favourable monsoon rains helped India to produce a record cereal harvest of 212.5 million tonnes in 1994. (A review of India's agricultural sector policies is presented on p. 115.) Sri Lanka's agricultural GDP grew by 3.4 percent; while rice production increased only slightly, 1994 tea output was 4 percent above 1993 levels and 35 percent higher than 1992 production. In October 1994, Sri Lanka's new government reintroduced the fertilizer subsidy programme. The programme initially subsidized importers and led to a 30 percent reduction in fertilizer prices. However, budgetary pressures eventually forced the government to revise the programme by directing cash subsidies to small farmers.

TABLE 11
Growth rates in agricultural GPD

Country 1992 1993 1994 19951
Bangladesh 2.2 1.8 1.8 2.6
Cambodia 1.9 -2.0 1.4 ...
China 4.1 4.0 3.5 4.0
India 5.1 2.9 2.4 3.0
Indonesia 6.6 1.4 1.6 4.3
Laos 8.3 2.7 7.6 ...
Malaysia 4.3 3.9 0.5 2.3
Mongolia -3.9 -7.0 7.1 ...
Myanmar 10.5 5.1 6.4 ...
Nepal -1.1 -1.4 7.7 -1.0
Pakistan 9.5 -5.3 2.6 2.8
Philippines 0.4 2.1 2.4 3.0
Sri Lanka -1.6 4.9 3.4 2.6
Thailand 4.2 -1.7 2.9 2.9
Viet Nam 7.2 3.8 3.9 3.5

1Projections.

Source: AsDB. Asian Development Outlook 1994 Manila.

Pakistan's agricultural sector grew by 2.6 percent in 1994: sugar cane, fisheries, forestry and livestock production improved, while cotton production remained low because of disease and pest problems. Cotton is Pakistan's most important export crop, on average accounting for around 50 percent of agricultural export earnings, but production is down by more than 30 percent from 1 991's record levels. In order to increase production and exports, the government removed export taxes and lifted the ban on private sector exports i n 1 994.

Indonesia's agricultural sector growth increased by only 1.6 percent in 1994: rice production fell by 4 percent because of poor weather; droughts and forest fires affected rubber production and the recent drought has also harmed shrimp production. A government report indicates that 10 percent of the country's shrimp farms were damaged by industrial pollution in 1994. Concern over the loss of agricultural land to residential and industrial uses prompted the government to ban the conversion of fertile land in Java and Bali. In an effort to improve forestry management, the government also issued a decree that allows the revocation of forest concessions for any one of four offences: sale or storage of illegally cut timber; abandonment of a concession for two consecutive years; transfer of forest concession rights to third parties without prior consent; and violation of existing forest conservation laws.

In Viet Nam floods affected some 200 000 hectares of rice land in both the northern and the southern parts of the country, but agricultural sector GDP still increased by nearly 4 percent. Recent legal reforms have led to substantial increases of foreign investment in agriculture, agroforestry, fisheries and sugar production. In 1994, the country took a number of steps to integrate its economy further by gaining observer status to GATT (now the World Trade Organization), becoming a full member of the Pacific Economic Cooperation Conference (PECC) and becoming an ASEAN member.

Issues and prospects for regional agriculture

Although the share of agriculture in GDP has declined steadily from 30 percent in the mid-1980s to around 20 percent in recent years, agriculture remains the driving economic force and major employer in many Asian countries. More than 65 percent of the region's inhabitants still live in rural areas and agriculture employs more than half of the economically active population. In general, Asian and Pacific countries have made considerable progress in expanding domestic food production and improving aggregate food supplies. Per caput daily dietary energy supplies (DES) for the region as a whole improved from 2 314 kilocalories in 1980-82 to 2 542 kilocalories by 1990-92.

Moreover, rapidly growing economies, broad-based income growth and expanding export revenues have allowed many countries to strengthen their import capacity to meet changing consumer demand for products such as beef and poultry. For example, the value of meat imports of Asian and Pacific countries has grown by more than 6 percent a year over the past decade. Overall, the Asian and Pacific countries are the world's fastest-growing market for agricultural imports.

The region now accounts for 65 percent of total developing country agricultural imports. Nevertheless, in many countries, including China, India, Indonesia and Thailand, the strong pace of domestic food production has allowed food imports to expand to supply changing food demands and a growing population while the food import dependency ratio remains unchanged.

The region's ability to continue to expand agricultural production and trade in the future will largely depend on its ability to sustain economic growth while responding to growing natural resource and environmental constraints. (Box 3 presents an overview of land degradation problems in the Asia and Pacific region.)

Most Asian and Pacific countries have sustained economic growth by maintaining sound macroeconomic policies that control inflation and fiscal and current account deficits. In addition, countries throughout the region, including the former centrally planned economies, have pursued and progressively strengthened market-oriented structural reforms. These reforms have allowed agricultural sectors to adjust and take advantage of changing internal and external circumstances. The experiences of Asian countries further advanced in the reform process have also demonstrated the importance of careful monitoring and evaluation; attention to the timing and phasing in of new measures; and the development of the institutional capacity necessary for quick corrective actions to strengthen the food security of vulnerable groups affected by the reforms.

It is crucial for the region to continue this process of economic adjustment aimed at improving resource efficiency and encouraging investment in agriculture. A number of recent studies, including one from FAO, estimate that the growth rates of per caput agricultural production in the Asia and Pacific region are likely to decline during the next two decades. This decline is projected to be more pronounced for the East Asian subregion than for South Asia. However, growth in per caput demand is also projected to decline. Cereals demand is expected to grow at about the same rate as production, especially for East Asia, thus self-sufficiency rates are not projected to change much. At these levels of self-sufficiency, net cereal imports in the year 2010 are likely to increase by only 2 million tonnes in the East Asian subregion but may double to 10 million tonnes in South Asia.

Over the long term, FAO expects aggregate cereal self-sufficiency rates to fall from 102 to 97 in South Asia and to stagnate at 96-97 in East Asia in the 20 years ending 2010. This implies a sustained rise in the volume of imported wheat in the tropical countries, rice in the higher-cost producing countries and maize in countries with fast-growing livestock sectors.

In some countries, such as the Republic of Korea, declining production combined with sufficient foreign exchange are likely to raise cereals import dependence, especially for wheat and coarse grains. In some low-income food-deficit countries (LlFDCs) and most of the Pacific Island countries, changing food habits, rising incomes and stagnating production are expected to raise cereal import levels. In other countries, including Indonesia, Malaysia, the Philippines and Sri Lanka, the high costs of stocking food supplies have caused governments to reduce stock levels. As more countries adopt this practice, domestic stocks may play a diminishing role vis--vis international trade in price and supply stability.

BOX 3
RESOURCE CONSTRAINTS AND AGRICULTURE IN ASIA AND THE PACIFIC

The Asian and Pacific countries must confront the related resource issues of land degradation and increasing water scarcity to sustain agricultural and food production growth. A significant proportion of Asia's land in crop production is fragile; this includes arid and rainfed semi-arid areas, areas with unreliable rainfall and areas with steep slopes and/or poor soils. It is these areas where environmental degradation and rural poverty tend to be most severe.

FAO estimates that the uncropped cultivable area in South Asia (0.051 hectares per person) will be halved in 20 years, while that of East Asia (excluding China) will drop by a third to 0.103 hectares per person. These estimates show that the region has the least potential for cultivated area expansion of any other region in the world except for the Near East and North Africa. The limited cultivable area for expansion and the continuing conversion of fertile agricultural land to non-agricultural uses mean that production increases have to come mainly from yield increases.

Yield increases will be difficult to accomplish, however, given the quickening pace of land degradation and water scarcity. The most damaging factors are soil erosion, nutrient mining, salinization of soils and loss and contamination of water. The extent and intensity of land degradation and water scarcity have been difficult to measure, but indications of the magnitude of the problem can be obtained from just two recent United Nations Environment Programme (UNEP) estimates for Asia:

The drag on yield growth caused by unsustainable farming systems has become a pervasive problem in areas where the vicious circle of poverty and environmental degradation has been established. Dwindling per caput resources lead to further intensification of resource use and encroachment on to fragile areas which, in turn, leads to greater impoverishment. Resource degradation problems are extensive enough in the region to justify priority status and a strategy involving: shifting technology from hardware solutions to more knowledge- and information-based ones; establishing well-defined property or user rights for public and private resources; ensuring people's participation and decentralized resource management; and including direct and indirect environmental costs in agricultural commodity pricing.


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