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4. Lessons from the five countries

What have we learned from the experience of these five countries? What does this suggest for the future direction of strategies and policies designed to maintain food security, further reduce poverty and promote the restructuring of agriculture? The degree of relevance of specific country experiences and the lessons emerging differ from country to country depending on resource endowments, policy and institutional set up and the stage of development. Yet there tends to be a common path for agricultural and economic development marked by a common set of achievements and problems encountered which some have described as a uniquely Asian experience. This commonality allows us to relate country experiences and provides an opportunity for other Asian countries to learn from these experiences.

4.1 Role of agriculture in economic growth

Economic development begins with the development of agriculture. This is because in the early stages of development agriculture accounted for one-third to one-half of the GDP and employed two-thirds or more of the labour force. What were the prerequisites for rapid agricultural growth? Our country studies showed that some combination of agrarian or land-to-the-tiller reforms, investments in research and extension and investments in irrigation were essential in all cases except Thailand. Thai agricultural growth was fuelled by extension of the crop area and by exports of rice and upland crops. All countries, except India, were able to sustain growth rates of 4 percent or more in agriculture for a decade or more.

Of particular note were the land reforms in China, Viet Nam and, at an earlier stage, Republic of Korea. De-collectivization of agriculture in the first two gave a huge boost to agricultural productivity. Indian agricultural growth, on the other hand, relied initially on Green Revolution technologies and later on links to the development of industry and services. Land reform was initially patchy and it is noteworthy that agricultural growth in India has not reached the high levels experienced in the other four countries.

Moreover, in the early stages of development, agriculture provided labour and capital (often in the form of export earnings) to the industrial sector and in turn provided a market for industrial products. Agricultural exports have played a key role in China, Thailand and Viet Nam. Additionally, in Thailand the mix of commodity exports has changed over time, maintaining comparative advantage and aiding a revival of the agricultural economy after the 1997 crisis. Except for India, the high rates of agricultural growth were associated with growth rates in industry of 10 percent or more. As the experience of India and other countries shows, without the appropriate institutional and policy structure, agricultural growth contributes less to growth in the overall economy.

As agriculture grows rural incomes rise but not as fast as incomes in the rapidly growing non- agricultural economy, widening the rural-urban income disparity. This phenomenon has been especially marked in China, Thailand and Viet Nam and is accompanied by a decline in agriculture's share of the GDP. In the initial stages of development, low productivity growth in Thailand was linked to extension of the cultivated area, but in land-scarce Viet Nam and China, land reform led to increased productivity through increased intensity of labour inputs. Ultimately, however, if labour productivity is to grow there must be a decline in the agricultural labour force. However, with the notable exception of the Republic of Korea, the decline of the labour force in agriculture has not kept pace with the decline in the share of agriculture in the GDP. The urban-rural gap has therefore widened.

The country studies indicate that in the early stages of development agriculture is taxed to provide support for industrial development. But as agriculture's share of GDP declines to about 15 percent, countries have shifted from taxing to subsidizing agriculture. This occurred in the Republic of Korea in the early 1970s and in Thailand in the mid-1980s. The Thai report notes that while there are strong political pressures for subsidies, the various schemes introduced have for the most part been a failure. Against these pressures to subsidize agriculture are countervailing pressures, brought on by FTAs and WTO membership, to liberalize trade. To the extent that free trade policies prevail, the form of subsidization of agriculture may change from commodity-specific subsidies which are considered trade distorting to decoupled direct payments to farmers to ensure a reasonable level of living in agriculture.

Finally, all five country studies report that the growth in agriculture is slowing down. There are a number of factors that help to explain this decline. For the past two decades there has been a secular decline in the real price of agricultural commodities. Support for agriculture among multilateral lending agencies has declined and national budget allocations for agriculture have also declined. With foodgrain prices remaining low and most countries enjoying near self-sufficiency there is complacency about food security.

The lessons for countries, particularly the least developed ones with a large share of population in the agriculture sector, are to support agricultural growth and rural development to address the problems of poverty and hunger and to create a sustainable basis for rapid economic growth. Experience in the countries studied and elsewhere in Asia shows that in the early stages of development agricultural growth has a more direct and greater impact on poverty reduction.

Having said this, we need to address the problems of further agricultural and rural development with a two-pronged strategy. The first prong should have the elements to accelerate agricultural productivity growth, diversification, and competitiveness — a favourable macroeconomic and policy environment , application of modern technology, investment in irrigation, development of post-harvest infrastructure and improvements in the legal framework for related investment and commercial activities. Some of these needs are elaborated in Section 4.4 below. The second prong should consist of measures to address production and nutrition issues particularly in the relatively less-endowed and remote regions with high incidence of poverty. This would be achieved through research and development of suitable crops, infrastructure development and strengthening linkages with the non-farm sector. As the Viet Nam report notes, food insecurity persists at rather high levels in some areas where farmers are unable to shift to more productive activities due to lack of resources. Careful targeting of public investments in these areas could have large benefits at relatively low cost.

4.2 Poverty, food security and income inequality

In this section we discuss three subjects that are closely linked, poverty, food security and income inequality. Despite progress in reducing the incidence of poverty over the past several years there were an estimated 688 million people living below the dollar-per-day poverty line in Asia in 2002, the majority of them living in rural areas. What is the appropriate strategy for reducing rural poverty and achieving food security at the household level? How does the growing disparity between rural and urban incomes influence poverty reduction? In answering these questions we examine the experience reported in the country papers.

All five countries have achieved notable success in poverty reduction. In the Republic of Korea the incidence of poverty is less than 2 percent. China, Thailand, and Viet Nam have already achieved the MDG related target of halving the proportion of people living in extreme poverty between 1990 and 2015. India is also well on track to hit its poverty target. The India study estimates that overall economic growth will lead to a decline of the proportion of the population in poverty to less than 10 percent by 2015 and the absolute numbers in poverty will also decline.

Does poverty reduction come from agricultural or non-agricultural development? This would seem to depend on the stage of development and the various linkages and multipliers between the farm and non-farm sector. Growth in agriculture results in an almost immediate impact in terms of increased employment of rural labour in a host of non-tradable activities. The studies report that most farm households supplement their income from non-farm earnings thus having an immediate impact on poverty reduction and food security.

The most rapid reduction in poverty in China and Viet Nam was achieved in the early reform period with the decollectivization of agriculture. This was followed in China by the growth in TVEs providing a major source of rural non-farm income. While China reports that overall economic growth has been the main source of poverty reduction in recent years, agricultural growth also matters. Furthermore, as incomes have grown the impact and effectiveness of economic growth on poverty have weakened. In Thailand, the sharp decline in poverty incidence from 1962-1963 to 1986 was due to agricultural growth. But with the subsequent slowdown in agricultural growth and the declining share of agriculture in the GDP, overall economic growth rather than growth in farm income has exerted more influence on poverty reduction. Therefore, developing countries in Asia must reverse the slowdown in agricultural growth. This will require appropriate restructuring of agriculture with changing market demand and trade opportunities. Even if the ICOR has increased and investment in agriculture is less attractive, this is a necessary trade-off if poverty and income inequality are to be addressed.

Food security at the national level implies that adequate supplies of food are available through domestic production and /or imports to meet the consumption needs of the country's population. The global food supply for several commodities has been solved, but the problems of economic access to food have not. Furthermore, there are large areas, particularly rain-fed areas, which have not witnessed growth in agricultural productivity as a result of new technologies.

Viet Nam, China and India have regions experiencing food poverty. In India there is evidence that high foodgrain prices have reduced food consumption among some of the poorest segments of society who cannot afford to supplement their diets with other foods (FAO 2004). Food poverty is widespread in the non-irrigated areas which also face risks due to the failure of the monsoons.

In China, Viet Nam and Thailand despite the fact that overall incidence of poverty has fallen, the rural-urban and intersectoral (agriculture-non-agriculture) income gap has increased. This relative poverty can be a source of social unrest. China has reduced taxes on farmers and provided direct acreage support for cereal grain production. Thailand has introduced a range of price-support and agricultural restructuring programmes since the 1980s which have been largely unsuccessful. The Thai report suggests that the government should avoid highly distorted sectoral policies and concentrate its efforts on providing public goods and services and tackling market failure problems.

Rapid economic growth places serious pressures on the environment and threatens food security. As the country reports point out, policies to promote growth have taken precedence over policies to improve the management of natural resources, while production is increasingly constrained by their (mis)management. Of immediate concern is the overexploitation of groundwater in the North China Plain and in Northwest India, two of Asia's most important granaries. While this may have contributed to food security and growth in the short term, there are obvious adverse implications for food production over the long term.

In summary, there is a clear link between agricultural growth, coupled with off-farm rural employment, and poverty reduction. However, there remain disadvantaged rural areas that continue to need support in education, infrastructure and technology development. Further important challenges stem from relative poverty, which can become a source of social tension, and the threat posed to sustainable food production by current levels of environmental degradation.

4.3 Restructuring of agriculture

Rising incomes and urbanization lead to a change in diets and demand patterns for farm products. That is to say, the process of restructuring is driven by market demand.

The process of agricultural transformation involves diversification in the agriculture sector to meet changing domestic and trade demands. The China study for example illustrates how net exports have gradually shifted from land intensive to higher value labour-intensive products since the early 1980s.

The first step in transformation at the household level involves a shift from the production of food staples to higher value commodities, for example from production of rice and wheat to horticultural crops, livestock and /or fisheries. This shift may involve either diversification or specialization in commodity production. There may also be a diversification or concentration in farm household income sources. This first step in transformation is well underway throughout Asia. The India report indicates that even small and marginal farmers are beginning to change their production patterns in response to changing demand.

The next step is to move beyond basic commodity production in order to access value-added supply chains from the modern retail sector where the value added comes in the form of quality, timeliness, food safety and labour standards in production (Timmer 2005). It is difficult to judge from the country studies or other sources just how fast this transition is occurring. The Republic of Korea report refers to full-time farmers, the Thailand report to a group of "professional farmers" and the Viet Nam report to an emerging group of commercial farms. What characterizes these groups is that their income comes almost entirely from farming, and they may also be more innovative and have larger farms and better access to resources, such as credit and new marketing structures, than other farmers.

The restructuring is well-illustrated in the case of Thai agriculture where farms on the frontier of transformation are shifting to higher value products that can be further processed, increasing specialization in certain products increasing productivity, diversifying produce and export markets, and enhancing product quality and safety. Contract farming has also expanded and the participation of supermarkets and convenience stores in the retail sector is rapidly increasing, bringing new technologies and marketing innovations. Based on a socio-economic survey, professional farmers' incomes were almost 75 percent above the average and more than 80 percent of their total income comes from farming.

Restructuring brings challenges. First, it will be necessary to stay at the forefront of technological innovations. The public sector will need to continue to support research in those areas where the private sector cannot fully capture the returns. Second, although farms are likely to remain small, farmers will have to organize themselves so that they can exploit the economies of scale from joint investment in services such as extension or from joining together to deal with marketing firms. Third, there is a need in some situations to promote professional farming as an occupation and to assist farmers with information that will reduce the high cost associated with the adoption of new farming techniques and establishing business relations with modern marketing firms. While some farms will become more specialized in production, others will choose to diversify as a means to reduce risk.

Finally, we need to put the restructuring of agriculture in perspective and not let the process of agricultural transformation become decoupled from the task of poverty reduction. We have noted the move to diversify to higher value commodities. At the same time, there will be a continuing need to raise the productivity of staple food crops for those who continue to grow them. Low-cost foodgrains in Asia will be important to the poor directly because they devote such a large share of their budget to them, but also indirectly because the low real wages made possible by cheap food make labour-intensive activities more profitable.

4.4 The role of policy

The growth in agriculture and in the overall economy and how the benefits of growth and development are shared in society are governed by macroeconomic and agricultural policies. While emphasizing the importance of a stable macroeconomic environment, the country studies are concerned primarily with agricultural policies. These policies should achieve the following objectives: accelerate growth, improve efficiency and at the same time ensure that growth is both equitable and sustainable.

The five studies provide a rich set of information on the policies that have been associated with the growth in agriculture and economic development. We consider the following four to be most important: (1) a favourable macroeconomic policy environment (2) clear and transparent property rights, (3) technology and (4) market access and price policy.

The important elements in a favourable macroeconomic policy environment are low inflation, exchange rate stability and an open trade policy. Maintaining a low rate of inflation insures low and stable food prices. An overvalued exchange rate penalizes exports and constrains agricultural growth. Viet Nam provides an example of a country that as a part of its reform process brought controlled inflation and stabilized exchange rate fluctuation. In China, Thailand and Viet Nam more liberalized trade has accelerated growth. The Republic of Korea is concerned that liberalization will reduce the domestic price of rice against the government policy of maintaining high rice prices to benefit farmers. India in particular would benefit from greater flexibility in trade and a freer flow of goods and services among states within its borders.

The huge benefit of the assignment of clear property rights particularly on land is demonstrated in the cases of China and Viet Nam. The broad objectives of land tenure policy are economic efficiency, equity and poverty alleviation. Agrarian reforms carried out in the Republic of Korea, China and Viet Nam demonstrated that economic efficiency can be greatly enhanced and poverty reduced when smallholders have assured property rights and control over the use of land. Land reform has been successful in some states in India. The restructuring of agriculture opens up new issues in land reform. In China, India and Viet Nam households typically have five or more parcels of land. Land consolidation is needed, particularly to take advantage of the economies of scale offered by new production and marketing schemes under the restructuring of agriculture. The question of optimum farm size is also at issue as policy-makers must decide whether to relax restrictions imposed to assure greater equity.

The success of the Green Revolution gave recognition to the importance of technological innovation in increasing agricultural productivity. The country studies report on the contribution of technology to gains in agricultural productivity and efficiency. Numerous studies point to the high returns to investment in agricultural research and the low level of funding. The growing importance of private sector research and limited budget resources emphasizes the need to re-examine public sector research policy. Public sector agricultural research will continue to be needed particularly for open-pollinated crops and other commodities where the private sector cannot reap the benefits of its investment. There is also scope for public-private sector partnerships in research with emphasis in the public sector on basic and in the private sector on applied research.

Access to markets, both output, input and credit is essential in providing the incentives for production. Policies and programmes designed to improve incentives and correct for market failures were part and parcel of the coordinated effort associated with the introduction of Green Revolution technologies in many Asian countries. The importance of this coordinated effort is stressed in the India report. New seeds, fertilizer and irrigation were tied together with price and marketing policies — support prices, public procurement and input prices. Although it might be difficult to replicate and sustain such a coordinated approach, it shows that both price and non-price incentives and support services are important in the early stages of technology adoption. As the agricultural economy progresses, further new innovations in marketing and information and in credit can be undertaken by the government and the private sector to overcome some of the traditional areas of market failure.

In India, private corporations are providing easy access to relevant information for farmers on, inter alia, prices, technologies and weather through low cost Internet service. Also the Government of India introduced a credit card system, the Kisan credit card, through which farmers can obtain short-term credit loans from banks. The implementation of the scheme has resulted in an increase in the flow of capital to the agriculture sector and a substantial reduction in borrowing from the informal sector. The Thai report mentions how contract farming is providing producers with new kinds of production technologies to increase yields and at the same time providing credit and lowering farmer risk.

4.5 Role of the government

Governments have multiple objectives for the agriculture sector: extraction of agricultural resources, promoting agricultural and economic development, promoting food security, improving the welfare of the poor and protection of the environment as a resource, among others. While specific objectives depend on the role of agriculture in the economy and the stage of economic development, there has been a dramatic change in the interventions chosen and the emphasis given to specific objectives.

Since the reforms were initiated, several new factors have come into play. These include: (1) the decline in agricultural growth rate and in agriculture's share in the GDP noted earlier; (2) the weakening in the link between economic growth and poverty reduction as the economy develops; (3) the decline in financial support for agriculture at national and international levels; and (4) the gradual restructuring of agriculture to meet changing consumer demands coupled with the growing importance of the private sector in providing producers with new technologies and management practices.

What is the role of the government in this changing environment? The consensus on the appropriate role of the government has shifted toward less management of economic activities and fewer controls on prices and quantities of factors and outputs (Norton 2004). The government has a role in providing regulations to compensate for "market failure" in the private sector, for example, the failure to manage natural resources for sustainable development. More recent concerns have centred on "government failure" due to inappropriate institutional incentives, weak fiscal policies and capacity to enforce regulations, for example. There should be greater attention to participatory approaches which give local groups more control over management of resources.

Despite the declining relative importance of agriculture, there will be a continuing need for government interventions in what we have described as a two-pronged strategy: supporting the continued growth and restructuring of agriculture to maintain food self-sufficiency and meet changing consumer demands and addressing food security, poverty and equity in less-developed regions. In both instances it will be necessary to define the roles of central, provincial and local governments, and the private sector.

The restructuring or diversification of agriculture is being led by private sector investments. The task here is to focus on those areas that complement private sector investments such as development of efficient market and transport infrastructure, working with the private sector to ensure food quality and safety issues, and strengthening public-private sector research linkages. Governments may have to establish effective legal and regulatory frameworks, ranging from intellectual property protection to biosafety regulations.

Providing infrastructure has been and is likely to continue to be the major way in which the government provides support to the rural economy. Government investments in public goods — education, health, rural infrastructure, research and extension — should target poor rural areas. In the case of research and extension, this may require decentralization to focus on more location-specific agro-ecological conditions and resource constraints.

Central to the issue of food security and sustainable production is natural resource management. The country reports identify growing pressures on land and water. Resource degradation includes overexploitation of groundwater, soil salinity and waterlogging. Overuse of chemicals has resulted in human health hazards, nitrate and arsenic poisoning in drinking water, chemical contamination of fruit and vegetables.

In the past natural resource management has been an area not only of "market failure" but also of "government failure". Despite the adoption of appropriate policies the government may lack the capacity to effectively manage resources or to enforce regulations. One potential solution is to allow greater participation by local units and user groups in the management of natural resources at the local level. The India report notes that the Panchayats (local administrative bodies) are being given greater powers and funds in the hope that the local communities will have a greater incentive to manage natural resources. In the case of irrigation systems there has been a concerted effort by national governments backed by multilateral lending agencies to turn over management responsibilities to local water-user groups. At the same time there is a need for government institutions to regulate property rights and make decisions on the allocation of water among sectors. Thus there is a trend on the one hand towards devolution and on the other towards centralization. The main challenge is to make these opposite, and at first glance contradictory trends, compatible.

By and large, the experience with decentralization has been partial, uneven or simply too recent for a thorough assessment.19 Some grounds for optimism, however, exist. Fiscal decentralization accelerated economic growth and reduced poverty in China: An incentive structure designed for the competitive and profitable functioning of TVEs in China produced spectacular results. In the process, local governments in successful coastal provinces became self-reliant and fiscally prudent. Another example of an imaginative use of incentives was the Korean irrigation system that relied on locally recruited patrollers who are also end-users. Panchayati Raj in India, however, has had a mixed record, with some successes in Karnataka and West Bengal. In other states (e.g. Uttar Pradesh), there were numerous cases of "capture" by the local elite, and coordination failures with the bureaucracy. In Viet Nam's recent initiative, on the other hand, poorer provinces are at a disadvantage, with income inequalities likely to grow as a result.20

In the case of irrigation systems there has been a concerted effort by national governments backed by multilateral lending agencies to turn over management responsibilities to local water-user groups. At the same time there is a need for government institutions to regulate property rights and make decisions on the allocation of water among sectors. In general, local governments must have an important role in choosing the mix and scale of services, delivery systems, financing and remedial measures, if required. On the other hand, greater local autonomy must go hand in hand with greater accountability. Periodic audits must be combined with accountability of outcomes to the local community.

4.6 Concluding remarks

Despite very heterogeneous backgrounds, the five countries in this study have adopted policies and practices that have led not only to rapid economic growth but also to a sharp reduction in poverty. The case studies reflect the symbiotic relationship between the development of agriculture and the development of the rest of the economy. In the initial stages agriculture has provided the supporting role for economic development. Subsequently agriculture has helped to sustain rapid economic growth.

Yet rapid growth presents its challenges. For example, how does a country deal with the widening gap between the rural and the urban economy? How can agriculture accommodate the growing demand of the increasingly urban population for a variety of foodstuffs? How can rapid economic growth be sustained without serious damage to the environment? The case studies have documented the factors accounting for past successes. It will take a new set of creative policies and strategies to sustain economic development, protect the environment and continue to reduce poverty.

In particular, integration of smallholders in rapidly growing high value agricultural chains and expansion of employment opportunities for large masses of the landless in non-farm activities call for new initiatives and policies for equitable sharing of the benefits of growth in a globalizing world. Public-private partnerships are crucial for competitive market arrangements, strengthening of communication networks and a conducive macro policy environment. Contractual exchange, as an alternative to spot market trade, holds considerable potential in the context of agro-industrialization and global sourcing. But some concerns relating to transparency, reliability and enforceability of such contracts remain. New variants of contract farming — including mechanisms for technology transfer, sharing of risks and profits — are feasible and deserve close scrutiny. Capacity building of smallholders, easier access to credit, new technology, extension and insurance and policies designed for efficient use and management of natural resources (e.g. water) would go a long way towards sustainable rural development, poverty reduction and food security in Asia.

19Decentralization has been variously used to refer either to the privatization, or deconcentration, or devolution of political, administrative and fiscal powers. Decentralization as used here, however, refers only to devolution, whether or not powers are devolved simultaneously or in varying degrees.

20The reference here is to the New Budget Law that became effective in 1997. The revenue assignment at each level of government is linked to its expenditure responsibilities. When revenues fall, each level of government tends to shift some expenditure responsibilities to lower levels. Hence the poorer the commune, the harder it is to maintain an existing range and quality of services provided (Gaiha 2003).

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