ORGANISATION DE COOPRATION ET DE DEVELOPMENT CONOMIQUES OECD

ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES OECD OCDE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT OECD Reviews of Agricultural Policies in Brazil, China, and South Africa Olga Melyukhina Directorate for Food, Agriculture and Fisheries Pretoria, 19 April 2006 Directorate for Food, Agriculture and Fisheries

Agricultural Policy Reviews: Why Brazil, China, and South Africa? • OECD desire to “help” after Cancun • Lead countries for G 20 • Major markets; major competitors • Interest of target countries • Important economic reforms Directorate for Food, Agriculture and Fisheries 2

Pressures for reforms (1980 s and 1990 s) • Macroeconomic crisis – Brazil and South Africa: foreign and domestic debt burden, Bo. T deficit, high inflation – China: overall economic inefficiency • Political changes – Brazil: military regime replaced by elected government – China: change in communist leadership – Soth Africa: end of apartheid, democratic elections, lift of international economic embargo Directorate for Food, Agriculture and Fisheries 3

Overall economic reform • Change of development paradigm – from self-sufficiency and import substitution, to economy opening and export-led growth • Economic liberalisation – broad and swift in Brazil and Soth Africa; gradual in China – deregulation of domestic markets and prices – trade liberalisation – privatisation • Depreciation of the local currency followed by tight fiscal and monetary policies Directorate for Food, Agriculture and Fisheries 4

Agricultural policy reform • Deregulation of domestic markets and prices for agricultural commodities – radical in Brazil and SA; gradual in China • Opening of agricultural markets – cuts in import tariffs; – elimination/limitation of STEs; – progress in regional and international trade integration • Reduction and/or refocusing of budgetary support Directorate for Food, Agriculture and Fisheries 5

Institutional changes • Land structural reforms – Brazil: Land Reform Plans and National Programme for the Strengthening of Family Agriculture (PRONAF) – China: Household Production Responsibility System; explosion of Township and Village Enterprises – South Africa: Land Reform Programme and Broad Based Black Economic Empowerment for Agriculture (Agri. BEE) Directorate for Food, Agriculture and Fisheries 6

How have levels of support evolved? PSE in % of Gross Farm Receipts EU OECD USA Australia S Africa Brazil New Zealand China Directorate for Food, Agriculture and Fisheries Source: OECD 7

What is the composition of support? Shares in overall PSE, 2000 -03 Source: OECD Directorate for Food, Agriculture and Fisheries 8

What is the cost of total support? TSE as % of GDP 2000 -03 average Source: OECD Directorate for Food, Agriculture and Fisheries 9

Agriculture contributed to and benefited from reforms GAO growth between 1989 and 2003 Source: FAO Directorate for Food, Agriculture and Fisheries 10

Sources of agricultural growth Agricultural growth driven by: • Expansion of domestic and external demand • Macroeconomic stabilisation and economic opening And based on: • Land productivity improvements • Shifts in production structure consistent with comparative advantage – China and South Africa: labour-intensive horticulture and livestock – Brazil: soybeans, sugar-cane, and livestock Directorate for Food, Agriculture and Fisheries 11

Agricultural Trade Expanded Brazil China 1993 S. Africa 2003 Source: Comtrade Directorate for Food, Agriculture and Fisheries 12

Rural poverty incidence fell, but remains high, as does inequality 1991 2000 1990 2000 1993 2000 Sources: Brazil – Income survey (PNAD); China and South Africa – WB. Directorate for Food, Agriculture and Fisheries 13

Future benefits from multilateral reform • Analysis based on OECD GTAPEM • standard GTAP model • with improved representation of: – land allocation between alternative uses – trade and domestic policy interventions in OECD and the Quad • Scenario: 50% reduction of tariffs in all countries and sectors and ag. subsidies in OECD and some non-OECD countries Directorate for Food, Agriculture and Fisheries 14

Distribution of welfare gains Source of reform OECD 76% Non-OECD 24% 4% Ag OECD 3% Ag Non-OECD 16% Non-Ag OECD 1% Non-Ag Non-OECD Source: GTAPEM Directorate for Food, Agriculture and Fisheries 15

Sources of Welfare Gains (Losses) in Brazil, China and South Africa 3 373 Source: GTAPEM Directorate for Food, Agriculture and Fisheries 16

Distribution of gains across households: Brazil, China, and South Africa • Analysis based on same liberalization scenario, household level data • Gains are widespread across households • Poverty incidence falls • Effects are small relative to current welfare • Percentage gains are the largest for. . . Directorate for Food, Agriculture and Fisheries 17

… commercial farmers and agricultural employees in Brazil % Change in household welfare Source: OECD Directorate for Food, Agriculture and Fisheries 18

… African households in South Africa % Change in household welfare Source: OECD Directorate for Food, Agriculture and Fisheries 19

… and poorest households in general in China % Change in household welfare Source: OECD Directorate for Food, Agriculture and Fisheries 20

Welfare gains from agricultural reforms in OECD countries % of total non-OECD gains Directorate for Food, Agriculture and Fisheries 21

… and richest in India (but application limited to two States) % Change in household welfare Source: OECD Directorate for Food, Agriculture and Fisheries 22

What did we learn on distribution impacts of liberalization? • No clear pattern of distributional impact – generally pro-poor in China and South Africa; ambiguous in Brazil; –. . . and mixed impact on inequality – reduced inequality in China and South Africa; broadly neutral in Brazil; • Reforming/non-reforming inevitably imposes cost on some of the poor • Safety nets and adjustment assistance, rather than exemptions from trade commitments or delayed reform Directorate for Food, Agriculture and Fisheries 23

Policy Challenges: Sustaining Agricultural Growth Focus on: • Rural infrastructure • Land labour mobility • Terms & availability of credit • Tax policies • Environmental sustainability (water availability and quality) • Access to overseas markets Directorate for Food, Agriculture and Fisheries 24

Policy Challenges: Reducing Social Divisions Growth necessary but not sufficient: • Social policies • Integration of small-scale farming into markets • Rural economy diversification • Enhanced labour mobility • Investments in human capital: health, education, and extension Directorate for Food, Agriculture and Fisheries 25

Tentative Conclusions • • • Reform is possible Macro-economic stability is important Farmers respond swiftly to market forces Reform enhances agricultural growth Ag. growth reduces poverty – but not enough Infrastructure improvement is decisive Human capital improvement is crucial Non-ag. policies are important drivers OECD reform is necessary, but not sufficient Directorate for Food, Agriculture and Fisheries 26