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OECD Reviews of Agricultural Policies in Brazil, China, and South Africa. Olga Melyukhina Directorate for Food, Agriculture and Fisheries. Pretoria, 19 April 2006. Agricultural Policy Reviews: Why Brazil, China, and South Africa?. OECD desire to “help” after Cancun Lead countries for G20

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oecd reviews of agricultural policies in brazil china and south africa

OECD Reviews of Agricultural Policies in Brazil, China, and South Africa

Olga Melyukhina

Directorate for Food, Agriculture and Fisheries

Pretoria, 19 April 2006

agricultural policy reviews why brazil china and south africa
Agricultural Policy Reviews:Why Brazil, China, and South Africa?
  • OECD desire to “help” after Cancun
  • Lead countries for G20
  • Major markets; major competitors
  • Interest of target countries
  • Important economic reforms
pressures for reforms 1980s and 1990s
Pressures for reforms (1980s and 1990s)
  • Macroeconomic crisis
    • Brazil and South Africa: foreign and domestic debt burden, BoT 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
overall economic reform
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
agricultural policy reform
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
institutional changes
Institutional changes
  • Land and 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 (AgriBEE)
how have levels of support evolved pse in of gross farm receipts
How have levels of support evolved?PSE in % of Gross Farm Receipts

EU

OECD

USA

Australia

S Africa

Brazil

New Zealand

China

Source: OECD

what is the cost of total support
What is the cost of total support?

TSE

as % of GDP

2000-03

average

Source: OECD

agriculture contributed to and benefited from reforms
Agriculture contributed to and benefited from reforms

GAO growth between 1989 and 2003

Source: FAO

sources of agricultural growth
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
agricultural trade expanded

Brazil

China

S.Africa

1993

2003

Agricultural Trade Expanded

Source: Comtrade

rural poverty incidence fell but remains high as does inequality
Rural poverty incidence fell,but remains high, as does inequality

1991

2000

1990

2000

2000

1993

Sources: Brazil – Income survey (PNAD); China and South Africa – WB.

future benefits from multilateral reform
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
distribution of welfare gains

Source of reform

Ag OECD

4%

Ag Non-OECD

3%

OECD

76%

Non-OECD

24%

Non-Ag OECD

16%

Non-Ag Non-OECD

1%

Distribution of welfare gains

Source: GTAPEM

distribution of gains across households brazil china and south africa
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 ...
commercial farmers and agricultural employees in brazil
… commercial farmers andagricultural employees in Brazil

% Change in household welfare

Source: OECD

african households in south africa
… African households in South Africa

% Change in household welfare

Source: OECD

and poorest households in general in china
… and poorest households in general in China

% Change in household welfare

Source: OECD

and richest in india but application limited to two states
… and richest in India(but application limited to two States)

% Change in household welfare

Source: OECD

what did we learn on distribution impacts of liberalization
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
policy challenges sustaining agricultural growth
Policy Challenges: Sustaining Agricultural Growth

Focus on:

  • Rural infrastructure
  • Land and labour mobility
  • Terms & availability of credit
  • Tax policies
  • Environmental sustainability (water availability and quality)
  • Access to overseas markets
policy challenges reducing social divisions
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
tentative conclusions
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