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

1. OECD Reviews of Agricultural Policies in Brazil, China, and South Africa Olga Melyukhina Directorate for Food, Agriculture and Fisheries Pretoria, 19 April 2006

2. 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

3. 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

4. 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

5. 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

6. 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)

7. How have levels of support evolved?PSE in % of Gross Farm Receipts EU OECD USA Australia S Africa Brazil New Zealand China Source: OECD

8. What is the composition of support?Shares in overall PSE, 2000-03 Source: OECD

9. What is the cost of total support? TSE as % of GDP 2000-03 average Source: OECD

10. Agriculture contributed to and benefited from reforms GAO growth between 1989 and 2003 Source: FAO

11. 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

12. Brazil China S.Africa 1993 2003 Agricultural Trade Expanded Source: Comtrade

13. 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.

14. 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

15. 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

16. 3 373 Sources of Welfare Gains (Losses) in Brazil, China and South Africa Source: GTAPEM

17. 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 ...

18. … commercial farmers andagricultural employees in Brazil % Change in household welfare Source: OECD

19. … African households in South Africa % Change in household welfare Source: OECD

20. … and poorest households in general in China % Change in household welfare Source: OECD

21. Welfare gains from agricultural reforms in OECD countries% of total non-OECD gains

22. … and richest in India(but application limited to two States) % Change in household welfare Source: OECD

23. 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

24. 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

25. 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

26. 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