The structural dimensions of liberalization in agriculture and rural development

1. The structural dimensions of liberalization in agriculture and rural development • RuralStruc Program – • M’Bour Workshop • 11-13 April 2006 World Bank (ESSD Africa)

2. A prerequisite: “Agriculture matters” • In 2000: 1.27 Billion people work in agriculture in developing countries - or: 96% of global EAP in agriculture - providing livelihood for 2.5 billion people (42% world population) • 70% of the poor live in rural areas • Agricultural EAP rates are very variable: • Asia (including India and China) and Africa = 60% • Latin America = 20% (but 46% Guatemala vs. 15% Chile) • EU15 = 4%; USA = 2%

3. World’s Economically Active Population (EAP) in Agriculture

4. A necessity:to put the debate back into perspective • Liberalization > trade dimension • To replace trade liberalization in its context… Like the iceberg…

5. To put the debate back into perspective (1) • To draw attention to the overall « configuration » : • The general globalization movement (transport and information revolutions => mobility of products, capital, ideas, people) • Role of the State => new role of firms • Adjustment / State withdrawal / privatization • Institutional change / democratization / decentralization • New nature and new contents of policies.

6. To put the debate back into perspective (2) • To draw attention to «density» : • What is the nature of the new economic and demographic polarizations? • Sectors/regions • What reconfigurations? • Demographic growth • Urban/rural relations • New consistence of the rural sector • Economic structure (activities)

7. To put the debate back into perspective (3) • … to better appreciate the «trajectories» • What are the trends? • What is the margin of maneuver? • What are the alternatives => what projects for the society/ political / national ? • What policy choices?

8. Reminder: the rationale about liberalization • The “standard” rationale: • Internal and external liberalization (« less State + more market ») = efficiency => growth => poverty reduction • The “reformed” rationale (beginning of 1990’s): • Existence of winners and losers • To better identify the impacts / to identify the losers • To define the security nets • To identify the roads for a «pro-poor growth» • « better State + more market »

9. The 5 limits of the debate on liberalization • 1. Amplification of price effects (first order effects) • 2. Underestimation of structure effects (second order) • 3. Underestimation of confrontation effects • 4. Concealment of transition questions • 5. Lack of a historical perspective

10. The limits of the debate on liberalization (1) • Amplification of the “first order” transmission effects: • Focus on the prices of agricultural products • Reinforced by the methodological choices: the use of econometric models which define the gains of producers and consumers • Technical limits of the design: prices  elasticity • And a partial theoretical rationale that underestimates imperfect competition

11. However: • the downward trend of agricultural prices is not just the consequence of overproduction attributable to dumping and subsidies (the “classical” distortions) • there is a gap between the producer prices and the retail prices, which expresses new “market powers” • Thus:

12. The limits of the debate on liberalization (2) • Underestimation of the “second order” transmission effects, due to structures => beyond prices, new market configurations • concentration and oligopolization • vertical integration through agro-food commodity chains: first and second transformation • “horizontal” integration through distribution systems • which modify: • the rules of the game: new purchasing, selling and production methods… (norms, standards => contracts)… • the market access and the number of “players” (insiders / outsiders) • the conditions for negotiation

13. The limits of the debate on liberalization(3) • Underestimation of the “confrontation” effects: • Confrontation of productivities between agricultural systems / contexts (technological gaps) • Confrontation of competitiveness (costs, qualities, volume) • … which result in risks of market marginalization

15. The limits of the debate on liberalization(4) • A relative concealment of the “transition” question: • a risk of failure of the implicit evolutionary model underlying the analyses (increase of productivity => capital accumulation, labor force surplus => transfers towards other sectors)… • …which bumps on demo-economic characteristics (importance of population involved and lack of exit options in an increasing competitive context) => see works on “Trade and Poverty”

16. The limits of the debate on liberalization(5) • A lack of historical perspective and ignorance of the specific conditions of the first industrial revolutions: • Imperial / colonial world order: commercial openness + territorial control (captive markets) • adjustment through large international migrations: • the “colonial project” : colonization as an exit option to revolutions • the “new worlds”

17. In fine • The need to differentiate national situations: • demographic size=> internal market • economic diversification: alternative sectors (absorption) • fiscal base of the State (for safety nets) • migrations options • The need to pay particular attention to the “small and medium” size countries with heavy rates of EAP in agriculture. Is there a risk of a “transition impasse”? • low income countries and least developed countries: Sub-Saharan Africa, but also Andean, central and insular America, and central Asia • The need to differentiate the regional situations within countries: territorial marginalization and polarization, specific regional challenges

18. RuralStruc Program

19. Justification and objectives • The need to better understand the current evolutions: “A better understanding for a better policy making” • 1. to adopt a global approach of the processes of change by including structural dimensions • 2. to “face” the question of the transition for certain categories of countries • 3. to modify the method: to go from the “corrective” ex-post measures to an ex-ante political debate and to test new comparative approaches

20. Hypotheses • Three main hypotheses : • The rapid segmentation of production and marketing structures • Structural locking/ transition impasses • The reshaping of rural economies

21. The segmentation • Concentration of market structures and integration processes => concentration / marginalization / exclusion among the production structures • Emergence of 2 or 3 track sectors: • 1. integrated competitive agriculture (with development of wages) • 2. marginal agriculture and insecure households (multiple and uncertain activities and incomes) • 3. an intermediate group at risk (limited market integration and difficulties to adapt)

22. The segmentation (2) • Production structures: number and size / technical and economic results • Market structures: • commodity markets • factors markets (inputs, credit, land)

23. The impasses • What are the demo-economic trends: rural / agricultural / urban – rural depopulation? • And the existing alternatives: • economic diversification: new sectors of activity => capacity of absorption (jobs created) • migratory options?

24. The reshaping • Developmentof a new configuration of rural households (“archipelago type” of rural economies, mixing activities and incomes from local or distant origin) in response to global changes

25. The reshaping (2) • New composition of rural incomes: • Agricultural / non agricultural (the “non-farm” = the solution to agricultural marginalization?) • Public / private transfers (subsidies / remittances) • New networking and town-country linkages