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December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 1 Belarus Agricultural Productivity.

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Presentation on theme: "December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 1 Belarus Agricultural Productivity."— Presentation transcript:

1 December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 1 Belarus Agricultural Productivity and Competitiveness Impact of State Support and Market Intervention September 2009 The World Bank World Bank / Republic of Belarus National Conference Agricultural Competitiveness and the Role of the State December 3, 2009 Crown Plaza Hotel Minsk Republic of Belarus Matthias Grueninger Stephan von Cramon-Taubadel Oleg Nivyevskiy Dmitry Prikhodko

2 Agriculture plays an important role in Belarus’ economy and social life and has experienced considerable productivity increases, but … Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 2 Agricultural value-added has recovered to its 1990 level Agricultural yields and aggregate output have experienced considerable growth. But capital productivity and labor productivity increased less than in the rest of the economy. Dynamics of wheat yields in Belarus, averages across all farm types (t/ha) Labor and fixed capital productivity in Belarusian agriculture relative to the rest of the economy

3 Some export growth and reduced import dependence, but dependency on a small number of markets remains Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 3 Some sub-sectors experienced considerable export growth. And import dependence has dropped considerably. Agricultural trade is highly dependent on a small number of markets Belarusian trade balances for all agricultural products as per Belarusian customs code (US$ million), 2008 Wheat, barley, corn and other cereals imports in relation (%) to total domestic production

4 But large parts of crop and livestock production are not internationally competitive December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 4 Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions Profitable at financial costs (0

5 What are the key constraints to sector competitiveness and further productivity gains? Structural and regulatory characteristics of Belarus’ agriculture sector limit the managerial freedom of agricultural enterprise managers and constrain private initiative and (foreign and domestic) investments. Most of the large commercial farms in Belarus have remained under state control, resulting in limited managerial freedom at the enterprise level to determine type and volume of inputs and products, to arrange input supply and output sales, and to determine prices and wages. This also prevented a deep restructuring of the sector based on competitiveness criteria. Many farms do not seem to evolve towards their optimum size. Factor and output markets play a limited role in providing signals for managerial decisions for resource allocations. December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 5 Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions Country * Change Belarus3,4823,8243, % Moldova2, % Russia8,1005,4005, % Ukraine2,9002,1001, % The average size of large commercial farms in selected CIS countries (in hectares)

6 Key effects: some productivity gains, but at high cost to the economy and the state a) Distortions to the sector and burden on economy b) Fiscal implications: high cost / possibly not sustainable c) Risk exposure and dependence are higher than necessary December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 6 Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions

7 a) Distortions to the sector and burden on economy Massive distortions to agricultural incentives Considerable burden to the economy overall. Resource allocations in agriculture and economy overall sub-optimal. The current agricultural policy framework provides support but also implicitly taxes the sector. “One foot on the gas pedal and one on the brake at the same time.” Net effect is in support of the sector. Some farms have seen efficiency and productivity increases. BUT: Market and price distortions that lead to resource misallocations within the sector and tax the rest of the economy. At least two thirds of the budgetary support to agriculture is provided through measures that are regarded as distorting trade. WTO! This results in a situation in which agricultural productivity and contribution to growth and rural incomes are lower than they could be. December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 7 Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions

8 b) Fiscal implications: high cost / possibly not sustainable Agricultural Budgetary : 9 % of the total state budget. These expenditures have grown faster than gross agricultural output and agricultural value-added. For largely exported products: considerable part of related governmental expenditures effectively becomes subsidy to the importing country. Global economic and financial Shrinking fiscal space in Belarus Current nature and level of support can only be maintained at the expense of other budget expenditure categories (which might become socio-politically undesirable). December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 8 Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions Budget expenditure relative to … (%) … GDP … gross agricultural output … agricultural GDP … net profits in agriculture Total fiscal support relative to … (%) … GDP … gross agricultural output … agricultural GDP … net profits in agriculture Fiscal support to agriculture in Belarus relative to agricultural GDP and net profits in agriculture

9 c) Risk exposure and dependence are higher than necessary The narrow focus on a few products and a limited number of markets creates high dependence, especially on Russia, and exposes Belarus’ agriculture sector to unnecessary production and market risks. Key constraint for market diversification: Food safety and quality requirements in potential target markets which would require considerable on-farm and institutional investments and capacity building. December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 9 Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions

10 Moving towards agricultural sector reform The key message is not to remove support to agricultural producers, but to channel support through different instruments, so that private initiative (including investments) is encouraged, economic potentials are used to their maximum (efficiency in resource allocations), and needy groups in the society receive the support they need. Through a re-orientation of the agricultural policy framework towards less state control and less distortive measures, and a reallocation of associated budget expenditures to support sustainable agricultural growth, Belarus could achieve higher efficiency, competitiveness and growth without compromising on its food security and rural incomes objectives, and could probably even reduce budgetary expenditures. Reforms need to be undertaken cautiously, taking into consideration business and institutional capacities and adaption shocks in the affected part of the population, with due regard to rural employment and livelihoods. Assistance programs could be provided to buffer against structural adjustment shocks. December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 10 Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions

11 Outline of potential reform elements 1.Increasing the efficiency of resource use through less state control 2.Supporting sustainable agricultural growth through less-distorting measures 3.Providing income support and adjustment assistance through de-coupled payments December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 11 Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions

12 1. Increasing the efficiency of resource use through less state control Price liberalization for agricultural inputs and outputs Productive resources will be be guided to their most efficient uses. Positive implications for employment generation and agricultural growth and ultimately for the provision of attractive income opportunities as a sustainable basis of rural livelihoods. Reduction of state control over farm management Enable agricultural producers to respond to market signals by adjusting the nature, scope, intensity, and technology of their production and the nature of their business relations for purchases and sales. This will ultimately result in increased efficiency and competitiveness of the sector. December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 12 Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions

13 2. Supporting sustainable agricultural growth through non-distorting measures Agricultural education, training, and advisory services Education in market-oriented farm management Providing farm managers with the knowledge for making best use of new opportunities i.e. adjusting production technologies and farm management practices to market signals including quality and other requirements. Market-oriented information systems Food safety system modernization Sophisticated food safety and quality requirements in today’s agri-food markets. Demanding appropriate control structures in the countries of origin. Especially in EU Adoption of relevant food safety legislation and establishment of institutional arrangements would help provide access to new markets. Institutional capacity for policy analysis “Capacity development program for policy impact evaluation, reform program formulation, and monitoring of program implementation”. December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 13 Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions

14 3. Income support and adjustment assistance through de-coupled payments De-coupled payments to agricultural producers As socially motivated transfers to a defined part of the society. As payments for environmental services and other externalities related to agricultural production. As adjustment incentives (reducing the burden that the phasing-out of trade- distorting measures could create). Effects: Leaving in place financial assistance to farmers but reducing their distorting effects. Less fiscal relief, but increased acceptability of reform measures. Structural adjustment assistance Elimination of less profitable lines of production, or the scaling-down or closing of enterprises altogether, will cause hardship for affected population. Producer retirement or retraining programs Substantially reduce these effects. Thus increase the acceptability of reforms. December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 14 Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions

15 Key questions to address in moving towards policy reform What are the key objectives the state / country wishes to achieve? Which indicators shall be measured to determine the achievement of these objectives? What are the instruments (policies) in principle available to achieve these objectives? What is the (theoretical) impact of these instruments on the agriculture sector and rural populations? Who wins / who loses? (producers, consumers, taxpayers) Long-term / short-term? Economy-wide and fiscal effects and administrative burden vs. agriculture sector / agricultural producer-specific effects. If policy changes are desired, how should they be structured and sequenced? Vertical reforms (all aspects – input prices, output prices, managerial freedom etc. – but only selected sub-sector (for example flax or dairy) or horizontal reforms (one aspect but affecting all sub-sectors) ? Timeframe? How can one monitor implementation progress in the reform program? What are the (empirical) effects / impact on the agriculture sector? (Evaluation) December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 15 Outline: Role in economy Productivity Competitiveness Key constraints Economic and fiscal implications - Economic distortions - Fiscal constraints - Risk and dependence Towards agricultural reforms - Less state control - Reduce distortions -De-coupled income support Key questions

16 Outline of a policy monitoring and evaluation program “Capacity development for the design and implementation of agricultural reform programs” (IDF Grant application) Component 1: Development of an M&E system for policy impact analysis 1) Monitoring the achievement of objectives Assess the extent to which M&E is used to support national policy formulation, planning, budget decision-making (domestic support allocation) Confirm objectives and establish enhanced indicators for an assessment of the impact of policy measures on agricultural systems Identify methodologies and related data requirements to measure extent to which objectives are being achieved 2) Capacity development in policy analysis (chosen methodologies) Distortions and policy-induced transfers Farm-level competitiveness, productivity, and efficiency analyses 3) Institutional development Public administration and control System for agricultural policy implementation and monitoring Component 2: Development of a policy reform program Evaluation of current agricultural policies Elaboration of policy reform options and analysis of their Definition of the process of governmental review of options and decision-making Component 3: Development of an M&E system for the implementation of the reform program State monitoring of policy impact Public participation Component 4: Implementation support Intensification of international partnerships Operational support to implementing agency for grant implementation Audit December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 16

17 Thank you December 3, 2009 Belarus - Agricultural Productivity and Competitiveness – Impact of State Support and Market Intervention 17


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