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

2. Directorate for Food, Agriculture and Fisheries 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. Directorate for Food, Agriculture and Fisheries 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. Directorate for Food, Agriculture and Fisheries 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. Directorate for Food, Agriculture and Fisheries 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. Directorate for Food, Agriculture and Fisheries 6 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) Institutional changes

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

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

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

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

11. Directorate for Food, Agriculture and Fisheries 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. Directorate for Food, Agriculture and Fisheries 12 Agricultural Trade Expanded Source: Comtrade BrazilChina S.Africa 19932003

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

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

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

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

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

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

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

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

23. Directorate for Food, Agriculture and Fisheries 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. Directorate for Food, Agriculture and Fisheries 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. Directorate for Food, Agriculture and Fisheries 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. Directorate for Food, Agriculture and Fisheries 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