Reforms and Rural Transformation : Are there Lessons for Africa from the Reform Experiences in China or Eastern Europe ? J. Swinnen University of Leuven CEPS Stanford University Brussels Dev Briefings September 2011

Reforms in … EAST ASIA: –“lifted hundreds of millions of people out of dire poverty” (World Bank, 2000) –“the biggest antipoverty program the world has ever seen” (McMillan, 2002) EUROPE: initial disappointments & decline; recovery after a decade AFRICA: “evidence is inconclusive … reforms have not met expectations” (Kherallah et al. 2002)

The Puzzle Why such differences ? What are lessons / implications ?

Papers Rozelle S. and J. Swinnen, 2004, “Success and Failure of Reforms: Insights from the Transition of Agriculture” Journal of Ecomic Literature Swinnen, J., Vandeplas, A. and M. Maertens, 2011, “Liberalization with Endogenous Institutions. A Comparative Analysis of Agric Reforms in Africa, Asia and Europe”, World Bank Economic Review

Some Lessons 1.Are perceptions correct ? 2.Price distortions 3.Farm structures 4.Institutions of exchange 5.FDI

1. Developments

Reforms and changes in gross agricultural OUTPUT (GAO) * *Year 1 is start of reform Data source: calculated and adapted from FAO statistics

Reforms and changes in average gross agricultural OUTPUT PER CAPITA* *Year 1 is start of reform Data source: calculated and adapted from FAO & ILO statistics

Reforms and changes in average Agricultural LABOR PRODUCTIVITY (ALP)* *Year 1 is start of reform Data source: calculated and adapted from FAO statistics

Reforms and changes in average agricultural YIELDS (land productivity) * *Year 1 is start of reform Data source: calculated and adapted from FAO statistics

Agricultural Output per Capita for SSA by commodity types Source: FAOstat

Agricultural Labor PRODUCTIVITY for Sub SSA by commodity types Source: FAOstat

2. Agricultural price distortions Source: OECD & World Bank

3. Farms & Labour

Cost and benefits of small farms O K/L Efficiency gains in labour governance Losses in scale economies and disorganization Net benefits of shift to household farms

Labor intensity and the shift to small farms

Technology and the Nature of Productivity Gains In labour-intensive regions: shift to small-scale individual farming caused dramatic gains in efficiency In capital and land intensive regions, gains in productivity came from large farms shedding labour => Labor adjustment is jointly endogenous with farm restructuring

PATTERNS OF RURAL TRANSITION

4. Institutions of Exchange Vertical coordination and interlinked contracting was very important both BEFORE and AFTER liberalization Before: state-organized input and output markets During: disintegration & disruptions After: private VC

“Vertical coordination” includes : Input supply programs Trade credit Investment assistance program Bank loan guarantee programs Extension services (technology and management).....

Reforms and vertical coordination in Eastern Europe (% of VC by dairy companies) Source: Swinnen et al. 2009

Institutions of exchange and commodity variations in SSA –Low value staple food crops State remains important in exchange & VC Private sector limited to spot market transactions Less disruptions because limited external inputs –Industrial crops : Medium value traditional export commodities External inputs : Shift from public to private VC Major contract enforcement problems –High value, high input non-traditional exports Recent growth Entirely private sector VC organized

High-value vegetable exports from Africa to Europe All strongly vertically coordinated Cases: Madagascar: all small farms Senegal 1: no small farms Senegal 2: mixture & dynamic changes

Household participation in High Value Vegetable Exports from Senegal

Growth in Fruit and Vegetable Exports in Africa, Data source: FAO Statistics

5. FDI growth with liberalization (flow)

Concluding comments